GDP WORLD MARKET
UPDATE
February 2011
McIlvaine Company
TABLE OF CONTENTS
INDUSTRY ANALYSIS
INDUSTRY ANALYSIS
U.S. gross domestic product will likely grow between 3% and 4% this year, but unemployment will remain high, according to the president of the Federal Reserve Bank of Philadelphia, Charles Plosser.
"Unemployment will continue to lag ... and will remain uncomfortably high for a while yet to come," he said, noting that the GDP outlook is a "perfectly reasonable forecast."
He noted that for the first time in years, the U.S. was grappling with long-term unemployment, which makes it harder for those unemployed the longest to find new jobs.
He was confident, however, that as the U.S. economy expands it will be able to accommodate for job retraining and that new jobs will be created in those sectors of the economy showing the most dynamic gains.
"I know the labor market will reallocate into growing economic sectors, but this will take time," he noted.
Speaking to reporters in Chile following a presentation at the Central Bank of Chile on the scope of monetary policy, Plosser said he couldn't rule out the Federal Reserve beginning to withdraw its significant monetary stimulus sometime this year, but he declined to speculate on the specific timing for the withdrawal. He noted that there could be a danger of the Fed taking too long to remove the stimulus.
"We need to be prepared to do that when the time comes to ensure sustainable growth; the challenge is to get the timing right," the official said.
Regarding the Fed's second round of quantitative easing, known as QE2, he said that in the likeliest scenario the Fed would not end this program ahead of schedule.
"QE2 will be over in about five months; it could end earlier but that's not a likely outcome," he said.
When queried about the effects QE2 has had on emerging market currencies, most of which have appreciated against the dollar, he noted that exchange rates were responding to various factors, not just the quantitative easing.
"In the runup to QE2, we had an election; there were changes in the [U.S.] tax policy; there was a flare-up of sovereign debt concerns as a result of Ireland's woes. All these will have effects on exchange rates," he said.
Analysts expect Chile's gross domestic product to grow 7.8% in the first quarter from a year earlier, according to the median forecast of 35 local analysts in the central bank's monthly economic outlook survey.
For 2010, they expect GDP to have grown 5.3%, slightly above the central bank's outlook for 5.2%. The central bank will release 2010 fourth quarter and full-year GDP data mid-March.
Analysts expect GDP to grow 6.0% in 2011, the midpoint of the central bank's 5.5%-6.5% outlook, and for 2012 they see a 5.5% increase. Both of these estimates are unchanged from the January poll.
As to inflation, analysts see the consumer price index gaining 0.2% in February from the previous month and 0.5% in March.
According to data released earlier, the CPI gained 0.3% on the month in January and 2.7% on the year.
For 2011, the CPI will likely increase 4.0% on the year, according to the poll, surpassing the central bank's outlook for a 3.3% gain. Chile's inflation rate in 2010 was 3.0%, in line with the central bank's annual inflation target of 3%, plus or minus one percentage point.
Regarding monetary policy, analysts expect the central bank to raise the benchmark interest rate, known as TPM, by a quarter of a percentage point to 3.5% when it holds its monthly monetary policy meeting. At its March meeting, the bank will likely increase the benchmark overnight rate another quarter of a point to 3.75%, according to the poll.
In January, the bank took its first pause since it began withdrawing in June its sizable monetary stimulus. At the January meeting, it held the key rate steady at 3.25%.
The TPM is expected to increase to 4.75% in July and end the year at 5.5%.
The Bank of Mexico raised its estimate for 2011 economic growth and said it sees lower inflation in coming months, as prospects for the Mexican economy have improved since the end of last year.
Mexico's central bank now expects gross domestic product will expand by between 3.8% and 4.8% this year from 2010, compared with a previous forecast range of 3.2% to 4.2%. GDP last year grew by an estimated 5.4%, the bank said.
