Economics—World

 
 
 
 
 
 
 
 
 
 

 

Global Digest


Source: Bloomberg and Bloomberg Intelligence


  • EU has experienced modest economic growth over the last three years, led by Germany, the EU’s strongest economy with a GDP of $3.494 trillion and 3.8% unemployment rate. 
  • The EU unemployment rate has decline from the 10.5% level in 2013 to 8%. 
  • The Euro has declined against the US dollar from a high of $1.33769 in March of 2014 to $1.1211 in May 2017. 
  • After years of economic crisis, refugee issues, Britain’s successful referendum, and the more recent Manchester tragedy, a growing fear of Euroskepticism pervades the EU.
  • Recent elections in the Netherlands and France and the Italian referendum have served to allay some of the concerns over disintegration of the EU.
  • Austerity programs no longer appear to be a drag on the EU.
  • Spain shows signs of economic recovery.
  • Greece continues to struggle, with the IMF leading efforts for a fourth bail out.
  • The European Central Bank announced that its quantitative easing policy would continue until December 2017, at the same time it has slowed its asset purchases.
  • European Central Bank has made credit terms cheaper.

  • In 2016, Germany continued to experience strong growth, and according to Bloomberg Intelligence, growth is expected to continue in 2017.
  • Following years of low inflation, Germany operated at a production level in 2016 that exceeded its capital capacity, leading to inflation concerns.
  • Germany’s unemployment rate has decline to 5.8%.

  • France’s economic growth slowed in the first quarter of 2017, with unemployment at 9.30%.
  • Business investment continues to grow at a low rate.
  • With lower oil prices and low inflation, consumer spending remained strong in 2016.
  • Except in the financial sector, corporate profits improved in 2016.
  • Even with a weaker euro, French exports have decreased over the last three quarter.
  • Newly elected President Emmanuel Macron faces challenges of how to stimulate a stagnant economy suffering with a 10% unemployment rate.

  • Italy’s GDP remains below its 2008 level and unemployment is still high at approximately 12%.
  • Italy’s high proportion of non-performing bank loans to total loans has led to credit tightening by Italian banks.
  • Inflation increased in the first quarter of 2017.
  • According to Bloomberg Intelligence, since 1997 exports from Italy have lost more than 40% of their market share.
  • Government fiscal policy spending has accelerated in an effort to stimulate the economy.  This has increased the public debt to 135% of GDP.

  • Economic recovery has taken hold over the last two years, with the growth rate in real GDP approaching 3.4% in the first quarter of 2017 and with unemployment at 5.23%.
  • The Netherlands benefited from strong consumer spending, export growth from the weaker euro, a recovering housing market, and improved credit conditions.
  • The Netherlands saw a budget surplus in 2016.
  • The Netherlands’ percentage of public debt to GDP is 60%.

  • From its very low level of GDP during the global financial crisis, Spain has experienced the fastest growth rate amongst the four largest EU economies. For the first quarter of 2017, Spain’s real GDP grew at 3%.
  • Spain’s high unemployment rate has declined, going from 25% in 2013 to 18.75% in the first quarter of 2017. According to Bloomberg Intelligence, unemployment is expected to continue to decline.
  • Fixed investment has increased, but remains at a low level of 20% of GDP.
  • Spain continue to undergo fiscal policy tightening.
  • Credit growth has slowed and housing prices have stabilized after sharply declining in 2013.

  • After some positive gains in growth, real GDP declined the last two quarters, placing Greece technically in a recession.
  • Unemployment was 24% in the first quarter of 2017, making it the highest in the euro zone—three times greater than the 8% average of the EU.
  • In a move towards privatization, Greek authorities sold a 51% shares in the port of Pirageus to the China Ocean Shipping Company.
  • According to the London Telegraph, the IMF is working on a compromise with Greece’s other creditors as a condition for a loan to take care of Greece’s current debt obligations. This would be Greece’s fourth bail out since the Global financial crisis.

