GDP UPDATE
June 2014
McIlvaine Company
TABLE OF
CONTENTS
CEOs have
slightly lower expectations for U.S. gross domestic product growth than they did
last quarter, according to a new survey.
The
Business Roundtable survey showed chief executives forecast GDP growth of 2.3%
in 2014, down from last quarter's estimate of 2.4% for the year.
"CEO
expectations for both investment and growth remain well below the potential of
the U.S. economy and below what we should be experiencing at this stage of a
recovery," said Randall Stephenson, Business Roundtable's chairman and AT&T's
chairman and CEO.
But in a
positive sign, the survey's composite index of CEO outlook for the economy rose
during the quarter. The index, which measures expectations for sales, capital
spending and employment over the next six months, now stands at 95.4—up from the
first quarter's 92.1 and the average level of 80.1.
While the
expectations for capital expenditures fell, the outlook for sales and hiring
rose moderately.
About 43%
of chiefs plan to add employees in the U.S. while roughly seven out of 10
forecast sales would rise over the next six months.
The survey
consisted of responses from 131 CEOs.
Colombia’s
economy grew at the fastest pace in more than two years in the first quarter,
beating all analysts’ forecasts, after a surge in government spending ahead of
President Manuel Santos’ re-election. Bond fell on expectations of higher
interest rates.
Gross
domestic product grew 6.4% from the year earlier, the national statistics agency
said, compared with 4.9% in the previous three months. Growth was faster than
forecast by all 27 analysts surveyed by Bloomberg. GDP grew 2.3% from the
previous quarter.
The jump
in growth means that the central bank may step up the pace of interest rate
increases to prevent the economy from overheating, said Daniel Velandia, the
head analyst at Credicorp’s Colombia unit. Colombia’s growth outstripped that in
Peru, where GDP expanded 4.8% in the first quarter, Chile, where it was 2.6%,
and Brazil, 1.9%.
“Internal
demand has shown a very good performance, particularly private consumption and
investment,” Velandia said in a phone interview. “This is generating a lot of
optimism.”
The
central bank will raise its policy rate half a point to 4.25% tomorrow, Velandia
said, changing his previous forecast of a quarter point increase. Before the GDP
report was published, 27 of 28 analysts surveyed by Bloomberg had forecast a
quarter point increase, while one predicted no change.
Yields on
peso bonds due October 2015 rose 5 basis points, or 0.5 percentage point, to
5.03 percent at 9:44 a.m. in Bogota as traders increased bets on interest rate
rises
In the
minutes to their May board meeting, policy makers said “the gradual withdrawal
of monetary stimulus” was desirable as growth takes the economy closer to its
full capacity and inflation accelerates towards its 3% target.
Public
works spending leaped 24.8% in the first quarter from a year earlier, while
coffee output rose 14.9%, the statistics agency said.
“There are
a lot of things going in the right direction,” said Ricardo Hausmann, a former
Venezuelan planning minister who is now economics professor at Harvard
University in Cambridge, Massachusetts. “In general, the world is decelerating
and emerging markets are decelerating this year. Colombia is accelerating.”
The oil
industry, which accounts for half of Colombia’s export revenue, has helped
shield the nation from the slump in metals prices which has hit Chile and Peru,
Hausmann said in a phone interview.
Copper,
which accounts for more than half of Chile’s exports and a quarter of Peru’s,
has fallen 10% this year, while crude prices have risen 7%.
The
national jobless rate fell to 9.2% in April, from 10.7% a year earlier. Annual
inflation accelerated to 2.93% last month, after touching a six-decade low in
November.
President
Juan Manuel Santos, who won a second four-year term in June 15 elections, has
said repeatedly that Colombia can grow at 6.5% or 7% per year if the government
signs a peace deal with Marxist guerrillas and overhauls its highway network.
Government
negotiators have held talks since 2012 with representatives of the Revolutionary
Armed Forces of Colombia, or FARC, in Havana, in a bid to end the 50-year
conflict.
Nearly
every story about China’s extraordinary growth over the past 30 years asserts
two things as a given:
a. China
has grown about 10% a year for 30 years, and
b. China’s
long-term growth record in unsurpassed in modern history.
