World Economy Review - November 2018
The Organization for Economic Co-operation and Development (OECD) warned about a slowdown in global economic growth for 2019 and urged countries to prepare for difficult times.
In its semi-annual report, the Paris-based entity cut its growth forecast for next year by placing it at 3.5 percent, four-tenths less than in June, when the forecast was 3.9. Also, for this year the forecast remained the same at 3.7 percent.
The OECD warned that the world economy will suffer a slowdown from next year, as a result of several factors among which stand out trade tensions, the rise in oil prices and uncertainty related to ongoing processes such as the departure of the United Kingdom from the European Union (Brexit).
The Paris-based entity said that while labour markets are in good health in major economies like the US, trade and investment have taken a hit from higher tariffs. "Trade conflicts and political uncertainty are adding to the difficulties governments face in ensuring that economic growth remains strong, sustainable and inclusive," OECD chief Angel Gurria said.
A full-blown trade war and the resulting economic uncertainty could knock as much as 0.8 percent off global gross domestic product by 2021, the OECD estimated.
According to the report, the Eurozone will only grow this year by 1.9 percent and the next by 1.8, which means one tenth less in each period. In Britain, the OECD forecast growth would pick up from 1.3 percent this year to 1.4 percent in 2019.
Though at the source of the current tensions, the US economy was expected to fare better than most other major economies. The OECD`s 2018 and 2019 forecast for the US remained unchanged. The United States will advance 2.9 percent in 2018 and 2.7 percent in 2019. It said growth in the world`s biggest economy would slow from nearly 3.0 percent this year to slightly more than 2.0 percent in 2020.
Trimming China`s forecast, OECD said its growth would slow from 6.6 percent in 2018 and 6.3 in 2019 to a 30-year low of 6.0 percent in 2020 in the face of higher US tariffs.
It warned that "a much sharper slowdown in Chinese growth would damage global growth significantly, particularly if it were to hit financial market confidence".
In the Latin American region, the organization predicted a three-tenths growth cut in Mexico for the two years, with which the forecast for 2018 stands at 2.2 percent, and that of 2019 at 2.5.
For Brazil, it also predicted a setback, with an advance of 1.2 percent this year (eight tenths less) and 2.1 next year (seven-tenths less). In the case of Argentina, the country is expected to enter into a recession as the Gross Domestic Product will fall by 2.8 percent this year and 1.9 percent in 2019.
Economy of the United States
The U.S. economy slowed in the third quarter as previously reported, but the pace was likely strong enough to keep growth on track to hit the Trump administration`s 3 percent target this year. Gross domestic product increased at a 3.5 percent annualized rate, the Commerce Department said in its second estimate of third-quarter GDP growth. That was unchanged from its estimate in October and well above the economy`s growth potential, which economists estimate to be about 2 percent.
The economy grew at a 4.2 percent pace in the second quarter. While businesses accumulated inventory at a faster pace and spent more on equipment than initially thought in the third quarter, that was offset by downward revisions to consumer spending and exports. Economists polled by Reuters had forecast third-quarter GDP growth unrevised at 3.5 percent.
U.S. industrial production rose 0.6% in November exceeding the estimated level of 0.4%. This is also the strongest gain in three months. The rise in industrial production came on the back of surging output at mines and utilities. Per the Federal Reserve, utility output rose 3.3% because of the unusually cold weather that swept across the country.
The latest figures imply that unusually cold weather resulted in higher demand for natural gas and electricity. Mining output climbed 1.7% on the back of robust production at coal mines and oil and gas drillers. However, manufacturing output was flat in November after falling 0.1 percent in October. Within manufacturing, durable goods output climbed 0.2%. Capacity utilization rose 0.4% in November to 78.5%.
Record imports in October drove the U.S. trade deficit to the highest level in a decade. The Commerce Department said that the gap between the United States sells and what it buys from foreign countries hit $55.5 billion in October, the fifth straight increase and highest since October 2008.
