Sat, 25th March 2017

Anirudh Sethi Report


Archives of “economic growth” Tag

SNB leaves rates unchanged at March 2017 meeting

Swiss National Bank leaves rates unchanged at March 2017 monetary policy meeting

  • 3 month LIBOR lower target range -1.25%
  • 3 month LIBOR upper target range -0.25%
  • Sight deposit rate -0.75%

All as expected.

  • Will remain active in FX market as necessary
  • Swiss Franc significantly overvalued
  • Swiss forecasts is marked by considerable uncertainty from international risks
  • Raises 2017 CPI forecast to 0.3% vs 0.1% in Dec
  • 2018 CPI 0.4% vs 0.5% prior
  • 2019 CPI 1.1%
  • Maintains 2017 GDP at “roughly” 1.5%

India : CSO asked to explain GDP growth estimates

The Parliamentary standing committee on finance headed by Dr M. Veerappa Moily has sought an explanation from CSO over its GDP estimate for 2016-17 which it said is considered by experts “over-estimation” in view of demonetisation.

Central Statistics Office (CSO) in its advance estimate has pegged GDP growth for 2016-17 at 7.1 per cent and it kept unchanged while announcing Q3 growth figures.

Last month CSO had said that despite demonetisation, India’s GDP grew by 7 per cent between October to December 2016 (Q3 2016-17) to retain the title of the world’s fastest-growing major economy.

“The committee would also like to be apprised about the rationale/process/assumptions made and adopted by the CSO in their recent GDP advance estimates for 2016-17, which has been considered by independent experts as a possible over-estimation, particularly in the backdrop of demonetisation,” said the committee in its report submitted in the Parliament.

China trims 2017 growth target, warns against trade controls

China’s top economic official trimmed its growth target and warned Sunday of dangers from global pressure for trade controls, as Beijing tries to build a consumer-driven economy and reduce reliance on exports and investment.

In a speech to the national legislature, Premier Li Keqiang Li promised more steps to cut surplus steel production that is straining trade relations with Washington and Europe. He pledged equal treatment for foreign companies, apparently responding to complaints Beijing is trying to squeeze them out of technology and other promising markets.

 Li’s report set the growth target for the world’s second-largest economy at “around 6.5 percent or higher, if possible.” That’s down from 6.7 percent expansion last year but, if achieved, would be among the strongest globally, reflecting confidence that efforts to create new industries are gaining traction.

Li called for attention to the risks of China’s surging debt levels, which economists see as a rising threat to growth. He announced no major initiatives, but that was widely expected as the ruling Communist Party tries to avoid shocks ahead of a congress late this year at which President Xi Jinping is due to be given a second five-year term as leader. Analysts expect Chinese leaders to use the legislative meeting to emphasize reducing financial risks and keeping growth stable.

At a time of demands in the United States and Europe for trade controls, Li warned China faces “more complicated and graver situations” at home and abroad.

China’s State Budget Deficit to Amount to $346 Billion in 2017 – Draft Budget

According to the document, the deficit-to-GDP ratio is expected to be at the level of 3 percent, while the registered urban unemployment rate will reach 4.5 percent.

The GDP growth in China is expected to amount to 6.5 percent or more in 2017, which has been the worst indicator in the past 26 years.

“The GDP will grow by about 6.5 percent but in practice we will try to achieve better results,” according to the report by China’s National Development and Reform Commission (NDRC), published before the opening of the National People’s Congress.

On Saturday, China’s National People’s Congress (NPC) announced that Beijing will increase by around 7 percent this year, as compared to last year’s $146 billion.

According to China’s National Statistics Bureau, the GDP growth declined to 6.7 percent in 2016 from 6.9 percent in 2015, which has been the worst results in the past 26 years.

Chidambaram questions government’s GDP figure

Former Finance Minister and senior Congress leader P Chidambaram on Friday questioned the Central Statistical Organisation’s GDP growth figure and termed demonetisation a fixed match between the government and Reserve Bank of India (RBI).

He said demonetisation has interrupted India’s economic story and “to recover from this, it would take between 12-18 months, maybe right up to the end of 2017-18”.

