GDP INDUSTRY FORECAST
UPDATE
May/June 2012
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TABLE OF CONTENTS
India’s Q4 FY12 GDP Dropped 5.3 Percent and FY12 GDP at 6.5 Percent Beats Expectation
New unemployment claims jumped unexpectedly, indicating a pickup in layoffs, a worrisome sign ahead of the latest jobs report for May.
Adding to the dreary economic news, the government said in a separate report that U.S. gross domestic product grew at a slower pace in the first quarter than previously thought. Growth in GDP, the nation's total output of goods and services, was revised to an annualized rate of 1.9% from the 2.2% pace estimated a month ago.
The size of the GDP revision by the Commerce Department disappointed analysts. It reflected a smaller increase in consumer spending and inventory building than originally estimated, and a bigger drag on growth from government spending cuts and the trade deficit.
On the positive side, business investments were revised slightly higher.
GDP expanded at an annual rate of 3% in the fourth quarter of 2011. Many analysts are expecting mediocre growth of about 2.5% this year, which doesn't bode well for the job market.
The Labor Department's report on weekly unemployment claims showed first-time filings rose to 383,000 for the week. That was an increase of 10,000 from the previous week's revised figure, a sizable jump that followed smaller increases in the two previous weeks.
The rise in jobless claims was consistent with a report from Challenger, Gray & Christmas, a private outplacement firm, that showed an acceleration of layoff announcements in May by employers. Challenger said that businesses in May announced plans to cut 61,886 workers from their payrolls, up 53% from April and 67% higher than May 2011. The layoffs this month were reported largely by the computer industry.
Layoffs provide one side of the jobs equation; the other is hiring. And on that score, there are signs that May was not strong.
Automatic Data Processing Inc., a payroll processor, said its survey showed 133,000 private-sector jobs were added in May. That's slightly below analysts' expectations calling for job growth of about 150,000, which is more than enough to keep up with the growth rate of the labor force but much too slow to make up for the millions of jobs lost in the recession.
The pace of new job creation weakened in March and April to a monthly average of 134,000 after growing about 250,000 a month from December to February, when job gains were boosted by the warm winter weather.
The coming employment report is widely anticipated because it will shed light on how much unseasonably warm weather inflated the winter employment numbers as well as the underlying pace of job growth.
Financial market analysts and economists reduced their forecast for Brazil's economic expansion this year for the fourth consecutive week, following poor first-quarter economic performance, according to the weekly survey published by the Central Bank.
Respondents reduced their estimates for Brazil's 2012 gross domestic product growth to 2.72% from 2.99%. For 2013, they maintained their view for an expansion of 4.50%.
Recently, the Brazilian Institute of Geography and Statistics, or IBGE, said Brazil's economy expanded by 0.8% in the first quarter compared with the first quarter of 2011. That was the lowest pace of growth since the third quarter of 2009, when the GDP shrank 1.5%. Latin America's largest economy also grew 0.2% from the fourth quarter of 2011.
The central bank's weekly survey tracks the opinions of 100 analysts and economists and reports the average of their expectations.
With tepid economic performance, analysts see less inflationary pressures.
Economists reduced slightly their forecasts for Brazil's inflation rate at the end of 2012 to 5.15% from 5.17%. They kept their inflation view for the end of 2013 at 5.60%.
Brazil's inflation rate reached 6.50% last year, the highest since 7.6% in 2004.
Analysts also reduced their view for the benchmark Selic interest rate for the end of 2013 to 9.38% from 9.50%. For the end of this year, analysts kept their view for the Selic rate at 8 percent.
The average expectation for Brazil's debt-to-GDP ratio at the end of this year was increased to 35.85% from 35.83%.
The forecast for this year's trade surplus was maintained at $20 billion. Economists expect Brazil to post a current- account deficit of $68 billion at the end of this year.
Canada's first-quarter growth was well below the central bank's forecast, expanding at an annualized rate of 1.9%, according to Statistics Canada.
Gross domestic product grew 0.5% from the previous quarter, fueled by business investment in plant and machinery, housing and inventory build-up. Consumer spending grew 0.2%, but was the slowest pace since the recession in the first quarter of 2009.
