Global Economy Reviews

09.01.2017 18:54 World Economy Review - December 2016

Economists at HSBC raised their forecast for global growth and inflation over the next two years based on robust manufacturing activity, a resilient China and above all the fiscal boost expected to come in the United States.

It was the first time in nearly five years they have upped their growth and inflation outlooks over a two-year horizon as 2017 gets underway and as investors prepare for U.S. President-elect Donald Trump entering the White House.

The British economy appears to be in ruder health than had been anticipated expected following the country`s decision in June to leave the European Union, while Japan, Germany and Spain are also looking brighter, HSBC said.

The bank now sees the global economy expanding at a 2.5 percent pace this year compared its with 2.3 percent forecast in September, and 2.6 percent next year, up from September`s 2.5 percent.

Global inflation looks set to be 3.0 percent this year and 2.7 percent next year, compared with their previous forecasts of 2.7 percent and 2.5 percent, respectively, the bank said.

"All of the above help explain why we can offer a rare treat: for the first time since early 2012, we are increasing our forecasts for both global growth and inflation for the next two years," the bank`s team of economists led by Janet Henry, chief global economist, said in a note.

"Unfortunately, it is still a world where global growth is likely to hover around the mediocre growth rates of the past few years."

HSBC`s projection for US GDP growth in 2018 saw the sharpest upwards revision, from 2.2% to 2.7%, while growth in the euro area was now pegged at 1.3%, three tenths of a percentage point more than previously anticipated.

Nevertheless, whereas prices in the States were only expected to rise a bit more quickly than before (2.3% versus 2.1% for 2017 and by 2.1% against 2.0% in 2018) in the Eurozone they were seen gaining 1.6% in 2017 and 1.3% in 2018.

Previously the economists had seen the Eurozone`s CPI rising by 1.0% in both years.

Emerging markets were now seen growing 4.1% and 4.5% in each of those years, down from HSBC`s prior projections for growth of 4.3% and 4.6%.

In the case of the Russian Federation, the rate of expansion in 2017 was now pegged at just 1.0%, instead of 1.5%, while in Brazil the economy would only expand by 0.7%, that was four tenths of a percentage point less than HSBC had expected in September.

The uncertainties facing the UK in its Brexit negotiations and the medium-term outlook for growth were described as "huge". Despite that, the UK now saw GDP expanding at a 1.2% clip in 2017, up from 0.7% before, while consumer prices would advance a tad less rapidly, by 2.8% instead of the 2.9% previously anticipated. For 2018 on the other hand, HSBC cut its projection for Britain`s GDP from 1.6% to 1.3%.

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06.12.2016 21:00 World Economy Review - November 2016

The Organization for Economic Cooperation and Development on Monday upgraded its global economic outlook for 2017, as growth will be supported by fiscal stimulus despite weak trade and investment.

Although uncertainty remains about the US economy following the election of Republican Donald Trump and over Britain`s exit from the European Union, the OECD raised its growth forecasts for major economies. Still, it warned of rising protectionism that could weigh on economic growth.

The OECD now expects the global economy to expand 3.3% next year, up from a 3.2% growth forecast in September. In 2018, the world`s economy is projected to grow 3.6% in 2018, the body said in its report.

The Paris-based organization said fiscal stimulus and progress on trade policy will help the global economy out of its "low-growth trap".

But it added that "worsening protectionism and the threat of trade retaliation could offset much of the fiscal initiatives` impact on domestic and global growth, leaving countries with a poorer fiscal position as well."

Japan`s economy is expected to grow 1%, the OECD said, upgrading the outlook from 0.7%. The world`s third-largest economy is expected to register 0.8% growth in 2018.

The OECD said the Bank of Japan should keep its monetary easing policy until inflation is stable above 2%. It added that the implementation of a "more detailed and credible consolidation plan, including a path of gradual increases in the consumption tax rate, is essential" to sustain confidence in Japan`s public finances.

The US economy is expected to benefit from Trump`s "expansionary" fiscal stance. The OECD projects a 2.3% expansion in gross domestic product, larger than its previous estimate of 2.1% for 2017. The economy is expected to grow 3% in 2018.

"The new administration will begin implementing its policy priorities next year and in this context the fiscal stance is projected to become more expansionary as public spending and investment rise, while taxes are cut," the report said. "This will provide a boost to the economy, particularly in 2018."

The Eurozone economy is expected to grow 1.6% in 2017, up from 1.4%, before expanding 1.7% in 2018. The outlook for the British economy was revised to 1.2% growth from 1% as the OECD expects a 1% expansion in 2018.

"The unpredictability of the exit process from the European Union is a major downside risk for the economy," the report said. "Improved prospects of an orderly exit from the European Union while retaining strong trade linkages with the bloc would support near-term growth more than projected."

The organization lifted its projection for the Chinese economy to 6.4% from 6.2%.

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07.11.2016 15:33 World Economy Review - October 2016

The five-member bloc saw a 5.8 per cent growth in containerized trade with the world in the first half of 2016 on the back of a strong showing by India, says Maersk Line, the world`s largest container shipping company.

"BRICS export-import containerized trade with the world registered a growth of 5.8 per cent in the first half of 2016 as against de-growth of 2.2 per cent in the same period last year," it said.

This growth for BRICS, it said, was "led by India followed by China and is forecast to gain pace next year as Brazil and Russia are expected to emerge from recession, contributing to higher GDP expansion".

Volumes should improve as GDP for BRICS is expected to increase to 5.7 per cent in 2017, an improvement over the previous forecast of 5.3 per cent.

"China is expected to grow more than 6 per cent in 2017, India at 8 per cent, Brazil at more than 0.5 pr cent and Russia at above 1 per cent," it said in a release here.

