GDP UPDATE
March 2011
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TABLE OF CONTENTS
INDUSTRY ANALYSIS
Economists covering the Brazilian economy cut their growth forecast for next year for the first time in 12 months on bets that policy makers will need to slow the economy to cool inflation running at a 26-month high.
Brazil’s gross domestic product will expand 4.45% next year, down from a week-earlier forecast of 4.5%, according to the median forecast in a central bank survey of about 100 economists published recently. The economists also cut their 2011 GDP growth forecast for a third straight week, to 4.1% from 4.29% the previous week, the survey found.
Consumer prices will rise 5.82% this year, compared with a week-earlier forecast of 5.78%. Inflation expectations for 2012 were unchanged at 4.80%. The central bank targets inflation of 4.5% plus or minus two percentage points.
“Inflation is too high,” said Gustavo Rangel, chief Brazil economist for ING Financial Markets in New York. “The government will have to slow down the economy materially to bring it back to the target.”
The central bank will increase the benchmark interest rate 50 basis points to 12.25% at its April 19-20 policy meeting, the survey found, unchanged from last week. The pace of rate rises this year will depend on whether the bank announces further credit curbs, Rangel said. At their March meeting, policy makers raised the rate 50 basis points for a second straight meeting.
Annual inflation quickened to 6.01% in February, the fastest pace since November 2008. Inflation will start slowing from the fourth quarter of this year, and will be “slightly” below the target by the end of next year, the bank said in the minutes.
Peru's economy seems to have reached a trend of sustained growth, and its gross domestic product is expected to grow 7% in 2011, Central Reserve Bank of Peru President Julio Velarde said recently. Peru's GDP has been one of the fastest growing in Latin America, Velarde said while speaking at the New York Stock Exchange. The manufacturing and construction sectors likely will drive economic growth this year, he said.
"Domestic demand has been a factor behind growth," Velarde said, noting that electricity production in Peru grew more than 10% in the first two months of 2011.
Sound fiscal policies have improved the country's fiscal position, he said. Still, Peru needs some reforms, including increasing the flexibility of the labor market and improving the quality of education, the central banker said.
Although inflation in Peru has been among the lowest in Latin America, it is increasing, he said, adding that there is some concern about commodity prices.
The central bank aims to keep inflation within a range of 1.0% to 3.0%.
Defending his Government’s decision to set a lower GDP target for the next five years, the Chinese Premier, Mr Wen Jiabao, has said it is not a lower target as it aims to achieve high quality and efficient growth to improve the standard of life in the country.
Addressing his annual press conference, Mr Wen said China plans to achieve a high quality and efficient annual growth rate of 7% during the 12th Five-Year Plan, starting from this year, which is not easy by any means.
Given China’s increasingly large economic aggregate and the need to raise the quality and efficiency of its growth, “a 7% growth rate is not a low target’’, he said.
According to the new five-year program adopted by the top legislature, China has lowered its annual economic growth target to 7% for the period 2011-2015 from the target of 7.5% for the previous five years. This is despite the fact that it achieved over 11% expansion during the past five years.
“The lowering of the target not only demonstrates the government’s determination, but also is a major move to transform its economic growth pattern,” Mr Wen said.
“A fast growth speed would bring more jobs and but lead to high inflationary pressure; A slower speed means less new jobs and risks economic recession,” the Premier said. He said China must strike a balance between economic growth speed, job creation and inflation control.
“We should make full use of this opportunity to adjust the economic growth pattern and address the unbalanced, uncoordinated or unsustainable factors that have existed in China’s economy for a long time,” he said.
The Lok Sabha unanimously gave the first stage of approval to the general budget for 2011-12 by voice vote with Finance Minister Pranab Mukherjee vowing that “we can, we shall do” to achieve 9% growth in the Gross Domestic Product (GDP) during 2011-12 against 8.6% this year.
Earlier, Mr. Mukherjee, replying to the debate on the budget in the Lok Sabha, said when compared to the average GDP growth rate of 5.8% reported in the then NDA regime, there was steady growth in the UPA regime over the years except during 2008-09, when it plunged to 6.8% due to global economic slowdown.
“In the year [2010-11] which is coming to an end [GDP] is 8.6%. And therefore if I project that my GDP growth will be 9%, the figure is credible,” he said.
Japan's powerful earthquake and tsunami have sustained possible economic damage of $60-120 billion, but recovery efforts could bring about GDP growth by 0.2-0.3 percentage points in 2011, Citigroup analysts said recently.
Kiichi Murashima, an analyst with Citigroup, said the forecast was calculated for the fiscal year to begin in April.
In the fiscal year in question, Japan's economy could grow by 1.9.-2.1%, and could rise by 1.7% in January-December 2011, Murashima said. These figures include inevitable downturn in the first and early second quarter. Citi added that industrial production in Japan would fall by at least 1-2% in March.
Analysts in VTB Capital, a state-run investment bank, agreed that GDP growth in Japan would be negative - at least in the first and second quarters. But massive reconstruction projects would revitalize the economy.
The Japanese currency is likely to remain stable at a level of 82-84 yen to the dollar, Murashima said.
The effects of the quake and tsunami saw Japan's stock market to tumble by 6-10%.
VTB Capital experts have linked a drop in oil prices to the disaster. Japan is the world's third importer of "black gold." Citigroup analysts said work at six Japanese oil refineries, or one third of its refining capacity, had been suspended by March 14.
In January-February 2011 Belarus’ gross domestic product expanded by 7.8% from the same period in 2010, BelTA learnt from the National Statistics Committee. The forecast for the country’s social and economic development provides for a 9-10% growth in 2011.
