GDP UPDATE
January 2013
McIlvaine Company
TABLE OF CONTENTS
U.S. real gross domestic products increased at an annual rate of 3.1% in the third quarter of 2012 (that is, from the second quarter to the third quarter), according to the "third" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 1.3%.
The increase in real GDP in the third quarter primarily reflected positive contributions from PCE, private inventory investment, federal government spending, residential fixed investment, and exports that were partly offset by a negative contribution from nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, decreased.
The acceleration in real GDP in the third quarter primarily reflected upturns in private inventory investment and in federal government spending, a downturn in imports, an upturn in state and local government spending, and an acceleration in residential fixed investment that were partly offset by a downturn in nonresidential fixed investment and a deceleration in exports.
Real personal consumption expenditures increased 1.6% in the third quarter, compared with an increase of 1.5% in the second. Durable goods increased 8.9%, in contrast to a decrease of 0.2%. Nondurable goods increased 1.2%, compared with an increase of 0.6%. Services increased 0.6%, compared with an increase of 2.1%.
Real nonresidential fixed investment decreased 1.8% in the third quarter, in contrast to an increase of 3.6%. Nonresidential structures were unchanged in the third quarter; in the second quarter, structures increased 0.6%. Equipment and software decreased 2.6% in the third quarter, in contrast to an increase of 4.8% in the second. Real residential fixed investment increased 13.5%, compared with an increase of 8.5%.
Real exports of goods and services increased 1.9% in the third quarter, compared with an increase of 5.3% in the second. Real imports of goods and services decreased 0.6%, in contrast to an increase of 2.8%.
Real federal government consumption expenditures and gross investment increased 9.5% in the third quarter, in contrast to a decrease of 0.2% in the second. National defense increased 12.9%, in contrast to a decrease of 0.2%. Non-defense increased 3.0%, in contrast to a decrease of 0.4%. Real state and local government consumption expenditures and gross investment increased 0.3%, in contrast to a decrease of 1.0%.
The change in real private inventories added 0.73 percentage point to the third-quarter change in real GDP, after subtracting 0.46 percentage point from the second-quarter change. Private businesses increased inventories $60.3 billion in the third quarter, following increases of $41.4 billion in the second and $56.9 billion in the first.
Argentina's economy rebounded slightly in the third quarter after showing zero growth in the previous period, but the weak data will further dishearten creditors holding the country's growth-linked GDP warrants.
Third-quarter gross domestic product grew 0.7% from a year ago, well below the 1.4% increase indicated by the country's EMAE monthly economic activity index.
GDP rose 0.6% in the third quarter versus the second quarter and accumulated a 3.2% increase in the 12 months through September, according to the government.
The GDP warrants, issued during the country's 2005 and 2010 debt restructurings, only pay out when growth tops a certain threshold. If 2012 growth exceeds 3.26%, Argentina will have to pay roughly $4 billion on the warrants in December 2013.
Argentina's government foresees 3.4% growth this year, according to the 2013 budget, but most analysts expect it to report a smaller expansion.
"For official real GDP to increase in 2012 above the 3.26% threshold, official real GDP needs to grow close to 7.5% in annual terms during Q4 2012, something we believe is extremely unlikely," Citigroup analyst Joaquin Cottani wrote in a research note.
The South American country has been widely accused of manipulating inflation data and, to a lesser extent, growth data. As a result, it faces potential sanctions by the International Monetary Fund.
No one disputes, however, that growth in Latin America's No. 3 economy has slowed sharply this year. Sluggish global demand, high local inflation, a poor grains harvest and government import and currency controls have all taken a toll.
Private consumption rose 2.1% year-on-year in the third quarter, down from 4.2% in the second quarter, the government said.
Meanwhile, gross fixed domestic investment fell 3.5% from a year earlier, improving from the 15% drop seen in the second quarter.
From April through June, GDP grew 0.0% year-on-year and contracted a revised 0.9% versus the first quarter.
