GDP UPDATE
March 2012
McIlvaine Company
TABLE OF CONTENTS
(1) A number of Wall Street firms raised their forecast for first-quarter U.S. growth after a strong increase in retail sales in February as well as upward revisions for January and December. The most recent MarketWatch survey of economists forecast the U.S. to expand at a 1.7% pace in the first quarter, down from 3.0% in the fourth quarter. Morgan Stanley, Goldman Sachs, Bank of America/Merrill Lynch, Barclays and Macroeconomic Advisers were among the firms that boosted their growth projections for the first three months of 2012. Consumer spending accounts for as much as 70% of U.S. growth, so higher retail sales indicates the economy is growing faster. Revised estimates of growth range from as high as 2.1% (Macroeconomic Advisers) to 1.3% (Morgan Stanley).
(2) Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 3.0% in the fourth quarter of 2011 (that is, from the third quarter to the fourth quarter), according to the "second" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 1.8%.
The GDP estimate is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 2.8%.
The increase in real GDP in the fourth quarter reflected positive contributions from private inventory investment, personal consumption expenditures (PCE), exports, nonresidential fixed investment, and residential fixed investment that were partly offset by negative contributions from federal government spending and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased.
The acceleration in real GDP in the fourth quarter primarily reflected an upturn in private inventory investment and accelerations in PCE and in residential fixed investment that were partly offset by a deceleration in nonresidential fixed investment, a downturn in federal government spending, an acceleration in imports, and a larger decrease in state and local government spending.
The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 1.1% in the fourth quarter, 0.3 percentage point more than in the advance estimate; this index increased 2.0% in the third quarter. Excluding food and energy prices, the price index for gross domestic purchases increased 1.2%in the fourth quarter, compared with an increase of 1.8% in the third.
Real gross domestic purchases -- purchases by U.S. residents of goods and services wherever produced -- increased 2.9% in the fourth quarter, compared with an increase of 1.3% in the third.
Current-dollar GDP -- the market value of the nation's output of goods and services - increased 3.9%, or $144.7 billion, in the fourth quarter to a level of $15,320.8 billion. In the third quarter, current-dollar GDP increased 4.4%, or $163.3 billion.
2011 GDP - Real GDP increased 1.7% in 2011 (that is, from the 2010 annual level to the 2011 annual level), compared with an increase of 3.0% in 2010.
The increase in real GDP in 2011 primarily reflected positive contributions from PCE, exports, and nonresidential fixed investment that were partly offset by negative contributions from state and local government spending, private inventory investment, and federal government spending. Imports, which are a subtraction in the calculation of GDP, increased.
The deceleration in real GDP in 2011 primarily reflected downturns in private inventory investment and in federal government spending and a deceleration in exports that were partly offset by a deceleration in imports and an acceleration in nonresidential fixed investment.
The price index for gross domestic purchases increased 2.5% in 2011, compared with an increase of 1.5% in 2010.
Current-dollar GDP increased 3.9%, or $567.9 billion, in 2011 to a level of $15,094.4 billion. In 2010, current-dollar GDP increased 4.2%, or $587.5 billion.
During 2011 (that is, measured from the fourth quarter of 2010 to the fourth quarter of 2011), real GDP increased 1.6%. Real GDP increased 3.1% during 2010. The price index for gross domestic purchases increased 2.6% during 2011, compared with an increase of 1.4% during 2010.
Canada's economic growth decelerated in the fourth quarter in line with expectations as exports, housing and inventory build-up slowed and consumer spending expanded.
Output growth in the prior quarter was even stronger than originally estimated, as gross domestic product was revised to show the largest gain since the first three months of 2010.
GDP expanded 0.4% on a quarterly basis or an annualized 1.8% in the October through December period, Statistics Canada said. The figure matched the consensus call in a report from Royal Bank of Canada, but missed the Canadian central bank's 2% forecast. It was also much slower than the U.S. where GDP grew 3.0%.
