GDP UPDATE
May 2014
McIlvaine Company
TABLE OF CONTENTS
Today’s
GDP estimate is subject to a number of notable influences, including
historically severe winter weather, which temporarily lowered growth in the
first quarter. The report also shows the positive impact of the implementation
of the Affordable Care Act which, together with continued slowing in health
costs, helped strengthen the economy in the first quarter. The President will do
everything he can either by acting through executive action or by working with
Congress to push for steps that would raise growth and accelerate job creation,
including fully paid-for investments in infrastructure, education and research,
a reinstatement of extended unemployment insurance benefits, and an increase in
the minimum wage.
Five Key Points in Today’s Report from The Bureau of Economic Analysis
1. Real
gross domestic product (GDP) rose 0.1% at an annual rate in the first quarter of
2014, following the 3.4% annual pace in the second half of 2013. Looking at the
various components of GDP, consumer spending grew at a rapid pace, mainly
reflecting sharp increases in health care and utilities consumption, while the
other elements of consumer spending on net rose only slightly. Consumer spending
on food services and accommodations fell for the first time in four years, one
of several components that is likely affected by unusually severe winter
weather. Exports and inventory investment, two particularly volatile components
of GDP, also subtracted from growth.
2. The
first quarter of 2014 was marked by unusually severe winter weather, including
record cold temperatures and snowstorms, which explains part of the difference
in GDP growth relative to previous quarters In addition, there were four storms
in the first quarter that rated on the Northeast Snowfall Impact Scale (NESIS).
3. Within
the first quarter, several key indicators were lower in January and/or February
before rebounding strongly in March, suggesting that the severe weather had a
disruptive effect that only began to abate at the end of the quarter. Light
vehicle sales, average weekly hours, core retail and food service sales, and
core capital goods shipments dipped starting in December and/or January before
bouncing back in March, and so were left little changed for the quarter as a
whole. One outside group has estimated that the elevated snowfall in the first
quarter slowed the annual rate of GDP growth by 1.4 percentage points, with all
of that lost activity to be made up in the second quarter.
Additionally, it is worth noting that consumer spending on utilities surged more
than 38% at an annual rate in the first quarter, the largest increase on record
(with data back to 1959). While this weather-related jump in utilities spending
added to GDP growth, it was likely more than offset by the constraining effect
of severe weather on other categories, including other components of consumer
spending (like autos, household furnishings, and restaurants), some components
of private and public fixed investment, and exports.
4. The
federal sector made a small positive contribution to growth for the first time
in over a year, in part because the effect of the shutdown in the fourth quarter
reversed. The Bureau of Economic Analysis (BEA) reported that in the fourth
quarter, federal worker furloughs resulting from the government shutdown
directly reduced GDP growth by 0.3 percentage point at an annual rate; other
effects of the shutdown (including reduced government purchases of goods and
services) also likely contributed to the large 1.0 percentage point negative
contribution from the federal government.
In the
first quarter of 2014, the federal sector made a small (0.05) percentage point
positive contribution to growth, in part due to the return to a full quarter of
undisrupted federal employee work hours. Federal spending is subject to a number
of influences, including the winding down of overseas military operations, the
withdrawal of temporary support measures enacted earlier in the recovery, and in
2013, the sequester. The budget agreement reached late last year should create a
more neutral fiscal climate in 2014 than in 2013, and while there is still a
need to do more to invest in growth, the reduced fiscal drag is a key reason
that outside forecasters expect growth to strengthen over the remainder of the
year.
5. Health
care prices continued to increase exceptionally slowly, growing at an annual
rate of just 0.5% (0.9% on a year-over-year basis), while utilization (real
health care spending) rose at a 9.9% annual rate in the first quarter. It is
important to note that the main survey BEA uses to track health care spending
will not report first-quarter estimates until June, and the expansion of
insurance coverage under the Affordable Care Act during the first quarter
complicates the interpretation of other available data. For this reason, today’s
estimates could be revised significantly.
