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World Economy - November 2017

Source: OPEC_RP171105 11/13/2017, Location: Europe

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The global economic growth dynamic has continued its broad-based and relatively strong momentum. Particularly the OECD economic growth trend was better than expected so far this year. Moreover, the potential tax reform in the US, the ongoing dynamic in the Euro-zone and, to some extent, in Japan, solid growth in China and an improving situation in Russia and Brazil are all lifting the GDP growth forecast to 3.7% in 2017 and in 2018.

Supported by a continued strong momentum in 3Q17, OECD GDP growth was revised up in 2017 to 2.3% from 2.2%; and the OECD’s 2018 GDP growth forecast was revised up to 2.2% from 2.1%. This uptick was mainly supported by expectations of an ongoing strong growth dynamic in the Euro-zone and the US in the coming year, the latter of which may gain further support through a potential tax cut. In the emerging economies, China’s growth was better than expected in 2017 and consequently revised up to 6.8% for 2017 and to 6.5% in 2018. India’s growth trend still seems to be impacted by the after-effects of its reforms that were implemented in the past months. This has led to a slight downward revision in both 2017 and 2018, but growth is expected to pick up in the coming year to reach 7.4%, after this year’s growth of 6.8%. Brazil and Russia’s recovery will continue in 2018. Brazil’s growth has been lifted to 0.7% in 2017, before reaching 1.5% in 2018. Russia’s growth has been lifted to 1.8% in 2018, the same growth level as in 2017.

While the ongoing momentum could still provide some slight upside potential, numerous uncertainties prevail that – if to materialize – could unfold quickly and considerably, impacting global economic growth. Among the most influential uncertainties in the near term are geo-political developments, in addition to the pace of monetary policy normalisation, in combination with high debt levels in many countries and considerable valuations in asset markets. Moreover, stability in the oil market remains a key-determinant for global economic growth.

OECD
OECD Americas
US
Underlying economic growth in the US is showing continued strength, with 3Q17 GDP reaching growth of 3.0% q-o-q at a seasonally adjusted annualised rate (SAAR) in the first of three estimates. This growth number would have been presumably even higher without the negative effects of the hurricane season in August and September. While growth is now forecast to be lower in 4Q17, particularly the rising consumer confidence, amid the recovery in the labour market, is pointing at a continued solid growth trend.

Business sentiment and consumer confidence may also be supported by the US Administration’s efforts to implement a tax reform in Congress. If this materializes in the near term, growth next year will also likely be higher. Importantly, the Federal Reserve (Fed) acknowledged the improvements and highlighted that the normalisation of interest rates would continue and it seems likely that the key policy interest rate will be revised up again in December by 25 basis-points. The main driver for the strong numbers seen in 3Q17 was personal household consumption, which expanded by 2.4% q-o-q SAAR, the outcome of a considerably strengthening labour market. It is estimated that 3Q17 exports rose by 2.4% q-o-q SAAR, while imports have declined by 0.8% q-o-q SAAR, bringing down the US trade deficit. Investments continued to grow, with a considerable share coming from the energy sector. Private investments advanced by 6.0% q-o-q SAAR, with investments in the oil sector and related activities – so-called investments into mining exploration, shafts, and wells – rising by 21.7% q-o-q SAAR.

The tax framework is still under discussion and while some form of a framework has been established, it remains to be seen how negotiations in Congress will develop. It is likely that this will boost GDP growth in the short-term, but the magnitude may vary, depending on the depth and the details of the reform. Both the proposal of the Senate and the House are now suggesting a deficit increase of $1.5 trillion over 10 years. A valid concern is that this rising deficit, in combination with growing underlying inflation, may require the Fed to raise interest rates less gradually than currently anticipated. In combination with the discussions on the tax reform, a potentially upcoming debate on the debt ceiling will also need close monitoring as the debt-ceiling agreement expires in December and would need to be extended. This has also been intensively discussed in the past and remains important in light of the likely perspective of a rising budget deficit.

While the Fed has highlighted that its monetary policies are contingent on the development of the domestic economy in general, the labour market, inflation and potential spill-overs to the global economy, recent comments seem to indicate that the Fed will pursue its tightening cycle as planned. It is expected that the key policy rate will be increased by 25 bp in the upcoming December meeting. Inflation stood at 2.2% y-o-y in September, again rising for a third consecutive month and confirming a solid trend that would also allow the Fed to continue tightening. Core inflation, excluding volatile items such as food and energy, remained at 1.7% y-o-y for the fifth consecutive month, below the Fed’s inflation target of around 2%, but should also be expected to pick up, given the tightness in the labour market.

The labour market’s positive momentum continued and clearly recovered after the negative impact by the hurricane season in August and September. Non-farm payrolls increased again by 261.000 jobs in October, after they rose by only 18.000 in September, as shown in the latest labour market report. The sector that was mostly affected by the hurricanes - leisure and hospitality – recovered almost all job losses from August and September, as the sector saw 106.000 job additions in October. Positively, the unemployment rate fell to 4.1%, while average hourly earnings growth for the private sector stood at only 2.4% y-o-y, the lowest since the beginning of 2016. This is, however, expected to pick up again given the ongoing improvements in the labour market. Long-term unemployment numbers fell slightly to stand at 24.8% in October, after 25.5% in September. On the slightly negative side, the participation rate fell again to stand at 62.7% in October, after 63.1% in September.