Exports in October through December slowed to 1.1% on a quarterly basis from 3.8% previously. Imports were up 0.5%, rebounding from a 0.4% decline. Final domestic demand grew 0.5%, slightly faster than the revised 0.4% in the prior quarter.
Growth in the third quarter was revised to an annualized 4.2% from 3.5%, driven by stronger final domestic demand.
The economy ended 2011 on a stronger-than-expected note with monthly GDP growth of 0.4% in December, driven by increased output of oil and gas following maintenance shutdowns the prior month, as well as manufacturing, wholesale trade and construction. The consensus call was for a 0.3% gain.
Most economists said details of the report are more encouraging than the headline figure suggests, and that December's growth points to a strong hand-off into 2012, boding well for the year. They expect continued recovery in the U.S. to buoy exports and business investment to continue to grow. Business investment in plant and equipment grew 2.0% in the fourth quarter, the eighth consecutive gain.
"One of the reasons why growth was so modest is, producers were caught unawares," and drew down inventories to meet demand, Douglas Porter, deputy chief economist at BMO Capital Markets, said in an interview. Inventory buildup slowed to C$6.45 billion from C$10.53 billion, deducting about a quarter- percentage point from output growth.
Consumer spending accelerated to 0.7% from 0.4%, driven by purchases of vehicles, furniture and clothing. Housing investment slowed to 0.8% from 2.5%.
Porter said it's "highly unlikely" that housing and consumer spending will add much to growth this year given stretched household balance sheets, noting the personal savings rate of 3.4% in the last two quarters is "on the light side."
Government spending is also unlikely to contribute to growth, in light of austerity measures expected in the March 29 budget, economists said. Government spending was flat in the last quarter.
As far as the Bank of Canada is concerned, the GDP report "helps diminish some of the downside risks they were concerned about," David Tulk, chief Canada macro strategist at TD Securities, said in an interview. But he said rate hikes are still likely more than a year away. His firm's official forecast is for the Bank to start increasing rates in June next year but Tulk personally thinks it could happen in the first quarter of 2013.
Australia’s economy expanded at half the pace economists forecast last quarter as a housing slump deterred consumer spending, sending bond yields falling and the local currency to a six-week low.
Gross domestic product advanced 0.4% in the fourth quarter from the previous three months, when it rose a revised 0.8% that was weaker than previously reported, a Bureau of Statistics report showed. The result compared with the median of 25 estimates in a Bloomberg News survey for a 0.8% gain.
The report covers a period when Europe’s sovereign-debt crisis weighed on Asian demand for commodities that prompted Reserve Bank Governor Glenn Stevens to make back-to-back interest-rate cuts for the first time since 2009. Investors increased bets he will lower borrowing costs next month as a A$456 billion ($481 billion) pipeline of resource projects driven by companies such as BHP Billiton Ltd. fails to cushion a slump in manufacturing and tourism hit by a strong currency.
“With GDP growth below trend, an argument can be made for a further rate cut,” said Joshua Williamson, a senior economist at Citigroup Inc. (C) in Sydney. “The slowdown in consumer spending despite two interest-rate cuts suggests a soft inflation result this quarter would provide room for a further easing in financial conditions.”
Market Reaction - The currency fell after the report, to as low as $1.0509, the weakest level since Jan. 25. Government bonds advanced, with yields on 10-year debt falling as low as 3.94%, seven basis points, or 0.07 percentage point, below the previous close.
Traders see about a 36% chance the central bank will cut borrowing costs by a quarter percentage point to 4% next month, Bloomberg calculations based on interbank cash-rate futures show, up from 30% yesterday after Stevens held.
The current report showed household spending rose 0.5% in the fourth quarter, the poorest showing since the first quarter of 2010, adding 0.3 percentage point to GDP growth. Housing construction declined 3.9% in the fourth quarter, the worst in almost three years, subtracting 0.2 point from the expansion.