"For 2013, we expect both non-official and official real GDP growth to be 3%," Cottani said. "We believe that now that growth is likely to hover close to the thresholds that would trigger GDP warrants payments, the government will eventually abandon its 'optimistic' growth accounting practices."
Brazil’s central bank’s latest Focus survey of about 100 economists – dated December 28, but published on Monday, December 31 – has GDP growth for 2012 at just 0.98%, revised down from their previous prediction of 1%. That’s less than a quarter of what Guido Mantega, finance minister, hoped for when the year started – and less than a third of what was predicted by the more realistic economists surveyed by the central bank.
The survey also has consumer price inflation creeping up to 5.71% in 2012.
Nor is there much cheer for 2013. Core predictions are unchanged but CPI is seen almost a full point above the government’s target at 5.47%, while GDP growth is down from 3.7% in November to 3.3% – exactly what was predicted for 2012 this time last year.
Venezuela’s economy grew 5.5% this year, led by housing construction and government services, the central bank estimated.
Construction grew 16.8% and government services expanded 5.2%, central bank President Nelson Merentes said, citing preliminary figures. Official gross domestic product data will be released in late February.
“We’re seeing the reactivation of the Venezuelan economy,” Finance Minister Jorge Giordani said today in comments broadcast on state television.
President Hugo Chavez raised spending on low-income housing and wages in the run up to the Oct. 7 election, widening the fiscal deficit to about 8.8% of GDP this year, according to calculations by Bank of America Corp.
Non-oil sector GDP rose 5.7% this year, while the oil industry expanded 1.4%, the central bank said.
Merentes declined to comment on future economic measures including any changes to the country’s currency controls.
China's economy is likely to expand by about 7.5% with consumer inflation up 3.5% next year, according to the China Securities Journal, citing an official with the nation's top economic planning agency.
Exports will face tough challenges amid sluggish external demand, and that will restrain growth in 2013, Zhang Xiaoqiang, vice chairman of the National Development and Reform Commission, told a forum, according to the report.
China is expected to announce its official growth target at the annual session of the National People's Congress early in 2013, and analysts have said it would probably be set at 7.5%, the same as this year's target.
Speaking to the same forum, Industrial & Commercial Bank of China Ltd. (1398.HK) President Yang Kaisheng said he expects the nation's credit supply to expand at a faster rate next year to keep economic growth above 7.5%.
The government hasn't published a target for loan growth this year, but analysts believe there is an implicit target of around 8 trillion yuan ($1.27 trillion)--higher than the 7.47 trillion yuan of last year but well below the 2009 record of 9.63 trillion
Japan remained 14th in dollar-based per-capita nominal gross domestic product in 2011 among the 34 member countries of the Organization for Economic Cooperation and Development, according to the Cabinet Office.
Last year, Japan's per-capita GDP came to 46,192 dollars, hitting a record high for the second straight year thanks to the yen's appreciation. Luxembourg remained top with 114,081 dollars, followed by Norway with 99,063 dollars and Switzerland with 83,966 dollars. The United States fell from eighth to 12th with 48,043 dollars.
Japan's total nominal GDP came to 5,904.7 billion dollars in 2011, marking an all-time high for the second consecutive year. But the country's share of global GDP fell 0.3 percentage point from 2010 to 8.4%.
The United States stayed on top with total nominal GDP of $14,991.3 billion.
Singapore is due to release preliminary gross domestic product (GDP) estimates for the fourth quarter and full year the Ministry of Trade and Industry said recently.
A central bank survey earlier in December showed economists expect Singapore to grow by 1.5% in 2012, with fourth quarter expansion pegged at 1.8% year-on-year.
The estimates were, however, compiled before Trade and Industry Minister Lim Hng Kiang told local media that fourth quarter growth will be similar to the third quarter, when the economy expanded by just 0.3% year-on-year.
Lim, however, also said full-year GDP growth will be around 1.5%, suggesting there would be a slight upward revision to third quarter economic data.
Unification of the two Koreas could cost the South up to 7% of annual GDP for a decade though the South would benefit in various ways such as cheap labor and the North's resources, according to South Korea's Finance Ministry.
