World Economy Review - January 2018
The International Monetary Fund said that it expects global growth of 3.9% this year and in 2019, an increase of 0.2 percentage points over the rates it predicted in October. It would be the quickest expansion since 2011.
The fund said that changes to the U.S. tax code approved in December were responsible for roughly half of the boost to growth.
"The revision reflects increased global growth momentum and the expected impact of the recently approved U.S. tax policy changes," the group said in a report published ahead of the World Economic Forum in Davos, Switzerland.
The IMF expects the U.S. economy to grow by 2.7% in 2018, significantly faster than its earlier prediction of 2.3%. Growth will slow to 2.5% in 2019, but that`s still much faster than the IMF`s previous forecast of 1.9%.
America`s top trading partners will also see benefits, especially Canada and Mexico.
But the fund cautioned that the positive effects of the U.S. tax changes, which include a lower rate for corporations, would be fleeting. It said that expiring tax provisions and larger fiscal deficits brought on by the tax cuts would drag growth lower, starting in 2022.
The IMF found other reasons for optimism, saying there were "notable surprises" of faster growth in Europe and Asia.
The Eurozone economy is expected to grow by 2.2% this year and 2% in 2019, up from earlier estimates of 1.9% and 1.7%. Growth will hit 6.6% this year in China, and 7.4% in India.
"This is very good news ... but political leaders need to remember that the growth reflects a set of circumstances that will not last," said Maurice Obstfeld, the IMF`s economic counsellor.
He said that policy makers should seize the opportunity to work on "difficult reforms" to tackle inequality, reduce debt and prepare for the next crisis, which he said might be "closer than we think."
Britain, which will leave the European Union in March 2019, will be one of the few countries to miss out on stronger growth. The IMF now expects the country`s economy to expand by just 1.5% in 2018 and 2019.
The IMF said that the global economy is likely to maintain its momentum in the short term, barring a correction in financial markets.
But it also identified several risk factors that could hamper growth over the longer run, including inequality, climate change, political instability and "inward-looking policies" that could result in barriers to trade.
Economy of the United States
U.S. economic growth unexpectedly slowed in the fourth quarter as the strongest pace of consumer spending in three years resulted in a surge in imports.
Gross domestic product expanded at a 2.6 percent annual rate also restrained by a modest pace of inventory accumulation, the Commerce Department said in its advance fourth-quarter GDP report. That followed a 3.2 percent growth pace in the third quarter.
Economists polled by Reuters had forecast the economy growing at a 3.0 percent pace in the final three months of 2017.
The economy grew 2.3 percent in 2017, an acceleration from the 1.5 percent logged in 2016. Economists expect annual GDP growth will hit the government`s 3 percent target this year, spurred in part by a weak dollar, rising oil prices and strengthening global economy.
The Fed said industrial output surged 0.9 percent last month also buoyed by robust gains in mining production, after slipping 0.1 percent in November.
Economists polled by Reuters had forecast industrial production advancing 0.4 percent in December. It rose at an annual rate of 8.2 percent in the fourth quarter, the biggest gain since the second quarter of 2010.
For all of 2017, industrial output rose 1.8 percent, the first and largest increase since 2014.
The U.S. trade deficit surged to its highest level since 2008 during President Trump`s first year in office despite his vow to lower the gap and crack down on unfair competition.
The nation`s trade gap in goods and services jumped 12.1 percent to $566 billion in 2017, up $61.2 billion from 2016, the highest level since the deficit hit $708.7 billion in 2008, the Commerce Department said. For the year, imports surged to $2.9 trillion, easily eclipsing the $2.3 trillion in U.S. exports.
For December, the trade deficit increased to $53.1 billion, up from $50.4 billion in November, which was the highest level since October 2008.
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in December on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported. The index for all items less food and energy increased 0.3 percent in December, its largest increase since January 2017.
The all items index rose 2.1 percent for the 12 months ending December, compared to 2.2 percent for the 12 months ending November. The index for all items less food and energy increased 1.8 percent over the last year; the 12-month change has now been either 1.7 or 1.8 percent for eight consecutive months.
US employers added a robust 200,000 jobs in January, and wages rose at the fastest pace in more than eight years, evidence of a healthy job market.