The politically sensitive deficit in the trade of goods with China rose 7.1 percent to a record $43.1 billion. The goods gap with the European Union widened 65.5 percent to a record $17.6 billion. Led by shipments of medicine and cars, overall imports rose 0.2 percent to a record $266.5 billion. Exports fell 0.1 percent to $211 billion.
U.S. consumer prices were unchanged in November, held back by a sharp decline in the price of gasoline, but underlying inflation pressures remained firm amid rising rents and healthcare costs. The Labor Department said that last month`s flat reading in its Consumer Price Index followed a 0.3 percent increase in October. It was the weakest reading in eight months. In the 12 months through November, the CPI rose 2.2 percent, slowing from October`s 2.5 percent rise.
Excluding the volatile food and energy components, the CPI increased 0.2 percent, matching October`s gain. In the 12 months through November, the so-called core CPI increased 2.2 percent after climbing 2.1 percent in October. Economists polled by Reuters had forecast the CPI unchanged and the core CPI gaining 0.2 percent in November.
The U.S. economy added 155,000 jobs in November, falling short of expectations for more robust growth, and the unemployment rate stayed at a 49-year low of 3.7 percent, federal economists reported.
Even in the face of economic curveballs - trade tensions, jittery markets, hurricanes - hiring has remained strong overall as 2018 wraps up: American employers have added more than 200,000 jobs in four of the past six months.
Analysts predict that payroll growth in 2018 is on track to beat the previous year`s average monthly gains of 182,000 positions and could surpass 2016`s particularly solid levels (195,000).
Economy of the European Union
Seasonally adjusted GDP rose by 0.2% in the euro area (EA19) and by 0.3% in the EU28 during the third quarter of 2018, compared with the previous quarter, according to an estimate published by Eurostat, the statistical office of the European Union. In the second quarter of 2018, GDP had grown by 0.4% in the euro area and by 0.5% in the EU28.
Compared with the same quarter of the previous year, seasonally adjusted GDP rose by 1.6% in the euro area and by 1.8% in the EU28 in the third quarter of 2018, after +2.2% and +2.1% respectively in the previous quarter.
Among Member States for which data are available for the third quarter of 2018, Malta (+3.6%) recorded the highest growth compared with the previous quarter, followed by Romania (+1.9%), Latvia and Poland (both +1.7%). Negative growth was observed in Lithuania (-0.3%), Germany and Sweden (both -0.2%) and Italy (-0.1%).
In October 2018 compared with September 2018, seasonally adjusted industrial production rose by 0.2% in both the euro area (EA19) and the EU28, according to estimates from Eurostat. In September 2018, industrial production fell by 0.6% in the euro area and by 0.4% in the EU28. In October 2018 compared with October 2017, industrial production increased by 1.2% in the euro area and by 1.3% in the EU28.
The first estimate for euro area (EA19) exports of goods to the rest of the world in October 2018 was 209.7 billion, an increase of 11.4% compared with October 2017 (188.3 bn). Imports from the rest of the world stood at 195.8 bn, a rise of 14.8% compared with October 2017 (170.5 bn). As a result, the euro area recorded a 14.0 bn surplus in trade in goods with the rest of the world in October 2018, compared with +17.8 bn in October 2017. Intra-euro area trade rose to 175.6 bn in October 2018, up by 8.7% compared with October 2017.
The first estimate for extra-EU28 exports of goods in October 2018 was 180.7 billion, up by 13.4% compared with October 2017 (159.4 bn). Imports from the rest of the world stood at 188.4 bn, up by 16.8% compared with October 2017 (161.3 bn). As a result, the EU28 recorded a 7.7 bn deficit in trade in goods with the rest of the world in October 2018, compared with -1.8 bn in October 2017. Intra-EU28 trade rose to 319.9 bn in October 2018, +7.9% compared with October 2017.
The euro area annual inflation rate was 1.9% in November 2018, down from 2.2% in October. A year earlier, the rate was 1.5%. European Union annual inflation was 2.0% in November 2018, down from 2.2% in October. A year earlier, the rate was 1.8%. These figures are published by Eurostat.