While having picked up in September, industrial production nevertheless seems to have been impacted by weather conditions during the month, to increase by just 1.6% y-o-y, after August’s low rise of only 1.1% y-o-y, both numbers compared with around 2% growth in previous months. Domestic demand held up very well in September, supported by growth in retail sales, which stood at 4.1% y-o-y, after an already strong August number of 3.9% y-o-y. The generally positive trend in domestic consumption was also visible in the Conference Board’s Consumer Confidence Index, which increased to 125.9 in October, a multi-year high and which compares to 120.6 in September.

October’s PMI for the manufacturing sector, as provided by the ISM, also indicated ongoing support in the underlying economy, with very strong numbers in both the manufacturing and nonmanufacturing sectors. The manufacturing PMI fell, but remained at a very high level of 58.7, compared to 60.8 in September. The important index for the services sector, which constitutes more than 70% of the US economy, rose to 60.1, after a level of 59.8 in September.

Given the considerable growth in 3Q17 and expectations that the current momentum will also continue in 2018, the US GDP growth forecast for both 2017 and 2018 was raised by 0.1 percentage points (pp) each. The growth forecast for 2017 now stands at 2.2% and GDP growth in 2018 is estimated to reach 2.4%. This takes into consideration a slightly positive outcome of the US administration’s tax proposal, to positively impact the 2018 GDP growth forecast by 0.1 pp.

Canada
Canada continues to benefit of the US growth dynamic, the recovery in the oil market and the positive consequence these developments have on rising income and domestic demand. After GDP growth in 2Q17 confirmed the ongoing recovery in the Canadian economy, the momentum seems to continue somewhat in 2H17. Industrial production remained strong, but decelerated, as it rose by 3.8% y-o-y in August, compared with 5.5% y-o-y in July and the June level of 7.8% y-o-y. Retail trade continued to expand to the considerable level of 7.0% y-o-y in August, albeit slightly lower than in the previous months, when trade increased by 7.7% y-o-y in July and 7.2% y-o-y in June, all at a nominal seasonally-adjusted level. The strong, but slightly slowing momentum is also confirmed by the PMI index for manufacturing, which dipped slightly to 54.3 in October, compared with 55.0 in September. Taking the ongoing positive momentum into consideration, the GDP growth forecast for 2017 was revised up to 2.9%, from 2.8%. The GDP growth forecast for 2018 remained unchanged at 2.1%.

OECD Asia Pacific
Japan
After the elections at the end of October, government-led stimulus measures, in combination with structural reforms, are expected to continue. These measures, together with strong exports, also led to strong domestic demand in the recent quarter. 2Q17 GDP growth was supported by the momentum rising by 2.5% q-o-q SAAR. The ongoing considerable tightness in the labour market has still not led to significantly rising wages. While the reasons for this development may be manifold, the Prime Minister proposed major wage increases in the coming year at a range of 3%, which would certainly be a considerable boost to inflation, which remains low. So far, unions and employee representatives have been relatively passive in demanding higher wages, despite private sector profitability improving in the past years. According to the trade union, wage rises stood below 2% in 2016 while based on numbers from the Ministry of Health, Labour and Welfare, wage growth stood at only 1.0% in the same year. Tax incentives for those companies that are willing to raise wages considerably higher, could be one aspect that may be envisaged by the government. The upside to the current growth level is limited, given that the economy seems to have reached its shortterm growth potential and while the government is pursuing structural reforms that may pay off in the medium to the long-term, the aim of raising inflation could certainly help to overcome a major challenge for the Japanese economy. However, this may also negatively impact the competitiveness of exporting companies, depending on the development of the yen compared to the currencies of its most important trading partners.

Inflation remained at 0.7% y-o-y in September, the same level as in the past month. While wage growth in August remained low, it rose to 1.2% y-o-y, compared with 0.7% y-o-y in July. This was the largest increase in more than a year. Thereby, tight labour markets are seeming to slowly support wage growth, while the current level is still far below the government’s aim of a 3% rise. Core inflation (which excludes food and energy) remained extremely low in September at 0.0% y-o-y, the same level as in August. However this comes after five months of declining core-inflation. The unemployment rate remained at the extremely low level of 2.8% for a fourth month in a row, a situation that may also lead to further rising wages and consequently accelerating inflation in the near-term, particularly as the government seems now willing to offer further support via fiscal measures.

Monetary stimulus is continuing. The BoJ kept short-term interest rates at minus 0.1%, a cap on 10-year bond yields at “around zero” and will carry on buying assets at a pace of ¥80tn a year. Moreover, the BoJ’s policy board lowered its forecast for inflation, excluding fresh food, in the year to March 2018 from 1.1% to 0.8%. For the year to March 2019, it trimmed its forecast from 1.5% to 1.4%.

Japanese exports were a considerable support for the economy in September, as external trade rose by 14.1% y-o-y, following a significant rise of 18.1% y-o-y in August. This is higher than the July number of 13.3% y-o-y and confirms a healthy trend. A strong increase in exports was seen in all main products, but mainly supported by the group of industrial goods and capital equipment, as in the past months. Additionally, industrial production continued to expand significantly, albeit at a slightly lower level in September, as it rose by 3.5% y-o-y. This is the fourteenth consecutive month of rising production and compares to 5.0% y-o-y in August and 4.8% y-o-y in July. This continues to be supported by a strong trend in manufacturing, which climbed by 4.0% y-o-y in September, compared with 5.3% y-o-y in August. Manufacturing orders point at a continuing solid trend, as orders rose by 9.9% y-o-y in September, This, however, compares to a significantly higher level of 21.7% y-o-y in August, both levels forming a solid cushion for a positive trend in near-term capex spending.