  • During the first quarter of 2017, the United Kingdom experienced 2.10% annual growth. This was higher than the forecasted rates made by many economists following the Brexit vote. 
  • According to Bloomberg Intelligence, for the intermediate term, leaving the EU will decrease trade and investment expenditures in the UK.
  • There is concern in the United Kingdom that the potential gains from favorable bilateral agreements with the US, China, and other major trading partners will not offset the potential losses resulting from future trade relations with the EU.
  • The U.K. economy was operating above it full capacity in 2016, contributing to a rise in the inflation rate.
  • Following Brexit, the weaker British pound is expected to increase UK exports and lower imports.
  •  In the aftermath of the EU exit, the Bank of England increased its open market purchases and cut bank lending rates by 25 basis points.
  • After large infrastructures expenditures in 2016, more fiscal policy stimulants are expected in 2017.

  • Switzerland has experience only a modest growth since 2013, with the rate of real GDP growth slowing to 1% in the fourth quarter of 2016. Unemployment remains low at approximately 3.5% level.
  • In 2015, the Swiss National Bank abandoned its policy of maintaining a ceiling on the Swiss franc/euro exchange rate. The policy resulted in a strengthening of the Swiss franc against the euro, raising concerns about decreases in Swiss exports to the EU. In 2016, Switzerland’s current account surplus declined.
  • Switzerland continues to have negative interest rates, with the two-year rates at –0.96% and five-year rates at –0.63 as of May 2017.
  • Switzerland remains a safe haven for foreign capital flows, with the stronger franc leading to an increase in capital inflows.

  • Poland’s growth rate in real GDP accelerated to 4% rate in the first quarter of 2017. Growth was accompanied with increases in consumption, exports, and capital investments.
  • Interest rates remain at a relatively low level of 1.5% and according to Bloomberg Intelligence, the National Bank of Poland is expected to continue its expansionary monetary policy.

  • After declining growth in 2015 and 2016, Russia saw a modest growth in real GDP in the first quarter of 2017.
  • With the economy dependent of oil production, the modest increase in oil price contributed to the economy’s first quarter growth.
  • Unemployment remains relatively low at 5.5%.
  • Stagnant wages combined with inflation has lowered Russia’s real wages.
  • Concern over possible lower oil price and the increase in US oil production has led Russian producers to announce scaling back production.
  • The weaker ruble has led to an increase in net exports.

  • China’s growth rate has declined to a 7% level, down from its 2010 level of 11% and 2007 level of 15%. 
  • China is facing a local government debt problem resulting from it massive infrastructure mis-investments.
  • China’s home sales have declined, raising concerns of a potential burst to a housing bubble. The real estate market in China accounts for 13% of its GDP. 
  • There is concern of a future export decline from a proposed Trump policy of imposing tariffs on China’s export to the U.S.  
  • In response to its slower economic growth, China has implemented expansionary monetary and fiscal policies.
  • China’s foreign exchange reserves fell by $41 billion to $3.01 trillion in 2016.

  • Japan has experience moderate GDP growth in 2016 aided by a weaker yen and an increase consumption and exports.
  • Interest rates remain low.
  • Japan’s working-age population (ages 15 to 64) is expected to plummet to 55.2 million in 2050 from 81.2 million in 2010, while Japan’s elderly population is expected to grow to 39.6 million in 2050 from 29.2 million in 2010.  Prime Minister Shinzo Abe hopes to increase the birth rate with improved child and nursing care.
  • With wage growth stagnant, Prime Minister Abe has been leaning on companies with increasing profits to increase their wages.
  • The Bank of Japan is concerned with the number of zombie companies.

  • In 2016 fourth quarter, South Korea’s economy declined, as consumption slowed and construction investment contracted.
  • Korea economy has slowed due in part to slower economic growth in China, which accounts for a quarter of Korea’s exports.
  • The won has appreciated against the yen since 2012 and weakened against the yuan since 2016.  This, in turn, has weakening the competitiveness of many Korean firms.
  • Early signs of a recovery in exports, if sustained, would support growth. The consensus forecast points to a 2.6% growth rate in 2017, slightly slower than the 2.7% growth in 2016.  
  • There is a growing concern by Korean companies of the impact of a possible US protectionism policy.
  • There are concerns related to a projected decline in working-age population from 37 million to 27 million by 2050—Asia’s fastest projected drop.  
  • With low borrowing rates and a recent history of relaxed lending rules, South Korea’s household debt has increased to 90% of GDP as of mid-2016 from 74% in 2008.
  • The election of President Moon Jae-in is expected to provide needed political stability.
  • The impeachment of President Park Geun-hye and the Samsung scandal have raised red flags about the dominance of South Korea’s large conglomerates.
  • Nuclear threats from North Korean continue to drag the economy.