The Bank of Mexico, in its quarterly inflation report, also predicts the consumer price index will rise at an average annual rate of between 3% and 4% in the first quarter, down from a previous forecast range of 3.75% to 4.25%.
Bank of Mexico Gov. Agustin Carstens said the economic outlook has improved substantially since the fourth quarter, as a wide array of U.S. economic indicators have beaten expectations. But echoing comments made by U.S. Federal Reserve Chairman Ben Bernanke, Carstens expressed lingering concern that high unemployment in the U.S. could put a damper on future growth.
The central bank sees Mexico's economy creating between 600,000 and 700,000 formal jobs both this year and next.
"Exports continue to be an important motor of growth," Carstens said, noting that Mexico's output gap--the difference between actual production and potential output--will likely turn positive in the second half of 2011. "As for internal spending, there have been improvements both in consumption and investment."
On inflation, Carstens said the most likely scenario is one in which the CPI will increase by less than 4% in both 2011 and 2012, with prices for key services such as housing and tourism expected to remain particularly tame this year. The Bank of Mexico reported the annual CPI fell to 3.78% at the end of January from 4.40% a month earlier.
"It's quite a good start to the year, especially if we consider the environment of possible pressures from commodities," Carstens said of January's data.
The central bank expects the closely watched core CPI, which excludes volatile energy and fresh produce prices, to finish the year below a 3.5% annual rate and then approach 3% by the end of 2012.
The Bank of Mexico's official inflation target is 3%, give or take one percentage point.
China's blistering economic growth is likely to moderate slightly this year from an estimated 10% in 2010, but price pressures will also continue to build, putting more pressure on Beijing to tighten policy further, according to a Reuters poll.
The median forecast of 27 analysts is for China's gross domestic product to grow 9.3% in 2011, stronger than the 8.9% forecast in the previous poll published on Oct 14, 2010.
The modest slowdown in China's economy has been well anticipated as the government ratchets up efforts to curb money supply and bank credit that is seen fuelling inflation after a lending spree unleashed in 2009 to counter the global crisis.
According to the poll, economic growth will be at its slowest in the first quarter of 2011, when the year-on-year rate of expansion is seen easing to 8.7%.
Economists expected that China's consumer price inflation would average 4.3% in 2011, markedly higher than the 3% forecast in the previous poll in October.
"We expect growth to hold up at 9.5% this year but it will be a stern test for policymakers to engineer a soft-landing (and) placate international pressures for greater yuan flexibility," said Charlie Lay, economist at Forecast PTE in Singapore.
"Inflationary risks are clearly on the upside, with the pace of policy tightening to be stepped up."
A Reuters poll published on Jan 11, 2011, showed that China will let its tightly controlled yuan appreciate at a faster pace this year to help quell inflation, which is running at its highest in more than two years.
The People's Bank of China has raised banks' reserve requirements seven times and increased interest rates twice since early last year.
China's top leaders have put the task of taming inflation at the top of their agenda, while the central bank has switched to a "prudent" monetary policy from the previous "moderately loose", paving the way for tighter policy.
The survey also showed that China's trade surplus, a nearly constant source of friction with the United States and the European Union, is on the track to gradually decline. The median forecast is for the surplus to narrow to $180 billion this year, the third straight year of decline, and fall further to $160 billion in 2012.
The surplus peaked at $295.5 billion in 2008. If the forecasts prove correct, Beijing will be able to point to the decline as proof that its efforts to power domestic demand and smooth out global imbalances are gaining traction.
Economists on average have revised down their forecasts for Japan's economic growth in October-December to an annualized 2.13% drop from -2.03% in the previous survey, but they have revised up their projections for January-March GDP to +1.11% from +0.67%, according to the latest monthly survey by the Cabinet Office's Economic Planning Association.
The survey also showed that the number of the economists who expect the Bank of Japan to ease credit further totaled seven, down from 13 in the previous survey. By contrast, economists expecting a credit tightening in the next 12 months totaled 35 this month, up from 28 in January.
