World Economy Review - March 2019
The International Monetary Fund cut its outlook for global growth to the lowest since the financial crisis amid a bleaker outlook in most major advanced economies and signs that higher tariffs are weighing on trade.
The world economy will grow 3.3 percent this year, down from the 3.5 percent the IMF had forecast for 2019 in January, the fund said in its latest World Economic Outlook. The 2019 growth rate would be the weakest since 2009, when the world economy shrank. It`s the third time the IMF has downgraded its outlook in six months.
“This is a delicate moment” for the global economy, Gita Gopinath, who recently became the IMF`s chief economist, said at a press briefing in Washington. A projected pickup in growth next year is precarious, she said.
The global volume of trade in goods and services will increase 3.4 percent this year, weaker than the 3.8 percent gain in 2018 but reduced from the IMF`s January estimate of 4 percent, the fund`s report showed.
Global economic growth will recover in the second half of this year, before plateauing at 3.6 percent from next year, according to the Washington-based fund. A series of encouraging developments have boosted optimism about the world economy in recent weeks, including the decision of the Federal Reserve to put interest-rate hikes on hold and encouraging data from China`s manufacturing sector and the U.S. job market.
Still, the IMF is warning that risks are skewed to the downside, with a range of threats menacing the global economy, including the possible collapse of negotiations between the U.S. and China to end their trade war, and the departure of Britain from the European Union without a transition agreement, known as the “no-deal” Brexit scenario.
“Amid waning global growth momentum and limited policy space to combat downturns, avoiding policy missteps that could harm economic activity needs to be the main priority,” the IMF said.
IMF Managing Director Christine Lagarde is warning that the world economy faces a “delicate moment”. While intense trade talks between the U.S. and China have raised expectations of a lasting truce between the world`s two-largest economies, analysts remain worried about the strength of the global economy, a decade after the financial crisis. Lagarde said the fund doesn`t anticipate a recession in the near-term.
The fund cut its forecast for U.S. growth to 2.3 percent this year, down 0.2 percentage point since the IMF`s last global outlook in January. The downgrade reflects the impact of the partial government shutdown that ended in January, as well as lower-than-expected public spending. The fund upgraded its U.S. forecast next year to 1.9 percent, up 0.1 percentage point, on the Fed`s shift to a more patient stance on interest rates.
The IMF slashed its outlook for the euro area to 1.3 percent this year, down 0.3 point from three months ago. Growth is expected to be softer in several major European economies, including Germany, where weak global demand and tougher car-emission standards have hit factory production. Weak domestic demand and high sovereign-debt spreads have dimmed Italy`s outlook, while street protests in France weighed on growth, the fund said.
The IMF cut its outlook for U.K. growth to 1.2 percent this year, down 0.3 point from three months ago. The IMF raised its forecast for Chinese growth by 0.1 point to 6.3 percent this year, while lowering its projection for growth in Japan by 0.1 point to 1 percent. The fund cut its outlook for India`s growth this year to 7.3 percent, down from 7.5 percent in January.
Economy of the United States
The "advance" GDP report is expected to show that output increased 1.8% in Q1, based on a set of estimates compiled by The Capital Spectator. The revised nowcast marks a slight improvement over the previous outlook from late-March, but a 1.8% increase still reflects a softer trend vs. recent history. If today`s projection is accurate, the economy is on track to decelerate for a third straight quarter, easing from the modest 2.2% gain in last year`s Q4.
US industrial output edged down 0.1 percent from a month earlier in March 2019, reversing a 0.1 percent advance in February and missing market expectations of a 0.2 percent gain. Mining output declined 0.8 percent in March, after being unchanged in the previous month. Manufacturing output stalled in March, following a 0.3 percent drop in February.
The output of utilities rose 0.2 percent in March, easing from a 3.7 percent growth in the previous month, due mainly to a decline in the output of electric utilities (-0.5 percent vs 3.5 percent); while the output of natural gas utilities climbed 3.8 percent, compared to 4.6 percent in February. Capacity utilization for the industrial sector decreased 0.2 percentage point in March to 78.8 percent.
