GDP UPDATE
October 2007
McIlvaine Company
TABLE OF CONTENTS
Fitch Ratings said average economic growth in advanced industrialized economies will be 0.75 percent lower in 2008 than previously forecast, due to tighter global credit conditions, following the US market turmoil which led to a slowdown in demand beyond the housing market.
Fitch said the revision is despite anticipated further monetary policy easing.
The global credit shock and a deteriorating outlook in the US will see average industrialized country growth fall back to 1.8 percent in 2008, Fitch said. Monetary policy easing will help, but the impact will not be seen until second half of 2008 and into 2009, the ratings firm added.
The global credit market shock will also have a material impact on growth across advanced economies as banks react to the rapid and unanticipated expansion in balance sheets by restricting loan growth in the near-term, Fitch said.
The credit shock will affect credit-driven economies more significantly, including the UK and Spain, both of which are likely to grow well below trend, at 1.9 percent and 2.5 percent respectively in 2008, the ratings firm said.
Fitch also said it expects Eurozone growth will slow to 2.1 percent next year.
AMERICAS
(1.) Fitch expects consumer spending in the US to slow as income uncertainty rises and house prices fall. The agency's forecast for US GDP growth in 2008 has been revised down to 1.7 percent against 1.8 percent this year.
(2.) Standard & Poor’s estimates that the US subprime crisis is likely to get worse and that the US economy could see a sluggish growth and would grow at 2 percent in 2007 and 2008. The credit losses from the US subprime crisis have been comparatively small. “Credit losses would be less than one per cent of the $16 trillion US mortgage market at $150 billion,” said Dr David Wyss, Chief Economist, Standard & Poor’s.
ASIA
High interest rates and the appreciating rupee could bring about a slowdown in Indian economy. Standard & Poor’s, in its mid-year review, has estimated India’s GDP growth to be at 8.6 percent during 2007-08, a moderation from last year’s 9.4 percent. The rating agency also felt that the agricultural sector which is estimated to grow by 3.4 percent would be a key contributor to this performance.
Talking about the industrial sector, Dr Subir Gokarn, Chief Economist, Standard and Poor’s, Asia Pacific, said, “The industrial sector, reflecting the cumulative impact of rising interest rates and rupee appreciation, will expand by 9.2 percent, somewhat slower than last year, but still a healthy rate reflecting continuing buoyancy in investment spending. Services are expected to grow by 10 percent, based on strong domestic demand.”
Singapore's economy powered to 9.4 percent growth in the third quarter, within market forecasts, putting it on track to meet the government's full-year targets, the trade ministry said. Gross domestic product grew 9.4 percent compared with the same period a year earlier, the ministry said. That followed a revised 8.7 percent expansion in GDP during the second quarter, it said. Economists were expecting third-quarter growth of between 9 and 10 percent.
On a quarter-on-quarter seasonally adjusted annualized basis, real GDP growth slowed to 6.4 percent from 14.4 percent in the second quarter, the trade ministry said.
"The Singapore economy continued to register strong growth in the third quarter of 2007," it said in a press release, adding the economy "is well on track" to meet full-year growth targets.
In August, the government raised its full-year growth target to between 7.0 and 8.0 percent after better-than-expected second-quarter expansion.
The trade ministry said third-quarter growth in the manufacturing sector reached an estimated 12.3 percent, up from 8.3 percent in the preceding quarter. It said manufacturing growth was underpinned by the biomedical sector and transport engineering, which includes oil rigs and ships. Growth in the construction sector is estimated to have eased to 15.5 percent compared with 18.8 percent last quarter, while the services sector expanded an estimated 8.1 percent, against 8.4 percent in the second quarter, MTI said.
Action Economics chief economist David Cohen said there was some moderation from the second quarter but year-on-year growth picked up. "It's still a solid growth," he said. Singapore is undergoing a property and construction boom, with cranes towering over the skyline. The positive outlook for both the construction and manufacturing sectors could push the city-state's GDP expansion above the government's official targets, to 8.3 percent for the year, Cohen said.