Australian house prices plunged by the most on record in 2011 as global economic uncertainty and concerns about its impact at home restrained demand. An index measuring the weighted average of prices for established houses in eight major cities slid 4.8% from a year earlier, a government report showed Feb. 1, the biggest calendar-year drop since the data began in March 2002.
Tourism Slump - The GDP report showed accommodation and food services, spanning the nation’s tourism industry, fell by 2.2% last quarter as the currency’s strength encouraged Australians to vacation abroad.
“The high dollar has contributed to a decline in travel to the traditional domestic holiday destinations, with Australians traveling overseas in ever increasing numbers,” RBA Deputy Governor Philip Lowe said in a speech. “This has created quite difficult conditions for parts of the industry with, for example, room occupancy rates along the Queensland coast having fallen over recent years.”
The Australian dollar, the world’s fifth-most traded currency, has strengthened about 3% this year as investors bet the economy will accelerate. It touched a six- month high of $1.0856 on Feb. 29 after the European Central Bank awarded €529.5 billion ($696 billion) in a second round of three-year loans to banks.
‘Sub-Trend’ - Compared with a year earlier, the economy expanded 2.3% in the fourth quarter. Economists forecast a 2.4% year-over-year gain. The annual figure represented a fourth consecutive year of “sub-trend growth,” Westpac Banking Corp. (WBC) said in a note to clients.
“The persistence of sub-trend growth for four consecutive years is a key reason for current labor market weakness and the likelihood that unemployment will move higher during 2012,” wrote economists led by Sydney-based Bill Evans, Westpac’s chief economist.
Macquarie Group Ltd. (MQG), the nation’s largest investment bank, released an assessment of floods that have inundated New South Wales. About 75%c of Australia’s most populous state is affected by flooding as rainfall causes rivers to burst their banks, with 12,900 people forced to leave their homes.
‘Far More Muted’ - The economic impact this time will be “far more muted” than from floods in the first quarter of 2011 that caused the economy to contract and boosted inflation,’’ said Brian Redican, senior economist in Sydney at Macquarie.
Australian business profits unexpectedly dropped in the three months through December by the most in two-and-a-half years as earnings weakened at mining and financial companies, reflecting weaker commodity prices and the weakest demand for home lending since 1977.
BHP Billiton Ltd. (BHP), the world’s biggest mining company, reported a 5.5% drop in first-half profit, the first decline since 2009, as rising costs and lower output and prices halved base metals earnings. Net income was $9.9 billion in the six months ended Dec. 31, from $10.5 billion, a year earlier, the Melbourne-based company said.
Westpac, Australia’s second-largest bank, reported first- quarter profit that was lower than a year earlier as rising funding costs squeezed the profitability of its lending. Unaudited cash earnings in the three months ended Dec. 31 were A$1.5 billion, according to the Sydney-based bank. It posted cash earnings of A$1.55 billion a year earlier.
Rate Pause - The RBA held its benchmark rate at 4.25% for a second month, while noting it has scope to lower borrowing costs as Europe remains a potential source of shocks “for some time yet.”
“Housing prices have shown some sign of stabilizing recently, after having declined for most of 2011, but generally the housing market remains soft,” Stevens said.
Government spending increased 1%, adding 0.2 point to growth, the report showed. The nation’s household savings ratio dropped to 9% in the three months through December, the lowest since the second quarter of 2010, from 9.6% in the third quarter, the report showed.
“The sluggish pace of the economy keeps the door open to another rate cut,” said Craig James, a senior economist at Commonwealth Bank of Australia, the nation’s biggest lender, in Sydney. “Not only has data confirmed that the economy is just chugging along, timelier indicators suggest there has been little improvement in 2012.”
Treasurer Wayne Swan said the economy’s performance in the final three months of last year was “solid given the world was facing the most dire conditions in the global economy since the height of the financial crisis” in 2008-09.
