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World Economy Review - January 2020

Moody`s has revised its global GDP growth forecast down considering the adverse impact of COVID-19 on the world`s economy.

We have revised our global GDP growth forecast down, and we now expect G-20 economies to collectively grow 2.4% in 2020, a softer rate than last year, followed by a pickup to 2.8% in 2021, Moody`s said in a report.

We have reduced our growth forecast for China to 5.2% in 2020 and maintain our expectation of 5.7% growth in 2021. We have also lowered our real GDP growth forecast for Australia, Korea and Japan on account of the coronavirus, it said.

Additionally, it has reduced its growth projections for India, Mexico and South Africa, a reflection of domestic challenges in those countries rather than external factors.

Stating that the coronavirus outbreak had diminished optimism about prospects of an incipient stabilization of global growth this year, Moody`s said since the virus was continuing to spread, it was still too early to make a final assessment of the impact on China and the global economy.

Our baseline assumes the outbreak will cause disruption in Q1 economic activity. Under our baseline forecast, the spread of the coronavirus will be contained by the end of Q1, allowing for resumption of normal economic activity in Q2, it said.

At present, China`s economy is by far the worst affected. However, the rest of the world also has exposure as a result of a hit to global tourism in the first half of this year and short-term disruptions to supply chains, the rating agency said.

The effects on the global economy could compound if the rate of infection did not abate and the death toll continued to rise, because supply chain disruptions in manufacturing would become more acute the longer it takes to restore normalcy, it added.

On the impact on India, it said that the economic recovery will likely be shallow.

India`s economy has decelerated rapidly over the last two years. Real GDP grew at a meagre 4.5% in Q3 2019. Improvements in the latest high frequency indicators such as PMI data suggest that the economy may have stabilized, it said.

While the economy may well begin to recover in the current quarter, we expect any recovery to be slower than we had previously expected. Accordingly, we have revised our growth forecasts to 5.4% for 2020 and 5.8% for 2021, down from our previous projections of 6.6% and 6.7%, respectively, it added.

A key to stronger economic momentum would be the revival of domestic demand, both rural and urban. But equally important is the resumption of credit growth in the economy, Moody`s said.

As data from the Reserve Bank of India (RBI) shows, credit impulse in the economy has deteriorated throughout the last year as a result of the drying up of lending from non-bank financial institutions as well as from banks. Banks have been both unwilling to lend and to lower lending rates despite successive interest rate cuts by the central bank, it said.

As a result, non-food bank credit growth decelerated to 7.0% in nominal terms in December 2019, down sharply from 12.8% a year earlier. The deterioration in credit growth to the commercial sector is particularly stark, it added.

Nominal credit to industry grew at only 1.6% year-on-year in December 2019, while credit to the services sector registered 6.2% nominal growth, and credit to agriculture and related activities grew 5.3%, Moody`s said.

Economy of the United States

The U.S. economy grew 2.1% in the fourth quarter, closing out a year in which gross domestic product decelerated to its slowest pace in three years amid a continuing drag in business investment.

The GDP increase matched the third quarter and met expectations of economists surveyed by Dow Jones. For the full year, the economy grew 2.3%, below the 2.9% increase from 2018 and the 2.4% gain in 2017, the first year of Donald Trump`s presidency, according to the initial estimate by the Commerce Department.

Continued gains in consumer spending helped propel the economy in the year`s final three months, though the rate of increase came in at 1.8%, well below the 3.2% pace in the third quarter. Still, personal consumption expenditures added 1.2 percentage points to the quarterly rise. The consumer accounts for 68% of what is now a $21.7 trillion U.S. economy.

For the full year, PCE rose 2.6%, off the 3% pace in 2018. Real disposable income was up 1.5% in the fourth quarter, a decline from the 2.9% rise in the previous period. The full-year gain came in a 3%, below the 4% increase in 2018. The savings rate was 7.7%, little changed from the third quarter.

U.S. industrial production fell 0.3% in January as unseasonably warm weather held down the output of utilities and Boeing slowed production of civilian aircraft, the Federal Reserve said. The Fed said manufacturing production fell 0.1% in January, matching forecasts, but December`s manufacturing output was revised lower to a 0.1% gain from a previously reported 0.2% gain.