The average economist forecast for real GDP growth was revised up to +1.47% from +1.39% for fiscal 2011 and down slightly to +2.04% from +2.06% for fiscal 2012, the ESP survey showed. The average forecast for fiscal 2010 GDP was +3.22%, unchanged from the previous survey. These forecasts compared with the BOJ board's Jan. 25 median projection at +3.3% for fiscal 2010, +1.6% for fiscal 2011 and +2.0% for fiscal 2012.
Meanwhile, the survey showed that economists expect the year-on-year change in core consumer prices to return to positive territory in fiscal 2012 with a 0.19% gain over fiscal 2011, revised up from +0.14% projected in the previous poll. This will follow three years of continued price drops.
An economic manager has expressed optimism that the 7 to 8-percent gross domestic product (GDP) government projection will be achieved this year which is hoped to create more jobs and reduce poverty in the country.
In an interview on the sideline of the year-end Philippine economic briefing, National Economic and Development Authority (NEDA) Director General Cayetano Paderanga said the main growth drivers for 2011 include the business process outsourcing, tourism, private services and telecommunications.
“It is the services sector that we can depend on… But we hope that infrastructure investments will come in and there will be complementary private investments,” he said.
With this, Paderanga said the government’s efforts shall be geared towards improving the investment environment by cutting the cost of doing business in the country and increasing resources for infrastructure through public-private partnerships (PPP).
The government announced it would roll-out four priority PPP projects in the first half of the year.
These are the privatizations of Laguindingan airport, Light Rail Transit (LRT) 1 and Mass Rail Transit 3 and NAIA Expressway Phase 2.
The four projects are among the 10 PPP projects the government intends to bid out this 2011. Others include the LRT Line 2, LRT Line 1 South Extension Project, New Bohol Airport Development, Puerto Princesa Airport Development, New Legaspi Airport Development and the CALA Expressway Cavite side section.
“We are looking forward to a sustained strong economic performance through strengthened partnerships with the private sector. Our target is for GDP to grow by 7 to 8% annually over the medium term in order to significantly reduce poverty by 2016,” Paderanga further said.
The socio-economic planning chief believes that more businesses will be established in various areas with the construction of PPP projects.
“With the increase in infrastructure investments as well as reduction in costs, we hope that exports will go higher maybe around double-digit,” he said.
Paderanga added that the continuous inflows as well as government's anti-corruption, transparency and good governance campaign likewise will provide more resources to the country.
The Philippine economy staged a strong recovery in 2010 as it grew by 7.3%, boosted by swift export growth
Singapore's economy expanded by 12.5% in the last three months of 2010 from a year ago, with growth for the full year pegged coming in at 14.7%, advance estimates from the ministry showed. Singapore's economic growth for 2010 may be revised slightly downwards after December manufacturing data came in below forecasts, economists have said.
The growth of The Gambia's Gross Domestic Product (GDP), which is the total monetary value of all goods and services produced domestically in the country over a specified period, has drop from 6.3% in 2008 to 5.6% in 2009. GDP includes income earned domestically by foreigners, but does not include income earned by domestic residents on foreign ground. The growth of GDP from one period to another is an indication of how healthy the country's economy is.
The latest report of the Central Bank of The Gambia (CBG), explained that the contraction in the country’s GDP growth “was due to the decline in the growth of agricultural output and the impact of global economic crisis”.
“However, this growth rate was higher than the International Monetary Fund revised forecast of output growth of the world economy, which is -0.8% and 1.6% for sub-Saharan Africa in particular,” the report states.
The CBG report, which was recently presented to the National Assembly, by the Governor of Central Bank of The Gambia, Amadou Colley, noted that the macroeconomics performance in The Gambia was solid in the past three years, evidenced by GDP growth rates of 6.0% in 2007, 6.3% in 2008 and 5.6% in 2009.