Positively, domestic retail demand continued the positive trend as the level of retail sales recovered to 2.2% y-o-y growth in September, compared with lower numbers of 1.8% y-o-y in both August and July. This brings the 3Q17 retails sales growth figure to 2.0% y-o-y, compared with only a slightly higher momentum of 2.5% in 2Q17. The trend is also forecast to continue at around this level for the remainder of the year and into 2018, as consumer confidence continues its solid trend amid labour market tightness and the expectation of wage increases.

The latest PMI numbers confirm a positive trend in both the manufacturing and the services sector. The manufacturing PMI remained almost unchanged at 52.8 in October, after 52.9 in September, both clearly above the growth-indicating level of 50. The services sector PMI posted strong growth in October, moving up to 53.4, compared to 51.0 in the previous month. This also confirms the latest BoJ’s 4Q17 Tankan survey index, a widely-watched index for business activity and expectations in Japan, which had reached a new multi-year high at a level of 19, the highest level in 10 years.

The most recent developments confirm a solid underlying growth dynamic in the Japanese economy. This has been already taken into consideration in the past month’s GDP growth forecast estimation for 2017, which therefore remains at 1.6%. The 2018 growth forecast was revised up to 1.3%, compared to 1.2% in the previous month’s assessment. Challenges in the economy persist, and given the tight labour market situation and high capacity utilisation rates, further growth potential seems limited for now, however continued government policies are expected to support growth levels at around the current level.

South Korea
Latest output data for South Korea has underpinned strong momentum in the economy as geopolitical concerns on the Korean peninsula continue. 3Q17 GDP growth stood at 5.8% q-o-q SAAR, according to the Bank of Korea, the country’s central bank. This is the highest growth rate since 2010, when a large global stimulus was implemented by the G20, including South-Korea. Exports were a major driver, picking up by 26.9% q-o-q SAAR. Also, domestic demand remains strong, with private consumption picking up by 2.9% q-o-q SAAR. This comes as consumer sentiment is holding up and remains almost unchanged at a record level for around the last 6 months. This strong momentum has also been reflected in non-seasonally adjusted IP numbers. IP rose by 7.4% y-o-y in September, up from 2.5% y-o-y in August. The latest PMI number for the manufacturing sector in October indicated ongoing momentum, however with a slight slowdown so far in 4Q17. It stood at 50.4 in October, after 50.6 in September. Considering the strong 3Q17 output and the ongoing momentum with some carry-over into 2018, the GDP growth forecast has been revised up to 3.0% in 2017, compared with 2.7% in the previous month. Moreover, the 2018 GDP growth forecast was also revised up to now stand at 2.5%, compared with 2.4% in the previous month’s forecast.

OECD Europe
Euro-zone
After a relatively robust 1H17, Euro-zone growth was again confirmed at a strong level in 3Q17. It stood at 0.6% q-o-q seasonally adjusted (SA) and hence was better than expected, a momentum that seems to continue in 4Q17 and is expected to last in 2018, albeit at a slightly slower pace. The strong growth momentum in 3Q17 also marks the fourth consecutive quarter of strong GDP growth, which is a substantial trend. Moreover, it seems to be broad based in the Euro-zone, as the dynamic is visible in all economies, at varying rates, and seems to be well supported across the various sectors. Private household consumption remained healthy in 3Q17 at 0.6% q-o-q, SA. Particularly investments were very strong as they rose by 2.0% q-o-q SA. The positive momentum is also supported by ongoing improving business confidence numbers and consumer confidence levels. A major driver in this regard is the declining unemployment rate and other labour market-related improvements.

One important sector, however, that continues to face challenges is the banking sector. The ECB has recently highlighted the need for higher capital levels in some larger institutions in order to offset the ongoing significant share of non-performing loans in the Eurozone’s banking system. To clean up the banking sector remains a key-initiative for the ECB, as bank financing is a major source of funding for the important small and medium-sized enterprises (SMEs) in the Euro-zone. It also remains an important aspect in the normalisation of the ECB’s monetary policies. In its latest end-of-October meeting, the ECB unveiled a plan on how to gradually reduce its monetary support. Most importantly, the governing council announced a cut in monthly QE purchases to €30bn from the current level of €60bn, starting in January and running until September, compared to the initial plan to pursue QE until March. It was highlighted that QE could be continued beyond that time, if necessary, and until there is a sustained adjustment in the path of inflation. Also, the EBC kept its main policy rate at 0.00% and the rate for deposit facility at -0.4%. In light of the ongoing high sovereign debt levels in some key economies in the Euro-zone, the ECB’s monetary policies will likely be important for state finances.

Business sentiment has continued to reflect the improving situation, with the European Commission’s economic sentiment index rising to 114.0 in October, compared with 113.0 a month earlier. This is the peak level in more than 10 years. Challenges in the Euro-zone remain. Aside from the issues in the banking sector, sovereign debt levels in some Euro-zone economies may become a re-emerging issue, if current economic improvements slow or interest rates rise too soon or too quickly. Also, political uncertainty has risen, as government-forming negotiations seem to be progressing slowly in Germany and Austria after the recent elections, and as the independence-seeking region of Catalonia has raised some economic uncertainty in Spain, while so far the impact seems to have been limited.

