GDP UPDATE
January 2010
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TABLE OF CONTENTS
INDUSTRY ANALYSIS
INDUSTRY ANALYSIS
The U.S. economy grew in the third quarter at a 2.2% pace - but the gain was less than previously estimated, the government reported. Even so, all signs suggest the economy will end 2009 on firmer footing as it bounces back from the recession.
The Commerce Department's new reading on gross domestic product for the July-to-September quarter was weaker than the 2.8% growth rate it estimated a month ago. The recent report was the final one on the third-quarter GDP, and economists had predicted this figure would remain the same as last month's estimate.
The GDP, the broadest gauge of the economy, measures the value of all goods and services produced in the United States.
The main factors behind the downgrade to 2.2% were that consumers didn't spend as much as previously estimated, commercial construction was weaker, business investment in equipment and software was softer and companies cut back more on their stockpiles of goods. Still, the economy managed to return to growth during the quarter after a record four straight quarters of decline. That signaled that the deepest and longest recession since the 1930s had ended and the economy had entered a fragile recovery.
The recession's end has not been declared by the arbiter of such data, the National Bureau of Economic Research. But it generally does not date the start and end of recessions until it analyzes months of economic figures.
Many analysts still think the economy is on track for a better finish to 2009 in the current quarter. One sign was a separate report that home resales surged in November to their highest level in nearly three years, thanks to an extraordinary level of federal support. The report added to evidence that the housing market, which led the country into recession, is on the mend.
For the fourth quarter, the economy is probably growing at nearly 4% annual rate, analysts said. A few peg it closer to 5%. If that range is correct, it would mark the strongest showing since 5.4% growth in the first quarter of 2006 - well before the recession began in December 2007.
The government will release its first estimate of fourth-quarter economic activity on Jan. 29.
Growth in the final quarter is expected to be driven mainly by companies restocking depleted inventories. Stocks of goods were slashed at a record pace during the recession. So even the smallest pickup in customer demand will force factories to step up production and boost overall economic activity in the final quarter.
Stronger sales of exports to foreign customers, as well as spending by U.S. consumers and businesses, also will help underpin fourth-quarter growth.
"We expect a better performance in the fourth quarter, but the core problems for the economy - bust banks and a massively overleveraged consumer - have not gone away," said Ian Shepherdson, chief economist at High Frequency Economics.
That's why many economists predict growth will slow to a pace of around 2 or 3% in the first three months of 2010 as consumers stay frugal. Also, the big lift from inventory restocking isn't expected to last.
Brazilian economists and financial market analysts revised upward their forecasts for the country's 2010 gross domestic product expansion, according to the central bank's weekly market survey. Analysts expect Brazil's GDP to expand 5.2% compared with a forecast for a 5.08% growth in the previous week's survey. Brazil's third-quarter gross domestic product expanded 1.3% from a quarter earlier.
In the meantime, analysts expect Brazil's 2009 GDP to drop 0.24%, compared with a forecast for a 0.22% fall in the previous week's survey.
The central bank's weekly survey tracks the opinion of 100 analysts and economists from banks and brokerages, reporting the average of their expectations.
Economists surveyed by the central bank kept their forecast for 2009 Official Inflation Index (IPCA) at 4.28%. The prediction is below the central bank's inflation forecast of 4.50% for the year. The respondents' average estimate for IPCA inflation in 2010 was unchanged at 4.50%. The rolling 12-month IPCA inflation rate through November was 4.22%.
The analysts' average estimate for the 2010 year-end benchmark Selic interest rate was maintained at 10.75%.
The estimate for the debt-to-GDP ratio for 2010 was reduced to 42.5% from 43%.
Respondents reduced their forecast for the 2010 foreign-trade surplus to $11.3 billion from $11.65 billion. Analysts expect a 2010 year-end current account deficit of $40.85 billion.
Brazil's real is expected to end 2010 at BRL1.75 to the U.S. dollar, analysts said. In 2009, the real closed at BRL1.743.
Chile's monthly economic-activity index, or Imacec, ventured into positive territory in November for the first time in 2009, as the South American nation slowly pulls out of its deepest recession since the late 1990s. An increased international appetite for commodities, increased fiscal spending and rock-bottom low interest rates are fueling the economic rebound.
The Imacec grew 3.1% on the year in November, according to the central bank. A 2.5% increase was expected, according to the median estimate in a Dow Jones Newswires survey of eight economists. Estimates for the survey ranged from an increase of 0.3% to a 2.5% increase.
