World Economy Review - October 2018
Growth is slowing in a number of the world`s big economies, and the International Monetary Fund is warning that investor sentiment could make a "sudden reversal" for the worse.
"Although still supportive of growth, global financial conditions have started to tighten," the fund said in its latest Regional Economic Outlook report for Middle East and Central Asia.
The report is published annually and gives a broad overview of recent economic developments and of prospects and policy issues for the medium term.
"Global conditions are changing in terms of the risk metrics," Jihad Azour, director of the Middle East and Central Asia at the IMF, told CNBC`s "Capital Connection."
"Although we`re still enjoying a high level of growth, that growth is plateauing," he added.
The IMF said higher U.S. interest rates, a stronger U.S. dollar, and financial market volatility could bring pressure in some emerging-market and developing economies.
"A worsening of these developments, or faster-than-anticipated monetary policy tightening in advanced economies, increases the risk of a sudden reversal in global risk appetite," the report said.
The IMF forecasts global growth for 2018-2019 to remain steady at its 2017 level of 3.7 percent, but the growth outlook for a number of major economies has been marked down.
In the United States, while the real GDP growth outlook for 2018 is unchanged at 2.9 percent, the forecast for 2019 has been revised down to 2.5 percent due to the recently announced trade measures.
The United States has entered a serious tariff dispute with China, and it remains unclear how long that conflict will last.
The outlook for emerging and developing economies is also weaker, reflecting downward revisions for some large emerging market economies due to country-specific factors, tighter financial conditions, geopolitical tensions and higher oil prices, according to the report.
"Real GDP in the Euro area will slow to 1.9 percent in 2019, compared to 2.9 percent in 2018. Growth will also moderate in the United Kingdom, following surprises that suppressed activity in early 2018," it said.
The IMF blamed the recent trade measures between the United States and China for projected declining growth in China, which it now sees at 6.2 percent in 2019, 6.6 percent in 2018 and 6.9 percent in 2017.
Despite a recent slide in oil prices, the IMF is more optimistic about the Middle East, but warned of numerous uncertainties in the region.
"The oil price has gone up by more than 60 percent in two years, and the levels that we`re seeing today are equivalent to those of 2015," Azour said.
The IMF forecast that oil exporters in the Middle East, North Africa, Afghanistan and Pakistan which it refers to as MENAP will experience visible improvements in external and fiscal balances in 201819.
"Economic activity in MENAP oil-exporting countries is expected to strengthen this year and next. Real GDP growth is projected at 1.4 percent in 2018 and 2 percent in 2019, up from 1.2 percent in 2017," the report said.
"Growth among MENAP oil-importing countries is expected to continue at a modest pace in 2018 and to strengthen slightly over the medium term. Growth in the region is projected to reach 4.5 percent in 2018, up from 4.1 percent in 2017, before moderating to 4 percent in 2019," in added.
Economy of the United States
The U.S. economy grew at a robust annual rate of 3.5 percent in the July-September quarter as the strongest burst of consumer spending in nearly four years helped offset a sharp drag from trade.
The Commerce Department said that the third quarter`s gross domestic product, the country`s total output of goods and services, followed an even stronger 4.2 percent rate of growth in the second quarter. The two quarters marked the strongest consecutive quarters of growth since 2014.
The GDP report showed business investment slowed dramatically in the third quarter, growing at an annual rate of just 0.8 percent, the weakest in nearly two years, after a much stronger 8.7 percent gain in second quarter. Consumer spending, which accounts for 70 percent of economic activity, surged at an annual rate of 4 percent in the third quarter, even better than the 3.8 percent gain in the second quarter and the best showing since last 2014.
Trade, which had boosted second quarter growth by 1.2 percentage points, shaved 1.8 percentage points off growth in the third quarter. Exports, which had surged at a 9.3 percent rate in the second quarter, fell at a 3.5 percent rate in the third quarter.
