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%.
Economy of the United States
The U.S. economy grew faster than initially thought in the third quarter, notching its best performance in two years, buoyed by strong consumer spending and a surge in soybean exports.
Gross domestic product increased at a 3.2 percent annual rate instead of the previously reported 2.9 percent pace, the Commerce Department said in its second GDP estimate. Growth was the strongest since the third quarter of 2014 and followed the second quarter`s anemic 1.4 percent pace.
Economists polled by Reuters had expected that third-quarter GDP growth would be revised up to a 3.0 percent rate.
Total industrial production in the US was unchanged in October, according to the Federal Reserve Board. This comes after a decline of 0.2% in September, which was revised lower from +0.1%. The unchanged reading was worse than the 0.2% analysts were looking for, according to a Thomson Reuters survey. Total industrial production is 0.9% lower than its level a year-ago.
The manufacturing sector experienced a 0.2% climb in output in October. Utilities fell 2.6%, while mining gained 2.1%, the largest increase since March 2014. On a year-over-year basis, mining is still down 7%, while manufacturing is off by 0.2%, and a 0.1% decline in utilities has been experienced over that time.
Capacity utilization for the industrial sector edged lower to 75.3% in October from 75.4% in September and was below the 75.5% analyst were looking for. On a year-over-year basis, capacity utilization has risen 0.3%. Manufacturing is up 0.7% from a year ago, while the mining sector is down 3.2%, and the utilities sector has posted a gain of 0.7%.
The U.S. trade deficit jumped almost 18% in October as imports rose to the highest level in 14 months. The nation`s trade gap climbed to a four-month high of $42.6 billion from a revised $36.2 billion in September, the government said. That was in line with Wall Street`s forecast. The size of the trade deficit from August to October averaged $39.8 billion a month, smaller than the $42.4 billion gap in the same three-month period in 2015.
October imports increased 1.3% to $229 billion, marking the highest level since August 2015. The U.S. imported more drugs, computer accessories, cell phones and other consumer goods. Exports, meanwhile, slipped 1.8% to $186.4 billion in October. That`s the smallest amount in three months.
U.S. consumer prices recorded their biggest increase in six months in October on rising gasoline costs and rents, suggesting a pickup in inflation that potentially clears the way for the Federal Reserve to raise interest rates in December.
The Labor Department said its Consumer Price Index increased 0.4 percent in October after rising 0.3 percent in September. In the 12 months through October, the CPI advanced 1.6 percent, the biggest year-on-year increase since October 2014. The CPI increased 1.5 percent in the year to September.
October`s increase in both the monthly and year-on-year CPI was in line with economists` expectations.
Underlying inflation, however, remained moderate. The so-called core CPI, which strips out food and energy costs, climbed 0.1 percent in October after a similar gain in September. That slowed the year-on-year increase in the core CPI to 2.1 percent from a 2.2 percent rise in September.
The U.S. unemployment rate fell to a nine-year low of 4.6 percent in November, though not for the best reason: Many of the unemployed gave up looking for work.
Employers added a solid 178,000 jobs in November, nearly matching the average monthly gains this year. Those gains point to the steady economic growth that President-elect Donald Trump is poised to inherit.
Average hourly earnings fell 0.1% from the month before, and that reduced the annual increase in wages to 2.5% from 2.8% in October.
Economy of the European Union
Seasonally adjusted GDP rose by 0.3% in the euro area (EA19) and by 0.4% in the EU28 during the third quarter of 2016, compared with the previous quarter, according to a flash estimate published by Eurostat, the statistical office of the European Union. In the second quarter of 2016, GDP also grew by 0.3% and 0.4% respectively.
Compared with the same quarter of the previous year, seasonally adjusted GDP rose by 1.6% in the euro area and by 1.8% in the EU28 in the third quarter of 2016, after +1.6% and +1.8% respectively in the previous quarter.
In September 2016 compared with August 2016, seasonally adjusted industrial production fell by 0.8% in the euro area (EA19) and by 0.7% in the EU28, according to estimates from Eurostat. In August 2016 industrial production rose by 1.8% in the euro area and by 1.6% in the EU28.
In September 2016 compared with September 2015, industrial production increased by 1.2% in both zones.
The first estimate for euro area (EA19) exports of goods to the rest of the world in September 2016 was 176.7 billion, an increase of 2% compared with September 2015 (173.2 bn). Imports from the rest of the world stood at 150.2 bn, a fall of 2% compared with September 2015 (154.0 bn). As a result, the euro area recorded a 26.5 bn surplus in trade in goods with the rest of the world in September 2016, compared with +19.2 bn in September 2015. Intra-euro area trade remained nearly stable at 148.3 bn in September 2016, compared with September 2015. These data are released by Eurostat.
The first estimate for extra-EU28 exports of goods in September 2016 was 147.2 billion, down by 1% compared with September 2015 (148.9 bn). Imports from the rest of the world stood at 146.7 bn, up by 1% compared with September 2015 (145.2 bn). As a result, the EU28 recorded a 0.5 bn surplus in trade in goods with the rest of the world in September 2016, compared with +3.7 bn in September 2015. Intra-EU28 trade remained nearly stable at 271.4 bn in September 2016, compared with September 2015.
Euro area annual inflation is expected to be 0.6% in November 2016, up from 0.5% in October 2016, according to a flash estimate from Eurostat.
Looking at the main components of euro area inflation, services is expected to have the highest annual rate in November (1.1%, stable compared with October), followed by food, alcohol & tobacco (0.7%, compared with 0.4% in October), non-energy industrial goods (0.3%, stable compared with October) and energy (-1.1%, compared with -0.9% in October).
