Thu, 28th April 2016

Anirudh Sethi Report


Archives of “Economy” Tag

China’s Liaoning lurches into negative growth

The heavy-industry-driven economy of China’s Liaoning Province contracted in the first quarter of 2016 under the stress of structural adjustments meant to relieve overcapacity and other ills.

     Liaoning’s output shrank by 1.3% in real terms compared with the January-March quarter last year — an unusual setback for a local economy in China. 

     The province has not suffered a full year of negative growth since 1981. But it expanded only 1.9% in the year-earlier quarter and 3% in all of 2015, logging the slowest pace in the country.

     Liaoning aims for 6% growth this year, the same target as in 2015, but will likely struggle even harder to get there.

     The smokestack industries that constitute much of the province’s economic activity — coal, steel, shipbuilding and others, many run by state-owned enterprises — were the first to lose steam as China’s economic growth slowed. A depressed property market adds to Liaoning’s troubles.

‘India to clock nearly 8 per cent GDP growth in 2016-17’ (If this speed continues than in next 2-3 years :10-12 % or more ? )

BLA BLAIndia’s economy is likely to clock nearly 8 per cent growth in the current fiscal on the back of robust private consumption, which has benefited from lower energy prices and higher real incomes, according to PHD Chamber of Commerce.

The Reserve Bank had retained its growth projection for 2016-17 at 7.6 per cent.

“Going ahead, growth in India is projected to notch up to 8 per cent in 2016-17. Growth will continue to be driven by private consumption, which has benefited from lower energy prices and higher real incomes.

“Further, with the revival of sentiment and pick-up in industrial activity, a recovery of private investment is expected to strengthen growth in the coming times,” it said.

The chamber also estimated that India’s share in world GDP has doubled from 1.43 per cent in 2000 to 2.86 per cent in 2015.

German government leaves 2016 GDP forecast unchanged at +1.7%

German economic ministry out with their latest review 20 April

  • pvt consumption up 2% in 2016 vs +1.9% in Jan
  • 2016 exports up +2.9% vs +3.2% prev
  • 2016 imports +5.2% vs +4.8% prev
  • domestic demand +2.6% in 2016 vs +2.3% prev
  • equipment investment up 2.6% in 2016 vs +2.25 prev forecast
  • construction investment +2.7% in 2016 vs +2.35 prev

Econ minister Gabriel says economic upswing upturn will continue this year and next. Domestic growth drivers have become more important.

PIMCO: “Markets have been over-anticipating recession risk”

From PIMCO’s quarterly Cyclical Forum “to deliberate and update our economic and market outlook for the next six to 12 months”

A useful read, if quite long.
In (very, very) brief:
  • Do not expect a recession in the U.S. or the global economy over the cyclical horizon
  • Financial markets have been over-anticipating recession risk
  • A number of key uncertainties and challenges that call for conservative portfolio positioning
  • Market valuations in general look fair to full
  • Still pockets of value
  • Valuations should be underpinned by central banks … there are valid questions about the declining effectiveness of their interventions
Here’s the link for (much) more – worth a read.

UK services suffer weakest quarter since 2013 – PMI 53.7 vs 53.7 exp

Growth in the UK economy is expected to cool to 0.4 per cent in the first quarter after a closely-watched survey of activity in Britain’s dominant services sector indicated the industry suffered its weakest quarter of output in the first quarter for six years.

The UK services purchasing managers’ index, produced by research group Markit, came in at 53.7 for March, after staging a surprise drop to 52.7 in February. Economists had been expecting an improvement in the March reading to 53.5. But despite the better than expected outcome, Markit said the performance over the first quarter as a whole indicated the weakest quarter of output growth in services since the first quarter of 2013

Chris Williamson, chief economist at Markit, which compiles the survey, said:

An upturn in the pace of service sector growth in March was insufficient to prevent the PMI surveys from collectively indicating a slowdown in economic growth in the first quarter. The surveys point to a 0.4% increase in GDP, down from 0.6% in the closing quarter of last year.

Across the three main sectors of the economy, firms reported the smallest increase in demand for just over three years, which in turn fed through to a reluctance to take on new staff. March saw the weakest rate of job creation for over two-and-a-half years.

Structural Inefficiency: Trump Warns of ‘Very Massive Recession’ Up Ahead

GOP frontrunner in the US presidential election Donald Trump spoke out on the state of the US economy in a recent interview, expressing concern of the dominance of the financial services sector and Wall Street, whilst the real economy is under pressure due to an inefficient job market structure and overall governmental mismanagement. Trump warned of the looming ‘very massive recession’ up ahead as the overpriced stock market, combined with a significant share of workforce not involved in productive activity, bears hazards of a financial bubble worse than the 2008 meltdown.

The real estate mogul, representing America’s businesses involved in the non-financial sector of the US economy, claimed “it’s a terrible time right now” in his 96 minute-long interview with Washington Post’s Robert Costa and Bob Woodward, the latter known as the reporter who broke Watergate, spurring President Richard Milhous Nixon’s downfall.