China's decision to cut its annual economic growth target to 7.5% for 2012 was necessary to deliver sustainable growth and create room to make structural reforms to help cushion external pressure on the economy, according to Premier Wen Jiabao.
"Due to the European debt crisis and a shrinking external market, there are downward pressures on the Chinese economy. Under such circumstances, we lowered the growth rate target mainly to allow for structural adjustment," Wen told a news conference at the end of the annual meeting of parliament.
Wen said the move was needed "so that China's economy can overcome its unbalanced, unsustainable and uncoordinated problems to step on a road focused on quality, which is also fundamentally positive for the world economy."
Wen announced the target cut to 7.5% from 8% at the opening of National People's Congress.
India's real economic growth is expected to pick up in the next financial year, while inflation is seen easing due to tight monetary policy and measures taken by the government to curb price growth, according to the Economic Survey 2011-12 tabled by Finance Minister Pranab Mukherjee in parliament.
The outlook for growth and price stability at this juncture looks more promising, the survey said.
Economic growth is forecast to pick up to 7.6% in 2012-13 and faster beyond that. For 2011-12, growth is estimated to be lower at 6.9%, but India remains one of the fastest growing economies of the world, the survey showed. The agriculture sector growth is forecast to achieve 2.5% in 2011-12.
Although the global economy is set to remain quite fragile, preliminary calculations suggest that the India's growth rate in 2013-14 will be 8.6%, the survey revealed.
Industrial growth is pegged at 4-5% for FY 2013. Industrial activity is estimated to strengthen as economic recovery resumes.
Inflation is forecast to moderate to 6.5 to 7% by March 2012. The ministry expects further slowdown during 2012-13 due to tightening of monetary policy and other measures put in place by the government.
The survey emphasized that rapid fiscal consolidation is the only way out to keep inflation down and aim for robust growth. The ministry estimates fiscal deficit to fall to 4.1% of GDP in 2012-13 and then to 3.5% in 2013-14.
There may be some slippage in fiscal target during the current year, but in the medium-term stance of fiscal consolidation could be salvaged. Still the timelines may have to be redrawn, the ministry said in the report.
During recent months, export growth slowed, while imports remained at elevated level, resulting in higher trade deficit. The survey advised to diversify India's export basket as its presence is limited in the top items of world trade.
Due to a rise in trade deficit, the current account gap widened to $32.8 billion or 3.6% of GDP in the first half of 2011-12. The rupee's high volatility impairs investor confidence, necessitating a more aggressive stand to check its volatility.
According to the Economic Survey, a trade deficit of more than 8% of gross domestic product and current account deficit of more than 3%c is a sign of growing imbalance in the country's balance of payment.
The economy is expected to grow 5.8% this year and 7% in 2013, the Institute of International Finance (IIF) said.
In its research note titled "Philippines: Going for Growth," the IIF said that the macroeconomic stability experienced in 2011 is expected to continue this year and until 2013.
"Macroeconomic stability has bolstered the economy against recurrent turmoil in the global financial markets and should pave the way for a strong revival in growth over the near term," the IIF said.
"The drag on growth from exports should soon run its course, while accommodative monetary measures should help stimulate domestic demand," it said.
"The progressive pick-up of momentum is set to lift real GDP from 3.7% in 2011 to 5.8% in 2012 and 7.0% in 2013."
The projection for the year is at the higher end of the inter-agency Development Budget Coordination Committee’s forecast of 5 to 6%.
The outlook for 2013, meanwhile, is at the lower-end of the 7 to 8% medium-term "aspirational" target of the government. The official GDP target for 2013 has yet to be announced.
The central bank of Sri Lanka (CBSL) left its repurchase rate on hold at 7.5%, which according to Capital Economics, is the most important since the end of the civil war in 2009.
Subsequently, Capital Economics has come out with the 2012 forecasts for Sri Lanka's growth, inflation, interest rates and the currency.
