GDP INDUSTRY FORECAST
UPDATE
April 2012
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TABLE OF CONTENTS
With a downward revision to exports offset by an upward revision to non-residential fixed investment, the Commerce Department released a report showing that the pace of U.S. economic growth in the fourth quarter was unrevised.
The report showed that GDP increased at an annual rate of 3.0% in the fourth quarter, unchanged from the previous estimate and in line with economist estimates.
The GDP growth in the fourth quarter still reflects a notable acceleration from the 1.8% growth seen in the third quarter.
The Commerce Department said the fourth quarter GDP growth primarily reflected positive contributions from private inventory investment, consumer spending, non-residential fixed investment, exports, and residential fixed investment.
At the same time, negative contributions from federal government spending and state and local government spending limited the upside. Imports, which are a subtraction in the calculation of GDP, also increased during the quarter.
The report also showed that consumer spending increase by 2.1% in the fourth quarter, unrevised from the previous estimate but up from the 1.7% growth seen in the third quarter.
Business investment increased by an upwardly revised 6.3% in the fourth quarter compared to the 4.3% increase previously reported.
As mentioned above, however, the upward revision was offset by a downward revision to the pace of export growth. Exports increased by a downwardly revised 2.7% compared to the previously reported 4.3% growth.
Federal government spending, which increased 2.1% in the third quarter, fell by an unrevised 6.9% in the fourth quarter, with defense spending tumbling by 12.1%.
The Commerce Department also said its reading on core consumer prices, which exclude food and energy prices, rose by 1.3% in the fourth quarter compared to a 2.1% increase in the third quarter.
Brazil’s government for next year expects faster growth and a weaker currency than economists forecast, according to the 2013 budget guidelines proposed by the administration of President Dilma Rousseff in Brasilia.
The real will trade at an average exchange rate of 1.84 per U.S. dollar, while the economy will expand by 5.5% in 2013, according to the proposal the government will present to Congress.
Economists expect gross domestic product to expand by 4.2% and the real to trade at an average of 1.78 next year, according to a central bank survey of about 100 analysts published April 9. The real has averaged 1.71 against the dollar over the past 12 months.
“We don’t have a fixed exchange rate. But we’ll work so that the currency doesn’t harm the economy,” Budget Minister Miriam Belchior told reporters in Brasilia after presenting the legislative proposal.
A strong currency, which hit a 12-year high in July last year, has helped turn the trade balance in manufacturing goods from an $8.7 billion surplus in 2005 into a $93 billion deficit last year, according to the Trade Ministry. The government has bought dollars in the foreign-exchange market and expanded taxes on foreign loans and bonds issued abroad in response to what Rousseff called a “monetary tsunami” from developed nations seeking to weaken their currencies and foster export growth.
The government also cut interest rates by 275 basis points since August to 9.75 percent and last month extended tax cuts for appliances to stimulate consumer spending and help fuel economic growth.
Brazil’s inflation should slow to the government’s target of 4.5% next year, with the country’s benchmark rate at 9% by the end of 2013, according to the budget plan.
Annual inflation slowed to 5.24% through March, a 17-month low.
Despite doubts aired by ADB and IMF over Bangladesh achieving 7% GDP growth this fiscal year, Finance Minister AMA Muhith is upbeat on the target.
“I believe GDP growth will be close to 7% and I still stick to that,” he told reporters after a pre-budget meeting with government secretaries at the NEC.
The Asian Development Bank (ADB) and the International Monetary Fund and the World Bank have their own projections, and there is nothing to argue with them over their projections, Muhith said.
Muhith claimed that the government understands better the country's economy than these development partners.
The ADB has recently projected 6.2% growth for Bangladesh in the current fiscal year. The IMF forecast economic growth in Bangladesh will slow to 5.5% in fiscal 2012, down from 6.7% in 2011.
China is slowing. Its (gross domestic product) GDP growth rate has fallen to 8.1%. Not to worry. Forecasters everywhere are more than confident that the Chinese can stimulate the economy if things start to get bad. This might be true if China was a normal economy, but its strengths can quickly turn into weaknesses. The reality is that they have the wolf by the ears and there might be no way out.
In its latest forecast the World Bank has cut its forecast for China from 8.4% to 8.2%. While this growth rate seems enviable, it is a 13-year low. The Bank also forecasts that the Chinese economy, after a soft landing, will bounce back by the third quarter of 2012. The recovery’s shape would be somewhere between a vigorous ‘V’ and a flat ‘L’.
