GDP UPDATE
January 2014
McIlvaine Company
TABLE OF CONTENTS
Economists have revised their fourth quarter GDP estimates after receiving the news that the U.S. trade deficit has shrunk to its lowest level since October 2009.
Oil imports fell 1.9%, helping the deficit shrink to $34.3 billion (economists were looking for the deficit to come in at $40 billion).
Now some of Wall Street's top analysts are revising their fourth quarter GDP predictions on the news.
"We revised up our Q4 GDP tracking forecast to 3.0% from 2.3% following November international trade data," Credit Suisse's Neal Soss wrote clients. "The quarter-to-date real goods deficit is tracking -$35bn (annual rate) narrower than the Q3 average, implying a significant net export contribution to fourth quarter growth."
Joseph LaVorgna of Deutsche Bank pushed his shop's Q4 GDP call to 4.0% after the report. High Frequency Economics' Jim O'Sullivan wrote clients, "As of now, our 2.5% estimate for 4Q real GDP growth looks too low."
Mexico is starting 2014 with renewed energies. After a messy year, in which Mexicans saw their GDP grow by quarters but still fail to reach the expected annual rate, President Enrique Peña Nieto’s administration is envisioning a much better outcome for this year.
The Finance Ministry announced that it was expecting 4% growth for 2014 – a good jump from the 1.3% that it estimated for 2013. Miguel Messmacher Linartas, deputy secretary and spokesman for the ministry, said the growth will be chiefly due to the slew of reforms started by the government last year, which will come to fruition in 2014.
“The reforms are really a good basis for the long-term growth,” he said. “We should start to see the effect of some of the reforms by 2014, and they will obviously be stronger in the years to follow."
Messmacher said the expected growth for next year is 3.9%, but he predicted it will go north of that between 2015 and 2018 – up until reaching 5%.
Messmacher said that the global financial climate, particularly the crisis in the U.S., affected Mexico very severely. Such influence is more obvious now than it used to be, with greater integration of the neighboring countries' economies.
“But now that the perspectives of growth are better, there is more optimism for 2014,” he said.
Finance Minister Luis Videgaray said the government has shifted its budgeting focus from last year. “In 2014, the official budget focuses more in investment than spending,” he said.
The private sector is expected to have a much more active role in decision-making, a significant switch from the leftist policies once espoused by Peña Nieto’s Partido de la Revolución Institucional (Party of the Institutional Revolution, or PRI)
The year past was particularly challenging for Mexico thanks to the change of government – Peña Nieto is the first PRI president in 12 years -- the reverberations of financial insecurity from the U.S. and natural hardships like hurricanes Manuel and Ingrid that hit the country in August.
China's economy, the world's second largest, may have grown around 7.6% in 2013, its weakest growth since 1999, with latest economic figures indicating sluggish economic activities in the last quarter.
China's latest economic figures, especially the purchasing managers' index (PMI) in both factory activity and the services sector, indicated sagging momentum in December, with the country's growth softening slightly last quarter, economists said.
The National Bureau of Statistics (NBS) is scheduled to release China's macroeconomic data for the fourth quarter and the entire year of 2013 soon.
China's economy expanded by 7.7% in the first nine months of 2013. GDP growth in the third quarter accelerated to 7.8% from 7.5% in the second.
On December 25, a report submitted by the Cabinet to the parliament said China's economic growth in 2013 is likely to stand at 7.6%. If confirmed, it would be the weakest growth since 1999 in the aftermath of the Asian financial crisis.
Reporting to the Standing Committee of the National People's Congress, the top legislature, Xu Shaoshi, minister of the National Development and Reform Commission said international and domestic economic conditions have changed.
Xu said China's economy faced many problems. Service industries have still to realize their full potential, strategic emerging industries are in their infancy, and industries such as steel, cement, electrolytic aluminum, plate glass and shipbuilding experienced overcapacity.
Financial risks are also looming, with a hefty proportion of debt financing concentrated on public infrastructure projects that only generate low returns in the long run. There is already oversupply in the manufacturing and real estate sectors, he was quoted as saying by the official Xinhua news agency.
If China fails to handle its government debt properly, "it will easily trigger systemic financial danger", Xu warned.
The PMI for the non-manufacturing sector, a key measure of business activity in the services sector, fell to a four-month low at 54.6 in December, as most industries strived to find new growth engines amid slowing exports.
Encouraged by a spurt in investment activities in the latter half of the fiscal year, Economic Affairs Secretary Arvind Mayaram has said 2013-14 is likely to end with an economic growth of about 5%.