  • The growth in real GDP increased in the last quarter of 2016. This was the result of an increase in commodity prices. According to Bloomberg Intelligence, exports grew 6% in 2016, with exports to China increasing to 11%. China represents approximately 33% of Australia’s shipment.
  • Australia’s expansionary fiscal policy following the global financial crisis slowed in 2016.
  • Australia has operated with persistent deficits since the crisis, increasing public debt to 41% of GDP in 2016 from 33% in 2013.
  • S&P issued a negative outlook on Australia’s AAA credit ratings in July 2016.  
  • Low interest rates have contributed to a rise in new and existing home purchases. This has contributed to a 35% increase in housing prices from 2012 to 2016, raising concerns about a housing bubble.

  • Since the election of Prime Minister Narendra Modi in 2014, India has pursued an expansionary fiscal policy of providing tax breaks to boost startup businesses in the tech industry. India’s economic policy plans to increase the number of startups by 11,500 over the next five years.
  • Prime Minister Modi has reduced government regulatory red tape in order to accelerate economic growth.
  • India’s commercial banks have seen a rise in non-performing assets, leading to higher interest rates, sluggish capital expenditures, and bank reform.
  • According to Bloomberg Intelligence, India’s exports are expected to grow in 2017.
  • Easing of foreign direct investment restriction are expected to increase the flow of foreign direct investments into India.

  • Canada's economy grew at an annual rate of 2.5% in the first quarter of 2017.
  • The job market showed signs of improvement, with employment and wages up.
  • Unemployment rate was down to 6.70% in the first quarter of 2017, the lowest level since 2008.
  • Canada has gained from the recent increases in oil prices, but overall has been hurt when oil prices fall below $50.
  • Manufacturing has been strong since 2014.
  • There are growing concerns in Canada over changes in trade policies affecting their energy, lumber, aerospace, and dairy industries.
  • Canada’s slow housing market experienced growth in 2017.  Low interest rate and an improved economy led to an increase in new housing starts, which reached their highest level since 2007. According to Bloomberg Intelligence, the recent surge also led to renewed concerns of a possible housing bubble.
  • The U.S. imposed a 20% tariff on Canada’s softwood lumber (a $6 billion export). The U.S. claimed unfair trade practices stemming from Canada’s subsidy to the industry. The U.S. actions raised more concern about the renegotiation of NAFTA and future bilateral trade agreements with the U.S.

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  • Mexico has experienced modest economic growth of approximately 2.5% over the last three years. The growth rate was 2.76% and the unemployment rate was 3.19% in the first quarter of 2017. 
  • Agriculture and manufacturing are the leading growth sectors, benefiting from the US modest economic growth.
  • Future trade relations with the U.S. has led to delays in corporate capital investments, with capital investment declining in the first quarter of 2017.
  • Exports of manufactured goods to the U.S. increased in first quarter of 2017 in spite of concerns about the renegotiation of NAFTA and future bilateral trade agreements with the U.S.
  • Remittances continue to be a significant source of currency inflows.
  • The Central Bank increased interest rates by 3.5% since 2015 in an effort to slow inflation, which was 5.82% in the first quarter of 2017.
  • Public debt as a percentage of GDP has grown from 30% in 2007 to over 50% in 2016, leading to concerns of a downgrade by S&P and Moody.

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  • Gripped in the worst recession in its history, Brazil continues to struggle with rising unemployment, declining real wages, and tight credit. 
  • There is growing concern over the financial solvency of Brazil’s pension. Currently, pension payments equal 8.2% of GDP and constitute 42% of the government’s expenditures.  A social security proposal is being consider by Congress.
  • After the impeachment of former President Dilma Rousseff, there are recent reports of corruption in Brazil’s meatpacking industry. Meat exports make up about 15 percent of Brazil's exports. 
  • President Michael Temer is facing charges of cover-up, leading to concerns about a second impeachment.
  • According to Bloomberg Intelligence, the Central Bank is expected to reduce interest rates from 11.25% to 9%.

