Leading Economists Cut Asia Growth Outlook

The global economic outlook is rapidly deteriorating. Second quarter GDP data for the major advanced economies were disappointing and first figures for the third quarter point towards an even steeper slowdown, dashing hopes that the global economy would turn the corner in the second half of the year. The protracted debt crisis in Europe and the rapidly deteriorating growth prospects in the U.S. have unsettled investors and triggered a massive sell-off in financial markets. So far, ex-Japan Asian economies have escaped relatively unscathed from the adverse developments in the advanced economies. While the financial market sell-off has raised volatility in capital flows, the real side of the economy held up well. However, latest indicators suggest that external demand is beginning to show signs of weakness across the region. On a positive note, weak growth in the advanced economies and strong growth in emerging market economies during the last years have made the ex-Japan Asia region increasingly resilient against another slowdown in developed markets. Led by China, the region is increasingly self-reliant. That said, no region is entirely immune to developments in the advanced economies and should the U.S. and the European economies deteriorate further in the months ahead, ex-Japan Asia would certainly suffer more adverse export conditions, which would dent growth in particular in the region’s most open economies.

Against this backdrop, analysts cut their ex-Japan Asia growth estimate for 2011 by 0.1 percentage points over last month to the current 7.6%. In addition, the panel pared the outlook for 2012 by the same magnitude and sees economic growth to remain at that level next year.

Despite the deteriorating growth prospects, inflation expectations have not adjusted downward. In contrast, the 2011 inflation estimate for the ex-Japan Asia region even inched up from 5.5% expected last month to the current 5.6% while the forecast for 2012 remained unchanged at 4.3%. In spite of the persistent price pressures, Asian monetary authorities have refrained from further tightening their policies, with only India (16 Sep) and Thailand (24 Aug) raising interest rates over the last month. In light of the deteriorating growth prospects, central banks are likely to continue to act cautiously in the months ahead.

From: FocusEconomics Consensus Forecast Asia, published 27 September 2011.

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Fiscal tightening in the U.S. and Europe weighs on growth outlook for Asia

• Second quarter GDP prints for the major advanced economies were disappointing: the United States advanced a paltry annualized 1.3%, Eurozone growth slowed to just 0.2% quarter-on-quarter and Japan’s economy shrank by 0.3%. Moreover, latest economic indicators suggest that the U.S. economy is losing further momentum, whilst the Eurozone’s sovereign debt crisis continues to overshadow the outlook in Europe. Against this backdrop, the ex-Japan Asian economies have proved surprisingly resilient. In fact, manufacturing in the region even rebounded in June from a Tohoku-induced shortage in critical supplies that affected the region’s most export-dependent economies. In addition, while export growth is slowing, the figure remained in the double-digit range. However, going forward, the inevitable fiscal tightening in the U.S. and Europe threatens to affect the region’s growth prospects.

• On balance, FocusEconomics Consensus Forecast panellists did not change the ex-Japan Asia growth estimate for 2011, which thus remains at the 7.8% observed last month. However, the outlook for 2012 is beginning to weaken, with the Consensus dropping from the 7.8% expected last month to the current 7.7%, with a majority of countries revised downwards and none to the upside.

• Inflation expectations continue to rise but at a more measured pace than earlier. Following on rapid upward revisions observed at the beginning of the year, which lifted the regional inflation forecast by more than a full percentage point since the end of 2010, the FocusEconomics Consensus Forecast increased only a notch over last month to the current 5.5%. Next year, inflation is seen dropping to 4.3%. In spite of the rising inflation forecast, Asian monetary authorities have paused their tightening cycle, with none of the nine countries surveyed (not counting Hong Kong and Singapore) changing their policy over the last month. In light of the deteriorating growth prospects, central banks are likely to continue to act cautiously in the months ahead.