The World Bank’s forecast has lots of support. A recent poll of 15 economists produced a median forecast of 8.3% while the Asian Development Bank (ADB) came in a little higher at 8.5%. Like the World Bank, the ADB’s forecast has been lowered from their report in December.
But it is not just the economic boffins who are forecasting slower Chinese growth. There is evidence from the real world as well; the most telling to do with commodities. Over the past two years commodities seemed tied to equities. This has changed recently. World stock indices rose more than 11% in the first quarter while the Reuters-Jefferies CRB commodity index stalled, up only 0.2 %. This was reflected in Morgan Stanley’s index of commodity producers whose shares lagged behind other sectors and gained only 4%. The sluggish growth was no doubt due to falling demand from China.
Real estate construction accounts for 13% of China’s economic growth, but the sector is also slowing. Sales transactions in Beijing, Shanghai and Shenzhen are about 30% below levels last December. Investment in property construction growth was up 12% of the previous year in December, but that was half the growth in November. Developers have up to two years’ worth of supply on their books and there are an estimated 10 million to 65 million unoccupied apartments in China.
Car sales are also slowing. In 2010 car sales exploded, growing at 32%. They are still rising, but only at 4.5%. Dealers are now discounting to attract buyers. There is a concern that the annual forecast for a 10% rise in sales will not materialize.
The slowdown in China is cause for concern far from its shores. One estimate puts Chinese contribution to global economic growth at two-fifths, twice the contribution of the former locomotive, the US. China has also replaced the US as the dominant trading partner of an ever increasing number of countries. It makes up over 20% of exports of Taiwan, Australia, Korea and Japan. The impact of China’s slowdown is not evenly spread. It contributes over 1% to the GDP of Russia, Korea, Indonesia and Brazil. Germany, as well, would be quick to feel a chill, since China contributes .8% to its GDP growth. In contrast the US economy would hardly be affected. China takes only 7.6% of its exports and it contributes only 0.1% to its growth.
The main reason why the Chinese slowdown does not scare pundits more is that they expect China to repeat its past actions by loosening its monetary policy and stimulating its economy as it did in 2009. Certainly it is trying. Bank lending in March rose to 1.01 trillion renminbi. This is high by even the more recent standards of the last two years and is two and a half times the amount of lending of last September and October. It is equal to a third of the entire amount of money lent in 2008 alone.
Not surprisingly inflation, which was considered tamed, has risen again from February and food prices are rising again despite record foreign purchases. It is not only inflation that is an issue. Most of the money lent by the state banking system goes to local governments. The most recent estimate is that about 10% will go bad by 2013.
So the Chinese have a problem. Their economy is slowing. Western economists feel that they have plenty of room for further stimulation, but that stimulation only results in higher inflation and bad loans. As influential economist Tsinghua University Professor Yuan Gangming puts it “Monetary policy is already quite loose and the central bank won’t loosen more unless it wants to die”.
Centre for Monitoring Indian Economy (CMIE) has said that it maintains its GDP growth forecast for FY13 at 7.6%, against the estimated 6.8% in FY12, reports PTI.
The union budget for 2012-13 failed to provide any thrust to the slacking pace of economic growth, as no major reforms were announced, nor any concrete measures were introduced to enforce fiscal discipline, CMIE said.
“We do not anticipate any improvement in economic activity on account of the budget proposals. Consequently, we have maintained our GDP growth forecast for 2012-13 at 7.6% against the estimated rise of 6.8% in 2011-12,” CMIE said in its monthly report in Mumbai.
The government did raise excise duty and service tax from 10% to 12%. This is expected to lead to inflationary pressure, both at the wholesale and retail level. However, demand is not expected to be affected on account of higher inflation, it added.
“Our revised inflation forecast for FY13, after taking into account the duty hike, at 6.5%, still reflects a fall in inflation from the high levels of 9%-10% recorded in the preceding two fiscal years. Easing inflation is expected to provide some leeway for the existing high interest rates to climb down, though this is expected to happen only by the second half of FY13,” the report said.
The main driver of economic growth in FY13 will be the industrial sector. Growth is expected to accelerate to 6.7% during the year compared to 4.1% in the preceding year. Revival in mining sector output, faster growth in manufacturing sector and robust increase in electricity generation will drive the growth.