"Increased [activity] in the mining, retail and utilities sectors had an impact in the monthly result," the central bank said in a brief statement.
The monetary authority noted that November 2009 had one more business day than the same month last year.
The seasonally adjusted Imacec grew 1.2% from the previous month, while the cyclically adjusted series rose 4.4% on the year, the central bank said.
"Definitely, the Chilean economy is strengthening its recovery thanks to the impulse of the domestic market, which is reflecting the benefits of the policy stimulus implemented since the beginning of the year," said Alfredo Coutino, Latin America director for Moody's Economy.com.
The Chilean government in early 2009 introduced a $4 billion stimulus package, equivalent to 2.8% of gross domestic product, while the central bank slashed the benchmark interest rate an unprecedented total of 775 basis points. The rate, now at a record low 0.5%, is expected to hold at this level until at least the second quarter of the year.
For December, the economy will likely continue to grow in part due to increased activity and also due to the low basis of comparison for the same month in 2008, according to analysts.
The government, meanwhile, applauded the Imacec's rebound. President Michelle Bachelet said the data showed that the government took timely measures to stimulate the economy when the economy began sagging at the onset of the global financial crisis in early 2009.
"[The Imacec} along with the strong consumer confidence we saw around Christmas and the lower unemployment rate reported last week is good news because it means we handled things well and that the country is beginning its recovery and leaving the crisis definitively behind it," Bachelet said on Radio Cooperativa.
The Imacec is considered a proxy for the country's gross domestic product because it encompasses 90% of the GDP components.
For 2009, the central bank expects the GDP to contract between 2% and 1.5% on the year. Full-year GDP data will be released mid-March.
For 2010, the bank has a more optimistic outlook, as it expects GDP to grow 4.5%-5.5% from 2009.
In the first quarter of 2009, GDP fell 2.4% on the year. In the second quarter it contracted 4.7%, and in the third quarter it shrank 1.6% on the year.
Finance Minister Ernesto Cordero has said that the economy likely grew by a seasonally adjusted 1.2% in the fourth quarter of 2009, the second consecutive quarter of expansion after a deep downturn. Cordero said the fourth-quarter increase in the gross domestic product from the third quarter, following a 2.9% gain the previous quarter, showed clear signs of recovery in the second half of last year.
For 2010, Cordero estimated that the economy would grow by 3% or better, thanks in part to the expected expansion in Mexico's closest trading partner, the U.S. The Finance Ministry expects that Mexico's GDP contracted by 6.8% in 2009.
Mexico, Cordero said, will be "pulled along" by U.S. growth, especially in the manufacturing sector.
"The U.S., fortunately, has shown signs of economic growth," Cordero said at the Autonomous Technological Institute of Mexico. "For 2010, the challenge is for the (U.S.) recovery to consolidate and of course be reflected in consumption and private investment," he said.
Particularly important, Cordero said, was U.S. manufacturing growth since Mexican manufacturing has an almost "one-to-one" correlation with its U.S. counterpart.
He said the government is going to continue its housing and infrastructure programs in the new year to continue to stimulate the economy. He said the auctioning of new spectrum for wireless services and the awarding of new contracts by state-run oil company Petroleos Mexicanos should help spur growth in the first half of the year.
Peru's gross domestic product is expected to expand by about 5% or more this year, while inflation will be between 1.5% and 2%, Finance Minister Mercedes Araoz said, according to news agency Andina.
"From about 5% to 5.5%. These are our calculations. The Central Reserve Bank and the main international financial institutions are all making their calculations for Peru at between 5% and 5.5%," she said.
Peru's GDP is expected to have expanded by about 1% last year, following 10% growth in 2008.
Finance minister Abul Maal Abdul Muhith told parliament that the government targeted 8% GDP growth by 2013. Replying to a question of Lakshimpur-1 MP Nazimuddin Ahmed, he said the government wants to raise GDP (gross domestic product) growth rate to 8 percent by 2013. "Investment rate will be increased to 30.32% of GDP to attain the target."
Referring to estimates that the country attained 5.9% GDP growth in the first half of 2009-10 fiscal year, he said: "Such growth has been achieved offsetting the negatives of the global economic meltdown.
The minister said sustainable growth in agriculture sector, increase in investment by both private and public sectors, and recovery of the world economy have prompted the government to project 6% growth for the current fiscal year.
Mentioning that national savings rose to 32.4% of the GDP in 2008-09 fiscal year, he hoped GDP growth would be expedited with the transformation of savings into investment.