The pay gains suggest that employers are increasingly competing for a limited pool of workers. Raises stemming from Republican tax cuts and minimum wage increases in 18 states also likely boosted pay last month.
The unemployment rate remained 4.1 percent for a fourth straight month, the lowest level since 2000, the Labor Department said in its monthly jobs report. The number of unemployed increased by 108 thousand to 6.68 million.
Economy of the European Union
Seasonally adjusted GDP rose by 0.6% in both the euro area (EA19) and in the EU28 during the fourth quarter of 2017, compared with the previous quarter, according to a preliminary flash estimate published by Eurostat, the statistical office of the European Union. In the third quarter of 2017, GDP had grown by 0.7% in both zones.
Compared with the same quarter of the previous year, seasonally adjusted GDP rose by 2.7% in the euro area and by 2.6% in the EU28 in the fourth quarter of 2017, after +2.8% in both zones in the previous quarter. Over the whole year 2017, GDP grew by 2.5% in both zones.
In November 2017 compared with October 2017, seasonally adjusted industrial production rose by 1.0% in the euro area (EA19) and by 0.9% in the EU28, according to estimates from Eurostat. In October 2017, industrial production rose by 0.4% in the euro area and by 0.5% in the EU28.
In November 2017 compared with November 2016, industrial production increased by 3.2% in the euro area and by 3.5% in the EU28.
The first estimate for euro area (EA19) exports of goods to the rest of the world in November 2017 was 197.5 billion, an increase of 7.7% compared with November 2016 (183.5 bn). Imports from the rest of the world stood at 171.2 bn, a rise of 7.3% compared with November 2016 (159.6 bn). As a result, the euro area recorded a 26.3 bn surplus in trade in goods with the rest of the world in November 2017, compared with +23.8 bn in November 2016. Intra-euro area trade rose to 165.5 bn in November 2017, up by 6.9% compared with November 2016. These data are released by Eurostat.
The first estimate for extra-EU28 exports of goods in November 2017 was 167.2 billion, up by 6.8% compared with November 2016 (156.6 bn). Imports from the rest of the world stood at 159.2 bn, up by 5.4% compared with November 2016 (151.1 bn). As a result, the EU28 recorded a 8.0 bn surplus in trade in goods with the rest of the world in November 2017, compared with +5.5 bn in November 2016. Intra-EU28 trade rose to 300.9 bn in November 2017, +6.9% compared with November 2016.
Euro area annual inflation is expected to be 1.3% in January 2018, down from 1.4% in December 2017, 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 January (2.1%, compared with 2.9% in December), followed by food, alcohol & tobacco (1.9%, compared with 2.1% in December), services (1.2%, stable compared with December) and non-energy industrial goods (0.6%, compared with 0.5% in December).
The euro area (EA19) seasonally-adjusted unemployment rate was 8.7% in December 2017, stable compared to November 2017 and down from 9.7% in December 2016. This remains the lowest rate recorded in the euro area since January 2009. The EU28 unemployment rate was 7.3% in December 2017, stable compared to November 2017 and down from 8.2% in December 2016. This remains the lowest rate recorded in the EU28 since October 2008. These figures are published by Eurostat, the statistical office of the European Union.
Eurostat estimates that 17.978 million men and women in the EU28, of whom 14.153 million in the euro area, were unemployed in December 2017. Compared with November 2017, the number of persons unemployed decreased by 150 000 in the EU28 and by 119 000 in the euro area. Compared with December 2016, unemployment fell by 2.049 million in the EU28 and by 1.519 million in the euro area.
Economy of Japan
Japan`s real gross domestic product slipped 0.6% on the month in December as exports to the U.S. and elsewhere took a hit, data released by the Japan Center for Economic Research shows. Exports dropped 2.4% overall, while those to the U.S. -- a major trading partner -- plunged 5.4%. Limp foreign demand depressed growth by 0.8 percentage point.
Imports grew by 2.2%, and individual consumption inched up 0.2% owing to strength in areas such as new-car sales. Domestic demand lifted the overall growth rate by 0.2 point, not enough to offset the decline in external demand.
Japan`s industrial production increased in December from a month earlier, owing to rising output in the transport sector, the government said in a report. According to the Ministry of Economy, Trade and Industry, industrial production rose 2.7 percent on month in December, following a 0.5 percent rise logged in November.
