Archive for date: August 20th, 2018

U.S. economic growth will probably accelerate this year before slowing in 2019 to well below the Trump administration’s 3 percent target as a fiscal stimulus fades, congressional researchers projected on Monday.

In an updated economic outlook, the nonpartisan Congressional Budget Office (CBO) projected that inflation adjusted or real gross domestic product (GDP) would grow 3.1 percent this year, exceeding 2.2 percent growth in 2017 due to lower income taxes, increased government spending and private investment.

The government slashed corporate and personal income taxes in January in a $1.5 trillion package and the U.S. Congress passed a $1.3 trillion spending bill in March.

This has buoyed consumer and business spending as well as government outlays, which combined with accelerated soybean exports to lift the economy to a 4.1 percent annualized rate in the second quarter from a 2.2 percent pace in the January-March period. The April-June growth rate was the highest in nearly four years.

But the CBO said it expected growth to slow in the second half as jolts to consumer spending and agricultural exports either fade or reverse. For instance, some second-quarter soybean exports were aimed at beating Chinese tariffs that took effect in July and cut future shipments.

“In 2019, the pace of GDP growth slows to 2.4 percent in the agency’s forecast, as growth in business investment and government purchases slows,” CBO director Keith Hall said in a statement.

Republicans have said the tax cuts, which increased the nation’s debt, would pay for themselves through strong economic growth. The Trump administration has said the economy can sustain 3.0 percent growth over the long term, an assertion many economists have disputed.

The CBO also cautioned that trade tensions could make a bigger dent on GDP growth than anticipated. An escalating U.S.-China trade war could result in tariffs on all goods traded between the world’s two largest economies.

Washington also has traded tariffs with the European Union, Canada, and Mexico.

“When CBO completed this economic forecast in early July, the agency estimated that the macroeconomic consequences of the U.S. tariffs and foreign retaliatory tariffs that had been implemented at that time would be small,” said Hall.

Tariffs then “affected goods that accounted for less than 1.5 percent of the total value of U.S. trade. However, trade policy has already changed since early July and may continue to evolve, so the effects of new tariffs may become more substantial and have a larger effect on the economy than CBO accounted for in its current projections.”

From 2023 to 2028, the CBO forecast the economy growing by about 1.7 percent each year.

Source: REUTERS

The Chinese economy remains on a solid footing despite a more complicated domestic and external environment, according to the National Bureau of Statistics (NBS).

“The economic performance is generally stable in July, with new progress being made,” Liu Aihua, NBS spokesperson, told a press conference Tuesday.

Dragged by cooling infrastructure investment, growth of fixed-asset investment (FAI) slowed to 5.5 percent in the first seven months of the year, down from 6 percent in the first half of the year and continuing a downward trend since the beginning of the year.

Infrastructure investment growth softened to 5.7 percent in the period, compared with a rise of 7.3 percent for H1.

Liu attributed the slowdown in infrastructure investment to a higher comparative base from last year, the government’s efforts to regulate public-private partnership projects and higher environmental standards.

Retail sales climbed 8.8 percent in July from a year earlier, slightly down from the 9-percent rise registered in June.

Although some indicators showed slight pullback in growth, Liu said the economic structure had been optimizing, with better quality and efficiency, which would lay a sound foundation for growth in the coming period.

Industrial output expanded 6 percent year-on-year last month, unchanged from in June.

A breakdown of the data showed the output of high-tech manufacturing, equipment manufacturing and strategic emerging industries all posted strong growth, which increased 11.6 percent, 9 percent and 8.6 percent respectively.

Industrial profits of major enterprises gained 17.2 percent in H1, accelerating from 16.5 percent for January-May.

In one of the bright spots, private investment, which accounts for about 60 percent of overall investment, rose at a faster pace. FAI by the private sector climbed 8.8 percent year-on-year in the first seven months, up from 8.4 percent in H1.

Employment remained stable, with 8.8 million new jobs being created in the first seven months, fulfilling 80 percent of the government’s annual target. The survey-based urban unemployment rate stood at 5.1 percent in July, 0.3 percentage points higher than June.

Liu said readings of the July data showed the economy had been running within a reasonable range, a hard-won result amid complicated domestic and external environment as well as adverse weather conditions.

As the government vows to improve infrastructure and accelerate approval of projects, Liu said he expected the growth of infrastructure investment and FAI to pick up and stabilize in H2.

Analysts said the continued softness in investment and consumption growth called for more decisive and coordinated policy moves.

“Although we have seen some early signs of financial condition easing and fiscal loosening in July,” the softness of some indicators and higher unemployment rate highlighted the urgency to more timely and coordinated policy adjustments to anchor the growth expectations and backstop the “vicious cycle” of financial condition tightening, CICC analyst Liu Wenqi said.

Looking ahead, Liu Aihua said the government would enhance implementation of policies and strive to keep employment, the financial sector, foreign trade, investment and expectations stable.

Source: XINHUA

China and India are expected to continue witnessing high levels of macroeconomic growth, typically associated with higher energy consumption. According to the EIA’s International Energy Outlook 2018 (IEO2018), Asia is projected to have the largest increase in energy use of non-OECD regions, and this increase will be led by China and India.

Energy consumption in non-OECD countries began exceeding OECD consumption in 2007 and is economy is more balanced between manufacturing and services and is projected to be the fastest growing region in the IEO2018 Reference case,” according to the report.