Another big swing factor in the third quarter was business restocking of their shelves. Inventories had trimmed 1 percentage point off growth in the second quarter but boosted growth by 2 percentage points in the third quarter. Housing continued to be a drag, falling for a third straight quarter. Business investment, which had surged at an 8.7 percent rage in the second quarter, slowed to a small 0.8 percent gain the third quarter.
U.S. industry expanded as a slower pace in October, with manufacturing growth offsetting declines in mining and utility production. The Federal Reserve says that industrial production rose a modest 0.1 percent last month following a 0.2 percent advance in September and a sizable 0.8 percent advance in August.
Factory output was up 0.3 percent in October, matching the previous month despite a big drop in auto production. The indexes for mining and for utilities declined 0.3 percent and 0.5 percent, respectively.
Industrial production in the U.S. increased 4.1 percent year-on-year in October of 2018, below an upwardly revised 5.6 percent rise in September. Manufacturing went up 2.7 percent, mining 13.1 percent and utilities 1.7 percent.
The U.S. goods and services deficit increased more than expected in September amid escalating tensions with its global trading partners.
The shortfall rose to $54 billion for the month, a 1.3 percent increase, or $700 million, from August and reflective of a 10.1 percent increase year to date, according to government numbers. Economists surveyed by Refinitiv had been looking for a gain of $53.6 billion.
The goods deficit stood at $76.3 billion, the highest on record on a seasonally adjusted basis. Exports increased to $212.6 billion, a $3.1 billion gain from August, while imports rose $3.8 billion to $266.6 billion.
U.S. consumer prices increased by the most in nine months in October amid gains in the cost of gasoline and rents, pointing to steadily rising inflation that likely will keep the Federal Reserve on track to raise interest rates again next month.
The Labor Department said its Consumer Price Index rose 0.3 percent last month after edging up 0.1 percent in September. In the 12 months through October, the CPI increased 2.5 percent, picking up from September`s 2.3 percent rise.
Excluding the volatile food and energy components, the CPI climbed 0.2 percent. The so-called core CPI had gained 0.1 percent for two straight months.
In the 12 months through October, the core CPI increased 2.1 percent after advancing 2.2 percent in September. Economists polled by Reuters had forecast the CPI climbing 0.3 percent and the core CPI gaining 0.2 percent in October.
U.S. businesses added 250,000 jobs in October, the Labor Department said - a blowout number that surpassed Wall Street`s expectation.
The monthly average job creation now stands at about 180,000 for the last three months. That incorporates revised data for September, which saw an unusually low jobs figure thanks to Hurricane Florence.
Wages jumped. Average monthly earnings increased 3.1 percent from the year before, the first time in the current economic expansion that the figure has crossed the 3 percent mark. The last time wages grew this quickly was in 2009.
The unemployment rate stayed at 3.7 percent, the lowest it`s been in nearly 50 years.
Economy of the European Union
Seasonally adjusted GDP rose by 0.2% in the euro area (EA19) and by 0.3% in the EU28 during the third quarter of 2018, 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 2018, GDP had grown by 0.4% in the euro area and by 0.5% in the EU28.
Compared with the same quarter of the previous year, seasonally adjusted GDP rose by 1.7% in the euro area and by 1.9% in the EU28 in the third quarter of 2018, after +2.2% and +2.1% respectively in the previous quarter.
In September 2018 compared with August 2018, seasonally adjusted industrial production fell by 0.3% in the euro area (EA19) and by 0.2% in the EU28, according to estimates from Eurostat. In August 2018, industrial production rose by 1.1% in the euro area and by 0.8% in the EU28.
In September 2018 compared with September 2017, industrial production increased by 0.9% in the euro area and by 1.1% in the EU28.
The first estimate for euro area (EA19) exports of goods to the rest of the world in September 2018 was 184.8 billion, a decrease of 1.0% compared with September 2017 (186.6 bn). Imports from the rest of the world stood at 171.7 bn, a rise of 6.4% compared with September 2017 (161.3 bn). As a result, the euro area recorded a 13.1 bn surplus in trade in goods with the rest of the world in September 2018, compared with +25.3 bn in September 2017. Intra-euro area trade rose to 161.1 bn in September 2018, up by 2.2% compared with September 2017.
