World Economy Review - April 2018
The International Monetary Fund`s forecast of an accelerating global growth is too optimistic, according to Qatar National Bank. QNB expects a slowdown in the global economy to 3.6% in 2018.
In its latest World Economic Outlook, the IMF forecast an acceleration in global growth for 2018 to 3.9% from 3.8% in 2017. IMF has historically held a bias for optimistic growth forecasts, The Peninsula quoted the QNB report as saying.
The IMF has repeatedly revised down its forecasts with each release of the WEO until very recently.
We regard the IMF forecasts as too optimistic and expect a slowdown in the global economy to 3.6% in 2018. QNB Economics has therefore developed its own forecasts and we lay out below the four main reasons we expect the global economy to slow in 2018, QNB noted in its weekly economic commentary.
Listing out the reasons for a possible global slowdown, QNB analysts said: First, recent economic data suggests that the global economy has already begun to slow. The latest global Purchasing Managers Index survey, released at the beginning of April, was the weakest in 16 months.
While the reading of 53.3 is still in expansion territory (above 50), it is below the average reading in 2017 of 53.8. Additionally, recent indicators of growth in the world`s largest economy, the US also suggest a slowdown.
The Atlanta Fed produces an estimate of GDP in the US, based on the latest data, which points to growth of 2% in the first quarter of 2018, down from 2.9% in Q4 2017 and 2.3% for 2017 as whole.
Second, the Chinese economy is expected to slow in 2018 due to continued policy tightening. The authorities aim to cool the property market, reign in leverage in the shadow banking sector, and further cut capacity in old industries. Q1 GDP was steady compared to the previous quarter at 6.8%, but marginally down from full-year 2017 growth of 6.9%.
Additionally, slower credit growth points to further cooling of the economy during the remainder of 2018. Credit growth slowed to 10.5% year on year in March 2018, down from a recent peak of 13.2% in July 2017.
China is the largest contributor to global growth and a slowdown in China is also likely to have knock-on effects in a number of other economies, particularly in Asia.
Third, global monetary policy is likely to become less accommodative in 2018. The Fed is expected to press ahead with planned rate hikes and the European Central Bank has halved monthly asset purchases since 1st January and is expected to wind down the program further from September.
Both the Bank of Japan and Bank of England are also expected to tighten policy. As a result, global financial conditions are likely to tighten and long-term bond yields are rising, which is likely to restrain growth.
Fourth, higher oil prices could also be a drag on growth as they reduce the disposable income of consumers in oil importing countries. Low oil prices during 2014-16 were not fully passed on to the consumer as a number of countries took the opportunity to cut subsidies.
However, since oil prices have started rising, subsidies have not been reinstated, so the cost of higher prices is likely to be more fully passed on to consumers. Oil prices averaged $55/barrel in 2017 and we expect them to average $63 in 2018 for the full year.
As a result, rising oil prices pose another headwind for global growth in 2018. The main positive driver of global growth this year is likely to be fiscal stimulus in the US, which introduced a number of tax reforms, including a reduction in the corporate tax rate from 35% to 21%.
The IMF stated in its latest WEO that it expects the US fiscal stimulus to add around 0.1 percentage points to global GDP growth in 2018. The various drags on growth that we have outlined above will more than offset the boost to growth from the US fiscal stimulus.
The expected slowdown in China alone is sufficient to subtract around 0.1 percentage points from global growth, before the knock-on effects on other economies are taken into consideration.
Economy of the United States
The U.S. expanded at a 2.3% annual pace in the first three months of 2018, somewhat slower than in the prior three quarters but a better performance than expected. Economists polled by MarketWatch had forecast a 2% increase in gross domestic product.
Consumer spending, the main engine of growth, rose just 1.1% after a 4% gain the fourth quarter that was the biggest in three years. Yet businesses picked up the slack. Investment in structures doubled to 12.3% and spending on equipment was up 6.1%. Residential investment was flat.
The value of inventories, which adds to GDP, increased to $33.1 billion from $15.6 billion. Exports rose 4.8% and imports rose a slower 2.6%. A smaller trade deficit adds to GDP. Inflation as measured by the PCE price index rose at a 2.7% annual rate in the first quarter. The year over year rate of Inflation edged up to 1.8% from 1.7%.
U.S. industrial production rose 0.5 percent in March as a rebound in utilities from the prior month`s weather-related decline offset sluggish output of machinery and food products. The U.S. Federal Reserve`s measure of the industrial sector comprises manufacturing, mining, and electric and gas utilities.
Economists polled by Reuters had forecast a 0.4 percent rise in industrial production. Output for February was revised upward to an increase of 1.0 percent from the previous 0.9 percent gain.