Overall, industrial output for December was revised downward to a 0.4% reduction from a previously reported 0.3% drop. Economists polled by Reuters had forecast industrial output would fall 0.2% in January, with manufacturing output forecast to be down 0.1%. On an annualized basis, production at factories fell 0.8% in January, mirroring the annualized drop in overall industrial production.

Capacity usage at factories, mines, and utilities fell to 76.8%, the lowest since September 2017, from 77.1% in December. U.S. utility production fell 4.0% in January after a 6.2% drop in December, while output at mines rose 1.2% in January after a 1.5% increase in December.

The US trade deficit dropped for the first time in six years in 2019 as the White House`s trade war with China curbed the import bill, helping the economy to continue growing moderately in the fourth quarter despite a slowdown in consumer spending.

The Commerce Department said the trade deficit fell 1.7 per cent to US$616.8 billion last year, the first drop since 2013. Goods imports tumbled 1.7 per cent last year, with exports decreasing 1.3 per cent, showing that the Trump administration`s "America First" agenda decreased the flow of goods.

Goods imports, however, rebounded sharply in December, boosting the trade deficit 11.9 per cent to US$48.9 billion that month. Data for November was revised to show the gap tightening to US$43.7 billion instead of US$43.1 billion as previously reported. Economists polled by Reuters had forecast the trade gap would widen to US$48.2 billion in December.

U.S. underlying consumer prices picked up in January as households paid more for rents and clothing, supporting the Federal Reserve`s contention that inflation would gradually rise toward its 2% target. The Labor Department said its consumer price index excluding the volatile food and energy components rose 0.2% last month after edging up 0.1% in December. The so-called core CPI was up by an unrounded 0.2423% last month.

In the 12 months through January, the core CPI increased 2.3%, rising by the same margin for four straight months. In the 12 months through January, the CPI rose 2.5%, the biggest gain since October 2018, after advancing 2.3% in December. In January, gasoline prices fell 1.6% after jumping 3.1% in December. Food prices gained 0.2%, matching December`s increase. Food consumed at home ticked up 0.1%.

The US unemployment rate rose to 3.6 percent in January 2020 from the previous month`s 50-year low and above market expectations of 3.5 percent. The number of unemployed people increased by 139 thousand to 5.89 million while employment fell by 89 thousand to 158.71 million. The labor force participation rate rose 0.2 p.p. to 63.4 percent.

Economy of the European Union

Seasonally adjusted GDP rose by 0.1% in both the euro area (EA19) and the EU27 during the fourth 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 third quarter of 2019, GDP had grown by 0.3% in both zones.

Compared with the same quarter of the previous year, seasonally adjusted GDP rose by 0.9% in the euro area and by 1.2% in the EU27 in the fourth quarter of 2019, after +1.2% and +1.5% respectively in the previous quarter. According to an estimation of annual growth for 2019, based on quarterly data, GDP grew by 1.2% in the euro area and 1.4% in the EU27.

In December 2019 compared with November 2019, seasonally adjusted industrial production fell by 2.1% in the euro area (EA19) and by 2.0% in the EU27, according to estimates from Eurostat. In November 2019, industrial production remained stable in the euro area and in the EU27. In December 2019 compared with December 2018, industrial production decreased by 4.1% in the euro area and by 3.9% in the EU27. The average industrial production for the year 2019, compared with 2018, fell by 1.7% in the euro area and by 1.1% in the EU27.

The first estimate for euro area (EA19) exports of goods to the rest of the world in December 2019 was 186.1 billion, an increase of 4.8% compared with December 2018 (177.5 bn). Imports from the rest of the world stood at 163.0 bn, a rise of 1.1% compared with December 2018 (161.2 bn). As a result, the euro area recorded a 23.1 bn surplus in trade in goods with the rest of the world in December 2019, compared with + 16.3 bn in December 2018. Intra-euro area trade rose to 145.5 bn in December 2019, up by 1.0% compared with December 2018.