Manufacturing sector output is expected to rise at a faster pace of 5.1% in FY13, compared to 4.1% in FY12. A revival in growth of machinery and equipment, electrical machinery, textiles and ready-made garments sector as well as faster growth in basic metals production is expected to drive the growth in this sector.
Mining sector output is expected to post a recovery from the 2.3% decline in FY12 and grow by 5.5% in FY 13. Higher crude oil production and improvement in natural gas output is expected to be reflected in improved growth prospects for the sector.
Higher imports of LNG, improved availability of coal and uranium, expectation of a normal rainfall coupled with a rise in capacity will reflect in 13.2% increase in power generation during FY13.
Services sector is also projected to grow by 9.3% in FY13, marginally higher than the 9% growth estimated in FY12, CMIE said.
Singapore’s economy rebounded last quarter, prompting the central bank to unexpectedly tighten monetary policy by allowing faster currency gains to contain inflation. The local dollar rose.
Gross domestic product rose an annualized 9.9% in the three months through March 31 from the previous quarter, when it dropped 2.5%, according to the Trade Ministry. The median of 12 estimates in a Bloomberg survey was for a 6.8% gain. The central bank, which uses the exchange rate to manage inflation, said it will increase “slightly” the slope of the currency trading band and raised its inflation forecast.
The island’s stance contrasts with Asian nations from Indonesia (IDBIRATE) to South Korea, which have kept interest rates unchanged in recent weeks as policy makers grapple with rising inflation risks and the economic impact of slowing growth in China. The local dollar is the region’s best performer this year as investors bet the Monetary Authority of Singapore will tolerate a stronger currency to curb price pressures that it said were more persistent than expected.
“Singapore not only has high inflation relative to its own past but it has high inflation relative to most other Asian countries,” said Robert Prior-Wandesforde, a Singapore-based director of Asian economics at Credit Suisse Group AG. “With growth having bounced back rather sharply, it gave them room to tighten slightly.”
Faster Inflation
Singapore’s inflation will average 3.5% to 4.5% in 2012, the central bank said recently, compared with a previous forecast range of 2.5% to 3.5%. It raised the core inflation projection to a range of 2.5% to 3% from 1.5% to 2%. Higher oil costs, rising housing rents, more expensive private transportation and unemployment at a 14-year low have sustained price pressures in the city state.
GDP (SGDPYOY) increased 1.6% from a year earlier last quarter, after rising 3.6% the previous three months. The expansion was more than the median forecast of 1% in a Bloomberg survey.
Singapore’s retail sales growth accelerated in February as vehicle purchases surged and consumers spent more at gas stations, the statistics department said in a separate report. The retail sales index climbed 19% from a year earlier after gaining a revised 1.8% in January.
The Singapore monetary authority guides the local dollar against a basket of currencies within an undisclosed band. It adjusts the pace of appreciation or depreciation by changing the slope, width and center of the band. The central bank, which releases a policy statement every six months, eased its stance at its last review for the first time since 2009.
South Korea's central bank recently lowered its economic growth forecasts for this year, citing a slowdown in the global economy, fueling market expectations the Bank of Korea will maintain its accommodative monetary stance to underpin growth amid subdued inflation.
The South Korean economy--Asia's fourth-largest--will likely expand 3.5% in 2012, the central bank said in its revised 2012 economic outlook, lower than its projection made in December for growth of 3.7%.
Gross domestic product grew 3.6% in 2011.
Headline inflation will likely ease to 3.2% this year, comfortably staying within the BOK's target band of 2%-4%, from 4.0% last year, the BOK said. The central bank said in December it expected consumer price inflation of 3.3% this year.
The central bank attributed its revised inflation forecast to government steps such as the expansion of child-care benefits and free school meals.
Core inflation, which strips out volatile energy and food costs, is now likely to come in at 2.6% this year, the bank said, down from its earlier forecast of 3.3%.
"The easing of uncertainties related to the euro-zone sovereign debt problems act as a positive factor, but downside factors for growth predominate such as the downward revision of the world economic growth rate and higher oil import prices," the bank said in a statement.
The BOK's new forecasts follow its decision to keep the country's benchmark interest rate steady at 3.25% for a 10th straight month, citing external uncertainties.
