World Economy Review - April 2019
Yes, yes, we normally think of a recession as being negative growth. More formally, two quarters or more of negative economic growth. The pile of everything being produced by everyone goes down.
However, while this is true it`s not entirely useful when we consider the global economy. There a reasonable rule of thumb is that less than 3% growth is that recession:
It sounds a bit odd to be describing near 3% global GDP growth as being recession levels most rich countries would kill for that sort of growth rate maintained over the years. Do note that we`re talking of real growth here, this is after inflation is deducted. Still, a useful rule of thumb is that for global growth something less than 3% is what we should be describing as a recession.
This isn`t an official declaration, rather a general rule of thumb used by the World Bank, OECD and IMF. Global growth of less than 3% is recessionary. The reason being that growth in poor countries should be note should a lot easier than that in rich. Rich places are already at the technological frontier. To get more growth people have to go work out how to do it.
Poor countries by contrast aren`t, by definition, at that technological frontier. They`re not doing everything in the modern and efficient manner that`s why they`re poor. So, their growth is a lot easier. Go copy quite literally what the rich countries are doing and there you have it, growth. Poor countries should be growing faster than rich and that`s what means that global growth should be up above 3% whatever else is happening. If it isn`t then we can say that we`re in something akin to a recession even though the actual definition, falling economic output, isn`t being met.
Not hugely important of course, just one of those little things that makes up the world`s rich tapestry.
Economy of the United States
The U.S. economy grew at a faster pace than expected in the first quarter and posted its best growth to start a year in four years. First-quarter gross domestic product expanded by 3.2%, the Bureau of Economic Analysis said in its initial read of the economy for that period. Economists polled by Dow Jones expected growth of 2.5%. It was the first time since 2015 that first-quarter GDP topped 3%.
Exports rose 3.7% in the first quarter, while imports decreased by 3.7%. Economic growth also got a lift from strong investments in intellectual property products. Those investments expanded by 8.6%. Disposable personal income increased by 3%, while prices increased by 1.3% when excluding food and energy. Overall prices climbed by 0.8% in the first quarter.
U.S. industrial production fell in April, dragged by a big drop in factory output as production of autos and auto parts continued to slide. The Federal Reserve says industrial output - reflecting total production at factories, utilities and mines - dropped 0.5% in April after a 0.2% March gain. Industrial production fell 0.5% in February.
Manufacturing output fell 0.5%, led by a 2.6% decline in motor vehicles and parts, which has fallen in three of the past four months. Production at the nation`s utilities fell a sharp 3.5%. Production at mines, a sector that also covers oil and gas drilling, rose 1.6%. Manufacturing has struggled over the past year, reflecting weakness in auto sales and the global economy.
The U.S. trade deficit increased slightly in March even though the deficit with China fell to the lowest point in five years. The Commerce Department said that the total deficit in goods and services edged up 1.5 percent to $50.2 billion in March, after falling 3.6 percent in February. The deficit is the difference between what America sells to the rest of the world and what it imports.
Exports rose 1.0 percent to $212 billion in March while imports rose a slightly faster 1.1 percent to $262 billion. The deficit in goods with China dropped 16.2 percent to $20.7 billion, the lowest level since March 2014.
U.S. consumer prices rose in April but underlying inflation remained muted, suggesting the Federal Reserve could keep interest rates unchanged for a while. The Labor Department said its Consumer Price Index increased 0.3% last month, lifted by rising gasoline, rents, and health-care costs. The CPI gained 0.4% in March.
In the 12 months through April, the CPI increased 2.0% after advancing 1.9% in March. Economists polled by Reuters had forecast the CPI increasing 0.4% in April and advancing percent 2.1% year-on-year.
Excluding the volatile food and energy components, the CPI edged up 0.1% as apparel prices dropped for a second straight month. The so-called core CPI has increased by the same margin for three straight months. In the 12 months through April, the core CPI increased 2.1% after gaining 2.0% in March.
The U.S. economy added 263,000 jobs in April, notching a record 103 straight months of job gains and signaling the current economic expansion shows little sign of stalling.
