Stronger demand for services could drive the United States GDP growth rate higher, causing many investment banks to turn bullish just as U.S. stocks see a wide selloff.

Service industry revenue rose 5% year-over-year in the third quarter of 2014, far above analysts’ expectations. Economists are attributing the surprise surge to greater discretionary purchasing power amongst American consumers as oil prices fall. The news caused analysts at JP Morgan to upgrade GDP expectations from 4.3% to 4.4%, while Barclays raised their expectation from 4.1% to 4.2%.

Economists believe that domestic demand is strengthening in the United States, which is more than offsetting weak demand abroad. If the diverging trend between American and global demand continues, analysts believe more investors could seek to buy U.S. equities and debt, which could have a number of ripple effects that in turn will cause asset and debt prices in the U.S. to surge further.

The dynamic has already bolstered the U.S. Dollar, which continued to post gains in this week’s trading.

Services demand was broadly positive, but varied greatly from sector to sector. Amongst employer firms, accounting, tax preparation, and payroll service sectors saw the largest gains, rising 10% year-over-year in the third quarter after rising 8.8% in the previous quarter. The acceleration is largely attributable to a falling unemployment rate, more churn in the labor market, and broader investment in human capital throughout the American economy. Employment services also saw a strong gain, with a 6.5% year-over-year rise in the third quarter after gaining 6.1% in the second quarter of 2014.

Hospital services also saw a healthy acceleration in demand, as hospital revenue rose 6% year-over-year in the third quarter from 4.9% in the previous quarter.

Additionally, transportation and tourism saw strong gains in demand, while publishing; including software publishing, broadcasting, and cable industries saw year-over-year declines. The steepest falls in revenue were from natural gas distribution, which declined 14% year-over-year, and central bank operations, which fell 8.6% year-over-year.

While services demand are rising, analysts say that upward revisions to wholesale inventories and construction spending in recent reports could indicate an overall economic expansion far beyond expectations. Several bankers released optimistic macroeconomic notes to investors on Wednesday, even as stocks sold off broadly.

To contrast banker enthusiasm, early morning trading saw a broad selloff in U.S. stocks that was much deeper than seen in the rest of the world, except in Japan where shares slid over 2%. At the same time, volatility of the S&P 500 as measured by the VIX spiked over 9% in Wednesday trading.

As stock traders lowered their risk profiles, bond traders indicated a bearish view of future inflation and economic growth, despite the revision to services demand. Long-term U.S. Treasuries rose. The 10-year Treasury yield fell 16 basis points to 2.21% and the thirty-year fell 21 basis points to 2.86%, indicating that growth was likely to remain weaker than previously expected, and risks of a rate hike from the Federal Reserve remain low.

For 2014, 10-year Treasury yields have fallen over 26%, with bond prices rising accordingly. Oil futures also fell, with WTI crude oil futures sliding 3.8% to $61.40.

VENEZUELA

Venezuela's economy shrank by 4.2% in the first three quarters of 2014, an adviser to the country's main opposition group said, after almost a year of official silence about the state of the OPEC nation's economy.

The central bank has not published any GDP data for this year and has not revealed inflation figures since August's 63.4% 12-month reading, spurring criticism that President Nicolas Maduro is hiding bad economic news.

"The central bank has not given figures but I'm going to give them to you," Jose Guerra, a former central bank director who now works as an adviser to the opposition's Democratic Unity coalition, told a news conference.

"GDP dropped by 4.4% in the first quarter, 4.4% in the second quarter and 3.5% in the third quarter," he said, yielding a drop of 4.2% for the first nine months of the year.

Venezuela's economy grew 1.3% in 2013.

Guerra said the 2014 data was discussed at a central bank board of directors meeting, but did not say how he got it.

He served as the central bank's head of economic research but left in 2005, protesting interference by then President Hugo Chavez's government.

The central bank did not immediately respond to an email seeking comment. The information ministry, which handles media requests for the finance ministry, also did not immediately respond to an email requesting comment.

Opposition leaders say currency controls that stimulate capital flight and frequent state takeovers of private businesses have weakened the country's productive capacity.

