GDP UPDATE
April 2008
McIlvaine Company
TABLE OF CONTENTS
AMERICAS
(1) The International Monetary Fund slashed its forecast for U.S. economic growth this year to 0.5% from 1.5%.
The world's biggest economy will expand 0.6% in 2009, according to a document with an IMF letter head obtained by Bloomberg News at a meeting of Southeast Asian deputy finance ministers and deputy central bank officials in Da Nang, Vietnam.
(2) The growth of the US GDP remains at 0.6% in the fourth trimester. This news comes from the Department of Trade in the third and last analysis. During 2007 the US GDP rose 2.2%, the lowest since 2002. In the forth trimester of 2007 the Corporate profits slowed 3.3% compared with the expected drop of 0.1%.
The weekly Central Bank Focus Bulletin projects the same growth in Gross Domestic Product (GDP) for 2008 and a lower trade balance surplus for the year.
The financial market representatives polled recently maintained their forecast for GDP growth in 2008 at 4.6%.
The forecast for this year's trade balance surplus was lowered from US$ 28.00 billion to US$ 26.05 billion.
ASIA
Goldman Sachs (NYSE:GS) said it expects China's first quarter economic growth to slow to around 10% from 11.2% in the fourth quarter last year, mainly due to slowing net export growth. Inflation is likely to remain high because of rapid money supply growth, although it will ease slightly from February as the impact of severe snowstorms has worn off, Goldman Sachs said in a note.
It projects China's consumer price index inflation to ease to 8.4% in March from 8.7% in February.
'With monetary growth remaining at a high level, we see persistent inflationary pressures which will keep CPI inflation at elevated levels in the near-term,' Goldman Sachs said.
'Despite recent comments by various official sources on balancing the risks of high inflation and low growth, we believe inflation pressures are more acute which require immediate and decisive actions to be taken,' it said.
Tightening moves include further interest rate and reserve requirement hikes, credit controls and currency appreciation, the note said.
Producer price inflation is expected to accelerate to 7.3% year-on-year in March from 6.6% in February as commodity prices continue to rise, it said.
Meanwhile, M2 money supply growth is forecast to moderate to 17.3% in March from 17.5% in February, while total loan growth is expected to soften to 16.6% from 17.1%, Goldman Sachs said.
'This implies an incremental increase of about 1.4 trillion yuan in the first quarter, or nearly 40% of the reported annual quota of 3.6 trillion yuan set by the authorities at the beginning of the year,' it said.
Year-on-year export growth is likely to rebound significantly from a low base to about 32% from 6.5% in February. The March reading will be significant because it is the first month of the year not affected by the Chinese New Year holidays, Goldman Sachs noted.
'A 32% growth will imply a continuation of a gradual slowdown in exports growth momentum since the second half of 2007,' it said, adding that imports are likely to remain solid on strong domestic demand.
The trade surplus is likely to remain at around US$11 billion, the note said.
According to a recently released report by Asian Development Bank (ADB), a growth of Mongolia's Gross Domestic Product (GDP) will slow slightly in 2008, to 9.5%, and to 9.0% in 2009. GDP grew at 9.9% in 2007, the highest rate in three years.
ADB's annual economic publication, Asian Development Outlook 2008 wrote that solid contributions from all sectors underpinned GDP growth of 9.9% in 2007, above the 2003-2006 average of 8.7%. Agriculture, which supports nearly half the population, had a strong year, expanding by 15.8% and contributing 3.7 percentage points to GDP growth. The livestock herd--mainly goats, sheep, and cattle--grew by 15% to about 40 million in response to higher cashmere prices, rising domestic demand for meat and other animal products, and good weather. However, this second straight year of large increase raises questions about the sustainability of livestock numbers at this level, particularly as goats, the most environmentally damaging of the three, now account for almost half the total number.
Services grew by nearly 9% and accounted for 3.6 percentage points of overall growth. Major contributors were construction, transport, trade, and tourism. Despite higher global prices for copper, gold, and coal and continued foreign investment in minerals, mining output rose only marginally, and copper concentrate by just 1.4%. Industry as a whole expanded by 7.1% and contributed 2.5 percentage points to growth. Mining output was held back partly by uncertainty surrounding the terms of exploitation of some substantial mineral deposits.
