Top 5 Economics Graphs of the Week - 20 August 2010

This week we look at the Q2 GDP results for Japan and Taiwan; getting a gauge on how these two key Asian economies are tracking in their recoveries. Then onto the US where we look first at the industrial production results, which are a tad paradoxical, and then at the PPI stats which may be pointing to margin compression. Then we wrap-up with a view on Euro zone inflation.

1. Japan GDP
Japan's economy grew at an annualized rate of 0.4% (basically flat), well below median forecasts for about 2.3%, and Q1 revised rate of 4.4%. The Japanese economy was also reported as dropping behind China to the world's 3rd largest economy (which is pretty much just a technicality in confirming a foregone conclusion). The Japanese economy was held back by slowing export growth and subdued consumption, as phase 2 of the recovery sets in (i.e. the muddle ages). So Japan will keep muddling on, the key sensitivities for Japan continue to be international trade (and therefore the currency), and on a related note; the resilience of the Chinese economy.


2. Taiwan GDP
Taiwan's economy grew 12.53% year on year in the June quarter, slower than 13.71% in Q1 but higher than consensus estimates for 10.5%. The great rebound is just about run its course in Taiwan. The Taiwanese economy which is also closely linked to the fortunes of global trade, and its neighbor to the north (Zhong Guo); which is currently undergoing a managed slowdown. The policy factors are also playing into the picture as the central bank in Taiwan normalises monetary policy (with a few small hikes expected into the second half of 2010), as well as fiscal policy normalisation, with the authorities keen to keep government debt below the 40% debt to GNP ceiling.

3. Industrial Production
The US released its industrial production figures for July this week, with production rising 1.0% month on month; ahead of consensus 0.6%, and previous 0.1%. On an annual basis industrial production rose 7.7% off of the lows of the earlier stages of the recession, decelerating slightly off 8.2% in June. Capacity utilisation also climbed to 74.8% from 74.1% in June. Looking at the chart below you can see the path of some of the other major economies; China's trucking along, Japan's super-volatile, and the EU/US are playing catch-up since the depths of the recession. The trend marks a dissonance in the US economic scene, as business investment and manufacturing is a bright spot, whereas the consumer is a dark spot; if the US can build up exports it may lead to a happier ending...

4. US PPI
US Headline PPI rose 4.1% year on year, and core (taking off the more volatile food & energy components) rose 1.5%. The movements in prices here reflect some of the signals from the PMI prices sub-index which has been riding relatively high for a few months; however as is notable from the relatively more static and subdued CPI inflation metrics, the price increases aren't getting passed through to the consumer (which makes sense given the competitive environment, and economic environment), so this may mean a bit of margin compression... especially as capacity utilization (normalization) results in eventual reversals of the purge of labor costs during the recession. So this recent positive bout of corporate earnings could be somewhat short-lived as demand is relatively lackluster and potential pressure on the cost side also puts a double hit on margins.

5. EU CPI
Euro zone inflation increased in July to 1.7% from 1.4% in June on an annual basis for the Euro area, and 2.1% from 1.9% for the EU. However in the month of July inflation was actually negative compared to the previous month. The results tentatively point to a stabilisation or even turning of inflation, but as the ECB noted in its recent statement, "inflation rates should remain moderate overall, benefiting from low domestic price pressures". And so, the EU will likely also just keep muddling along, with no significant price inflation; but... remember the EU is actually a collection of economies, which will all be tracking along at their own unique pace e.g. the powerhouse Germany vs the others like Greece.

Summary

So we saw a tapering off of growth in both Japan and Taiwan, two key Asian economies that saw a strong bounce back in GDP following their emergence from the depths of the crisis. And looking forward, the risks are similar for them both; they are both very sensitive to the course of the global economy due to their dependence on international trade, but of the two, Taiwan has less problems and seemingly a better policy position.

Then onto the US we saw industrial production tracking along well; providing some positive (albeit dichotomous) signs as the consumption paradox unwinds. There was also the potential early warning in PPI that margin pressure may increase for US corporates in the medium term. Keeping with large developed economies and inflation; the EU inflation picture is unfolding much as the growth picture is; just muddling along.

Sources
1. OECD Statistics Database stats.oecd.org
2. Taiwan Statistics eng.stat.gov.tw
3. Trading Economics www.tradingeconomics.com
4. US Bureau of Labor Statistics www.bls.gov
5. Eurostat epp.eurostat.ec.europa.eu

Article Source: http://www.econgrapher.com/top5graphs20aug.html

Top 5 Graphs of the Week - 22 May 2010

This week we look at the data out over the past week that showed a continued (yet fragile) economic recovery in Japan, higher economic growth rates in Mexico, continued strength in the economy of Taiwan, and relatively subdued inflation pictures in both the EU and US.