If
anything, however, the details of today’s report suggest that the underlying
cost trends in the health sector remain favorable. The sharp increase in
estimated utilization appears to have been driven by greater use of health care
services by people who gained insurance coverage during the first quarter
because of the Affordable Care Act. Ensuring access to care is a key goal of the
Affordable Care Act’s coverage expansion, so this increase in utilization is
neither a surprise, nor a cause for concern. Furthermore, any upward pressure on
health care spending growth from expanding insurance coverage will cease once
coverage stabilizes at its new, higher level, so it does not affect the
longer-term outlook for spending growth.
Meanwhile,
consumers continued to benefit from very slow growth in health care prices, a
trend that actually deepened during the first quarter and which is attributable
in part to reforms made in the Affordable Care Act. Slower growth in health care
prices drives slower growth in families’ out-of-pocket costs and insurance
premiums and has been an important contributor to the overall slow growth in
health care spending seen over the last few years.
Chile’s
gross domestic product fell less-than-expected last month, official data shows.
Chilean
GDP 2.6% vs. 2.4% forecast. In a report, Banco Central de Chile said that
Chilean GDP fell to a seasonally adjusted 2.6%, from 2.7% in the preceding
month.
Analysts
had expected Chilean GDP to fall to 2.4% last month.
Hong
Kong's economic growth moderated in the first quarter on weak external demand,
preliminary figures from the Census and Statistics Department showed.
Gross
domestic product advanced 2.5% from last year, slower than the revised 2.9%
expansion seen in the fourth quarter.
Growth was
forecast to moderate to 2.9% from the fourth quarter's initially estimated
increase of 3%.
On a
seasonally adjusted quarter-to-quarter comparison, real GDP grew slightly by
0.2% in the first quarter, after a 0.9% increase in the preceding quarter.
The
slowdown is likely to prove temporary, Gareth Leather, an Asia economist at
Capital Economics said. The economist expects growth to rebound over the coming
quarters as the global economic recovery gathers momentum.
The
government also released its first quarter Economic Report 2014. The GDP growth
forecast of 3-4% for 2014, as announced in the budget, was maintained in the
current round of review.
The
government forecast domestic demand to stay steady. "While the global economy
had a slow start in 2014, the improved outlook for the year as a whole does not
seem to have shifted by a significant extent," government economist, Helen Chan
said.
This
should provide ground for somewhat faster growth of the Hong Kong economy in the
latter part of this year, the economist added.
In the
first quarter, exports of goods rose only 0.5% annually after climbing 5.7% a
quarter ago and the annual growth in imports came in at 1.2%.
Despite a
high base of comparison a year ago, private consumption expenditure climbed 2%
and government spending moved up 2.4%.
Investment
gained moderately, by 3%, mainly driven by the surge in building and
construction expenditure.
In the
economic report, the government maintained its headline inflation forecast for
2014 at 4.6%. Consumer price inflation eased slightly to 4.2% in the first
quarter.
Netting
out the effects of the government's relief measures, underlying consumer price
inflation edged down to 3.8% from 4% in the fourth quarter of 2013.
With wage
growth staying steady and imported price pressures still modest, the upside
risks to consumer price inflation should remain limited this year, the
government economist said.
Japan's
economy grew at a breakneck pace in the first three months of the year as
consumers went on a massive shopping spree to avoid a planned sales tax
increase.
Gross
domestic product (GDP) grew at an annual rate of 5.9% in the first quarter,
Japan's Cabinet Office said recently. The expansion was much quicker than the 4%
figure expected by economists, and a major rebound from disappointing growth in
the fourth quarter of 2013.
On a
quarterly basis, Japan's GDP increased by 1.5%. Exports and business investment
were particularly strong, and both measures topped analyst expectations.
Private
consumption also provided a boost, driven by consumers that rushed to make big
purchases before the tax hike took effect.
Japan's
consumption tax was increased to 8% in April in a bid to improve the country's
fiscal position. If needed, the government has the option to implement an
additional increase to 10% by 2015.