The quarterly number matched the revised figure for the last three months of 2011, which was originally estimated at 1.8%, and it matched the consensus call according to a report from Royal Bank of Canada
Economic analysts have raised their forecasts on Peru's Gross Domestic Product (GDP) growth in 2012 from 5.8 to 6.0%, according to the central bank's latest survey on macroeconomic expectations.
The survey shows that financial entities and non-financial firms maintained their forecasts at 6.0%.
For the next two years, economic agents expect a growth rate of 6.0% on average. The survey also found that inflation expectation for this year is 3.2 %, and for the following two years, economic analysts and financial entities expect an inflation of 2.8 and 2.5%, respectively.
Meanwhile, an exchange rate of 2.65 soles per US dollar is now expected for end
2012.
As regards economic agents' expectations for the next two years, financial entities and economic analysts expect a lower level of exchange rate, whereas non-financial firms foresee depreciation in the domestic currency.
Australia’s resource-fueled economy outpaced all expectations last quarter, official data shows, as households and businesses went on a spending spree, reducing the urgency for aggressive cuts in interest rates.
Gross domestic product rose 1.3% during the first quarter, the Australian Bureau of Statistics reported, compared with the 0.5% increase forecast by economists. Growth was a robust 4.3% higher than in the first quarter of 2011, the fastest pace in more than four years.
Concerns about growth globally, and particularly in China, are likely to continue to cloud the outlook, but analysts were cheered that the economy had more momentum than anyone had supposed.
“Rumors of the economy’s death have been totally exaggerated,” said Michael Blythe, chief economist at Commonwealth Bank of Australia. “It does tell you we had a decent amount of momentum in the run-up to the latest round of the European woes, and it’s not a bad place to be in.”
The Australian dollar jumped on the upbeat data.
Investors scaled back expectations for how far and how fast interest rates would be cut.
The nation’s central bank, the Reserve Bank of Australia, cut rates for a second consecutive month, in part because domestic growth had disappointed while the global outlook turned ever darker.
“For the R.B.A., it’s all about forward-looking risks, and Europe’s the main source of those,” Mr. Blythe said. “But these sorts of numbers would suggest they won’t be looking to aggressively cut rates from here, unless something really does go wrong in Europe.”
The data were eagerly seized on by the Labor government, which is trailing badly in the polls as it pushes ahead with unpopular fiscal tightening and carbon tax plans.
“Today’s national accounts paint an extraordinary picture of exceptional growth and showcase the rock-solid economic fundamentals which put our economy in a league of its own,” said the country’s treasurer, Wayne Swan.
Australia’s annual growth rate is 4.3%, compared with 1.7% in the United States, zero in the European Union and a fall of 0.1% in Britain.
In all, GDP for the 12 months that ended in March reached 1.35 trillion Australian dollars, or $1.33 trillion. That amounts to 64,000 dollars for each of Australia’s 22.8 million people, compared with per capita GDP in the United States of $43,000.
Australia was one of the very few advanced economies to sail through the global financial crisis without sliding into recession, largely propped up by Chinese-led demand for its coal, iron ore and other natural resources.
While the Chinese economy has slowed markedly, miners continue to invest heavily in the belief that demand from urbanizing millions in China will run for years yet.
The recent data showed that spending on engineering projects like mines and liquefied natural gas had jumped 20% in the first quarter. That spending also helped offset a drag from international trade. The other big surprise was the strength of household demand, which climbed 1.6% in the quarter. That was the biggest rise in four years.
The spending was also broad-based, with sizable increases in food, health, education, clothing, transportation and restaurants. Solid gains in wages and salaries helped support spending habits while also allowing households to save a relatively high 9.3% of disposable income.
Intense discounting by retailers played a big part in driving demand, while keeping inflation contained. That should in turn provide scope for the central bank to ease further should events in China or Europe turn for the worse.
The central bank “has been setting policy with an eye toward Europe, and things there will continually get worse,” noted Ben Jarman, an economist at JPMorgan. “But the underlying domestic story is pretty favorable and isn’t forcing them to up the pace of what they’re doing,” he added. “We don’t expect the R.B.A. to move in July. We think the next cut will come in August.”
