GDP WORLD UPDATE
March 2016
McIlvaine
Company
TABLE OF
CONTENTS
Bond fund
giant Pacific Investment Management (Pimco) lowered its forecast for global real
gross domestic product growth in 2016 by a quarter-point to a range of 2% to
2.5%, Pimco revealed.
"Actual
global GDP growth was 2.8% in 2014 and 2.6% last year; our forecast sees the
slowdown continuing," Pimco said in a report.
U.S.
economic growth slowed in the fourth quarter, but not as sharply as previously
estimated, with fairly strong consumer spending offsetting the drag from efforts
by businesses to reduce an inventory overhang.
Gross
domestic product increased at a 1.4% annual rate instead of the previously
reported 1.0% pace, the Commerce Department said in its third GDP estimate.
GDP growth
was initially estimated to have risen at only a 0.7% rate. The economy grew at a
rate of 2.0% in the third quarter and expanded 2.4% for all of 2015.
Economists
polled by Reuters had expected that fourth-quarter GDP growth would be unrevised
at a 1.0% rate.
The upward
revisions reflected a stronger pace of consumer spending than previously
estimated.
Consumer
spending, which accounts for more than two thirds of U.S. economic activity,
rose at a 2.4% pace rather than the 2.0% rate reported last month. That
reflected more consumption of services than previously estimated.
The fairly
solid pace of consumer spending underscores the economy's underlying strength
and should further allay fears of a recession, which triggered a massive stock
market sell-off early this year.
Spending
is being supported by a tightening labor market, which is steadily lifting
wages, and rising house prices.
Gasoline
prices around $2 per gallon are also helping to underpin household discretionary
spending.
Inventory
investment was revised lower. Still, inventories remain high relative to
domestic demand.
Businesses
accumulated $78.3 billion worth of inventory rather than the $81.7 billion
reported last month. As a result, inventories subtracted 0.22 percentage point
from GDP growth instead of the previously reported 0.14 percentage point.
First-quarter GDP growth estimates are around a 1.5 percent rate. But with the
inventory pile still large and shipments of capital goods ordered by businesses
weak in January and February, the risks to growth are tilted to the downside.
There was
some bad news in the GDP report, with corporate profits falling for a second
straight quarter as a strong dollar and cheap oil undercut the earnings of
multi-national companies.
Profits
after tax with inventory valuation and capital consumption adjustments declined
at an annual rate of 8.4%, the biggest drop since the first quarter of 2014,
after dropping at a 1.7% pace in the third quarter.
Profits
from current production fell $159.6 billion after decreasing $33.0 billion in
the third quarter.
For all of
2015 profits dropped 5.1%, the largest drop since 2008, after slipping 0.6% in
2014.
Part of
the drop in profits in the fourth quarter was due to a $20.8 billion transfer
payment related to the BP oil spill in the Gulf of Mexico in 2010, which was the
largest U.S. offshore oil spill.
Profits
from the rest of the world decreased $6.5 billion in the final three months of
2015 after sliding $23.1 billion in the third quarter.
Manufacturing profits declined $139.2 billion during the last quarter after
decreasing by $4.1 billion in the July-September period. Profits in the
petroleum and coal products sector tumbled $124.3 billion after rising $7.0
billion in the third quarter.
The dollar
gained 10.5% last year versus the currencies of the United States' main trading
partners, putting a squeeze on the profits of multinationals such as Procter &
Gamble and Colgate-Palmolive.
A more
than 60% plunge in crude oil prices from highs above $100 a barrel in June 2014
has also hurt the profits of oilfield service firms like Schlumberger and
Halliburton.
But with
the dollar's appreciation slowing since the start of the year and the oil price
slide ebbing, corporate profits are poised to rise, helping to underpin job
growth.
Brazil’s
economy shrank 3.8% in 2015, putting what was once one of the world’s
fastest-growing large emerging markets on track to suffer its worst recession
since official records began.