Muhith said emphasis is being given to ensuring smooth supply of power and gas, development of infrastructure, full implementation of the annual development program (ADP), and fastening private sector investment for raising the GDP growth rate.
China's economy likely grew by 13% in the last month of 2009 and market fears that the country is manipulating the data are exaggerated, Jim O'Neill, head of global economic research at Goldman Sachs told CNBC recently.
"Many observers that don't really follow China closely simply don't accept that an economy where the government directs a lot of the big decisions can succeed," O'Neill told "Worldwide Exchange."
"We used to not trust Chinese data ourselves" and this is why Goldman Sachs has computed its own Chinese data for years, he added. "According to our own proprietary Chinese GDP indicator, in December Chinese growth could have been 13 percent."
The Goldman Sachs China Activity Index shows a strong V-shaped recovery, its growth reaching 13.1% year-on-year in December.
The recent reading, together with the latest purchasing managers index reading, "suggests actual (gross domestic product) growth was probably in the 13% area towards the end of 2009," O'Neill said in a research note.
According to National Development and Reform Commission Vice Chairman Zhang Xiaoqiang, China's economy is expected to have expanded by 8.5% in 2009, but O'Neill said he thinks "the actual data is stronger" than the official forecast.
Another analyst still expressed skepticism about Chinese data in general, even if the GDP figure may be underestimated.
"I think there are valid concerns out there with regards to economic data in China," Clive McDonnell, a regional strategist at BNP Paribas Securities, said.
"One is the issue of inflation. China releases its monthly inflation data before the end of the month, and that does raise a bit of skepticism there," he said, pointing out also that although the country reports car sales rises in the double digits, gasoline sales increase by only 2 to 3%.
O'Neill said fears of asset bubbles in China because of the country's rapid growth and lax fiscal and monetary conditions are "completely overblown." He also pointed out that the Chinese stock market has not made a new high since August. For investors who do not know the country very well, he recommends investing in international companies with a presence there.
"I think the interesting way to approach this is … through people like Unilever and a lot of these classic names who are taking a lot of this risk for you," O'Neill said.
Early indications show that Malaysia will announce positive gross domestic product (GDP) growth for the fourth quarter of 2009, Minister in the Prime Minister's Department Tan Sri Nor Mohamed Yakcop said.
"How positive, I am not sure yet. Certainly it will be positive," he told reporters after the signing of a memorandum of understanding between the government and Oxford Business Group on "The Report: Malaysia 2010".
He also said the Economic Planning Unit that he is in charge of, was confident that the country would achieve more than 5% GDP growth for this year.
The government has projected a contraction of 3.0% in GDP for 2009 after the first, second and third quarters showed negative growth of 6.2%, 3.9% and 1.2% respectively.
Nor Mohamed said some of the positive indications included the clear trend of resumption of recruitment in the manufacturing sector and better corporate earnings.
"There is also very strong evidence that there is higher demand for electronic chips recently from the rapid expansion of the automotive industry in China and India. Advances in demand for a new generation of telecommunication devices were also seen," he said.
Besides that, Nor Mohamed said, the rising demand and short-term supply constraints had put an upward pressure on oil, rubber and palm oil.
"We are the winner on that sense as we are the largest producer," he said.
Passenger car sales had also picked up, rising to 40,569 in November last year from 36,254 in the same month a year before.
Loan application on a yearly basis had improved by 37.5% in October last year while loan approval increased by 25%.
Accordingly, Nor Mohamed said, the economic recovery was also expected to be faster this year.
"The multiplier from the RM67 stimulus packages will start cascading down this year," he said. "Many evidences show 2010 is going to be a good year. Early days yet but the indication is quiet positive."
Whether the current strong stock market performance could be sustained, Nor Mohamed said: "Based on corporate earnings reports, the stock market seems to be in a sustainable phase and confident mood. The stock market reflects the underlying confidence that the investing public has on the government's proactive economic measures.
"As the domestic economic front is going to be positive, the stock market should do well," he added.
Singapore's economy contracted at a sharper-than-expected rate in the fourth quarter due to a pullback in manufacturing output, but the island state's full-year gross domestic product shrank much less than earlier expected, indicating that the recovery is on firm footing.
GDP shrank 6.8% from the third quarter in seasonally adjusted, annualized terms, compared with a revised 14.9% rise in the third quarter, the Ministry of Trade and Industry said recently.
The median forecast of a Dow Jones Newswires poll of eight economists was for a 4.6% contraction.