The first estimate for extra-EU28 exports of goods in September 2018 was 160.2 billion, up by 2.5% compared with September 2017 (156.3 bn). Imports from the rest of the world stood at 162.0 bn, up by 5.0% compared with September 2017 (154.3 bn). As a result, the EU28 recorded a 1.8 bn deficit in trade in goods with the rest of the world in September 2018, compared with a surplus of 2.0 bn in September 2017. Intra-EU28 trade rose to 291.0 bn in September 2018, up by 0.5% compared with September 2017.
Euro area annual inflation is expected to be 2.2% in October 2018, up from 2.1% in September 2018, according to a flash estimate from Eurostat.
Looking at the main components of euro area inflation, energy is expected to have the highest annual rate in October (10.6%, compared with 9.5% in September), followed by food, alcohol & tobacco (2.2%, compared with 2.6% in September), services (1.5%, compared with 1.3% in September) and non-energy industrial goods (0.4%, compared with 0.3% in September).
The euro area (EA19) seasonally-adjusted unemployment rate was 8.1% in September 2018, stable compared with August 2018 and down from 8.9% in September 2017. This remains the lowest rate recorded in the euro area since November 2008. The EU28 unemployment rate was 6.7% in September 2018, stable compared with August 2018 and down from 7.5% in September 2017. This is the lowest rate recorded in the EU28 since the start of the EU monthly unemployment series in January 2000. These figures are published by Eurostat.
Eurostat estimates that 16.574 million men and women in the EU28, of whom 13.153 million in the euro area, were unemployed in September 2018. Compared with August 2018, the number of persons unemployed decreased by 35 000 in the EU28 and increased by 2 000 in the euro area. Compared with September 2017, unemployment fell by 1.793 million in the EU28 and by 1.309 million in the euro area.
Economy of Japan
Japan`s gross domestic product was down a seasonally adjusted 0.3 percent on quarter in the third quarter of 2018, the Cabinet Office said in a preliminary report. That was in line with expectations following the 0.7 percent gain in the previous three months.
On an annualized basis, GDP tumbled 1.2 percent on year - missing forecasts for a fall of 1.0 percent following the 3.0 percent jump in the three months prior. Nominal GDP fell 0.3 percent on quarter, matching forecasts following the 0.7 percent increase in Q2.
Japanese industrial production fell at a faster pace than forecast in September, according to government figures. Industrial production fell 1.1 per cent in September, compared to the previous month, according to the Ministry of Economy, Trade and Industry. That was a larger fall than the 0.3 per cent dip forecast by economists in a Reuters poll. Industrial production recorded a 0.2 per cent increase in August.
Falls for transport equipment and general purpose, production and business-oriented machinery contributed to the decrease, alongside iron and steel.
A survey of manufacturers found industrial production is expected to rebound 6 per cent in October and fall 0.8 per cent in November, METI said.
Japan`s monthly balance of trade tumbled to a deficit of 449 billion yen ($3.95 billion), more than nine times bigger than an expected Y48 billion deficit in a Nikkei survey, data from the country`s finance ministry showed.
The widening deficit stemmed from bigger imported volumes of crude oil and liquefied natural gas that boosted imports by 20% compared with a year ago. That outweighed an 8% rise in exports led by demand for automobiles, engines, and semiconductors.
Japan`s annual inflation rate edged down to 1.2 percent in September 2018 from 1.3 percent in the previous month, mainly due to lower prices of food. Still, it is the second-highest figure in the last seven months.
In September, prices of food increased by 1.8 percent from a year earlier, easing from a 2.1 percent rise in the previous month. Core inflation rate, which excludes fresh food, edged up to 1 percent from 0.9 percent in the previous month and in line with expectations. It marked the highest figure since February.
On a monthly basis, consumer prices remained unchanged in September, after a 0.5 percent rise in August and following four straight positive prints.