“Look at the CSO’s numbers, it seems nothing has happened to the economy. The dazzle of the number cannot hide the fact that crores of people in the country have been devastated,” said Chidambaram.

“The government has changed the methodology. The Gross Value Addition (GVA), when they add taxes to it and subtract subsidies, they arrive at the GDP,” he added.

Chidambaram further said: “The additional tax revenue is not a reflection of growth. Equally being stingy on subsidies doesn’t impact growth.”

Giving out quarter-wise GVAs of three years, Chidambaram said: “In 2014-15, quarter-wise GVAs were 7.26, 7.91, 6.29 and 6.19 per cent. There is no particular trend. It went up and came down. In 2015-16, the numbers are 7.75, 8.44, 6.95 and 7.42 per cent. Again it doesn’t show any trend.

Moody’s: India’s economy picks up after demonetization; reform agenda on track

Moody’s Investors Service expects Indian economic growth to continue to pick up as liquidity conditions normalize, supporting expectations that the economic disruption caused by demonetization will be short term in nature.

Moody’s conclusions were contained in its just-released report on Indian credit, “Economic Slowdown from Demonetization Wanes; Credit Implications Unfolding”.

The Indian government (Baa3 positive) announced its demonetization measures on 8 November 2016 with the withdrawal of all INR500 and INR1,000 notes, or approximately 86% of the banknotes in circulation by value.

The Moody’s report provides an update on the implementation of demonetization and subsequent remonetization, the impact on the economy, and the credit implications for the government, companies, banks and the structured finance market.

The recovery in the total stock of currency in public circulation, which had declined from about INR17 trillion before demonetization to a low of INR7.8 trillion in early December, before rebounding to about INR9.8 trillion in early February 2017, illustrates this incremental improvement in liquidity. Looking ahead, we expect remonetization to continue at a similar pace.

Moody’s expects GDP growth to moderate to about 6.4% in the January to March 2017 quarter from 7.0% in the October to December 2016 quarter, before picking up above 7.0% thereafter, as the temporary drag from demonetization fades.

Moody’s further notes that sales in India’s real-estate and auto sectors are gradually recovering after falling sharply in the immediate aftermath of demonetization and expects the trend to continue over the second half of this year.

Steel production also took a substantial hit following demonetization, but has rebounded quickly and is currently performing better than anticipated. Meanwhile, demonetization has had little impact on India’s rated oil and gas refining and marketing companies, in line with Moody’s prior expectations.

On the other hand, the slowdown in economic activity has weighed on demand for credit among retail borrowers. We expect this trend to continue over the next few months and for asset quality to deteriorate in the current quarter, although Indian banks have sufficient buffers to withstand the impact.

In Latest Tightening Move, China To Cut Money Supply Growth To 12%

For a majority of China watchers, while Beijing’s goalseeked GDP reports are largely dismissed as politburo propaganda, most of the attention falls on the PBOC and banking sector’s credit creation, and particularly, how this translates into broad money supply, or M2, growth: after all, in a nation which has roughly $35 trillion in bank assets, the biggest variable is how much cash is being injected into the system, and what happens with said cash.

Which is why a Reuters report overnight that China plans to target broad money supply growth of around 12 percent in 2017, down from 13 percent in 2016, has been promptly noted as the latest signal to contain debt risks while keeping growth on track. The M2 growth target was endorsed by leaders at the closed-door Central Economic Work Conference in December, according to sources with knowledge of the meeting outcome.

As a reminder, yesterday even the NY Fed released a note in which central bank researchers warned about the unsustainability of Chinese debt. Under the PBOC’s new “prudent and neutral” policy, the central bank has adopted a modest tightening bias in a bid to cool torrid credit expansion, though it is treading cautiously to avoid hurting the economy. 

“It’s not necessary to maintain last year’s high money supply growth,” said a source who advises the government. “A money supply rise of 11 percent should be enough for supporting growth, but we probably need to have some extra space, considering risks in the process of deleveraging.”

