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Transcript of Nomura global economic outlook 121016
Nomura | Global Economic Outlook Monthly 15 October 2012
Nomura Securities International Inc.
See Disclosure Appendix A-1 for the Analyst Certification and Other Important Disclosures
Global Economic Outlook Monthly
Economics Research | North America
Suspending disbelief 15 OCTOBER 2012
Financial markets have positioned for a smooth path to sovereign debt relief in Europe and deficit reduction in the US.
COUNTRY AND REGIONAL ECONOMIC OUTLOOKS
Australia | Slower growth in H2, but back to trend by 2013 4
Brazil | Inflation storm on the horizon 5
Canada | Steady as she goes; growth around trend in H2 2012 6
China | Leading indicators suggest an economic recovery in Q4 7
Euro area | Deeper and more protracted contraction as consolidation bites 8
Hong Kong | Looming fiscal stimulus 9
Hungary | Little clarity on backstop path, rate cuts could still occur 10
India | Still a lot needs to be done 11
Indonesia | Some improvement 12
Japan | Weaker external demand likely leads to a recession in H2 2012 13
Malaysia | Signalling fiscal responsibility 14
Mexico | Growth supported by domestic demand 15
Philippines | Sticking to an easing bias 16
Poland | NBP dovishness but not ready to cut - growth still outperforming 17
Singapore | Tolerating slower growth 18
South Africa | Structural MPC dovishness in a year of crucial political battles 19
South Korea | Prolonged sub-potential growth 20
Taiwan | Hinges on the global outlook 21
Thailand | New growth engines 22
Turkey | A healthy rebalancing 23
United Kingdom | Inflections 24
United States | US budget in the crosshairs 25
Rest of EEMEA 26
Rest of Latin America 27
Global Economics
Contributor names can be found within the body of this report and on the back cover
This report can be accessed electronically via: www.nomura.com/research or on Bloomberg (NOMR)
Nomura | Global Economic Outlook Monthly 15 October 2012
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Forecast Summary
Real GDP (% y-o-y) Consumer Prices (% y-o-y) Policy Rate (% end of period)
2012 2013 2014 2012 2013 2014 2012 2013 2014
Global 3.1 3.0 3.6 3.3 3.4 3.4 2.97 3.21 3.34
Developed 1.1 0.6 1.6 2.1 1.6 1.7 0.38 0.42 0.49
Emerging Markets 5.4 5.7 5.8 4.8 5.4 5.2 6.00 6.35 6.36
Americas 2.3 2.0 2.9 3.6 3.6 3.4 2.08 2.42 2.52
United States* 2.1 1.3 2.7 2.2 1.6 1.4 0.13 0.13 0.13
Canada 2.0 2.1 2.3 1.7 1.9 2.0 1.00 1.75 3.00
Latin America†† 2.9 3.7 3.6 7.7 9.2 8.7 7.49 8.54 8.38
Argentina 2.0 4.0 3.5 25.0 30.8 28.3 15.00 17.00 14.00
Brazil 1.3 4.1 3.5 5.4 5.7 5.5 7.25 9.00 8.50
Chile 5.1 5.8 5.0 3.0 3.1 3.0 5.00 5.50 5.00
Colombia 4.5 4.5 4.5 2.9 3.5 3.5 4.50 4.50 5.50
Mexico 3.7 3.5 3.5 4.1 3.4 3.5 4.50 4.50 5.50
Venezuela 6.8 -1.0 3.0 17.3 32.4 24.6 15.00 17.00 16.00
Asia/Pacif ic 5.6 5.4 5.7 3.2 3.8 4.0 4.66 4.92 4.94
Japan† 2.0 0.5 1.2 0.0 0.0 2.0 0.05 0.05 0.05
Australia 3.6 2.4 2.8 1.6 2.6 2.5 3.00 3.50 4.00
New Zealand 2.7 3.2 3.3 1.7 2.4 2.8 2.75 3.50 4.25
Asia ex Japan, Aust, NZ 6.4 6.5 6.6 3.9 4.6 4.4 5.65 5.90 5.85
China 8.1 7.7 7.5 2.9 4.2 4.0 6.00 6.50 6.50
Hong Kong*** 1.5 2.5 3.5 4.0 3.5 3.9 0.40 0.40 0.40
India** 5.5 6.4 6.6 7.8 7.2 6.9 8.00 7.50 6.75
Indonesia 6.1 6.1 6.2 4.5 5.0 5.1 5.75 6.25 6.75
Malaysia 4.8 4.0 4.6 1.7 2.4 2.5 3.00 3.50 4.00
Philippines 6.0 6.0 5.8 3.4 4.4 4.5 3.50 4.00 4.50
Singapore*** 1.8 3.4 4.2 4.8 2.8 3.8 0.38 0.44 0.50
South Korea 2.3 2.5 3.5 2.2 2.7 3.0 2.75 2.75 3.25
Taiw an 1.5 3.0 4.0 2.0 1.2 1.5 1.88 2.13 2.13
Thailand 5.5 4.5 5.0 3.0 3.0 3.1 2.75 2.75 3.25
Western Europe -0.5 -0.6 0.2 2.6 1.9 1.7 0.50 0.50 0.50
Euro area -0.6 -0.9 0.0 2.6 1.8 1.6 0.50 0.50 0.50
Austria 0.3 0.1 0.8 2.5 2.1 1.8 0.50 0.50 0.50
France 0.0 -0.5 0.5 2.3 1.6 1.5 0.50 0.50 0.50
Germany 0.8 0.2 0.7 2.1 1.7 1.7 0.50 0.50 0.50
Greece -6.4 -4.2 -1.6 1.1 0.1 -0.3 0.50 0.50 0.50