Consumers
responded in a big way -- and all the extra shopping contributed to the strong
first quarter numbers. But now that the sugar rush is over, economists expect
Japan's growth rate to return to earth in the second quarter.
"Looking
ahead, the economy will certainly contract in the second quarter of the year, as
consumers rein in spending after the tax hike, and residential investment is set
to plunge," said Marcel Thieliant of Capital Economics.
Still,
Japan is looking pretty good for the full year as the government presses ahead
with its much-ballyhooed Abenomics revival strategy.
"While the
first quarter's strong growth will likely give way to contraction in the second
quarter, recent positive sentiment surveys suggest that Japanese growth should
continue above the pre-Abenomics trend when the volatility caused by the tax
increase passes," said Bill Adams, an economist for PNC Financial Services
Group.
Malaysia’s
gross domestic product rose more-than-expected last month, according to official
data.
Malaysian
GDP 6.2% vs. 5.5% forecast. In a report, Department of Statistics Malaysia said
that Malaysian GDP rose to a seasonally adjusted 6.2%, from 5.1% in the
preceding month.
Analysts
had expected Malaysian GDP to rise to 5.5% last month.
Singapore’s economy will experience “modest” expansion this year as a tight
labor market constrains some industries amid improving global demand, the
government said after growth exceeded initial estimates last quarter.
The city
state maintained its 2014 growth and export forecasts even as manufacturing
gains helped gross domestic product rise an annualized 2.3% in the three months
through March from the previous quarter, more than an April estimate of a 0.1%
expansion.
Singapore
is nearing the midpoint of a 10-year economic transition strategy to reduce its
dependence on cheap overseas workers while attracting new industries such as
research and development.
The
Southeast Asian nation, whose trade-dependent economy is vulnerable to
fluctuations in global demand, expects recoveries in the U.S. and Europe to
support growth even as China’s expansion cools.
Thailand's
political stalemate is dragging down the country's economy, which shrank sharply
in the first quarter as the crisis restrains government investment, damps
consumer and business confidence and raises the risk of a ratings downgrade.
First-quarter gross domestic product contracted 0.6% from a year earlier and
2.1% from the quarter before on a seasonally adjusted basis, the National
Economic and Social Development Board said. That was worse than the 0.22% and
1.8% drops, respectively, economists had been expecting.
"Unless a
resolution to the political crisis is found soon, GDP growth in the second
quarter may not be much better," research company Capital Economics warned after
the data.
Exports
weren't able to offset the domestic weakness. Despite evidence of stronger
shipments elsewhere in Asia as Western demand revives, Thai exports fell 0.4% on
an annual basis in the first quarter.
Imports
shrank even faster—down 8.5% in the first quarter—as domestic demand flagged.
Public and private investment declined 19.3% and 7.3% on an annual basis,
respectively, and private consumption shrank 3%.
Antigovernment protests have raged in Bangkok since November, seeking to replace
Prime Minister Yingluck Shinawatra and oust the government. Thailand's
Constitutional Court ordered Ms. Yingluck removed from office earlier this
month.
With no
resolution to the political crisis in sight—the country's Election Commission
recently said the situation was too unstable for July elections to go ahead as
planned—the budget for next fiscal year, due in October, might not be presented
on time, ANZ Bank ANZ.AU +0.28%
said in a research note.
Any budget
delay "will be a negative for growth and increase the risk of ratings
downgrades," ANZ said.
Moody's
Investors Service, which rates Thailand at Baa 1 with a stable outlook, warned
earlier this month that "a continuation of political turmoil would erode the
country's core credit strengths."
The state
planning board cut its GDP target for the year to 1.5% to 2.5% growth, from 3%
to 4% previously. Economists expect full-year growth of 1.8%.
"Without a
functional government, public spending will stay shackled," Capital Economics
said in its research note. "Spending restrictions on the caretaker government
leave it with limited ammunition to boost the economy."
