World Economy Review - December 2016

Economists at HSBC raised their forecast for global growth and inflation over the next two years based on robust manufacturing activity, a resilient China and above all the fiscal boost expected to come in the United States.

It was the first time in nearly five years they have upped their growth and inflation outlooks over a two-year horizon as 2017 gets underway and as investors prepare for U.S. President-elect Donald Trump entering the White House.

The British economy appears to be in ruder health than had been anticipated expected following the country`s decision in June to leave the European Union, while Japan, Germany and Spain are also looking brighter, HSBC said.

The bank now sees the global economy expanding at a 2.5 percent pace this year compared its with 2.3 percent forecast in September, and 2.6 percent next year, up from September`s 2.5 percent.

Global inflation looks set to be 3.0 percent this year and 2.7 percent next year, compared with their previous forecasts of 2.7 percent and 2.5 percent, respectively, the bank said.

"All of the above help explain why we can offer a rare treat: for the first time since early 2012, we are increasing our forecasts for both global growth and inflation for the next two years," the bank`s team of economists led by Janet Henry, chief global economist, said in a note.

"Unfortunately, it is still a world where global growth is likely to hover around the mediocre growth rates of the past few years."

HSBC`s projection for US GDP growth in 2018 saw the sharpest upwards revision, from 2.2% to 2.7%, while growth in the euro area was now pegged at 1.3%, three tenths of a percentage point more than previously anticipated.

Nevertheless, whereas prices in the States were only expected to rise a bit more quickly than before (2.3% versus 2.1% for 2017 and by 2.1% against 2.0% in 2018) in the Eurozone they were seen gaining 1.6% in 2017 and 1.3% in 2018.

Previously the economists had seen the Eurozone`s CPI rising by 1.0% in both years.

Emerging markets were now seen growing 4.1% and 4.5% in each of those years, down from HSBC`s prior projections for growth of 4.3% and 4.6%.

In the case of the Russian Federation, the rate of expansion in 2017 was now pegged at just 1.0%, instead of 1.5%, while in Brazil the economy would only expand by 0.7%, that was four tenths of a percentage point less than HSBC had expected in September.

The uncertainties facing the UK in its Brexit negotiations and the medium-term outlook for growth were described as "huge". Despite that, the UK now saw GDP expanding at a 1.2% clip in 2017, up from 0.7% before, while consumer prices would advance a tad less rapidly, by 2.8% instead of the 2.9% previously anticipated. For 2018 on the other hand, HSBC cut its projection for Britain`s GDP from 1.6% to 1.3%.

Economy of the United States

The U.S. Department of Commerce`s Bureau of Economic Analysis (BEA) issued its final revision for third-quarter gross domestic product (GDP). According to the BEA, U.S. GDP rose at an inflation-adjusted and seasonally adjusted rate of 3.5%, higher than the October estimate of 2.9% and the November estimate of 3.2%. GDP rose to 1.4% in the second quarter of 2016 and just 0.8% in the first quarter. Bloomberg had a consensus estimate of 3.3% for the revised estimate. Dow Jones (The Wall Street Journal) also expected growth of 3.3%.

U.S. industrial production fell 0.4 percent in November, a bigger drop than anticipated, due to a steep decline in utility output and a dip in manufacturing, data from the Federal Reserve showed. The drop was the largest decline in industrial production since March, when the index fell 0.9 percent.

Output for October was revised to show a 0.1 percent increase rather than the unchanged level initially reported. Economists polled by Reuters had forecast industrial production falling 0.2 percent in November.

Manufacturing output fell 0.1 percent in November, less than the 0.2 percent decline anticipated by economists. It rose by an upwardly revised 0.3 percent in October. Utilities production dropped 4.4 percent in November as warmer-than-normal temperatures reduced demand for heating. Utilities output fell by a downwardly revised 2.8 percent in October. Mining production, which has been hurt by low oil prices, was up 1.1 percent after a downwardly revised 1.9 percent gain in October.

Industrial capacity utilization declined to 75.0 percent from 75.4 percent in October. Economists had forecast this metric at 75.1 percent.

The U.S. trade deficit rose almost 7% in November as imports hit the highest level in nearly a year and a half, largely because of a gush of foreign oil. The nation`s trade gap climbed to $45.2 billion from a revised $42.4 billion in October, the government said. Economists polled by MarketWatch had forecast a $45.9 billion deficit.

Imports increased 1.1% to $231.1 billion in November, marking the highest level since August 2015. U.S. exports slipped 0.2% to $185.8 billion, mainly owing to a big drop in shipments of large commercial aircraft produced by Boeing.

U.S. consumer prices moderated in November, but the underlying trend continued to point to firming inflation pressures amid rising rents, which could support more interest rate increases from the Federal Reserve in 2017. The Labor Department said its Consumer Price Index rose 0.2 percent in November as gasoline price increases slowed and food costs remained soft. The CPI advanced 0.4 percent in October.

