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Global
The chief economist and Executive board member of the European Central Bank, ECB, Peter Praet, praised the accommodative stance of the bank. "In the current situation, for instance, the ECB's continued monetary accommodation not only supports a return of inflation to levels closer to 2 percent but also aids balance sheet repair in the euro area and mitigates the risk of adverse spillovers to the financial systems in other economies," he said.
A flexible medium term policy is being followed by the ECB. Further, it carefully watches the interplay of credit and money supply, which often signals development of financial imbalances. At the same time, Praet warned against excessive focus on stabilizing prices at the cost of overall financial stability. "And a failure of major central banks to appropriately account for this risk in their monetary policy strategies can create new, or reinforce existing, financial vulnerabilities at global level," he cautioned. (RTT News, August 31, 2016)
North America
US
US CONSUMER CONFIDENCE RIDES HIGH IN AUGUST - The Conference board survey revealed that the Consumer Confidence Index leaped to 101.1 in August from a revised reading of 96.7 in the previous month. Analysts were expecting a reading of 97.3, unchanged from the first estimates for July. It is noteworthy that this is the highest reading in nearly a year. "Consumers' assessment of both current business and labor market conditions was considerably more favorable than last month," said Lynn Franco, Director of Economic Indicators at the Conference Board. "Short-term expectations regarding business and employment conditions, as well as personal income prospects, also improved, suggesting the possibility of a moderate pick-up in growth in the coming months," she added. (RTT News August 30, 2016)
The present situation index moved up to 123.0 in August from 118.8 in the earlier month. The percentage of consumers indicating that business conditions were 'good' grew to 30.0% from 27.3% in July, while those who felt that business conditions were 'bad' remained at 18.4%, roughly at the same level as in the previous month. Consumers were upbeat about the labour market, as those claiming jobs were 'plentiful' increased to 26% in August, up from 23% in July. However the percentage consumers who felt that jobs were 'hard to get' also grew to 23.4% from 22.1% in the earlier month. The expectations index, an indicator of short term consumer optimism, moved up to 86.4 in August, from 82.0 in July. The percentage of consumers who felt that business conditions would improve in the next six months increased to 17.3% from 15.7% in July.
The US GDP, in the second quarter, expanded a downwardly revised 1.1%. The economy grew 0.8% in the first quarter.
Latin America
Brazil
BRAZILIAN ECONOMY CONTINUES DOWNWARD TREND - In the quarter ending June, Brazil's fragile economy tumbled for the sixth straight quarter. The economy sank at a seasonally adjusted 0.6% quarterly rate, more than the 0.4% decrease in the previous quarter. This was also faster than the 0.5% deceleration expected by economists.
Gross capital formation inched up 0.4%, the first time in ten quarters, while industrial production moved up 0.3%. Farm output sank 2.0%, while the construction sector witnessed a 0.2% fall. Services declined 0.8% while manufacturing output was flat, and household consumption decreased 0.7%. Imports increased 4.5% while exports rose 0.4%.
In the second quarter, the economy declined 3.8% on an annual basis, while the economy had fallen 5.4% in the first quarter. Analysts were looking for a 3.6% decline. In the first half, the economy decreased 4.6%, compared to the same period of the previous year.
Europe
Eurozone
EUROZONE ECONOMY - In August, Europe continued to struggle with deflationary tendencies. Inflation was 0.2% according to initial estimates, while economists were looking for a rate of 0.3%. Economic growth remained sluggish, while the bright spot was that unemployment continued at a five year low. The European Central Bank's target inflation rate is 2.0%. Core inflation, that is inflation excluding energy, alcohol, tobacco and food prices was 0.8%, slightly down from the 0.9% recorded in July. Economists were expecting the rate to remain unchanged. "It is very possible that the ECB will tweak its Quantitative Easing scheme at its September meeting given the possibility that it could run out of bonds to buy based on the current parameters," said IHS Global Insight economist Howard Archer. (RTT News August 31, 2016)
Euro area economic growth slid to 0.3% in the second quarter, after posting a growth of 0.6% in the first quarter.
EMPLOYMENT - In July, the unemployment rate was steady at 10.1%, with the number of unemployed persons dropping by 43,000 over the month, to 16.307 million. Over the year unemployment has dropped by 1.034 million. The youth unemployment rate remained unchanged at 21.1%.
The number of unemployed people in Germany decreased by 7,000, while the unemployment rate remained static at 6.1%. This is lowest unemployment rate in nearly 25 years. Unemployment in Italy witnessed a marginal fall to 11.4% from 11.6%.
Germany
ECONOMIC GROWTH -Economic growth in Germany slowed at a pace lower than expected in the second quarter. The GDP grew a seasonally adjusted 0.4% in the second quarter, slower than the 0.7% growth posted in the earlier quarter. Nevertheless, the economy grew nearly at twice the pace expected by analysts.
On the other hand, the Italian economy stalled in the second quarter. Italy had grown 0.3% in the three months to March, while economists had expected a growth of 0.2% in the second quarter. According to some analysts, the divergence between the two economies might be explained by their different reactions to Brexit. The IMF and the Bank of Italy have predicted a growth of less than 1.0% for Italy this year.