The ministry`s preliminary report said the output at factories and mines stood at 106.3 against the base of 100 for 2010 on a seasonally adjusted basis. The index of industrial shipments rose 2.7 percent to 103.9, the ministry`s data showed, while the inventories` index retreated 0.4 percent to 109.4.
Based on the latest data, the ministry opted to maintain its assessment that industrial production is "picking up" in Japan. As for the outlook for factory output here, manufactures said they expect production to drop 4.3 percent in January, however, before rebounding in February with output projections at 5.7 percent.
Japan`s trade surplus dropped 25.1 per cent last year as higher energy bills eclipsed some of the revenue from robust exports of electronics-related goods and automobiles, government data showed. The world`s third-largest economy logged a surplus of 2.99 trillion yen (US$27 billion) in 2017, down 25.1 per cent year-on-year, the finance ministry said. But it still marked a second straight year of surplus, and a move away from years spent in the red after the 2011 Fukushima nuclear disaster.
The drop was driven by a 14.0 per cent increase in imports, though exports also jumped 11.8 per cent, the ministry said.
In December alone, Japan`s trade surplus dropped 43.5 per cent to 359 billion yen as imports of crude oil and telecommunication products increased. The market had expected a 520 billion yen surplus for December.
Japan`s core consumer prices rose 0.9 percent in December from a year earlier, keeping pace with a 0.9 percent rise the previous month, the government said. The core consumer price index, excluding volatile fresh food prices, marked a 12th consecutive month of gains, according to the Ministry of Internal Affairs and Communications.
The CPI for the whole of 2017 rose 0.5 percent from the previous year, turning positive on an annual basis for the first time in two years.
Headline inflation rose 1 per cent year on year, up from 0.6 per cent a month earlier, while core-core inflation - excluding both fresh food and fuel and energy costs - was unchanged from November with a rise of 0.3 per cent.
The unemployment rate in Japan came in at a seasonally adjusted 2.8% in December, the Ministry of Internal Affairs and Communications said. That was above expectations for 2.7%, which would have been unchanged.
The job-to-applicant ratio was 1.59, exceeding forecasts for 1.57 and up from 1.56 in the previous month. The number of employed persons in December was 65.42 million, an increase of 520,000 or 0.8% on year. The number of unemployed persons in December was 1.74 million, a decrease of 190,000 or an annual 9.8%.
Economy of Russia
Russia`s gross domestic product grew by 1.5 percent in 2017 after contracting by 0.2 percent in 2016, data from the Federal Statistics Service showed. Analysts polled by Reuters in late December forecast that the Russian economy would grow 1.7 percent in 2017.
Industrial production in Russia shrank 1.5 percent year-on-year in December of 2017, following a 3.6 percent drop in November. The output fell less for manufacturing (-2 percent compared to -4.7 percent); distribution of electricity and gas (-5.5 percent compared to -6.4 percent) and distribution of water and sewerage (-4.2 percent compared to -5.7 percent). Extraction of raw materials went down 1 percent, the same as in November. On a monthly basis, industrial output jumped 8.2 percent, following a 0.2 percent fall in November. Considering full 2017, industrial production rose 1 percent.
Russia`s trade surplus widened by 16.5 percent to USD 13.70 billion in December 2017 from USD 11.76 billion in the same month a year earlier, above market expectations of a USD 13 billion surplus. Exports increased 21.1 percent to USD 37.86 billion and imports rose 23.9 percent to USD 24.16 billion. In 2017, the trade surplus advanced 27.8 percent to USD 115.33 billion from USD 90.26 billion in 2016.
Russia`s consumer price inflation dropped to 2.2 percent year-on-year in January 2018 from 2.5 percent in the previous month and below market expectations of 2.3 percent. It was the lowest inflation rate since the series began in 1991, well below the central bank`s target of 4 percent. The Consumer Price Index in Russia increased 0.3 percent in January of 2018 over the previous month.
Russian unemployment rate fell to 5.1 percent in December 2017 from 5.3 percent in the same month of the previous year and below market expectations of 5.2 percent. The number of employed persons in Russia increased to 72.40 Million in December of 2017 from 72.30 Million in November of 2017.