Global Monthly September 2017

Transcription

1 Global Monthly September 2017 Overview Global growth picked up to 3.6 percent in 17Q2 (q/q saar), the strongest quarterly performance since The 17Q2 performance reflects an acceleration in advanced economies and continued recovery in major commodityexporting emerging markets and developing economies (EMDEs). Global financing conditions remain favorable, despite prospects of further monetary policy normalization in major advanced economies. Oil prices rose to $52/bbl in September, with inventories dropping in a sign of gradual market rebalancing. Table of Contents Monthly Highlights... 2 Special Focus... 6 Recent Prospects Group Publications... 8 Recent World Bank Working Papers... 8 Recent World Bank Reports... 8 Table A: Major Data Releases... 8 Table B: Activity and Inflation... 9 Table C: Trade and Finance... 9 Table D: Financial Markets Table E: Commodity Prices Metals prices Chart of the Month Metals prices rose 19 percent from June to September, continuing a recovery that started in early The recent uptick was driven by expectations of tightening supplies. This was in part due to China s reforms to reduce overcapacity, improve operating efficiency of state-owned enterprises, and reduce pollution. China is the single largest consumer of metals but also produces half of the world s refined metal output and steel. Sources: Federal Reserve Economic Data. Note: Last observation is September 27, Special Focus: New Fiscal Space Database Fiscal space measures a government s ability to implement effective fiscal policy. The World Bank released in August 2017 a new database providing a comprehensive picture of fiscal space in 200 economies over The database documents the recent improvement of fiscal positions in advanced economies and deterioration in EMDEs, especially commodity exporters. The Global Monthly is a publication of the Global Macroeconomics Team of the Prospects Group in the Development Economics Vice Presidency. This edition was prepared by Marc Stocker and Dana Vorisek, based on contributions from John Baffes, Mai Anh Bui, Sinem Celik, Ishita Dugar, Gerard Kambou, Eung Ju Kim, Seong Tae Kim, Csilla Lakatos, Yoki Okawa, Shane Streifel, Temel Taskin, Ekaterine Vashakmadze, and Collette Wheeler. This Global Monthly reflects information available as of September 28. For more information, visit:

2 Monthly Highlights Global growth: strongest since end Global growth picked up in 17Q2, reaching 3.6 percent (q/q saar), the strongest reading since 10Q4 (Figure 1A). The uptick mainly reflects an acceleration of activity in the United States, the Euro Area, and Japan, continued robust growth in East Asia and Pacific, and strengthening growth in Eastern Europe and Central Asia. Global manufacturing PMIs remained firmly in expansionary territory in July and August, suggesting continued momentum in 17Q3. The ongoing recovery in advanced economies and diminishing obstacles to activity among commodity-exporting emerging market and developing economies (EMDEs) continue to be key drivers of the pickup in global activity in Global median inflation edged up in July and August, reaching 2.4 percent, its highest level since March FIGURE 1A Global GDP growth FIGURE 1B Goods export growth Global trade: broad-based recovery in exports. Global goods trade growth, which began to recover in mid-2016 after two years of pronounced weakness, remained robust in recent months. The benefits of the recovery in global trade have been broad based, with export growth trending upwards in advanced economies and remaining firm in EMDEs (Figure 1B). Across EMDE regions, export growth was robust in Asia and Eastern Europe, but remained soft in Africa and the Middle East. PMI surveys point to sustained gains in global export orders during 17Q3. United States: ongoing momentum. Growth recovered in 17Q2 to 3.1 percent (q/q saar), supported by renewed strength in consumer spending. High-frequency indicators point to sustained albeit slightly weaker growth in 17Q3. The landfalls in Texas and Florida of two major hurricanes in August and September caused regional economic disruptions, but the dampening effect on activity should be short-lived. The pace of job creation moderated in recent months, partly reflecting increasingly tight labor market conditions (Figure 1C). The unemployment rate was 4.4 percent in August, a touch above the post-crisis low of 4.3 percent; however, hourly wage growth remained subdued. The U.S. Federal Reserve kept policy interest rates unchanged in September, but suggested the possibility of an additional hike by year-end, followed by three more in A gradual reduction in the size of central bank s balance sheet will start in October. Proposals to cut and simplify corporate and personal income taxes were presented, but important details still need to be fleshed out. 2 FIGURE 1C U.S. job creation Sources: CPB Netherlands Bureau for Economic Policy Analysis, Federal Reserve Bank of St. Louis, World Bank. A. Last observation is 2017Q2. B. Data are 3-month on 3-month moving averages. Last observation is July C. Data show average monthly changes in thousands of persons on nonfarm payroll. Last observation is August 2017.