"These are some of the numbers we are looking at, at the moment ... new investment projects have risen to 4.9% of GDP in the October-December quarter from 3.6% in the previous quarter, which means investments are now beginning to take place," he told PTI in an in an interview.
With an increase in investments, he said, the demand for critical inputs like cement, steel and core industries, among others would go up.
"So, to that extent, I think the growth is going to be reflected in this third and fourth quarter and it should reach that level that we are discussing ... We expect growth should be around 5%," Mayaram said.
Stressing his point further, he said, the World Bank in its global economic prospects, has projected a growth around 4.8% at the market prices for India.
"At factor prices you will see (growth) higher than at market prices. So it should be more than 5%," he added.
India's economic growth had slumped to a decade's low of 5% in 2012-13.
The economic growth (GDP) in the first quarter of 2013-14 was 4.4% and 4.8% in the second. In the first half of the fiscal, growth declined to 4.6% from 5.3% in the corresponding period a year ago.
If India is to achieve 5% GDP growth, the economy will have to expand by at least 5.4% in the second half of the current fiscal.
The advance estimates of GDP growth for the current fiscal are scheduled to be released on February 7.
In view of the overall economic downturn, the RBI had earlier lowered the economic growth forecast for the current financial year to 5% from the 5.7% projected earlier. Prime Minister's Economic Advisory Council (PMEAC) had lowered the growth forecast to 5.3% from 6.4%.
In a recent forecast, IMF lowered the growth projection to 3.75% in 2013 from 5.7% estimated earlier.
Similarly, ADB had lowered India's growth forecast for 2013-14 to 4.7% from 6% earlier.
Decreasing purchasing power in Malaysia, particularly among middle-class households, could pull down the nation's private consumption growth in 2014, potentially impacting GDP growth in Southeast Asia's third-largest economy.
Inflation in Malaysia could accelerate to 2.9% this year and to a seven-year high of 3.3% in 2015, according to Bloomberg surveys, when the government could roll out a new consumption tax.
In contrast, the Malaysian Employers Federation predicted lower salary increases and bonuses across the private sector in 2014, amid rising business costs.
“The risk to growth is pretty much coming from consumers.”- Suhaimi Ilias of Maybank Investment BankRising living costs and slower pay hikes have already forced the country's sizeable middle-class population to limit spending.
Dwindling spending power could hit private consumption growth by 0.9 percentage point in 2014, according to Alliance Financial and Malaysian Rating.
"There will be some pain in moving towards market-based pricing of the currently subsidised-costs of essential food items, fuel and energy," said Suhaimi Ilias, chief economist at Maybank Investment Bank. "Over the long term the economy will gain from a generally more efficient economy."
"The faster inflation rate amid slower income rise erodes purchasing power, which will impact the consumer spending part of GDP," Suhaimi told Bloomberg. He forecast the central bank would leave interest rates unchanged even if inflation touched 3.5% in 2014, to prevent further deflating consumer sentiment.
"The risk to growth is pretty much coming from consumers," Suhaimi added.
First Metro Investment Corp., the investment banking arm of the Metrobank Group, sees the economy expanding 7% to 7.5% this year, buoyed by increased public and private spending and rehabilitation efforts in calamity-affected areas.
First Metro chairman Francisco Sebastian said in a news briefing in Makati City that while 2013 was marked by destructive calamities and uncertainties in the global markets, it was the year when the Philippines achieved investment-grade status from three international credit rating agencies.
“The country has shown resilience, we are still the best performing economy in Asean with a 7.4% GDP growth in the first nine months of 2013. Our fundamentals remain intact and will be able to withstand volatilities in 2014, be it domestic or global,” Sebastian said.
“In 2014, the country’s GDP is projected at 7 to 7.5% buoyed by the same growth drivers that continue to fuel the economy plus the robust reconstruction and rehabilitation work in typhoon- and earthquake-stricken Visayas, which will further spur public and private spending,” he said.
He said the strong growth was possible despite a projected 2% drop in agricultural production due to natural calamities in 2013.
The gross domestic product grew 7% in the third quarter, bringing to 7.4% the average growth in the first nine months, higher than the 6.7% in the same period in 2012.
First Metro also said inflation would remain manageable at 3.8% to 4% this year, although it was likely to continue its upward movement in the early part of the year.
Inflation rate in the first 11 months averaged 2.8%, well below the government’s target of range of 3% to 5%.
First Metro said remittances would grow by 6% to 7% in 2014, as Filipinos overseas were expected to send more money to their families, particularly to those affected by the natural calamities in Eastern, Central and Western Visayas.
