World Economy Review - September 2019
The global economy may weaken to a pace not seen since the financial crisis as the impact of the Trump administration`s trade war and Brexit erode confidence and investment, the Organisation for Economic Cooperation and Development said in a report.
Global economic growth is likely to slow to 2.9% in 2019 and 3% in 2020, the weakest annual growth rates since the 2008 financial crisis, the economic research organization said. The trade war between the U.S. and China as well as other trade tensions are "endangering future growth prospects," the group added.
Economic growth in the U.S. will slow to 2% next year, the OECD forecast. By comparison, the Trump administration has targeted 3% annual GDP growth.
The OECD`s latest outlook is a downgrade on the group`s 2018 forecast that global economic growth would reach 4% in 2019, OECD chief economist Laurence Boone wrote in a blog post. Trade disputes between the U.S. and China, Europe and other countries is causing some businesses to hold off on investing in new equipment or hiring, while U.S. manufacturing has fallen into recession despite President Donald Trump`s vows to revive the sector.
"An urgent response is required, failing which we run the risk of finding ourselves stuck in a long period of low growth, the brunt of which will be felt primarily by the most vulnerable," Boone wrote.
The outlook for economic growth has been revised downward for almost all G20 countries, the OECD said. The G20 includes the EU and 19 other countries, including the U.S., Canada and Mexico.
The trade war between the U.S. and China will "exert a significant drag on global activity and trade over the next two years," the report noted.
"All told, the U.S.-China measures could reduce global GDP growth by between 0.3-0.4 percentage points in 2020 and 0.2-0.3 percentage points in 2021," the report forecast. "China and the United States would be most affected by these shocks."
Economy of the United States
The U.S. economy grew at a modest 2% annual rate in the second quarter, a pace sharply lower than the 3%-plus growth rates seen over the past year. Many analysts believe growth will slow further in coming quarters as global weakness and rising trade tensions exert a toll.
The April-June increase in the gross domestic product, the economy`s total output of goods and services, slipped from a brisk 3.1% gain in the first quarter, the Commerce Department reported.
In the current quarter, analysts believe GDP is likely growing at the same modest 2% rate, and they are forecasting a similar outcome in the final quarter. For the year, GDP is expected to rise around 2.2%, down from the strong 2.9% gain seen last year, which had been the best performance since 2015.
U.S. industrial production jumped 0.6% in August, the largest increase in a year, the Federal Reserve reported. Output in July was revised to a 0.1% decline from the prior estimate of a 0.2% drop. Wall Street had expected a 0.4% rebound, according to a MarketWatch survey.
The increase was due mainly to a surge in mining output, which includes oil and gas production. Mining output jumped 1.4%, almost completely reversing a 1.5% decline in the prior month. Utilities output rose 0.6%.
Manufacturing production rebounded as well in August, rising 0.5% after a 0.4% decline in July. Output for motor vehicles and parts fell 1% in August after a 0.5% gain in the prior month. Excluding autos, manufacturing rose 0.6%. Capacity utilization rose to 77.9% in August, the highest rate since March.
The U.S. trade deficit widened in August for the first time in three months as exports increased but imports increased more. The politically sensitive gap with China in the trade of goods narrowed.
The Commerce Department said that the gap between what the United buys and what it sells abroad rose 1.6% to $54.9 billion from $54 billion in July. The deficit had fallen in June and July. But it is still up for the year despite President Donald Trump`s attempts to push it down by imposing taxes on imports and waging a trade war with China.
Exports blipped up 0.2% in August to $207.9 billion. Imports increased 0.5% to $262.8 billion on a big increase in shipments of cellphones, which are scheduled to be hit with new tariffs in December as part of the standoff with China. From January through August, the deficit rose 7% to $428.7 billion from $400.4 billion a year earlier. The goods deficit with China dropped 3.1% in August to $31.8 billion and is down 11.4% so far this year.
U.S. consumer prices were unchanged in September and underlying inflation retreated, supporting expectations the Federal Reserve will cut interest rates in October for the third time this year amid risks to the economy from trade tensions.
The Labor Department said the flat consumer price index last month was the weakest reading since January and came as increases in the cost of food and rents were offset by decreases in the prices of energy and used cars and trucks. The CPI edged up 0.1% in August. In the 12 months through September, the CPI increased 1.7% after advancing by the same margin in August.
Economists polled by Reuters had forecast the CPI nudging up 0.1% in September and rising 1.8% on a year-on-year basis. Underlying inflation slowed in September following solid gains over the last three months. Excluding the volatile food and energy components, the CPI climbed 0.1% after gaining 0.3% for three straight months.