The Sri Lankan rupee has declined by around 9% against the dollar so far this year. Capital Economics has pointed that in contrast, other Asian currencies that have benefited from a return of the global risk appetite are now around 2 to 5% higher. Now that the currency band been abandoned, the rupee is vulnerable to further changes in global investor sentiment. If the situation in the euro-zone worsens later this year, as it is expected to and risk aversion returns, it is anticipated that the rupee will end the year at SLR127/$.
Capital Economics says that although consumer price inflation fell to a 28-month low of just 2.7% y/y in February, the fall was due mainly to a collapse in food price inflation. Underlying inflationary pressures remain high. Non-food CPI increased to 9.2% in February, up from 7.4% the previous month. As a result of the fuel price hikes and the weakness of the rupee, it is expected that inflation will accelerate sharply this year. We have raised our full-year forecast for inflation from 5& to 7%.
Even though the likelihood of higher inflation makes further rate hikes a strong possibility, the CBSL has said it is no hurry to raise rates further. Gareth Leather, Asia Economist in Capital Economics, says that with global growth set to disappoint this year, it is believed that the repurchase rate will remain unchanged at 7.5% for the rest of the year. This compares with our earlier year-end forecast of 6.5%.
Also due to the combination of higher interest rates and increased inflation, Capital Economics has cut the GDP growth forecast for this year to 7%, from 8% previously.
Ernst & Young LLP said the euro- area economy will probably contract more this year than it previously predicted as governments across the region reduce budget deficits.
Gross domestic product among the 17 countries that share the single currency is set to shrink 0.5%in 2012, compared with the 0.1% decline forecast in December, Ernst & Young’s Mark Otty, based in London, wrote in the company’s spring forecast for the region.
Countries from Greece to the Netherlands are implementing tax increases and spending cuts to help stem deficits amid the region’s sovereign debt crisis, now in its third year. The cuts will collectively reduce euro-area GDP by more than 1 percentage point in both 2012 and 2013, Ernst & Young estimated.
“Whether this is self-inflicted damage or the unavoidable precondition to sustainable recovery is the source of much macroeconomic and political debate,” wrote Otty, who is managing partner for Europe, the Middle East, India and Africa.
Both governments and companies in Europe face “the key challenge” of finding liquidity this year, Otty said. States will need to roll over about €1.1 trillion ($1.4 trillion) of debt in 2012, while companies seek to refinance €1.4 trillion, Ernst & Young estimated.
The United Arab Emirates' economic growth is expected to slow to 2.3% this year from an estimated 4.9% in 2011, as the Gulf country gradually consolidates fiscal policy, the International Monetary Fund said recently.
"The economic recovery looks set to continue. With limited potential for further increases in oil production in the near term, overall GDP growth is expected to moderate to 2.3%," the Fund said in a statement after concluding its annual consultations with the UAE.
The Fund's 2011 gross domestic product growth estimate is much stronger than 3.9% forecast by analysts polled by Reuters in December. The UAE's statistics bureau has yet to release 2011 GDP data.
Robust oil prices and strong trade flows with Asia have helped the second largest Arab economy recover from the 2009-2010 Dubai debt crisis, which exposed excesses in its property sector and led to a $25 billion debt restructuring at state-owned Dubai World.
The IMF warned, however, that the uncertain global economic and financial environment posed risks to the outlook, and any renewed worsening of the global situation could make it more difficult for the UAE's government-linked companies to roll over some of their maturing external debt.
It said substantial progress had been made in the debt restructuring of state-linked entities, but that they still faced high refinancing needs and continued reliance on foreign funding.
UAE authorities' plans to gradually consolidate fiscal policy, after heavy spending during the debt crisis, are appropriate, the IMF also said.
Italy is in recession, final data confirmed, underscoring the difficulties facing Mario Monti's technocrat government as it grapples with a shrinking economy dragged down by austerity measures and a debt crisis.