The big
GDP contraction was the worst in 25 years, and comes as a perfect storm of
collapsing investment, lower commodity prices and constrained government
spending hits growth.*
“GDP in the fourth quarter suffered a
contraction of 5.9% compared with the same period a year earlier,” Brazil’s
statistics agency, the IBGE, said. “All of the components of internal demand
showed falls.”
Latin
America’s largest economy was once a darling with investors as sound
macroeconomic policy led to continuous growth, culminating in an Asia-like 7.6%
expansion in 2010.
The
contraction in 2015 will put more pressure on the government of President Dilma
Rousseff, who is already facing efforts to impeach her in congress and a
far-reaching investigation into corruption at state-owned oil company Petrobras.
The
slowdown is attributed by economists to policies by her left-leaning government
and that of her predecessor, former president Luiz Inácio Lula da Silva, of
intervening in industry while implementing price controls and encouraging
aggressive lending by state banks.
Confidence
collapsed, fueling a rapid slowdown, with the economy expected to give back all
of the growth it enjoyed in 2010 in just two years once the contraction in 2015
is combined with an expected 3% fall this year.
Ms
Rousseff has since tried to perform an about-face on the economy, appointing a
hawkish finance minister, Joaquim Levy, last year to restore balance to an
alarming shortfall in the government’s finances.
But he
resigned in December after repeated downgrades by rating agencies of Brazil’s
former investment credit grade rating.
Economists
now worry that the government needs to move urgently to address its accounts,
with tax revenues falling due to the recession while expenditure keeps rising
thanks to an enormous federal salary and pension bill.
“Brazil
cannot afford the luxury of not having economic growth,” said Raul Velloso, a
specialist on the budget.
Industry
showed one of the biggest declines, down 6.2% in 2015 against a year earlier,
while agriculture was the one bright spot, up 1.8% compared with a year earlier.
“The
peak-to-trough fall in GDP currently stands at 7.2%— the worst recession since
the 1930s,” Capital Economics economist Neil Shearing said.
The
world's twelfth-largest economy expanded an annual 3% in the last three months
of 2015, well above both analysts' expectations for a flat reading and the
previous period's 2.5% rise.
On a
quarterly basis, Australia's gross domestic product (GDP) rose 0.6%, slower than
the third quarter's 0.9% spike but still beating forecasts for a 0.4% gain.
The
Australian dollar climbed 0.7% to $0.7234 U.S. cents in reaction, while the
benchmark equity index popped nearly 2%.
Gross
fixed capital expenditure dropped 0.6% during the fourth quarter however, while
final consumption spending rose 0.7% on a seasonally-adjusted basis.
The GDP
report bolstered the Reserve Bank of Australia's (RBA) decision to keep interest
rates at a record low of 2%.
The RBA
left monetary policy steady for the tenth straight month, with Governor Glenn
Stevens stating "there were reasonable prospects for continued growth in the
economy."
Compared
to other commodity-based economies, such as Canada, Australia's report card is
strong but it remains below-trend for an economy that has averaged 3.3% annual
growth since 1992.
Indeed,
this data won't completely erase concerns about the nation's outlook.
The
country has seen a string of weak economic indicators in recent days, with
figures showing net exports added nothing to Q4 GDP, missing forecasts for a
contribution of 0.3 percentage points. Moreover, January employment figures
revealed a loss of 7,900 jobs, with the unemployment rate spiking to 6%, from
5.8% in December.
"Our
concerns are two-fold. First up, the real GDP data probably flatters the
momentum in the economy. When you look at falling commodity prices and weak
income growth, you get a softer picture," Andrew Ticehurst, executive director
and rate strategist at Nomura Australia, told CNBC's Asia Squawk Box.
That macro
view could force the RBA to cut rates by 25 basis points in May, Ticehurst said.
Japan's
economy contracted less than initially estimated in the final quarter of 2015
but private consumption remained weak, underscoring the challenges facing
Premier Shinzo Abe in restoring growth amid intensifying overseas headwinds.