The so-called core CPI was restrained by moderated gains in healthcare costs, as well as declines in apparel, new motor vehicles and communications prices. In the 12 months through September, the core CPI increased 2.4%, matching August`s rise.
Unemployment hit a fresh 50-year low in September even though nonfarm payrolls rose by just 136,000 as the economy nears full employment, the Labor Department reported.
The jobless rate dropped 0.2 percentage points to 3.5%, matching a level it last saw in December 1969. A more encompassing measure that includes discouraged workers and the underemployed also fell, declining 0.3 percent points to 6.9%, matching its lowest in nearly 19 years and just off the all-time low of 6.8%.
Economy of the European Union
Seasonally adjusted GDP rose by 0.2% in both the euro area (EA19) and the EU28 during the second quarter of 2019, compared with the previous quarter, according to an estimate published by Eurostat, the statistical office of the European Union. In the first quarter of 2019, 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 1.2% in the euro area and by 1.4% in the EU28 in the second quarter of 2019, after +1.3% and +1.6% respectively in the previous quarter.
In July 2019 compared with June 2019, seasonally adjusted industrial production fell by 0.4% in the euro area (EA19) and by 0.1% in the EU28, according to estimates from Eurostat. In June 2019, industrial production fell by 1.4% in both the euro area and EU28. In July 2019 compared with July 2018, industrial production decreased by 2.0% in the euro area and by 1.2% in the EU28.
The first estimate for euro area (EA19) exports of goods to the rest of the world in July 2019 was 206.5 billion, an increase of 6.2% compared with July 2018 (194.5 bn). Imports from the rest of the world stood at 181.7 bn, a rise of 2.3% compared with July 2018 (177.6 bn). As a result, the euro area recorded a 24.8 bn surplus in trade in goods with the rest of the world in July 2019, compared with +16.9 bn in July 2018. Intra-euro area trade rose to 165.6 bn in July 2019, up by 1% compared with July 2018.
The first estimate for extra-EU28 exports of goods in July 2019 was 181.2 billion, up by 6.1% compared with July 2018 (170.8 bn). Imports from the rest of the world stood at 181.3 bn, up by 6.3% compared with July 2018 (170.6 bn). As a result, the EU28 recorded a 0.1 bn deficit in trade in goods with the rest of the world in July 2019, compared with a surplus of 0.2 bn in July 2018. Intra-EU28 trade rose to 296.8 bn in July 2019, +2% compared with July 2018.
Euro area annual inflation is expected to be 0.9% in September 2019, down from 1.0% in August according to a flash estimate from Eurostat. Looking at the main components of euro area inflation, food, alcohol & tobacco is expected to have the highest annual rate in September (1.6%, compared with 2.1% in August), followed by services (1.5%, compared with 1.3% in August), non-energy industrial goods (0.3%, stable compared with August) and energy (-1.8%, compared with -0.6% in August).
The euro area (EA19) seasonally-adjusted unemployment rate was 7.4% in August 2019, down from 7.5% in July 2019 and from 8.0% in August 2018. This is the lowest rate recorded in the euro area since May 2008. The EU28 unemployment rate was 6.2% in August 2019, down from 6.3% in July 2019 and from 6.7% in August 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 15.432 million men and women in the EU28, of whom 12.169 million in the euro area, were unemployed in August 2019. Compared with July 2019, the number of persons unemployed decreased by 111 000 in the EU28 and by 115 000 in the euro area. Compared with August 2018, unemployment fell by 1.189 million in the EU28 and by 960 000 in the euro area.
Economy of Japan
Japan`s real gross domestic product gained 0.4% in August compared with the previous month, benefiting from foreign consumption, the Japan Center for Economic Research said.
Japan`s industrial production dropped 1.2 per cent from the previous month in August for the first decline in two months, the government says. The fall was steeper than the median forecast of a 0.5-per-cent decrease by analysts surveyed by the Nikkei Business Daily, and followed a 1.3-per-cent rise in July.
The Ministry of Economy, Trade and Industry downgraded the basic assessment, saying industrial production "is in weak tone recently." The index of production at factories and mines stood at 101.5 against a 2015 baseline of 100, the ministry said. Manufacturers expect industrial production to rebound 1.9 per cent in September and fall 0.5 per cent in October, a survey conducted by the ministry showed.
Japan`s trade deficit narrowed to JPY 136.3 billion in August 2019 from JPY 448.1 billion in the same month a year earlier and compared to market expectations of a JPY 356 billion gap. Exports declined 8.2 percent, the ninth straight month of decline, while imports plunged 12 percent, as trade policy uncertainty continues to drag activity.
Japan`s core consumer inflation slowed to a new two-year low in August due to lower oil costs and feeble economic growth, data showed, adding to the Bank of Japan`s growing challenges in achieving its elusive 2 percent price target.
