Top 5 Economics Graphs of the Week - 4 Sep 2010

This week we look at some particularly strong second quarter GDP numbers out from emerging markets Brazil and India, as well as one lucky developed market, Australia. Then we review the PMI results from the two biggest economies; China and the US.

1. Brazil GDP
The Brazilian economy saw further signs of strength in Q2, reporting 8.8% growth year on year, compared to estimates of 7.9% and a similarly strong 9% in Q1. But with unemployment at record lows, there have been increasing concerns about overheating; especially going into next year. The Banco Central do Brasil has already increased the selic rate a few times this year to 10.75% as well as raising the required reserve ratios. The government expects the economy to grow at least 7% this year. Asset bubbles and overheating aside; it's clear where the growth is coming from in the recovery from the post GFC recession.


2. India GDP
Another one of the BRIC economies to report on Q2 GDP this week was India, who also reported 8.8% growth year on year; compared to 8.6% in Q1. In spite of concerns about data integrity around a revision of the demand component to 10% from 3.7% (with no change in the headline 8.8% figure). The strong points were manufacturing (up 12.4%), services (up 9.7%) and construction (up 8.9%). In terms of the outlook, the monsoon season has been relatively normal so far (a key determinant of output from the agricultural sector - and of course food prices), there may also be potential benefits from helping Pakistan rebuild after the floods. But as with Brazil, with great growth comes the potential for great inflation; and the RBI has already lifted rates and reserve ratios this year.


3. Australia GDP
Australia saw further strength in its economy in Q2 this year, with the economy growing 1.2% q/q vs consensus 0.9% and 3.3% y/y vs consensus estimates for 2.8% growth. The pick up in growth was driven by a 5.6% rise in export volumes, largely due to mining exports. The consensus view on the outlook for the Australian economy is increasingly for an investment boom, with the RBA being the most aggressive of the G20 nations in raising interest rates (which now sit at 4.50%). But of course the outlook for interest rates and the Australian economy will be very much dependent on the global economy; particularly the EU and US, where concerns peaked around the Greek debt situation and potential for a US economic double-dip.


4. China PMI
China reported improvement in the manufacturing sector during August, with the official CFLP PMI rising to 51.7 from 51.2 (consensus 51.5), and the HSBC/Markit PMI rising to 51.9 from 49.4. The data point to the possibility that the recent slowdown is only a temporary one, and with the government having recently tightening lending conditions, there is plenty of room to maneuver if additional stimulus is required. Also out this week was the HSBC/Markit services sector PMI, which rose to 57.6 from 56.3 (the services sector accounted for 43.4% of China's output last year). So for now it seems the outlook is relatively positive; confirming the growing economic clout of the so-called BRIC economies. But as with the results we saw earlier (Brazil, and India) the threat of a resurgence in inflation is still a credible threat in spite of policy tightening.


5. US PMI
The PMI results for the US were also out this week and also showed an upwards blip; rising to 56.3 from 55.5, against consensus 53. However much of the lift in the main index was due to more lagging indicators such as production and employment; new orders dropped slightly, and prices rose, with exports falling and imports rising. The non-manufacturing index was also out, which fell to 51.5 from 54.3 in July, below consensus 53. The new orders index fell 4.3 points, as did export orders, production, and employment. So not such a great outcome. Also out this week was the payrolls data, showing an expansion in private payrolls, but a contraction in overall nonfarm payrolls, wages rose slightly. The strength in private payrolls is promising, but the numbers are still not great, so again, for the US it's the muddle ages.



Summary

We saw a continuation of the strengthening rebound of the Brazilian and Indian economies, confirming views on the global economy being driven by strength in emerging markets. We also saw continued strength in the Australian economy, which is set to continue its mining boom driven surge; but as with the strong emerging markets, inflation is a growing threat. The results are largely consistent with the idea of a 3-tiered economic recovery.

In China we saw improvement in both of the manufacturing PMI data, with some strength in new orders, and strength also showing through in the non-manufacturing sector. The data point to the possibility of the recent slowdown being temporary, and lines up with the results from the other big emerging markets, with the theme being strong growth - but potential for overheating.

Finally we saw some positives, but nothing particularly great in the US data this week. Aside from the promise of further stimulus measures coming next week, the scenario seems to be the muddle ages of the recovery. But one question on the US economic outlook front will be to what extent it may eventually gain from the growing strength in the large emerging market economies like India, China, and Brazil?

Sources
1. Trading Economics www.tradingeconomics.com
2. Trading Economics www.tradingeconomics.com
3. Australian Bureau of Statistics www.abs.gov.au
4. Yahoo Finance finance.yahoo.com & CFLP www.chinawuliu.com.cn & Markit/HSBC www.markiteconomics.com
5. Yahoo Finance finance.yahoo.com & Institute for Supply Management www.ism.ws

Article Source: http://www.econgrapher.com/top5graphs4sep.html

Top 5 Graphs of the Week - 5 June 2010

This week we look at the surging growth in the Indian economy, continued improvement in the GDP results from Australia, a strengthening recovery in the Canadian economy, and monetary policy decisions by Australia and Canada, and finish up with a look at the US nonfarm payroll figures which showed strong census hiring and not much else.

The main theme is global growth is being lead by emerging markets, with a select few developed economies in close pursuit, while other developed economies continue to dawdle as the gradual fragile global economic recovery continues.

