GDP UPDATE
November 2014
McIlvaine Company
TABLE OF
CONTENTS
The
economy grew at a solid pace during the third quarter, driven by an uptick in
military spending and a drop in imports, showing the U.S. on relatively firm
footing as worries mount about a global slowdown.
Gross
domestic product, the broadest measure of goods and services produced across the
economy, expanded at a 3.5% annual rate from July through September, the
Commerce Department said.
The
quarter showed broad-based improvement in the U.S. economy. Business investment
grew steadily. Exports showed resilience against a backdrop of slowing global
growth. Government outlays, which had dragged on growth for four years, enjoyed
a large boost from military spending alongside a brightening budget picture in
cities and states.
Still, the
report underscored an unusual dynamic: Economic growth looks underwhelming
compared with other postwar cycles for the U.S., but it may prove to be the envy
of other advanced economies.
“I don’t think there’s any question that
compared to Europe or Japan we’re looking pretty good here,” said Michael Feroli,
chief U.S. economist at J.P. Morgan Chase. “But relative to our own standards
and history, we’re still in a disappointing expansion.”
On a
year-over-year basis, inflation-adjusted GDP rose 2.3%, a pace that has remained
remarkably constant over the past three years despite ups and downs in the
quarterly data. Growth expanded sharply during the second quarter, for example,
after contracting during an unusually harsh winter. The latest report is a
preliminary estimate that will be revised twice in the next two months.
The report
showed few signs of a breakout for consumer spending, which was up 2.3% from a
year earlier, little-changed from the pace of the past two years. Consumer
spending accounts for two-thirds of U.S. economic output.
More
robust buying among consumers would be particularly important in cushioning the
U.S. if demand slows abroad. While households should benefit during the
holiday-shopping season from gas prices falling to a four-year low of $3 a
gallon, weak income growth remains a concern and is restraining many sectors of
the economy. The nation’s housing market, for example, contributed little to
growth.
Many
economists expect the third-quarter performance could dip in the current
quarter, in part because a stronger dollar could dent export growth and because
military spending tends to be volatile.
Mexico’s
economy expanded less than analysts estimated for the eighth time in 10 quarters
as a rebound in growth stalled in September on weak domestic demand.
Gross
domestic product rose 2.2% from a year earlier, compared with a 1.6% expansion
in the second quarter, the national statistics institute said. The median
estimate of 24 economists surveyed by Bloomberg was for growth of 2.3%. The IGAE
indicator, a proxy for GDP that was also reported today, fell 0.1% from a month
earlier in September, the second straight decline.
Banco de
Mexico, led by Governor Agustin Carstens, cut its growth forecast range this
week, saying indicators of domestic demand such as consumer confidence remain
weak even as exports have picked up. Latin America’s second-largest economy is
struggling to rebound from 1.4% growth last year, the slowest expansion since
the 2009 recession.
“The
economy has no momentum going into the fourth quarter,” Carlos Capistran, the
chief Mexico economist for Bank of America Corp. in Mexico City, said in an
e-mailed response to questions. “Services and industry remain weak.”
The
central bank said the Mexican economy will expand 2% to 2.5% this year, compared
with the previous forecast of 2% to 2.8%. The government expects growth of 2.7%,
after reducing its estimate in May from 3.9%.
Mexico is
showing “a continuation in the economic recovery, but at a more moderate pace
than we saw in the previous quarter,” Carstens said at an event in Mexico City.
“Exports have been behaving better, so I think in this sense it’s been internal
factors that have limited more vigorous acceleration in our economic growth.”
Wal-Mart
de Mexico SAB, Latin America’s largest retailer, was one of the companies
affected by Mexico’s economic weakness in the third quarter, with net income
falling 5%, trailing analysts’ estimates for a fourth straight quarter.
“The
consumer in Mexico remains challenged,” Scot Rank, the company’s chief executive
officer who plans to leave his post at the beginning of 2015, said on an Oct. 17
conference call with analysts.
Guam's
first private hospital and the luxury hotel Dusit Thani Guam are among major
private-sector projects that helped the island's economy eke out a 0.6% growth
last year, a federal report states.