Despite a recent crisis in the US "sub-prime" mortgage sector and fears of a slowing US economy, Cohen said the third-quarter data reflected continued momentum in Singapore. Song Seng Wun, regional economist at CIMB-GK securities, said on local radio that he expects the third-quarter GDP figures to be revised up towards 10 percent, and full-year growth could be close to 9 percent.
Singapore's economy grew 7.9 percent last year, one of the fastest rates in Asia.
Bank of Korea governor Lee Seong-Tae indicated recently that the South Korean economy will maintain sustainable growth and likely exceed the central bank's 2007 GDP growth target of 4.5 percent. His comments followed the BoK's policy board decision earlier to retain the interest rate at 5.0 percent in line with market expectation.
The growth is seen to "come in around the middle of the 4.5 and 5.0 percent range," the governor said.
South Korea's Deputy Finance Minister Cho Won-dong said the country's economic growth for 2007 may top the government's estimate to reach the upper end of 4-5 percent.
Elsewhere, South Korea's top state think tank, Korea Development Institute- KDI upgraded its forecast for the economy's growth this year to 4.9 percent from an earlier prediction of 4.4 percent. In 2008, the country's economic growth is likely to accelerate to 5.0 percent based on the private spending growth, KDI said.
"South Korea maintains an expansion pace," the Korea Development Institute said. "The country's economy has expanded alongside the nation's industrial output recovery." The institute said stronger economic growth will result in a 4.5 percent, up from a 4.2 percent increase predicted earlier.
Corporate capital investment is projected to expand at 6.0 percent in 2008, while construction investment is likely to increase at 4.0 percent. However exports are predicted to rise 9.7 percent lower than the institute's previous forecast of 10.3 percent growth.
The institute said that consumer price inflation would rise to 2.8 percent in 2008, up from 2.4 percent growth in 2007. KDI projected the jobless rate to narrow to 3.3 percent in 2008.
Vietnam's government aims for the economy to expand 9.3 percent in the fourth quarter from a year earlier to achieve a target of 8.5 percent for the full year, a government official said. The Ministry of Planning and Investment official said that as Vietnam attracts more foreign funds there is greater pressure for the Vietnam currency to appreciate, but that the government believes "it's a small cost compared to greater benefits that Vietnam has reaped so far." Official policy is for the dong to gradually weaken against the U.S. dollar to protect Vietnam's export competitiveness.
Despite casualties and infrastructure damage from recent natural disasters, economic conditions remain strong, with dollar reserves estimated at $20 billion, up from $12 billion at the end of last year, he said.
"After seeing the economy grow 8.16 percent in the first nine months, the government officials who met last week had set a 9.3 percent GDP rise in this quarter, and we consider this is attainable," he said. The growth rate through September was the fastest in 10 years.
Economic growth will accelerate in the fourth quarter because of higher quarterly export values and faster disbursements for domestic and foreign investment projects, the official said.
EUROPE / AFRICA / MIDDLE EAST
In January-September 2007, Belarus’ Gross Domestic Product totaled 108.4 percent as against the same period of last year. Belarus’ GDP is supposed to grow by 8-9 percent in 2007 and by 8.3 percent in January-September, the Ministry of Statistics and Analysis told BelTA.
In January-September 2007 the industrial output swelled by 8.2 percent (this year’s target — 7.5-8.5 percent, the nine-month target — 7 percent), consumer goods output — 7.3 percent (this year’s target — 8.5-9.5 percent, the nine-month target — 8 percent). The decline of food production volumes has been stopped, with the output now on the rise. Over the nine months food production swelled by 2 percent; though it is lower than this year’s target of 9-10 percent. The production of non-foods increased by 12.9 percent (this year’s target — 8-9 percent).