Despite
the grimmer outlook, economists don't expect any imminent moves from the central
bank, which already has lowered interest rates by a half-percentage point even
as its peers across Asia are beginning to tighten policy.
"With the
Bank of Thailand having already eased twice since the escalation of political
tensions last November, we expect the bar to be high for further rate cuts …,"
ANZ said.
Official
statistics put Africa’s GDP at about $1.5tn, but Mthuli Ncube, chief economist
at the African Development Bank (AfDB), told delegates at the bank’s annual
meeting that in reality the figure is a third larger: $2trn, “if not higher”.
The
reason? African countries are revising their economic statistics, measuring for
the first time in decades booming sectors such as banking and
telecommunications. When earlier this year Nigeria updated its statistics, it
nearly doubled its GDP estimate. Ghana found its GDP to be 60% larger than
thought in a similar update in 2010.
Ncube says
many other African countries, including regional heavyweights such as Kenya,
have yet to rebase their GDP, leaving plenty of room for much higher figures.
“Rebasing
is producing [on average] a 30% increase,” he said at the meeting in Kigali,
Rwanda. “From the work we are doing in rebasing [the GDP], we think the final
figure [for Africa’s economic size] will be closer to $2tn, if not higher,” he
said.
Although
upward revisions of the size of Africa’s GDP will not put more money in the
pockets of consumers, it could well have a “feel good” effect on perceptions
about the region. With Africa firmly on the radar of multinational companies and
global institutional investors, upward revisions could lure considerable inflows
of capital.
Stuart
Culverhouse, chief economist at Exotix, a frontier markets specialist in London,
said the revision would have a positive impact in the psychology of foreign
investors. “If countries are bigger, investors are more likely to look at them”.
According
to the AfDB, only ten African countries out of 54 meet the international
standard of using a base year in their GDP calculations that was five or fewer
years ago. Another group of 19 countries use a base year that is at least a
decade old and seven countries – including heavyweights such as Sudan – use base
years that are more than 20 years old. Worse, commodities-rich Democratic
Republic of Congo and Equatorial Guinea use base years from the 1980s.
One method
of measuring GDP is to multiply the quantity of all goods and services purchased
in a given year by their prices in the base year. Thus, if prices have risen
sharply over the past decade, then using a base year from a decade ago will
significantly understate the value created, and thus the GDP.
The
reality check inherent in rebasing can be huge. When Guinea-Bissau and The
Gambia, two tiny West African nations, recalculated the size of their GDP a few
years ago, they discovered their economies were more than double the size of
what had been reported.
But
African officials are not rushing for the champagne. True, the continent’s GDP
may be much higher than currently estimated. But the re-calculation will show
some of the problems blighting the region, in particular growing income
inequality. Africa may be richer, but so far only a minority is benefiting from
the wealth.
And higher
GDP figures will also highlight other problems, such as a lower tax base
compared to the size of the economy, and low spending on health and education.
Germany
was once again the main driver of modest growth in the euro zone as the
economies of Italy and the Netherlands contracted, while France's stagnated.
The
currency area's continued reliance on its powerhouse underlines the fragility of
its recovery, which began in the second quarter of last year but has struggled
to gain momentum.
The euro
zone's two core economies were on widely divergent trajectories at the start of
2014, with Germany's economy surging head as French economic growth ground to a
halt.
Adding to
a very mixed picture for the euro zone's largest members, the Netherlands
experienced a sharp economic contraction in the first quarter, although that may
be transitory and largely due to a very mild winter across Europe. The
Netherlands is one of the largest gas-producing countries in Europe and harsh
winter weather usually provides a boost to its export-oriented economy.
Figures
released earlier recorded a pickup in growth in Spain. But for members of the
European Central Bank's governing council, the weakness and narrowness of
economic growth in the first quarter will likely underline the need for further
stimulus as they prepare for their next meeting in early June.
The ECB's
vice president said that it is open to further monetary easing to prevent the
euro zone from stagnating under an extended period of low inflation.