3 Euro Area: continued strength. Growth in 17Q2 reached 2.6 percent (q/q saar), up from 2.2 percent in 17Q1, and surveys point to continued robust activity in 17Q3. The pickup reflects a broad-based improvement in activity across countries, with increases in household spending and gross fixed capital formation. The unemployment rate, at 9.1 percent (sa) in June and July, was at the lowest level since March Labor shortages have jumped in some countries, including Germany and the Netherlands, reaching their highest levels since 2000 (Figure 2A). The European Central Bank (ECB) kept interest rates and its bond-purchase program unchanged in September. Japan: stronger domestic demand. Growth picked up significantly in 17Q2, reaching 2.5 percent (q/q saar), supported by strengthening private consumption, robust private investment, and a boost to public investment from last year s supplementary budget. Manufacturing and services PMIs in August suggest continued momentum in Q3. The Bank of Japan kept its policy stance unchanged in September, as core inflation (excluding fresh food and energy) remains close to zero. China: steady growth. While GDP growth was stable in 17Q2, at 6.9 percent (y/y), it is shifting from state-driven investment to exports amid robust consumption growth. Despite monetary and regulatory tightening, credit growth continues to outpace nominal GDP growth (Figure 2B). The total stock of nonfinancial sector debt, estimated at around 260 percent of GDP in 16Q4, is still expanding. Citing risks associated with rising debt, Standard and Poor s cut China s sovereign credit rating in September. Incoming data for 17Q3 have been mixed. The Caixin composite PMI rose in August to the highest level since February, but contraction of mining production in August, and house price growth in major cities continued to slow on tighter regulations. In September, the renminbi reversed some of its previous appreciation against the U.S. dollar, following the removal of reserve requirements for foreign currency trading. Tighter enforcement of capital-flow management measures continue to limit capital outflow pressures. Commodity-exporting EMDEs: ongoing recovery. Growth recovered further in large commodity exporting EMDEs in 17Q2, while inflation moderated, allowing some central banks to ease policy (Figure 2C). In Brazil, GDP expanded 0.3 percent (y/ y) in 17Q2 the first positive annual reading since 14Q1 FIGURE 2A Euro Area labor shortages FIGURE 2B Credit and nominal GDP growth in China FIGURE 2C Inflation in major EMDE commodity exporters Source: European Commission, Haver Analytics, World Bank. A. Data based on business sentiment surveys. Last observation is 2017Q3. B. Non-financial enterprises include both public and private enterprises. 3