Labour market developments continued to improve as the unemployment rate fell below 9% for the first time since the onset of the financial crisis in 2009. It stood at 8.9% in September, compared with 9.0% in August. Still, labour market developments differ widely within the Euro-zone. Germany’s unemployment rate remained at a very low 3.6% in September for the second month in a row, while in Spain it still stood at 16.7%, which is the lowest since 2009, and shows a continuation of a considerably improving trend. Inflation was backed only to some extent by these improving developments in the labour market, which on the flipside may increase the likelihood of rising inflation in the future, as wages so far have not responded much to these improvements. Considerable slack remains in the labour market, but signs are emerging that wages based on latest trade union agreements in some Euro-zone economies may rise more significantly than in the past years. Inflation stood at a muted 1.4% y-o-y in October, slightly down from the 1.5% y-o-y in September. Core inflation – that is, the consumer price index (CPI), excluding energy, tobacco and food – fell to 0.9% y-o-y in October, after a level of 1.1% y-o-y for the previous four months. Both numbers are well below the ECB’s approximate 2% inflation target.

While inflation is expected to pick up in 2018 as economic developments are improving, the ECB’s monetary policies may also have an impact on credit supply growth from financial institutions to the private, non-financial sector. The growth dynamic of this liquidity line to SMEs appears to have stabilised, to rise by 1.53% y-o-y in September, the same growth level as in August and higher than in July, when liquidity to the private sector rose only by 1.3%. Hence, the development of credit growth seems to continue to support the ongoing recovery.

Industrial production grew by a healthy 3.5% y-o-y in August, after 3.7% y-o-y in July, once again a significant level. Retail sales growth in value terms picked up, increasing by 4.9% y-o-y in September, compared with 3.4% y-o-y in August. These most recent indicators have remained at considerable levels over the past months and now continue to demonstrate a healthy dynamic with ongoing improvements in the underlying economy. This trend is forecast to continue in 4Q17 and also to some extent in the coming year. It remains to be seen, however, whether the trend will stay as strong as in the first three quarters or, as currently expected, will slow down somewhat.

The latest PMI indicators have confirmed the ongoing improvement in the Euro-zone. The manufacturing PMI increased to 58.5 in October, compared with 58.1 in the previous month. This marks the highest level on record, i.e. since the initiation of this index back in 2012. The important PMI for the services sector, which constitutes the largest sector in the Euro-zone, dropped slightly, but remains at a high level of 55.0, after seeing a level of 55.8 in September.

The underlying positive momentum has led to an upward revision in the 2017 GDP growth forecast for the Euro-zone, which now stands at 2.3%, compared with 2.2% in the previous month. Consequently, the 2018 GDP growth forecast was lifted to 2.1%, compared to the previous month’s estimate of 1.9%. Political uncertainties, Brexit procedures, as well as monetary policies remain important factors to monitor.

UK
Despite the sixth round of Brexit negotiations, the progress made since the initiation of the so-called Article 50, which kicked off the 2-year Brexit negotiation period, has been limited. A major question is the level of the break-up cost that the EU is requesting the UK to fund. This is estimated at around €60 bn. It now appears that the UK is offering less than a half of this amount, which will make further progress in the negotiations very challenging. Moreover, the discussion of the Ireland-Northern Ireland border has reemerged, yet another complicated topic in the negotiations. In the meantime, economic activity continues to slow down, but seems to have stabilised to some extent. Some parts of the economy continue to do very well, particularly the export-oriented industries that benefit from the low pound.

After both quarters in the 1H17 have now been confirmed to have grown by only 0.3% q-o-q SA, growth in 3Q17 has picked up to 0.4% q-o-q SA. Changes in household expenditure were reported at a low level of only 0.2% q-o-q growth, the lowest level in almost three years, while investment has picked up, to rise by 0.6% q-o-q SA, albeit from very low levels. The unemployment rate remained surprisingly low, falling to 4.2% in July, from 4.3% in June and 4.4% in May. Wage growth continued at a relatively solid level of 2.2% y-o-y in August, compared with a low level of 1.6% y-o-y in July. As inflation remained high at 3.0% y-o-y in September, the Bank of England raised its key-policy rate for the first time in more than 10 years, by 25 bp in its latest meeting in November. At the same time, it voiced concern about the relatively high debt levels of private households in the UK, as interest rates may go up further in the near future.

In connection to most recent economic developments, the PMI for manufacturing picked up again, pointing at a continued positive trend to rise to 56.3 in October, compared with 55.9 a month earlier. The very important services sector, which constitutes the majority of the UK’s economy, rose even more considerably to 55.6 in October, compared with 53.6 in September and 53.2 in August.

With indicators pointing to a gradual slowdown in the UK economy, a trend that has already been reflected in the GDP growth forecast numbers, the GDP growth forecast remains unchanged at 1.5% for 2017. Growth in 2018 is forecast at 1.4%.

Non-OECD
Brazil
Brazil’s trade surplus increased by 126% y-o-y to $5.2 billion in October, from $2.3 billion in the same month a year earlier, marking the largest surplus ever for the month of October. Exports to China went up by nearly 28% y-o-y, while sales to the US rose by 23% y-o-y. Total exports rose by 37.6% y-o-y, which is the largest gain for exports since June 2011 and amounted to $18.9 billion in October, on account of iron ore, crude oil, soy beans, sugar, and corn grain. Imports, on the other hand, increased by 20% y-o-y in October to $13.7 billion, led by diesel, coal, gasoline, crude oil, and natural gas. Most imports came from China, which increased by around 24% y-o-y. Trade was a supportive factor behind the Brazilian economy’s return to growth in 2Q17 as exports increased 2.5% and imports dropped 3.3% y-o-y.

Inflation continued its easing trend, reaching its lowest ever at 1.6% y-o-y in September, slightly lower than 1.7% seen a month earlier. Accordingly, the central bank lowered its benchmark interest rate by 25 basis points in October, to now stand at 7.50%. The unemployment rate posted its fifth back-to-back fall in September, registering 12.4% vs. 12.6% a month earlier. The consumer confidence index improved in October to 88.2, from 84.3 in the previous month.

