GDP UPDATE
May 2016
McIlvaine Company
TABLE OF
CONTENTS
The US
economy saw GDP (or gross domestic product) growth of 0.5% in the first quarter
of 2016 as compared to the 1.4% expansion in the fourth quarter of 2015,
according to data provided by the US Bureau of Economic Analysis. However, this
was below the market expectations of 0.7% growth. It was the weakest performance
in the last two years. In the first quarter of 2014, the US economy contracted
0.9%.
The weaker
movement of the US GDP growth indicates that American consumers controlled their
spending and demand also slowed down in the first quarter. The lower
manufacturing PMI and the factory output data for March already warned that the
first quarter economic growth would be weaker. Most of the manufacturing
companies tighten their process as a result of volatile global financial market
conditions. The various oil and gas companies reduced their capital expenditure
due to lower crude oil prices. These industries saw a massive job cut due to
lower commodity and crude oil prices.
Household
purchases rose by 1.9% in the first quarter of 2016 as compared to 2.4% in the
fourth quarter of 2015. Weaker household spending is one of the major reasons
behind the poor performance of GDP, as household purchases account for 70% of
the economy.
However,
the weekly jobless claims showed a huge improvement for the week ended April 16.
The unemployment claims fell by 6,000 to 247,000 claims for the week ending
April 16. This was below the market’s expectation of 263,000. Last week’s level
was the lowest level since November 24, 1973, when it was 233,000. The fall in
unemployment claims indicated that the employers are still positive on the
country’s demand outlook.
Mexico's
gross domestic product rose 2.9% in the first quarter compared with the same
three-month period of last year, according to a preliminary estimate released by
the National Institute of Statistics and Geography, or INEGI.
GDP
expansion was driven by 3.7% growth in the tertiary (service) sector; 3% growth
in the primary sector, which includes agriculture and ranching; and 2.2% growth
in the secondary sector (manufacturing and construction), the INEGI said in a
statement.
The
economy, meanwhile, grew 2.5% compared with the fourth quarter of 2015,
according to the preliminary figures.
On a
seasonally adjusted basis, Mexico's GDP edged up 0.8% compared with the previous
quarter.
The
secondary sector grew 1.5% in the first quarter compared with October-December
2015, while the primary and tertiary sectors expanded by 1.2% and 0.8%,
respectively.
The INEGI
first released its preliminary estimate of quarterly GDP in October to give
decision makers timely and reliable information on the evolution of the
country's economic activity.
In
releasing the preliminary data, the INEGI uses economic reports published for
the first two months of each quarter, adds available information for the third
month and estimates missing figures for that latter month using econometric
models.
The
Finance Secretariat is forecasting that Mexico's economy will grow by between
2.6% and 3.6% in 2016.
China's
current investment of $22.7 billion in Peru has boosted the Latin American
country's gross domestic product (GDP), Peruvian Prime Minister Pedro Cateriano
said.
"Chinese
investment in Peru has considerably increased our mining production," Cateriano
said in a recent interview with Xinhua, citing the Las Bambas and Toromocho
copper mine projects as two examples.
"The Las
Bambas copper mine, which may be one of the largest such projects in the world,
has seen an investment of over $10 billion. The Toromocho project has also seen
much success, with an announced expansion costing $1.5 billion," said Cateriano.
"This has
made China the foremost investor in our mining sector," said Cateriano.
Besides
the two cooper mine projects, a Chinese company is currently exploiting iron
deposits in Peru's coastal region of Ica. Mining has become an important pillar
of China-Peru trade, which reached $15.5 billion in 2015, despite the
international financial crisis.
Bilateral
ties between China and Peru are going very well, said Cateriano, adding that a
joint commission by the two countries to examine a number of matters is
progressing apace.
The
exchange of visits by leaders of the two countries have contributed to bilateral
relations, "leading to the creation of a mechanism of permanent dialogue to
evaluate political, diplomatic, economic and cultural matters," he said.
Cateriano
emphasized that China has "not only benefited Peru but all of Latin America. The
Chinese economy is so strong that it has an effect on the entire world."
"In my
experience as Defense Minister and now as Prime Minister, I have seen
(cooperation in) the areas of politics, diplomacy, economy, trade and culture
all make significant progress," he said.
"Peru must
be grateful for the role that China plays in the economic sphere. However, it is
true that some fear a slowdown in China's economy will have a negative impact on
all sides," he added.