Analysts
expect growth to have rebounded only modestly in the current quarter as China's
slowdown clouds the outlook for global demand, keeping the Bank of Japan (BOJ)
under pressure to expand monetary stimulus, although the returns available from
that measure appear to be diminishing.
Sluggish
growth could also heighten market speculation that Abe may delay a second
consumption tax hike to 10% from 8% scheduled in April, 2017, some analysts say.
The
world's third-largest economy shrank an annualized 1.1% in October-December,
less than a preliminary estimate of a 1.4% contraction, Cabinet Office data
showed. That compared with a median market forecast for a revision to a 1.5%
contraction.
"Economic
indicators in January are weak. The economy likely won't rebound significantly
in January-March," said Yoshiki Shinke, chief economist at Dai-ichi Life
Research Institute.
"The
government may adopt some form of stimulus steps and may delay the sales tax
hike if growth is weak in January-March and prospects emerge that it will stay
stagnant in April-June."
Growth in
capital expenditure was revised up to a 1.5% increase from a preliminary 1.4%
rise, the revised gross domestic product (GDP) data showed.
Private
consumption fell 0.9%, slightly more than a preliminary 0.8% decline. Taken
together, domestic demand shaved 0.4 percentage point off growth, against a
preliminary negative contribution of 0.5 point.
Economy
Minister Nobuteru Ishihara said the data showed some weakness in consumption,
but there was no change to the government's view that Japan's economic
fundamentals remained in good shape.
Also, the
Ministry of Finance posted data that showed Japan's current account surplus
stood at 520.8 billion yen ($4.59 billion) in January, benefiting from a
narrowing trade deficit.
The
surplus was smaller than economists' median forecast for a surplus of 719.0
billion yen in a Reuters poll. It marked the 19th straight month in surplus.
Japan has
been hurt by China's slowdown, which has hit exports, as well as by market
turmoil that prompted investors to flee to safe havens such as the yen, which
pushed up the local currency.
The BOJ
stunned markets in January by deploying negative interest rates to prevent
global market volatility from hurting already frail business sentiment.
But the
policy has failed to boost stock prices or arrest an unwelcome yen rise, drawing
criticism from lawmakers that it would have little positive effect on the
economy.
BOJ
Governor Haruhiko Kuroda said the central bank will scrutinize the effects of
negative interest rates on the economy for the time being, suggesting that no
immediate expansion of stimulus was forthcoming.
The
revision came as the Japanese government said it would hold a meeting on March
16-17 to discuss the global economy and markets. Prime Minister Shinzo Abe will
attend the meeting, with Kuroda and several cabinet ministers.
Reuters
reported that Columbia University Professor Joseph Stiglitz would be invited as
a speaker to the gatherings, which were organized by Abe in preparation for
Group of Seven meetings later this year that Japan will chair.
Forecasters have slashed their growth expectations for Southeast Asia's leading
financial hub just a week before the government presents the 2016 budget.
Private
economists polled by the Monetary Authority of Singapore (MAS), the city-state's
central bank, see gross domestic product (GDP) growth at 1.9% this year, down
from a previous forecast of 2.2% in December and below last year's reading of
2%.
2015
marked the weakest pace of growth since the economy contracted 1.3% in 2009, so
if GDP growth does slip below 2% this year, it will mark a new seven-year low.
The
quarterly survey was based on responses from 24 experts who closely monitor the
local economy.
Still, the
results painted a brighter outlook compared with predictions by major banks.
DBS, one
of Southeast Asia's biggest lenders, recently cut its 2016 growth forecast to
1.5%, from 2.1% previously, while Morgan Stanley revised down its outlook to
1.8%, versus an earlier estimate of 2.3%.
The
government will be paying close attention to these downgrades as it prepares to
unveil the 2016 annual budget. New finance minister Heng Swee Keat is widely
expected to channel the bulk of state funds towards reinvigorating GDP by
helping local companies improve revenues.
