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
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.
With consumption spends in rural and urban India stifled by the acute scarcity of cash, the economy is set to clock sharply lower levels of growth in the current and coming quarters. While the initial days of demonetisation saw economists merely pruning their growth estimates, the cuts could get bigger.
Nomura, for instance, believes there is a downside risk to its Q1 GDP growth projection of 6.9% y-o-y. “Near-term growth may fall much more than expected,” economists at the brokerage wrote. They alluded to proprietary indicators which had slumped to their lowest level since the series started in 1996 and were consistent with a below 6% GDP growth.
While sales have decelerated across markets, given the larger volume of cash transactions, the hinterland has been hurt far more than urban areas.
In addition to its now traditional credit-funded boom-bubble-bust cycle which rotates from asset to asset, and is then promptly recycled courtesy of the nearly $35 trillion in various financial system “assets”, another staple of the “new” Chinese economy are smog alerts following every burst in economic strength driven by “old economy” manufacturing.
That’s what happened overnight, when following months of manufacturing expansion, China’s pollution problem has again caught up, and as a result Beijing’s city government ordered 1,200 factories near the Chinese capital, including a major oil refinery run by state oil giant Sinopec, to shut or cut output on Saturday after authorities issued the highest possible air pollution alert.
Traffic on the city’s roads was lower than usual as residents complied with limits on car use and many of the city’s 22 million residents sat out the haze at home. “I’ll just take a rest and not go outside,” said Wang Jianan, a 23-year-old Beijing resident and teaching assistant. With Christmas just a week away, others resorted to dark humour to help cope with the latest episode of toxic air.
Chinese media reported that at least 388 people have been fined for lighting outdoor barbecues and fires.
“The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2016 is 2.4 percent on November 30, down from 3.6 percent on November 23. The forecast of the combined contributions of real net exports and real inventory investment to fourth-quarter growth fell from 0.61 percentage points to 0.18 percentage points after last Friday’s advance economic indicators report from the U.S. Census Bureau. The forecast of fourth-quarter real consumer spending growth fell from 3.0 percent to 2.2 percent after this morning’s personal income and outlays release from the U.S. Bureau of Economic Analysis.”
India’s GDP (Gross Domestic Product) for the second quarter of FY17 grew at 7.3% versus 7.1% quarter-on-quarter and 7.6% year-on-year. The GDP data comes at a time when there are growing concerns that the demonetisation decision of Modi government may slow down the world’s fastest growing economy in the coming quarters. Fitch Ratings has already lowered India’s GDP growth forecast for this fiscal to 6.9 per cent from 7.4 per cent, saying there will be “temporary disruptions” to economic activity post demonetisation.
It said economic activity will be hit in the October- December quarter because of the cash crunch created by withdrawal and replacement of 500 and 1000 rupee notes that accounted for 86 per cent of the value of currency in circulation. “Indian growth has also been revised down to reflect temporary disruptions to activity related to the RBI’s surprise demonetisation of large-denomination bank notes,” Fitch said, as it revised real GDP growth forecast down to 6.9 per cent for 2016-17, from 7.4 per cent projected earlier
Fitch Ratings today lowered India’s GDP growth forecast for this fiscal to 6.9 per cent from 7.4 per cent, saying there will be “temporary disruptions” to economic activity post demonetisation.
It said economic activity will be hit in the October- December quarter because of the cash crunch created by withdrawal and replacement of 500 and 1000 rupee notes that accounted for 86 per cent of the value of currency in circulation.
“Indian growth has also been revised down to reflect temporary disruptions to activity related to the RBI’s surprise demonetisation of large-denomination bank notes,” Fitch said, as it revised real GDP growth forecast down to 6.9 per cent for 2016-17, from 7.4 per cent projected earlier.
The US-based ratings agency also revised GDP growth forecast for 2017-18 and 2018-19 lower to 7.7 per cent from 8 per cent earlier.
“Gradual implementation of the structural reform agenda is expected to contribute to higher growth, as will higher real disposable income, supported by an almost 24 per cent hike in civil servants’ wages.
“But the anticipated recovery in investment looks a bit less certain in light of ongoing weakness in the data,” Fitch said in its ‘Global Economic Outlook – November’ report.