Officials have blamed economic problems including soaring inflation on violent opposition protests earlier this year.

The economic woes, greatly exacerbated by the recent slump in oil prices to five-year lows, have spurred concerns Venezuela might default on foreign debt obligations.

Bonds fell sharply recently, with the benchmark global 2027 dropping 2.1% to a bid price of 48.646 with a yield of 20.887%.

Maduro has insisted the country will make all its debt payments and notes the ruling Socialist Party has never defaulted on its commitments to foreign creditors.

Default concerns have nonetheless pushed the spreads on Venezuelan bonds to the highest of any emerging market nation.

Venezuelan debt on average pays 23 percentage points more than comparable U.S. treasury bills - more than quadruple the spread of Iraq and triple that of Argentina, which is in default due to a legal battle with creditors.

ASIA

CHINA

Investors will keep an ear to the ground as China's policymakers gather in Beijing for the country's Central Economic Work Conference (CEWC) – a closed-door annual meeting that sets economic priorities for the coming year.

Dates for the meeting have not been officially announced, but the meeting is expected to kick off on December 16, according to Ta Kung Pao - a Hong Kong-based newspaper with ties to the mainland government. The meeting usually lasts 2-3 days.

A key issue for the CEWC will be setting next year's gross domestic product (GDP) growth target, viewed as an important signal of policy intentions.

While the targets are typically made public in March during the National People's Congress, they are occasionally leaked to local media shortly after the meeting.

As growth appears set to fall towards the lower-end of this year's "about" 7.5% target, Beijing is widely expected to propose a target of 7.0% – the lowest in a decade.

"The new leadership has proposed the concept of an economic 'new normal', which we understand to encompass slower but more balanced growth and increased reforms. We firmly believe that the top leadership is willing to accept slower but more sustainable growth," said Chang Chun Hua, China economist at Nomura.

"Moreover, support for a lower growth target has recently gained momentum in policy circles," said Hua.

During October's China Academy of Social Science conference, participants - many of whom were from government ministries - expressed the view that a target of 7.0% for 2015 would be appropriate for China's long-term potential growth, Hua said.

Mark Williams & Julian Evans-Pritchard, economists at Capital Economics expect the "about caveat" will be added to the 7.0% growth target once again to ensure policy flexibility.

"Even better, though admittedly less likely, would be for policymakers to drop the target altogether while perhaps maintaining their rhetoric of 'keeping growth within a reasonable range'," Williams and Evans-Pritchard.

"This would give policymakers greater flexibility without them being seen to be cutting their growth target in response to downward pressure on the economy," they added.

In addition to setting the growth target, policymakers will also discuss other macro targets - including inflation and money supply - and lay out reform priorities.

Nomura expects the CPI inflation target to be lowered to 3.0% from 3.5% in 2014 due to lower commodity prices and weaker domestic demand.

However, the bank says the target for money supply growth may be held steady at 13% so that monetary policy can be more accommodative.

Meanwhile, on the reform front, policymakers are expected to pledge to accelerate the pace of various reforms including state-owned enterprise reform, rural land reform and interest rate liberalization among others.

INDIA

India's GDP growth is likely to recover in the next financial year, 2015-16, and may surpass China's growth by 2016-17, according to Hemant Kanawala, head of equity at Kotak Life Insurance.

"The Indian GDP is likely to recover in FY16. We are expecting that growth will recover above 6% next year and by CY16 (Calendar Year 2016) or FY17 India is likely to surpass GDP growth of even China. India is likely to emerge one of the fastest growing economies among the emerging markets," he said.

India's growth has been stuck at sub-5% for the last two fiscals - its worst ever performance in 25 years. While China's economy grew by 7.7% in the last fiscal, India grew at 4.7%.

"The expectation is Chinese growth will come off...for FY17 or CY16, which investors globally see, Indian GDP is likely to be in the range of 7% whereas China is likely to go below that as of now, this is what the current estimates suggest," he said. (Watch Video)

The Reserve Bank of India or RBI sees India's GDP growth at 5.5% in FY15. The World Bank pegs it at 5.6%.