  • Argentina inflation rate is currently decreasing, after hitting 40% last year—the highest rate in the country since 2008.
  • Government bond rates are at 25%. 
  • Gross capital formation represents only 17% of GDP in Argentina compared to 23% in Chile and Mexico.
  • President Macri is actively working to repair relations with the U.S. and other trading partner.
  • To stimulate exports, the government has devalued its currency.
  • To curb inflation, the Central Bank has implemented a tighter monetary policy.

  • Nigeria, the largest economy in Africa (accounting for approximately 17% of Africa’s total population), suffered its first full year recession in 30 years in 2016.
  • The unemployment rate has increased from 6.40% in the fourth quarter of 2014 to approximately 13.9% at the end of end of the third quarter of 2016.
  • Nigeria strongest sectors, oil and agriculture, are expected to grow in 2017.
  • According to Bloomberg Intelligence, crude production is expected to increase after decreases following militant attacked on the pipeline.
  • Exports are expected to grow with the weaker naira.
  • The government unveiled its “Economic Recovery and Growth Plan” in March, calling for a path to a more diversified economy.
  • Nigeria suffers from a high unemployment rate, increasing from a 10% level in 2014 and 2015 to 18% in late 2016.
  • Underemployment is particularly acute in rural areas.
  • The Central Bank of Nigeria has kept interest rate relatively high at 14% to curb the country’s high inflation rate.
  • With their high proportion of non-performing loans to total loans, there is a growing concern about the solvency of a number of Nigeria’s banks. 

  • South Africa, the second largest economy in Africa, continues to suffer with an unemployment rate of 26%, declining exports, high inflation, and high interest rates.  
  • With lower metal prices and the stronger rand, mining and quarrying production declined 11.5% in 2016.
  • Following a 15% decline in aggregate output following the global financial crisis, labor strikes and power shortages put a damper on South Africa’s recovery.
  • According to Bloomberg Intelligence, most new labor-market entrants lack the skills necessary for what is still thought to be Africa’s most advanced economy.
  • Tight monetary policy directed at curbing inflation has kept interest rates high. Slow growth has kept the budget deficit at 4% of GDP.
  • Public debt has increased to 50% of GDP in 2016 from 26% in 2008.
  • The government’s automotive development program has had a positive impact on the South African economy, attracting foreign investments. Beijing Automotive International Corporation plans a large investment in a production plant in South Africa.
  • Auto exports are expected to continue to increase.
  • With lower domestic demand for electricity, South Africa plans to export power.

  • With an unemployment rate of 13%, Egypt has shown signs of rebounding in recent months.
  • A $12 billion aid package from the IMF is expected to improve economic conditions.
  • The Zohr offshore natural gas reserves are expected to begin production in a few years, making Egypt a net exporter of energy   
  • The country devalued its currency in 2017, changing the Egyptian pound from 8.78 pounds per US dollar to 18.25.  Egypt’s trade deficit is expected to improve from the devaluation.
  • Since the Arab Spring, Egypt’s economy has suffered from a decline in tourism.
  • Financial support and direct investment from Saudi Arabia and the United Arab Emirates has declined because of the fall in oil prices.

  • After the collapse in oil prices in 2014, Saudi Arabia’s real GDP growth slowed from 6.26% to 1.19%.
  • At $35/barrel to $40/barrel, Saudi Arabia may have a competitive advantage over a number of higher-cost producers.
  • Iran’s vast oil reserves pose a future threat to oil prices. The development of such resources, though, requires substantial infrastructure developments.
  • U.S. and Saudi Arabia agreed to $100 billion contracts on military sale.

  • After strong growth in 2016, Israel’s real GDP slowed to 3.91% in the first quarter of 2017.
  • A housing demand decline coupled with an increase in building led to a decline in housing prices.
  • Israel, “the Startup Nation,” continues its growth in high tech startup firms, attracting direct investments.
  • In March, Intel placed an all cash bid worth $15.3 billion to acquire a driver assistance technology company Mobileye.