"Singapore
faces structural headwinds from the '3D' problem of debt, demographics and
deflation," Morgan Stanley said in its ASEAN outlook report this week.
Indeed,
the Lion City boasts rising highest household and public debt levels, an issue
magnified by a rapidly aging population and 15 straight months of negative
headline inflation as of January. But officials refrain from using the word
deflation, preferring to focus on core inflation instead, which strips out oil
and accommodation costs.
The survey
also revealed the median CPI inflation forecast sliding 0.2% this year, from a
0.5% rise estimated in the previous survey.
Among GDP
components, manufacturing is set for the worst contraction this year at 2.7%.
That follows a 5.2% decline last year, the worst performance since 2001.
"A
structurally lower global GDP growth trend also exerts further downward pressure
on an economy that has typically been a high-beta global proxy...The delay in
export recovery suggests cyclical headwinds and that the economy is likely to
decelerate further," Morgan Stanley added, referring to Singapore's
export-oriented economy.
Although
manufacturing is no longer the island-nation's primary growth driver, having
been replaced by services, it remains a vital source of job creation and further
contractions could hit the labor market. The sector already saw employment fall
by 22,400 last year, according to DBS data.
Regarding
jobs, the MAS survey sees the 2016 unemployment rate at 2.1% by year-end,
unchanged from 2015.
Household
income has sharply declined as a portion of South Korean gross domestic product
(GDP) in the past twenty years.
The
findings mean households account for a lesser portion now in terms of economic
growth distribution.
A recent
report by the Organization for Economic Co-operation and Development (OECD)
titled “Economic Policy Reforms 2016: Going for Growth” examined the rate of
increase in household income as a portion of GDP for its member states between
1995 and 2013 or 2014. For South Korea, the figures showed a decline of -5.3
percentage points, the second largest after Austria (-5.8 percentage points).
South Korean household income declined from 69.6% to 64.3% as a percentage of
GDP over the same period. Per capita GDP rose by 3.8%, but per capita household
income increased by just 2.1%. Member countries experienced a 0.5 percentage
point decline on average.
In its
report, the OECD said the relationship between GDP and household income growth
provided an interesting perspective in understanding deepening income
inequality. In particular, it noted the percentages of labor and capital income
- both parts of household income - were declining for most countries.
The
findings, it added, showed that corporate earnings were increasingly remaining
within the corporate sector instead of being redistributed to households.
Income
from labor as a part of household income fell from 52.7% of GDP in 1995 to 50.7%
in 2014 for South Korea.
Slovakia
had the highest rate of increase among OECD nations for household income as a
percentage of GDP at 9.2 percentage points, followed by Finland (5.3) and Japan
(3.2). In recent years, only three countries showed lower rates of household
income as a percentage of GDP than South Korea, namely Norway (59.4%), Ireland
(62.2%), and the Czech Republic (63.9%).
More than Bt60 billion could be injected into the Thai
economic system in the next few months thanks to the government's spending
measures, which could boost the 2016 economic growth rate by 0.5 percentage
point, said Kasikorn Research Centre Managing Director Charl Kengchon.
He said that chief among them, the disbursement of central
budget worth Bt56 billion in the middle of this year to finance some
infrastructure projects should significantly boost the economy. The impact would
be significant if more than 70% of the budget or about Bt40 billion is
disbursed, he added.
A total of Bt65.5 billion is expected to flow into the
economic system due to the infrastructure investment and other stimulus measures
- the subsidized housing scheme (Baan Pracha Rath) and Songkran spending boost.
Charl said if several developers joined the Baan Pracha
Rath scheme, this could boost the economy by Bt10-Bt20 billion.
The Cabinet is expected to approve the measure to boost
Songkran spending, which may allow taxpayers to deduct their taxable income by
expenses incurred during April 9-17 by up to Bt15,000.