Investors expect FY16 GDP in the range of 6-6.5%, Mr Kanawala said. "But the exact GDP in March 16 is likely to be between 6.5-7%," he added.

The International Monetary Fund or IMF expects China's growth to slow down to 6.5% sometime in 2016, while the World Bank sees China's growth slide to 7.1% in 2016.

Kotak expects the Reserve Bank of India (RBI) to lower interest rates next year, which it believes will propel growth.

"If inflation remains lower, then there will be greater ability of RBI to lower interest rates, which is one of the first requirements for the economy to recover and grow faster," Mr Kanawala said.

Wholesale inflation in October cooled to a 5-year low of 1.77%, helped by fall in food and fuel prices; while retail inflation eased for the third straight month to 5.52 %.

Faster clearance of projects which are stalled and reforms on land and labor will be the key to India's growth recovery, Kotak said.

JAPAN

Japan’s economy shrank more than previously estimated in the third quarter, contracting 1.9% as capital spending declined and private consumption remained weak.

The economy has now contracted for two consecutive quarters, a common definition for recession, the data confirmed, less than a week before general elections that Prime Minister Shinzo Abe has framed as a referendum on his economic policies.

Last month, the government estimated that gross domestic product contracted 1.6% during the July-September period. Soon after, Mr. Abe cited the weak economy in saying he would delay a second increase in the nation’s sales tax, and called a snap election in search of a mandate.

In recent days, though, many economists had predicted that the third-quarter contraction would actually turn out to be smaller than initially estimated—or perhaps be revised to flat or a slight expansion—after the Ministry of Finance reported late last month that capital spending by businesses rose 3.1% during the quarter, compared with a previous estimate of a 0.2% decline. Business investment accounts for around 14% of GDP.

But capital spending turned out to be weaker than the ministry’s estimate when taking into account smaller businesses, declining 0.4%, indicating that even as Japan Inc. reports record profits and the stock market hits multiyear highs, the benefits of “Abenomics” haven’t reached everyone.

Financial-service companies, for example, haven’t followed through with investments in retail services after a tax-free investment account for individuals was launched in January. Many individual investors remain inactive as the Nikkei Stock Average has hit a series of seven-year highs.

The economy will likely expand in the fourth quarter, helped by a sharp decline in oil prices, said Kenji Yumoto, an economist with the Japan Research Institute. Still, consumers’ wages aren’t keeping pace with inflation, he noted.

“Declining real income amid a weaker yen suggests the recovery will likely lack strength,” he said.

Private consumption, the most important pillar of the economy, remains anemic, rising just 0.4% in the third quarter from the second, as consumers continue to stagger following a sales tax increase in April and a decline in the yen of more than 30%, which has raised the cost of imports.

The downbeat consumer mood was most evident in weak sales of big-ticket items such as houses and automobiles. Residential investment and consumption of durable goods both fell sharply for two consecutive quarters.

The government also revised its growth figures for the second quarter, saying the economy contracted 6.7% instead of the initially reported 7.2%. It also lowered first-quarter growth to 5.8% from 6.7%.

Another recent unexpected figure was the nation’s current-account surplus, which was a strong ¥833.4 billion ($6.9 billion) in October. However, a weak yen and overseas investment income masked a large trade deficit due to weak exports.

However, there is no guarantee that the corporate investment income will be repatriated to Japan, where it can benefit the domestic economy, said Shuji Tonouchi, senior economist with Mitsubishi UFJ Morgan Stanley Securities.

Still, some economists expect GDP to rebound and grow by around 3.3% in the fourth quarter. The question is whether such growth will be sustained next year.

Mr. Abe is asking voters to stay the course, saying strong corporate profits generated by the weaker yen will eventually translate into higher wages and more investment, creating domestic employment.

An opinion poll by the Nikkei this month showed that only 33% of the public are in favor of Abenomics, compared with 51% against it. But Mr. Abe’s Liberal Democratic Party is still expected to win a landslide in the absence of a powerful opposition.