In terms
of future progress, the prime minister said that "there are other fields where I
would like to see improved cooperation, such as in the transfer of technology,"
said Cateriano.
"We have
progressed greatly in this area in recent years but I would like China to not
just sell us equipment but manufacture them jointly in Peru," he said.
On the
upcoming summit of the Asia-Pacific Economic Cooperation (APEC) forum, which is
to take place in Lima in November, Cateriano said that "the government of
President Humala has paid great attention to the importance of APEC and our
policies have followed the priorities set within the bloc."
"Our
administration will end its mandate on July 28 and we are seeking to ensure this
international meeting will be successful, which most Peruvians also want," the
prime minister said.
In March
Chinese leaders detailed the country's 13th five-year plan running from 2016 –
2020 which doubles-down on a long-stated commitment to "double 2010 GDP by
2020”.
The 2020
GDP goal would require annual growth rates of 6.5% to go from a nominal $10
trillion last year to over $12 trillion in 2020. That's the equivalent of adding
an economy the size of Switzerland's every year.
China's
official GDP data released recently showed growth of 6.7%, boosted in no small
measure by a raft of stimulus measures introduced by Beijing that has seen a
number of metrics improve dramatically since the start of the year.
Manufacturing activity hit a more-than-one-year high, fixed asset investment and
industrial output all improved while real estate statistics indicated stronger
investment. Property prices shot up, imports of commodities hit monthly records
and bank lending hit an all-time high.
"That is
still much slower than the official figures will show but a strong growth rate
for a country at China’s income level".
Skepticism
about official Chinese growth figures abound, and most peg actual GDP expansion
at a much lower clip.
Independent research house Capital Economics' measure of the Chinese economy
uses a combination of weighted data including electricity usage, seaport
cargoes, floor space under construction and passenger and freight traffic to
gauge activity across a wide section of the economy.
According
to Capital Economics research, China's GDP growth rates came close to dropping
below 4% early last year and again at the beginning of 2016.
But since
then growth has picked up markedly hitting 4.8% in the first quarter of the
year.
That's the
highest since Q4 2014 and according to China economists, Mark Williams and
Julian Evans-Pritchard, all but one of the components of Capital Economics'
China Activity Proxy showed strong improvement. While passenger traffic was weak
it was mostly due to seasonal effects – last year in March numbers peaked
because the Chinese New Year fell unusually late in 2015.
The
authors of the report expect growth to accelerate further over the next couple
of quarters on the back of monetary easing that is already in the pipeline and
the ongoing front-loading of this year’s fiscal support.
"We
continue to expect growth on our China Activity Proxy to average 5.5% this year.
That is still much slower than the official figures will show but a strong
growth rate for a country at China’s income level."
The
International Monetary Fund has retained its growth forecast for India this year
at 7.5%, largely driven by private consumption even as weak exports and sluggish
credit growth weigh on the economy.
India’s
growth momentum is expected to be underpinned by private consumption, which has
benefited from lower energy prices and higher real incomes, IMF said and called
on the policymakers to speed up the structural reform implementation.
In its
latest Regional Economic Outlook for Asia and the Pacific, IMF said weak exports
and sluggish credit growth (stemming from weaknesses in corporate sector and
public sector banks’ balance sheets) will weigh on the economy.
“India has
benefited from lower oil prices and remains the fastest-growing large economy in
the world, with GDP expected to increase by 7.5% this year and next,” IMF said.
India
remains on a strong recovery path, with GDP growth reaching 7.3% in 2015, the
Fund said adding that “India’s growth is projected to strengthen to 7.5% in 2016
and 2017.”
An
incipient recovery of private investment is expected to help broaden the
recovery. Moreover, higher levels of public infrastructure investment and
government measures to reignite investment projects should help crowd-in private
investment, it said.
The report
noted that policymakers should capitalize on the favorable economic momentum to
speed up the structural reform implementation.
“Additional steps in relaxing long-standing supply bottlenecks, especially in
mining and power sectors, as well as further labor market reforms to increase
labor market flexibility in the formal sector, are crucial to achieving faster
and more inclusive growth,” the Fund said.
It further
noted that the long-awaited goods and services tax should be implemented, as it
would create a single national market, enhance economic efficiency, and boost
GDP growth.