"We are
determined to act swiftly if required and don't rule out further monetary policy
easing," Vitor Constancio said in a speech in Berlin.
The
contrast in economic performance with Germany will add to already growing
pressure on French President François Hollande.
After
increasing taxes sharply in the first 18 months of his presidency, the Socialist
leader changed his approach in January, pledging to slash spending instead and
cut taxes for business in a bid to get them to invest and recruit.
Germany's
statistics agency said that in the three months to March, gross domestic product
was 0.8% up on the last three months of 2013. That was the most rapid expansion
since the first quarter of 2011, and double the rate of growth recorded in the
final quarter of last year.
De Statis
said domestic consumption was the main driver of growth, and particularly
spending by households and the government. Foreign trade put a damper on growth,
and preliminary calculations show exports fell while imports picked up.
That
rebalancing of demand may placate some critics of Germany's growth model, who
have long complained it has been overly reliant on exports, while its weak
domestic spending has held back both the euro zone and global recoveries.
By
contrast, French consumers tightened their belts and companies cut back on
investment, indicating the wider euro zone recovery remains weak and vulnerable
to setbacks.
In the
first three months of 2014, the euro zone's second-largest economy failed to
grow on a quarter-on-quarter basis, data from the French national statistics
bureau, Insee showed. The French economy had grown 0.2% in the final quarter of
last year and economists polled by The Wall Street Journal expected a slightly
smaller slowdown to 0.1% growth in the first quarter.
Economists
had expected Italy's economy to grow by 0.2%, an acceleration from the 0.1%
expansion recorded in the previous quarter, Instead, it contracted by 0.1%.
The euro
zone exited a long contraction in the second quarter of last year, but growth
hasn't been as strong in past economic recoveries and too sluggish to quickly
bring unemployment down from record highs. Alongside weak growth, the annual
rate of inflation has been below 1.0% since October, and well below the European
Central Bank's target of just under 2.0%. The ECB indicated that it is preparing
to cut interest rates or take other stimulus measures when its governing council
next meets in June.
In France,
the economy escaped the deep contraction of the wider eurozone. But it has
fluctuated between contractions and slight growth every quarter over the last
two years, scuttling Mr. Hollande's pledge to get unemployment to start falling.
The GDP
figures from Insee indicate that Mr. Hollande's policies still haven't had an
impact as investment by nonfinancial companies fell 0.5% in the first quarter
from the previous quarter.
Consumer
spending, which has steadied the French economy during the euro zone slump, also
fell 0.5% over the same period, indicating rising unemployment and sales tax
increases are weighing on households.
Elsewhere
in Europe, growth was mixed in the first three months of the year. Within the
euro zone, Austria slowed, with its economy expanding by 0.3% compared with a
0.4% rate of growth in the fourth quarter of last year.
The
Austrian Institute of Economic Research, known by its German acronym WIFO,
described that performance as "only very feeble," and said growth was almost
entirely driven by exports.
By
contrast, Slovakia's economy accelerated slightly, recording growth of 0.6%, up
from 0.5%.
Outside
the euro zone, the Czech Republic stagnated, while Romania's economy slowed
sharply, albeit from a very strong end to 2013.
Hungary's
economy grew by 1.1% during the quarter, a pickup from the 0.7% rate of growth
recorded at the end of last year and the fastest expansion recorded in Europe so
far.
Among
those countries for which data is available, the Netherlands was by far the
worst performing economy in Europe during the first quarter. Its GDP shrank by
1.4%, more than reversing a 0.9% expansion in the final three months of last
year.
That may
not mark the end of the recovery that began in the second quarter of last year,
however. The Dutch statistics agency said business investment and industrial
production continued to pick up, and weather effects won't have as large an
influence in the second quarter.
The
contraction of Cyprus's gross domestic product (GDP) slowed down in the first
quarter of 2014 compared to the same period last year, according to data
released by the Statistics Department.
The
department said the GDP of the crisis stricken eastern Mediterranean island
shrank by 0.7% in the first quarter (Q1) this year compared with 0.8% shrinkage
in Q1 of 2013.
