Global Monthly April 2018

Transcription

1 Global Monthly April 2018 US$, billions Total Potentially impacted by new tariffs 0 China exports to U.S. U.S. exports to China

2 Monthly Highlights Global economy: maturing upturn, gradual pickup in inflation. Global growth was still solid in 18Q1, but showed signs of moderation amid mixed incoming data in major economies. Global capital spending, exports, and industrial production continued to show momentum, but consumer spending softened. In March, business and consumer confidence dropped from postcrisis highs, while global PMI surveys fell appreciably, reaching a 16-month low as activity decelerated in both manufacturing and services (Figure 1.A). Concerns about an escalating trade spat between the United States and China impacted financial market sentiment and increased policy uncertainty. Global inflation remained moderate but increased gradually in 18Q1, supported by higher oil prices and diminished global economic slack (Figure 1.B). Inflation picked up in major advanced economies and commodity-importing EMDEs, but continued to decline in key commodity exporters, as the impact of past currency depreciations waned. Global goods trade: strong gains, but rising policy uncertainty. Global goods trade growth remained strong at the start of 2018, supported by robust trade flows in Asia and across major advanced economies. However, export orders weakened in March to a 15-month low, indicating softening momentum toward the end of 18Q1. On the policy front, risk of escalating trade protectionism increased, following tariff announcements by the United States and China. The impact of these measures will depend on their ultimate scope; however, a rise in trade policy uncertainty could itself weigh on confidence, financial market sentiment, and eventually on activity (Figure 1.C). United States: slowing growth, rising fiscal deficits. GDP growth slowed to 2.3 percent in 18Q1 (q/q saar), from 2.9 percent in the previous quarter. The deceleration reflected weaker consumer spending and export growth, partially offset by robust business investment. Labor market conditions remained robust, with employment gains averaging 202,000 in 18Q1, and the unemployment rate stabilizing to 4.1 percent, its lowest level in 17 years. Survey data continue to point to sustained growth, with consumer confidence remaining close to post-crisis highs in April. Despite some moderation in Q1, export growth continued to benefit from strong external demand and past depreciation of the U.S. dollar. China s announced retaliatory tariffs, if implemented, FIGURE 1.A Global industrial production growth and manufacturing PMI FIGURE 1.B Inflation in major advanced economies and EMDEs FIGURE 1.C U.S. trade policy uncertainty Sources: Baker, Bloom, and Davis (2016); Haver Analytics; World Bank. A. Last observation is March 2018 for manufacturing PMI and February 2018 for industrial production. B. World CPI is the median value. Last observation is March C. Trade policy-related uncertainty in the United States is based on Baker, Bloom, and Davis (2016), and computes the frequency of articles in domestic newspapers mentioning terms related to trade policy (e.g., import tariffs, import barriers, WTO, dumping, etc.). Last observation is March

3 could affect up to $50 billion of U.S. exports to China, including vehicles and aircraft, as well as soybeans and other vegetable products. Fiscal stimulus measures are expected to support activity in the near term, but are also contributing to a rapid increase in budget deficits, which are expected to reach 4 percent of GDP in 2018 and increase to 4.6 percent in 2019 (Figure 2.A). Euro Area: stabilizing confidence. The recovery in the Euro Area continues, but recent data have been relatively soft. Following exceptionally strong growth throughout 2017, the deceleration in activity has been particularly visible in Germany, where retail sales and industrial production dropped in 18Q1. Nonetheless, Euro Area activity is still tracking above-trend growth amid accommodative monetary policy, rising investment, and solid credit growth. Although sentiment indicators remain robust, they dropped in March and stabilized at a lower level in April, following decade-long highs at the start of 2018 (Figure 2.B). The unemployment rate continued to fall, reaching 8.5 percent in February, while inflation picked up in March, to 1.3 percent (y/y), but remains below the European Central Bank s target. Japan: mixed activity data, rising inflation. Industrial production increased in February and March, but not enough to offset a sharp fall in January, while the manufacturing PMI declined in February and March, suggesting that growth slowed in 18Q1. However, the all-firm Tankan business sentiment indicator improved and the Manufacturing PMI increased marginally in April, pointing to the possibility of a rebound in 18Q2. Inflation declined to 1.1 percent (y/y) in March, while core inflation (excluding fresh food and energy) remained subdued at 0.5 percent. Inflation expectations are still well below the central bank s target. In its April meeting, the Bank of Japan kept rates unchanged, but dropped its timeframe for reaching 2 percent inflation by fiscal year China: resilient growth. Growth in 18Q1 remained stable at 6.8 percent (y/y), for the third consecutive quarter, supported by strong consumer spending. Industrial production has been robust so far this year, expanding by 6.8 percent (y/y) in 18Q1, up from 6.2 percent un 17Q4, but moderated in March. Credit growth has continued to slow amid tighter regulation, but the impact on activity has been limited (Figure 2.C). Lunar New Year effects continued to distort China s trade figures, but preliminary data for March suggests that trade flows were robust in 18Q1. China responded to proposed U.S. tariffs affecting primarily exports of FIGURE 2.A U.S. budget deficits, revenues, and outlays FIGURE 2.B Euro Area economic sentiment FIGURE 2.C China s total loan growth Sources: Congressional Budget Office (CBO), European Commission, Haver Analytics, People s Bank of China. A. Shaded area indicates CBO forecasts. B. Composite index measures the confidence level across manufacturers, service providers, consumers, retailers, and constructors. Last observation is April C. Data are end of period and are estimates for 2018Q1. 3