1. Japan GDP Growth
Japan's economy grew at an annualized 4.9% in Q1 2010, below consensus estimates of 5.5%, but on par with a revised Q4 2009 growth figure of 4.2%. Japan's economy has made a decent bounce-back over the past year, driven largely by international trade; showing a continued reliance of the Japanese economy on exporting. However much of the recovery thus far has been driven by export demand from China (relating to stimulus spending), and more broadly from inventory rebuilding (inventory cycle). Thus much of it to date has been somewhat artificial - it's almost coming down to a question of whether international trade will make a solid and broad based recovery as to whether Japan's economic recovery will be cemented. But then there's also deflation issues and fiscal challenges.


2. Mexico GDP Growth
Mexico saw its economy return to growth on an annual basis (but pulling back slightly on a quarterly basis - note the impact of the comparator period). GDP grew 4.3% in Q1 year on year; slightly above the 4% Bloomberg median estimate. On a growth basis Mexico has also made a sharp recovery back to 'normal' from the deep lows at the height of the crisis. However Mexico's growth is running below potential as the drug war drags on; with continued violence spooking off foreign direct investment. Even the Finance Minister, Ernesto Cordero, noted that violence from the drug war cuts about 1% point off of GDP growth. So as with most emerging economies, lots of potential return, but plenty of volatility.


3. Taiwan GDP Growth
The economy of Taiwan grew 13.27% in Q1 year on year, beating estimates for 11% growth, and surging ahead of the Mainland's 11.9% growth. The statistics bureau of Taiwan raised its 2010 GDP growth projection to 6.14% from 4.72%, and inflation to 1.4% from 1.27%. The economy of Taiwan (whether you call it province of China, or republic of China), has benefited immensely from sales of computer chips and display panels to the Mainland as the Chinese economy continues to surge; opting for closer trade ties over ideology differences as progress moves on in freeing up trade and commerce. But again, as there is huge potential return, there is also risk; eventually China wants reunification, and the form that eventually may take will also have significant economic ramifications (with the potential to be positive or negative).


4. EU Inflation
European inflation crept up slightly in April, with Euro Area inflation tracking at 1.5% (1.4% in March, and 0.6% in April 2009), and European Union inflation tracking at 2% (1.9% in March, and 1.3% in April 2009). As can be seen on the chart below headline inflation is making a bit of a rebound as cyclical factors such as commodity prices push through into the more volatile/market driven aspects of inflation. However core inflation continues to track downwards. Basically the inflation picture for Europe is reasonably subdued for the near term, especially as fiscal challenges continue to dog the continent; but there are risks to the upside longer term, particularly if stimulus measures become more significant and prolonged in their use.


5. US Inflation
US inflation muddled along sideways in April, recording 0.9% year on year in the core index, and 2.2% in the headline index. The results are fairly boring this time, no particular signs of inflation re-surging just yet, which in the short term will give the Fed plenty of comfort (and those who watch the Fed - opposing any step to withdraw stimulus) to continue its policy of significantly low interest rates for a long extended period. Of course the risks to this policy include sowing the seeds for future inflation, encouraging excessive risk taking, and promoting asset bubbles. But to be fair there is a time and a place - and that probably is still now, but the challenge will be to pull out before the vicious asset bubble cycle is reflated (with timing being one aspect, and political pressure being another aspect).


Summary

On the GDP front we looked at the strong rebound in the Japanese economy; noticing that it is still heavily dependent on international trade, with consumer spending and inflation still lack luster, and risks arising from deflation and fiscal challenges. Then we looked at Mexico, which showed a strong recovery in economic growth, but held back by drug and gang related violence. Then Taiwan with a surging recovery, helped by forging closer ties with the Mainland. The uniting theme is a strong bounce back since the peak of the crisis, but in each case significant risks remain to continued strong economic growth.

On the inflation front, the EU showed little signs of a pick up in inflation, other than headline measures. While the US results showed little in the way of an upward trend in the past index results. So on both fronts, a reasonably subdued inflation picture in the short to medium term. But what will be interesting to monitor is the medium to long term, and of course - the policy response to this.

So as a one line summary for the data we looked at this week: strong economic growth bounce back with plenty of risks, and relatively subdued inflation pictures in the developed economies.

Sources
1. Economic and Social Research Institute (Japan) www.esri.cao.go.jp
2. OECD Statistics database www.oecd.org
3. National Statistics, Republic of China (Taiwan) eng.stat.gov.tw
4. Eurostat ec.europa.eu/eurostat
5. Bureau of Labour Statistics www.bls.gov

Article Source: http://www.econgrapher.com/top5graphs22may.html

Top 5 Graphs of the Week - 28 February 2010

This week we look at GDP; revisions and releases. First up is a look at the revision to the US GDP results for Q4 2009, then there's the first revision to the UK GDP stats. Then we look to some of the fresh data coming from some emerging markets; we've got South Africa, Taiwan, and Thailand, all showing a reasonably strong bounce back from the recession.