“I think we’re sitting on an economic bubble. A financial bubble,” Trump said.

Indeed, the US real sector is on the brink of underinvestment as lion’s share of privately-owned capital funds have been withdrawn in favor of stocks and bond market over the course of the past four years. The US government has been steadily increasing their investment in non-financial sector during the same period, providing a very moderate acceleration of the US economy to an annualized 2.2% in 2015. Yet, the acceleration came at a price: while growth is still below historic average of 3.3%, the abundance of government-provided fixed investment, poorly managed more often than not, effectively pushed private incentive into the financial sector.

Ireland manufacturer’s report best growth in 8 months

Ireland is now one of the fastest growing economies in the world, and as you’d expect it reported a solid manufacturing PMI for March.

The purchasing manager’s index for Ireland compiled by Investec and Markit Economics rose in March to 54.9, from 52.9 in February. A reading above 50 signals expansion, and this is the highest rate of growth since last July.

GDP expanded by a staggering 9.2 per cent in the last three months of 2015, putting the former Celtic Tiger ahead of ahead of India and China.

Economists say growth is being driven by capital investment as well as the country’s huge multinational sector, with many US pharmaceuticals, healthcare and technology companies choosing to base their European operations there.

Bank of China: Chinese economy at ‘critical juncture’

Bank of China, one of the country’s four major commercial lenders, has reported slightly better than expected profits for 2015 despite a volatile year and concerns over a deeper than expected slowdown in growth in the world’s second biggest economy.

But the bank has cut its dividend, proposing a pay-out of Rmb0.175 per share for 2015 compared to Rmb0.19 in 2014 as its chairman warned that the global economy is currently going through the “longest and most sluggish recovery since the Great
Depression of the 20th century” while he warned that China’s economy is at a “critical juncture”.

Net profit edged up just 0.74 per cent to Rmb170.8bn ($26.4bn) last year but this was better than the Rmb168.9bn result expected by analysts polled by Bloomberg. The ratio of bad – or non-performing loans – to the lender’s total loan booked edged up last year to 1.43 per cent from 1.18 per cent previously but the bank said it made special efforts to keep asset quality under control last year. It said:

Thanks to a united effort across the Bank, asset quality was kept under control and the ratio of allowance for loan impairment losses to NPLs and the ratio of allowance for loan impairment losses to total loans were above regulatory targets.

Economist reactions to Yellen’s speech

The market is selling the US dollar, what are economists saying

Goldman Sachs:

Fed Chair Janet Yellen emphasized downside risks to the US economic outlook stemming from slower global growth in a dovish speech at the Economic Club of New York. Yellen highlighted the weaker global growth environment coupled with the FOMC’s “asymmetric” capacity to respond to economic shocks as the key reason for the Committee’s lower path for the funds rate in March. On inflation, Yellen acknowledged that that core inflation had risen “somewhat more” than she expected in December, but said it is “too early to tell if this recent faster pace will prove durable” and expressed concern about downside risks arising from lower inflation expectations

Mohammed El-Erian:

Her remarks and their context could be taken to suggest that, for reasons beyond its control, the Fed is increasingly held hostage by three forces that could threaten its own credibility and political autonomy: 1) Politicians who repeatedly fail to take advantage of the time the Fed buys for them 2) An international economy that is losing its growth traction 3) Financial markets that feel empowered and enabled to force the Fed’s hand


Yellen’s bottom line “is that the Fed is going to go very, slow and cautiously in normalization, but we already knew that. Yellen stressed both the importance of flexibility in the conduct of policy and the FOMC willingness to continue to implement an asymmetric pro-growth policy even during the normalization process.” Jefferies says she created impression that she has no faith in Fed’s baseline estimates.

This Week :Watch For US Jobs Report ,Chinese-Japanese Industrial Production

The global economy will take centre stage this week as investors seek fresh direction following a spell in which the rush back into riskier assets has faltered. The US S&P 500 posted its first weekly decline in six last week, while the pan-European Euro Stoxx 600 logged a second-straight weekly decline. The tepid performance follows a sharp rally that began in mid-February

US jobs report, Janet Yellen speech

On the US front, the key release of the week will be the monthly jobs report. The labour market has remained robust despite strains in the manufacturing sector and a retrenching energy industry.

Economists expect the world’s most important economy to have added on 207,000 jobs this month, down from the 242,000 in February. Meanwhile, hourly wages may rebound with 0.3 per cent growth after a decline of 0.1 per cent the month prior.

A robust report may give the Federal Reserve more ammunition to consider rate rises this year after reducing its estimate last week to just two quarter-point increases from a December forecast of four.

Fed head Janet Yellen will also a deliver a speech in New York on Tuesday that is likely to garner significant interest as investors try to make sense of the central bank’s rate-rise plans.

China manufacturing, Japanese industrial production