KResearch expected this to boost the economy by Bt5
billion.
Tim Leelahaphan, Thailand economist of Maybank Kim Eng
Securities, said that the Songkran measure would help boost consumption and
drive domestic tourism. The Tourism
Authority of Thailand (TAT) has set a new target for domestic tourism
revenue of Bt900 billion - around 40% of combined domestic and inbound tourism
revenue - this year, up from Bt850 billion predicted earlier and Bt790 billion
in 2015. Tourism accounts for about 10% of Thailand’s GDP.
Late last year, the government launched a special tax break
allowing individuals to deduct up to Bt15,000 on purchases made during the
year-end festive season. Taxpayers capitalizing on the break raked in Bt4
billion in deductions.
Vietnam's economy slowed in the first quarter of
2016, official figures showed, hampered by low oil prices and an ongoing drought
that has hit the agricultural sector hard.
The dip followed last year's record GDP growth at
6.68%, a boom fueled by a flurry of international interest in the communist
country.
The first three months of 2016 saw GDP growth drop
to 5.46%, down from 6.12% for the same period last year, according to data
released by the General Statistics Office.
"Cold spells in the north, drought... had a major
impact on domestic production, especially agriculture, industry and exports
during the period," GSO director Nguyen Bich Lam told the official VietnamPlus
news website.
Lower global oil prices have also weighed on
growth, affecting the country's income from crude production, independent
economist Le Dang Doanh told AFP.
"The price of the global crude oil, a lengthy
holiday for Lunar New Year (in February) and a slide in the price of
agricultural products" have all affected growth, he said.
Crude oil exports have accounted for around one
tenth of state income in the past, according to Bloomberg News.
Inflation was also up in the first quarter, by
1.25% against that of 2015, according to GSO figures.
Earlier this week, the government said it was
aiming for growth of between 6.5 and 7% by the end of 2016.
"If there are no further efforts on economic
reforms, the government may not be able to meet the set target," economist Doanh
said to AFP.
Communist Vietnam is part of the Trans-Pacific
Partnership, the world's largest free trade deal between 12 nations, including
the US and Japan, which is grinding slowly towards ratification.
But many analysts say Vietnam's economic progress
remains vulnerable due to high public debt, inefficiencies in the sprawling
state-owned sector and rampant corruption.
EUROPE / AFRICA / MIDDLE
EAST
FRANCE
The French
economy grew more than initially thought in 2015, statistics agency Insee has
said.
French
gross domestic product rose 1.2% last year, marking a sharp acceleration from
0.2% growth recorded in 2014. Insee previously said the French economy grew 1.1%
last year.
Speaking
in a television interview as the revised figures were published, French finance
minister Michel Sapin said he expects economic growth to accelerate again this
year.
NIGERIA
Senate
President Bukola Saraki recently said fire disasters ravaging markets in the
country are negatively affecting the Gross Domestic Product (GDP).
Saraki
stated this in a statement to commiserate with victims of a recent fire disaster
that ravaged the popular Abubakar Rimi market in Kano.
The
statement, signed by his Special Adviser (Media and Publicity), Yusuph Olaniyonu,
Saraki lamented the continuous occurrences of fire disasters in markets across
the country.
He urged
the managements of markets to always employ all modern means of preventing and
combating fire disasters to ensure traders are not subjected to this harrowing
loss.
“The
continuous loss of merchandise and properties in many commodity markets in the
country and Kano in particular to fire disasters has reached a worrisome level
that requires urgent measures to combat the trend.
“These
fire incidents had deprived our hard working and determined traders the means of
livelihood and survival and these are expectedly breadwinners of their families.
In addition, these losses represent the depletion of national wealth as most of
the victims constitute a significant chunk of entrepreneurial class who are
supposedly great contributors to the nation’s Gross Domestic Product (GDP),” he
said.
He urged
the state government to ensure thorough investigation to unravel the cause of
the incident and forestall occurrence.
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