The nation`s factories produced only 0.1 percent more in March than in February, with output falling for goods not designed to be long-lasting like food products and textiles. Production rose 0.4 percent for long-lasting goods, although machinery output slipped 0.4 percent. The utilities index jumped 3 percent during the month, bouncing back from a 5.0 percent fall in February which was driven by warmer-than-normal temperatures.
In the 12 months through March overall industrial output rose 4.3 percent. The percentage of industrial capacity in use rose 0.3 percentage point in March to 78.0 percent, the highest level in three years.
The U.S. trade deficit narrowed sharply in March as exports increased to a record high amid a surge in deliveries of commercial aircraft and soybeans, bolstering the economy`s outlook heading into the second quarter.
The Commerce Department said the trade deficit tumbled 15.2 percent to a six-month low of $49.0 billion in March. The trade gap widened to $57.7 billion in February, which was the highest level since October 2008.
March`s decline ended six straight monthly increases in the trade deficit. The politically sensitive goods trade gap with China dropped 11.6 percent to $25.9 billion, which will probably do little to ease tensions between the United States and China.
In March, exports of goods and services increased 2.0 percent to an all-time high of $208.5 billion, lifted by a $1.9 billion increase in shipments of commercial aircraft. There were also increases in exports of soybeans, corn and crude oil. Real goods exports were the highest on record. Exports to China jumped 26.3 percent in March.
Imports of goods and services fell 1.8 percent to $257.5 billion, in part as the boost from royalties and broadcast license fees related to the Winter Olympics faded. There were decreases in imports of capital, consumer goods and crude oil. Imports from China fell 2.1 percent in March.
U.S. consumer prices rose 2.4 percent in March from a year earlier, the fastest annual pace in 12 months. The Labor Department said that on a monthly basis, the consumer price index declined 0.1 percent in March. The index`s yearly gain, however, suggests that inflation pressures may be picking up.
Excluding the volatile food and energy categories, core prices ticked up 0.2 percent in March and 2.1 percent from a year ago. That was the biggest annual increase for core prices since February 2017.
The U.S. economy added 164,000 jobs in April, and the unemployment rate fell to 3.9 percent - the lowest point since 2000, federal economists reported. The average hourly wage rose by 2.6 percent year-over-year, maintaining a slow pace of growth, according to the Bureau of Labor Statistics.
For the past six months, the jobless rate had clung to 4.1 percent, the longest it had gone without budging since the late 1960s. (The record to beat: nine months.) The streak defied the expectations of economists, who said the nation`s prolonged hiring blitz was bound to drive the figure down.
Economy of the European Union
Seasonally adjusted GDP rose by 0.4% in both the euro area (EA19) and in the EU28 during the first quarter of 2018, compared with the previous quarter, according to a preliminary flash estimate published by Eurostat, the statistical office of the European Union. In the fourth quarter of 2017, GDP had grown by 0.7% in the euro area and by 0.6% in the EU28.
Compared with the same quarter of the previous year, seasonally adjusted GDP rose by 2.5% in the euro area and by 2.4% in the EU28 in the first quarter of 2018, after +2.8% and +2.7% respectively in the previous quarter.
In February 2018 compared with January 2018, 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 January 2018, industrial production fell by 0.6% in the euro area and by 0.3% in the EU28.
In February 2018 compared with February 2017, industrial production increased by 2.9% in the euro area and by 3.1% in the EU28.
The first estimate for euro area (EA19) exports of goods to the rest of the world in February 2018 was 177.5 billion, an increase of 3.0% compared with February 2017 (172.3 bn). Imports from the rest of the world stood at 158.6 bn, a rise of 1.5% compared with February 2017 (156.2 bn). As a result, the euro area recorded a 18.9 bn surplus in trade in goods with the rest of the world in February 2018, compared with +16.1 bn in February 2017. Intra-euro area trade rose to 153.7 bn in February 2018, up by 3.9% compared with February 2017.
The first estimate for extra-EU28 exports of goods in February 2018 was 149.2 billion, up by 1.7% compared with February 2017 (146.7 bn). Imports from the rest of the world stood at 145.9 bn, down by 0.4% compared with February 2017 (146.5 bn). As a result, the EU28 recorded a 3.3 bn surplus in trade in goods with the rest of the world in February 2018, compared with +0.2 bn in February 2017. Intra-EU28 trade rose to 277.4 bn in February 2018, +3.5% compared with February 2017.
Euro area annual inflation is expected to be 1.2% in April 2018, down from 1.3% in March 2018, according to a flash estimate from Eurostat.
Looking at the main components of euro area inflation, energy (2.5%, compared with 2.0% in March) and food, alcohol & tobacco (2.5%, compared with 2.1% in March) are expected to have the highest annual rate in April, followed by services (1.0%, compared with 1.5% in March) and non-energy industrial goods (0.3%, compared with 0.2% in March).