The unemployment rate fell to 3.6 percent, the Labor Department said, the lowest since 1969. The official unemployment rate has been at or below 4 percent for more than a year.
Hiring was strong across most sectors with especially large gains in business services (76,000 jobs added), construction (33,000 jobs added) and health care (27,000 jobs added). Economists were watching government employment closely since the Census Bureau is beginning to ramp up hiring ahead of the 2020 Census. The federal government added 12,500 jobs in April, which likely included some boost from the Census Bureau but isn`t a large effect yet.
Economy of the European Union
Seasonally adjusted GDP rose by 0.4% in the euro area (EA19) and by 0.5% in the EU28 during the first quarter of 2019, compared with the previous quarter, according to a flash estimate published by Eurostat, the statistical office of the European Union. In the fourth quarter of 2018, GDP had grown by 0.2% in the euro area and by 0.3% in the EU28.
Compared with the same quarter of the previous year, seasonally adjusted GDP rose by 1.2% in the euro area and by 1.5% in the EU28 in the first quarter of 2019, after also +1.2% and +1.5% respectively in the fourth quarter 2018.
In March 2019 compared with February 2019, seasonally adjusted industrial production fell by 0.3% in the euro area (EA19) and by 0.1% in the EU28, according to estimates from Eurostat. In February 2019, industrial production fell by 0.1% in the euro area and remained stable in the EU28.
In March 2019 compared with March 2018, industrial production decreased by 0.6% in the euro area and increased by 0.4% in the EU28.
In the euro area in March 2019, compared with February 2019, production of non-durable consumer goods fell by 1.0% and energy by 0.3%, while production of intermediate goods rose by 0.1%, capital goods by 0.4% and durable consumer goods by 0.7%. In the EU28, production of non-durable consumer goods fell by 0.5% and energy by 0.2%, while production of intermediate goods remained unchanged, capital goods rose by 0.4% and durable consumer goods by 0.5%.
Among Member States for which data are available, the largest decreases in industrial production were registered in Malta (-3.7%), Greece (-2.7%) and Sweden (-2.3%). The highest increases were observed in Lithuania (+3.5%), Denmark (+1.8%) and Slovakia (+1.2%).
In the euro area in March 2019, compared with March 2018, production of energy fell by 7.3%, durable consumer goods by 0.7% and intermediate goods by 0.4%, while production of non-durable consumer goods remained unchanged and capital goods rose by 1.3%. In the EU28, production of non-durable consumer goods rose by 1.7%, capital goods by 1.5%, intermediate goods by 0.8% and durable consumer goods by 0.1%, while production of energy fell by 6.2%.
Among Member States for which data are available, the largest decreases in industrial production were registered in Portugal (-7.9%), Malta (-3.6%) and Spain (-3.4%). The highest increases were observed in Ireland (+22.1%), Poland (+8.0%) and Hungary (+7.9%).
The first estimate for euro area (EA19) exports of goods to the rest of the world in March 2019 was 205.6 billion, an increase of 3.1% compared with March 2018 (199.5 bn). Imports from the rest of the world stood at 183.1 bn, a rise of 6.0% compared with March 2018 (172.7 bn). As a result, the euro area recorded a 22.5 bn surplus in trade in goods with the rest of the world in March 2019, compared with + 26.9 bn in March 2018. Intra-euro area trade fell to 172.1 bn in March 2019, -0.3% compared with March 2018.
The first estimate for extra-EU28 exports of goods in March 2019 was 173.4 billion, up by 1.2% compared with March 2018 (171.3 bn). Imports from the rest of the world stood at 170.4 bn, up by 6.4% compared with March 2018 (160.1 bn). As a result, the EU28 recorded a 2.9 bn surplus in trade in goods with the rest of the world in March 2019, compared with +11.2 bn in March 2018. Intra-EU28 trade rose to 317.2 bn in March 2019, +2.7% compared with March 2018.
The euro area annual inflation rate was 1.7% in April 2019, up from 1.4% in March 2019. A year earlier, the rate was 1.2%. European Union annual inflation was 1.9% in April 2019, up from 1.6% in March 2019. A year earlier, the rate was 1.5%. These figures are published by Eurostat.