In the 12 months through November, the CPI increased 1.7 percent, the biggest year-on-year gain since October 2014. The CPI rose 1.6 percent in the year to October. Economists polled by Reuters had forecast the CPI rising 0.2 percent in November and climbing to 1.7 percent from a year ago.

The so-called core CPI, which strips out food and energy costs, rose 0.2 percent in November after edging up 0.1 percent in October. Rents accounted for most of the increase in the core CPI in November. Despite the increase, the year-on-year increase in the core CPI was unchanged at 2.1 percent.

U.S. employers added 156,000 jobs in December, capping a year of slower but solid hiring and providing the last major snapshot of the economy President-elect Donald Trump will inherit from President Barack Obama.

The report from the Labor Department portrayed a job market that remains durable 7½ years after the recovery from the Great Recession began. Though the unemployment rate rose to 4.7 percent from a nine-year low of 4.6 percent, it did so for an encouraging reason: More people began looking for work. Because not all of them found jobs immediately, more people were counted as unemployed in December.

Hourly pay jumped 2.9 percent from a year earlier, the sharpest increase in more than seven years. That is a positive sign that the low unemployment rate is forcing some businesses to offer higher wages to attract and keep workers. Sluggish growth in Americans` paychecks has been a longstanding weak spot in the economic recovery.

For all of 2016, job growth averaged 180,000 a month, down from 229,000 in 2015, but enough to lower unemployment over time.

Economy of the European Union

Seasonally adjusted GDP rose by 0.3% in the euro area (EA19) and by 0.4% in the EU28 during the third quarter of 2016, compared with the previous quarter, according to an estimate published by Eurostat, the statistical office of the European Union. In the second quarter of 2016, GDP also grew by 0.3% and 0.4% respectively.

Compared with the same quarter of the previous year, seasonally adjusted GDP rose by 1.7% in the euro area and by 1.9% in the EU28 in the third quarter of 2016, after also +1.7% and +1.9% respectively in the previous quarter.

In October 2016 compared with September 2016, seasonally adjusted industrial production fell by 0.1% in the euro area (EA19) and by 0.3% in the EU28, according to estimates from Eurostat. In September 2016 industrial production fell by 0.9% in the euro area and by 0.7% in the EU28.

In October 2016 compared with October 2015, industrial production increased by 0.6% in the euro area and by 0.5% in the EU28.

The first estimate for euro area (EA19) exports of goods to the rest of the world in October 2016 was ˆ172.5 billion, a decrease of 5% compared with October 2015 (ˆ180.8 bn). Imports from the rest of the world stood at ˆ152.4 bn, a fall of 3% compared with October 2015 (ˆ157.5 bn). As a result, the euro area recorded a ˆ20.1 bn surplus in trade in goods with the rest of the world in October 2016, compared with +ˆ23.2 bn in October 2015. Intra-euro area trade fell to ˆ144.7 bn in October 2016, down by 3% compared with October 2015. These figures are published by Eurostat.

The first estimate for extra-EU28 exports of goods in October 2016 was ˆ146.5 billion, down by 5% compared with October 2015 (ˆ154.0 bn). Imports from the rest of the world stood at ˆ143.8 bn, also down by 5% compared with October 2015 (ˆ151.0 bn). As a result, the EU28 recorded a ˆ2.7 bn surplus in trade in goods with the rest of the world in October 2016, compared with +ˆ2.9 bn in October 2015. Intra-EU28 trade fell to ˆ262.8 bn in October 2016, -4% compared with October 2015.

Euro area annual inflation is expected to be 1.1% in December 2016, up from 0.6% in November 2016, according to a flash estimate from Eurostat. Looking at the main components of euro area inflation, energy is expected to have the highest annual rate in December (2.5%, compared with -1.1% in November), followed by services (1.2%, compared with 1.1% in November), food, alcohol & tobacco (1.2%, compared with 0.7% in November) and non-energy industrial goods (0.3%, stable compared with November).

The euro area (EA19) seasonally-adjusted unemployment rate was 9.8% in November 2016, stable compared to October 2016 and down from 10.5% in November 2015. This is the lowest rate recorded in the euro area since July 2009. The EU28 unemployment rate was 8.3% in November 2016, down from 8.4% in October 2016 and from 9.0% in November 2015. This is the lowest rate recorded in the EU28 since February 2009. These figures are published by Eurostat.

Eurostat estimates that 20.429 million men and women in the EU28, of whom 15.898 million were in the euro area, were unemployed in November 2016. Compared with October 2016, the number of persons unemployed decreased by 41 000 in the EU28 and by 15 000 in the euro area. Compared with November 2015, unemployment fell by 1.552 million in the EU28 and by 972 000 in the euro area.