Guam's
Gross Domestic Product, or the total amount of goods and services generated by
the local economy, increased from $4.11 billion in 2012 to $4.14 billion last
year, states a federal report of Guam's GDP, which was released yesterday. The
GDP figures were adjusted for inflation.
U.S.
Commerce Department's Bureau of Economic Analysis released the report.
Private-sector fixed investment, which includes spending by businesses on
construction and equipment, increased 34%, and construction spending accounted
for a majority of this growth, the report states.
The Dusit
Thani hotel project, owned by local developer Tanota Partners, has been
estimated to cost about $150 million. The Guam Regional Medical City, an
investment by Philippine hospital business The Medical City, has been estimated
to cost $219 million.
The new
hospital is expected to open early next year while the Dusit Thani project is
expected to open by the end of this year or early next year, the developers'
representatives have said previously.
With major
private-sector projects expected to be completed soon, more jobs are expected to
be created and sustained, said Gary Hiles, chief economist at the Guam
Department of Labor.
"High
levels of private investment in 2013 will result in increased numbers of jobs in
2014 and 2015," Hiles said.
The latest
GDP affirms Guam's modest but steady economic growth trend for the last six of
seven years, Hiles said. In 2011, the economy dipped slightly, by 0.3 percent.
Increased
private-sector investment offset a decrease in spending by tourists from Japan,
which is Guam's main source of visitors, Hiles said.
Spending
by tourists decreased 4.6%, which was the first decrease since 2009, the report
states.
Although
total arrivals increased in 2013, expenditures by Japanese visitors, who make up
the majority of Guam's tourist market, declined, according to the report.
Net
exports of goods and services were down $33 million or 2.8%, and government
spending and investment increased $5 million in total, Hiles said.
Federal
government spending decreased $24 million and local government spending
decreased $29 million, according to Hiles.
With
Guam's population of about 160,000 last year, Guam's $4.14 billion economy can
be broken down into a GDP of $25,852 per person, the report states.
Japan's
economy unexpectedly shrank an annualized 1.6% in July-September after a severe
contraction in the previous quarter, likely solidifying the view that premier
Shinzo Abe will delay a second sales tax hike next year.
Thailand
cut its outlook for the fourth time this year after its economy grew much less
than expected in the July-September quarter, hit by a contraction in exports and
tourism.
The
surprisingly weak outlook has raised doubts the junta can quickly turn the
economy around even after pledging to roll out infrastructure projects and other
steps to boost spending.
Southeast
Asia's second-largest economy grew 1.1% in the third quarter from the prior
three months, and 0.6% from a year earlier, the National Economic and Social
Development Board (NESDB) said.
For 2014,
the agency cut its growth forecast to 1.0% - its weakest since the devastating
floods of 2011 and the slowest pace among major Southeast Asian countries this
year.
A Reuters
poll of economists had forecast quarterly growth of 1.8% and annual growth of
1.0%.
Last
November, when political unrest began, the agency had a 2014 forecast of
4.0-5.0%, but that has been steadily lowered as the economy struggled to gain
traction.
The army
seized power on May 22, 2014, in a bid to end the crisis and revive the economy,
but progress has been limited so far. Badly hit sectors such as tourism are
recovering only slowly.
Economists
say the chance of looser policy is now growing.
"The
relatively soft momentum in the 3Q GDP report will add further weight to the
argument that Bank of Thailand should ease again," said economist Benjamin
Shatil of JPMorgan in Singapore.
But he
added that "it is not clear to us that another 25 bp cut will have much of an
effect" in stimulating activity.
The Bank
of Thailand next reviews its policy rate on Dec. 17 after keeping it steady at
2% since March. On Saturday, the BOT said a rate cut would not help much.
Thai
exports, equal to over 60% of GDP, shrank 1.7% in the third quarter due to
slower global growth that hit pivotal sectors such as autos and agriculture.
Household spending and investment improved only slightly.
But the
NESDB is optimistic the economy will grow more than 3% in the fourth quarter as
exports recover and stimulus steps, such as subsidies for farmers, help
consumption. It sees 2015 exports up 4%, in line with the Commerce Ministry.
The
18-country Eurozone eked out only weak growth in the third quarter, underlining
how Europe is still struggling to escape its six-year slump.
Expectations have become so bleak lately that analysts welcomed the Eurozone’s
annualized growth rate of 0.6% in the last quarter as a positive surprise.