In October 2017, business conditions in the manufacturing sector continued to improve due to an ongoing upturn in new orders and production which has been reflected in the first build up in manufacturing jobs in over two and a half years. The IHS Markit Brazil Manufacturing PMI rose to a five-month high of 51.2 in October, up from 50.9 a month earlier. The services sector regressed into the contraction territory in October, after short-lived expansion in September. The IHS Markit Brazil Services JPMI Business Activity Index registered 48.8 in October, down from 50.7 a month earlier, reflecting subdued consumer confidence and downbeat expectations. The survey showed that output returned to contraction as a result of a drop in new orders.

Following the strong start of 3Q17, in terms of trade, inflation, unemployment, services, manufacturing and consumer confidence, together with better prospects of political stability, Brazil’s GDP is expected to grow by 0.7% and 1.5% in 2017 and 2018, respectively.

Russia
Russia’s trade surplus increased from $4.6 billion in August 2016 to $6.6 billion in August 2017, a 43% y-o-y increase. Exports increased by 25% to $29 billion in August 2017 y-o-y, while imports rose by a slower rate of 21%. Over the period January through August 2017, the trade surplus registered $70.2 billion vs $55.5 billion in the same period of 2016. GDP posted growth of 2.5% y-o-y in 2Q17, up from 0.5% growth in the previous quarter, representing the fastest rate of growth since 3Q12.

The ruble was largely stable in October, appreciating by only 0.03% m-o-m, vs the appreciation of 3.2% m-o-m in the previous month, after being largely stable in August. Inflation eased in October to 2.7% y-o-y, from 3.0% y-o-y a month earlier. The central bank lowered its benchmark interest rate by 25 basis points to 8.25% in October.

The IHS Markit Russia manufacturing PMI remained in growth territory in October, though lower than the previous month. The survey showed some softening in the growth of production and new orders, while input prices rose at the highest rate since mid-2017. The index slightly decreased to 51.1 in October, from 51.9 in the previous month. The index survey showed a reduction in pressure on production capacity alongside a minor drop in employment. The manufacturing PMI data for 3Q17 suggests a stronger growth rate compared to 2Q17. Industrial production rose for the seventh consecutive month, rising by 0.9% y-o-y in September.

The services activity PMI suggests solid overall growth in output in October, highlighting the eleventh consecutive month of improvements in the general business conditions in the services sector. The index stood at 53.9 in October, from 55.2 in September. The survey highlighted softening inflationary pressure in October. A higher degree of optimism was reported by service providers over 2018 on the back of increased business activity. For the sixth month in a row, retail sales increased in September by 3.1% y-o-y, which represents the fastest rate of growth in retail sales since December 2014.

Taking into account the broad-based improvement noted in the economy of Russia since the beginning of the year, especially in 2Q17 and 3Q17, and its carryover to next year, when presidential elections are scheduled to take place in March and the World Cup in mid-2018, GDP of Russia is now anticipated to grow by 1.8% y-o-y in both 2017 and 2018, respectively.

India
Latest data supports that growth is picking up after the disappointing 2Q17 performance. It seems 2Q17 GDP deceleration was in part due to a slowing in the global trade recovery and in part because of the disruption to manufacturing caused by demonetisation and the Goods and Services Tax (GST). Initial reports on GST collection are encouraging, with the new tax generating larger-than-anticipated revenues in July, before dipping slightly in August. Bottom-up indicators show that consumption has turned a corner.

India’s government announced that it plans to inject INR 2.1 trillion over the next two years, boosting bank lending and rebuilding capital buffers. The injection will come in two forms: INR 1.4 trillion of "front-loaded recap bonds" and INR 760 billion of "budgetary support and market-raising." The newly announced package is about three times the size of the existing capital injection package that was due to run until the end of the next financial year (fiscal year 2018–19). For the period of potential overlap, it is currently unclear if the new injection is entirely incremental to the scheme for capital rebuilding announced in 2014. Money Supply (M2) in India increased to INR 29,069.06 billion in October from INR 28225.84 billion in September of 2017.

India’s CPI inflation was stable at 3.28% y-o-y in September, unchanged from the previous month's fivemonth high and below market expectations of 3.6%. India’s WPI decreased to 2.60% y-o-y, following a 3.24% increase in the previous month. The figure came in below market estimates of a 3.41% gain, mainly due to a slowdown in cost of food and fuel.

India's trade deficit narrowed to $8.98 billion in September, from $9.07 billion in the same month of the previous year. Exports advanced 25.7% y-o-y to $28.61 billion. Imports also grew 18.1% y-o-y to $37.60 billion.

Growth in India’s manufacturing sector lost momentum in October. Output rose only fractionally and new orders stagnated over the month. In response to subdued demand conditions, both purchasing activity and pre-production inventories decreased. The Nikkei India Manufacturing PMI fell from 51.2 a month earlier to 50.3 in October.

Improvements in consumer goods were offset by declines in investment and intermediate goods. India’s manufacturing companies struggled somewhat as the recent recovery enjoyed by the sector lost impetus in October. Inflows of new orders stagnated as the negative effects arising from the implementation of the GST continued to dampen demand levels. Furthermore, overseas demand for Indian goods dropped to the lowest levels seen since September 2013.

On the bright side, the labour market continued to improve, with manufacturers further increasing staffing levels, and at a pace similar to September’s 59-month high. However, business confidence eased to the weakest since February as some firms expressed concerns over negative GST effects, while others forecast positive effects of the GST materialising over the next 12 months.