Indonesia
reported lower than expected growth in the first quarter, but many economists
still expect enough of a rebound this year that the country can avoid further
slowing and grow more than 5% in 2016.
The
statistics bureau said that Southeast Asia's largest economy expanded an annual
4.92% in the January-March quarter, below the median 5.05% in a Reuters poll and
the October-December pace of 5.04%.
Growth
weakened for the fifth straight year in 2015, to 4.8%, as poor commodity prices,
contracting exports, tepid investment and waning consumption produced the lowest
growth rate since 2009.
But the
economy gained some momentum in the second half of last year as newly-appointed
ministers accelerated government spending.
The
statistics bureau took an optimistic tone.
"Our start
in 2016 is better than the start of 2015," said bureau head Suryamin. "Economic
activity almost always slows in the first quarter, especially after growing
higher in the fourth quarter.
In the
first quarter of 2015, annual growth was 4.73%.
Bureau
data showed consumption was stable in the first quarter and there was a rise in
government-led investment from a year earlier. However, investment growth was
weaker than in the December quarter.
The bureau
said a major reason for slower growth was a drought worsened by the El Nino
weather phenomenon, which hurt crop output.
Darmin
Nasution, chief economics minister, said another reason was slowing loan growth.
Euben
Paracuelles, a Nomura economist in Singapore who had projected 5.4%
first-quarter growth, said there was "some loss in growth momentum" as he had
expected stronger public investment.
"This will
raise the question of the sustainability of the recovery, but we would still
argue that the recovery will continue, led by domestic demand," he said.
Tim
Condon, ING's Asia chief economist, said the lower growth pace in January-March
than the previous quarter "is probably a one-off and the economy is in a sort of
healing mode but obviously not a straight line path".
Realizing
Indonesia cannot still rely on natural resources for growth, President Joko
Widodo has worked to expand its weak manufacturing sector.
The
Finance Ministry has offered tax incentives and promised a cut in corporate
income taxes. It also plans a tax amnesty this year, which it believes will
bring in significant funds to help finance development.
The
central bank cut its key benchmark rate three times in the first quarter, by a
total of 75 basis points.
Also, Bank
Indonesia has announced it will use a new benchmark in August, an effort to more
effectively get banks to lower lending rates.
Some
analysts expects more cuts to the benchmark. Rangga Cipta of Jakarta-based
brokerage Samuel Sekuritas said the first quarter growth figure calls for a 50
basis point cut to the benchmark.
Widodo has
pledged to get Indonesia's growth up to 7% a year by 2019, the last year of his
term.
The
government's target for growth this year is 5.3%, while the central bank's
latest outlook was 5.2-5.6%.
The
Philippines has the potential to become a trillion-dollar economy by 2030 if
economic reforms are sustained beyond the term of the current administration, a
global think tank has said.
“The total
size of the Philippines’s economy is projected to grow from $300 billion in 2016
to $700 billion by 2025, becoming a trillion dollar economy in US dollar terms
by 2030. This will make the Philippines one of the leading emerging markets in
Asia,” Rajiv Biswas, Asia-Pacific chief economist for IHS Global Insight, said
in a report titled ‘Can the Philippines Tiger Economy Continue to Roar?’
He said
under the current administration, the Philippines saw a rapid GDP growth
averaging around 6% per year over 2011-2015.
“If the
incoming president and the new Philippines government administration can
continue to pursue economic reforms and strengthen institutional governance,
then GDP growth of around 6% per year can be sustained over 2016-2020,” Biswas
said.
The
European Commission cut its 2016 growth forecast for the euro zone economy.
It now
sees euro zone gross domestic product (GDP) in 2016 at 1.6% from a previous
forecast of 1.7% growth. It also lowered its 2017 forecast to 1.8% from 1.9%.
European
Commissioner Pierre Moscovici told a press conference that there would be
"stable growth" this year but that the recovery could be faster.
"European
growth is holding up and (that) means that the efforts being made are paying
off," he said. "(But) it's time to speed things up," he said.
"European
growth is sustained because it is still driven by household consumption whereas
investment, which had been lagging behind, but this should recover in
2016-2017," he said.
He said
that financial market volatility at the start of the year had not helped the
region's economy and that an economic slowdown in China still posed a risk.
For the
wider European Union (EU) economy, the Commission forecast a GDP expansion of
1.8% in 2016. However, it said in its report that growth was "expected to remain
modest as key trading partners' performance has slowed and some of the so far
supportive factors start to wane."