4 machinery, mechanical appliances, and electrical equipment with countervailing measures, while filing a challenge under the WTO dispute settlement mechanism. Consumer price inflation eased slightly to 1.9 percent (y/y) in March, reflecting lower food, tourism, and transportation prices, but has been on an upward trend since a trough in early Major commodity-exporting EMDEs: varying trends. Following sustained improvements in 2017, incoming data for 18Q1 remained consistent with a gradual recovery in commodity exporters, but with notable divergences across countries (Figure 3.A). Activity in Brazil lost some momentum, with industrial production and retail sales growth moderating in February. However, business sentiment improved in March and monetary policy easing is providing ongoing support to domestic demand. In Russia, the composite PMI dropped in March, and the ruble depreciated sharply in April amid rising geopolitical concerns. In Indonesia, a contraction in the chemical sector dragged down industrial production in recent months, but the underlying growth momentum remains strong. In Nigeria, survey data picked up in March, pointing to strengthening activity in 18Q1, while manufacturing activity decelerated in South Africa, following solid gains in 17Q4. In Saudi Arabia, the composite PMI remained stable in March following a sharp decline in January when the new value-added tax was introduced. Major commodity-importing EMDEs: sustained strength. Activity generally remained robust in commodity importers (Figure 3.B). In India, industrial production grew 7.1 percent (y/ y) in February, despite a slowdown in mining, while manufacturing output gained 8.7 percent (y/y). However, the manufacturing PMI fell in March, driven by weakening new orders and hiring. Growth in Poland and Turkey was robust in 17Q4, and survey data point to continued, albeit softening, momentum in 18Q1. Data in Thailand are mixed, with strong exports but moderating confidence. In Mexico, the flash estimate for 18Q1 growth came in at 1.1 percent (q/q sa), up from 0.8 percent in 17Q4, supported by rising industrial activity. In Egypt, industrial growth remained resilient, growing 12 percent (y/y) in February, while inflation continued to decline in March. Global financial markets: tightening. Prospects of further rate hikes by the U.S. Federal Reserve and rising inflation expectations pushed U.S. long-term yields to a four-year high of 3 percent FIGURE 3.A Industrial production in selected commodity-exporting EMDEs FIGURE 3.B Industrial production in selected commodity-importing EMDEs FIGURE 3.C 10-year government bond yields Sources: Bloomberg, World Bank. A. B. Data reflect 3-month moving averages. Last observation is February C. Last observation is April 30, 2018 for the United States and Germany, and April 27, 2018 for Japan. 4

5 Basis points Sovereign Corporate US$, billions Jan-Apr 2017 Jan-Apr 2018 EAP LAC MNA ECA SSA SAR US$/bbl 70 Oil price, WTI U.S. equity index (RHS) Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 Index 2,900 2,800 2,700 2,600 2,500 2,400 2,300 5

