With China’s gross domestic product widely pegged to maintain growth of 6.8 per cent in the first quarter of 2017, some official economists and state-backed think tanks are already predicting growth will slow markedly in the second quarter.
Zhang Baoliang, a researcher at the economic forecasting department of the State Information Center, was cited by the state-run Securities Times on Monday as predicting growth could slow in Q2 in the face of low external demand, a rising tide of “de-globalisation” and protectionism, uncertain policy outlook from the US, persistent economic imbalances in China and likely reduction in domestic sales of automobiles and housing.
The paper cited Mr Zhang and a number of other economists as predicting growth of 6.8 per cent in the first quarter.
But it also pointed to a forecast from the Institute of Finance and Economics at the influential Academy of Social Sciences that foresaw growth of slowing to 6.7 per cent in the first half of 2017, and which described full-year growth of 6.5 per cent as “no problem”.
More bluntly, Peking University’s Economic Policy Research Group has forecast GDP growth gradually slowing to 6.5 per cent over the next three quarters, bringing the annual rate to around 6.6 per cent.
At present a median estimate from economists compiled by Bloomberg predicts GDP growth for the first quarter will come in at 6.8 per cent year on year, with 16 of the 36 economists surveyed forecasting exactly that rate.
Wall Street claims surge in stocks is based on rising corporate earnings.
So, let’s see. The Commerce Department’s Bureau of Economic Analysis released its third estimate of fourth quarter 2016 GDP and corporate profits today. This second revision of its first estimate of January 27 contains more data and is considered a more accurate approximation of what happened in the vast, devilishly hard-to-quantify US economy.
In terms of GDP, the fourth quarter was revised up slightly, but there were adjustments for prior quarters, and overall GDP growth for the year 2016 remained at a miserably low 1.6%. We’ve come to call this the “stall speed.” It’s difficult for the US economy to stay aloft at this slow speed. As Q4 gutted any hopes for a strong finish, GDP growth in 2016 matched the worst year since the Great Recession.
And corporate profits, despite a stock market that has been surging for years, are even worse. A lot worse. They’ve declined for years. In fact, they declined for years during the prior two stock market bubbles, the dotcom bubble and the pre-Financial-Crisis bubble. Both ended in crashes.
However, Wall Street remains assiduously silent on this.
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.
While it may not be the very definition of irony, we do find the fact that the Atlanta Fed has just cut its Q1 GDP forecast from 1.2% to 0.9%, a number which if confirmed would be the lowest quarterly print in year, just two hours before the Fed’s rate hike quite humorous. As a reminder, the number was as high as 3.4% one and a half months ago.
The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2017 is 0.9 percent on March 15, down from 1.2 percent on March 8. The GDP growth forecast declined 0.3 percentage points on Friday when the February estimate of the model’s latent dynamic factor used to forecast yet-to-be released GDP source data declined after the employment situation release from the U.S. Bureau of Labor Statistics (BLS). The forecast for first-quarter real consumer spending growth inched down from 1.6 percent to 1.5 percent after this morning’s retail sales report from the U.S. Census Bureau and the Consumer Price Index release from the BLS.
Rating and research agency CRISIL said the upside to corporateprofitability will be limited in 2017-18 after the 100 basis point (bp) improvement it expects this financial year (FY17). It expects a gradual recovery in top line growth for India Inc, according to its India Outlook, Fiscal 2018 report released on Thursday.
With an estimated eight per cent growth in FY18 sales, Corporate India will miss the double-digit revenue growth mark once again. Therating agency said “single-digit revenue growth seems to be the new normal”. However, this would be the highest growth clocked by the 1,200 companies in its universe after FY2014.
CRISIL doesn’t rule out the possibility of operating profit margins taking a knock because of increasing commodity prices.
The sectors that are expected to see a deterioration in the EBITDA margin are airline services, FMCG and tyres, with the fall pegged at about 100 bp each, even as the three sectors will see an acceleration in revenue growth to the tune of 400-900 bp. EBITDA is earnings before interest, tax, depreciation and amortisation.
Barring a few sectors, majority of them including the likes of organised retail, pharmaceuticals, IT services, auto and auto components, capital goods, cement and construction will see moderate increase in EBIDTA margin to the extent 0-50 bp. The ones where the margin is expected to rise the most include telecom services, aluminium and oil & gas, with improvement pegged at around 100 bp each, while power sector too should see margin rise by about 60 bp.
Bill Gross, the bond manager, on Thursday renewed his warning that high levels of debt across the world pose a rising risk of derailing the global economic expansion.
The portfolio manager at Janus Capital said that “our highly levered financial system is like a truckload of nitro glycerin on a bumpy road”.
Mr Gross noted that the world economy has generated more debt relative to gross domestic product than it did ahead of the 2008 financial crisis. Credit across the US economy of $65tn equates to 350 per cent of GDP, while China’s leverage ratio has doubled over the past decade to nearly 300 per cent, he noted.
The so-called ‘bond king’ said that while the world economy and financial market continue to chug along — with global equity prices near all-time highs — sudden changes in interest rates could spark a damaging shock.
“If rates are too high (and credit as a per cent of GDP too high as well), then potential Lehman black swans can occur,” he said.
“On the other hand, if rates are too low (and credit as a per cent of GDP declines), then the system breaks down, as savers, pension funds and insurance companies become unable to earn a rate of return high enough to match and service their liabilities.”
In a recent report, experts of the Amsterdam-based Transnational Institute think-tank revealed that in 2008-2015, European Union member states spent €747 billion ($792 billion) on different bailout packages for banks.
Moreover, as for October 2016, some €213 billion ($226 billion) of taxpayers’ money — “equivalent to the GDP of Finland and Luxembourg” — was lost as a result of such rescue packages.
The authors of the reports also pointed out that the Big Four audit companies (EY, Deloitte, KPMG and PWC) engaged in designing the most important bailout packages were responsible for losses.
“In cases where the bailout consultants gave poor or inaccurate advice on the allocation of state aid there have been few consequences, even when state losses actually increased as a result. Bailout consultants have often been rewarded with new contracts despite their repeated failures,” the report read.
“The firms responsible for assuring investors and regulators that EU banks were stable, the Big Four audit firms, maintain their market dominance despite grave failures in their assessment of the EU banking sector’s lending risks,” it added.Read More
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.
Asia will need $26 trillion of infrastructure investment in the 15 years from 2016 to 2030, said a report published on Tuesday by the Asian Development Bank.
According to the report, titled Meeting Asia’s Infrastructure Needs, the region needs electricity supply chains to deliver power to the 400 million people who still live without electricity.
Infrastructure investment in Asia currently meets only about half the demand. Aid from development agencies, such as the ADB, remains a mere 2.5% of total investment. The report calls on regional economies to provide financing through fiscal measures and to make use of private-sector money.
The report covered 45 countries and territories including China and India. To sustain the current level of economic growth, Asia needs $26 trillion over the 15-year period.
In the previous report, released in 2009, the ADB estimated that Asia would need $8 trillion of infrastructure investment between 2010 and 2020.