The first estimate for extra-EU27 exports of goods in December 2019 was 172.8 billion, up by 6.2% compared with December 2018 (162.7 bn). Imports from the rest of the world stood at 149.4 bn, up by 1.0% compared with December 2018 (147.9 bn). As a result, the EU27 recorded a 23.4 bn surplus in trade in goods with the rest of the world in December 2019, compared with +14.8 bn in December 2018. Intra-EU27 trade rose to 222.7 bn in December 2019, +0.9% compared with December 2018.

Euro area annual inflation is expected to be 1.4% in January 2020, up from 1.3% in December 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 January (2.2%, compared with 2.0% in December), followed by energy (1.8%, compared with 0.2% in December), services (1.5%, compared with 1.8% in December) and non-energy industrial goods (0.3%, compared with 0.5% in December).

The euro area (EA19) seasonally-adjusted unemployment rate was 7.4% in December 2019, down from 7.5% in November 2019 and from 7.8% in December 2018. This is the lowest rate recorded in the euro area since May 2008. The EU28 unemployment rate was 6.2% in December 2019, down from 6.3% in November 2019 and from 6.6% in December 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 15.475 million men and women in the EU28, of whom 12.251 million in the euro area, were unemployed in December 2019. Compared with November 2019, the number of persons unemployed decreased by 80 000 in the EU28 and by 34 000 in the euro area. Compared with December 2018, unemployment fell by 747 000 in the EU28 and by 592 000 in the euro area.

Economy of Japan

Japan`s economy contracted at an annualized pace of 6.3% in October-December, shrinking at the fastest pace since the second quarter of 2014, government data showed. The preliminary reading for fourth-quarter gross domestic product was much worse than economists` median estimate of a 3.7% contraction in a Reuters poll. It followed a revised 0.5% expansion in July-September.

On a quarter-on-quarter basis, GDP shrank 1.6%, more than the median forecast for a 0.9% fall, the Cabinet Office data showed. Private consumption, which makes up more than half of the economy, fell 2.9% and capital spending fell 3.7%, while exports dropped 0.1%.

Japan industrial production grew 1.3% mom in December, beat expectation of 0.7% mom. However, in the three months of October-December, factory output has indeed contracted -4.0%. That was the worst decline since data began in 2013. The Trade Ministry also said the pace of rebound (in Dec) was not big we will closely monitor whether factory output will recover in coming months. It also kept the assessment of production as weakening.

Retail sales dropped -2.6% yoy in December, down for a third straight month, and missed expectation of -1.8% yoy. Housing starts dropped -7.9% yoy, versus expectation of -11.5% yoy.

Japan`s trade deficit rose to JPY 152.5 billion in December 2019 from JPY 55.7 billion a year earlier and compared with market expectations of JPY 150 billion. Exports fell 6.3 percent to JPY 6.58 trillion, the thirteenth consecutive month of decline, down from a 7.9 percent tumble in November but more than an expected 4.2 percent slump. Meantime, imports slipped 4.9 percent to JPY 6.73 trillion, after plunging 15.7 percent in November and compared with market forecasts of a 3.4 percent fall. Considering full 2019, the country recorded a JPY 1643.8 billion trade deficit, the biggest gap in four years. Exports went down 5.6 percent and imports declined 5 percent.

Japan`s consumer price inflation rose to 0.8 percent year-on-year in December 2019 from 0.5 percent in the previous month, above market consensus of 0.4 percent. This was the highest rate since April, as food prices rose the most in 14 months (1.9 percent vs 1.5 percent in November) and housing inflation stood at the highest level for over two decades (at 0.8 percent). In addition, transport cost increased for the first time in 13 months (0.8 percent vs -0.5 percent) and culture & recreation inflation hit a near five-year high (2.8 percent vs 2.3 percent). Meantime, annual core consumer inflation, which excludes fresh food, rose to 0.7 percent in December, the highest since May, but below the Bank of Japan`s 2 percent target. The so-called core-core inflation index, which excludes fresh food and energy prices, grew 0.9 percent, the fastest pace since March 2016. Considering 2019 full year, inflation rate averaged 0.5 percent, down from 1 percent in 2018.