6 Percent 8 Potential growth Actual growth potential growth World AEs EMDEs Percent Contribution World Baseline Demographic trends Other factors Contribution EMDEs (RHS) Percent Percent 100 Share of countries Share of GDP World AEs EMDEs 6

7 EMDE by as much as their largest historical improvement in any ten-year period. This would imply an average increase in secondary and tertiary enrollment rates of 7 percentage points over the next decade, and an average rise in life expectancy of 2.5 years. Increasing labor force participation. Labor supply can be raised by drawing a greater share of the working-age population into the labor force. This can be achieved through policies to activate discouraged workers or groups with historically low participation rates, such as women and young or senior workers. In the stylized scenario, female labor force participation rates along cohort-, age-, and country-specific dimensions are assumed to rise, over the next decade, by the largest historical ten-year improvement in each EMDE, although they are not assumed to exceed the rates of same-aged men. On average, this would imply raising the female labor force participation rate by 10 percentage points by The assumption underlying this result is that, over the decade, sufficient jobs will be created to absorb this additional labor supply. Estimated impact on potential growth. The stylized scenarios above suggest that a combination of additional investment; better educational and health outcomes; and labor market, business climate, and governance reforms could stem or even reverse the expected decline in potential growth over the next decade (Figure 6.A). The human and physical capital and labor market reform scenarios above are associated with 0.7 percentage point higher EMDE potential growth. This would more than offset the 0.5- percentage-point slowdown in EMDE potential growth expected under the baseline scenario. Projected gains from filling large investment needs in EMDEs could be particularly significant, contributing to more than half the expected improvement. Reform spurts, productivity, and investment growth. A renewed drive for reforms could help lift potential growth even in the short to medium run. Past reform spurts were followed by accelerating productivity and investment growth. To illustrate this linkage, an event study defines major reform spurts as those that significantly improve governance or business climate indicators. Four years after the reform spurts, TFP growth was about percentage points higher and investment growth about 2.8 to 3.5 percentage points higher compared to their average in years without spurts (Figure 6.B & C). FIGURE 6.A Potential growth under reform scenarios FIGURE 6.B Change in TFP growth 2-4 years after reform episodes FIGURE 6.C Change in real investment growth 2-4 years after reform episodes Source: World Bank. A. C. GDP-weighted averages. Derived using the methodology described in Chapter 3 of the January 2018 Global Economic Prospects. B. C. Regression coefficients of growth on dummies for structural reform spurts and setbacks defined as statistically significant changes in four Worldwide Governance Indicators from local projections model for lags of two and four years, for a sample of 136 EMDEs and 38 advanced economies during Vertical bars show 90 percent confidence level. 7