The euro area (EA19) seasonally-adjusted unemployment rate was 8.5% in March 2018, stable compared with February 2018 and down from 9.4% in March 2017. This is the lowest rate recorded in the euro area since December 2008. The EU28 unemployment rate was 7.1% in March 2018, stable compared with February 2018 and down from 7.9% in March 2017. This is the lowest rate recorded in the EU28 since September 2008. These figures are published by Eurostat.
Eurostat estimates that 17.481 million men and women in the EU28, of whom 13.824 million in the euro area, were unemployed in March 2018. Compared with February 2018, the number of persons unemployed decreased by 94 000 in the EU28 and by 83 000 in the euro area. Compared with March 2017, unemployment fell by 1.930 million in the EU28 and by 1.414 million in the euro area.
Economy of Japan
Japan`s real gross domestic product tumbled 1.5% on the month in February amid a decline in exports, mainly to China, the Japan Center for Economic Research said.
Industrial output in Japan gained 1.2 percent on month in March, the Ministry of Economy, Trade and Industry said. That topped forecasts for an increase of 0.5 percent following the 2.0 percent gain in February.
On a yearly basis, industrial production jumped 2.2 percent - exceeding forecasts for 2.0 percent and up from 1.6 percent in the previous month. Upon the release of the data, the METI maintained its assessment of industrial production, saying that it is picking up slowly.
Manufacturers surveyed by the Ministry of Economy, Trade and Industry expected output to rise 3.1 percent in April but fall 1.6 percent in May.
Japan`s trade balance remained in surplus in March, but the increase in exports was less than expected, with sales to the United States and the European Union nearly flat.
The value of exports increased 2.1 percent in March from a year earlier (forecast 5.2 percent). Imports fell 0.6 percent (forecast 6.3 percent), led by an almost 17-percent slump in shipments from China.
The trade balance was a surplus of ¥797.3 billion ($7.4 billion) versus the forecast ¥499.2 billion. The unexpectedly weak growth in exports suggests that, while the global economy is growing, concerns about a brewing trade war may be hurting sentiment.
Japan`s consumer prices edged up 1.1 percent in March, government data showed, but inflation was slightly weaker than the previous month (1.5 percent) and still far below a longstanding target.
Japan has notched up eight straight quarters of economic growth - the longest positive run since the "bubble" boom days of the late 1980s. But it has struggled to achieve the 2.0 per cent inflation rate thought crucial to boosting the world`s third-largest economy.
Government data showed the core inflation rate, which excludes volatile fresh food prices, stood at 0.9 per cent in March, down from 1.0 percent in the previous month.
Japan`s unemployment rate in March was flat at 2.5 percent, near the lowest level in 25 years, as labor market conditions remained tight, government data showed.
As companies continued to step up efforts to secure workers amid a strengthening economy, job availability rose for the first time in three months to 1.59, up from 1.58 in February, the Ministry of Health, Labor and Welfare said. The ratio means there were 159 job openings for every 100 workers.
The jobless rate for men rose 0.1 percentage point to 2.7 percent while female unemployment remained flat at 2.3 percent. The number of unemployed people increased a seasonally adjusted 2.4 percent from February, or 40,000, to 1.73 million, the labor ministry data showed. Japan had 66.94 million workers, up 0.7 percent from the previous month.
Economy of Russia
Russian gross domestic product (GDP) growth is seen at 1.3 percent year-on-year in February, the economy ministry said. The ministry also revised its estimate for January GDP growth to 1.7 percent year-on-year, versus a previous estimate of 1.9 percent.
Russia`s industrial output increased by 1 percent year-on-year in March 2018, easing from a 1.5 percent growth in the previous month and missing market expectations of 1.3 percent. Manufacturing production fell 0.2 percent, after a 1.9 percent increase in February, and distribution of water, sewage shrank 1.7 percent, following a 1.4 percent rise. Meanwhile, output growth picked up for both extraction of raw materials (1.4 percent vs 0.3 percent), and distribution of electricity, gas (7.8 percent vs 1.8 percent). On a monthly basis, industrial output jumped 12.1 percent.
Russia`s trade surplus widened by 17.9 percent to USD 12.19 billion in February 2018 from USD 10.34 billion in the same month a year earlier, but below market expectations of USD 14.0 billion. Exports jumped 20.8 percent to USD 31.20 billion and imports rose 22.8 percent to USD 19.01 billion.
Russia`s consumer price inflation stood at 2.4 percent year-on-year in April 2018, unchanged from the previous month`s figure and below market expectations of 2.5 percent. Inflation remained well below the central bank`s target of 4 percent. The Consumer Price Index in Russia increased 0.40 percent in April of 2018 over the previous month.
Russian unemployment rate fell to 5 percent in March 2018 from 5.4 percent in the same month of the previous year, and in line with market expectations. The number of unemployed people declined by 304 thousand to 3.808 million.