The unemployment rate in Japan remained unchanged at 2.2 percent in December 2019, slightly below market expectations of 2.3 percent, amid the ongoing labour shortage due to the rapidly graying population. Meanwhile, the jobs-to-applications ratio also remained unchanged at 1.57 (versus consensus of 1.56). Unemployment has stoically resisted thirteen straight months of falling Japanese exports in the midst of trade disputes and a downturn in the global manufacturing cycle led by the automotive and semiconductors industries. The annual average jobless rate for 2019 stood at 2.4 percent, unchanged from 2018 and the lowest level since 1992.

Economy of Russia

The Growth of Russia`s GDP in 2019 amounted to 1.3%, according to Rosstat. This corresponds to the official forecast of Ministry of economic development. The Volume of Russia`s GDP in 2019, according to the first estimate, amounted in current prices 109361,5 billion. The index of physical volume of GDP in 2018, relative to 101.3%. The index-deflator of GDP in 2019 compared to the prices of 2018 was 103.4%, - specified in the message of Rosstat. Russia`s GDP growth rate in the fourth quarter of 2019 was 2.3 percent.

At the end of 2020 the Ministry expects growth of Russia`s GDP by 1.7%, and in 2021 - up to 3.1%. In 2018, the Russian economy grew by 2.5%.

Earlier, the Bank of Russia has published the medium-term Outlook following the meeting of the Board of Directors on the key rate on December 13. The Bank of Russia has kept the GDP growth forecast for Russia for 2020 in the amount of 1.5-2% as in 2021-2022 years, and 1.5 - 2.5% and 2-3%, respectively.

The Regulator raised its forecast for net capital outflow from Russia in 2019 from $37 billion to $40 billion and has retained the forecast for 2020 at $20 billion, and in 2021 and 2022 at $15 billion, the Bank of Russia increased the forecast average price of Urals oil in 2019, $63 to $64 per barrel and kept the price forecast for 2020 at $55 per barrel, at 2021-2022 from $50 per barrel.

Russia`s industrial production growth slowed to 1.1 percent in January 2020 from a downwardly revised 1.7 percent in the previous month and below market consensus of 1.7 percent. Manufacturing expansion was little-changed at 3.9 percent, compared to 4.0 percent in December, while output contracted for extraction of raw materials (-0.4 percent vs 0.5 percent) and production and distribution of electricity, gas (-4.7 percent vs -4.8 percent). Meanwhile, distribution of water, sewage rebounded (1.0 percent vs -10.0 percent). Industrial Production in Russia decreased 17.3 percent in January of 2020 over the previous month.

The trade surplus in Russia narrowed to USD 15.47 billion in December 2019 from USD 18.43 billion in the same month a year earlier. Still, that was the largest trade surplus since last March. Exports dropped 3 percent as sales to non-CIS countries declined 4.8 percent, while those to CIS countries climbed 9.8 percent. Meanwhile, imports increased 7.7 percent on the back of purchases from non-CIS (7.9 percent) and CIS countries (5.5 percent). Considering 2019 full year, the trade surplus narrowed to USD 164.74 billion from USD 194.43 billion the year before.

Annual inflation rate in Russia decreased to 2.4 percent in January 2019 from 3.0 percent in the previous month and slightly below market expectations of 2.5 percent. It was the lowest inflation since June 2018, as cost slowed for non-food products (2.5 percent vs 3.0 percent in December), food (2.0 percent vs 2.6 percent) and services (2.8 percent vs 3.8 percent). The core inflation rate declined to 2.7 percent in January from 3.1 percent, its lowest since August 2018. On a monthly basis, consumer prices went up 0.4 percent, the same as in the prior month.

Russian unemployment rate rose to 4.7 percent in January 2020 from 4.6 percent in the previous month, in line with market expectations and compared to last year`s figure of 4.9 percent. It was the highest jobless rate since April, as the number of unemployed increased by 9 thousand from a month earlier to 3.482 million.

24.02.2020 21:25:07

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