8 Global Economic Prospects June 2018 (forthcoming) Commodity Markets Outlook - April 2018: Oil Exporters: Policies and Challenges Global Economic Prospects - January 2018: Broad-Based Upturn, but for How Long? Global Economic Prospects - June 2017: A Fragile Recovery Impact of Free Trade Agreement Use on Import Prices Sharing the Benefits of Innovation-Digitization: A Summary of Market Processes and Policy Suggestions Capital Inflows, Equity Issuance Activity, and Corporate Investment Returns to Investment in Education: A Decennial Review of the Global Literature Interest Rate Caps: The Theory and the Practice Paris Climate Agreement and the Global Economy: Winners and Losers Taxation and the Shadow Economy: How the Tax System Can Stimulate and Enforce the Formalization of Business Activities What Investors Want: Perceptions and Experiences of Multinational Corporations in Developing Countries The Performance of a Consumption Augmented Asset Index in Ranking Households and Identifying the Poor The Changing Wealth of Nations 2018: Building a Sustainable Future Doing Business 2018: Reforming to Create Jobs World Development Report 2018: LEARNING to Realize Education s Promise Women, Business and the Law (Percent change, y/y) (Percent change y/y) Recent releases: March 23, April 25, 2018 Upcoming releases: April 26, May 21, 2018 Country Date Indicator Period Actual Forecast Previous Country Date Indicator Period Previous Netherland 3/26/18 GDP Q4 2.9 % 2.9 % 3.0% Iceland 4/27/18 CPI APR 2.8 % France 3/26/18 GDP Q4 2.5% 2.3% Austria 4/27/18 GDP Q1 2.8 % South Korea 3/27/18 GDP Q4 2.8 % 3.8 % France 4/27/18 GDP Q1 2.0 % United States 3/28/18 GDP Q4 2.6 % 2.7 % 2.3 % UK 4/27/18 GDP Q1 1.4 % Turkey 3/29/18 GDP Q4 7.4 % 10.5 United States 4/27/18 GDP Q1 2.6 % UK 3/29/18 GDP Q4 1.4 % 1.4 % 1.8% Lithuania 4/30/18 GDP Q1 3.8 % Denmark 4/5/18 GDP Q4 1.3 % 1.1% Spain 4/30/18 GDP Q1 3.1 % Mexico 4/9/18 CPI MAR 5.0% 5.3% Mexico 4/30/18 GDP Q1 1.5 % United States 4/11/18 CPI MAR 2.4 % 2.5% 2.2 % Latvia 5/1/18 GDP Q1 4.2 % Sweden 4/12/18 CPI MAR 2.0 % 1.6% Indonesia 5/2/18 GDP Q1 5.2 % Ireland 4/12/18 CPI MAR 0.2 % 0.5 % Italy 5/2/18 GDP Q1 1.6 % Spain 4/13/18 CPI MAR 1.2 % 1.1 % Eurozone 5/2/18 GDP Q1 2.7 % China 4/16/18 GDP Q4 6.8 % 6.9% Turkey 5/3/18 CPI APR % Italy 4/17/18 CPI MAR 0.8 % 0.5% Indonesia 5/7/18 GDP Q1 5.2 % Croatia 4/17/18 CPI MAR 1.0% 0.8 % Brazil 5/10/18 CPI APR 2.7% Austria 4/18/18 CPI MAR 2.0% 1.9% Cyprus 5/15/18 GDP Q1 3.9 % South Africa 4/18/18 CPI MAR 3.7% 3.8% Germany 5/15/18 GDP Q1 2.9 % UK 4/18/18 CPI MAR 2.5 % 2.7% 2.7 % Slovakia 5/15/18 GDP Q1 3.5 % Japan 4/19/18 CPI MAR 1.1 % 1.2% 1.5 % Poland 5/15/18 GDP Q1 5.1 % Canada 4/20/18 CPI MAR 2.3 % 2.2 % Portugal 5/15/18 GDP Q1 2.4 % Australia 4/23/18 CPI Q1 1.9 % 1.9 % 1.9 % Thailand 5/21/18 GDP Q1 4.0 % 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 1 Sources: Haver Analytics, IMF International Financial Statistics, World Bank. 1 Industrial production is total production (may exclude construction). When data are unavailable, "industrial production, manufacturing" is used as a proxy. 2 Median inflation rate for each grouping. TABLE C: Trade and Finance Sources: Haver Analytics, IMF International Financial Statistics, World Bank. 1Total reserves excluding gold are used as proxies when total reserves data are unavailable. April Q1 Q2 Q3 Q4 Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb World Advanced economies Emerging market and developing economies Commodity-exporting EMDEs 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 EMDEs Other EMDE East Asia and Pacific Europe and Central Asia Latin America and Caribbean Middle East and North Africa South Asia Sub-Saharan Africa (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) Q1 Q2 Q3 Q4 Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Exports, nominal, US$, sa World Advanced economies Emerging market and developing economies Commodity-exporting EMDEs Other EMDEs East Asia and Pacific Europe and Central Asia Latin America and Caribbean Middle East and North Africa South Asia Sub-Saharan Africa Imports, nominal, US$, sa World Advanced economies Emerging market and developing economies Commodity-exporting EMDEs Other EMDEs 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 EMDEs Other EMDEs East Asia and Pacific Europe and Central Asia Latin America and Caribbean Middle East and North Africa South Asia Sub-Saharan Africa

10 TABLE D: Financial Markets 10 April 2018 (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 Q2 Q3 Q4 Q1 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar 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 Caribbean 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) Sources: Bloomberg, J.P. Morgan, and World Bank. 1 MRV = most recent value MRV Q2 Q3 Q4 Q1 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Energy Non-energy Agriculture Metals and minerals Memo items: Crude oil, average ($/bbl) Gold ($/toz) Baltic Dry Index Sources: 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.