The Nikkei Services PMI in India rose to 51.7 in October, from 50.7 in the preceding month. It was the second straight month of expansion in services activity after the sector was impacted by the GST introduced in July. The Markit composite PMI in India increased to 51.30 in October from 51.10 a month earlier.

India’s GDP growth expectation in this month was revised down to 6.8% from 6.9% for 2017 and the forecast for 2018 was also revised down to 7.4% from 7.5%, in part due to a slowing in the global trade recovery and in part because of the disruption to manufacturing caused by the demonetisation/GST. Latest data confirms that activity in India has largely recovered from the demonetisation, while the impact of the GST implementation was transitory.

China
China’s real GDP growth eased slightly to 6.8% y-o-y in 3Q17, as exports and investment decreased, although consumption growth remained relatively stable. However, industrial production, fixed asset investment and retail sales ended 3Q17 on a positive note, with growth picking up somewhat in September, following a slowdown in the previous two months, indicating solid momentum going into 4Q17. China's industrial output grew by 6.7% y-o-y in 3Q17, up by 0.7 percentage points (pp) compared with the same period of last year. Fixed-asset investment increased by 7.5% from January to September, down from 8.2% in the same period of last year. Retail sales, meanwhile, expanded by 10.4 % in 3Q17, unchanged from a year ago. Long-term economic growth was a welcome tailwind for the Communist Party of China (CPC) which gathered to map policy for the next five years.

In 3Q17 the moderation of the headline GDP growth rate reflected a downturn in secondary sector output covering industry and construction, which slowed from 6.1% in 1Q17 and 2Q17 to 6.0% in 3Q17. Services growth reaccelerated to 8% y-o-y following two consecutive quarters of decline in 1Q17 and 2Q17, owing to robust growth in transportation, information, software, and leasing services, according to the monthly index of service sector growth, which grew 8.3% in the first three quarters.

The Chinese Communist Party's 19th Party Congress concluded on 24 October 2017 with the formal election of the party's Executive Committee and it’s Standing Committee. Beijing says it is planning to pay less attention to the economic growth side of the equation in its struggle to balance rapid development versus the increasingly serious environmental problems. By de-emphasizing numeric goals, the government will have more room in managing the economy.

In terms of China’s monetary policy, money supply growth declined in September to 9.2% y-o-y, still above GDP growth, but much lower than the 10-year average.

Chinese nonfinancial corporate debt-to-GDP declined from 99.2% in 2016 to 94.5% in 3Q17. The recent credit tightening has reduced flows to non-bank financial institutions and investment products, but the impact on overall non-financial sector debt has been modest so far. Domestic economy debt increased from 204.2% of GDP in 4Q16 to 226.8% in 3Q17. Nonfinancial corporate debt accounts for around 40% of total nonfinancial sector debt, but its growth rate has slowed down to 5% y-o-y in the 1H17. However, household debt has expanded rapidly, rising 11% y-o-y in 1H17, while China recorded government debt equivalent to 46.2% of the country's GDP in 3Q17.

China’s foreign reserves have increased back above US$3 trillion, and capital outflows have stabilised in 1H17. The Chinese yuan has appreciated by 3.5% against the US dollar in 1Q17, 2Q17 and 3Q17. However, the real exchange rate (RER) against all of China’s trade partners has continued to depreciate. Despite an increase in capital outflows in 2016-2017 and the resulting devaluation, the Chinese RER is still significantly above its average for the last 10 years. In general, the exchange rate has appreciated significantly since 2007, and the current account balance has declined substantially. This to a large degree reflects the growing focus on economic expansion through higher domestic demand and a more consumption-oriented economy with a lower savings rate.

China's trade surplus fell sharply to $28.47 billion in September from $40.94 billion in the same month a year earlier. It was the smallest trade surplus since March, as imports jumped 18.7 % y-o-y to $169.79 billion, accelerating from 13.3% a month earlier. Exports rose at a slower 8.1% to $198.26 billion.

China's CPI inflation rose 1.5% y-o-y in September, down from 1.7% in the previous month, according to the National Bureau of Statistics (NBS). The headline decline was largely due to faster deflation in food prices, which contracted 1.4% y-o-y in September, compared with the 0.2% contraction a month earlier. Services prices increased 3.3% y-o-y, up 0.2 pp from the previous month, as a result of rising inflation in healthcare and residence. The rising base effect was the main driver of the y-o-y decline, as the m-o-m CPI, at 0.5%, was the highest since October 2016, driven by rising oil prices.

China's producer price index (PPI) improved to 6.9% y-o-y in September, compared with 6.4% a month earlier. Rising inflation in raw materials and the heavy manufacturing sector was the main contributor to the headline improvement, with faster growth reported in the ferrous-metals smelting, non-ferrous metals smelting, and chemical materials and products sectors. Meanwhile, m-o-m inflation in several sectors – such as coal, ferrous metals and non-ferrous metals, petroleum, paper, and chemical sectors – suffered as the environmental production policy continued to expand. Inflation in consumer goods manufacturing remained stable, reflecting relatively weak domestic demand.

China's merchandise exports expanded 8.1% in September in US dollar terms, up 3 pp from the previous month, according to the General Administration of Customs. The improvement was driven by a faster expansion of exports to the US, the European Union, and ASEAN, while exports to Hong Kong contracted at a faster rate. Exports of mechanical and electrical products and hi-tech products continued to lead the headline recovery, reflecting the boost from the surge in demand for global electronics and robust economic growth in advanced economies. Merchandise imports, measured in US dollars, expanded by 18.7% in September, accelerating from 13.5% in the previous month. This is the fastest monthly expansion since March, and is the result of improving domestic demand and rising commodity prices. In September, the volume of crude oil and iron ore imports expanded by 10.6% and 11.9%, respectively, compared with an increase of 30.2% and 29.4% in import value.