More information on Asia with updated economic news, data and forecasts on the Asian economy available at the FocusEconomics Asia Page

Asia economic outlook remains stable despite headwinds

Economic indicators released during the last month confirm that economic growth is slowing in ex-Japan Asia. In part, this slowdown reflects supply chain disruptions related to the 11 March Tohoku earthquake that have curbed industrial output growth in several economies. In particular, Malaysia, Singapore, Taiwan and Thailand have reported slowdowns in their manufacturing industries related to supply shortages, mostly concentrated in the automotive and IT sectors. Data from Japan indicate that these constraints should be easing soon, raising hopes that the current slump will be short-lived. However, next to these temporary disruptions, the region is feeling the headwinds from slower demand growth in the advanced economies. In the United States, the political battle over the unwinding of the fiscal stimulus is in full swing and the speed of recovery remains disappointingly slow. On a positive note, Europe’s sovereign debt crisis has become less of an immediate threat after politicians agreed on the rules of a second bailout package for Greece.

On balance, analysts have not revised the ex-Japan Asia growth outlook, which thus remains at the 7.8% observed last month. However, small downside adjustments to the leading economies in the region suggest that the balance is tilting to the downside. For 2012, panellists expect the region to continue to grow at the same 7.8% pace expected for the current year.

Inflation expectations continue to rise but at a more measured pace than earlier. Following on rapid upward revisions observed at the beginning of the year, which lifted the regional inflation forecast by more than a full percentage point since the end of 2010, the Consensus Forecast increased only a notch over last month to the current 5.3%. Next year, inflation is seen dropping to 4.3%. However, inflation forecasts for 2012 are also slowly rising, suggesting that inflation will be stickier than anticipated earlier. Against the backdrop of continuously rising inflation expectations, Asian monetary authorities are further tightening the reins. Of the nine countries surveyed (not counting Hong Kong and Singapore), four saw their monetary policy tightened over the last month, with the People’s Bank of China (PBOC) raising the benchmark one-year lending rate for the first time since April and the Reserve Bank of India lifting interest rates by a higher-than-expected 50 basis points to stem the persistent rise in inflation.

More information on Asia with updated economic news, data and forecasts on the Asian economies available at FocusEconomics

Spanish consumer confidence rises

The index of consumer confidence produced by the National Credit Institute (ICO, Instituto de Crédito Oficial) increased to 74.9 points in June from 74.3 points in May, marking the third consecutive month of gains in consumer confidence. As a result, consumer sentiment sits 9.0 points above the level observed in the same month the previous year. That said, despite the June increase, consumer confidence remains below the 100-point threshold that separates optimistic from pessimistic territory,.

The slight improvement in consumer sentiment was driven by a better assessment of the current situation sub-index, especially in current employment, owing to the beginning of the summer season that brings about temporary hiring in the tourism sector. However, expectations deteriorated amid worsening perceptions of the economic outlook and employment, which suggests that private consumption going forward will remain weak in the months ahead.

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Poland’s industrial production picks up in May

In May, industrial production expanded 7.7% over the same month last year, which mainly reflected a strong manufacturing sector as well as an acceleration in mining and quarrying. The reading came in above the 6.6% growth observed in April and market expectations of a 7.6% increase.

On a monthly basis, industrial production added a non-seasonally adjusted 2.6% over the previous month (April: -9.4% month-on-month), hence confirming the expansion implied by the annual figures. Nevertheless, the result came in below market expectations of a 2.8% increase in May. Furthermore, the trend deteriorated, with annual average industrial production falling from 10.6% in April to 10.2% in May.

More information on Poland with updated economic news, data and forecasts on the Polish economy available at the FocusEconomics Poland Page

Russian industrial production moderates in May

In May, industrial production rose 4.1% over the same month last year, which was below the 4.5% expansion recorded in April and broadly in line with market expectations of a 4.2% increase. In addition, the reading marked the lowest pace of year-on-year expansion since October 2009.

A month-on-month comparison does not support the slowdown suggested by the annual figures. In May, industrial production expanded a seasonally adjusted 0.8% over the previous month, which was an improvement compared to the 0.3% increase recorded in April and marked the highest monthly reading since the start of the year. Nevertheless, the trend deteriorated, with annual average growth in industrial production dropping from 7.2% in April to 6.7% in May.