According to the Ministry of Statistics and Analysis, in January-August the energy intensity of the Gross Domestic Product shrank by 11.2 percent while the target was set at minus 6-7 percent. The profitability of sold products amounted to 12.9 percent (this year’s target — 14.5 percent, the nine-month target — 13.5 percent). In January-August the labor productivity grew by 7.9 percent (this year’s target — 7-8.6 percent).
(1.) German Chamber of Commerce and Industry (DIHK) said it is revising down its 2007 forecast for German GDP growth to 2.5 percent from 2.8 percent. For next year, it expects growth to slow down to 2.0 percent.
(2.) German economic institute Hamburgisches WeltWirtschaftsInstitut (HWWI) cut its full-year German GDP growth forecast for this year to 2.5 percent from 2.8 percent due to the recent turbulence in financial markets, oil prices and the strong euro.
'The mortgage and financial markets crisis in the US and oil prices at record levels and the euro-dollar rate have cast some shadows on the generally positive economic outlook,' the institute said in a statement.
It slashed its full-year 2008 GDP growth estimate to 2.3 percent from 2.8 percent.
The institute also revised its forecast for employment figures in Germany. It said employment numbers will likely rise by 700,000 this year and by 365,000 next year, compared with its previous forecast of 500,000 and 300,000.
The jobless rate will drop to 8.7 percent this year, compared with 10.3 percent in 2006. The 2008 jobless rate will decline to 7.9 percent.
HWWI increased its inflation forecast to 2.0 percent this year, from a previous forecast of 1.8 percent, and to 1.8 percent in 2008, from 1.5 percent.
Greece's gross domestic product will be revised up by almost a tenth after European statistics agency Eurostat curtailed an initial estimate by the country's statistics office to increase GDP by a quarter. After consultations with Eurostat, Greece's GDP figures since 2000 will be revised up 9.6 percent, the country's statistics agency said in a statement from Athens.
Greek authorities sought Eurostat's approval last year to increase past growth by 26 percent after they improved methods, used updated surveys and took into account parts of the informal economy, such as tax evasion, prostitution and drug trafficking. Greek opposition parties had objected to the move, saying the revision would cause Greece to look richer and lose European Union funds designated for the bloc's poorer members.
The revision would be smaller than the Greek agency's initial estimate because Eurostat applied different accounting methods, the statement said. The changes included a GDP calculation approach based on production rather than spending data, inclusion of the construction industry in the economy's added value and a different estimate of the period over which the value of public infrastructure depreciates.
A smaller revision will help Greece keep its budget deficit in line with EU rules this year because it will reduce the amount of money the country must pay in backdated contributions to the bloc's budget. A revision of GDP by a quarter would have brought Greece's 2007 deficit, now at 2.5 percent of GDP, "close" to the EU's 3 percent ceiling, the European Commission said in May.
Economy Minister George Alogoskoufis said on October 1 that the budget gap would narrow to 1.7 percent of GDP from 2.5 percent this year.
The draft budget for next year was "an ambitious" effort and "both on the revenue side and the expenditure side in this draft we are considering some risks", EU Monetary Affairs Commissioner Joaquin Almunia said in Luxembourg.
The IMF cut its forecast for Italian GDP growth to 1.7 percent this year and 1.3 percent in 2008, the daily Il Sole 24 Ore said in anticipation of a draft of the agency's World Economic Outlook. In April, the IMF had forecast Italian growth at 1.8 percent in 2007 and 1.7 percent in 2008.
This compares to estimates released in September by Italian economy minister Tommaso Padoa-Schioppa that Italian GDP will grow slightly less than the previously forecast 2.0 percent in 2007 and will grow somewhere between 1.3 and 1.6 percent in 2008, compared with the earlier forecast of 1.9 percent.
The IMF expects world GDP to rise 4.8 percent in 2008, the newspaper said, adding GDP growth for the euro zone is seen at 2.1 percent and that US GDP is forecast to grow 1.9 percent.
(2.) Italy's gross domestic product target of 1.9 percent growth for this year can be reached if the economy grows by a quarterly average of 0.5 percent in the last two quarters of the year, said Luigi Biggeri, president of Italy's statistics institute ISTAT at a parliamentary hearing.