A new
report by the Conference Board says both of those assertions may be untrue.
According
to the report, written by economist Harry X. Wu, a senior advisor to the New
York-based business research group, China’s economy grew at 7.2% a year between
1978 and 2012 — a rate far lower than what Beijing claims and nowhere near 10%.
And looking at a number of Asian economies over a roughly two-decade period
during which such countries quadrupled their per-capita GDP, Mr. Wu concludes
that China isn’t the growth champ. Japan is, followed by Taiwan.
This isn’t
just a question of bragging rights, writes Mr. Wu. Businesses base their
investment plans on GDP growth, so accuracy is important, especially during down
times. “When the economy is, in reality, slowing down or struggling, then the
impacts of inaccuracy are farther reaching, potentially undermining efficacy in
business, policy and household planning both inside and outside of China,” he
writes.
Trying to
poke holes in China’s GDP record is a pastime for a number of economists. As
evidence, many point to Chinese Premier Li Keqiang’s statement in 2007 that GDP
is a “man-made and therefore unreliable” statistic, as he told the U.S.
ambassador at the time.
Mr. Li,
who was then Communist Party chief of Liaoning province, said he looked at stats
on electricity, rail cargo and loans to get a better gauge of economic activity,
according to a copy of the ambassador’s memo, which was made public by
WikiLeaks.
Like a
number of economists, Mr. Wu argues that China overstates productivity growth
and underestimates inflation, which tends to make inflation-adjusted GDP numbers
–- the ones that get highlighted every quarter — higher than they otherwise
would be. He also suggests that politics plays a big role, particularly the
desire of local officials to exceed GDP targets, which have long been an
important way to boost official promotion chances in China. (Now, those
incentives may be changing: China’s leaders say that in addition to GDP growth,
local officials will be judged on other measures as well, including
environmental clean-up efforts.)
What sets
apart the Conference Board report is the length of time that Mr. Wu examines,
which spans a number of rough economic patches for China. A great deal of the
difference between the Conference Board data and official data reflects the
years when China hit rough spots. In 2008, the year the U.S. financial crisis
spread globally, Mr. Wu calculates that China’s economy grew 4.7% compared to
China’s reported 9.6%. In 2012, when Europe was battered by recession, he
estimates China’s GDP increased just 4.1%, compared to China’s reported 7.7%.
The Chinese overestimates, he says, greatly affected the 30-year growth numbers.
China’s
statistics bureau didn’t respond to requests for comment.
Mr. Wu
argues that China’s numbers especially diverged from reality after the country
joined the World Trade Organization in 2001. That was a period, he says, in
which “significant overcapacity was built in state-dominated and influence
industries,” and localities competed fiercely to be top GDP dog and attract
investment.
By
contrast, Mr. Wu’s analysis of the 1952-1978 period—the heyday of state
planning—doesn’t differ that much from the official GDP numbers.
Even by
his numbers, China’s growth was impressive –- 7.2% a year for more than 30 years
is a huge accomplishment. But it isn’t out of the ordinary for an Asian
powerhouse and is even somewhat less rapid than the growth of Japan, South Korea
and Taiwan.
After two
consecutive years of sub-5% growth, the Indian economy is expected to recover
and expand 5.2% in the first quarter of this financial year, according to a Dun
& Bradstreet report.
"The
fiscal year 2014-15 is expected to start with an optimistic GDP growth of 5.2%
in Q1 FY15 as some of the current macroeconomic numbers strengthen hope that the
recovery for the Indian economy is under way," Dun & Bradstreet India senior
economist Arun Singh said.
India's
economy grew 4.7% in 2013-14, following an expansion of 4.5% in 2012-13. In the
fourth quarter of 2013-14, growth remained subdued at 4.6%, mainly due to a
decline in manufacturing and mining output.
"Two
consecutive years of significant slowdown along with a host of domestic
unresolved issues has placed a burden on the new government. The upcoming Union
Budget would broadly reveal how the new government plans to steer the economy
out of the current slowdown," Mr Singh said.
He also
said that "currently, India needs a robust fiscal policy to build the framework
for a sustainable growth".