On a
year-on-year basis, Cyprus's growth contracted by 4.%, according to the
statistics data.
Cyprus was
brought back from the brink of bankruptcy in March 2013 when it signed a
10-billion euro bailout with the Eurogroup and the International Monetary Fund.
The deal
involved the shutting down of a faltering lender and the recapitalization of its
primary lender with depositor's money, leading to an acute shortage of liquidity
to fund growth.
The
Cypriot economy contracted 5.4% in 2013, well below an original projection by
international lenders for a 7.7% regression.
Their
projection of this year's contraction was for a 4.7% year-on-year drop in GDP,
but Fitch Ratings put its own estimate of the shrinkage at 3.9% when it upgraded
Cyprus ratings by a notch in April.
The
Eurogroup and the IMF have said they expect Cyprus to return to a modest 0.9%
growth in 2015.
Italy’s
economy unexpectedly contracted last quarter, signaling the country’s failure to
sustain a pullout from its longest recession on record.
Gross
domestic product in the three months through March decreased 0.1% from the
fourth quarter, when it rose 0.1%, the national statistics institute, Istat,
said in a preliminary report. The decrease contrasts with the median forecast of
a 0.2% expansion in a Bloomberg survey of 21 economists. From a year earlier,
output shrank 0.5%.
“Italy GDP
surprised on the downside,” said Annalisa Piazza, a fixed-income strategist at
Newedge Group in London. “Italian activity continues to contract and the already
ample output gap keeps widening.”
An
unexpected decline in Italy’s industrial production in March prompted concerns
about the recovery’s sustainability in the months ahead. In Paris, national
statistics office, INSEE, said French GDP (FRGEGDPQ) was unchanged in the three
months through March, while the German statistics office said Europe’s largest
economy expanded 0.8% in the same period.
Italy’s
economy will expand 0.6% this year, less than the government estimates, the
Brussels-based European Commission said. That’s in line with Istat’s latest
estimate and lower than Italian Prime Minister Matteo Renzi’s expectation of a
0.8% expansion.
The
euro-region’s third-biggest economy contracted 1.9% in 2013 when the longest
slump on record depressed domestic demand amid rising unemployment.
Lower-than-anticipated GDP growth this year may hinder Renzi’s efforts to reduce
the country’s public debt, which rose in March to 2.12 trillion euros ($2.91
trillion).
The
government is trying to revive consumption with a cut to payroll taxes for the
country’s lowest-paid employees starting this month. Renzi is also seeking to
reduce an unemployment rate that remained at a record-high 12.7% in March for a
third month.
Russia’s
first-quarter economic growth slowed to the weakest in a year as the standoff
against the U.S. and its allies over Ukraine shrivels up investment.
Gross
domestic product advanced 0.9% in January-March from a year earlier after a 2%
gain in the previous quarter, the Moscow-based Federal Statistics Service said
in an e-mailed statement, providing its first estimate of first-quarter GDP.
That was above the 0.7% median estimate of 19 economists in a Bloomberg survey.
The Economy Ministry had projected that output expanded 0.8%.
President
Vladimir Putin’s move to absorb Crimea in March prompted U.S. and European Union
sanctions, bringing the already slowing $2 trillion economy to a near
standstill. The International Monetary Fund said April 30 that Russia is already
in recession as U.S. and EU leaders warn that they are ready to take further
measures if Ukraine’s May 25 presidential election is disrupted.
“Clearly
the general trend is slowing economic growth,” Vladimir Bragin, head of research
at Alfa Capital Partners Ltd. in Moscow, said by e-mail. “It’s evident in
consumption, including through slower lending, and in investment, which has
decelerated after the completion of large investment projects by state
companies, as well as the completion of construction in Sochi.”
The ruble
has weakened more than 5% this year against the dollar, the second-worst
performance among 24 emerging-market currencies tracked by Bloomberg after
Argentina’s peso.