A slump in the services sector pushed the headline GDP growth to an all time low since 2004-05. GDP growth in this quarter at 5.3% y/y was even significantly lower than the 5.8% witnessed in the immediate aftermath of Lehman collapse. Services contribute 59% of the overall GDP – slipped below 8% y/y versus 8.9% in the previous quarter. The slip was primarily driven by slower economic activity. December 2010 slower services growth was masked by the base effect.
This shows that the weak industrial slowdown which has plagued the Indian economy since 2011 has finally spilled over the services sector. Retail and wholesale domestic trade (as captured in the “trade, hotels, transport and communication”), a good proxy for strength of consumer demand and an important component of the services sector ( almost 50% of services sector is explained by this) has slipped to 7% y/y (9.2% in the previous quarter) and is the weakest since March 2009. Other segments in the services sector like “financial, real estate and insurance” and “community social and personal services” fared reasonably well.
South Korea’s economy expanded at the same pace as the central bank initially estimated in the first quarter as corporate investment and government spending rose amid Europe’s debt crisis.
Gross domestic product grew 0.9% over the three months through March from the previous quarter, unchanged from an April estimate, according to the Bank of Korea. The economy expanded 2.8% from a year earlier, also matching the bank’s April estimate.
South Korea is bracing for falling demand for its automobiles and electronics as Europe’s debt crisis threatens to accelerate a global slowdown. The Bank of Korea is expected to keep interest rates unchanged for a 12th month tomorrow as Greece prepares for elections later this month and Spain calls for outside funds to prop up its banks.
“What’s happening in Greece and Spain threatens an economic recovery here,” Kim Nam Hyun, a Seoul-based fixed income analyst at Eugene Investment & Futures, said before release of the latest numbers. “All BOK board members will vote for no rate change this week, opting to wait and see how the euro-zone debt crisis unfolds.”
Corporate investment rose 10.3% in the first quarter from the previous quarter, while government spending rose 3.4%. Goods exports increased 4.2% and private consumption rose 1%.
While South Korea’s gross domestic product expanded at the fastest pace in a year last quarter, the Bank of Korea reduced its 2012 growth forecast to 3.5% from 3.7% on April 16 amid Europe’s woes. Meanwhile, Asian economic data has been mixed.
Australia’s gross domestic product expanded 1.3% last quarter from the previous three months, a recent report showed, compared with the median 0.6% gain predicted by economists in a Bloomberg News survey. China’s economy expanded a less-than-expected 8.1% in the first quarter, the slowest pace in almost three years.
Finance Minister Bahk Jae Wan said the government will allocate additional state funds to small firms and exporters within the next few months in an effort to boost economic growth. Finance ministry and central bank officials held emergency meetings, where they pledged to ratchet up their monitoring of financial markets.
The country’s exports declined for the third consecutive month in May, while inflation dropped to a 21-month low of 2.5%. South Korean manufacturers’ confidence fell from a 9- month high in June, according to a central bank report on May 29.
Falling demand from Europe will hurt exports from countries such as South Korea in the short term, Tom Byrne, senior vice president at Moody’s Investors Service, said in Seoul on June 5. Still, nothing “fundamental” has changed since Moody’s raised its outlook on the country in April, he said.
Gross domestic product grew 0.3% on the quarter in the first quarter of 2012, WIFO said, revising up its previous 0.2% estimate from May 15th. All sides of the economy contributed to the increase, although trade and economic services were strongest, WIFO said in the report.
Private and public consumption both grew by 0.1% on the quarter. Investment continued to slow, up just 0.6% on the quarter in the first quarter, after growing 0.9% in the fourth quarter of 2011 and 1.0% in the third quarter. Exports also increased 0.4% on the quarter.
First quarter GDP increased 2.0% on the year, after growing 0.7% in the fourth and 2.4% in the third quarter. For 2011, Austria's GDP grew 3.0%, WIFO said.
The inflation rate based on the consumer price index was 2.3% in April, its lowest level since December 2010. Based on the harmonized consumer price index, the inflation rate was 2.4%, just below the 2.6% euro-zone average. WIFO noted price increases in housing, energy and water.
In May, Austria registered 231,100 unemployed, an increase of 9,700 compared with last year, but the unemployment rate as a percentage remained unchanged at 6.9% in May compared with April
Greece’s statistics agency says the country’s economy contracted by 6.5% in the first three months of the year compared to the same period in 2011, as Athens struggles through a financial crisis that has left it mired in a deep recession.