“These growth rates are also within the 6-7% range commonly used as a marker, if a country is to achieve the Millennium Development Goal of reducing poverty by 2015. Given the population growth rate of 2.8% in 2007, average per capita growth for the past three years (2007 – 2009) was 3.2%,” the report noted.
The Gambia has maintained macroeconomic stability amidst the global economic crisis with a flexible monetary policy, implementation of structural reforms and technical and financial support from development partners.
The report indicated that agriculture, which is the mainstay of The Gambia economy, employing about 60 – 70% of the workforce, grew on average by 6.2% between 2001 and 2009.
“Low domestic production against the backdrop of myriad of factors including low agricultural technology, lack of inputs, and challenges involve in marketing the produce implies that the agricultural sector has not been able to address the food needs of the country. With a population growth of 2.8%, average agricultural GDP growth was only 3.4%,” it says.
Food consumer price inflation declined markedly from 8.6% at end-December 2008 to 2.9% in December 2009, attributable to the removal of import duties on some basic food items, and also enhanced supply. The report observed that at the beginning of 2009, food consumer price inflation was 8.8%. It declined to 8.3% in March, 6.7% June, as well as 2.7% in September, before edging up slightly to 2.9% in December 2009.
Non-food consumer price inflation, which was at 4.7% in January 2009, has increased slightly to 4.8% at end-March before declining to 3.9% in June and 1.9% in September 2009. “Non-food inflation rose gradually to 2.8% in December 2009 albeit lower than 4.4% recorded the same period last year,” the report says.
The German economy will grow faster this year than initially thought, latest forecasts from the Federal Ministry of Economics and Technology suggested. In its Annual Economic Report 2011 released recently, the ministry said the gross domestic product, or GDP, is likely to rise 2.3% this year, faster than the 1.8% growth it had predicted in October.
The forecast is more optimistic than that of Bundesbank, which has predicted a 2% increase in 2011 and 1.5% growth next year. According to preliminary estimate, German GDP climbed a record 3.6% in 2010.
"2011 will be a good year," German Economics Minister Rainer Bruederle said, adding that economic growth will be led by exports and domestic demand.
The ministry forecast exports to rise by 6.5% and imports by 6.4% this year. Domestic demand is expected to increase by 2%. In line with the progress in economic developments, the unemployment rate is seen falling to 7% from 7.7%.
Bruederle said the development of the German economy is not automatic. Therefore, it’s necessary to strengthen economic foundations by further consolidation of public budgets.
Today, projections showed that Germany's budget deficit would fall below the EU limit of 3% this year. The ministry expects budget deficit to come in at 2.5% of GDP.
Germany has been the powerhouse for the Eurozone recovery from the worst recession. Recent forecasts suggest that Berlin should continue to lead the recovery given that peripheral economies face severe debt crisis.
The German economy expanded 0.7% in the third quarter, following the 2.3% growth in the previous three months. The Federal Statistical Office is due to release first results of the fourth quarter GDP figures on February 15.
Hungary's economy should grow 3% in 2011, but the economic policies of the right-of-centre Fidesz government are risky, the governor of the country's central bank said recently. When asked about a series of policies that include a tax on banks and other large companies and the effective seizure of some $14 billion in private pension assets to boost budget revenue, Andras Simor told a conference in Vienna:
"There is a lot of risk in these policies. But really, it's up to the government to decide economic policy, and it's not up to me to comment on government policies."
He added that Hungary was coming out of the economic crisis, mainly due to exports, and he did not expect consumption to contribute to growth until the second half of the year.
The GDP of Kyrgyzstan fell by 2% at the end of January 2011 in comparison to January 2010, according to the National Statistic Committee, It was noted that this was a preliminary evaluation.
In monetary terms, GDP totaled KGS 14.081.9 billion. The amount of industrial production has also fallen to KGS 15.621.2 billion (-3.7%).