China’s trade surplus declined to a six-month low. As imports grew at a much stronger pace than exports, China’s trade surplus in September dropped to $28.6 billion, the lowest level since March, and marking the second consecutive month of decline. The moderation in export growth may be slower than the moderation in import growth, as a result of relatively stable global economic growth; this will support the recovery in the trade surplus and the foreign exchange reserve in 4Q17.

China's industrial production rose 6.6% y-o-y in September, following a 6.0% gain in the previous month and beating market expectations of 6.2%. It was the steepest increase in industrial production since June, as output grew further for both manufacturing – by 8.1% from 6.9% in August – and for electricity, gas and water production – by 7.8 % from 8.7 %. On the other hand, mining production continued to decline by -3.8 % from -3.4 % a month earlier.

The seasonally-adjusted manufacturing PMI – a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy – was unchanged from a month earlier at 51.0 in October showing a further marginal improvement in the health of the sector. Operating conditions have now strengthened in each of the past five months. Manufacturing companies in China reported a further increase in new business during October, a slight improvement since September, but remained moderate overall. New export sales rose at a similarly modest pace, following a marginal upturn in September. In contrast, production increased only slightly in October. Moreover, the rate of growth was the weakest seen for four months. At the same time, confidence towards the 12-month outlook for production moderated to its second-lowest level since August 2016. Chinese manufacturing employment fell again in October, thereby extending the current sequence of job shedding to four years.

China’s Caixin services PMI rose to 51.2 in October from 50.6 a month earlier. Business confidence improved slightly while new order growth was modest and job creation remained marginal.

China’s GDP growth expectation was revised up to 6.8% from 6.7% for 2017 and was also revised up to 6.5% from 6.3% for 2018. China’s government is reportedly looking to generate GDP growth with best quality, efficiency, and dynamism”. These comments came after the conclusion of the Communist Party congress that granted the country’s president a level of authority unmatched in recent decades. In recent years, China’s leaders have returned to strategies fuelled by debt and state investment to keep growth stable. China’s target for GDP growth this year is around 6.5%.

OPEC Member Countries
Inflation in Saudi Arabia posted -0.1% in September, from -0.2% y-o-y in August, maintaining its notable easing since the beginning of the year due to the base-line effect, which could be a supporting factor to private consumption. The non-oil private sector continued growing at strong pace in October. The Emirates NBD Saudi Arabia PMI of October registered 55.6 in October, from 55.5 a month earlier, suggesting continued solid improvement in the business conditions of the non-oil private sector. The survey showed a sharp rise in both new orders and output. Strong domestic demand contributed to the strong new orders, while new export orders went up for the third consecutive month. Employment also continued to rise in October, extending the current streak of job creation growth to 43 months. Furthermore, confidence regarding future growth reached a five-month high due to better expectations for economic conditions and business investments. In 3Q17, the index was largely stable at an average of nearly 55.7. In 1H17, the index averaged at 56.0, highlighting a higher rate of growth compared with the first six months of 2016.

In Nigeria, inflation was slightly lower in September at 15.98%, the lowest since May 2016 and easing for the sixth consecutive month. Prices of housing and utilities increased at slower pace, while food and transport prices rose at faster rate. The central bank kept its benchmark interest rate intact in September at 14%. The economy of Nigeria was out of recession in 2Q17 following five quarters of recession. The economy registered 0.6% y-o-y growth in 2Q17, from a contraction of 0.5% y-o-y in the previous quarter, according to the National Bureau of Statistics. The Stanbic IBTC Bank Nigeria PMI improved in October, confirming the economic rebalancing and return to growth territory. The index rose to 55.8 in October, up from 54.9 in the previous month. The reading of October is the highest in 34 months, suggesting a strong start of the fourth quarter of the year. This improvement was attributed to the notable acceleration in new orders and output. In addition, new orders from abroad went up by the highest rate in more than three years. The survey also showed that job creation continued to increase in October for the sixth consecutive month so as to meet rising output requirements. The buying activity witnessed a sharp expansion in anticipation of demand acceleration. In October, buying activity grew by the fastest pace since November 2016.

In IR Iran, GDP posted strong growth of 16.0% y-o-y in 1Q17 on the back of sharp increase in net exports and private consumption. Net exports, which account for an average of 9% of GDP, accelerated by 48% y-o-y. The non-oil exports value in dollars increased by around 12% y-o-y, while quantities of crude oil exports soared by nearly 30% y-o-y over the same period. Furthermore, another notable support to growth came from private consumption which makes up 43% of GDP, which grew by 6.3% y-o-y in 1Q17, highlighting the second-fastest pace of growth since 3Q11. Investment that makes up nearly one fourth of GDP also rose in 1Q17, by 3.1% y-o-y; whereas government consumption was nearly flat at just a 0.3% y-o-y increase. Consumer price inflation has been on a downward trend since May 2017, falling from 12.7% y-o-y in April 2017 to 8.4% in October.