Korea has been divided since the end of World War Two and the Stalinist North and capitalist South have been fierce rivals since the 1950-53 Korean War.
Both Koreas see themselves as the rightful leaders of the Korean people and while there would appear to be no chance of unification in the immediate future, people in both Koreas harbor that hope.
The Finance Ministry said in a report on mid- to long-term policy-making strategy that if the two Koreas unified within the next eight years, South Korea would likely pay from one to seven percent of its annual gross domestic product (GDP) every year for 10 years.
"Unification will contribute to the expansion of the economy's potential growth through increased labor, investments, production and economic cooperation," the ministry said in the report.
Seven percent of South Korea's GDP last year of 1,237 trillion Korean won ($1.15 trillion) would be 86.6 trillion won ($80.62 billion).
The estimates reflect the costs as seen in the short-term, or until 2020.
Though relations between the North, which has twice tested a nuclear device, and the South have been particularly bad over the past few years, they could soon improve.
South Korea's conservative president-elect, Park Geun-hye, has said she could hold talks with North Korean Kim Jong-un but she wants the South's isolated and impoverished neighbor to give up its nuclear weapons program as a precondition for aid, something the North has refused to do. Park takes office in February.
The South Korean government has yet to release a formal estimate for the cost of unification. The Finance Ministry's estimate was based on projections by research institutions. However, research outsourced by the Unification Ministry in 2011 estimated it would cost South Korea a total of 371.5 trillion won to 1,253.5 trillion won if unification occurred by 2020.
The Finance Ministry said the cost would result in a heavier financial burden and more government debt in a country where growth is expected to fall to the 2% range this year. Sovereign debt stood at 34% of South Korea's GDP in 2011, which the government aims to lower in the long term. Despite the risk of an enlarged debt burden, the government sees more good than bad in the unification, with the ministry saying it would act to off-set the swift ageing of the South Korean population. The ministry also pointed out the benefits of increased cooperation with neighboring countries, including the development of a gas pipeline linking South Korea and Russia. Plans for the pipeline hatched during the administration of outgoing President Lee Myung-bak have been shelved indefinitely because North Korea has not cooperated. The ministry also said the elimination of the North Korean risk factor would result in increased offshore investment and South Korea would benefit in the long term from mineral resources in the North.
The Cabinet recently approved a forecast of 3.8% GDP growth next year, with Council for Economic Planning and Development (CEPD) Minister Yiing Chii-ming saying that the figure was “no exaggeration.”
When the council revealed the forecast last week, Yiing promised to give up his year-end bonus if the target was not reached next year.
Under the development plan for next year approved by the Cabinet, the council projected an unemployment rate below 4.1% and consumer price index of no more than 2%.
At the press conference, Yiing said that the forecast was determined based on cautious assessments of supply and demand factors and views offered by officials at the Directorate-General of Budget, Accounting, and Statistics and at the central bank, as well as academics.
“The 3.8% GDP growth target is not unreachable, and it’s not just me saying so,” Yiing said, citing as references the World Bank‘s prediction of 4% GDP growth in Taiwan next year, the Asia Development Bank’s 3.8% and the IMF’s 3.9%.
Cathay Financial Holding Co has estimated that the nation will see 3.88% GDP growth next year, while Yuanta-Polaris forecast the GDP would expand 3.85%, Yiing said.
The council predicted that between next year and 2016, the average economic growth rate will be 4.5% annually, the consumer price index will be kept under 2 % and the unemployment rate will be reduced to below 3.9% by 2016.
Premier Sean Chen said that the forecast was challenging and reflected the Cabinet’s ambition and determination to deliver economic recovery.
The Fiscal Policy Office (FPO) has revised up its gross domestic product growth projection for 2012 to 5.7%, from the previous forecast of 5.5%, director general Somchai Sajjapong said recently.
FPO chief said the revision was based on the fact that domestic consumption and private investment had substantially increased, even though exports expanded by only 3.9%, less than the previous expectation of 4.5%.
Private investment rose by as much as 16.1%, the highest in the past eight years, he added.