The lowest annual rates were registered in Denmark (0.7%), Ireland (0.8%) and Portugal (0.9%). The highest annual rates were recorded in Estonia, Hungary and Romania (all 3.2%). Compared with October 2018, annual inflation fell in twenty-five Member States, remained stable in one and rose in one.
In November 2018, the highest contribution to the annual euro area inflation rate came from energy (+0.88 percentage points), followed by services (+0.57 pp), food, alcohol & tobacco (+0.38 pp) and non-energy industrial goods (+0.11 pp).
The euro area (EA19) seasonally-adjusted unemployment rate was 8.1% in October 2018, stable compared with September 2018 and down from 8.8% in October 2017. This remains the lowest rate recorded in the euro area since November 2008. The EU28 unemployment rate was 6.7% in October 2018, stable compared with September 2018 and down from 7.4% in October 2017. This remains the lowest rate recorded in the EU28 since the start of the EU monthly unemployment series in January 2000. These figures are published by Eurostat.
Eurostat estimates that 16.626 million men and women in the EU28, of whom 13.172 million in the euro area, were unemployed in October 2018. Compared with September 2018, the number of persons unemployed decreased by 4 000 in the EU28 and increased by 12 000 in the euro area. Compared with October 2017, unemployment fell by 1.523 million in the EU28 and by 1.121 million in the euro area.
Economy of Japan
Japanese gross domestic product (GDP) shrank at an annualized rate of 2.5 percent in July-September, deeper than an initial estimate of a 1.2 percent contraction, revised data from the Cabinet Office showed.
The revised figure was also sharper than economists` median estimate for a 1.9 percent annualized decline in a Reuters poll, hurt by natural disasters and sluggish exports.
The figure translates into a quarter-on-quarter contraction of 0.6 percent in real, price-adjusted terms, against a preliminary reading of a 0.3 percent contraction and economists` median estimate of a 0.5 percent decline.
Japan`s industrial output in October rose 2.9 percent from the previous month, government data showed. The seasonally adjusted index of production at factories and mines stood at 105.9 against the 2015 base of 100, the Ministry of Economy, Trade and Industry said in a preliminary report. The result followed a revised 0.4 percent fall in September. The ministry said in its basic assessment that industrial production is "picking up slowly."
Manufacturers polled by the ministry said they expect output to increase 0.6 percent in November and gain 2.2 percent in December. The index of industrial shipments rose 5.4 percent to 106.6 and that of inventories was down 1.4 percent at 101.2.
The Japanese Finance Ministry says the country posted a trade deficit in October for the first time in two months. The deficit stood at 449.3 billion yen, or about 4 billion dollars.
The shortfall came despite exports growing by 8.2 percent in yen terms from a year earlier. Stronger shipments of cars, motors, and semiconductor equipment were behind the gains. But at the same time, imports climbed by 19.9 percent. A big factor was demand for crude oil and liquefied natural gas.
Consumer price growth in Japan stalled last month as a jump in fresh food prices boosted headline inflation but left less volatile measures of consumer costs remained flat.
Japan`s core consumer price index, which strips out fresh food prices but not energy costs, rose 1 per cent in October, according to Japan`s Statistics Bureau. That was in line with a median forecast by economists polled by Reuters and unchanged from September`s level.
That left the country`s key inflation gauge languishing just halfway to the Bank of Japan`s target of 2 per cent. Headline inflation ticked up to 1.4 per cent thanks to a 10.8 per cent jump in fresh food prices but core-core inflation, which strips out both food and energy prices, was unchanged at only 0.4 per cent for a third straight month.
Japan`s unemployment rate edged down by 0.3% to 2.4% in October 2018 when compared to the same period last year, according to Statistics Japan. On a seasonally adjusted basis, Statistics Japan found that the jobless rate also stood at 2.4%. This was a decrease from 2.8% last year and an increase of 0.1% when compared to September.
The number of unemployed persons in October 2018 was 1.63 million, a decrease of 180,000, or 9.9% from the previous year.