Analysts said the central bank's revised outlook suggests its policy priority will be to support growth rather than containing inflation as Korea's export-reliant economy remains vulnerable to downturns in the global economy.
"The BOK's assessment of the economy is still too bullish and fails to reflect recent developments in the euro zone, including the resurfacing of Spain's debt troubles," said Woori Investment & Securities analyst Peter Park. "If the situation in Europe turns for the worse, the central bank will have to make further downward revisions to its outlook."
He said he maintains his view that there will be no rate moves this year, but added the chances of a rate cut in the second half have increased.
In its latest economic outlook, the BOK said exports, which account for almost half of the economy, are likely to grow 4.8% this year, slower than its December projection of 5.0%. Private consumption is expected to grow 2.8%, compared with an earlier estimate of 3.2%. The central bank expects a jobless rate of 3.3% this year, down from an earlier projection of 3.4%.
The current account surplus will likely come in at $14.5 billion this year, the BOK said, higher than its December forecast of $13 billion due to a smaller-than-expected services account deficit.
Last week, the Asia Development Bank lowered its 2012 GDP forecast for South Korea to 3.4% from its September projection of 4.3%.
Sri Lanka’s rupee will stabilize further and economic expansion may accelerate to 8% next year from 7.2% in 2012, the island’s central bank said.
Inflation will remain in “single-digit” levels this year even as “high and volatile” food and energy costs add to uncertainty about price movements, the Central Bank of Sri Lanka said in its annual report.
The nation raised interest rates last week for the second time in 2012 to damp credit growth and inflation, extending the biggest overhaul of economic policy since its civil war ended in 2009. Officials let the rupee weaken to a record low and raised fuel prices under the measures, seeking to pare demand for imports such as oil, restrain the trade deficit and shield foreign-exchange reserves.
The reserves have climbed since mid-March and Sri Lanka will aim to rebuild them, Governor Ajith Nivard Cabraal said at the release of the report. The rupee will probably stabilize further and the balance-of-payments will have a surplus of $1.2 billion in 2012, he also said.
The central bank raised borrowing costs for the first time since 2007. Officials scrapped a trading band for the rupee on Feb. 9 and boosted energy costs from Feb.12. The IMF said February’s steps will put the economy on a “more sustainable trajectory.”
Accelerating Inflation
Inflation accelerated to a six-month high of 5.5% in March on energy costs. The trade deficit was $966 million in January 2012, compared with $645 million a year earlier.
Improvements in supply conditions will help to restrain price increases, the central bank said. On April 5, it raised the reverse repurchase rate to 9.75% from 9% and the repurchase rate to 7.75% from 7.5%.
The monetary authority may raise rates by 50 basis points to 75 basis points in the coming three-to-six months because of concern about credit growth, Barclays Capital said in an e- mailed note.
Sri Lanka’s monetary tightening contrasts with rate cuts in nations from Brazil to the Philippines in recent months, as officials in emerging markets move to shield growth from the impact of Europe’s debt crisis on exports.
The central bank estimated 8.3% gross domestic product growth in 2014.
Turkmenistan's gas-fuelled economy grew 10.4% year-on-year in January-March, President Kurbanguly Berdymukhamedov was quoted as saying, but he also reprimanded a senior official for not doing enough to develop the key energy sector.
First quarter growth was lower than the 14.4 percent year on year rise in GDP in first quarter 2011. Turkmenistan, which has the world's fourth largest natural gas reserves, had GDP growth of 14.7 percent in 2011, up from 9.2 percent in 2010.
Berdymukhamedov, who has virtually unlimited powers, is the main source of rarely published macroeconomic statistics in the secretive Central Asian nation of 5.5 million.
Berdymukhamedov said natural gas output had risen 19.1% year-on-year in first quarter 2012 but gave no output figure.
Turkmenistan, whose hopes of economic growth rely largely on expanding gas exports, has in recent years started selling natural gas to China and expanded exports to neighboring Iran.
The planned Nabucco gas pipeline, which is backed by the European Union and the United States and would run under the Caspian Sea to oil-rich Azerbaijan and on to Europe, is a pet project of Berdymukhamedov, who has taken steps to improve ties with the West.
France's economy posted no growth in the first quarter and there are no signs of a strong recovery in activity in the coming months, according to a Bank of France survey. In its monthly report, the Bank of France indicated that the euro zone's second largest economy avoided a recession, after it grew by 0.2% in the fourth quarter.