Russian
capital outflows in the first quarter were the largest since the last three
months of 2008 when the collapse of Lehman Brothers Holdings Inc. triggered the
biggest credit squeeze since the Great Depression. Net outflows totaled $50.6
billion, more than double the $17.8 billion that left in the previous quarter,
according to the central bank.
“Investment weakness is due to a combination of much higher borrowing costs and
the deterioration of the political and economic outlook. The latter is at least
partly due to rising sanction risk from the West,” Vladimir Osakovskiy, chief
economist for Russia at Bank of America Corp. in Moscow, said by e-mail before
the data release.
The threat
of sanctions is more “dangerous” for the economy than the effects of actual
measures because it dries up investment, according to Economy Minister Alexei
Ulyukayev. “Obviously, the role of this factor is big as we had a 4.2% drop in
fixed-capital investment in the first quarter,” Ulyukayev said.
Russia may
face technical recession, defined as two consecutive quarters of declining
output compared with the previous three-month period. The economy is at risk of
failing to grow or may even contract 0.1% in April-June compared with
January-March, when GDP fell 0.5%, Ulyukayev said.
GDP may
grow 0.5% this year, Prime Minister Dmitry Medvedev said at a recent government
meeting in Moscow. The economy has recently faced “serious limits,” including a
drop in investment and consumer demand, consistent capital outflows and an
unfavorable global financial environment, Medvedev said.
First-quarter GDP data “lay to rest any lingering beliefs that Russia’s economy
will prove to be relatively resilient in the face of the deepening crisis in
Ukraine,” Neil Shearing, chief emerging-markets economist at Capital Economics
Ltd., said in a research note.
The
government anticipates positive growth in Zambia’s economy with real gross
domestic product (GDP) projected at 7% in 2014 compared to 6.4% in 2013.
Inflation
is also expected to remain at the single digit level and drop to 6.5 %t compared
to 7.1% recorded at end 2013.
Ministry
of Finance public relations officer Chileshe Kandeta said yesterday that the
growth in the country’s GDP and drop in inflation will stem from global
developments.
The global
growth is projected at 3.7% in 2014.
The
projected growth of Zambia’s economy for 2014 is contained in the 2013 Annual
Economic Report made available to the Daily Mail in Lusaka
.
“Global
developments will have a positive impact on the domestic economy with real GDP
projected at seven percent. This will be driven by strong performance in the
mining, transport and communication, and construction sectors.
“Agriculture sector is also expected to recover on account of expected favorable
weather conditions,” Mr Kandeta said.
He said
global growth is expected to be driven by a projected resurgence in the advanced
economies to 2.2% in 2014 from 1.3% in 2013.
He said
global growth will in part be supported by the reduction in the United States’
fiscal drag and the recovery in the Euro zone, which is expected to post
positive growth of 1.0% from negative 0.4% in 2013.
Mr Kandeta
said emerging and developing economies are expected to grow at 5.% from 4.7 % in
2013 with sub-Saharan Africa expected to reach 6.1% from 5.1% in 2013.
“This will
be on account of stronger external demand from advanced economies, although
domestic weaknesses may remain a concern,” he said.
Mr Kandeta
said in the commodity market, the price of oil is expected to be on a downward
trend and the projected high production by both Organization of the Petroleum
Exporting Companies (OPEC) and non-OPEC producers will sustain the downward
pressure.
He said
non-fuel commodity prices such as copper are expected to ease on account of
expected boost in supply.
“Monetary
policy will continue to focus on price and financial system stability. In this
regard, inflation is expected to remain in single digit levels on account of the
anticipated improvement in food supply complemented by expected stability in
fuel prices. Nonetheless, risk of exchange rate volatility may exert
inflationary pressure,” Mr Kandeta said.
He said
fiscal policy will focus on strengthening domestic resource mobilization to
support public infrastructure and human capital development.
Mr Kandeta
said efforts will be directed towards increasing domestic revenue collections
from 19.3% of GDP in 2013 to at least % in 2014.
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