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Emerging and Developing Economies - December 2016

Source: OPEC 12/29/2016, Location: South America

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In Brazil, GDP contracted by 2.9% y-o-y in 3Q16 following declines of 5.4% and 3.6%, respectively, in 1Q16 and 2Q16. The slowing pace of private consumption Ė which accounts for nearly 65% of the GDP Ė was the main driver of this diminished contraction in GDP. The latest contraction in GDP during 3Q16 largely confirms the expected deceleration of 3.4% in 2016, while the slow upward trend also supports the anticipation of minor cyclical growth of 0.4% in 2017.

In Russia, a minor GDP contraction of 0.4% y-o-y in 3Q16 represents a continuation of an upward trend seen since the beginning of this year. This supports expectations of a much lower contraction in 2016 compared to 2015. Furthermore, strong performance by the private sector (services and manufacturing) holds promise for growth prospects in the coming couple of months, supporting an outlook of a return to GDP growth in 2017.

Indiaís GDP growth rate in 3Q16 was 7.3%. It seems that in the short-term, the process of demonetisation has had a sharply negative effect on economic growth. On the positive side, a top EU official said investors from European countries are now bringing "white clean money" to India and suggested there was a need to resume talks on the EU-India Broad-based Trade and Investment Agreement (BTIA), popularly known as a free trade agreement. India's demand-side real GDP grew at 7.3% y-o-y during 3Q16, which was strong enough to support a fast-growing GDP. The supplyside measure of GDP showed a clear loss of momentum, with real growth slowing to 7.1% y-o-y from the 2Q16 7.3% y-o-y. As a result of the slowdown in private consumption and a likely further contraction in fixed investment, economic growth expectations have been reduced from 7.2% to 7.1% in 2017.

Chinaís economy continued to improve in November, although it lost some momentum compared to the previous month. In real terms, Chinese investment and retail sales growth slowed in October while industry was stable, indicating a slightly slower start to the 4Q16. Inventory and employment data also showed the basis for growth is not yet solid and investors have to remain vigilant about the risk of a downturn in the coming months. The overall momentum of economic growth remained reasonable in October and November, with the momentum of Fixed Asset investment (FAI) picking up and supported by still strong real estate activity, as well as fast infrastructure investment growth. But FAI in manufacturing slowed down again in October, having accelerated in September, and remains close to its average pace in 3Q16. The outcome of the US election has created more uncertainties and challenges for China, particularly through trade channels and the export outlook, given the potential for a shift in US policy on free trade.

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