According to Standard Chartered, based on advance estimates, Q4 GDP grew 4.4% y/y, down slightly from 5.9% in Q3. The performance was slightly weaker than expected.
On a q/q seasonally adjusted annualized rate (SAAR) basis, the economy contracted 2.7%.
Here's more from Standard Chartered:
We are not overly concerned about the contraction, given the consecutive expansion in the past four quarters, although it does suggest that current growth momentum is moderate.
We expect Singapore’s GDP growth to accelerate to 4.4% in 2014, supported by net external demand. This is slightly higher than the government’s forecast of 2-4%.
Global PMIs have remained positive, hinting at stronger industrial production globally and more demand for Singapore’s exports (see Figure 3). Externally-oriented sectors are likely to benefit as the US and Europe recover and move towards trend growth.
We think that GDP growth in the US will accelerate to 2.4% in 2014 from 1.7% in 2013, while growth in Europe rebounds to a positive 1.3%, from a 0.4% contraction in 2013. Stronger domestic demand from rising confidence and household incomes in the US and Europe are likely to boost demand for Singapore’s exports. At the same time, China’s GDP growth will likely remain resilient, supported by domestic consumption and export growth.
Overall, we think that a stronger performance in externally-oriented sectors will more than make up for the likely consolidation in domestic sectors due to the tight labor situation and a cooling property market.
South Korea trimmed its growth forecast for next year while maintaining the economy will likely continue to pick up with fiscal spending at home and an international recovery.
The 2014 growth forecast was lowered to 3.9% from a June projection of 4.0%, the Ministry of Strategy and Finance said in a biannual economic outlook.
The budget in September also projected 3.9% growth next year.
The estimate for growth this year was revised up to 2.8% from 2.7% in June. The economy grew 2% last year.
"The economic recovery will likely continue after an upper-3% [on-year] growth in the fourth quarter of this year," the ministry said in the outlook. Growth is expected to be led by government spending in the first half of next year and international recovery in the second.
Uncertain U.S. fiscal policy, U.S. Federal Reserve bond buying, a subsequent slowing in emerging economies and volatile capital flows may hamper growth, however, the ministry said.
Consumer prices are expected to rise 2.3% in 2014--slower than its June forecast of 2.8% but faster than this year's estimated 1.3%. Inflationary pressure comes largely from expectations of economic recovery, the ministry said. This year's lower comparison base and the end of child-care subsidies next year may help boost headline inflation. It is still below the central bank's target of 2.5%-3.5%.
South Korea's current account surplus for 2014 is likely to rise to $49 billion from its June forecast of $30 billion, the ministry said. The 2013 surplus will likely reach $70 billion.
As many as 450,000 new jobs will be added in 2014--fewer than the 480,000 projected in June, the ministry said. IN all of 2013 380,000 jobs were likely to have been created.
Principal government officials expressed their confidence that Taiwan's 2014 gross domestic product (GDP) will grow 3% in 2014, given that the global economy started to bottom out in late 2013.
The Legislative Yuan's Finance Committee reviewed amendments to the Law of Business Tax on Banks and Financial Institutions, while Financial Supervisory Commission (FSC) Chairman Tseng Ming-chung and Minister of Finance Chang Sheng-ford responded to questions at the Legislative Yuan.
Tseng said that the 2014 economy indicates moderate recovery, which bodes well for Taiwan's share market performance. Tseng's prediction of 3% GDP growth in 2014 nears median-value level when compared with the range of 2.09-3.8% percent projected by foreign institutions.
Tseng added that on the back of the positive economic outlooks for major world economies including the U.S., EU, China and Japan, he doesn't think the economic recovery will lose momentum later this year, which happened last year.
When asked by legislators about his view on Taiwan's share market, Chang Sheng-ford said he shared Tseng's upbeat outlook since all the uncertainties were dispelled after the euro debt crisis showed obvious signs of mitigation and the U.S. successfully pulled itself back from the “fiscal cliff.”
Tseng and Chang collectively voiced their opposition to legislators' attempt to raise the business tax on banks and financial institutions to 4-5% from the current 2%, suggesting a suspension of the imposition of the taxation.
Tseng and Chang said the eventual levy of a business tax on banks and financial institutions should be complementary to the ongoing annuity and fiscal reformation, adding that the time is not ripe for taxation.
Concurrently, Bank of America Merrill Lynch recently forecast that Taiwan's GDP will grow 2.9% in 2014, indicating a recovery that will likely remain moderate and below trend.
This forecast is higher than the bank's estimate of 2% growth for Taiwan in 2013 but lower than the country's long-term economic growth forecast of about 4%, said Marcella Chow, a Hong Kong-based economist at Merrill Lynch.