The lowest annual rates were registered in Croatia (0.8%), Denmark and Portugal (both 0.9%). The highest annual rates were recorded in Romania (4.4%) and Hungary (3.9%). Compared with March 2019, annual inflation fell in six Member States, remained stable in two and rose in nineteen. In April 2019, the highest contribution to the annual euro area inflation rate came from services (+0.86 percentage points, pp), followed by energy (+0.51 pp), food, alcohol & tobacco (+0.29 pp) and non-energy industrial goods (+0.06 pp).
The euro area (EA19) seasonally-adjusted unemployment rate was 7.7% in March 2019, down from 7.8% in February 2019 and from 8.5% in March 2018. This is the lowest rate recorded in the euro area since September 2008. The EU28 unemployment rate was 6.4% in March 2019, down from 6.5% in February 2019 and from 7.0% in March 2018. 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 15.907 million men and women in the EU28, of whom 12.630 million in the euro area, were unemployed in March 2019. Compared with February 2019, the number of persons unemployed decreased by 172 000 in the EU28 and by 174 000 in the euro area. Compared with March 2018, unemployment fell by 1.430 million in the EU28 and by 1.172 million in the euro area.
Among the Member States, the lowest unemployment rates in March 2019 were recorded in Czechia (1.9%), Germany (3.2%) and the Netherlands (3.3%). The highest unemployment rates were observed in Greece (18.5% in January 2019), Spain (14.0%) and Italy (10.2%). Compared with a year ago, the unemployment rate fell in all Member States except Denmark (between February 2018 and February 2019) and Sweden where it remained stable. The largest decreases were registered in Greece (from 20.6% to 18.5% between January 2018 and January 2019), Estonia (from 6.7% to 4.6% between February 2018 and February 2019) and Cyprus (from 9.0% to 7.0%).
Economy of Japan
Japan`s 2.1% GDP rise in Q1 2019 follows a revised 1.6% expansion for the October-December period of 2018. Preliminary reports had found a mere 0.3% rise for that quarter, and in the previous quarter, Q3 2018, Japan had contracted 0.6%.
One Q1 boost certainly came from annualized 6.2% rise in public investment, but there are clearly still jitters in the private sector: The data found that capital expenditure fell 1.2% on an annualized basis.
Moreover, the GDP expansion was aided by a 4.6% slump in imports - their biggest drop in a decade - and a 2.4% fall in exports. With imports falling faster than exports, net exports added 0.4 percentage point to GDP growth
Japan`s industrial output in March fell 0.9 percent from the previous month amid slowing demand for exports of automobiles and manufacturing equipment, government data showed. The seasonally adjusted index of production at factories and mines stood at 101.9 against the 2015 base of 100, the lowest level since January 2018, the Ministry of Economy, Trade and Industry said in a preliminary report.
The result, which followed a revised 0.7 percent rise in February, prompted the ministry to downgrade its assessment of production from "pausing" to being "in a weak tone recently."
Manufacturers polled by the ministry said they expect output to gain 2.7 percent in April and then rise 3.6 percent in May. The index of industrial shipments declined 0.6 percent to 101.6 while that of inventories was up 1.6 percent at 104.0.
Japan`s goods trade surplus plunged 90.3 percent in April from a year earlier to 60.4 billion yen ($546 million), hit by weak exports to China amid U.S.-China trade tensions, government data showed.
The result represented the third straight month of black ink, according to a preliminary report by the Finance Ministry. Exports fell 2.4 percent to 6.66 trillion yen, down for the fifth consecutive month, while imports rose 6.4 percent to 6.60 trillion yen on a rise in crude oil prices.
By region, China-bound exports, including semiconductor manufacturing equipment and auto parts, dropped 6.3 percent from a year earlier. The decrease indicated sluggish capital investment and production activities in the country.
Imports from the world`s second-largest economy climbed 5.9 percent, leaving Japan with a deficit of 318.3 billion yen.