The report stated that high international prices for export commodities and another mild winter induced further rapid economic growth in 2007. Inflation climbed, driven mainly by food prices, and is likely to be in double digits this year. Fast-paced economic growth is set to continue in the next couple of years, supported by an expansionary fiscal policy. The competing pressures to distribute gains from mining, and to control inflation and encourage investment elsewhere in the economy, will have to be reconciled.
EUROPE / AFRICA / MIDDLE EAST
According to Asian Development Outlook (ADO), Asian Development Bank forecasts decline of growth in non-oil sector of Azerbaijani economy in 2008 and 2009. The Bank says that in 2008 and 2009 growth of non-oil GDP, including agriculture, will total only 9% against 11% following 2007.
“At the same time against the background of decreasing foreign direct investments (FDI) internal investments (mainly of public nature) are forecasted at the level of 8% in 2008 and 2009. That will ensure GDP growth mainly due to capital-intensive sectors,” the Banks said.
At the same time against the background of total GDP growth of 15.7% and 18%, oil GDP growth in 2008 and 2009 is expected to make 21% and 26% respectively.
In 2007 Azerbaijan’s GDP totaled AZN 25.228 bn with oil GDP of AZN 15.937 billion. In 2007 non-oil GDP growth totaled 11.3% versus 11.8% in 2006. Total GDP in 2007 rose by 25.4% and in 2006 by 34.5%.
According to the statistical model developed by the School of Business of the University of Nicosia Macroeconomic Forecasting Group, Cyprus Gross Domestic Product (GDP) in the first quarter of 2008 is expected to increase by 9% on the same time last year.
The main aim of the Group is to forecast, analyze and evaluate Cyprus GDP on a quarterly basis. With the development of a statistical model, at current prices, it calculates the economy’s rate of economic growth and analyses the possible impact of the various macroeconomic parameters.
Regarding the second quarter of 2008, the forecast is clearly more positive. GDP is expected to reach €4.25 billion at current prices compared to €3.61 during the second quarter of 2007, an increase of 17.7%.
Taking into account an annual inflation rate of 4.9%, real economic growth during the first and second quarters of 2008 will reach 5.1% and 12.8% respectively.
Denmark's seasonally adjusted GDP grew a revised 0.3% in the fourth quarter of 2007 from the previous quarter, the National Statistics Office said in a statement. The number was revised from a 0.4% rise, which was announced on February 28.
Market expectations were for a fourth quarter GDP growth of 0.4%, according to a survey of analysts by RB-Borsen. On a yearly basis, GDP increased by 1.8% in 2007, unchanged from the preliminary release, the statistics office said
Finland's gross domestic product (GDP) grew by 3.4% in January from the year-ago period after a year-on-year rate of 0.7% the month before and 5.6% in November, Statistics Finland said in a statement.
"Secondary production and services are both estimated to have grown by approximately 4.5%. In primary production, output fell by 9% from its January 2007 level," the agency added.
German GDP growth in the first quarter was better than expected, finance ministry state secretary, Thomas Mirow, told reporters, without providing exact figures. In a briefing ahead of the G7 meeting of finance ministers and central bank presidents in Washington recently, Mirow also said the International Monetary Fund has revised its forecast for German 2008 GDP growth to 1.4%.
He said the 1.4% figure is an improvement compared to the 1.2% that was originally expected. Earlier, the finance ministry said the IMF has cut the 2008 GDP growth forecast for Germany to 1.4% from the 1.5% made in February this year. Mirow said there is reason to believe that the economic developments for the whole of 2008 will not be so bad as originally forecast.
National Irish Bank has become the latest organization to predict a sharp slowdown in economic growth this year. The bank says it expects GDP growth to slow to 2.9% as the weakness in the construction sector spreads to the rest of the economy. However, it says it also expects the situation to recover in 2009.
NIB is also predicting that the labor market will display both rising employment and rising unemployment this year. It says men in rural areas will be particularly vulnerable due to the decline in construction, agriculture and manufacturing.
Speaking at the conference, Modernization of the Economy and Globalization, this week, Mr Kudrin said that Russian GDP was up by 7.8% the first two months of the year, while industrial production was up 6% in the period.
The active growth of investments, which began last year, is another indicator the economy is developing, he said. However, in order to preserve and enhance macroeconomic stability, market economy institutions are to be developed, Kudrin said.