4 supported by a rebound in private consumption. Retail sales and industrial production data in early Q3 suggest continued improvement. Growth in Russia accelerated strongly in 17Q2, to 2.5 percent (y/y), from 0.5 percent in Q1. High-frequency data suggest that both industrial and services sectors are recovering. The tightening of U.S. sanctions on Russia in July and extension of EU sanctions in September may weigh on sentiment, however. Growth was stable in Indonesia in 17Q2, at 5 percent (y/y). After a recession in 2016 and 17Q1, Nigeria s GDP expanded 0.6 percent (y/y) in 17Q2, following five quarters of negative y/y growth, on a recovery in the oil sector. PMI readings in July and August suggest continued expansion in 17Q3. Growth in South Africa edged up in 17Q2, to 1.1 percent (y/y), led by an uptick in agricultural activity. Moderating mining production growth and a manufacturing output contraction of 1.4 percent (y/y) in July suggest softening activity at the start of 17Q3. Commodity-importing EMDEs: continued robust growth. Growth in commodity-importing EMDEs remained robust in 17Q2, though at a slightly slower pace than in 17Q1 (Figure 3A). In India, GDP growth moderated for the fifth consecutive quarter, to a still strong 5.7 percent (y/y) in 17Q2, amid temporary disruptions due to uncertainty leading up to the implementation of the new Goods and Services Tax in July. The manufacturing PMI bounced back in August, however, to Growth in Mexico decelerated to 1.8 percent (y/y) in 17Q2, in line with market expectations. Growth continues to be supported by solid services sector activity. The incidence of two powerful earthquakes in September will likely disrupt activity in the shortterm. Growth in Turkey was strong in 17Q2, at 5.1 percent (y/y) amid fiscal support and further easing of policy uncertainty. Robust export growth in Turkey is being supported by strengthening demand from the Euro Area, and manufacturing PMI in August and consumer confidence in September suggest continued momentum in Q3. Thailand s GDP growth accelerated to 3.7 percent (y/y) in 17Q2, driven by a rebound in exports and stock-building, which offset a deceleration in fixed investment. Global financing conditions: benign. Global financing conditions remained benign in September, and equity and bond market volatility fell, following a short-lived increase in August. The U.S. 10-year Treasury yield hovered around 2.2 percent in FIGURE 3A GDP growth in commodity-exporting and commodity-importing EMDEs FIGURE 3B Longer-term forecast of U.S. policy interest rate by FOMC members FIGURE 3C U.S. dollar exchange rate Sources: Board of Governors of the Federal Reserve System, Federal Reserve Bank of St. Louis, World Bank. A. Last observation is 2017Q2. B. Median forecast of U.S. federal funds rate by FOMC members. Last observation is September 20, C. An increase indicates an appreciation. Last observation is September 22,

5 September, close to the level prevailing before the start of the tightening cycle in December 2015, despite a 100 basis-point increase in policy interest rates over the same period. Low longterm yields reflected subdued inflation expectations and prospects of persistently low equilibrium rates. In September, Federal Open Market Committee (FOMC) participants downgraded their longer-term forecasts for policy interest rates (Figure 3B). Downward pressure on the U.S. dollar continued in September, particularly against the euro (Figure 3C). EMDE financing conditions: broadly favorable. EMDE assets in September continued to be buoyed by strong demand from international investors. Bond spreads have narrowed to levels last seen in June 2014, before the collapse of oil prices, with borrowing conditions improved most for investment-grade borrowers (Figure 4A). Net capital inflows to EMDE bond and equity mutual funds were stable in September, with the weakness in the U.S. dollar helping to sustain inflows. International bond issuance across EMDE regions in September was strong (Figure 4B). Bahrain, Russia, Saudi Arabia, South Africa, Tajikistan, Turkey, and Ukraine raised a combined $26.7 billion of sovereign debt, and a number of other sovereign borrowers including Angola, China, Indonesia, Jordan, Nigeria, and Pakistan plan to issue debt in the near future. Commodity prices: slightly up. Oil prices averaged $53/bbl in September, up from $50/bbl in August. The market continues to rebalance, with OPEC countries improved compliance in August with previously agreed production cuts and falling production in Libya both contributing to the recent uptick in prices (Figure 4C). Inventories continued to fall from record high levels, while the Brent futures-price curve steepened, indicating a tightening market. Hurricane Harvey impacted up to one-third of U.S. oil refinery capacity, resulting in a temporary spike in U.S. gasoline prices that disappeared by mid-september, as refineries recover. Metals prices have risen 19 percent over the last three months, on expectations of tightening supplies. This was partly driven by reforms in China aimed at reducing overcapacity and combatting pollution. Agricultural prices fell in August amid ample global supplies. China is the single largest consumer of metals but also produces half of the world s refined metal output and steel. FIGURE 4A EMDE bond spreads FIGURE 4B EMDE bond issuance by regions FIGURE 4C OPEC compliance rate Sources: Dealogic, International Energy Agency, J.P. Morgan, World Bank. A. Data excludes Venezuela. Last observation is September 22, B. Last observation is September C. Last observation is August