The government’s policies to raise civil servants’ salaries, the rice pledging scheme, first-time car and home buyer programs and the cut in corporate income tax had helped boost domestic spending and private investment, said Mr Somchai.
He admitted that exports expanded at a slower pace because of the impact of the global economic crisis and the remaining negative effects of the great flood late last year on some industries.
He expected general inflation for this year at 3.0%, in line with lower prices of oil and other commodities in the world market caused by the decline in demand due to global economic recession.
Mr Somchai projected GDP growth for 2013 of 5% on the back of the government’s spending in various infrastructure development mega projects and an improvement in the global economy.
General inflation for 2013 is expected to stand at a range of 2.5% to 3.5%, he said.
Negative factors that could derail economic growth next year included economic slowdown in Thailand’s trade partners, especially the fiscal cliff problem in the US and the debt crisis in Europe, and internal political conflicts, he added.
With a year-on-year increase of 2.72%, the agriculture, forestry and aquaculture sector contributed 0.44% point to the combined rise. Meanwhile, the industry and construction sector added 1.89% point and the service sector – 2.7% point.
The country’s Consumer Price Index (CPI) increased 6.81% this December compared to the same time last year, meeting the Government’s target of controlling inflation rate at a single-digit level this year, the GSO reported.
The rate was much lower than 2011’s figure of 18.13%. However, the average CPI for this year was up 9.21% over the average index of 2011, according to the office.
December’s CPI increased 0.27% month-on-month, although prices of garment and foot-wear products went up a significant 1.17% due to rising demand ahead of the New Year holidays.
Many groups of goods experienced insignificant price increase in December, including medicine and healthcare services, up 0.14%, and education, increasing 0.09%.
Director of the GSO’s Integrated Statistics Department, Nguyen Thi Ngoc Van, said that the low CPI increased of 6.81% was a result of the Government’s management, particularly thanks to Instruction No. 25/CT-TTg issued on September 26, 2012 by Prime Minister Nguyen Tan Dung to strengthen price administration and stabilization.
Van noted that domestic market prices witnessed some extraordinary developments this year, with prices increasing only a moderate 1-1.37% in the first two months, compared to the usual trend of them rising over 2% during this period due to surging demand in the days of Lunar New Year.
Prices went up the most sharply in September, at 2.2 percent, due to global economic declines, causing slumping domestic demand and increasing inventories, low credit growth, high bad debt ratios and a frozen property market, she said.
For the whole year, prices of educational goods and services posted the sharpest increase, at over 17%, closely followed by medicine and healthcare services, at 16.34%.
Gold prices in December increased 7.83% year-on-year, while U.S. dollar prices have witnessed the most stable year ever, increasing only 0.18% in 2012, according to the GSO.
This year, total development investment capital disbursement was estimated at 989.3 trillion VND (or around US$47.6 billion, representing a 7% rise against last year. The figure was equivalent to 33.5% of GDP (at current prices), which reflected the lowest ratio since 2000.
The country made a trade surplus of US$284 million this year after 20 years of facing a deficit, according to the GSO.
Export turnover for the year totaled US$114.631 billion, an increase of 18.3 SSSs over last year while import revenue reached US$14.347 billion, representing a rise of 7.1%.
The previous trade surplus recorded was in 1992 at US$100 million.
In 2013, the country will face a number of difficulties originating from the current difficult situation of both domestic and international economics, said the GSO and the Ministry of Planning and Investment.
Accordingly, ministries and branches at all levels need to effectively implement the measures and solutions put forth by the government, focusing on fiscal and monetary policies, business operation, economic restructure, and growth model renovation.
An economic report issued recently shows that Dubai's economy has recorded steady growth over the past two years with an increase in the GDP growth rate from 2.8% in 2010 to 3.4% in 2011 versus a contraction of 2.4% in 2009.
This rebound in economic growth was largely due to fiscal and monetary stimulus packages undertaken by the UAE federal authorities as well as the Government of Dubai. Moreover, the resilience of Dubai's major trade partners, especially India and China, has also contributed to this positive development as shown in a report issued by the Dubai Economic Council (DEC), entitled "Dubai Economy 2012".