GDP contracted 2.1% in the whole of 2009, according to the estimates, within the government's forecast range of a contraction between 2% and 2.5%. The median forecast in the poll was for a 2.2% contraction.
The statement gave no forecasts or forward-looking comments, but Singapore Prime Minister Lee Hsien Loong reiterated the government's 2010 GDP growth forecast of between 3% and 5% in his New Year message. He also announced the 2009 GDP contraction rate and the on-year GDP growth during the fourth quarter in that message.
"Worldwide, economies have stabilized. The U.S., Japan and Europe are starting to grow again, although problems remain, and no one expects an exuberant boom," he said in the New Year message. "Our economy is growing again, and has recovered much of the ground since the recession began last year."
Singapore's economy has recovered quickly from the sharp fall in external demand triggered by a collapse in global financial markets in late 2008. While last year's contraction was the first for the country since 2001, it wasn't as severe as some had predicted at the height of the downturn, thanks in part to a S$20.5 billion stimulus package and improving demand in major markets such as China.
Singapore's fourth-quarter GDP rose by 3.5% from a year earlier, compared with a 3.3% rise tipped by the Dow Jones Newswires poll.
Tibet is expected to record a 12.1% rise in its GDP of 43.7 billion yuan (6.41 billion U.S. dollars) in 2009, Qiangba Puncog, chairman of the Tibet Autonomous Regional Government, said in his Government Work Report.
Investment by the Central Government in Tibet came to 21 billion yuan in 2009, up 31. 3% from the same period in 2008, the chairman told the 3rd Session of the 9th Tibet Autonomous Regional People's Congress which opened in Lhasa recently.
Tibet also unveiled a two-year plan to spend 18.5 billion yuan in areas related to "agriculture, rural areas and farmers," infrastructure, industrial development, social undertakings, residents' livelihood and environmental protection.
To date, a 1.1 billion yuan investment, 60% of the total, has been made. The loan balance amounted to 24.59 billion yuan, up 13.34% from early 2009, helping achieve local economic recovery.
The steady agricultural development and improvements in the work relative to "agriculture, rural areas and farmers" have laid a sound foundation for the rapid recovery of Tibet's economy, and the fast growth of the secondary and tertiary industries, thus supporting the development of the national economy, said Qiangba Puncog.
In 2009, the region's primary industry, secondary industry and tertiary industry registered an increase of 3%, 18.3% and 11.7% respectively.
Meanwhile, the local budgetary revenue topped three billion yuan, a 20% increase.
France's GDP growth in the fourth quarter may come in a little better than the +0.3% q/q figure registered in the second and third quarters, French Finance Minister Christine Lagarde said in a radio interview recently.
Referring to the third quarter figure, which was confirmed by France's statistical agency, Insee, Lagarde told RTL radio that, "the fourth quarter should be about the same - maybe a little better."
She noted in particular that private consumption was holding up well, and added that a solid fourth quarter - which would be France's third consecutive quarter of positive growth following four straight quarters of declining GDP - should leave the country's economy with good momentum for continued growth in 2010.
Lagarde also took solace in the fact that France has been less hard hit by the recession this year than other European countries.
"In 2009 we will have growth that is two times less negative than our European neighbors," she said. "That is, two times better than our European neighbors."
Germany's economy is likely to have recorded "modest" growth in the fourth quarter of 2009, but the government hasn't yet come up with a new growth forecast for 2010, according to Economics Minister Rainer Bruederle.
"I expect that there will be a modest, positive" growth rate, Bruederle said at a government reception in Berlin.
The Bank of Israel raised its growth forecast for this year to 3.5%, citing “positive news” regarding the global economy. The shekel rose to its highest in more than a year. The growth estimate was increased from 2.5%, the bank said in an e-mailed statement.
“It is clear that the Bank of Israel now sees a strong cyclical recovery ahead,” Ahmet Akarli, a London-based economist at Goldman Sachs Group Inc., said in an e-mail. “There is a risk that the bank might accelerate the pace of rate hikes in the coming months, especially if the data remains on the strong side.” Goldman expects the interest rate to rise to 3% from 1.25% by year end.
The economy has bounced back from the global recession faster than most developed countries, expanding an annualized 3% in the third quarter of 2009, the most in more than a year. The bank’s increase brings its expectations for growth in line with those of Bank Leumi Le-Israel Ltd., which on Jan. 7 raised its forecast to 3.5% from 2.7%.