Meanwhile, the employment rate in October stood at 60.6%, up 1.4% compared to last year. The number of employed persons in October 2018 was 67.25 million, an increase of 1.44 million or 2.2% from the previous year. The labour force participation rate was 62.0%, an increase of 1.2% compared to last year.
Japan`s jobs to applicants ratio, which measures the number of positions available to the number of job seekers, slipped from 1.64 in September to 1.62 in October.
Economy of Russia
Russia`s economic growth accelerated in October thanks to higher output in the agriculture and industrial sectors, the economy ministry said, but other indicators showed growth remained patchy.
Gross domestic product expanded by 2.5 percent in October compared with a year ago, up from 1.1 percent in September, the monthly data showed. The pick-up in economic growth comes after a 1.3 percent expansion in the third quarter.
Russia`s industrial output rose 3.7 percent year-on-year in October 2018, accelerating from a 2.1 percent growth in the previous month and easily beating market expectations of 2.7 percent. Manufacturing production rebounded 2.7 percent (vs -0.1 percent in September) and extraction of raw materials expanded at a faster 7.4 percent (vs 6.9 percent in September). Meanwhile, water supply growth eased to 4.8 percent in October from 6 percent in the previous month and utilities output continued to contract (-3.2 percent vs -0.4 percent). Industrial Production in Russia increased 5.8 percent in October of 2018 over the previous month.
Russia`s trade surplus widened to USD 15.80 billion in August of 2018 from USD 6.66 billion in the corresponding month of the previous year, and above market consensus of a USD 15.0 billion surplus.
Exports jumped 28.7 percent to USD 37.44 billion in August from USD 29.08 billion a year ago, as exports to non-CIS countries climbed 30.8 percent to USD 32.69 billion and those to CIS countries went up 16.3 percent to USD 4.75 billion.
Imports fell 3.5 percent year-on-year to USD 21.64 billion, the first annual decline since July of 2016. Imports from non-CIS countries decreased 4.1 percent to USD 19.42 billion while those from CIS countries advanced 2.6 percent to USD 2.22 billion.
The trade surplus with non-CIS countries grew 179.5 percent to USD 13.27 billion from USD 4.75 billion a year ago; and with CIS countries it widened 31.82 percent to USD 2.53 billion from USD 1.92 billion.
Russia`s annual inflation rate rose to 3.8 percent in November 2018 from 3.5 percent in the previous month, still below market expectations of 3.9 percent. It was the highest inflation rate since July 2017 on the back of rising prices of food and non-food products while service inflation eased.
Within the goods component, food cost advanced 3.5 percent in November, following a 2.7 percent rise in October and prices of non-food products rose 4.2 percent, after a 4.1 percent gain in the previous month. Meanwhile, services inflation slowed to 3.8 percent in November from 4 percent in October.
Annual core inflation rate climbed to 3.4 percent in November from 3.1 percent in the previous month. It was the highest rate since June 2017.
On a monthly basis, consumer prices increased 0.5 percent in November, compared with a 0.4 percent gain in October and matching market consensus. There were rises in prices of both food (1 percent vs 0.6 percent in October) and non-food products (0.4 percent vs 0.5 percent) while services costs were unchanged (vs -0.1 percent in October).
Russian unemployment rate rose to 4.7 percent in October 2018 from an all-time low of 4.5 percent in the previous month, and compared to last year`s figure of 5.1 percent. The number of unemployed increased by 5.2 percent from a month earlier.
The number of unemployed rose by 177 thousand to 3.611 million in October from 3.434 million in the previous month. Compared with the previous year, unemployment fell by 248 thousand from 3.859 million.
Russia`s real wages increased by 4.4 percent year-on-year in October, following a downwardly revised 4.9 percent advance in the previous month and below market expectations of a 6.8 percent gain. Average nominal wages jumped 8.1 percent to RUB 42,000 while annual inflation rate rose to 3.5 percent, its highest level since July 2017. Meanwhile, real disposable personal income in Russia increased by 1.4 percent in October, following a 2.5 percent drop in the previous month.