6 Special Focus: New Database on Fiscal Space FIGURE 5A Concept of fiscal space Fiscal space at the center of policy debate. The importance of a government s ability to implement effective fiscal policy in the face of unexpected economic shocks was prominently displayed during and after the global financial crisis. This ability is based on budgetary resources available for governments to stimulate activity when needed. The availability of fiscal space has been at the center of various debates on the effective use of countercyclical fiscal policy in both advanced economies and EMDEs. Concept of fiscal space. Fiscal space is a complex concept, with multiple definitions and measures used in the literature. The core aspect of fiscal space is the ability of a government to service its debt. Unless debt service capacity is maintained, a government cannot indefinitely finance its operations in a sound manner. Debt service capacity has multiple dimensions for example, financing needs related to budget positions, currency and maturity structure, contingent liabilities, and access to liquid markets. The availability of fiscal space is, therefore, affected not only by government debt and balances, but also by three other aspects of fiscal space: the composition of government balance sheet, external and private sector debt, and market perception of sovereign risks (Figure 5A). FIGURE 5B Basic attributes of the new database FIGURE 5C Sustainability gaps under different conditions, advanced economies New database. The World Bank s new cross-country database of fiscal space, released in August 2017, brings together measures of different dimensions of fiscal space for a large number of countries (Figure 5B). The database includes 28 indicators coming from the four aspects of fiscal space and, for most indicators, relies on multiple cross-country sources. It also covers data for up to 200 economies over the period Sustainability gap. The new database provides a summary metric of government debt dynamics namely, the sustainability gap. The sustainability gap compares a country s fiscal balance with Source: Kose et al. (2017). B. The red dot represents a new database by Kose et al. (2017), while select studies on fiscal databases are shown as blue dots. C. Period average sustainability gaps in respective country groups. Lines in gray show the interquartile range. Refer to Kose et al. (2017) for descriptions of assumed conditions. 6

7 the balance that stabilizes government debt at a level under different assumptions of output growth, long-term interest rates, and target debt ratio. The sustainability gap indicator provides a simple snapshot of the adjustments that may be needed to reach debt targets under different conditions. A positive (negative) gap indicates that a fiscal balance would diminish (increase) government debt below (above) the target level, if sustained. The database presents five sustainability gap estimates, each based on primary balance, and each computed under different assumptions of growth, interest rates, and target debt ratio (Figures 5C, 6A). The indicators are available for 107 countries 35 advanced economies and 72 EMDEs. Advanced economies and EMDEs. Prior to the global financial crisis, the evolution of sustainability gaps displayed notable synchronicity between advanced economies and EMDEs (Figure 6B). From 2003 to the eve of the global financial crisis, sustainability gaps in both sets of economies improved as rapid growth reduced deficits, and both groups faced debt-reducing fiscal positions. After the crisis, fiscal positions deteriorated sharply in EMDEs as activity slowed, while debt clearly increased. In contrast, following a severe deterioration in 2009, fiscal positions in advanced economies improved, returning to mid- 2000s levels by EMDE commodity exporters and importers. Among EMDEs, commodity exporters experienced more pronounced pre-crisis improvements and post-crisis deteriorations in fiscal positions, consistent with commodity price movements (Figure 6C). In these economies, the sharp deterioration in 2009 was reversed within a year. However, since the beginning of commodity price slide in 2011, fiscal positions have steadily deteriorated, and since 2014 they have been materially below those of EMDE commodity importers. In the latter group, the post-crisis deterioration in fiscal positions has been more gradual than in commodity exporters. FIGURE 6A Sustainability gaps under different conditions, EMDEs FIGURE 6B Sustainability gaps FIGURE 6C Sustainability gaps, EMDEs Source: Kose et al. (2017). A. Period average in respective country groups under five different assumptions for GDP growth rates, interest rates, and target debt ratio. Country-specific uses country-specific median values; Historical refers to country-specific median growth and interest rates and median debt ratio by country group; Current conditions use contemporaneous growth and interest rates, with country-group median debt ratio; Stress conditions are defined as median GDP growth minus one standard deviation, country-specific median interest rate plus one standard deviation, and median debt ratio; Benign means maximum GDP growth and minimum interest rates based on 10-year moving averages and country-group median debt ratio. Lines in gray show the interquartile range. B.C. Simple averages. Sustainability gaps are measured under current conditions. The year of global recession (2009) is shaded in gray. 7