Italy's economy shrank 0.7% in the fourth quarter of 2011, following a 0.2% decline in gross domestic product in the third quarter.
Monti, who rushed through a 33 billion euro austerity plan in December and is now working on reforms to boost growth, is due to meet Germany's Chancellor Angela Merkel for talks in Rome.
Germany's economy contracted by 0.2% in the fourth quarter, but analysts are expecting Europe's largest economy to pick up steam again this year, while Italy is seen lagging.
Weak consumption in the euro zone's third largest economy weighed heavily in the fourth quarter, while investments and inventories also declined but net exports contributed positively.
"Domestic demand is the weakest link, the area hardest hit by fiscal tightening," said Paolo Mameli from Intesa Sanpaolo, who said GDP would likely decline by a similar rate in the first quarter of 2012.
Italy's national statistics office ISTAT said GDP fell 0.4% year-on-year in the fourth quarter, revising a preliminary estimate of a 0.5% fall.
The data lagged a euro zone average of -0.3% quarter on quarter and 0.7% year-on-year. Economic indicators are pointing to a further slowdown for most of 2012 in Italy, which has been the most sluggish economy in the euro zone over the last decade.
The Organization for Economic Co-operation and Development said there were tentative signs of economic improvement in the euro zone.
Analysts polled by Reuters in January expected GDP to shrink by about 0.6% in the first quarter of this year.
Data last week showed industrial output was much weaker than expected in January, plunging 2.5% and marking an extremely poor start to the year.
The Bank of Italy forecasts a 1.5% full-year contraction in 2012, far steeper than the government's official projection of -0.4%.
Monti's austerity measures including spending cuts, tax hikes and pension reform are aimed at balancing the budget in 2013, though critics say they will weigh on Italy's already chronically low growth rates.
Market concerns about the sustainability of the country's 1.9 trillion euro public debt have calmed since Monti replaced Silvio Berlusconi in November and yields on Italy's 10 year bonds have fallen to below 5% from peaks close to 8% at the end of 2011.
Monti is now working on measures to stimulate the economy, and his government is due to meet with unions and employers to discuss a labocr market reform to follow deregulation measures announced in January.
Slovakia’s 2012 budget deficit may fall under 4.4% of gross domestic product, below the target of 4.6% of GDP, as the economy will expand faster than projected, Finance Minister Ivan Miklos said.
The Finance Ministry revised its forecast for the 2012 growth to 2.3% from 1.7%, on which the budget was based, Miklos told journalists in Bratislava, Slovakia.
To meet the 2013 goal of trimming the budget deficit below 3% of GDP, the government will need to adopt austerity measures worth €1.17 billion, Miklos said.
Spanish stocks are the only developed market suffering losses this year as Prime Minister Mariano Rajoy fails to rein in the budget deficit fast enough to assure investors.
The IBEX 35 Index (IBEX) dropped 2.1% in 2012 through yesterday, the only decline among 24 developed markets tracked by Bloomberg. That compares with an 11% rally in the Stoxx Europe 600 Index (SXXP), the best start to a year since 1998. The Spanish gauge has erased all gains that followed the European Central Bank’s Dec. 8 announcement of unlimited three-year loans for banks at below-market borrowing costs.
Rajoy increased the target for this year’s deficit to 5.8% of gross domestic product from 4.4% following a summit of European leaders on March 2, three months after taking office. The IBEX 35 has dropped 2% since the move that Rajoy called a “sovereign decision” for Spain alone.
Spanish lenders are saddled with €175 billion ($228 billion) of troubled real-estate assets after a property bubble burst and the economy contracted. They had the second-highest capital shortfall in the European Banking Authority’s stress tests in December, after Greece. The association reported that Spanish lenders needed to raise €26.2 billion as of the third quarter of 2011, compared with €15.4 billion for Italian firms.