"Very
accommodative monetary policy has set the scene for a pick-up in investment by
making access to funding easier and cheaper. Fiscal policy in the euro area is
expected to be supportive of growth this year. But although oil prices fell
again in early 2016 and prolonged the boost to real disposable incomes, the
strength of this support should gradually fade as the oil price rebounds," the
report noted.
"Similarly, although euro area exports are still benefiting somewhat from the
euro's past depreciation, the currency's recent rise could make the euro area
more susceptible to the effects of slower external growth."
The
European Central Bank (ECB) is the key actor in trying to stimulate growth and
inflation in the euro zone with consumer prices falling again in the region in
April as data on Friday showed.
The
European Commission forecast that the rate of inflation would remain subdued, at
0.2% in 2016.
"It is
expected that inflation remains close to zero in the near term as energy prices
are lower than a year ago," the Commission said. "External price pressures are
also weak amid a slightly appreciating euro and rather subdued global producer
prices."
It said
that inflation should rise "more significantly" in the second half of this year
as energy prices gradually pick up and domestic prices increase on the back of
strengthening domestic demand. As such, it forecast consumer price inflation at
1.4% in 2017.
Kenya's
economy expanded slightly in 2015 by 5.6% compared to 5.3% growth in 2014 but
was lower than the 2013 growth of 5.7%.
According
to the Economic Survey 2016, the number of new jobs generated in the economy
last year stood at 841,600 compared to 799,700 in the previous year.
Agriculture, construction, real estate, financial and insurance were the major
drivers of the economy in the period under review.
"Agriculture gross value improved to 6.2% in the period under review from 3.5%
in 2014 due to good weather and abundant rainfall that led to improved crop and
livestock production. Maize production went up by 9% to 42.5 million bags while
sugarcane production increased by 4.6% to hit 6.8 million tons," said Kenya
National Bureau of Statistics Director General Zachary Mwangi.
However,
tea and coffee production went down by 10.3% and 16% respectively negatively
affecting their earnings.
In
manufacturing, the sector grew by 3.5% percent in 2015 up from 3.2% recorded in
2014 on the back of reduced production costs due to lower cost of petroleum
products and electricity, while construction went up by 13.6% in the period
under review up from the 11.4% in 2014 owing to the ongoing construction of the
Standard Gauge Railway and road works by both the National and County
Governments.
Growth in
mining, ICT as well as wholesale and retail trade decelerated during the period.
Tourism is
showing an improvement as accommodation and food services went down by only 1.3%
compared to previous year decline of 13.6%.
"However,
international arrivals went down by 12.6% from 1.35 million arrivals in 2014 to
1.18 million in 2015. Earnings went down by 2.9% to Sh84.6 billion from Sh87.1
billion in 2014. This is attributable to travel advisories from key tourism
markets for the country due to security concerns," Mwangi pointed out.
Bed nights
also went down by 6.4%, however number of visitors to museums, snake parks and
other historical sites went up by 15.6%.
Transport
sector output went up by 6.4% to Sh951.4 billion owing to improvement at the
Port of Mombasa as well as the railway transport sub sector.
Kenya's
trade deficit improved to Sh997 billion compared to Sh1.08 trillion.
Imports
went down by 2.5% to Sh1.5 trillion while exports rose by 8.2% to Sh581 billion
as Africa remains the leading destination for all exports accounting for 41.7%
of total exports.
"Uganda
continued to be the leading export destination for Kenya with the exports to her
growing by 12.8% worth Sh69 billion in the period under review. Asia continued
to rule the imports to Kenya, with imports worth Sh982 billion in 2015," Mwangi
explained.
The
balance of payments position deteriorated from a surplus of Sh128 billion in
2014 to Sh25 billion in 2015.
During the
period, domestic credit went up by 19.2% owing to increased credit to the
National government that went up to Sh538 billion up from 424.9 billion.
Credit to
the private sector and other public bodies went up to Sh2.2 trillion which was a
17.5% shoot.
Money
transacted through the mobile phone went up by 18.7% to Sh2.8 trillion in the
period under review. Mobile money transfer services subscribers grew to 26
million during the period under review.
According
to the report, Internet subscription increased to 23.9 million from 16.4 million
in 2014 while mobile telephone subscription went up to 37.7 million a
penetration of 85.5%.
