World Economy Review - May 2018
The prospect of a trade war is threatening the global growth outlook, which otherwise is on course for a 40-year low in unemployment, the OECD said.
Global growth is set to nudge up from 3.8% this year to 3.9% in 2019, the Organisation for Economic Cooperation and Development forecast in its biannual Economic Outlook.
The Paris-based policy forum made up mainly of developed countries had in March penciled in an estimate of 3.9% for both years.
But it trimmed its outlook for 2018 due to a weak start to the year because of temporary factors like bad weather.
The OECD said budgetary easing had taken over from central bank stimulus as the main motor of global growth with three fourths of its member countries now estimated to be loosening purse-strings, led by massive US tax cuts.
Against that backdrop, the overall OECD unemployment rate was seen falling to 5% by the end of 2019, hitting the lowest level since 1980 and setting the stage for so-far elusive growth in workers` wages.
"In spite of all this good news, risks loom large for the global outlook. What are these risks? First and foremost, an escalation of trade tensions should be avoided," acting OECD chief economist Alvaro Pereira wrote in an introduction to the organization`s biannual Economic Outlook.
The warning comes as European governments brace for the expiration of temporary exemptions on new US steel and aluminium tariffs on June 1, which has outraged Washington`s closest allies.
Though the number of trade restrictions has crept higher over the last decade, further measures could create a significant drag on growth because the global economy is now more interconnected than ever before, the OECD said.
With tax cuts boosting US investment, the world`s biggest economy was forecast to grow 2.9% this year and 2.8% next year.
As a result the Federal Reserve was expected to keep gradually increasing its interest rates, bringing the Fed funds rate to 3.25% by the end of 2019.
The euro area economy was seen growing 2.2% this year and 2.1% in 2019 as the labour market and wages recover.
The European Central Bank was seen halting bond purchases this year and increasing its negative deposit rate in the second half of 2019.
Outside the euro area, the OECD marginally raised its outlook for Britain to 1.4% growth this year and 1.3% in 2019.
The Bank of England was expected to only gradually raise interest rates given the uncertainty over Brexit.
Japanese growth was seen at 1.2% both this and next year as growing labour shortages force companies to increase business investment and hire more workers.
Outside of the OECD, Chinese growth was expected to ease gradually from 6.7% this year to 6.4% in 2019 as infrastructure investment slows in the face of tighter lending conditions and tougher government project approvals.
Economy of the United States
U.S. economic growth slowed slightly more than initially thought in the first quarter amid downward revisions to inventory investment and consumer spending, but income tax cuts are likely to boost activity this year.
Gross domestic product increased at a 2.2 percent annual rate, the Commerce Department said in its second estimate of first-quarter GDP, instead of the previously reported 2.3 percent pace. The economy grew at a 2.9 percent rate in the fourth quarter.
Economists had expected first-quarter GDP growth would be unrevised at a 2.3 percent pace.
U.S. industrial production fell slightly in May amid a sharp drop in manufacturing output, the Federal Reserve said. Overall industrial output fell 0.1 percent last month after an upwardly revised 0.9 percent increase in April.
Economists polled by Reuters had forecast industrial production rising 0.2 percent. The U.S. central bank`s measure of the industrial sector comprises manufacturing, mining, and electric and gas utilities.
May`s decline was driven by a 0.7 percent fall in manufacturing, the largest monthly decline since January 2014, with the largest drops including a 6.5 percent fall in motor vehicles and parts and 2 percent decreases in primary metals and apparel. April`s reading was upwardly revised to show a 0.6 percent gain. Mining production was up 1.8 percent and utilities output rose 1.1 percent.
Overall manufacturing output rose at an annual rate of 1.7 percent through May, while the index for mining surged 12.6 percent on a 12-month basis and utilities rose 4 percent in that period. With overall output falling in May, the percentage of industrial capacity in use fell 0.2 percentage points to 77.9 percent.
Record exports shaved the U.S. trade deficit in April for the second straight month. But so far this year, the deficit is up 11.5 percent from a year ago despite President Donald Trump`s vow to close the gap through new tariffs on imports and renegotiated trade deals.
The Commerce Department said that the trade deficit dropped to $46.2 billion in April, down from $47.2 billion in March and lowest since September. Exports edged up 0.3 percent to a record $211.2 billion; imports dipped 0.2 percent to $257.4 billion.
The United States ran a $68.3 billion deficit in the trade of goods. That was partly offset by a $22.1 billion surplus in trade of services such as tourism and banking.