Israel’s expected growth rate is higher than the International Monetary Fund 3.1% forecast for global growth this year and the Organization for Economic Cooperation and Development’s expectation of 1.9% growth for its 30 members.
Fischer increased the benchmark interest rate by a quarter of a percentage point to 1.25% last month, the third increase in five months, as growth accelerated and inflation exceeded the government’s target range of 1% to 3%.
Exports will rise by 8.6% this year, after contracting 11% in 2009, the bank said, raising its forecast from 6.2%. Imports will increase by 11.4%, after contracting by 13.4%, the bank said, raising its forecast from 7.3%.
“The increase in the gross domestic product is being led by the rise in demand for exports, as a result of the global recovery,” the bank said. Almost half of Israel’s GDP derives from exports.
The current account surplus will drop to $3 billion from $7.2 billion this year, the bank predicted, instead of the $4.9 billion originally forecast.
“It’s mostly exports and private consumption that is fueling growth,” Ayelet Nir, chief economist at Israel Brokerage & Investments Ltd. in Tel Aviv, said in a telephone interview. She is forecasting 3.4% growth. “We expect growth to continue, but a lot depends on the global economy.”
Nigeria recorded a real gross domestic product (GDP) growth at 6.9% in 2009, according to the Central Bank of Nigeria (CBN). The 6.9% aggregate growth was an improvement over the 5.9% recorded in 2008, the bank said its latest report.
The growth rate dusted initial forecasts of less than 5% by the World Bank for sub-Saharan countries in 2009.
Presenting an overview of the economy after a two-day Monetary Policy Committee (MPC) meeting, CBN Governor Sanusi Lamido Sanusi said the growth rate for the fourth quarter of 2009 stood at 8.23%. The CBN governor said the growth rate in the first quarter was 4.5%, the second 7.22% and the third 7.29%.
Sanusi said the growth rate was largely driven by the non-oil sector like agriculture, tourism and the telecoms sector. But the manufacturing sector made less than 1% contribution, he admitted.
"The non oil sector as a group remains the major driver of growth," he said.
Agriculture, according to the governor, contributed more than 40% of the GDP.
Sanusi said the growth rate had not translated to the creation of jobs as the manufacturing sector was still facing the problems of inadequate infrastructure and lack of credit.
He said inflation rate rose to 15.1% in December, noting that this was against an earlier forecast by the CBN of single digit inflation. Sanusi said the food inflation in Dec. 2009 rose to 13% from 12.9% in November.
"The inflation outlook for 2010 is still uncertain, but the MPC will monitor price development," he added.
The apex bank chief said the capital market recorded a weak performance in 2009. He said the Nigeria Stock Exchange cited harsh economic conditions and gloomy forecasts due to the global crisis as possible reasons for the performance.
The CBN governor said some companies outside the banking sector showed more promise in the market in 2009.
He said there was a need to fast-track work on the infrastructure of the country, especially on power supply.
Sanusi said the MPC was still focused on the efficiency and stability of the banks.
He said the committee would ensure that the banks lived up to expectations as credit transmission channels for the economy.
Sanusi said the price of commodities and crude oil had been on the rise since the second half of last year, pushing up the foreign reserve to more than 43 billion U.S. dollars.
Sanusi said the MPC had decided that the Monetary Policy Rate be left at 6% while the CBN would guarantee all interbank transactions up to Dec. 2010.
Russia's economy will expand by 6.7% in the first three months of 2010 on the year-earlier period, Renaissance Capital's leading GDP indicator showed. Growth in the first quarter will be 2.8% compared to the seasonally adjusted figures in the previous quarter, RenCap's data showed.
Russia emerged from recession in the third quarter of 2009, but much of the economy's growth came from the oil sector, while other key areas, like manufacturing and construction, have lagged.
The economy shrank by about 8.7% last year and official forecasts have it growing by as much as 5% in 2010.
Britian’s Great Depression is expected to end in the third quarter of 2009, the trend for which has been accurately mapped out in the in-depth analysis and forecast that both called for severe peak to trough economic contraction of -6.3% for 2009 at a time when the likes of the UK Treasury were forecasting contraction of less than half at -3%. The analysis also concluded in a strong debt fuelled economic recovery for 2010 to coincide with a summer 2010 General Election. As of the revised ONS GDP data, total peak to trough contraction is now 6.23% virtually exactly in line with the forecast for -6.3%. Annualized contraction for the third quarter is at -4.56% with trend on target for -4.75% for the fourth quarter.
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