Economic uncertainty has been a deterrent to investments in infrastructure, which is critically important to help countries lower their supply chain cost and consequently boost exports as well as improve competitiveness.

According to Maersk Line, if a country is able to lower trade costs by 10 per cent, exports can increase by more than 20 per cent.

The heads of BRICS countries are meeting in Goa this weekend to discuss improving collaboration and increasing trade.

While 2016 did not start positively for the world, India paced up in the first half of this year. This growth was on the back of a strong US economy and recovery in the European market.

"That said, it is worth mentioning that trade among BRICS countries continues to grow although China remains BRICS` as well as India`s largest trading partner responsible for 82 per cent of Indian containerized trade." Franck Dedenis, MD, India, Sri Lanka & Bangladesh Cluster, Maersk Line, said: "India export-import trade with BRICS nations has been consistently growing at 4 per cent since 2012." He further said recovery in Brazil and Russian economy is "good news" for BRICS and it might entail an increase of trade among India and China in 2017.

"We are also noticing some interesting trends that are beginning to emerge of late. Rise of India, Thailand and Vietnam as alternative sourcing markets to China can put some pressure on China in future," he said.

China, Maersk said, remains India`s strongest trading partner followed by Russia and Brazil. India`s export-import trade with BRICS nations was strong at 6.5 per cent and 7.8 per cent, respectively, in 2015 and 2016.

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06.10.2016 14:53 World Economy Review - September 2016

The global economic recovery remains "weak and precarious", the International Monetary Fund has warned. In its latest World Economic Outlook, the IMF predicts "subpar" growth this year of 3.1%, rising slightly in 2017. "Taken as a whole, the world economy has moved sideways," said IMF chief economist Maurice Obstfeld.

The IMF also warned that the Brexit decision will hit the UK economy as it halved its 2017 growth forecast to just 1.1%. The Fund raised its 2016 forecast slightly as UK retail spending has held up better than expected after the June vote to leave the European Union.

A fall in US growth this year to 1.6%, down from the previous 2.2% forecast, will be offset by increases in countries including Japan, Germany and Russia and India. The indifferent economic recovery after the global financial crisis has been a persistent theme in the Fund`s regular World Economic Outlook reports.

The latest report warns of the danger of a pattern of underperformance becoming entrenched. Weak growth can lead to lower investment, slower productivity growth and the erosion of what the IMF calls "human capital" - which means skills and expertise.

The UK referendum result highlights wider trends in developed economies, the IMF says. "The Brexit vote and the ongoing US presidential election campaign have highlighted a fraying consensus about the benefits of cross-border economic integration," the report says.

The US reference is about the hostility to international trade agreements such as NAFTA, which involves the US, Canada and Mexico,) voiced in the election campaign. The Republican candidate Donald Trump has been the most vocal, though not the only voice expressing such views.

It is a political trend that has the IMF worried. It argues that an environment hostile to trade would make it harder for commodity exporters and poorer countries to develop new lines of exports. Such a trend would also undermine productivity growth and the spread of knowledge and technology.

Mr Obstfeld says: "It is vitally important to defend the prospects for increasing trade integration. Turning back the clock on trade can only deepen and prolong the world economy`s current doldrums."

In one important area - China - the IMF`s concerns have eased somewhat in the short term. Growth has been stable, allaying fears that China`s widely reported economic slowdown would be much more abrupt than it has been. However, there is a warning about the country`s longer-term prospects and the debt burden faced by many businesses.

"A still-rising credit-to-GDP ratio and lack of decisive progress in addressing corporate debt and governance concerns in state-owned enterprises raise the risk of a disruptive adjustment," the IMF says. That could have important international implications especially for commodity and machinery exporters, for which China is a vital market.

On the UK`s vote to leave the European Union, the IMF says the financial market reaction was "reassuringly orderly" and it has therefore edged up its forecast for growth in the UK this year. But it says the ultimate impact remains very unclear and the IMF predicts a marked slowdown in growth next year for Britain - but not a contraction.

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06.09.2016 13:44 World Economy Review - August 2016

The amount of goods traded globally fell sharply in the second quarter after a flat performance in the first few months of 2016, highlighting a major challenge for leaders around the world grappling with soft growth.

The volume of merchandise traded globally dropped by 0.8% from April to June following no change in the first quarter, according to the CPB World Trade Monitor produced by the Netherlands.

Weaker trade patterns reflect fresh economic struggles in various countries and less demand among consumers, the main drivers of growth. Import volume fell the most in the Euro area (-1.8%) in the runup to the Brexit vote. Imports to Japan also dropped 1.3% and they declined 0.6% in the U.S.

Export volume fell 0.7% overall, but the poor performance was not universal. Exports rose 0.4% in the U.S. after declining in the prior two quarters. Export volume also climbed 1% in Japan, with the Eurozone the major laggard.

There are some signs world trade has partly rebounded in the third quarter, but 2016 is shaping up to be a difficult year. The IMF, World Bank and OECD, the three most influential global economic organizations, have all recently cut global growth forecasts for 2016 in part because of a soured trade outlook.

The strong dollar has weighed heavily on U.S. trade and China is not growing as fast, two major sources of the slowdown in world trading volume. Lower commodity prices have also hurt developing nations, giving them less money to spend on imports.

Another complication: growing resistance in the U.S., Britain and elsewhere against free trade.

The Federal Reserve, meanwhile, has held off raising U.S. interest rates partly because of worries about the global economy. The U.S. economy appears to have gained momentum lately, however, and central bankers are expected to signal again this week that higher interest rates are on the way.

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