Inflation in the United Arab Emirates (UAE) increased to 1.1% y-o-y in September, from nearly 0.8% y-o-y in the previous month. In July, inflation stood at 1.2% y-o-y. The deceleration in the prices of housing, water, electricity and gas eased in September alongside textile and clothing prices. On the other hand, prices of food and soft drinks increased together with transportation. Expansion in the country’s non-oil private sector continued at stronger pace in October, following September’s moderate expansion, according to the Emirates NBD UAE PMI. The index rose to 55.9 in October, up from 55.1 in the previous month. It is also higher than the full series average of 54.6. The survey showed record expansion in stocks of purchases as firms expect higher demand in the coming weeks. Output had a sharp overall rise in October. The survey also showed steep growth in non-oil private sector new orders, while demand from abroad showed an uptick last month. Inflation continued rising in October though at a subdued pace due to the increase in raw material costs. However, competition led firms to cut output prices by the fastest rate since March 2010 despite the small rise in input costs. As for job creation, the survey showed a continuation of the hiring trend that started 18 months ago.

Other Asia
In Indonesia, GDP growth exhibited a stable pattern so far this year, with 3Q17 growth at 5.1% y-o-y, compared to 5.0% in each of the previous two quarters. It is worth noting that government consumption expenditure returned to growth territory in 3Q17, increasing by 3.5% y-o-y, compared to the contraction of 1.9% y-o-y in 2Q17. GFCF also posted the fastest expansion since 1Q13, increasing by 7.1% y-o-y in 3Q17. Household consumption was more or less stable at a growth rate of 4.9% in 3Q17. Both exports and imports showed a steep acceleration in 3Q17, with exports surging by 17.3% y-o-y from 3.6% in 2Q17, and imports rising by 15.1% y-o-y from 0.2% in 2Q17. Trade went up by 39% y-o-y in 3Q17. Consumer price inflation eased to 3.6% in October, down from a 3.7% y-o-y increase in the previous month and the lowest in seven months. The Bank of Indonesia policy rate was unchanged in October from a month earlier at 4.25%. In 2Q17, trade was supportive to growth in Indonesia as net exports of goods and services climbed by more than 36% y-o-y. While exports increased by 3.4% y-o-y in 2Q17, imports posted slow increase of only 0.6% y-o-y. GDP registered growth of 5.0% y-o-y in 2Q17, similar to 1Q17.

In Vietnam, GDP posted strong growth of 7.4% y-o-y in 3Q17, up from 6.2% in the previous quarter. This represents the highest rate of growth in more than four years and was mainly due to the strong rise in industry, services and forestry. Industry increased by 9.8% y-o-y in 3Q17, up from 6.6% in 2Q17. Services registered growth of 7.9% y-o-y in 3Q17, up from 7.1% in the previous quarter, and growth in forestry accelerated from 3.8% in 2Q17 to 6.0% in 3Q17 y-o-y. Inflation remained weak in October at 0.4% y-o-y, from 0.6% a month earlier. The currency remained stable in the past several months versus the dollar and the central bank’s discount rate was also unchanged at 4.25% since July 2017.

Africa
The contraction in the PMI for the private sector of South Africa continued for the third consecutive month in October, according to the Standard Bank South Africa PMI. The index posted 49.6 in October, from 48.5 in the previous month. New orders, output and new export orders fell in October, reflecting weak domestic economic activity and downbeat consumer confidence. Lower investor confidence also took its toll on the economy as volumes of new exports declined for the first time in three months. The index readings suggest a slowdown in economic growth in 3Q17. The economy grew by the fastest pace since 3Q15 in 2Q17. Growth stood at 0.8% y-o-y, up from 0.2% in the previous quarter.

In Egypt, the pound was stable in October following its slight appreciation a month earlier. The pound lost nearly 95% of its value to the dollar during November 2016 through April 2017. Inflation continued posting a reading above 30% for the eighth consecutive month in September and is expected to rise further in coming months due to the recent reduction in subsidies to some fuel/energy items and public services. The consumer price index rose by 32.9% y-o-y in September. The recession in the country’s non-oil private sector continued in October, though at a notably slower pace. The Emirates NBD Egypt PMI rose to 48.4 in October, up from 47.4 a month earlier. The pace of deceleration in new orders, employment and output eased last month and business confidence reached its highest in 26 months, reflecting healthy optimism on economic growth prospects in 2018.

Latin America
The economy of Chile expanded by 0.9% y-o-y in 2Q17, up from 0.1% in 2Q17. While growth in government consumption slowed from 4.9% y-o-y in 2Q17 to 2.7% in 3Q17, private consumption accelerated to 2.6% y-o-y in 3Q17 over 1.8% in 2Q17. GFCF continued its declining streak for the fourth consecutive quarter in 3Q17, by 4.1%. Exports of goods and services saw a slower decline in 3Q17 of 3.5% y-o-y versus a 4.2% contraction in the previous quarter. Imports, on the other hand, increased to 7.0% y-o-y in 3Q17, compared to growth of 4.7% in 2Q17. Consumer price inflation remained under 2% for the fourth consecutive month in September, registering 1.4% y-o-y, from 1.8% in August. This is well below the inflation target of 3.0%. Industrial sales increased in July and August 2017 after largely being in contraction since June 2016.

Transition region
The economy of Poland showed a faster rate of growth for the third consecutive quarter in 2Q17. GDP posted growth of 4.6% y-o-y in 2Q17, up from 4.4% in the previous quarter. While household consumption saw a slightly slower pace of growth of 4.9% y-o-y in 2Q17, from 5.0% in 1Q17, public consumption more than doubled its growth rate over the same period to increase by 2.5% y-o-y in 2Q17 vs. 1.1% in 1Q17. GFCF reversed its five-quarter streak of contraction to expand by 1.0% y-o-y in 2Q17. On the trade side, both exports and imports registered slower rates of growth in 2Q17. Export growth dropped from 9.0% y-o-y in 1Q17, to just 3.1% in 2Q17. Import growth plunged from 9.4% y-o-y in 1Q17 to 5.5% in 2Q17.

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