"We assume
reassessing the quality of expenditure should be a priority along with
rebalancing the composition of expenditure with the focus shifting more towards
capital expenditure."
According
to Dun & Bradstreet, optimism is likely to be boosted with the upcoming
industrial production data. The Index of Industrial Production (IIP) is expected
to have grown 3-4% during May 2014, it said. In April, the index increased 3.4%.
On prices,
the report said both retail and wholesale inflation are likely to edge up as
global crude oil prices have shot up due to civil unrest in Iraq.
Inflationary pressures remain high, given the prospect of a sub-normal monsoon
this year.
D&B
expects headline inflation to remain elevated at 6-6.2% in June 2014. Wholesale
prices increased 6.01% in May.
The
Japanese government raised its economic growth reading for the first quarter,
saying that capital spending was sharply higher than initially thought.
Gross
domestic product increased at an annualized rate of 6.7% in the January to March
period from the previous quarter, the Cabinet Office said, revising its initial
estimate of a 5.9% expansion. The result, adjusted for price changes, marked the
sixth straight quarterly expansion.
The
surprise upward revision showed that a consumption splurge ahead of a tax
increase in April wasn't the only factor fueling growth in the quarter, as
Japan's economy continued to expand under Prime Minister Shinzo Abe's pro-growth
policies known as "Abenomics."
Economists
polled by The Wall Street Journal and the Nikkei had forecast a downward
revision to a 5.5% rise.
Closely
watched capital investment—a pillar of domestic demand that drove the
first-quarter growth along with consumption—was revised up to a 34.2% increase
from a preliminary 21% jump, based on new information obtained since initial GDP
estimates were released about a month ago.
The
government said this was the strongest growth since the October to December
quarter in 2011.
This data
underlined the contrasting fortunes of major economies. Over the same quarter,
the economy of the 18-nation euro bloc grew less than 1%, hobbled by sluggish
demand and very low inflation, while the U.S. economy shrank 1% amid unusually
cold weather.
Japan's
stellar growth was largely due to a one-time burst of consumer spending in the
months leading to a sales tax increase that took effect April 1. After the sales
tax rate was raised to 8% from 5%, households took a breather from their
spending binge, causing consumption to tumble, while manufacturers cut back on
output in anticipation of weaker demand at home, according to recently released
data.
Economists
expect the economy will contract around 4% in the April to June quarter.
The focus
of Japan's policy debate is on how quickly the economy may pull out of the
slump, and whether the government and the Bank of Japan 8301.TO +1.38%
should further ramp up their stimulus measures to ensure a steady
recovery.
Officials
have so far ruled out the need of immediate action, saying the pullback in
demand has been within their expectations. The central bank has taken heart from
signs that businesses have finally started to put some of their huge savings to
more productive use, such as investment and research, helping cover some of the
slack in consumption.
In
estimating GDP, the Cabinet Office also slightly revised higher its reading of
private consumption, while it lowered its reading of private inventories and
public investment.
Gross
domestic product grew 1.1% in the first three months of the year, from a 0.9%
pace in the fourth quarter of 2013, according to the central bank's forecast.
Dubai’s
economy expanded 4.6% year on year in 2013, up from 4.1% in 2012 according to
Dubai Statistics Centre (DSC).
The DSC
report showed that the fastest growing sector in Dubai last year was once again
hospitality, which recorded 13% growth, the third consecutive year of
double-digit growth in this sector.
This was
followed by manufacturing sector which grew 8.1% year on year, social and
personal services with 6.8% growth and transport, storage and communication that
grew 5.6%.
“Although
the official growth rate for Dubai was largely in line with our long-standing
forecast of 4.5%, recently released 2013 GDP data for Abu Dhabi (5.2%) and the
whole of UAE (also at 5.2%), published by Statistics Centre Abu Dhabi and the
National Bureau of Statistics respectively, implied that Dubai’s growth should
have been of a similar magnitude,” said Khatija Haque, Head of MENA Research at
Emirates NBD.
GDP will
grow by 2% this year and 2.4% next year on the back of rising exports and the
first increase in consumer spending since the recession began, according to the
EY Economic Eye.