Economy of Japan

Japan`s gross domestic product was revised down to +0.3 percent on quarter in the third quarter of 2016, the Cabinet Office said in the final reading. That missed expectations for 0.5 percent, which would have been unrevised from the November 14 preliminary reading. GDP was up 0.2 percent in the second quarter.

On a yearly basis, GDP was knocked all the way down to 1.3 percent from the preliminary reading of 2.2 percent. Forecasts were actually looking for a bump up to 2.3 percent. GDP expanded 0.7 percent on year in the three months prior. The GDP deflator was revised down to -0.2 percent from -0.1 percent.

Industrial production in Japan added 1.5 percent on month in November, the Ministry of Economy, Trade and Industry said. That missed forecasts for an increase of 1.7 percent following the flat reading in October.

On a yearly basis, industrial production climbed 4.6 percent - also shy of forecasts for 4.7 percent following the 1.4 percent contraction in the previous month. Manufacturers polled by the ministry said they expect output to rise 2.0 percent in December and then 2.2 percent in January.

Japan posted a trade surplus of 152.5 billion yen in November ($1.29 billion), the Ministry of Finance said. Japanese exports fell 0.4 percent year-on-year in November to 5.96 trillion yen, beating expectations of a 2.3 percent decline following the 10.3 percent fall in the previous month. This was mainly because the value of vehicle and steel exports declined less than the previous month, according to data published by the government. Imports fell 8.8 percent to 5.80 trillion yen.

Japanese consumer prices fell for a ninth consecutive month in November, reflecting the still-fragile state of the economy. The core consumer price index fell 0.4% from a year earlier in November, after slipping at the same rate in the previous month, according to data released by the Ministry of Internal Affairs and Communications. The index excludes fresh food prices. The reading compared with a 0.4% fall forecast by economists polled by the Nikkei. The core index has been in negative territory since March.

The jobless rate in Japan came in at a seasonally adjusted 3.1 percent in November, the Ministry of Internal Affairs and Communications said. That was above forecasts for 3.0 percent, which would have been unchanged from the October reading. The job-to-applicant ration climbed to 1.41, matching forecasts and up from 1.40 in the previous month. The participation rate was 60.0 percent, down from 60.4 percent a month earlier.

Economy of Russia

Russia`s GDP decline will amount to 0.5% in the end of 2016 instead of 0.6%, which was forecast earlier, Economic Development Ministry said in a report. "Growth rate of physical volume of GDP in 2016 has been raised to -0.5%," the document said. Russia`s GDP grew by 0.1% in November 2016 net of seasonal factors, according to the document.

Russian economy shrank 0.4 percent year-on-year in the third quarter of 2016, following 0.6 percent fall in the previous period, and in line with preliminary estimates. It was the smallest contraction in seven quarters, driven by lower drop in construction, public administration, transport and accelerated growth for mining and quarrying and agriculture.

Industrial production in Russia increased 2.7 percent year-on-year in November of 2016 following 0.2 percent drop in the previous month and well above market expectations of 0.1 percent decline. It was the biggest growth since December 2014, as manufacturing production rebounded 2.5 percent (-0.8 percent in October); mining and quarrying increased by a faster 2.7 percent (+0.8 percent in October) and electricity, gas and water went up 4.1 percent (+1.1 percent in October). On a monthly basis, industrial output rose 2.7 percent.

Russia`s trade surplus decreased to $6.6 billion in October 2016, from a $10 billion surplus a year earlier and well below market expectations of $8.2 billion. Exports dropped 7.6 percent, while imports rose for the third consecutive month by 8.2 percent. Considering the first ten months of the year, the trade surplus shrank 45.7 percent to $69.7 billion, as exports fell 22 percent and imports declined at a slower 2.7 percent.

Russian unemployment rate decreased to 5.4 percent in November of 2016 compared to 5.8 percent a year ago and in line with market expectations. The number of unemployed people decreased by 321 thousand to 4.114 million while the number of economically active increased by 0.1 million to 76.7 million (52 percent of population). In the previous month, the jobless rate was recorded at 5.4 percent.

The outlook for inflation in Russia as of 2016 year-end was revised upward from 5.8% predicted earlier to 5.6%, the Ministry of Economic Development said. "According to the estimate of the Russian Ministry of Economic Development, consumer inflation will be 5.6% as of 2016 year-end, which is slightly lower than in the formal outlook, owing to greater ruble strengthening and remaining low consumer demand," the Ministry said.

November inflation remained actually at the prior month level and was 0.4%. Inflation is steadily declining on an annualized basis from 7.5% in June to 5.8% in November. Consumer prices growth remain at the lowest levels since the year beginning. "Inflation was 5.2% within the period from January to December 12, 2016, while it was 12.5% a year earlier. This is a great success in a drive against inflation," the Ministry said.

09.01.2017 18:54

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