U.S. consumer prices rose marginally in May amid a slowdown in increases in the cost of gasoline and the underlying trend continued to suggest moderate inflation in the economy.
The Consumer Price Index increased 0.2 percent last month, also as food prices were unchanged. That followed a similar gain in the CPI in April. In the 12 months through May, the CPI increased 2.8 percent, the biggest advance since February 2012, after rising 2.5 percent in April.
Excluding the volatile food and energy components, the CPI rose 0.2 percent, supported by a rebound in new motor vehicle prices and a pickup in the cost of health care, after edging up 0.1 percent in April. That lifted the year-on-year increase in the so-called core CPI to 2.2 percent, the largest rise since February 2017, from 2.1 percent in April.
The low U.S. unemployment rate dipped from 3.9% to 3.8% in May, continuing a year-long downward trend. The Bureau of Labor Statistics` monthly employment report showed a gain of 223,000 nonfarm jobs for the month. Job growth occurred across several industries.
Retail picked up 31,000 jobs, healthcare added 29,000 and construction gained 25,000. Professional and technical services, transportation and warehousing, and manufacturing also experienced growth.
Among worker groups, unemployment rates decreased for African Americans (5.9%), adult men (3.5%) and Asians (2.1%) in May. The rates of discouraged and underemployed workers remained largely unchanged.
Economy of the European Union
Seasonally adjusted GDP rose by 0.4% in both the euro area (EA19) and the EU28 during the first quarter of 2018, compared with the previous quarter, according to an estimate published by Eurostat, the statistical office of the European Union. In the fourth 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 2.5% in the euro area and by 2.4% in the EU28 in the first quarter of 2018, after +2.8% and +2.7% respectively in the previous quarter.
In April 2018 compared with March 2018, seasonally adjusted industrial production fell by 0.9% in the euro area (EA19) and by 0.8% in the EU28, according to estimates from Eurostat. In March 2018, industrial production rose by 0.6% in the euro area and by 0.5% in the EU28.
In April 2018 compared with April 2017, industrial production increased by 1.7% in both zones.
The first estimate for euro area (EA19) exports of goods to the rest of the world in April 2018 was 182.9 billion, an increase of 8.0% compared with April 2017 (169.3 bn). Imports from the rest of the world stood at 166.2 bn, a rise of 8.1% compared with April 2017 (153.7 bn). As a result, the euro area recorded a 16.7 bn surplus in trade in goods with the rest of the world in April 2018, compared with +15.7 bn in April 2017. Intra-euro area trade rose to 157.4 bn in April 2018, up by 9.8% compared with April 2017.
The first estimate for extra-EU28 exports of goods in April 2018 was 154.8 billion, up by 6.8% compared with April 2017 (144.9 bn). Imports from the rest of the world stood at 155.9 bn, up by 6.6% compared with April 2017 (146.3 bn). As a result, the EU28 recorded a 1.0 bn deficit in trade in goods with the rest of the world in April 2018, compared with -1.4 bn in April 2017. Intra-EU28 trade rose to 283.8 bn in April 2018, +9.2% compared with April 2017.
Euro area annual inflation rate was 1.9% in May 2018, up from 1.3% in April. A year earlier, the rate was 1.4%. European Union annual inflation was 2.0% in May 2018, up from 1.5% in April. A year earlier, the rate was 1.6%. These figures are published by Eurotat.
The lowest annual rates were registered in Ireland (0.7%) and Greece (0.8%). The highest annual rates were recorded in Romania (4.6%) and Estonia (3.1%). Compared with April 2018, annual inflation fell in one Member State, remained stable in one and rose in twenty-six.
In May 2018, the highest contribution to the annual euro area inflation rate came from services (+0.72 percentage points), followed by energy (+0.58 pp), food, alcohol & tobacco (+0.50 pp) and non-energy industrial goods (+0.08 pp).
The euro area (EA19) seasonally-adjusted unemployment rate was 8.5% in April 2018, down from 8.6% in March 2018 and from 9.2% in April 2017. This is the lowest rate recorded in the euro area since December 2008. The EU28 unemployment rate was 7.1% in April 2018, stable compared with March 2018 and down from 7.8% in April 2017. This remains the lowest rate recorded in the EU28 since September 2008. These figures are published by Eurostat.
Eurostat estimates that 17.462 million men and women in the EU28, of whom 13.880 million in the euro area, were unemployed in April 2018. Compared with March 2018, the number of persons unemployed decreased by 53 000 in the EU28 and by 56 000 in the euro area. Compared with April 2017, unemployment fell by 1.633 million in the EU28 and by 1.088 million in the euro area.