Meanwhile, production in the mining industry rose to 22.8% (KGS 220.2 million). Reduction in manufacturing industry still continues: -8.7% (production totaled KGS 12.505.8 billion). Production in the agricultural sector grew by 0.8%, totaling KGS 3.791.2 billion.
There was an increase in the production and distribution of electricity, gas and water – 19.4%. Production totaled KGS 2.915.2 billion. At the same time there was a decline in the construction sector (-12 percent). In January its gross production totaled KGS 879 million.
All types of cargo traffic increased by 3.6%. In January 2011, this sector has given KGS 2.828.4 billion. Public conveyance has also increased by 1.2% (KGS totaling - 43.5 million).
Lithuania's economy may grow stronger than previously estimated this year amid faster recovery in its trading partners, the central bank said recently. In its quarterly economic outlook report, the central bank revised this year's gross domestic product forecast up to 3.3% from 3.1% estimated in November. Economic activity is expected to pick up next year with the GDP rising 4.1%.
Rising external demand, boosted mainly by favorable economic conditions in its neighboring Baltic states as well as Europe's major economies, had a positive impact on the indicators of the tradable sector of Lithuania, especially in industry and transport, the report said.
However, private consumption remains subdued and its recovery is hindered by harsh labor market situations and reserved future expectations that encourage saving.
Unemployment peaked in the second quarter last year, whereas in the third quarter it declined, partially owing to seasonal factors. The bank expects the level of unemployment to decline gradually over the forecast period, in line with the rise of economic activity. Jobless rate is projected to fall to 16.2% in 2011 from 17.8% last year. This is expected to drop further to 13.9% next year.
The bank also raised the inflation outlook and now sees the rate rising to 2.8% this year from 1.2% last year. In November, the bank had forecast 2.3% rate of inflation for 2011.
The country's gross domestic product (GDP) rose by 0.5% in the third quarter of 2010, the second consecutive quarter to see an increase. Over the year to September 2010, the Scottish economy struggled out of recession, with growth of 0.1%.
The data shows construction sector grew strongly, with a 6.2% increase between July and September. The service sector also expanded by 0.1%, but production fell by 0.3%.
Scotland's growth data shows it was in recession for five quarters, emerging into aneamic growth at the end of 2009. But looking back, the picture of the downturn is barely any growth in any quarter between the first half of 2007 and the second quarter of last year.
Scotland then enjoyed the same strong surge as the UK as a whole, but the third quarter figures show growth pinned back by slightly more than the UK in the third quarter.
Talk of a double dip recession has receded, but the evidence points to a longer, harder haul out of the downturn with future growth data. Scotland lagged behind the rest of the UK, where the overall growth rate was 0.7% in the same period.
The Scottish government said growth was driven by the construction sector, which "outperformed" the UK rate of 3.9% over the quarter.
Welcoming the GDP increase, finance secretary John Swinney said: "The 0.5% growth we saw in the third quarter of last year builds on Scotland's strong performance in the second quarter of 2010, which saw the highest growth rate since the second quarter of 2006.
"We have seen strong growth in construction for three consecutive quarters, outperforming the UK as a whole - evidence that we were absolutely right to take decisive and comprehensive action through our economic recovery plan, stimulating investment by bringing forward capital projects and delivering an infrastructure program worth £3.3bn in 2010/11."
In the second quarter of 2010 GDP rose by 1.3% over the previous three months.
The director of CBI Scotland, Mr. Iain McMillan, said: "In some respects today's figures are encouraging, particularly the growth in construction. But the overall growth figure masks other problems in the economy such as continuing weaknesses in the production and service sectors.
"There is certainly no room for complacency on the part of Scottish Ministers, who all too often simply indulge in self-congratulation rather than taking the concerns of business seriously."
He added: "All policies of the Scottish government need to support the future development of our economy and growth in jobs. While some policies are welcome, others are not, for example, the planned increase the retail sector's business rates. An increasing number of senior business leaders are now rightly warning that this increase could result in lower levels of investment and fewer jobs."
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