It should be noted that the UK is the third largest destination for German exports. Exports grew firmly in the second quarter while imports declined. "It's a positive surprise and overall the German economy has been steering the course in the second quarter," said Andreas Rees, an economist at UniCredit SpA in Frankfurt. "This is backward looking of course and we can see that net exports contributed to growth, but it's very likely in the second half of this year that domestic demand will be picking up again and it will be strong enough to weather any negative impact from Brexit." (Bloomberg, August 12, 2016)
Ninety five percent of Germans are not worried about losing their jobs because of Brexit, a study by GfK revealed. However, more than fifty percent are worried about an adverse effect on the economy. "In some sectors, such as the automotive one, they will think a lot about it, but in other sectors it's more than compensated by strong domestic demand," Jens Kramer, an economist at NordLB in Hanover, said before the report. "Labor-market conditions are very good. People have jobs, they have money and they want to spend it." (Bloomberg, August 12, 2016)
France and Greece
The French economy is languishing while Greece seems on the path back to recession. Thus it falls on the mighty German economy to help Europe weather the Brexit storm. The Bundesbank is counting on a pickup in the economy in the third quarter. "Brexit-related uncertainties will weigh somewhat on German and euro-zone sentiment and growth in the second half of the year," Holger Schmieding, chief economist at Berenberg Bank in London, said in a note. "However, solid domestic fundamentals, a buoyant labor market, rising real incomes, a modest fiscal stimulus and excellent financing conditions should underpin a return to trend growth." (Bloomberg, August 12, 2016)
UK
CONSUMER CONFIDENCE LOOKS UP IN THE UK - Consumer confidence solidified in August, with the index reading coming in at -7, beating the figure of -8, that economists were looking for. The index was at -12 in July, an 11 point fall, caused by Brexit. Economists feel that the recent interest rate cuts too have contributed to the optimistic sentiments. "The uptick in confidence is driven by good news from hard data, the combination of historic low interest rates matched with falling prices and high levels of employment," said GfK analyst Joe Staton. (RTT News, August 30, 2016)
Asia
China
THE DRAGON TAKES FLIGHT - August saw Chinese factory activity expanding at the quickest pace in nearly two years. The official Purchasing Managers' Index (PMI) increased to 50.4 in August, above the July reading of 49.9. A figure above 50.0 indicates growth. Economists had predicted a figure of 49.9. The survey focuses on large businesses and government owned companies."The latest manufacturing PMI reading is encouraging, with caveats. While light manufacturing has improved, heavy manufacturing apparently remains in contraction. Given the latter is slightly larger in industrial output, it mutes the potential upside from the most recent improvement," commented Brian Jackson, China economist at IHS Global Insight. (CNBC.com., September 1, 2016)
The private Markit/Caixin PMI survey, which concentrates on small and medium enterprises, stood at 50.0, below the economists' expectation of 50.1. The reading in July was 50.6. The services PMI moved down to 53.5 in August, from 53.9 in the earlier month. Markets reacted cautiously to these surveys and both Shanghai and Hong Kong markets were slightly down. "The big question is where growth momentum on a sequential perspective is going over the next few quarters. There's still a lot of uncertainty," Zhu said.
Small and medium industries reported slower growth rates of production, new orders and export sales. "We're on the threshold of positive and negative," stated Ronald Wan, chief executive of investment banking at Partners Capital International, adding that a depreciating renminbi and tepid global demand continue to weigh on Chinese factories. (CNBC.com., September 1, 2016)
China does not want to stimulate the economy any further and according to analysts the main risk in the coming months would be complacency bred by these comfortable numbers. "It's not necessary to take excessive stimulus to achieve the growth target," People's Bank of China (PBOC) governor Zhou Xiaochuan was quoted as saying in March, according to a Reuters report. (CNBC.com., September 1, 2016)
The economy still faces headwinds, not least from moribund private investment and the volatile housing sector. "Beneath the generally calm surface, the underlying stresses in the economy continue to build, and will eventually need to be faced more squarely in order to forestall a more pronounced deterioration in economic performance," said Charles Collyns, chief economist and managing director."Eventually a major policy overhaul will be needed-but this won't happen until late next year, as the second half of the Xi mandate begins, at the earliest."
Japan
JAPANESE OUTPUT GROWS -The Markit/Nikkei Japan Manufacturing Purchasing Managers' Index, PMI, grew to a seasonally adjusted reading of 49.5 in August, from 49.3 in July. A reading below 50 indicates contraction. The index has remained in negative territory for the last six months. However, in overall terms it shows that the Japanese economy is stabilizing. The index for output increased to 50.2 from 49.4 in the earlier month."The latest survey data signaled an increase in manufacturing production in Japan for the first time since February and follows on from previously slower declines following May's sharp contraction," said Amy Brownbill, an economist at Markit.