Germany barely grew, France grew but largely because companies built up
inventories, and Italy fell back into recession.
The bloc’s
gross domestic product remains more than 2% below its level before the 2008
global financial crisis—at a time when growth in other advanced economies such
as the U.S. and UK is finally strengthening.
The
Eurozone economy expanded last quarter at a sluggish rate, underscoring concerns
that the region is stuck in a rut of declining investment and high unemployment.
One silver
lining was that Greece, which triggered Europe’s debt crisis and has suffered
the region’s deepest depression, reported that its economy grew in the last two
quarters, for the first time since mid-2008. Greece’s economy remains about 25%
smaller than it was six years ago, however.
Overall,
the $12 trillion Eurozone economy—second only to the U.S. in size—is stuck with
too-little growth or inflation to mend its imbalances, reduce high public and
private debts, or significantly cut its chronic unemployment.
The
failure of Eurozone output, investment and employment to recover to past levels,
and the dwindling of annual inflation toward only 0.4%, point to a chronic lack
of demand in Europe’s economy.
Weak
demand from customers was the most pressing problem facing companies of all
sizes in the currency zone, according to a business survey by the European
Central Bank published this past week. That is seen as more worrying than other
hindrances including labor costs, red tape and access to credit.
“We’re stuck in a rut, and I don’t think
demand for products is going to increase that much until wages rise,” said
Ricardo Palazuelo, a Spanish salesman for the Swiss-watches group Festina. The
company only has half as many salespeople in Spain as it used to, he noted.
Many
business leaders warn that the weak sales outlook is discouraging them from
investing in the region—challenging European Union leaders’ hopes that private
activity will drive the recovery while governments pursue budget austerity.
As a
result, more European corporations are focusing the bulk of their investment in
the U.S. or emerging economies, where sales are more likely to grow. The
Ukraine-Russia conflict has also hit business confidence in parts of the
Continent.
“The picture is very mixed in Europe and
we gave a more cautious outlook in late October driven by the increased
geopolitical uncertainties, but also by the weakening European economic
environment,” said Ulrich Spiesshofer, chief executive of Swiss engineering
giant ABB Ltd.
The
Zurich-based group reported a drop in third-quarter earnings due to sluggish
European business, and is redoubling efforts to expand into continents where the
outlook is brighter.
“Growth is
still nowhere near strong enough to eat into the vast amount of spare capacity
in the region and hence diminish the risks of a prolonged and damaging bout of
deflation,” said Jonathan Loynes, economist at London-based consultancy Capital
Economics.
Deflation
refers to persistently falling prices that deter spending and investment and
make it harder to pay off debts.
In
Germany, companies from consumer-products maker Henkel AG to construction group
Hochtief AG are reporting dwindling earnings from their European activities and
are shifting more of their investment ambitions overseas.
“In Europe
we do foresee a struggling economy” also in coming quarters, with weak consumer
spending, Henkel CEO Kasper Rorsted told analysts on Thursday.
In France,
which is under pressure from Germany and EU authorities to overhaul its economic
regulation, 47% of industry executives said lack of demand is their main problem
in an October survey by the national statistics office INSEE, up from 40% in
July.
Only 16%
said supply-side issues were their main problem, while 11% said both supply and
demand factors were holding them back.
Sustained
aviation and tourism growth in Dubai will mean the sector will account for 38%
of the emirate’s GDP by 2020.
Dubai’s
tourism and aviation industry will grow from $26.7 billion to $53 billion
between now and 2020
The
expansion is associated with the upcoming World Expo event and Dubai’s growing
tourism appeal
Large-scale property investment is already underway in the emirate
The
aviation industry will account for a third of Dubai’s economic strength by the
time the emirate hosts the World Expo 2020 show.
A new
report by UK think tank Oxford Economics, commissioned by the Emirates airline
and Dubai Airports, found that last year the aviation and tourism sector
contributed $26.7 billion (£17.0 billion) to the emirate’s economy. Currently,
this contributes 27% of Dubai’s GDP and supports a total of 416,500 jobs, which
is 21% of the workforce.
The report
estimated that by 2020, the overall economic impact of aviation and tourism
would increase to $53 billion, making it the worth 38% of Dubai’s GDP, while
supporting more than 754,500 jobs.