In January-February 2011 industrial production increased by 11.1% from the same period last year (the annual growth forecast is 9-9.5%) and reached Br31.132 trillion. The profitability of sales in the manufacturing industry stood at 5.8% (the annual growth forecast is 8-9%). The share of innovation products designed for export was 11.3% of the total exports in January-February (the annual growth forecast is 12-13%).
In January, the GDP energy intensity fell by 9.6% (forecast provided for minus 6-7%).
Bosnia's GDP grew 0.9% in 2010, reports Reuters. This is more than the earlier estimate of 0.5%.
"The 0.9 percent growth in 2010 clearly shows the country is back in a positive zone," central bank governor Kemal Kozaric told reporters in Sarajevo. Kozaric added that he still expects the economy to grow 3% in 2011.
Bosnia's leaders have failed to form a government five months after elections, however and this will impact growth, according to Kozaric. "Political stability is important for the financial sector and growth," Kozaric said. "We are disappointed with this situation - all those in business are looking for a stable political climate."
Inflation for 2011 is expected to reach about 3% due to rising oil and food prices, said Kozaric. This is up from 2.5% in 2010. NPLs rose to 9.6% of all bank loans in Q4 2010, from 5.9% in Q4 2009. The country's banking sector posted a $86m loss last year. Bosnia's banking sector is 80% foreign owned.
Cyprus GDP growth rate in real terms during the fourth quarter of 2010 is estimated at 2.5% over the corresponding quarter of 2009. Based on seasonally and working day adjusted data, GDP growth rate in real terms is estimated at 2.6%. For the whole year 2010, GDP growth rate is estimated at 1.0%. The improvement observed in the Cyprus economy during 2010 is mainly attributed to the improved performances recorded in the sectors of Tourism, Transport and Trade. The broad Services sector and the Financial Intermediation activities recorded positive results, while Construction and Manufacturing presented negative performances.
The Greek economy contracted in 2010, with a 4.5% drop, higher than the -4.2% included in the government's budget. In Q4, the GDP dropped by 1.4% on a quarterly basis and by 6.6% on a yearly bais. Finance Minister George Papaconstantinou, acknowledges negative figures but is still optimistic about the situation. In spite of the negative GDP data Athen's stock exchange has gone up by 3.8%, following the discount Greece obtained in Brussels on loan redemption.
Analysts polled by MTI predicted Hungary's economy to grow slowly in the rest of the year, after fresh GDP growth data showed a slight increase in the growth rate in February. Economic growth continues to be supported by industrial sector exports as domestic consumption remains weak, analysts told MTI.
Hungary's annual gross domestic product (GDP) growth accelerated to 1.9% in the fourth quarter last year from 1.7% in the previous quarter, according to the Central Statistical Office (KSH). Hungary's economy grew by 1.2% for the full year in 2010. The industrial sector grew by 9.7% but total consumption was down 1.9%.
Gyorgy Barta of CIB Bank said growth continues to "stand on one leg", driven by industrial exports, as domestic demand remains weak. Growth in 2011 could reach 2.6% as private consumption slowly picks up, however businesses passing on the cost of crisis taxes as well as sluggish lending will have adverse effects.
Barta said he expected to see economic growth between 3-3.5% in 2013-2014.
Zoltan Torok of Raiffeisen Bank predicted 2.5% growth for 2011, with consumption estimated to grow at around 0.5% and economic growth still driven by net exports.
Raiffeisen slightly downgraded its GDP growth estimate for 2012 to 3.5% from the earlier 4%. In 2013-2014, Torok predicted GDP growth of around 4%, backed by major export growth.
Latvia's gross domestic growth expanded 3.6% year-on-year in the fourth quarter on a seasonally unadjusted basis, the latest estimate from the Central Statistical Bureau showed.
The rate of growth was a tad below 3.7% estimated in the flash report. Meanwhile, the third quarter GDP figure was revised down to 2.8% from 2.9%.
Sequentially, GDP grew 1.1% after adjusting to seasonal variations. The figure matched the flash estimate.
Value-added of trade grew 10.6% from a year earlier, while value-added of manufacturing increased 17.9%. On the other hand, construction volume dropped 1.6%.
Consumer spending climbed 6.5% annually, while investments were 4% higher than a year ago. In 2010, the economy shrank 0.3%. This was slightly below the Finance Ministry's estimate of 0.2% contraction.
Saudi Arabia has further growth potential, underpinned by the prospects of increasing oil production combined with the positive outlook for oil prices over 2011, Business Monitor International said in its "Saudi Arabia Business Forecast Report Q2 2011". On top of that, the Kingdom’s spending drive aimed at strengthening non-oil sector growth will also contribute to overall economic progress.
"This strong growth story will boost the country’s investment climate and help attract further foreign investment."
Moreover, a scenario in which social unrest degenerates to a similar extent as that seen in Egypt or Tunisia remains unlikely, the report said, owing to the Kingdom’s "higher living standards."
The report maintained its positive economic growth outlook for Saudi Arabia and project real GDP to expand 3.9% in 2011, up from an estimated 3.0% in 2010.
Saudi Arabia’s non-oil sector will play an increasingly vital role for the economy, as the government’s initiative to diversify the economy away from the hydrocarbon sector will bolster private consumption and gross fixed capital formation (GFCF).
"As a result, we forecast GFCF growth to outperform all other expenditure components of GDP from 2011 onwards. Indeed, as part of a longer-term spending plan, the government plans to spend $155 billion in 2011 alone, investing in education and infrastructure," the report noted.
However, until the mortgage law is passed, the report said "persisting weak credit growth will pose risks to the country’s growth potential." Over the longer term, the Saudi GDP growth is forecast at 3.5% in real terms between 2012 and 2015.
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