In 2016 China’s money supply target was 13%, roughly double the country’s GDP , though it ultimately grew just 11.3% due to the effects of the central bank’s intervention to support the yuan currency, which effectively drained yuan liquidity from the economy.  Last year’s M2 target reflected Beijing’s focus on meeting its economic growth targets, but top leaders have pledged this year to shift the emphasis to addressing financial risks and asset bubbles.

INDIA : GDP growth averts demonetisation impact

Contrary to all expectations, India’s economic growth stood at seven per cent in the third quarter of the current financial year despite demonetisation, keeping the projection for the expansion at 7.1 per cent for the year which is the same as was pegged in the earlier data by the government.

The data, which is bound to evoke criticism from independent economists, was released as second advance estimates by the Central Statistics Office after its first advance estimates did not take into account demonetisation effect.

The year 2016-17 was projected to show the same growth in the second advance estimates against the first one despite higher base effect. The growth in 2015-16 was raised to 7.9 per cent against 7.6 per cent estimated earlier, after the first advance data was released.

However, much of the growth was projected to come from agriculture which is expected to expand by 4.4 per cent in 2016-’17 against 0.8 per cent a year ago and government-supported expenditure that rose 11.2 per cent against 6.9 per cent.

Quarterly GDP growth
Q1 2015-167.2%
Q2 2015-167.3%
Q3 2015-167.2%
Q4 2015-167.9%
Q1 2016-177.2%
Q2 2016-177.4%
Q3 2016-177.0%
Source: Central Statistics Office

Elsewhere, electricity and construction were also projected to grow higher at 6.6 and 3.1 per cent in the current financial year against 5.5 and 2.8 per cent in the previous year respectively.

The quarter — October-December– which was supposed to have worst hit by the demonetisation– saw manufacturing growing by 8.3 per cent against 6.9 per cent in the second quarter. Similarly, agriculture rose by 6 per cent against 3.8 per cent.

However, trade and financial services were impacted much as these rose by just 3.1 per cent in the third quarter against 7.6 per cent in the second quarter.

Satyajit Das Warns Financial Engineering “Has Masked The Global Economy’s Precarious Health”

Too much of economic growth and the accompanying bull market in stocks is the result of financial engineering. Increasingly, companies seek to improve earnings or increase their share price by means that are not necessarily directly linked to their actual business.

Companies have increased the use of lower-cost debt financing, taking advantage of the tax deductibility of interest. In private equity transactions, the level of debt is especially high. Complex securities have been used to arbitrage ratings and tax rules to lower the cost of capital.

Mergers and acquisitions as well as various types of corporate restructurings (such as spin-offs and carve-outs) have been used to create “value.” Given the indifferent results of many such transactions, the major benefits appear to have accrued financially to corporate insiders, bankers, and consultants.

Share buybacks and capital returns, sometimes funded by debt, have been used to support share prices. In January 2008, prior to the global financial crisis, U.S. companies were using almost 40% of their cashflow to repurchase their own shares. Ominously, that position is similar today.

Not just execution, note ban idea itself was wrong :Rajiv Bajaj

With the adverse impact of note ban continuing to hamper two-wheeler sales, Bajaj Auto Managing Director Rajiv Bajaj on Thursday said the idea of demonetisation was itself “wrong” and it is incorrect to blame only the execution side of it.

“If the solution or the idea is right, it will go like a hot knife through butter…If the idea is not working, for example demonetisation, don’t blame execution. I think your idea itself is wrong,” Bajaj said at the annual Nasscom leadership forum here.

Prime Minister Narendra Modi had on November 8 last year scrapped all the Rs 500 and Rs 1,000 notes, with a view to check the black money.

Massive cash rationing was introduced as the new replacement notes were in short supply. The ban on 86 per cent of the total currency worth Rs 15.55 trillion in circulation impacted economic activity across sectors with the consumption-driven ones being the most affected.

Notably, the two-wheeler sales are yet to recover from the impact of demonetisation and industry data releases over the last two months have been showing a slump. The industry was looking forward to better sales on the back of good monsoon and an acceleration in rural economic growth, which drives consumption.