THAILAND

Thailand's economy may expand by less than 1% in 2014 due to weak exports and slow government spending, according to Finance Minister Sommai Phasee.

"This year's growth may not be 1%," Mr Sommai said.

"Exports are slow and may even contract. Disbursement is still very slow."

The government of Southeast Asia's second-largest economy has already trimmed its outlook four times this year as the country struggles to recover from months of political turmoil that slowed tourism and hurt consumer confidence.

Just over a year ago, the government forecast growth of 4.0-5.0% for 2014.

EUROPE / AFRICA / MIDDLE EAST

EUROPEAN UNION

Malta's Individual Consumption decreased slightly in 2013 and saw its GDP increase by a similar margin, according to a Eurostat report

The report uses Actual Individual Consumption (AIC) as a measure of material welfare of households. In 2013, AIC per capita expressed in Purchasing Power Standards (PPS) varied from 49% to 136% of the EU28 average across the Member States.

Actual Individual Consumption consists of goods and services actually consumed by individuals, irrespective of whether these goods and services are purchased and paid for by households, by government, or by non-profit organizations. In international volume comparisons of consumption, AIC is often seen as the preferable measure, since it is not influenced by the fact that the organization of certain important services consumed by households, like health and education services, differs a lot across countries.

The highest level of Actual Individual Consumption per capita in the EU28 was recorded in Luxembourg, at more than 35% above the EU28 average. Germany and Austria were around 20% above the average and Denmark, Finland, Sweden, the United Kingdom, the Netherlands, Belgium and France recorded levels between 10% and 15% above the average, while Italy was on the average.

In Ireland, Cyprus and Spain levels were up to 10% below the EU28 average, while Portugal, Greece and Malta were between 10% and 20% below. Lithuania, Slovenia, Poland, the Czech Republic and Slovakia were between 20% and 30% below the average, while Estonia, Latvia, Hungary and Croatia were between 30% and 40% below. Romania was just under 40% below the average, while Bulgaria was around 50% below the average.

These data, published by Eurostat, are based on revised purchasing power parities, and the latest GDP and population figures. They cover the 28 EU Member States, three EFTA Member States, five candidate countries and one potential candidate country.

Gross Domestic Product (GDP) is a measure of economic activity. In 2013, GDP per capita expressed in PPS ranged between 45% of the EU average in Bulgaria and 257% in Luxembourg.

The Purchasing Power Standard (PPS) is an artificial currency unit that eliminates price level differences between countries. Thus one PPS buys the same volume of goods and services in all countries. This unit allows meaningful volume comparisons of economic indicators across countries. Aggregates expressed in PPS are derived by dividing aggregates in current prices and national currency by the respective Purchasing Power Parity (PPP). The level of uncertainty associated with the basic price and national accounts data, and the methods used for compiling PPPs imply that differences between countries that have indices within a close range should not be over-interpreted.

IRELAND

The Irish economy remains on course to grow by around 4.7% this year despite a slowdown in gross domestic product growth in the third quarter, Finance Minister Michael Noonan said.

"GDP rose by 4.9% in the first nine months of the year and therefore we are on target to meet our 2015 Budget forecasts," Noonan said after the central statistics office reported quarter-on-quarter growth slowed to 0.1% in the third quarter from 1.1% in the previous quarter.

PORTUGAL

Portugal’s economy may grow at the fastest rate in 2015 since before the financial crisis if oil prices don’t rebound, according to Economy Minister Antonio Pires de Lima.

Gross domestic product may expand more than 2% next year, exceeding the government’s 1.5% forecast, barring a rally in the price of oil, Pires de Lima said. That would be the fastest pace since 2007.

The country’s 2015 budget used a forecast of $96.70 a barrel for next year’s Brent crude oil prices. Brent for January settlement rose 1% recently to $66.84 a barrel, 30% below that forecast, after reaching a five-year low the previous day.

“If we buy oil 20% below the budget, that would mean our economy would grow more than 2% instead of 1.5%, and our trade account and capital account will have a surplus of 4% instead of 2%,” Pires de Lima said in an interview at Bloomberg headquarters in New York.