At a high level we've basically got the developed nations (US, UK) recording growth on a quarterly basis, but still with poor growth on a year on year basis - and still with significant risks to the recovery and persistent structural problems.

On the other hand you've got emerging markets showing a strong bounce-back from the recession due to a number of drivers such as the global recovery in international trade, government spending, manufacturing, and to a lesser extent consumption. One thing to note though is that in every single case reported here the result beat consensus estimates...

1. US GDP - first revision
The US officially revised its Q4 GDP annualised quarterly growth rate up to 5.9% from 5.7% previously reported (against consensus estimates for no change at 5.7% with a range of 4.2% to 6.3%). On a quarter on quarter basis the rate was about 1.47%, and a year on year basis was 0.1%. So not a huge shift in the headline rate, but some of the details to note include that purchases of equipment and software grew the most in about a decade at 18.2% annualised. Also inventories ended up making an even larger contribution to the growth rate, which shows that it's still very much at this point a temporary recovery; the question is, will it remain a temporary recovery or will it become a sustained, real recovery?


2. UK GDP - first revision
The UK saw its feeble recovery become slightly less feeble with the first revision to Q4 2009 GDP, the figure came in at +0.3% q/q instead of the original +0.1% (and against consensus estimates of +0.2%), placing it down -3.3% y/y. There's nothing much else to say on this one except that it's positive that the number was still positive, and that it beat consensus and previous, but then there's still the 2nd revision to come. It doesn't change the overall picture of a still very weak and struggling economy, where in a previous article I noted that at the moment the UK has high inflation and low economic growth - not a pretty picture.


3. South Africa GDP - growing recovery
First up in the fresh results from emerging markets is South Africa. The economic growth figure came in at an annualised rate of +3.2% (or 0.79% q/q), compared to the previous quarter's result of 0.9% (0.22% q/q) and consensus estimates for 2.6%. Year on year growth was still negative though at -1.63%. The recovery there is being lead by the manufacturing sector, and to a lesser extent mining, with consumer spending being slower to recover. So the recovery is underway in South Africa, but risks remain such as the large divide between the haves and have-nots, and an unemployment rate in excess of 20%.


4. Taiwan GDP - strong bounce back
Taiwan saw a continued strong bounce-back with 9.22% in Q4 2009 vs 2008, against consensus estimates of 7.1%. Looking at data from the Taiwan official stats site the figures were 4.23% growth quarter over quarter, and 8.48% growth year over year. The growth was driven by strong net exports, helped by a recovery in demand for things like cell phones and semiconductors. Domestic consumption also contributed to the strong figures. Taiwan is also no doubt aided by improving relations with the mainland, and progress made on lowering regulations for doing business in China...


5. Thailand GDP -
The Thai economy grew 3.6% q/q in Q4, against forecasts for 1.8%, and previous quarter's result of 1.7%. On a year on year basis the $260 billion economy expanded 5.8% against an expected 4.0%. For the year of 2009 the economy shrank by -2.3%; see the chart below (a mix of IMF and Bank of Thailand stats). The Thai economy is benefiting from a global recovery in exports, and increased government spending, and adds to the picture of a strong recovery of economic growth in Asia.


Summary
To sum up the overall picture from a distance looks roughly like a synchronised global recovery. More and more economies are recording their first, second, or even third quarter of positive quarterly growth, while some are even starting to record positive annual growth (not confined to emerging markets like Thailand and China, the US just broke even on an annual basis).

But to be sure the devil is in the details, if you think about growth potential the emerging market economies are definitely proving to be better positioned for growth than developed markets. Already you're seeing not only strong growth and stronger recoveries, but also stronger drivers and fundamentals. The recovery in emerging markets is starting to happen for the right reasons, rather than short term things like inventory cycle and stimulus.

So the outlook is still for emerging markets to outperform developed markets on the economic growth front, as developed economies deal with structural problems. But one thing that needs repeating is that in this round we're seeing more results beat consensus than not, this says that either people are bad at forecasting the growth figures, or that people are being too pessimistic, and possibly that things are starting to get better...

Sources:
1. US Bureau of Economic Analysis http://www.bea.gov
2. UK Office for National Statistics www.statistics.gov.uk
3. Statistics South Africa http://www.statssa.gov.za
4. National Statistics Taiwan http://eng.stat.gov.tw
5. Bank of Thailand http://www.bot.or.th & IMF

Article Source: http://www.econgrapher.com/top5graphs28feb.html