The nationwide core consumer price index (CPI), which includes oil products but excludes fresh food prices, rose 0.5 percent in August from a year earlier, matching a median market forecast and slowing from a 0.6 percent gain in July. It was the slowest pace of increase since July 2017, when the index rose 0.5 percent.
Under its current forecasts made in July, the BOJ expects core consumer inflation to hit 1.0 percent in the current fiscal year, set to end in March 2020, and fall short of its 2 percent target for the following two years.
Japan`s unemployment rate was unchanged from the previous month at 2.2 percent in August, remaining at the lowest level in 26 years on the back of a chronic labor shortage due to the country`s rapidly graying population, government data showed. The number of people in work hit a record 67.51 million in the reporting month, of whom 30.02 million were women -- the second-highest figure since comparable data became available in 1953, the Ministry of Internal Affairs and Communications said.
A government official told reporters the labor market is in a state close to "full employment" as the jobless rate has been moving between 2.2 percent and 2.5 percent since January 2018. Separate data from the Ministry of Health, Labor and Welfare showed the job availability ratio stood at 1.59, also unchanged from July. The ratio means there were 159 openings for every 100 job seekers.
Economy of Russia
Russia`s gross domestic product (GDP) growth accelerated to 1.1 percent year-on-year in the first eight months of 2019 from a 0.9-percent year-on-year growth in January-July, the Russian Economic Development Ministry said. Russia`s GDP expanded 1.6 percent in August, and economic growth continued to recover from the weak dynamics in the first half of the year, the ministry said in its monthly business activity report.
However, the August figure was lower than the July rate of 1.8 percent, the ministry said, attributing the spike in July mainly to robust industrial growth. According to the ministry`s estimate, a significant positive contribution to the GDP growth rate of 0.6 percentage point in August was made by industrial production and another 0.1 percentage point by agriculture.
Earlier, the Russian central bank said it had lowered its GDP growth forecast for 2019 to 0.8-1.3 percent from previous 1.0-1.5 percent due to weak economic activity observed since the beginning of the year.
Russia`s industrial output growth picked up to 2.9 percent year-on-year in August 2019 from 2.8 percent in the previous month, beating market expectations of 2.2 percent. Output rose at a faster pace for: extraction of raw materials (3.1 percent vs 3.0 percent); production and distribution of electricity, gas (2.1 percent vs 1.7 percent); and distribution of water, sewage (4.1 percent vs 1.6 percent). Meanwhile, Manufacturing production rose at a softer 2.7 percent, compared to 2.8 percent in July. Industrial Production in Russia increased 2.5 percent in August of 2019 over the previous month.
Russia`s trade surplus shrank to USD 11.22 billion in July of 2019 from USD 13.12 billion in the corresponding month of the previous year. It is the lowest trade surplus since October of 2017, as exports fell for the fourth straight month by 2.6 percent year-on-year to USD 33.44 billion. Shipments dropped to non-CIS countries (-5.1 percent) while those to CIS countries rose 13.2 percent. Meanwhile, imports rose 4.7 percent to USD 22.22 billion, boosted by purchases from both non-CIS countries (+4.1 percent) and CIS countries (+9.9 percent).
The annual inflation rate in Russia decreased to 4 percent in September 2019 from 4.3 percent in the previous month and below market expectations of 4.1 percent. It was the lowest inflation rate since November 2018. Year-on-year, cost slowed for both food (4.6 percent vs 5.0 percent in August) and non-food products (3.4 percent vs 3.5 percent) while services prices also eased (4.0 percent vs 4.4 percent). Annual core inflation rate edged down to a nine-month low of 4.0 percent in September from 4.3 percent in the previous month.
On a monthly basis, consumer prices decreased 0.2 percent, the same as in the previous month and compared to market expectations of a 0.1 percent decrease. Food products cost continued to decline (-0.4 percent vs -0.9 percent) while services prices fell (-0.2 percent vs 0.2 percent). Meanwhile, inflation was steady for non-food items (at 0.2 percent).
Russian unemployment rate decreased to an all-time low of 4.3 percent in August of 2019 from 4.5 percent in the previous month and below market expectations of 4.4 percent. The number of unemployed dropped by 106 thousand to 3.258 million in August from 3.364 million in the previous month. Compared with the previous year, unemployment decreased by 248 thousand from 3.506 million. Meantime, registered unemployment came in at 0.712 million, lower than July`s 0.727 million but above last year`s 0.679 million.
Russia`s real wages increased 3 percent from the previous year in August of 2019, the same as in the previous month and in line with market expectations. Average nominal wages climbed 7.4 percent to RUB 45,100 while annual inflation was at 4.3 percent, its lowest since December 2018.