Portugal, which exited a three-year, 78 billion-euro bailout from the European Union and International Monetary Fund in May, 2014, is targeting 1% economic growth this year.

The government is forecasting export growth will rebound to 4.7% next year from this year’s 3.7%, with import growth slowing to 4.4% from 4.7%, Pires de Lima said. Oil prices 20% below the budgeted level would shave about 3 billion euros from the country’s import bill, he said. It would “slightly” reduce the deficit from the current forecast of 2.7% of GDP, after an estimated 4.8% this year.

The European Central Bank’s policy of near-zero interest rates is also creating conditions for an improving economy in Portugal and elsewhere, said Pires de Lima, a 52-year-old former chief executive at a brewer and a beverage company.

Pires de Lima said he doesn’t foresee an increase in interest rates soon. By keeping rates low, the ECB is “contributing that way to a recovery of investment, which is really what the euro zone is demanding right now, especially Portugal and other southern European countries,” he said.

The ECB left its main refinancing rate unchanged at 0.05.

Pires de Lima praised ECB President Mario Draghi for focusing on the danger of falling prices. “The problem right now in Europe is not having too much inflation, it’s deflation,” he said. “Quantitative easing is for sure something that should be considered.”

The euro’s 9.9% slide against the dollar this year will contribute to export growth next year, Pires de Lima said.

“It will take some time to feel the difference in our exports,” he said. “It will help, for sure, especially in sectors where price still matters, the traditional sectors.”

Portugal sends an increasing share of exports to countries that don’t use the euro, 30% in 2013 compared with 18% in 2000. Within the euro zone, a greater emphasis on consumption in the more prosperous economies would aid recovering economies such as Portugal’s, Pires de Lima said.

“It would be quite important for the Portuguese economy that the main European economies, like Germany and France, to increase their consumption, especially Germany,” he said. Germany and France are Portugal’s biggest export markets after Spain.

TURKEY

Turkey’s economic growth slowed in the third quarter as falling borrowing costs failed to spur domestic demand and agricultural output contracted.

Gross domestic product grew 1.7%, the slowest pace since 2012, compared with a revised 2.2% during the previous three months, according to official data. The median estimate in a Bloomberg survey of 18 analysts was 2.8%. Seasonally-adjusted output rose 0.4% from the previous quarter.

Central bank Governor Erdem Basci blamed the weaker-than-anticipated data on agricultural output, which contracted 4.9%. Household consumption, which makes up two-thirds of the Turkish economy, grew 0.2% from a year ago compared with 0.5% during the previous quarter.

“The weakness of domestic demand is likely to lead to further pressure on the central bank from the government to loosen monetary policy,” William Jackson, senior emerging markets economist at London-based Capital Economics said in a note. Inflation, which accelerated to almost double the central bank’s 5%-target in November, “means rate cuts are unlikely,” he said.

Basci, speaking at a news conference in Ankara today, said real and nominal interest rates are near record lows. The central bank has kept the benchmark one-week repurchase rate unchanged at 8.25% since August after partially reversing a rate increase in January.

The focus of Turkish policy makers this year has been to bolster exports while reining in domestic demand, Basci said. Geopolitical problems in Turkey’s export markets in the Middle East and weak growth in Europe therefore overlapped with an era of weak domestic demand and have weighed on GDP, he said.

The short-term interest rates that the bank uses as policy tools have little impact on the willingness of private businesses to invest, Basci said, suggesting that the bank will be in no hurry to cut rates to spur growth. Corporates will find it less costly to borrow for investment only after the central bank curbs inflation and strengthens its credibility, he said.

“Growth is not at levels that we desire. We also want Turkey to grow faster,” Basci said. “We are trying to grow in a more balanced way and the track record so far is good.”

When compared with the previous quarter, the “underlying picture of GDP does not look that weak,” Selim Cakir, an economist at Turk Ekonomi Bankasi AS in Istanbul, said by e-mail.

The lira gained 0.2% to 2.2621 a dollar at 1:40 p.m. in Istanbul, reversing earlier losses. The yield on the government’s 10-year local-currency bonds fell two basis points to 8.12%.

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