GDP MARKET UPDATE
February 2014
McIlvaine Company
TABLE OF CONTENTS
While 2013 didn't exactly go out with a roar, it put in a solid showing. According to the advance report by the Bureau of Economic Analysis, real gross domestic product grew at an annual rate of 3.2% in the fourth quarter. Against a 4.1% annual rise in the third, this marked the best back-to-back quarterly performance in nearly two years.
For calendar-year 2013, fourth-quarter-over-fourth-quarter growth ran 2.7%, making 2013 nearly as strong as the strongest calendar year since the recovery began: 2010, when growth ran at 2.8%. Not bad for a year punctuated by shocks that included the sequester budget cuts in March and the government shutdown in October. The improving track record so far supports the view that this year's growth will match last year's, if not exceed it.
Gross domestic product is forecast to rise by 2.75% in the year to June and 2.25% to 3.25% through December, “primarily owing to the lower exchange rate, which is expected to boost exports and restrain imports,” it said. Those forecasts are up from November’s estimates of 2.5% growth in the year to June and 2% to 3% for the 12 months to December 2014.
China's economy grew at a faster pace last year than the government's official target, even as Beijing sought to implement painful economic reforms.
Gross domestic product grew by 7.7% in 2013 over the previous year, according to China's National Bureau of Statistics, a performance that matched the median estimate of a CNN Money survey. Full-year expansion was supported by 7.7% growth in the final quarter of the year, beating the survey forecast of 7.6% by a whisker.
While last year's growth topped the government's official target of 7.5%, China's economy is stagnating after recording revised 7.7% GDP growth in 2012 and 9.3% in 2011. Looking ahead for 2014, expansion is forecast to slow to 7.4%.
"The data reinforce our view that growth is on a down trend and we continue to expect GDP growth to slow [in 2014]," Nomura economists wrote in a research note.
China's benchmark index, the Shanghai Composite, slipped 0.7% in afternoon trading, while Hong Kong's Hang Seng index dipped 0.8%.
India’s economic growth is likely to accelerate 5.6% in 2014-15 from the projected growth of less than 5% in the current fiscal ending March, according to economic think-tank NCAER.
For the current financial year the country’s gross domestic product (GDP) growth is expected to remain in the range of 4.7 to 4.9%, the National Council of Applied Economic Research (NCAER) said in a report.
Industry growth is likely to accelerate to 3.8% in the financial year beginning April 1, 2014 from the projected 1.6% expansion in 2013-14.
“Services sector has not been immune from the overall slowdown. However Services exports may prove an exception mainly due to expected growth in demand of IT services in the West. In 2014-15, the services sector growth is projected at 5.6%,” the NCAER said.
The wholesale price index (WPI) inflation is expected to remain at 6.2% in the current fiscal and ease marginally to 6% next fiscal, it said.
Indonesia's economy likely grew less than 6% in 2013, marking its slowest pace of growth in four years, as the end of a commodity boom hit exports and a widening current account deficit undermined investor confidence.
Southeast Asia's largest economy has been wrestling with a battered currency, high inflation and a chronic current account gap that has prompted the central bank to raise its benchmark rate by 175 basis points since June.
But in a positive sign, the country is expected to have logged a trade surplus for a third straight month in December.
Indonesia's gross domestic product probably rose 5.7%in 2013, slowing from 6.23% in the previous year, according to a Reuters poll of 12 analysts.
The Taiwan Competitiveness Forum recently forecast economic growth of 2.5% at best this year on poor government efficiency caused in part by populism and legislative interference.
Bert Lim, president of the World Economics Society and a member of the think tank, said Taiwan must shift away from its over-reliance on China and Asia markets and "resume" its policy of the 1980s that focused on Western markets, particularly North America.
The economist explained that Taiwan needs to make the West a priority because of a global trend of "gradual warming in Western economies and gradual cooling in Eastern economies."
Mozambique’s mineral-rich economy, one of the Africa’s fastest growing, will expand by 8.1% in 2014 and about the same in 2015, but could achieve higher growth rates if ageing railways to export coal are improved, the central bank governor said.
Mozambique, a former Portuguese colony that emerged from civil war two decades ago, boasts some of the world’s largest untapped coal reserves and is expected to become a key source of premium, hard coking coal used in steel making.
However, infrastructure bottlenecks have become a major headache for mining companies, with some mining projects delayed or put on hold due to the problems of getting coal to port.
Governor Ernesto Gove said Mozambique’s economy would achieve growth of 8.1% in 2014 even without improving railways and 8% in 2015.
"If we improve (the railways), we can be far beyond this figure," Mr. Gove said on the sidelines of a conference in Kenya.
Mozambique in December increased the estimated cost of a railway and port project to boost coal exports to $5bn, almost twice as much as its initial projection.
Mr Gove said annual inflation, which was 4.2% in 2013, was likely to increase in 2014 but would still be in line with the central bank’s target of 5.6%.
"All the fundamentals are there and we believe that the private sector movement can create an enabling environment so that this goal can be achieved," he said.
Mozambique has in recent years become a key country for exploration companies seeking to get a foothold in east Africa’s new hydrocarbon frontier markets, with giant gas finds off its coast fuelling an exploration boom.
This has seen foreign direct investment (FDI) rise to $5.4bn in 2013, and Mr Gove forecast 2014 FDI inflows would be between $5bn and $5.5bn.
While the rest of Spain's economy is either stagnant or in decline, a new report shows that the so-called submerged economy is booming and accounted for 24.6% of GDP in 2012, 6.8% higher than in 2008.
The report by Spain's inland revenue department titled The Cost of the Submerged Economy: Increased Fraud During the Crisis claims that the black economy is now worth €253bn (£208bn) – €60bn more than in 2008.
Meanwhile, figures released recently show that Spain's GDP rose by 0.3% in the last quarter of 2013, up from 0.1% in the third quarter. This represents the biggest rise in Spanish GDP since the beginning of 2008.
The inland revenue report says the submerged economy has grown fastest in those areas most affected by unemployment and the burst housing bubble, such as Andalusia, the Canaries, Extremadura and Castilla-La Mancha. The figure for Extremadura, where unemployment stands above 30%, is 31.1%.
The housing boom "created a huge reserve of black money, especially in coastal areas", demonstrated by the "massive use" of €500 notes, which the report claims account for 70% of all the cash in circulation.
Other factors are the punitive social security regime imposed on the self-employed and the lengthy and labyrinthine process of establishing a legal enterprise, both of which discourage entrepreneurship and boost the cash-in-hand economy.
The report comments on the "serious moral problem when it comes to paying taxes", a situation that has put Spain's black economy high above Germany (13.1%), France (10.8%) and the UK (10.1%), although the rate in Italy, Portugal and Greece is closer to Spain's.
Shadow economic activity in Greece is equivalent to almost a quarter of national output, a study by the London-based Institute of Economic Affairs found. The research found that Greece's shadow economy was equivalent to 24% of GDP last year, which was one of the highest rates in Europe but lower than a decade earlier when it surpassed 28%.
The authors of the Spanish report, carried out for the tax department by the Universitat Rovira i Virgili, criticize the government for turning a blind eye to fraud. They also say it is only thanks to the black economy, along with family support and charity, that there has not been widespread social unrest. Although unemployment stands at around 26%, it is an open secret that this figure disguises the large numbers working in the submerged economy.
The UK economy grew 0.8% in quarter ended in January, according to data provided by NIESR following 0.7% growth in the quarters ended in December, November and October.
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