In the period from the 1980s through the 2000s, China registered double-digit growth in real GDP. Simultaneously, its energy demand more than tripled during the same time frame. However, from 2011 onward, its economic growth has slowed to single digits, and this has been accompanied by reduced energy demand. The Chinese economy, owing to its size, is a key driver of economic growth globally, and variations in Chinese energy consumption (and demand) have impacted worldwide energy market trends.

Over the past decade, the Chinese economy’s industrial segment has transitioned toward the production of more highly specialized goods and general services. This shift was supported by the implementation of China’s 13th Five Year Plan (FYP), which came into effect in March 2016. One key facet of this FYP is to encourage innovation and accelerate research and development spending as a share of GDP. In addition, the plan prioritizes specialized avenues such as high-end equipment and biomedicines and seeks to increase the service sector’s share of GDP to 56 percent by 2020. These changes in industrial structure notwithstanding, the EIA forecasts that China will still comfortably maintain its position as the world’s largest producer of energy-intensive goods in 2040.

India’s Economy Forecast To Be Fastest Growing

India will soon be the world’s most populous country, and its economy is expected to be the fastest growing globally, as per EIA projections. However, over the next two decades, both its aggregate and per capita energy use is still forecast to remain lower than in China, the U.S., and other industrialized countries, despite its economy being the third largest globally (as measured in terms of 2010 purchasing power parity dollars).

According to the report, India’s per capita GDP ($2,525) was about 30 percent lower than that of China in 2000. By 2015, Indian per capita GDP was slightly lower than $5,600, the level of GDP per capita that China exceeded by 2006.

It is expected that India’s economic growth will significantly affect international energy markets given the country’s large population and growth potential. Its government is currently reviewing a set of economic and social programs, including financial reforms and expansions in providing electricity, which could have an extensive impact on both future economic growth and energy demand within the country. Between 2015 and 2040, India’s economy is forecast to grow at about 7.1 percent in real terms.

The slow growth in India’s per capita energy consumption can perhaps be attributed to infrastructure and institutional constraints. That said, India’s industrial sector is still expected to remain the largest energy-consuming end-use sector through 2040.

Looking Ahead

China’s economic health is a crucial element in global trading activity, underscoring the importance of precise forecasts for Chinese economic growth because of its direct and indirect impacts on global projected energy consumption. Both recent and expected reductions in China’s energy intensity are partly due to a gradual shift in the economy’s structure from greater reliance on manufacturing toward more reliance on services.

For India to attain per capita energy consumption levels comparable to other large countries, it must implement radical changes in its production structure, according to the report. India will also have to fuel large increases in energy consumption outside of the industrial sector. Higher levels of energy use could also result in India following major changes in its industrial structure, the report added.

Source: BRINK ASIA

estimated to reach nearly two-thirds of the 739 quadrillion Btu global energy consumption in 2040.

China’s Impact on Global Energy Market Trends

The Chinese economy is expected to deliver an annual average growth rate of 5.7 percent between now and 2040 in two high-growth cases. In the same time period, India’s economy is forecast to grow at an annual average rate of about 7.1 percent across three high-growth cases. “China is currently a manufacturing-based economy whose rapid growth is moderating energy consumption.

Indian economy is projected to grow at 7.2 per cent in 2018-19, India Ratings and Research (Ind-Ra) said. The rating agency earlier forecasted India’s economic growth at 7.4 per in current fiscal. The key reason for this, Ind-Ra said, is the upward revision in the estimation of inflation for 2018-19 due to increasing crude oil prices and the government’s decision to fix the minimum support prices of all kharif crops at 1.5 times the production cost (A2+FL). The rating agency in a report titled ‘Mid-year FY19 Outlook’ said it believes the other headwinds lurking on the horizon are rising trade protectionism, depreciating rupee and, no visible signs of the abatement of the non-performing assets of the banking sector.

“Furthermore, it is taking a tad longer than expected to resolve cases under the Insolvency and Bankruptcy Code. “This simply means ‘bringing the stuck capital back into the production process to enhance the productivity of capital’ will be a long drawn-out affair,” Ind-Ra said. Ind-Ra said it expects private final consumption expenditure to grow 7.6 per cent in 2018-19 compared to 6.6 per cent in 2017-18.

The rating agency pointed out that government capex alone will be insufficient to revive the capex cycle, as its share in the total capex of the economy was only 11.1 per cent during 2012-17. “On the other hand, the share of private corporations was 40.9 per cent. As private corporations in combination with the household sector command 77.5 per cent of the total investment in the economy, their capex revival is a must for a broad-based recovery in the investment cycle,” it observed.

Noting that India will face continued headwinds on the exports front, the rating agency said although it expects the annual value of exports to touch USD 345 billion in the current fiscal, crossing the peak of USD 318 billion attained in 2013-14. Ind-Ra said it expects average retail and wholesale inflation in 2018-19 to come in at 4.6 per cent and 4.1 per cent, respectively, as against 4.3 per cent and 3.4 per cent forecasted earlier. “Ind-Ra expects CAD to widen to USD 71.1 billion in 2018-19 from USD 48.7 billion in 2017-18,” it said.

On rupee, the rating agnecy said that in 2018, rupee has already depreciated 7.7 per cent till July in response to elevated global turbulence, worsening of current account, rising inflation and concerns related to fiscal deficit. Ind-Ra said it has maintained a stable outlook on the finances of Indian states for 2018-19. “Ind-Ra expects the aggregate fiscal deficit of the states to moderate to 2.8 per cent of GDP,” Ind-Ra said.

Source: PTI