For 2011, the government expects industrial production to expand 5.4%, before moderating to a 3.6% clip the following year.

More information on Russia with updated economic news, data and forecasts on the Russian economy available at the FocusEconomics Russia Page

Turkey’s current account deficit continues to widen

In April, the current account incurred a deficit of USD 7.7 billion. The result was broadly in line with market expectations, and was down from the revised USD 9.7 billion deficit recorded in March. However, the current account deficit over the last 12 months continued to widen, reaching USD 63.7 billion in April, up from a USD 48.4 billion deficit recorded in the full year 2010 (6.6% of GDP).

The Central Bank stated that the deterioration in the current account reflects strong domestic demand and higher energy prices, as Turkey imports about 95% of its total energy needs. The rapid pace of import growth continues to raise concerns among Turkish monetary authorities, who wish to rebalance GDP expansion and increase the contribution from net exports to overall growth via measures designed to slow domestic demand.

Despite authorities’ efforts, imports remain buoyant, rising 40.2% over April 2010 in USD terms (March: +44.1% year-on-year), while exports accelerated, adding 26.4% over the same period the previous year (March: +19.4% yoy). As a result, the trade deficit increased to a record high of USD 87.2 billion in the 12-month period to April 2011.

More information on Turkey with updated economic news, data and forecasts on the Turkish economy available at the FocusEconomics Turkey Page

Brazil retail sales decline in April

In April, retail sales (excluding cars and construction) contracted a seasonally adjusted 0.2% over the previous month. The reading contrasted the 1.0% rise recorded in March (previously reported: +1.2% month-on-month) and came in below market expectations of a 0.4% increase. On an annual basis, retail sales accelerated sharply from 4.0% tallied in March to 10.0% in April, mainly due to a favourable base effect from April 2010.

The monthly contraction was driven by a fall in the sale of computers and office supplies (-13.6% month-on-month) as well as apparel (-3.2% mom). Meanwhile, the broad retail sales index, which includes automobiles and construction materials, rose 1.1% over the previous month, with vehicle sales expanding 1.7% mom and construction materials rising 0.2% mom.

Annual average growth in retail sales remained unchanged in April at 9.5%.

More information on Brazil with updated economic news, data and forecasts on the Brazilian economy available at the FocusEconomics Brazil Page

Canada purchasing managers index rebounds in May

The Ivey Purchasing Managers Index (PMI) sponsored by the Richard Ivey School of Business and the Purchasing Management Association of Canada soared from 57.7 points in April to 69.1 points in May. The increase was well above market expectations, which saw the PMI rising to only 60.0 points. On a seasonally adjusted basis, the Ivey PMI increased from 57.8 points in April to 65.5 points in May.

With the May increase, the PMI climbed up further above the 50-point threshold, suggesting that manufacturing production will continue to expand in the months ahead. The improvement in the index mainly reflected better results in the employment, prices and inventories components. On the other hand, the deliveries component of the index deteriorated over May.

More information on Canada with updated economic news, data and forecasts on the Canadian economy available at the FocusEconomics Canada Page

Spain industrial production unexpectedly drops in April

In April, industrial production dropped a working-day adjusted 1.6% over the same month last year, following the revised 0.4% decrease observed in March (previously reported: -0.9% year-on-year). The reading contrasted market expectations of a 1.8% expansion and marked the largest drop in six months. Weak consumer demand and rising concerns regarding the pace of the economic recovery contributed to the dismal reading.

The monthly drop was broad-based, as all sub-indices contracted over the same month the previous year in working-day adjusted terms.

As a result of the monthly drop, annual average growth in industrial production eased from 1.2% in March to 0.9% in April, marking the second consecutive decline.

More information on Spain with updated economic news, data and forecasts on the Spanish economy available at the FocusEconomics Spain Page