Considering the first quarter as a whole, industrial output fell at a 0.3 percent annualized rate, after growing at a 4 percent pace in the October-December 2018 period. Also, factory activity dropped at a 1.1 percent rate, the first quarterly decline since the third quarter of 2017 and following a 1.7 percent increase in the previous three-month period.
The US trade deficit narrowed to USD 49.4 billion in February 2019, the smallest since June 2018, from USD 51.1 billion in the previous month and compared to market expectations of USD 53.5 billion. Exports surged 1.1 percent while imports rose at a softer 0.2 percent amid ongoing trade negotiations with China.
Exports from the US rose USD 2.3 billion from the previous month to USD 209.7 billion in February. Imports to the US increased USD 0.6 billion to USD 259.1 billion. The politically sensitive goods trade deficit with China decreased to USD 24.8 billion in February from USD 34.5 billion in January.
U.S. consumer prices increased by the most in 14 months in March, but the underlying inflation trend remained benign amid slowing domestic and global economic growth.
The Labor Department said its Consumer Price Index rose 0.4 percent, boosted by increases in the costs of food, gasoline and rents. That was the biggest advance since January 2018 and followed a 0.2 percent gain in February.
In the 12 months through March, the CPI increased 1.9 percent. The CPI gained 1.5 percent in February, which was the smallest rise since September 2016. Economists polled by Reuters had forecast the CPI climbing 0.3 percent in March and accelerating 1.8 percent year-on-year.
Stripping out the volatile food and energy components, the CPI nudged up 0.1 percent, matching February`s gain. A 1.9 percent plunge in apparel prices, the largest drop held down the so-called core CPI since January 1949.
In the 12 months through March, the core CPI increased 2.0 percent, the smallest advance since February 2018. The core CPI rose 2.1 percent year-on-year in February.
The U.S. labor market bounced back strongly in March after a lackluster showing in February. U.S. employers added 196,000 jobs last month, the Labor Department reported. That`s a big improvement from February, when revised figures show just 33,000 jobs were added. But it`s a slowdown from the last three months of 2018, when monthly job growth averaged 233,000.
The U.S. unemployment rate held at 3.8 percent in March. Notable job gains occurred in health care and in professional and technical services. Employment in other major industries, including mining, wholesale trade, retail trade, transportation and warehousing, information, financial activities, and government, showed little change over the month. The number of long-term unemployed (those jobless for 27 weeks or more) remained essentially unchanged at 1.3 million, accounting for 21.1 percent of the unemployed.
Economy of the European Union
In February 2019 compared with January 2019, seasonally adjusted industrial production fell by 0.2% in the euro area (EA19) and remained unchanged the EU28, according to estimates from Eurostat, the statistical office of the European Union. In January 2019, industrial production grew by 1.9% in the euro area and by 1.3% in the EU28.
In February 2019 compared with February 2018, industrial production decreased by 0.3% in the euro area and increased by 0.3% in the EU28.
In the euro area in February 2019, compared with January 2019, production of energy fell by 3.0%, both capital goods and durable consumer goods by 0.4% and intermediate goods by 0.1%, while production of non-durable consumer goods rose by 0.9%. In the EU28, production of energy fell by 2.2% and capital goods by 0.2%, while production of durable consumer goods remained unchanged, intermediate goods rose by 0.2% and non-durable consumer goods by 0.7%.
Among Member States for which data are available, the largest decreases in industrial production were registered in Lithuania (-4.7%), Greece (-2.7%) and Croatia (-2.3%). The highest increases were observed in Poland (+1.7%), Bulgaria (+1.5%) and Hungary (+1.0%).
In the euro area in February 2019, compared with February 2018, production of energy fell by 5.9% and intermediate goods by 0.6%, while production of durable consumer goods rose by 0.2%, capital goods by 0.5% and non-durable consumer goods by 2.8%. In the EU28, production of non-durable consumer goods rose by 3.1%, durable consumer goods by 0.7%, capital goods by 0.5% and intermediate goods by 0.4%, while production of energy fell by 4.4%.