8 Recent Prospects Group Publications Global Economic Prospects - June 2017: A Fragile Recovery Commodity Markets Outlook - April 2017 Global Economic Prospects - January 2017: Weak Investment in Uncertain Times Recent World Bank Working Papers A Cross-Country Database of Fiscal Space Which Emerging Markets and Developing Economies Face Corporate Balance Sheet Vulnerabilities? A Novel Monitoring Framework Export Quality in Advanced and Developing Economies: Evidence from a New Data Set Financial Globalization: A Glass Half Empty? Short-term Impact of Brexit on the United Kingdom's Export of Goods Optimal Targeting under Budget Constraints in a Humanitarian Context Preferential Trade Agreements and Global Value Chains: Theory, Evidence, and Open Questions A Bit Far? Geography, International Economic Agreements, and Foreign Direct Investment: Evidence from Emerging Markets The Nature of Trade and Growth Linkages Online Exports and the Wage Gap Evidence for a Presource Curse? Oil Discoveries, Elevated Expectations, and Growth Disappointments Services Trade and Global Value Chains Recent World Bank Reports Trouble in the Making? The Future of Manufacturing-Led Development Doing Business 2017: Equal Opportunity for All TABLE A: Major Data Releases (Percent change, y/y) (Percent change y/y) Recent releases: August 20, September 27, 2017 Upcoming releases: September 28, October 20, 2017 Country Date Indicator Period Actual Forecast Previous Country Date Indicator Period Previous Mexico 8/22/17 GDP Q2 1.8 % 1.8 % 2.8% United Kingdom 9/29/17 GDP Q2 2.0 % United Kingdom 8/24/17 GDP Q2 1.7 % 1.7 % 2.0 % South Korea 10/2/17 CPI SEP 3.7 % Germany 8/25/17 GDP Q2 2.1 % 2.1 % 2.0% Thailand 10/3/17 CPI SEP 0.3% France 8/29/17 GDP Q2 1.7 % 1.8 % 1.1% Philippines 10/4/17 CPI SEP 3.1 % United States 8/30/17 GDP Q2 2.2 % 2.1 % Luxembourg 10/4/17 CPI SEP 1.7% Poland 8/31/17 GDP Q2 3.9 % 3.9 % 4.0 % Netherland 10/5/17 CPI SEP 1.4 % India 8/31/17 GDP Q1 5.7 % 6.1 % Switzerland 10/5/17 CPI SEP 0.5 % South Korea 8/31/17 GDP Q2 2.7 % 2.7 % 2.7 % Luxembourg 10/6/17 GDP Q2 3.3 % Italy 9/1/17 GDP Q2 1.5 % 1.5 % 1.2 % Brazil 10/6/17 CPI SEP 2.5% Czech Republic 9/1/17 GDP Q2 4.5% 2.9 % Czech Republic 10/9/17 CPI SEP 2.5 % Greece 9/1/17 GDP Q2 0.8 % 0.3 % 0.4 % Romania 10/10/17 GDP Q2 5.6 % Brazil 9/1/17 GDP Q2 0.3 % -0.4 % Greece 10/10/17 CPI SEP 0.9 % Romania 9/5/17 GDP Q2 5.7 % 5.9 % 5.6 % Romania 10/11/17 CPI SEP 1.15 % South Africa 9/5/17 GDP Q2 1.1 % 0.8% 1.0 % France 10/12/17 CPI SEP 0.9 % Australia 9/5/17 GDP Q2 1.8 % 1.3% 1.7 % Sweden 10/12/17 CPI SEP 2.3 % Eurozone 9/7/17 GDP Q2 2.3 % 2.2 % 1.9 % Poland 10/12/17 CPI SEP 1.8 % Sweden 9/13/17 GDP Q2 3.1 % 3.5 % United States 10/13/17 CPI SEP 1.9 % Ireland 9/15/17 GDP Q2 5.8 % 5.2% China 10/15/17 CPI SEP 1.8 % Malaysia 9/20/17 CPI AUG 3.7 % 3 % 3.2 % New Zealand 10/16/17 CPI Q3 1.7 % Canada 9/22/17 CPI AUG 1.4 % 1.5 % 1.2 % United Kingdom 10/17/17 CPI AUG 2.9 % 8