A major
part of this economic shift centers on the expansion of Dubai World Central Al
Maktoum and the report predicts that by 2020, the Emirates Airline will fly 70
million passengers using the two airports in Dubai.
The $32
billion Dubai World Central project is currently under construction. The first
phase will take between six and eight years and once complete, will result in
two terminals with the capability to process 120 million passengers and handle
up to 100 A380s at any one time. The second stage involves modular increases to
cope with growing demand.
Since the
World Expo 2020 bid win, the predicted economic growth has resulted in a new
wave of large-scale property investment in Dubai. Figures from the DLD show that
in the first six months of 2014, investors purchased 113 billion AED (£18
billion) worth of Dubai property, a year-on-year rise of almost 50%.
Russia’s
economy expanded 0.8% in the first 10 months of the year, beating expectations
despite a fall in capital investment, according to official data.
The growth
rate exceeded the central bank’s full-year forecast of 0.3%, which would mark
Russia’s weakest economic performance since 2000, the first year Vladimir Putin
was president, excluding 2009 when the economy contracted due to the global
financial crisis.
The
breakdown of data, however, showed that the war of sanctions between Moscow and
the West is taking a toll on Russia’s economy.
The data,
released by the Federal Statistics Service, showed that capital investment,
which was a drag on Russia’s economic growth last year, fell 2.9% on the year in
October after shrinking 2.8% in September. The ruble has fallen sharply in
recent months, prompting companies to save funds and convert rubles into dollars
and euros instead of investing into future projects.
Retail
sales, which reflect the strength of consumer demand, a key driver of the
Russian economy, grew just 1.7% on the year in October, compared with growth of
3.3% a year earlier.
Senegal's
gross domestic product (GDP) is forecast to grow at 5.4% next year and the
figure would be 0.2 percentage points higher but for a regional outbreak of
Ebola, the head of the country's economic forecasting office said.
GDP growth
in 2014 is expected to be 4.5%, up from 3.5% the previous year, while inflation
is projected to climb to 1.4% in 2015 from 0.8% this year.
"We expect
an economic growth rate of 5.4% in 2015 thanks to public investments in the
energy, agriculture, tourism and infrastructure sectors," Serigne Moustapha Sene,
head of the forecast and economic studies office, told reporters.
Senegal,
one of West Africa's most stable democracies, exports peanuts, seafood and
phosphates.
President
Macky Sall secured pledges worth about $7.8 billion at a donor conference in
February to help kick-start a development plan aimed at diversifying the economy
and doubling economic growth rates over the next decade.
More than
5,000 people have died of Ebola in Guinea, Sierra Leone and Liberia. Senegal has
had just one imported case and the disease's impact on GDP this year has been
minimal, but fear of the disease can affect tourist numbers.
Slovenia,
which narrowly avoided an international bailout last year, expects growth in
2014 to surpass the government's September forecast of 2%, Deputy Prime Minister
Dejan Zidan said on Friday recently
"We can
expect economic growth this year to reach 2.4% based on high growth of exports,"
Zidan told a conference of Slovenian and Chinese businessmen.
Slovenia
has been in recession the last two years largely because of a fall in domestic
spending and investment.
Slovenia's
export-oriented economy is focused on European Union markets, which account for
as much as 77% of the country's foreign sales.
But the
country hopes to reduce this dependence on EU trade and Zidan said Slovenia
wants to increase exports to China, which at present represent only a fraction
of Slovenian sales.
"I expect
we could increase exports to China in the areas of car parts, electrical
equipment parts, tourism, food and wine," he said.
China's
Deputy Prime Minister Wang Yang told the same conference that China was ready to
support private-public partnerships that would develop Slovenian ports, airports
and energy firms.
Zidan said
that although Slovenia wanted to keep state control of its main port, Luka Koper,
it could form a partnership with China to expand Luka and the railway line
leading to it.
"Talks on
this will continue in the coming months," he said.
Slovenia,
which borders Italy, Austria, Hungary and Croatia, was badly hit by the global
crisis due to its dependency on exports. It managed to avoid an international
bailout last year by pumping more than €3 billion of state money into local
banks which are mostly state-owned.
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