Spain’s jobless rate is 23 percent, more than double the euro-region average, while economist projections compiled by Bloomberg show GDP may shrink 1% this year, its third contraction in four years. That compares with forecasts for a 0.4% contraction in the euro area as a whole, Bloomberg data show. Home prices fell the most on record in the fourth quarter, the government said recently.
The EU forecast in November that Spain would have the third-highest deficit in the 17-nation euro area this year, at 5%, trailing only Ireland and Greece. European leaders called on Spain to prune an additional 0.5% of GDP from the 2012 budget at a March 12 meeting after the Iberian nation ended last year with a budget gap twice that of Italy.
Tanzania's economy is projected to expand by 6.5 to 7% in 2012-13, up from about 6.3% in 2011, with its deficit cut to 5.5% of gross domestic product, the International Monetary Fund said recently.
The Washington-based IMF also said real Gross Domestic Product (GDP) grew 6.3% in the first nine months of 2011 and was expected to have maintained that pace in the final quarter of the year.
The IMF estimate echoes the World Bank's forecast in February that east Africa's second biggest economy could rebound to 7% growth in 2012-13, buoyed by the recovery of the global economy.
"For 2012-13, growth is projected in the 6.5-7% range. It was agreed that the authorities will pursue further fiscal consolidation to achieve an overall budget deficit of 5.5% of GDP in 2012-13," the IMF said in a statement.
The IMF gave no explanation for the greater growth forecast.
Economic analysts say increasing investor interest in Tanzania's telecommunications, energy and financial services sectors should help drive economic growth if the world economy recovers.
The IMF said in February that savings in Tanzania's non-priority programs were expected to reduce the budget deficit to around 6.5% of GDP by the end of June this year, and help tackle inflation.
"Monetary policy will need to be tight over the near term to keep underlying inflation low. Based on a projected improvement in the food situation in the region, headline inflation is projected to return to single digits by end-2012," the IMF said.
The World Bank has a more optimistic forecast on Tanzania's inflation rate, expecting it to fall to single digits by June from 19.7%in January, in line with government expectations.
A chronic energy shortage coupled with high inflation driven by food and fuel prices dampened growth in Tanzania last year.
"The increase in electricity tariffs by 40% in January 2012 was an important step in covering the associated higher cost of power generation. It will be important to ensure that tariffs continue to reflect the cost of power generation," the IMF said.
The IMF said Tanzania had requested support from the fund's precautionary stand-by credit facility (SCF) as a safety net for a possible global financial slowdown over the coming years, likely to be triggered by the ongoing euro zone crisis.
"The IMF's Executive Board is expected to consider the fourth PSI (policy support instrument) review and the request for the precautionary SCF in June 2012."
The United Arab Emirates' economic growth is expected to slow to 2.3% this year from an estimated 4.9% in 2011, as the Gulf country gradually consolidates fiscal policy, according to the International Monetary Fund.
"The economic recovery looks set to continue. With limited potential for further increases in oil production in the near term, overall GDP growth is expected to moderate to 2.3%," the Fund said in a statement after concluding its annual consultations with the UAE.
The Fund's 2011 gross domestic product growth estimate is much stronger than 3.9% forecast by analysts polled by Reuters in December. The UAE's statistics bureau has yet to release 2011 GDP data.
Robust oil prices and strong trade flows with Asia have helped the second largest Arab economy recover from the 2009-2010 Dubai debt crisis, which exposed excesses in its property sector and led to a $25 billion debt restructuring at state-owned Dubai World.
The IMF warned, however, that the uncertain global economic and financial environment posed risks to the outlook, and any renewed worsening of the global situation could make it more difficult for the UAE's government-linked companies to roll over some of their maturing external debt.
It said substantial progress had been made in the debt restructuring of state-linked entities, but that they still faced high refinancing needs and continued reliance on foreign funding.
UAE authorities' plans to gradually consolidate fiscal policy, after heavy spending during the debt crisis, are appropriate, the IMF also said.
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