Among Member States for which data are available, the largest decreases in industrial production were registered in Latvia (-3.1%), Portugal (-2.9%) and Germany (-2.0%). The highest increases were observed in Poland (+6.8%), Bulgaria (+6.6%), and Hungary (+5.9%).
The first estimate for euro area (EA19) exports of goods to the rest of the world in February 2019 was ˆ183.3 billion, an increase of 4.4% compared with February 2018 (ˆ175.6 bn). Imports from the rest of the world stood at ˆ165.4 bn, a rise of 4.0% compared with February 2018 (ˆ159.0 bn). As a result, the euro area recorded a ˆ17.9 bn surplus in trade in goods with the rest of the world in February 2019, compared with + ˆ16.5 bn in February 2018. Intra-euro area trade rose to ˆ160.3 bn in February 2019, up by 3.4% compared with February 2018.
The first estimate for extra-EU28 exports of goods in February 2019 was ˆ156.3 billion, up by 6.2% compared with February 2018 (ˆ147.2 bn). Imports from the rest of the world stood at ˆ159.0 bn, up by 8.5% compared with February 2018 (ˆ146.6 bn). As a result, the EU28 recorded a ˆ2.7 bn deficit in trade in goods with the rest of the world in February 2019, compared with a surplus of ˆ0.7 bn in February 2018. Intra-EU28 trade rose to ˆ290.6 bn in February 2019, +3.7% compared with February 2018.
Euro area annual inflation is expected to be 1.4% in March 2019, down from 1.5% in February according to a flash estimate from Eurostat, the statistical office of the European Union.
Looking at the main components of euro area inflation, energy is expected to have the highest annual rate in March (5.3%, compared with 3.6% in February), followed by food, alcohol & tobacco (1.8%, compared with 2.3% in February), services (1.1%, compared with 1.4% in February) and non-energy industrial goods (0.2%, compared with 0.4% in February).
The euro area (EA19) seasonally-adjusted unemployment rate was 7.8% in February 2019, stable compared with January 2019 and down from 8.5% in February 2018. This remains the lowest rate recorded in the euro area since October 2008. The EU28 unemployment rate was 6.5% in February 2019, stable compared with January 2019 and down from 7.1% in February 2018. This remains 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, the statistical office of the European Union.
Eurostat estimates that 16.012 million men and women in the EU28, of whom 12.730 million in the euro area, were unemployed in February 2019. Compared with January 2019, the number of persons unemployed decreased by 102 000 in the EU28 and by 77 000 in the euro area. Compared with February 2018, unemployment fell by 1.469 million in the EU28 and by 1.169 million in the euro area.
Economy of Japan
Japan`s industrial output rose 1.4 percent in February from the previous month, snapping a three-month losing streak, as rebounding exports helped the auto sector, government data showed.
The seasonally adjusted index of production at factories and mines stood at 102.5 against the 2015 base of 100, the Ministry of Economy, Trade and Industry said in a preliminary report. The result followed a revised 3.4 percent drop in January.
The transport sector was the biggest contributor to the index`s rise due to increased production of passenger cars and auto parts. Output of machinery to produce semiconductors and liquid crystal displays was also robust in February, according to the data.
Manufacturers polled by the ministry said they expect output to gain 1.3 percent in March and then rise 1.1 percent in April. The index of industrial shipments increased 1.8 percent to 101.6 and that of inventories was up 0.5 percent at 102.2.
Japan posted a trade surplus of JPY 339 billion in February 2019, compared with a JPY 14 billion deficit in the same month a year earlier and market expectations of a JPY 310 billion surplus.
Exports declined 1.2 percent from a year earlier to JPY 6.38 trillion in February, worse than market consensus of a 0.9 percent drop and after an 8.4 percent plunge in January. Imports slumped 6.7 percent to JPY 6.05 trillion, far more than market expectations of a 5.8 percent fall and following a revised 0.8 percent decline in the previous month.
Japan`s consumer price inflation stood at 0.2 percent year-on-year in February 2019, unchanged from the previous month`s 15-month low and below market expectations of 0.3 percent. Prices of both food and transportation & communication fell for a third month in a row, while housing costs were flat.