In a foreword to the report, Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, Crown Prince of Dubai and Chairman of the Executive Council, attributes Dubai's ability to keep pace with the rapid regional and international economic developments to the flexibility, diversity and dynamism of its economy.
Sheikh Hamdan refers to the figures included in the report as indicators of Dubai's success in overcoming the repercussions of the global crisis, tracing a new phase of development which affirms its position as a global business and financial hub.
Expressing his satisfaction over the results achieved by Dubai's various economic sectors, Sheikh Hamdan said the maturity of Dubai's economy promoted a wide range of business opportunities, calling for closer cooperation between the private and public sectors to tap into these opportunities, building on Dubai's remarkable achievements over the past four decades. He also acknowledged the report's value as a reference which helps researchers, economists and provides investors with a guide to help them plan their future investments.
The Crown Prince of Dubai also stated that the knowledge economy would continue to be an area of focus that fosters creativity and innovation in Dubai, especially in economic sectors with high added value.
"Dubai Economy 2012" presents a panoramic view of the economy of the emirate of Dubai comparing its performance in the year 2011 against that of the period between 2006 and 2010. It shows that despite the slowdown in 2009 following the global crisis, Dubai's economy has continued to steadily grow over the last two years (GDP growth of 3.4% in 2011 from 2.8% in 2010 and a contraction by 2.4% in 2009).
The real estate and construction sectors were affected as a result of the crisis. However, by early 2010 (with the exception of these two sectors) most of Dubai's other sectors quickly rebounded. This is attributed largely to the expansionary fiscal policy adopted by the government, the support provided to the financially distressed government related enterprises (GREs); most notably the restructuring of their debt, and the UAE Central Bank's injection of liquidity into the banking sector.
Trading, both foreign and domestic, continued to be the backbone of the economy and its major source of income. Regionally and globally, Dubai has established itself as a favorite destination for tourists due to its unique attractions and busy events calendar in addition to state of the art entertainment facilities, fine accommodation, amenities and accessibility. Indicators show a steady increase in tourism activities and continued investment flows.
Despite its narrow manufacturing base, the industrial sector has contributed immensely to Dubai's economy. In 2010, the industrial sector's recovery was led by strong exports, while trade and logistics constituted the core competency of Dubai's economy.
Real estate has experienced a dramatic transformation. In 2010, the real estate sector exhibited encouraging signs of recovery, especially in "New Dubai" areas such as Dubai Marina, Jumeirah and free hold zones.
With the Dubai Government adopting forward looking policies, promoting free trade and open skies, free zones have played a key role in realizing Dubai's economic objectives by attracting foreign direct investments. Trade and business relations among free zone-based regional and global companies indirectly boost local economy by stimulating growth of commodities and services trade.
France should worry more about the credibility of its efforts to cut back on flab in public finances than whether or not it meets the EU's 3% of GDP target for the budget deficit immediately, the IMF's mission chief said.
The comments are the latest sign that France, hanging on grimly to the last of its top AAA credit ratings, may need - and could receive - some leeway on targets that are threatened by poor growth rates across the euro zone.
The International Monetary Fund forecast recently that France would miss its 2013 target for a deficit of 3% of gross domestic product, estimating the shortfall would come in at 3.5% due to weaker-than-expected growth.
EU Economic and Monetary Affairs Commissioner Olli Rehn said that France did not need additional savings measures and opened the door to "softer adjustment".
Spanish newspaper, El Pais, reported that the European Commission would propose Spain, France and several other euro zone states more time to cut their public deficits below the target limit of 3% of GDP.
Edward Gardner said that in order to respect the 3% target the Socialist government would have to carry out even more belt-tightening than already planned, which would weigh on growth that already was likely to be subdued.
"Our recommendation is that France discuss the fact in a broader European context (about what would be) the appropriate stance for 2013," Gardner said in a conference call with journalists.
President Francois Hollande already aims to carry out a belt-tightening effort that is unprecedented in modern France in order to reach the deficit target.