1. India GDP
India's economy grew 8.6% year on year in the first quarter of this year, cementing a trend of strong economic growth in emerging markets. The figure compares to 6.5% in Q4 2009, and was slightly below consensus 8.8%. The figure puts India on a similar path to it's neighbour and fellow economy, China, and places it in a similar predicament on the monetary policy front, with India having already increased its interest rate 25bps in April. In terms of the outlook, the Indian economy seems to be relatively strong at this point, echoing the trends of the other big emerging markets like China, Brazil, Indonesia, etc. The IMF noted in its World economic outlook that it expects the Indian economy to grow 8.8% in 2010 and 8.4% in 2011.


2. Australia GDP
The Australian economy grew 0.5% in Q1 this year, slightly slower than the previous quarter's 1.1%, but up to 2.7% on an annual basis. The main contributors to growth were public gross fixed capital formation and household final consumption expenditure. The Australian economy continues to benefit from the effects of the stimulus spending and commodity price recovery. Indeed the RBA noted in its policy statement; "In Australia, with the high level of the terms of trade expected to add to incomes and demand, output growth over the year ahead is likely to be about trend, even though the effects of earlier expansionary policy measures will be diminishing. Inflation appears likely to be in the upper half of the target zone over the next year."

3. Canada GDP
The Canadian economy grew 1.5% quarter on quarter in Q1 2010, slightly under consensus but accelerating the pace of recovery. Unlike the other G7 economies, Canada benefits more from rising commodity prices and compared to the rest; a stronger fiscal position. Similar to the Australians, the Bank of Canada said this week: "Activity in Canada is unfolding largely as expected. The economy grew by a robust 6.1 per cent in the first quarter, led by housing and consumer spending. Employment growth has resumed. Going forward, household spending is expected to decelerate to a pace more consistent with income growth. The anticipated pickup in business investment will be important for a more balanced recovery."

4. Monetary Policy Update
The trend for global monetary policy normalisation or neutralisation continued in the "select few developed economies". The Reserve Bank of Australia left its cash rate unchanged at 4.50%, suggesting the rate is near neutral, but leaving the door open for further increases. Meanwhile Canada became the first G7 economy to lift interest rates, increasing the overnight rate by 25bps to 0.50%, leaving it at a still considerably stimulatory level, but commencing the return to normality. Expectations are for the overnight rate in Canada to end up around 1.5% by the end of the year (of course this is contingent on things elsewhere remaining calm and the domestic recovery continuing).

5. US Nonfarm Payrolls
US nonfarm payrolls increased 430k in May, accelerating from 290k in April, but below consensus 540k. The relatively strong number was driven by census hiring, with temporary census jobs adding 411k temp jobs, leaving a pretty small portion to the private sector part of the growth. Among private sector jobs, manufacturing and temporary help services contributed the most. The census hiring will probably provide some much needed stimulus to consumer spending, but overall the underlying trends in the labour market are lukewarm. The PMI figures released earlier this week showed that employers were net expecting to hire (but not by a huge margin). So it fits in with the theme of a gradual, fragile and sub-trend recovery in the US.

Summary

So to sum up we have the Indian economy growing strongly, even presenting inflationary risks, and solidifying the thesis of emerging market economies driving much of global growth and the recovery. Then we saw GDP growth still chugging along in Australia thanks to a strong terms of trade and residual stimulus effects. In Canada the economy showed further signs of strengthening, even spurring the Bank of Canada to raise rates this week. Meanwhile in the US, a strong payrolls figure was driven by temporary census hiring, and signaling a sluggish real labour market, and potential challenges for the US economy.

So the message is; emerging market economies are leading the recovery, a select few developed economies are in close pursuit, while others are dawdling. The obvious second order effect is a fragile pick-up in global activity with risks that some of the developed economies hold back the rest e.g. certain European economies). And as the recovery continues, stimulus exits and policy normalisation will proceed in places where it is possible, and in some cases increasingly necessary.

Sources:
1. OECD Statistics stats.oecd.org
2. Australian Bureau of Statistics www.abs.gov.au
3. Trading Economics www.tradingeconomics.com
4. Reserve Bank of Australia www.rba.gov.au & Bank of Canada www.bankofcanada.ca
5. US Bureau of Labour Statistics www.bls.gov

Article source: http://www.econgrapher.com/top5graphs5june.html

India GDP Surprisingly Hot

India released its GDP result the other day showing a surge in economic growth as Industrial activity and strong services growth helped the Indian economy recover from it's "recession". First quarter GDP came in up 8.6% year on year (slightly below consensus 8.8%), building on the 6.5% rise in Q4 2009. The figure puts India on a similar path to it's neighbour and fellow economy, China, and places it in a similar predicament on the monetary policy front, with India having already increased its interest rate 25bps in April.


So what is the Indian stock market doing? Much like most markets, it bounced back from the panic lows in early 2009, and then dawdled along, until the sovereign debt crisis started to show up in Europe. The RBI will review the interest rate again on the 27th of July, and given inflation is currently running around 10%, and given the good GDP results; unless the Euro situation worsens, it's likely to continue tightening monetary policy.


In terms of the outlook, the Indian economy seems to be relatively strong at this point, echoing the trends of the other big emerging markets like China, Brazil, Indonesia, etc. The IMF noted in its World economic outlook that it expects the Indian economy to grow 8.8% in 2010 and 8.4% in 2011. The HSBC-Markit PMI for india rose to 59.0 in May, from 57.2 in April, and exports have shot up strongly in recent months. Added to that the comments that the RBI has made recently around its concerns on inflation (i.e. it is more worried about inflation than growth), the outlook seems to be very good.

Sources
Econ Grapher Analytics www.econgrapher.com
Yahoo Finance finance.yahoo.com
OECD Statistics stats.oecd.org
Trading Economics www.tradingeconomics.com

Article source: http://www.econgrapher.com/3june-india.html