Export orders and new orders continued to witness falls. The economy stalled in July, while growth in the three months to June was affected by lower consumer spending and weak global demand. Inflation too was below the Bank of Japan's target rate of 2%. Making matters worse, Japanese manufacturers cut prices for the ninth consecutive month, on the back of lower input costs and growing competition. This means that the Bank of Japan is likely to continue with its accommodative stance. In another effort to boost the economy, the government is set to inject $132 billion into the economy, mainly in the form of public works.
Australia
AUSTRALIAN MANUFACTURING TANKS - In August, the manufacturing PMI measured by the Australia Industry Group, AiG, plummeted to a dismal 46.9, after soaring to 56.4 in July. A reading below 50 shows contraction. This is first time in more than a year that the PMI has entered negative territory. Australia's manufacturing sector has remained sluggish this year, compounded by a rising Australian dollar. Manufacturing contributes 7% to Australia's economy. In an effort to counteract a rising currency and falling inflation the Reserve Bank of Australia cut interest rates to a record low of 1.5% in August. This is the second rate cut this year. Analysts are pinning their hopes for growth on the good performance of the services PMI, which is due out in the next few days.
South Korea
SOUTH KOREAN EXPORTS BOOM - According to data compiled by the government, exports from South Korea surged 2.6% annually to $40.13 billion in August, breaking nineteen months of declines. Imports grew 0.1% to $34.82 billion, leaving a trade surplus of $5.30 billion. Economists had predicted that exports would rise 0.3% while imports would fall by3.3%. Exports had dipped by 10.3% in July, while imports had plunged 13.6%. It may be noted that August had two extra working days this year compared to the previous year. "Exports are likely to fall again from September, as the improvement seen in August is largely due to temporary factors such as the earlier release of Galaxy Note 7. The base effect from low comparison figures last year also played its part," said Suh Dae-il, Seoul-based economist at Mirae Asset Daewoo said.
Many of South Korea's thirteen major industry groups recorded export growth including industries such as computers, semiconductors and petrochemicals. However this surge too could be short lived. A Nikkei/Markit PMI survey showed contraction in manufacturing activity in August, while export orders dropped significantly. The new export orders plunged from 51.4 in July to 48.6 in August. Trade volumes with China, the US and the European Union, all contracted.
In August, inflation slowed on the back of a cut in residential electricity prices. An unusually hot summer had prodded the government to take this measure. The consumer price index increased 0.4% in August, compared to the 0.7% rise in the earlier month. Economists were expecting a figure of 0.8%.Core inflation, which excludes fuel and food prices rose 1.1% in August, less than the 1.6% gain in the previous month. "If you look at inflation alone, the central bank might look like it has room to cut interest rates, but you have to take other countries' policies into consideration as well as the continued surge in household debt," said Kim Yu-kyum, economist, LIG Investment & Securities.
India
MANUFACTURING ACTIVITY EXPANDS - In August, manufacturing activity grew at the fastest pace in thirteen months, on the back of soaring new orders and output. The Nikkei PMI increased to 52.6 in August, up from the reading of 51.8 in the previous month. A figure above 50 indicates expansion. There was a solid increase in new business inflows, led by increased sales of consumer goods, intermediate goods and capital goods. Manufacturing growth was the strongest in a year. "Manufacturing PMI data show that the positive momentum seen at the beginning of the second semester has been carried over into August, with expansion rates for new work, buying levels and production accelerating further," said Pollyanna De Lima, economist at survey compiler Markit.(Business Standard, September 1, 2016)
However the economy grew only 7.1% in the first quarter, less than 7.9% recorded in the previous quarter and the lowest in five quarters. Investment dropped by 3% in the three months to June from the same period a year ago. Private consumption also weakened during the period. Public spending soared 19% on an annual basis, while the economically key factor of private spending growth was 6.7%, slower than the 7% growth witnessed in the earlier quarter. Again, there has been a hefty increase in the salaries of government employees, which could lead to greater urban consumption.
"Growth continues to be driven by government spending..., which is a worry," said Abhishek Upadhyay, an economist at ICICI Securities Primary Dealership Ltd in Mumbai. (Reuters, September 1, 2016)
However the Indian economy continues to be a 'bright spot' in an otherwise gloomy global scenario. There has been a healthy increase in foreign investments both into shares and into other sectors of the economy. With a reasonably good monsoon this year, agriculture can look forward to good growth. Agriculture grew 1.8% in the three months to June compared to the same year-ago period. "We hope that in the second half, consumption will support growth," said Shubhada Rao, group president and chief economist at Yes Bank.
INFLATION SLOWS - Prices went downhill in August, growing at the slowest rate in six months. Output prices remained static. Consumer inflation increased 6.07% in July, as against the target rate of 5%. The Reserve Bank of India's repo rate currently stands at 6.5%. "In light of these numbers, the Reserve Bank of India has scope to loosen monetary policy in the upcoming meeting to further support economic growth in India," De Lima said. . (Business Standard, September 1, 2016)
"Given that the RBI faces a tough challenge in meeting its inflation targets, we think that it will keep the repo rate on hold," said Shilan Shah, economist at Capital Economics consultancy in Singapore. (Reuters, September 1, 2016)
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