This estimate, he said, 'is based on a plausible possibility, but that is not without risk, that production resumes expansion in the second half of the year,' he added.
In the second quarter Italian GDP inched up by 0.1 percent on a quarterly basis after rising 0.3 percent in the first quarter of the year.
The International Monetary Fund recently raised its forecast for Malawi's economic growth this year to 7.5 percent from 5.6 percent, citing good performance in the transport, distribution and agriculture sectors. IMF resident representative in Malawi, Maitland McFarlan, said sound economic policies and anticipated good rains were also among the reasons for the upward revision in gross domestic product (GDP) expansion.
"Malawi's economy remains strong, buoyed by sound policies, a good harvest and favorable external conditions," he told a press briefing.
He said inflation had slowed more quickly than expected, while most of the country's targets under a Poverty Reduction and Growth facility (PRGF) program had been met.
Malawi's central bank Governor Victor Mbewe told Reuters in an interview that inflation should stay in single digits during 2007 after slowing to 7.2 percent year-on-year in August from 7.4 percent in July. Mbewe warned, however, that higher oil prices posed the biggest threat to the target.
Finance Minister Goodall Gondwe, a former World Bank economist, told Reuters the government was happy with the latest revision.
"This evaluation is a true reflection of what is happening on the ground and a stable microeconomic environment," he said.
Gondwe said that since attaining debt relief, Malawi's external debt slid to 23 percent of GDP at the end of last year compared with 142 percent at the end of 2005.
The World Bank and the IMF cancelled $2.9 billion of Malawi's debt in September last year, but the country remains one of the world's poorest nations with annual per capita income of about $160, and continues to rely heavily on foreign aid.
Last year the economy grew 7.9 percent, helped by good rains and the introduction of fertilizer and maize subsidies, from a sluggish 2.1 percent the previous year due to a drought that hit southern Africa.
The growth in Gross Domestic Product (GDP) has slowed down in September of 2007, Russia’s Deputy Finance Minister Sergei Shatalov said recently at a conference held in Moscow. The GDP stepped up 7.7 percent in January through August of 2007. The forecast for the whole year is 7.3 percent. Despite some slowdown manifested in September, the year’s results will be good, Shatalov hoped.
Some time earlier, Finance Minister Alexei Kudrin assured that “economic dynamics in the country exceed even the boldest plans,” and that investments in Russia’s economy will soar roughly 20 percent this year.
Russia’s forecast of the International Monetary Fund (IMF) was the same steady growth in economy in the nearest future. According to IMF, the economy will be fueled by skyrocketing prices for crude oil, but inflation pressure will be going up as well.
The second estimate of Eurostat, the Statistical Office of the European Union, put second-quarter GDP growth in Slovakia at 9.4 percent – making it the second-highest year-on-year growth out of all the EU countries that submitted data to Eurostat. This estimate is based on data that takes seasonal influences into account.
Compared with the first quarter of 2007; Slovakia's economy improved by 2.4 percentage points.
The economy of the 27-member European Union grew 2.8 percent year-on-year and 0.5 percent compared with the first quarter of 2007. In the 13-member Eurozone, second-quarter GDP growth was 2.5 percent year-on-year and 0.3 percent from the first quarter.
By comparison, the second-quarter GDP growth rate in the United States was 1.9 percent year-on-year, and 0.9 percent compared to the first quarter.
Analysts at ING Financial Markets say that the pre-budget report presented by the UK Chancellor provides an overly optimistic picture of the economy. In a research note published this morning, the analysts mention that the report adopts many of the policies outlined in the Conservative Party Conference. The Chancellor’s forecast for GDP growth in 2008 has been revised downwards to 2.0 percent-2.5 percent from the earlier 2.5 percent-3.0 percent, due to the recent credit crisis, ING Financial Markets says. The analysts expect the UK GDP to grow by 1.7 percent in 2008 and by 2.2 percent in 2009
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