Standard & Poor’s (S&P) on Wednesday said an upgrade of India’s sovereign rating will need to wait for one to two years mainly due to the country’s “weak public finances”, prompting policymakers here to react strongly against the rating agency’s alleged failure to give due consideration to the reforms being undertaken by the government. S&P’s decision to retain India’s rating at the lowest investment grade (BBB-) with stable outlook followed Moody’s commentary in September suggesting India’s rating upgrade may take at least one to two years.
In July, another global rating agency, Fitch, also retained its India rating at BBB- with stable outlook. The current India ratings of all three global agencies are a just a notch above junk grade.
Urging rating agencies to do some introspection, economic affairs secretary Shaktikanta Das said: “If the rating has not been improved, it’s a matter which doesn’t bother us so much… Global investors feel India is highly under-rated.” He added: “So far as the government is concerned, we have been saying repeatedly that we will continue to adhere to the path of economic reforms.”
With the clutch of reforms undertaken by the Narendra Modi government including the easing of foreign investment regulations and use of the Aadhaar platform for delivery of subsidies and the ones that will be put in place soon (like the goods and services tax and an efficient insolvency regime), the government strongly feels the agencies must consider improving their ratings and outlooks for the country.
For the week starting October 24 and ending October 28th
US GDP (3Q)- Friday October 28th at 8:30 AM ET/1230 GMT. The “advanced” look at the 3Q GDP in the US will be released on Friday, Oct 28th. The expectations are for a gain of 2.5% on an annualized basis. The estimate from the Atlanta Fed is currently at 2%, while the New York Fed expects GDP to currently come out at 2.2%. Both can be revised before next week. Last quarter, the 2Q advanced reading estimate was for a gain of 2.5%. The actual number came in at 1.2% – well below estimates. The GDP numbers do get revised as estimated data in the advanced release are published). The revisions to the 2Q numbers saw GDP revised down to 1.1% and then up to 1.4%. The other thing to note about GDP is it is not a QoQ number but a quarterly number that is annualized. That differs from some other countries that highlight the changes from quarter to quarter.
Australia CPI QoQ. Tuesday October 25 8:30 PM ET/0030 GMT Wednesday. The 3Q CPI is expected to rise by 0.5% while the YoY is forecast to increase by 1.1%.. The Trimmed mean QoQ change is expected to rise by 0.4% with they YoY at 1.7%. The trimmed mean is calculated as the weighted mean of the central 70% of the quarterly price change distribution of all CPI components
Central Bankers speeches. Tuesday October 25th. BOE Governor Mark Carney will ttestify about the economic consequences of the Brexit vote before the House of Lords economic affairs committee. Carney’s testimony is scheduled to begin 10:35 AM ET/1435 GMT. Also on Tuesday at 11:30 AM ET/1530 GMT, ECBs Mario Draghi iis due to speak about stability, equity and monetary policy at the DIW Economic Institute in Berlin. On Monday October 24, BOC Poloz is due to testify before the House of Commons standing committee on finance
UK GDP QoQ. Thursday, October 27th at 4:30 AM ET/0830 GMT. The QoQ Advance GDP estimate for the 3Q will be released with expectations for a gain of 0.3% QoQ and 2.1% YoY.
US Durable Goods orders. October 27th at 8:30 AM ET/1230 GMT. The US durable goods orders for the month of September are expected to rise by 0.1% (last +0.1%). Ex-transportation the expectations are for a 0.2% gain versus -0.2% last month.
There is one simple reason why when the Chinese Q3 GDP print is revealed shortly, it will be an utterly meaningless indicator – the number, as not only traders but the general public know, is a goalseeked, arbitrary political construct meant to convey not information about the economy, but – at best – about Beijing’s intentions what it may or may not do in the future regarding future monetary or fiscal (which as we showed just hit an all time high) stimulus.
In fact, as Evercore ISI said in the company’s latest look at China, “China’s Real GDP data is opaque; Nearly invariant at 7 – 7.5%; No real, nominal, deflator detail; no income-expenditure cross check, etc. No data pros will answer questions.” In short: it is useless. An alternative, and much more informative index created by ISI, is shown by the red line in the chart below – unlike the blue line, or China’s official GDP data, it reflect the real twists and turns in China’s economy.