"The importance is really the credibility of the medium-term orientation of policies," Gardner said.
"Whether it's 3 or 3.5% next year matters less to the extent that France can give reasonably credible assurances about the direction of policies," he added.
According to the results of 2012, Kazakhstan’s GDP will increase by 5.5% and the tendency towards growth will continue in 2013. Industrial output exceeded US$26 billion over 10 months of 2012. Gross agricultural output amounted to US$1.3 billion for the reporting period.
Experts of the Eurasian Development Bank have made a conclusion based on the results of 2012 that the indicators of Kazakhstan’s economic development will increase by more than 5.5% of GDP. According to experts, the country is a leader in the economic performance among the countries of the Customs Union. The oil and gas sector acts as the main incentive to growth.
Agriculture powered the growth of the economy in the third quarter to record 4.7% compared to 4% in the same period last year.
The sector, that recorded a low of 2% in the first quarter, dramatically improved in the third quarter to 6.9% to anchor the growth of the economy that has been struggling to reach the 7.1% growth rate experienced in 2007, before the post election violence that clawed back the gains.
Other sectors that registered high performance were manufacturing, transport and communication, and the electricity generation boosted by heavy rains in the country.
Other sub-sectors in agriculture that registered growth were forestry and fishing.
The effect of maize disease in South Rift was offset by the adequate rains in other parts of the country. Production of maize, beans, sugar cane and fruits improved significantly in the period under review.
“The expansion was more robust in comparison to preceding quarters of 2012 primarily due to strong performance of the agriculture and forestry, fishing, manufacturing, transport and communication and turnaround of the electricity industry,” said the Kenya National Bureau of Statistics in its latest report on the economy.
The period was characterized by low inflation that averaged 6.4% compared to high 16.5% in the same period in 2011 on account of lower food and fuel prices.
The interest rates remained high at 13.6% which was however an improvement compared to 18% in same period in 2011, which was attributed to Central Bank maintaining a tight monetary policy.
Manufacturing was buoyed by rebound in processing of sugar that recorded 48.7% compared to 38.2% in the same period last year. Others were beer at 17.1%, wheat flour 16.3% and maize meal 9.3%. Motor vehicle tires, laundry and toilet soaps recorded the highest growth in the non-food category.
Electricity and water supply increased by 13.7% compared to 11.1% due to the heavy rainfall, increasing hydro-power by 39% and reducing thermal generation by 25.2%. Geothermal production declined by 2.3% in the period.
Hotels and restaurants were hit hard by terrorism and slowdown in economies of Europe and America as visitors reduced to 342,135 in the third quarter from 383,100 last year.
Construction was slowed down by high interest rates, recording only 0.6% growth compared to 3.6% last year which was mirrored by low production and consumption of cement. In the third quarter of 2011, cement production grew by 8.9% and consumption by 7.7%.
Transport and communication recorded 5.2% growth in the period under review compared to 3.9% last year boosted by the communication sub-sector that registered significant 54.5% growth.
Despite the export cargo contracting by 24%, the Mombasa port registered growth in volume of cargo mostly boosted by increase in imports that registered 11.4%.
The financial sector overcame the challenge of high interest rates to record 6.8% growth compared to 7.6% in the same period last year.
Saudi gross domestic product growth slowed to 6.8% in real terms in 2012 from 7.1% in 2011, according to the state-run Saudi Press Agency, citing Finance Minister Ibrahim Alassaf.
GDP totaled 2.73 trillion riyals this year, representing nominal growth of 8.6%, Alassaf said in a 2013 budget statement to the Saudi cabinet and King Abdullah.
He added that 2012 inflation was 2.9% using an updated baseline of 2007 prices, and was 4.5% using the old 1999 baseline.
Public debt stands at 98 billion riyals or 3.6% of GDP.
Ukrainian gross domestic product will expand less than 1% this year as exports decline, President Viktor Yanukovych has said in the capital, Kiev. The country’s state budget deficit will be 2.6% of GDP in 2012, he said
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