“Taiwan's strong current account surplus was mainly driven by the large goods trade surplus, as exports were improving faster than imports,” she told a media briefing in Taipei.
The strong current account surplus should continue to support Taiwan's foreign reserve accumulation, according to Chow.
Among other similar economies in Asia, Taiwan's projected 2.9% growth in 2014 should be slightly higher than in Hong Kong (2.8%) but lower than in Singapore (3.2%) or South Korea (3.8%), Chow said.
Kuwait's non-oil GDP is expected to grow at 4.5% in 2014 and 2015 compared to last year's 4% mainly on the back of high oil prices, large fiscal and trade surpluses and government’s vast financial reserve, said a report.
However, overall GDP will decrease by 0.6% in 2014 due to a projected fall in oil production, before rising by 3.1% in 2015, stated National Bank of Kuwait (NBK) in its report.
According to NBK, the soaring oil prices, large fiscal and trade surpluses, and the government’s vast financial reserves continue to provide a positive near-term backdrop for the Kuwaiti economy, it stated.
"Although the headline rate of economic growth will look weak in 2014, this is entirely driven by cuts in oil output; non-oil growth, while far from firing on all cylinders, is forecast to improve slightly to 4.5% thanks to better project execution and continued strength in the consumer sector," said the top lender in its report.
"Both of these factors could disappoint, however, resulting in softer economic growth than forecast. We expect gradual progress on much-needed economic reforms to boost private investment levels and improve the economy’s longer-term performance," it added.
NBK pointed out that the consumer sector remained an important growth driver, but there were signs that growth may be softening a little. Consumer credit growth has come off its peak (though remains strong), employment growth has eased, and the impact of earlier increases in wages and benefits may be fading.
Early figures also suggest that take-up of debt relief under the Family Fund law implemented in the fourth quarter of 2013 has been much lower than the KD0.8 billion in loans applicable under the scheme.
The boost to disposable incomes and additional lending will therefore be smaller than initially assumed.
Following a brief cut in the first quarter of 2013, crude oil output rebounded to around 3 million bpd in mid-year, close to its full capacity. As demand weakens and non-OPEC supply continues to rise, we expect OPEC– including Kuwait – to cut output significantly in the first half of 2014 in order to balance the market and keep prices close to $100 pb.
According to NBK, the real hydrocarbon GDP will fall by 4% in 2014 before registering a small rise in 2015.
The inflation is expected to rise from 2.6% in 2013 to 3% in 2014, and then settle at 3.5% in 2015.
Despite continued strength in the consumer sector, inflation remained low through 2013, averaging 2.7% in the first 10 months. This was in spite of a pick-up in housing rent pressures, which were more or less offset by decelerating inflation in the food segment. Inflation in the remaining segments – sometimes thought of as ‘core’ – reached just 0.7% y/y in August, its lowest for years, said the Kuwait lender.
NBK said some upward drift in inflation is likely in 2014, as core pressures rise and food price inflation stabilizes. But inflation should remain in the 3-4% range over the next two years, it added.
The budget is set to record another huge surplus in FY 2013/14, at 22% of GDP. This is slightly down from the 25% of GDP recorded a year earlier. Oil revenues are expected to dip slightly on softer oil prices while spending posts a small rise of 4%, said the Kuwaiti bank in its report.
"Comments from senior government ministers in late 2013 about the need to control growth in subsidy payments suggest that the government will maintain tighter control of spending in future, compared to the 15% average annual increase seen over the past decade. So long as oil prices remain high, this will limit the decline in the surplus going forward," stated the NBK report.
"A similar moderation is likely in Kuwait’s giant current account surplus, due to a combination of peaking oil receipts and rising imports. But the surplus will remain above 30% of GDP," it added
Serbia was among the top ten European countries in 2013 when it came to GDP growth, which amounted to 2.4%, said Serbian First Deputy PM Aleksandar Vučić.
He assessed that, with planned projects in 2014, Serbia could considerably improve its economic situation. Commenting on the data of the Statistics Bureau that the unemployment rate was reduced from 25.5% in April to 20.1% at the end of the year, Vučić told RTS he expected there would be more citizens looking for jobs than those rendered jobless.
According to him, what has contributed to a drop in the number of unemployed is political stability and efforts of state authorities aimed at curbing grey economy and also big manufacturers’ investments. As for new projects and funds announced from the UAE, Vučić said that Serbia had already obtained part of the money that should be spent. He announced that new funds would arrive soon and that a decision how to spend them was yet to be made.
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