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Fri, 20th January 2017

Anirudh Sethi Report

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Archives of “Economy” Category

IMF economist Obstfeld: Debt presents overhang to world economy

Comments from IMF economist Obstfeld after the latest world growth estimates

  • We see wider dispersion of risks, tilted to the downside
  • Trade disruption is a downside risk that isn’t included in baseline case
  • Effects of Brexit are likely to be complex
  • A US fiscal expansion would have positive spillover effects
  • We know direction of US policy but not the specifics
  • All nations would lose from a trade war
  • Some US proposals could hurt the US even without a trade war
  • Fixing Italy’s banking sector would boost growth
  • Fed independence must be maintained and a strict legal rule would tie it’s hands

IMF leaves 2017 global growth outlook at 3.4% but country forecasts shaken up

No change to the global outlook but many country tweaks for 2017

  • UK growth seen at +1.5% vs +1.1%
  • US seen at 2.3% vs 2.2%
  • Eurozone seen at 1.6% vs 1.5%
  • Italy seen at 0.7% vs 0.9%
  • Japan seen at 0.8% vs 0.6%
  • Canada unchanged at 1.9%
  • India seen at 7.2% vs 7.6%
  • China seen at 6.5% vs 6.2%
  • Brazil seen at 0.2% vs 0.5%
  • Mexico seen at 1.7% vs 2.3%
  • Saudi Arabia seen at 0.4% vs 2.0%

Lots of winners and losers on that list. In general, Latam and the Middle East drag down small improvements in developed countries. For 2018, they see global growth picking up slightly to 3.6%.

For many years, the IMF has released high estimates and then lowered them as they neared. For a change, they’re raising them. That might just reflect the optimism in the air.

BOJ raises assessment for 3 of 9 regions, 6 unchanged

   That’s the (screenshot of the) summary of the summary, in very brief.
So that is slow going, but at least its moving in the right direction, For now.
This report summarizes the reports from all regional research divisions, mainly at the Bank’s branches in Japan, and is based on data and other information gathered for the meeting of general managers of the Bank’s branches held today.

China Xinhua again: Chinese economy likely to hit bottom in 2017

Some weekend China press from Xinhua (official press agency of China), quoting economist Wang Yiming, deputy director of the development research center of the State Council:

  • If investment, supply-side structural reforms and the fostering of new growth momentum achieve desired results, there is a high probability that the economy may bottom this year
  • On the demand side, manufacturing investment is on the up, while infrastructure spending will remain strong, which mean overall investment will stabilize in 2017
  • If China’s capacity-cut targets are solidly delivered, producer prices will keep going up to support the broader economy
There is quite a few ‘ifs’ in there.
The piece also notes the IMF forecast for China growth this year:
  • 6.5%
  • & the IMF says  the economy will continue sustainable growth as it is rebalancing from manufacturing to services, despite reemerging concerns for property markets

Inflation eases to 3.41 per cent in December, industrial output up by 5.7 per cent

The annual consumer price inflation eased to 3.41 percent in December, its lowest level in more than two years, helped by a sharp cooling in food prices, government data showed on Thursday.

Economists had expected annual retail inflation to come in at 3.57 percent last month, compared with 3.63 percent in November. Food inflation was 1.37 percent last month, lower than a revised 2.03 percent in November.

Meanwhile, the industrial production grew by 5.7 per cent in November against contraction of 3.4 per cent same month last year.

November 2016 Eurozone industrial production 1.5% vs 0.5% exp m/m

November 2016 Eurozone industrial production report 12 January 2017

  • Prior -0.1%. Revised to 0.1%
  • 3.2% vs 1.6% exp y/y. Prior 0.6%. Revised to 0.8%

Some more cheer for Europe. Strong numbers, and intermediate & non-durable consumer goods did the best out the lot. That suggests there’s demand coming from consumers.

Brazil slashes rates by 75bps to 13% in surprise move

Don’t anyone accuse Brazil’s central bank of not being bold.

In a unanimous decision, the bank cut its policy interest rate by 75 basis points on Wednesday, exceeding the consensus call for a 50bps cut and sharply picking up the pace on an easing cycle it began with two back-to-back cuts of 25bps each in October and November

In a statement, the bank said economic activity had fallen below expectations and that a recovery would take longer than previously anticipated.

The size of the cut will be welcomed by many, given the economy’s stubborn refusal to return to growth. The rebound expected by many when congress ditched president Dilma Rousseff last year has failed to happen. GDP contracted by 8 per cent over the past two years under Rousseff’s watch; her pro-growth, market-friendly successor, Michel Temer, was expected to turn things round quickly.

November 2016 UK industrial production 2.1% vs 0.8% exp m/m

Details from the November 2016 UK industrial and manufacturing production report 11 January 2017

  • Prior -1.3%. Revised to -1.1%
  • 2.0% vs 0.6% exp y/y. Prior -1.1%. Revised to -0.9%
  • Manufacturing 1.3% vs 0.5% exp m/m. Prior -0.9%. Revised to -1.0%
  • 1.2% vs 0.4% exp y/y. Prior -0.4%. Revised to -0.5%

Very good numbers from UK industry. We’ve already seen that the year could be ending well in manufacturing via the Dec PMI. This one lags those by a month so we should (on paper) see  this sustained.

Oil and gas production led the way and a lot of the gains are being tied to the reopening of the Buzzard oil field and an increase in the pharma sector.

World Bank latest reports says global growth to accelerate slightly

World Bank’s latest Global Economic Prospects report … headlines:

 
  • Forecasts global real GDP growth at 2.7% in 2017 vs 2.3% in 2016
  • Forecasts advanced economies’ growth at 1.8% in 2017 (vs 1.6% in 2016)
  • Emerging/developing economies’ growth at 4.2% in 2017 (3.4% in 2016)
  • Forecasts US growth at 2.2% in 2017 (vs 1.6% in 2016) … they say their forecast excludes effects of any policy proposals from trump administration

More:

  • Challenges for emerging market commodity exporters are receding, while domestic demand solid in emerging market commodity importers
  • Fiscal stimulus in US could generate faster domestic and global growth, but extended uncertainty over policy could keep global investment growth slow
  • Forecasts China’s growth slowing to 6.5% in 2017 (from 6.7% in 2016)
(Headlines via Reuters)
 
The World Bank looking at the recovering oil and commodity prices, noting this eases the pressures on emerging-market commodity exporters. Expects the recessions in Brazil and Russia to end.
As always the Bank notes uncertainties in its forecasts (all forecasters should), with upside uncertainty (in the short term at least) on US potential increased fiscal stimulus, tax cuts, infrastructure spending.  Looking further out, though, a surge in debt load, higher interest rates & tighter financial conditions would have adverse effects.
Also downside potential on a more protectionist trade stance.