Annual core consumer inflation, which excludes fresh food, inched lower to 0.7 percent in February from 0.8 percent in January and also below market consensus of 0.8 percent. The figure came in well below the Bank of Japan`s target of 2 percent.
On a seasonally adjusted monthly basis, consumer prices were unchanged in February, after a 0.3 percent rise in January.
The seasonally adjusted unemployment rate in Japan dropped unexpectedly to 2.3 percent in February 2019 from 2.5 percent in the previous month while markets had expected 2.5 percent. It was the lowest jobless rate since September last year. Meanwhile, the jobs-to-applicants ratio remained unchanged at 1.63 and in line with consensus.
The number of unemployed decreased 120 thousand from a month earlier to 1.60 million in February, while employment rose by 490 thousand to 67.14 million. The labor force increased 340 thousand to 68.73 million and those detached from the labor force fell 370 thousand to 42.14 million.
Youth unemployment rate, measuring job-seekers between 15 and 24 years old, went up to 3.4 percent in February from 3.2 percent in January. A year earlier, the unemployment rate was higher at 2.5 percent.
Economy of Russia
Economic growth in Russia accelerated to 1.5 percent in February from 0.7 percent in January, boosted by a pick-up in industrial output, the economy ministry said. The ministry said that economic growth so far this year had exceeded its expectations.
Russia`s industrial output grew 1.2% on the year and 10.3% on the month in March after rising 4.1% and 0.4% on the month in February, the Federal State Statistics Service said. The result was a slowdown after February`s surprisingly strong result. Russia`s manufacturing PMI index also put in a much better than expected result in February.
Output of the mineral resource industry grew by 4.3% on the year in March, of the processing industry by 0.3%, of water supply, wastewater treatment and waste recycling by 3.7%, and production of power, gas supply fell by 4.8%. In January-March, industrial output grew 2.1%.
Russia`s trade surplus rose to USD 15.67 billion in February of 2019 from USD 12.22 billion in the corresponding month of the previous year. Exports advanced 8.6 percent to USD 34.04 billion, boosted by shipments to non-CIS countries (+10.5 percent to USD 29.73 billion) while those to CIS countries decreased (-2.6 percent to USD 4.30 billion). Also, imports fell 3.9 percent to USD 18.37 billion, as purchases from non-CIS countries declined 4.2 percent to USD 16.37 billion and those from CIS countries went down 1 percent to USD 2.0 billion.
Russia`s consumer price inflation increased to 5.3 percent year-on-year in March 2019, the highest since December 2016, from 5.2 percent in the previous month and slightly below market expectations of 5.4 percent.
Within the goods component, non-food products prices advanced 4.7 percent, slightly faster than 4.6 percent in the previous month; while food cost increased 5.9 percent, the same pace as in February. Also, services inflation was unchanged at 5.1 percent in March.
Annual core inflation rate went up to 4.6 percent in March from 4.4 percent in the previous month. It was the highest rate since February 2017.
On a monthly basis, consumer prices rose 0.3 percent, after a 0.4 percent gain in February and also missing market consensus of 0.4 percent. Upward pressure came from all main categories: food (0.5 percent vs 0.8 percent); non-food products (0.3 percent, the same as in February); and services (0.1 percent vs 0.2 percent).
Russia unemployment rate fell to 4.7 percent in March of 2019 from 4.9 percent in the previous month, below market expectations of 4.9 percent and compared with last year`s 5 percent. It is the lowest jobless rate since October of 2018.
The number of unemployed fell by 137 thousand to 3.518 million in March from 3.655 million in the previous month. Compared with the previous year, unemployment fell by 290 thousand from 3.808 million.
Meanwhile, registered unemployment rose by 2 thousand to 0.818 million from 0.798 million a month earlier. Year-on-year, that number advanced by 3.4 thousand from 0.784 million.
Russia`s real wages showed no growth from the previous year in March, the same as in the previous month and compared with market expectations of a 0.5 percent rise. Average nominal wages jumped 5.2 percent to RUB 45,000 while annual inflation rate advanced to 5.3 percent, the highest since December of 2016.