The report
expects consumer spending to rise by 1.7% this year, the first expected rise
since 2008.
“Ireland
is showing the characteristics that are required to put the economy back on a
robust footing and this has been recognized by the international financial
markets, which have differentiated Ireland from the ‘Club Med’ countries, as
illustrated by the recent fall in bond yields,” said Professor Neil Gibson,
economic advisory to EY Economic Eye.
“However,
& continued recovery is by no means assured, with a number of valid concerns
including fragile consumer confidence, continued difficulties in the banking
sector and limited private sector lending, potential pent-up repossessions in
the housing market and the uneven pace of recovery in the regions outside
Dublin.”
Exports
are forecast to grow by 3.7% this year following two relatively sluggish years
on the back of the patent cliff in the pharmaceutical sector. But the
improvement in the UK and US economies are seen underpinning exports this year.
Household
incomes and wages have not recovered from the crash, when adjusted for
inflation.
The
Central Bank of Nigeria (CBN) Governor, Mr. Godwin Emefiele, has said the recent
rebasing of the country's gross domestic product (GDP) will support its quest to
be among the top 20 nations by 2020.
According
to Emefiele, the exercise which placed the size of the Nigerian economy as first
in Africa and 26th in the world would also afford the country a more positive
sovereign rating by international rating agencies such as the Standard and
Poor's, Fitch Ratings, the International Monetary Fund, the World Bank, amongst
others.
The
central bank governor made this remark in an address presented at an ongoing
seminar for financial journalists tagged: "Rebasing of Nigeria's Economy and
Implications for Financial System Strategy (FSS) 2020," in Kaduna State.
Emefiele
pointed out that rebasing the country's GDP was relevant to building a safe,
sound and globally competitive financial system that would propel inclusive
growth and development in the economy.
Emefiele,
whose speech was read by the Director, Research Department, CBN, Mr. Charles
Mordi, added: "It is my resolve to hone the CBN's development finance agenda by
targeting employment-generating sectors like agriculture, Small and Medium
Enterprises, oil and gas, power and health, to confront the prostate productive
segments and solve the embarrassing youth unemployment and widening
infrastructure need.
"I also
reiterate the pursuit of gradual reduction of interest rates and was unequivocal
in my stance against any form of depreciation of the naira, but will ensure
exchange rate stability in order to build-up and maintain a healthy external
reserves position."
In his
presentation titled: "Rebasing/Re-benchmarking of Nigeria's GDP: Issues, Facts
and Fiction," the Chief Executive Officer of the National Bureau of Statistics,
Dr. Yemi Kale, said the huge size of the GDP does not mean that the country has
attained its potential. He however reiterated that the exercise had shown the
opportunities in the economy.
Kale, who
was represented by his Special Assistant on Macroeconomic Statistics, Mr. Kayode
Olaniyan, urged government to develop the financial markets for private sector
operators to thrive as well as to support the real sector.
The Chief
Executive Officer of the Financial Derivatives Company Limited, Mr. Bismarck
Rewane, who was represented by the Head of Research at his organisation, Dr.
Afolabi Olowokere, pointed out that the GDP rebasing showed a lot of growth in
the service sector, stressing the need for government to develop the
manufacturing sector.
Russia's
gross domestic product growth forecast of 0.5% for 2014 may be revised upwards
in September due to the slowing pace of a decline in investment, Economy
Minister Alexei Ulyukayev said.
"For now
our official (forecast) for this year is 0.5%, but most likely we will revise it
in September, most likely upwards," Ulyukayev told journalists.
Investment
by Russian companies in tangible goods such as plant infrastructure, a major
contribution to the country's economic wellbeing, had been falling since last
year and plummeted after the West imposed sanctions on Moscow for annexing
Ukraine's Crimea region.
There are
no figures for investment for May yet, but Ulyukayev said there were signs that
the fall had eased. In April, investment was down 2.7% year-on-year.
"There are
no concrete figures," Ulyukayev said. "But the dynamics of the decline have
flattened. ... We are still in negative territory. From now on (the numbers)
should show a growing trend."
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