Consumer inflation in Japan edged up in April, lifted by pricier energy and utilities, but remained well below the Bank of Japan`s 2 per cent target. Headline and core consumer prices rose 0.9 per cent year-on-year in April, up from 0.8 per cent in March, and in line with a median forecast from economists polled by Reuters. Fuel, light and water charges posted the biggest rise at 4.4 per cent, while food prices rose 0.7 per cent.
Core-core inflation, which strips out energy and food prices, and is comparable to core inflation reported by other countries, rose by a more modest 0.6 per cent, up from 0.5 per cent previously, the fastest rate since 2016.
Japan`s unemployment rate rose to 2.5 percent in March due to an increase in men quitting their jobs to seek better positions in the tightest labor market in decades, government data showed. The jobless rate edged up 0.2 percentage point from February, according to the Ministry of Internal Affairs and Communications. The unemployment level among men was up 0.3 point from the previous month to 2.8 percent, while that for women was unchanged at 2.2 percent. Job availability stood at 1.63, the same as February, the Ministry of Health, Labor and Welfare said. The ratio means there were 163 openings for every 100 job seekers.
The seasonally-adjusted number of unemployed stood at 1.74 million in the reporting month, up 140,000 from the previous month. Among them, 830,000 people voluntarily left jobs in March, up 160,000 from February. The number of those who newly started to seek jobs fell 10,000 to 370,000, while 360,000 people were laid off, down 10,000.
The percentage of the working-age population between 15 and 64 years old with jobs was 77.2 percent, up 1.0 point from the previous year. For men in that age range it was 83.8 percent, and for women 70.5 percent.
Economy of Russia
Russian GDP growth slowed from 2.7% year on year in 4Q18 to just 0.5% y/y in 1Q19, well below expectations.
The preliminary official estimate of Russian GDP growth for 1Q19 is 0.5% y/y, which is well below the 1.2% y/y consensus and our 1.1% y/y expectations. This also suggests a very material deceleration vs. the 2.7% y/y reported for 4Q18.
Russia`s industrial output growth in April 2019 jumped to 4.9% year-on-year after 1.2% growth in March, according to the latest data by Rosstat statistics agency. The notable increase in industrial output comes as a surprise, as consensus expectations of economists surveyed by Reuters stood at 1.5%. Industrial Production in Russia increased 0.2% in April of 2019 over the previous month.
Russia`s trade surplus rose to USD 15.54 billion in March of 2019 from USD 15.03 billion in the corresponding month of the previous year. Exports decreased 0.5 percent to USD 36.50 billion, as shipments fell to both non-CSI countries (-0.4 percent to USD 31.71 billion) and CIS countries (-0.7 percent to USD 4.79 billion). Meanwhile, imports dropped at a faster 3.2 percent to USD 20.96 billion, dragged by lower purchases from non-CIS countries (-3 percent to USD 18.74 billion) and CIS countries (-5.1 percent to USD 2.22 billion). Considering the first quarter of 2018, the trade surplus widened to USD 46.28 billion from USD 44.22 billion in the same period of 2018, as exports went up 0.3 percent to USD 101.98 billion and imports declined 3 percent to USD 55.70 billion.
The annual inflation rate in Russia decreased to 5.2 percent in April of 2019 from 5.3 percent in the previous month and in line with market expectations. Annual core inflation rate came in at 4.6 percent in April, unchanged from the prior month, remaining at its highest level since February of 2017. On a monthly basis, consumer prices went up 0.3 percent, the same as in the previous month and matching market consensus.
Russia unemployment rate stood at 4.7 percent in April 2019, unchanged from the previous month`s five-month low and in line with market expectations. The number of unemployed rose by 36 thousand to 3.554 million in April from 3.518 million in the previous month. Compared with the previous year, unemployment fell by 158 thousand from 3.712 million.
Meanwhile, registered unemployment came in at 0.817 million, little-changed from March`s 0.818 million and above last year`s 0.758 million. Russia`s real wages were up 1.6 from the previous year in April, easing from a 2.3 percent advance in March and beating market expectations of a 0.2 percent rise. Average nominal wages jumped 6.9 percent to RUB 47,020 while annual inflation rate was at 5.2 percent.
26.05.2019 17:45:17