The unemployment rate in Japan in September stood at 2.3 percent, falling from 2.4 percent from a month earlier, the Ministry of Internal Affairs and Communications said in a report. The latest unemployment figures continued to remain close to the lowest level since the early 1990s.
Separately, the Ministry of Health, Labor and Welfare said that the job availability ratio stood at 1.64, up from 1.63 in August. This marks the highest level since January 1974 and translates to there being 164 job openings available for every 100 people seeking work.
As Japan`s population continues to rapidly age and shrink and in doing so hollowing out the workforce, the job-related figures reflect the ensuing labor crunch.
Economy of Russia
Russian GDP growth slowed to 1.3% y/y in the third quarter of 2018, down from 1.9% y/y growth the previous quarter due to the high base effect from last year`s record breaking harvest, according to preliminary data from Rosstat released on November 13.
In the first nine months of 2018, the Ministry of Economic Development estimated the growth of the economy at 1.6%. In September and August, GDP grew at an annualized rate of 1.1%.
Russia`s industrial output rose 3.7 percent year-on-year in October 2018, accelerating from a 2.1 percent growth in the previous month and easily beating market expectations of 2.7 percent. Manufacturing production rebounded 2.7 percent (vs -0.1 percent in September) and extraction of raw materials expanded at a faster 7.4 percent (vs 6.9 percent in September). Meanwhile, water supply growth eased to 4.8 percent in October from 6 percent in the previous month and utilities output continued to contract (-3.2 percent vs -0.4 percent). Industrial Production in Russia increased 5.80 percent in October of 2018 over the previous month.
Russia`s trade surplus widened to USD 18.49 billion in September 2018 from USD 10.24 billion in the corresponding month of the previous year, and above market consensus of a USD 17.8 billion surplus. Exports jumped 24.8 percent to USD 38.44 billion as sales to non-CIS countries climbed 28.1 percent to USD 33.82 billion and those to CIS countries went up 4.9 percent to USD 4.62 billion. Meanwhile, imports dropped 2.9 percent to USD 19.95 billion as purchases from non-CIS countries decreased 2.4 percent to USD 17.94 billion and those from CIS countries fell 7.9 percent to USD 2.01 billion. Considering January to September, the trade surplus widened sharply to USD 137.32 billion from USD 80.41 billion in the same period of 2017.
Russia`s annual inflation rate rose to 3.5 percent in October 2018 from 3.4 percent in the previous month, still below market expectations of 3.6 percent. It was the highest inflation rate since July 2017 boosted by prices of food, non-food products and services.
Within the goods component, food cost advanced 2.7 percent in October, following a 2.5 percent rise in September and prices of non-food products rose 4.1 percent, after a 4 percent gain in the previous month. Also, services inflation went up to 4 percent in October from 3.8 percent in September.
Annual core inflation rate climbed to 3.1 percent in October from 2.8 percent in the previous month. It was the highest rate since July 2017.
On a monthly basis, consumer prices increased 0.4 percent in October, compared with a 0.2 percent gain in September and matching market consensus. An increase in prices of food (0.6 percent vs -0.1 percent in September) and non-food products (0.5 percent vs 0.4 percent) was enough to offset a decline in services costs (-0.1 percent vs 0.2 percent).
Russian unemployment rate dropped to a fresh record low of 4.5 percent in September 2018 from 5 percent in the corresponding month of the previous year, below market expectations of 4.7 percent. In August, unemployment rate was higher at 4.6 percent.
The number of unemployed declined by 72 thousand to 3.434 million in September from 3.506 million in the previous month. Compared with the previous year, unemployment fell by 385 thousand from 3.819 million.
Real wages in Russia increased by 7.2 percent year-on-year in September, following a downwardly revised 6.8 percent advance in the previous month and above market expectations of a 6.4 percent gain. Average nominal wages surged 10.8 percent to RUB 42,200 while annual inflation rate rose to 3.4 percent, the highest level since July 2017. Meanwhile, real disposable personal income in Russia decreased by 1.5 percent in September, following a 0.9 percent drop in the previous month.
20.11.2018 18:11:22