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World GDP growth to pick up further in 2018
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GDP growth accelerated in Q3, rising by 6.2% y/y, supported by solid domestic demand and exports. Whilst we expect growth to ease back in Q4, we are likely to push up our 2017 GDP growth forecast of 5.5% to around 6% as a result.
Today's outcome adds further weight to our decision to bring forward the first interest rate hike to Q1 2018, following the more hawkish tone adopted by Bank Negara Malaysia at its November monetary policy meeting.
Growth in goods export volumes picked-up in October, with stronger growth recorded across both oil and non-oil domestic exports. However, re-exports showed further signs of softening, consistent with some moderation in trade across the region. So although we recently raised our GDP growth forecast for 2018 to 2.8%, driven by a firmer outlook for global trade than originally expected, overall momentum is still likely to moderate as Chinese import demand cools.
Colombia's GDP grew by 2.0% y/y in Q3, in line with consensus, but below our forecast, largely due to a disappointing performance in September.
Nearly every sector expanded in Q3, reinforcing our view that the Colombian business cycle is starting to pick up, even if a little slower than we had hoped.
Industrial production surges but the details reveal more moderate activity. Headline industrial output jumped 0.9% but it was largely attributed to the post-hurricane rebound. Excluding the storm impact, output was only up 0.3%. Looking ahead, we anticipate fiscal stimulus and firm global demand to support upbeat industrial activity in 2018.
Gains in both fuel and nonfuel import prices pushed October's import price index up 0.2% in October. The recent 11.1% three-month surge in fuel prices has pushed import price inflation to 2.5% y/y. Beyond the surge in fuel-related import prices, nonfuel import price inflation continues to firm from subdued levels and now stands at 1.4% y/y.
Progress on Brexit negotiations has been frustratingly slow since Theresa May’s Florence speech, with talks seemingly still deadlocked. As a result, we have lowered our view of the chances of a successful deal to 65%.
Our view that a deal is more likely than not is largely due to the consequences of failure. As our recent research found, a ‘no deal’ scenario would be far more damaging for the UK than for the rest of Europe. This reality should ultimately force the government to make the necessary compromises.
Eurozone inflation was confirmed at 1.4% in October. We still see inflation moderating in the coming months on energy-related base effects. But the recent rise in oil prices combined with a slight weakening of the euro from its peak means the decline will be milder than initially expected.
French unemployment rose to 9.7% in Q3, but this is partially a function of a rising participation rate as the economic outlook brightens. Eurozone car registrations declined in October, but the typically volatile series still shows strong growth in annual terms.
Late night discussions in Berlin will decide whether the potential coalition partners have found enough common ground to transition to the next phase of prolonged negotiations. Despite plenty of noise a compromise remains more likely than not. A moderate fiscal easing remains the most likely economic outcome of an eventual coalition with parties lacking ambition elsewhere.
Positive omens! In our global macro chartbook for November, we summarise our views on current global themes and asset markets. We focus on upward revisions to our 2018 forecasts for global trade and GDP and the gradual nature of policy tightening in major economies.
While the media headlines will no doubt focus on the first year-on-year decline in retail sales volumes for four-and-a-half years, this was largely a function of unfavourable base effects and the underlying performance of the retail sector remained surprisingly good in October. That said, sales growth has clearly been softer in 2017 as higher inflation has weighed on spending power. And though we are probably close to the peak in inflation, the recovery in spending power is likely to take time to play out.
GDP growth accelerated in Q3, rising 6.9% y/y from 6.7% in the previous quarter. Growth was supported by robust household consumption and investment and a surge in exports. While we expect growth to ease back towards trend in Q4, today's outcome provides some upside risk to our current 2017 GDP growth forecast of 6.5%.
We expect China’s economic growth to cool in 2018 on gradually tighter financial policies. We project CPI inflation will rise modestly, while pressure on the FX market should remain moderate. In spite of the change in economic policy focus in the coming decades announced at the 19th Congress, we do not see signs of a material change in the macro policy stance in the coming years, forecasting a gradual slowdown in growth of GDP and credit.
Business inventories were flat in September, with gains in manufacturing and wholesale offset by a decline in retail. A strong 1.4% uptick in business sales led the inventories-to-sales ratio to fall slightly to 1.36. Inventories are expected to be roughly neutral for real GDP growth in Q4.
Headline retail sales growth cooled to 0.2% in October, but the underlying details point to solid consumer spending. The moderation was expected, following the hurricane-related surge in September. Real consumer spending remains buoyant and is likely to grow at a 2.9% annualized pace in Q4, supporting real GDP growth close to 3.0%.
October CPI came in line with expectations, with headline CPI rising 0.1% and core CPI advancing 0.2% on the month. From a year ago, overall CPI was 2.0%, down from 2.2% in September. The annual change in core CPI ticked up to 1.8% in October, the fastest pace since April.
Within the details, the key core service category (excluding energy) rose 0.3% on the month and the annual rate accelerated to 2.7%, also the fastest since April. The moderate re-acceleration in core readings supports a Fed tightening in December and places upside risk to our call for two rate hikes next year.
The economic recovery of the Eurozone continued to be broad-based in Q3. This was confirmed by today’s release of the Eurozone trade balance for September, which showed further robust growth of intra-European trade. Eurozone net exports to the rest of the world also expanded, indicating that external demand also contributed to the 0.6% GDP growth figure in Q3.
The Euro passed the $1.18 mark today, up by 1.7% from last week, largely on the back of Tuesday’s stronger than expected GDP growth figures for Germany. Over the next few months, we expect the Euro to rise further and approach $1.20 in Q4.