However, it said that activity was likely to remain stable in the coming months, a picture confirmed by soft manufacturing data from the INSEE national statistics office.
The Bank of France said that its business sentiment indicator for industry was unchanged in March at 95, a 3-month low it reached in February.
It noted that industrial activity improved, with rises in pharmaceuticals and chemicals, transport equipment and hi-tech goods. "Forecasts suggest that activity will remain stable in the short term," the bank said.
Economists said that with fiscal tightening across Europe weighing on external demand for French goods and with rising domestic unemployment likely to peak next year above 10%, it was no surprise the growth outlook was weak.
"The figures are a little bit disappointing," said Michel Martinez, economist at Societe Generale in Paris, who forecasts modest 0.5% growth in France for the year as a whole.
“They are in line with the cyclical picture of the French economy which stalled in the fourth- and the first-quarter and where the recovery will be weak," he said. "You cannot have a tough fiscal adjustment over two years and expect strong growth at the same time."
President Nicolas Sarkozy, who trails his Socialist rival in polls ahead of next month's crucial presidential runoff, has made cutting France's deficit a top priority. His government cut the deficit to 5.2% of GDP last year, below its target of 5.7%, and has pledged to balance the budget by 2016.
The Bank of France said industrial capacity utilization was unchanged in March and remained below its long-term average. Order books were close to normal levels while inventories were slightly above target.
For the services sector, meanwhile, the business sentiment level was also unchanged at 93, while the Bank of France said activity here had grown at a faster pace on the back of transport and engineering.
Manufacturing Weak
In a separate survey, INSEE said that manufacturing output fell by 1.2% in February after slipping a revised 0.1% in January.
For industry as a whole, output increased by 0.3%, in line with economists' forecasts, helped by a rise in gas and electricity consumption amid a cold snap.
Industrial output rose a revised 0.2% in month-on-month in January, in line with the euro zone average.
"Industrial production has been on a downward slope since mid-2011," wrote Fabrice Montagne, an economist at Barclays Capital.
"We will need to see stronger signs in terms of business sentiment, demand and competitiveness before we can expect a clear upswing in the French industrial sector," he said.
Economists said that the data confirmed the picture of an economy in the doldrums.
"Today's industrial production data support our forecast for flattish GDP in the first quarter," wrote Tullia Bucco, an economist at Unicredit in Milan.
INSEE had also forecast last month that France's 2 trillion euro economy would post no growth in the first quarter.
For the last three months as a whole, manufacturing output fell by 1.1%. It stood 1.6% below its level of a year earlier.
Hit by the closure of the Petit-Couronne plant, owned by insolvent oil refiner Petroplus, refining activity plunged by 13% in February.
The Purchasing Managers' index (PMI) data last week showed the biggest decline in factory activity for 33 months in March, after briefly stabilizing in February.
According to the latest available International Monetary Fund (IMF) numbers for October 2011, Kuwait’s real gross domestic product (GDP) is estimated to grow by 5.7%. The nominal GDP was expected to grow by 29% on the back of both higher oil prices (up 38% to $105.6 per barrel) and increased oil production (up 10% in 2011), Global Investment House (Global) said in its latest report.
According to the Central Bank data, Kuwait’s nominal gross domestic product (GDP) in 2010 grew by 17% to reach KD35.6 billion against a decline of 23% during the previous year.
The growth was primarily driven by a 22% jump in oil revenue as average Kuwait Export Crude oil (KEC) prices shot up by 26% to $76.3 per barrel amidst recovery in international markets (KEC prices had declined by 33% in 2009). The non-oil GDP too witnessed an increase of 12% in 2010 driven by a 28% jump in trade and 22% jump in the manufacturing sector.
Sweden's government has cut its economic outlook for 2012, saying problems in the eurozone are also affecting the Nordic country.
The center-right government lowered its expectation for 2012 gross domestic product growth to 0.4% from 1.3% previously. It expects GDP growth to recover to 3.3% in 2013.
Finance Minister Anders Borg said the government is focusing on countering the effects of the debt crisis and reducing unemployment, which is forecast at 7.8% in 2012 and 7.7% in 2013.
Long-term, the government wants to cut income taxes further, but Borg wouldn't specify when. He cautioned that the economic situation could deteriorate further and said opportunities for economic reforms are currently limited.
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