Going
forward, all sectors of the economy are expected to continue in their current
growth trajectory with the agricultural sector expected to slow down due to long
rain depression in some parts of the country.
"Fuel
prices are expected to remain around the levels experienced during the first
quarter of 2016 and therefore help contain inflation, the shilling is likely to
remain stable against the major trading currencies," the report indicates.
Higher
gold production and a rebound in services and construction will help Liberia's
economy grow by 2.5% in 2016 compared to an estimated 0.3% last year, the
International Monetary Fund said recently.
In a
statement released at the end of a visit by a mission to Liberia, which was
battered by a three-year Ebola outbreak, the IMF said that economic growth was
projected to stabilize at around 6% over the medium term.
But the 6%
growth projection is significantly lower than an earlier forecast of 8% growth,
which the IMF said reflected a lowering of the mining sector's investment and
production targets.
A
significant number of non-performing loans have also hampered the banking
sector, the IMF said.
"The
economic outlook is set to remain challenging," the IMF said in a statement.
"Downside risks are high, particularly in light of the possible
deeper-than-estimated second-round effects of the commodity price shock."
Inflation
is expected to remain at around 7%.
President
Ellen Johnson Sirleaf said in September it would take two years for Liberia's
economy to recover from an Ebola epidemic that killed more than 4,800 people in
the country and hurt the agricultural and mining sectors.
The West
African nation was declared free of the Ebola virus by global health experts in
January but suffered a new Ebola death last month.
Economists
forecast first-quarter growth of 0.4%, down from 0.6% in the final quarter of
last year
The
pressures on the UK economy from EU referendum jitters and a downturn in global
trade will be revealed with the publication of official UK growth figures.
Nervous
investors and policymakers are also keenly awaiting GDP updates from the US and
Eurozone to gauge the scale of a global slowdown that has prompted wild swings
on stock markets in recent months and warnings from the International Monetary
Fund that governments need to step up public investment to avert a slump.
The UK
figures are expected to show a marked slowdown in growth after business surveys
pointed to companies delaying spending and hiring ahead of the Brexit vote.
Official figures showing a drop in retail sales last week suggested consumers,
the main drivers of the UK’s post-crisis recovery, were also cutting back as pay
growth flat lines and government spending cuts bite.
Economists
anticipate that those factors dented the economy’s overall performance in the
first quarter, cutting the GDP growth rate to 0.4% from 0.6% in the final three
months of 2015, according to the consensus forecast in a Reuters poll.
Economists
at HSBC are more downbeat than the consensus and they forecast the growth rate
halved in the first quarter to 0.3%.
“All the
signs are that growth slowed in the first quarter,” they wrote in a research
note.
They cite
last week’s news of a sharp fall in retail sales in March, downbeat surveys from
the wider services sector and a drag on the economy from manufacturing and the
oil and gas sectors.
Philip
Shaw, an economist at Investec, said he is expecting a “mixed picture” from the
UK economy.
“On the
positive side, our ‘now casts’ suggest that construction expanded by 0.6% on the
quarter and services by 0.7%. However, at the same time our estimates are for a
1.0% fall in industrial production, including a 0.5% contraction in
manufacturing. Overall this would give us a 0.4% increase in GDP with, if
anything, the risks tilted towards a slightly faster pace of growth,” said Shaw.
The Bank
of England has warned that growth could slow further in the second quarter as
uncertainty about the EU referendum outcome prompts companies to delay
investment decisions.
But some
economists caution that the pressures on the UK economy go beyond Brexit worries
and that there are also longer-standing problems such as low productivity growth
as well as headwinds from the global economy.
In the US,
the world’s largest economy, growth is expected to have slowed in the first
quarter. Economists expect the annual growth rate of GDP to drop to 0.7% from
1.4% in the final quarter of 2015.
The US
Federal Reserve raised interest rates for the first time in almost a decade late
last year but against the backdrop of global turmoil it has become more cautious
about raising borrowing costs further. No move is expected at the central bank’s
next meeting but the statement from policymakers “will be scrutinized for signs
that a June rate hike remains on the table,” said Chris Scicluna at Daiwa
Capital Markets.
The
Eurozone caps off the trio of big economy GDP readings soon, and economists
expect slightly brighter news from the single currency bloc. Quarterly growth is
forecast to have edged up to 0.4% from 0.3% in the fourth quarter.
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