Saudi Arabia's nominal GDP is expected to be around $465 billion this year, according to the Riyadh-based Samba Financial Group. The nominal GDP, which was $309.9 billion in 2005, is expected to grow to $517.3 billion in 2009, it said in its latest report — The Saudi Economy: Recent Performance and Prospects for 2008-09.
It added that the Kingdom's economy is now on a par with that of Switzerland and accounts for a little more than half of the total output of the Gulf Cooperation Council (GCC) and is twice the size of the second largest GCC economy, the UAE.
The real GDP was 6.1% in 2005 and fell to 4.3% in 2006 and 3.7% in 2007. GDP growth is expected to gather pace this year, reaching 6.7% in real terms.
According to the report, the surge in Saudi oil revenue will support further brisk growth in government spending. Much of this will be directed toward basic infrastructure, but spending on salaries and other benefits, as well as subsidies, will also be raised in a bid to offset the social cost of rising inflation.
Inflation has picked up markedly in the past two years, a phenomenon that is new to Saudi Arabia. The Samba report said economic policy challenges have been heightened by the pickup in inflation, which reached 8.7% in February.
Having been negative in the first five years of the decade, average consumer price inflation accelerated to 2.3% in 2006 and further to 4% in 2007. In contrast with previous oil booms, Saudi Arabia has been more measured in raising spending, thereby creating room to pay down domestic debt and build up foreign assets.
This strategy has given the government greater fiscal flexibility and a substantial resource base to maintain spending in the face of potential future shocks, including a decline in oil prices.
The Bank of Slovenia raised its forecast for this year's average inflation in the country to 5.6% from the 3.3% it predicted last October.
The bank also cut its 2008 gross domestic product (GDP) growth forecast to 4.2% from 4.4%. Both changes were in line with a similar change of forecast made by the government recently.
Domestic wage demands and further growth of global oil prices present the biggest risks to inflation, the bank said. Inflation in Slovenia reached 6.6% year-on-year in March and was the highest in the euro zone. Slovenia adopted the euro at the start of last year.
"The Bank of Slovenia is worried over recent demands for higher wages," Governor Marko Kranjec told a news conference.
In January this year, the government agreed to a 3.4% rise for public sector wages but doctors, judges, teachers and policemen demand further raises. Private sector trade unions also demand a general wage hike due to high inflation.
"We have to be aware that salaries should not rise faster than productivity," said Kranjec, adding that the government should aim for a balanced budget this year to help curb inflation.
Slovenia had a budget deficit of 0.1% of GDP last year and the government plans to amend this year's budget so as to balance it. The current budget envisages a deficit of 0.9% of GDP this year.
The central bank forecast 2009 average inflation at 3.5%, up from 2.9% forecast in October. It sees 2009 GDP growth at 3.9%, unchanged from its previous forecast. Slovenia's economy expanded by 6.1% in 2007.
Banco Bilbao Vizcaya Argentaria SA.'s analysts have cut their forecast for Spain's 2008 GDP growth rate to around 1.9% from a previous forecast last autumn of 2.6%. In the bank's April 2008 study of the Spanish economic situation, BBVA said it is forecasting a GDP growth rate of between 1.7% and 2.2% growth in 2008 and between 0.8% and 2.0% in 2009.
'We expect Spain's growth rate to reach a low in the first half of 2009 before the recovery begins,' BBVA's chief economist Jose Luis Escriva said during a conference to present the study.
Escriva said both international and domestic factors had led to a sharper slowdown in Spain than was initially expected, though added that the bank's growth forecasts have an 'unusually high margin of uncertainty.'
External factors weighing on Spain's economy include higher risk premiums, lower global growth, the appreciation of the Euro to the dollar, high oil and raw material prices and a 'delay' in European Central Bank interest rates.
Within Spain, a harder-than-expected fall in residential housing sector investment has added further uncertainty to growth prospects.
Investment in Spain's housing sector will fall by 7.5% from a year earlier and by 14.5% in 2009, BBVA said.
The bank also raised its forecasts for Spain's unemployment rate in 2008 to 9.5% and in 2009 to 11.0%.
Spain's GDP grew 3.5% in 2007, while Spain's unemployment rate stood at 8.6% in the fourth quarter of 2007.
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