The euro area (EA19) seasonally-adjusted unemployment rate was 9.8% in October 2016, down from 9.9% in September 2016 and from 10.6% in October 2015. This is the lowest rate recorded in the euro area since July 2009. The EU28 unemployment rate was 8.3% in October 2016, down from 8.4% in September 2016 and from 9.1% in October 2015. This is the lowest rate recorded in the EU28 since February 2009. These figures are published by Eurostat.
Eurostat estimates that 20.448 million men and women in the EU28, of whom 15.908 million were in the euro area, were unemployed in October 2016. Compared with September 2016, the number of persons unemployed decreased by 190 000 in the EU28 and by 178 000 in the euro area. Compared with October 2015, unemployment fell by 1.782 million in the EU28 and by 1.124 million in the euro area.
Economy of Japan
Japan`s economic growth handily beat expectations in the July-September period, expanding for a third straight quarter as exports recovered, but weak domestic activity cast doubt on hopes for a sustainable economic recovery. The economy expanded by an annualized 2.2 percent in the third quarter, faster than the 0.9 percent increase markets had expected, following a 0.7 percent increase in April-June, Cabinet Office data showed.
The preliminary reading for GDP translated into a quarterly expansion of 0.5 percent in the third quarter, versus a 0.2 percent gain expected by economists.
Industrial production in Japan rose for a second consecutive month in October, fanning hopes of a gradual recovery in the country`s manufacturing sector. Industrial production rose 0.1% from September, the Ministry of Economy, Trade and Industry said in a preliminary report. A median estimate of economists forecast a decline of 0.1%. Compared to the same period a year ago, output fell 1.3%, official data showed. Shipments rose 2.2% from the previous month, but were down 1.8% year-over-year.
Industrial production was revised sharply higher in September to reflect 0.6% growth. The preliminary estimate just two weeks prior showed no change in the headline reading. The sharp revision reflects the volatile nature of the monthly data series.
Japan posted a current account surplus of 1.82 trillion yen ($17.38 billion) in September, the Ministry of Finance reported. The figure represents the 27th straight month of surplus for the world`s third largest economy and is a rise of 25.4 percent compared to the same month last year.
Japan`s trade balance had a surplus of 642.4 billion yen ($6.12 billion). However, exports shrank by 8.3 percent year-on-year to 5.84 trillion yen and imports fell further by 17.5 percent to 5.19 trillion yen.
Japanese consumer prices fell again in October, but deflationary pressure showed some signs of softening - a positive development for beleaguered central bankers.
The core consumer price index slipped 0.4% from a year earlier in October, adjusted for fresh-food and energy prices, according to data released by the Ministry of Internal Affairs and Communications. The reading marked the eighth consecutive monthly decline, but was smaller than the 0.5% drop in the previous month. Economists polled by the Nikkei had expected the index to fall 0.4%.
Japan`s unemployment rate was unchanged in October, while job availability edged up slightly, pointing to continued strength in the domestic labour market.
The unemployment rate came in at 3% in October, unchanged from the previous month, Tokyo`s Statistics Bureau reported. A median estimate of economists also called for no change. Unemployment has been creeping lower for most of the year and has remained below 3.5% since the first quarter of 2015.
The number of unemployed persons in October 2016 was 1.95 million, a decrease of 130,000 or 6.3% from the previous year. Meanwhile, the number of employed persons in October 2016 was 64.95 million, an increase of 630,000 or 1.0% from the previous year. The labour force participation rate was 60.4%, up 0.5% from last year.
The country`s job availability ratio, which is obtained by dividing monthly job openings by the number of active applications, rose to 1.4 from 1.38. This means 140 job openings were available for every 100 job-seekers.
Economy of Russia
Russian gross domestic product contracted by 0.4 percent in the third quarter in year-on-year terms, the statistics service said, citing preliminary data. That compares with a yearly GDP contraction of 0.6 percent in the second quarter and adds to evidence that the Russian economy is only gradually emerging from a deep slump. It was the smallest contraction in seven quarters. Russia remained stuck in recession, led by low oil prices, and sanctions over Ukraine that closed access to capital markets.
Industrial production in Russia fell 0.2 percent year-on-year in October of 2016 following 0.8 percent drop in the previous month while less than market expectations of 0.4 percent decline. Manufacturing production decreased 0.8 percent (-1.6 percent in September); mining and quarrying increased by a slower 0.8 percent (+2.1 percent in September) and electricity, gas and water went up 1.1 percent (+1.4 percent in September). On a monthly basis, industrial output jumped 5.8 percent.
Russia`s trade surplus decreased to $7.38 billion in September 2016, from a $9.5 billion surplus a year earlier while above market expectations of $6.9 billion. Exports dropped 3 percent, the lowest decline since August 2014. Meanwhile, imports rose for the second consecutive month by 7.9 percent. Considering the first nine months of the year, the trade surplus shrank 46.6 percent to USD 63.1 billion, as exports fell 23.4 percent and imports declined 4 percent.
Increases in the cost of living in Europe`s largest country declined in November as food price inflation slowed, but not by enough to justify another interest rate cut at its central bank`s next policy meeting.
The rate of increase in Russian consumer prices slowed from 6.1% year-on-year in October to 5.8% for November, as food price inflation slipped from 5.7% to 5.2% on the back of a better harvest. Price pressures retreated across the board, with prices for non-food goods easing from growth of 7.0% to 6.7% and those for services from 5.4% to 5.3%. Indeed, the so-called core CPI measure also fell back, from 6.4% to 6.2%.
Russian unemployment rate decreased to 5.4 percent in October of 2016 compared to 5.5 percent a year ago and in line with market expectations. The number of unemployed people decreased by 152 thousand to 4.103 million while the number of economically active decreased by 0.2 million to 76.6 million (52 percent of population). In the previous month, the jobless rate was recorded at 5.2 percent.
06.12.2016 21:00:28