Economy of Japan
Japan`s economy contracted at an annualized rate of 0.6 percent in January-March, unchanged from a preliminary estimate issued last month, revised gross domestic product data from the Cabinet Office showed.
The result compared with the median estimate of a 0.4 percent annualized contraction in a Reuters poll of economists.
On a quarter-on-quarter basis, GDP fell 0.2 percent in real, price-adjusted terms, also unchanged from the initial reading. The median estimate among economists was for a 0.1 percent decline.
Japan`s industrial production increased more than initially estimated in April, final data from the Ministry of Economy, Trade and Industry showed. Industrial production climbed 0.5 percent month-over-month in April, faster than the 0.3 percent estimated earlier. It was the third successive monthly rise. In March, industrial production had grown 1.4 percent.
Shipments grew 1.6 percent compared to 1.8 percent previous estimate. Meanwhile, inventories dropped 0.6 percent over the month, revised from a 0.4 percent fall seen in the flash report. On a yearly basis, industrial production grew 2.6 percent in April.
Data also showed that capacity utilization rose 1.8 percent in April from the previous month and climbed 1.9 percent from last year.
Japan had a goods trade surplus of 626.0 billion yen ($5.6 billion) in April, the second straight month of black ink amid strong demand for automobiles and manufacturing equipment from overseas, government data showed.
The surplus was up 30.9 percent year-on-year despite a rise in energy imports such as unrefined oil and coal, according to a preliminary report by the Finance Ministry.
Exports were up 7.8 percent to 6,822.3 billion yen, the second largest figure on record for the month of April, outpacing a 5.9 percent increase in imports to 6,196.3 billion yen.
Japan`s consumer price inflation fell to 0.6 percent year-on-year in April of 2018 from 1.1 percent in the prior month and below market consensus of 0.7 percent. It is the lowest rate since last November, as food inflation eased to 5-month low and cost of transport increased less. Core inflation rate, which excludes fresh food, eased to 0.7 percent from 0.9 percent in March, while markets estimated 0.7 percent. It is the lowest figure since September 2017. On a monthly basis, consumer prices declined by 0.4 percent, the same as in the preceding month.
Japan`s unemployment rate remained unchanged in April from a month earlier, a government report showed. According to the Ministry of Internal Affairs and Communications, the unemployment rate remained flat at 2.5 percent.
Separately, the Ministry of Health, Labor and Welfare said that job availability stood at 1.59, also unchanged from the previous month.
Economy of Russia
Russia`s gross domestic product grew by 1.3 percent year-on-year in the first quarter of 2018, following a 0.9 percent expansion reported in the previous period, a preliminary estimate showed. It was the sixth straight quarter of growth after two years of contraction.
Russia`s industrial production increased by 1.3 percent year-on-year in April 2018, following a 1 percent growth in the previous month and beating market expectations of 1.1 percent. Manufacturing production rebounded 1.1 percent (vs -0.2 percent in March) and extraction of raw materials rose at a faster 1.7 percent (vs 1.4 percent in March). On the other hand, production and distribution of electricity, gas grew less than in a month earlier (1.1 percent vs 7.8 percent) while distribution of water, sewage continued to fall (-1.4 percent vs -1.7 percent). Industrial Production in Russia decreased 2.10 percent in April of 2018 over the previous month.
Russia`s trade surplus widened by 95.5 percent to USD 15.32 billion in April 2018 from USD 7.83 billion in the same month a year earlier, beating market expectations of a USD 14.0 billion surplus. Exports jumped 38.9 percent to USD 36.25 billion and imports rose at a slower 14.6 percent to USD 20.93 billion.
Russia`s annual inflation rate came in at 2.4 percent in May 2018, unchanged from the previous month`s reading and slightly below market expectations of 2.5 percent. Food prices increased at a softer pace, while cost of non-food products rose further and service inflation was flat.
Russia`s consumer prices increased by 0.4 percent month-over-month in May 2018, the same pace as in April and matching market expectations. Inflation rose for both non-food products (0.9 percent vs 0.4 percent) and services (0.4 percent vs 0.3 percent), while food prices dropped slightly (-0.1 percent vs 0.4 percent).
Russian unemployment rate declined to 4.9 percent in April of 2018 from 5.3 percent in the same month of the previous year, beating market expectations of 5 percent. In March, the jobless rate was 5 percent.