The agency said the figures were based on non-seasonally adjusted data.
Greece has made deep spending cuts, including slashing public sector salaries and pensions, and imposed repeated tax hikes over the past two years in return for billions of euros in rescue loans from other eurozone countries and the International Monetary Fund.
The measures have left the country in a fifth year of recession, while also sparking a political crisis. Greece holds repeat elections on June 17.
Italy’s final report of economic growth in 2012’s first quarter came in as expected compared to Q4 2011, but a bit weaker than expected compared to this time last year, the Italian stats bureau said. Gross domestic product shrank 0.7% from Q4 2011, and also shrank 1.4% on the year as opposed to 1.3% expected.
The report came as Italian banks scrambled to refinance faulty loans and avoid having to ask the European bailout mechanism for assistance. Growth in Italy has ground to halt as the nation attempts to avoid unsustainable debt levels. Weakness in the Italian banking sector would put further pressure on the EU refinancing mechanisms and the Euro, already stretched by Greek loans and a newly-approved bailout of Spanish banking institutions.
The Euro weakened slightly ahead of the release, although the single currency remained up against the US Dollar.
Poland’s economic growth was probably the slowest in two years in the first quarter as Europe’s sovereign-debt crisis damped demand for exports.
Gross domestic product expanded 3.5% from a year earlier, the lowest rate since the first three months of 2010, after rising 4.4% in the fourth quarter, according to the median estimate of 33 economists surveyed by Bloomberg.
The European Union’s largest eastern nation, the only member of the 27-nation bloc to avoid a recession in 2009, will grow 2.7% this year, the EU’s quickest pace, according to the European Commission. While Poland has relied on its 38 million consumers and EU-aided infrastructure spending to keep growing, the country is being hurt by the slump in the euro region, which buys 55% of its exports.
“Very good retail-sales data for the first months of this year justify quite optimistic expectations about consumption, while investments have slowed in comparison with the previous quarter,” Marcin Mrowiec, chief economist at Bank Pekao SA (PEO) in Warsaw, said in a note. “Exports, similarly to the second half of 2011, had a positive impact on economic growth, though the scale of that influence was lower than in the last quarter of the previous year.”
Data in April showed the Polish economy is losing momentum. Retail sales expanded 5.5%, the slowest annual pace since July 2010. Industrial-output growth rose 2.9%, less than half the level from a year ago, while employment and wages grew at the slowest rate in almost two years. The government forecasts GDP will rise 2.5% this year from 4.3% last year.
With euro-area nations such as Spain and Italy slipping into a recession after enacting austerity measures to fight the debt crisis, Europe’s economy will fail to grow this year with risks “tilted to the downside,” the Brussels-based commission said. Unemployment at a 15-year high in the 17-nation currency region will probably continue to depress demand for Polish exports.
Poland’s “household-savings ratios have fallen very sharply, suggesting that spending has been sustained by a rundown in savings,” Neil Shearing, an emerging-markets economist at Capital Economics Ltd. in London, said. While Shearing estimated GDP to increase 4.3% in the first quarter, “I wouldn’t be surprised that we’d see a weaker number,” he said.
Polish inflation unexpectedly gained pace in April to 4%, remaining above the central bank’s 2.5% target for the 19th consecutive month. Core inflation, which excludes volatile food and energy prices, accelerated on higher clothing and housing costs, supporting arguments for more interest-rate increases even as the economy slows. .
The United Arab Emirates' economy minister cut his forecast for the country's gross domestic product growth for 2012, predicting expansion of around 3%, after a sharp fall in global oil prices over the last several weeks.
Sultan bin Saeed al-Mansouri said he remained optimistic about growth this year.
But his forecast for 2012 was lower than his last prediction, made in March, of "almost 4 percent" growth. At that time, Brent crude oil was around $125 a barrel; since then, signs of a global economic slowdown have dragged oil as low as $97, the cheapest price since January 2011.
The UAE is one of the world's top five oil exporters.
Mansouri also told the news conference that he expected inflation in the UAE of between 1 and 1.5 percent this year. A Reuters poll of analysts in March predicted inflation of 2 percent in 2012 after 0.9 percent in both 2011 and 2010.
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