9 TABLE B: Activity and Inflation (Percent change y/y, except quarterly data on industrial production, which are percent change q/q, annualized) Industrial Production, sa Q3 Q4 Q1 Q2 Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug World Advanced Economies Emerging Market and Developing Economies Commodity-exporting EMDE Other EMDE East Asia and Pacific East Asia excl. China Europe and Central Asia Latin America and Caribbean Middle East and North Africa South Asia Sub-Saharan Africa Inflation, sa 2 World Advanced Economies Emerging Market and Developing Economies Commodity-exporting EMDE Other EMDE East Asia and Pacific Europe and Central Asia Latin America and Caribbean Middle East and North Africa South Asia Sub-Saharan Industrial production is total production (may exclude construction). When data are unavailable, "industrial production, manufacturing" and "industrial production, manufacturing, non-durable manufacturing, petroleum and coal products, crude petroleum products" are used as proxies. TABLE C: Trade and Finance (Percent change y/y, except quarterly trade data, which are percent change q/q, annualized, and international reserves data, which are percent change over the previous period) Q3 Q4 Q1 Q2 Sep Oct Nov Dec Jan Feb Mar Ap May Jun Jul Aug Exports, Nominal, US$, sa World Advanced Economies Emerging Market and Developing Economies Commodity-exporting EMDE Other EMDE East Asia and Pacific Europe and Central Asia Latin America and Caribbean Middle East and North Africa South Asia Sub-Saharan Africa Imports, Nominal, US$, sa World Advanced Economies Emerging Market and Developing Economies Commodity-exporting EMDE Other EMDE East Asia and Pacific Europe and Central Asia Latin America and Caribbean Middle East and North Africa South Asia Sub-Saharan Africa International Reserves, US$ 1 World Advanced Economies Emerging Market and Developing Economies Commodity-exporting EMDE Other EMDE East Asia and Pacific Europe and Central Asia Latin America and Caribbean Middle East and North Africa South Asia Sub-Saharan Africa Total reserves excluding gold are used as proxies when total reserves data are unavailable. 9

10 TABLE D: Financial Markets (Percent change y/y, except quarterly trade data, which are percent change q/q, annualized, and international reserves data, which are percent change over the previous period ) Interest rates and LIBOR (percent) TABLE E: Commodity Prices MRV Q3 Q4 Q1 Q2 Sep Oct Nov Dec Jan Feb Mar Apr May June Jul Aug U.S. federal funds effective ECB repo US$ LIBOR 3-months EURIBOR 3-months U.S. 10-year Treasury yield German Bund, 10 year Spreads (basis points) JP Morgan Emerging Markets Asia Europe Latin America and the Caribbe Middle East Africa Stock indexes (end of period) Global (MSCI) Advanced economies ($ index) United States (S&P 500) Europe (S&P Euro 350) Japan (Nikkei 225) Emerging market and developing economies (MSCI) EM Asia EM Europe EM Europe and Middle East EM Latin America & Caribbean Exchange rates (LCU / USD) Advanced economies Euro Area Japan Emerging market and developing economies Brazil China Egypt India Russia South Africa Memo: U.S. nominal effective rate (index) 1 MRV = most recent value MRV Q3 Q4 Q1 Q2 Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Energy Non-energy Agriculture Metals and minerals Memo items: Crude oil, average ($/bbl) Gold ($/toz) Baltic Dry Index Source: World Bank, World Bank Commodities Price Data (The Pink Sheet), Bloomberg 1 MRV = most recent value. 2 Indexes, 2010 = International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC Telephone: ; Internet: Some rights reserved This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The maps were produced by the Map Design Unit of The World Bank. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on these maps do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. Nothing herein shall constitute or be considered to be a limitation upon or waiver of the privileges and immunities of The World Bank, all of which are specifically reserved. 10