The OBR is set to “significantly” cut its forecast for productivity growth, which will push up its projections for borrowing. As a result, we expect the Chancellor to lose around two-thirds of the margin for error against his main fiscal rule.
A gloomier fiscal outlook, the Government’s fragile parliamentary position and HMRC’s Brexit-related workload suggest that the Budget will be a light one for measures. Helping business and the young and promoting housebuilding are likely to be priorities, albeit with any ‘giveaways’ balanced by ‘takeaways’.
Persistently subdued public-sector wages in major economies helps underpin our below-consensus view of the outlook for global inflation, given the still important role of the public sector as a benchmark for the private sector.
Labour market numbers for the three months to September delivered nothing in the way of fireworks. The LFS unemployment rate remained at a 42-year low of 4.3% while employment dipped by a marginal 14,000.
Meanwhile, headline pay growth remained stuck in a rut over the same period, dipping to 2.2% on a year earlier. But there was finally some good news on productivity. Output per hour rose by 0.9% in Q3, the strongest rise since 2011.
export growth gathered pace in October, however, consistent with more moderate
growth across the region, momentum eased back in volume terms. In contrast,
momentum in goods imports picked up on non-energy imports. But we remain
cautious as to whether this is pre-empting an improvement in domestic demand.
Although the trade surplus narrowed in October, we still expect the current
account deficit to stay narrow over the remainder of this year, which should be
supportive of the Indonesian rupiah.
GDP growth moderated in Q3, underpinned by a sharper than expected pullback in domestic demand. Although we think the contraction in household spending will prove temporary, the outcome is likely to worry policy makers. With limited room to ease monetary policy, the government may turn to more fiscal support. Sluggish wage growth remains a risk to the recovery in household spending.
The CEE economies continue to ride the wave of “Euroboom”, with another solid quarter of consumption- and export-driven growth in Q3. Despite a quarterly pace of growth that produced fewer upside surprises relative to our above-consensus forecasts (bar Romania, which stunned with 8.6% growth), in annual terms the region grew by 5.3% in Q3 and is now seen expanding by about 4.6% this year, a pace not seen since pre-crisis 2007.
Higher oil prices are a risk to growth momentum and benign inflation. We run a scenario in which prices average $65pb between 2017Q4 and 2019Q4, $10pb above our baseline. The peak impact entails nearly 0.3pp lower annual global growth in 2019Q4, and 0.6pp.
The German economy continued to boom in the third quarter as global demand pushed exporters to raise investment. There is little indication that this demand channel is slowing heading into 2018 as the latest sentiment indicators like the ZEW remain very supportive. We raise our 2017 & 2018 GDP forecasts to 2.5% & 2.4%, well ahead of consensus and the Eurozone average.
Italian GDP expanded by 0.5% over the quarter, in line with our expectations. We continue to maintain our above-consensus view of Italian GDP growing by 1.6% this year and 1.4% next. Overall, consensus expectation for Eurozone growth look to have further room to rise.
CPI inflation remained at 3.0% in October, as upward pressure from higher food prices was offset by a weaker contribution from petrol prices. We still expect CPI to edge above 3% next month, necessitating a letter of explanation from Mark Carney. But November’s reading is likely to represent the peak, with inflation set to slow as we move through 2018. As a result, we expect there to be a prolonged period of monetary policy inaction.
Economic growth slowed in October on production cuts and weaker exports and real estate activity. However, household consumption remained robust.
Speeches and comments at the 19th Party Congress confirmed that, in spite of a change in policy focus in the coming decades, there are no signs of a material change in the policy stance in the coming years. Policymakers remain focused on reducing financial risk and deleveraging part of the financial system while aiming for a gradual easing of credit growth. In a relatively favourable global context, we project 6.4% GDP growth in 2018, after 6.8% this year.
Chile's election on Sunday, November 19, is set to produce no winner in the first round of voting, and no party in control of the National Congress.
The likeliest outcome is a return to power for centre-right Sebastián Piñera, but his agenda of rolling back the current government's left-wing reforms and cutting tax and regulation will be moderated by legislative coalition-building.
A welcome path of moderation and stability should anchor business expectations and produce few risks to our overall economic outlook for Chile.
Despite upward revisions to our forecasts for global GDP growth, oil and commodity prices in 2018 we still expect underlying inflation pressures in the advanced economies to build only slowly, resulting in a very slow pace of policy normalisation by central banks.
If Brexit negotiations were to break down, the UK would face a significant increase in trade disruption from March 2019, even if it were able to put some basic trading arrangements in place. In a scenario where key sectors face extra friction, we find that the level of UK GDP would be 2.0% – or £16bn in cash terms – lower at the end of 2020 compared with our baseline. The impact on the remaining EU countries, including Ireland, would be much smaller.
Real GDP expanded by 0.5% q/q in Q3 and 3.6% y/y as private consumption gathered strong momentum. Net exports remained a drag on growth, however, even though overall exports have picked up.
We now forecast 2017 GDP growth of 3.6% (a slight upgrade from 3.5% previously) in view of the faster pick-up in private consumption in Q3. But we expect 2018 growth to slow to 2.5%, partly because we anticipate rising interest rates to exert pressure on the property market, which could act as a drag on the economy.
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From Le Monde:
"The eurozone is dynamic and international trade is doing well, there is still room for improvement at home , " says Marion Amiot of Oxford Economics& … more
From The The The Wall Street Journal :
"CFederal Reserve officials begin their two-day policy meeting Tuesday amid fresh signs that inflation remains lower than they would like, despite … more
From The The Financial Times:
"Gabriel Sterne, head of global macro research at Oxford Economics, a consultancy, argued that emerging markets survived “the mother of all stress … more