Ireland -0.1 0.4 1.3 2.0 0.5 0.6 0.50 0.50 0.50
Italy -2.5 -2.5 -1.4 3.3 1.8 1.5 0.50 0.50 0.50
Netherlands -0.4 -0.4 0.2 2.8 2.5 1.9 0.50 0.50 0.50
Portugal -3.2 -2.8 0.0 2.9 1.3 0.7 0.50 0.50 0.50
Spain -1.7 -3.0 -1.5 2.6 2.6 1.3 0.50 0.50 0.50
United Kingdom -0.3 0.3 1.2 2.8 2.6 2.3 0.50 0.50 0.50
EEMEA 2.0 2.8 3.6 5.7 4.7 4.6 4.66 4.48 5.31
Czech Republic -0.7 0.9 1.4 3.2 1.9 1.4 0.25 0.50 1.00
Hungary -1.1 0.3 1.2 5.9 5.0 4.1 6.25 5.00 6.00
Israel 2.8 3.3 3.5 2.1 2.6 3.0 2.25 3.00 3.00
Poland 2.6 2.3 3.7 4.0 3.2 3.1 4.75 4.00 5.00
Romania 0.2 0.8 1.3 3.3 4.5 5.0 5.00 6.00 9.00
South Africa 2.4 2.9 3.6 5.4 5.0 5.7 5.00 4.50 6.00
Turkey 3.0 4.5 5.0 9.1 6.7 6.3 5.75 5.75 5.75 Note: Aggregates calculated using purchasing power parity (PPP) adjusted shares of world GDP (table covers about 84% of world GDP on a PPP basis); our forecasts incorporate assumptions on the future path of oil prices based on oil price futures, consensus forecasts and Nomura in-house analysis. Currently assumed average Brent oil prices for 2012, 2013 and 2014 are $112, $109 and $104, respectively. *2012, 2013 and 2014 policy rate forecasts are midpoints of 0-0.25% target federal funds rate range. **Inflation refers to wholesale prices. ***For Hong Kong and Singapore, the policy rate refers to 3M Hibor and 3M Sibor, respectively. †Policy rate forecasts in 2012, 2013 and 2014 are midpoints of BOJ‟s 0-0.10% target unsecured overnight call rate range. ††CPI forecasts for Latin America are year-on- utlook Monthly. Source: Nomura Global Economics.
Nomura | Global Economic Outlook Monthly 15 October 2012
3
Our View in a Nutshell (changes from last month highlighted)
United States
Waning business confidence will continue to dampen hiring and investment.
Ample economic slack should restrain inflation and keep inflation expectations anchored.
We expect the FOMC to continue long-term asset purchases through the third quarter of 2013.
Europe‟s debt crisis and the looming “fiscal cliff” should continue to weigh on growth through the rest of 2012.
Addressing fiscal policy is likely to be contentious, but we ultimately expect agreement on a long-term deficit reduction plan.
Europe
Fiscal tightening, financial deleveraging and sovereign debt market tensions should lead to a deeper-than-expected
recession.
We continue to expect Spain to delay an official call for help, but our baseline remains an ECCL is requested by end-month.
After a phase of relative calm, markets will likely test the backstop and pressure will rebuild in Q1 around weak sovereigns.
GDP contraction, higher non-performing loans and rising debt trajectories remain the key challenges.
Chances of a rate cut in Dec (our baseline) have reduced, though the ECB needs to respond to weaker growth, in our view.
We expect inflation to settle close to target in the UK but in the euro area to remain above 2% for most of 2012.
The BoE extended liquidity and funding support before announcing £50bn QE in July. We expect £25bn more in November.
Japan
Deterioration of external demand is likely to lead to negative growth in Q2 and Q3 2012.
Economic recovery in Asia should help Japan get back on a moderate recovery track from early 2013.
We expect the BOJ to announce a further expansion of its Asset Purchase Program by Q4 2012.
The main risks are yen appreciation, a worsening European debt problem and the US and China slowing.
Asia
The export slump calls for policy stimulus, but raises the risk next year of a build up in debt, inflation and asset price
bubbles.
China: Macro data are mixed, but policy easing is picking up speed, supporting the growth outlook for Q4.
Korea: We expect the BOK to stay on hold at 2.75% through 2013 as growth and inflation should rise modestly from low
base
India: Recent reforms have surprised positively and growth is bottoming out. But a V-shaped recovery is unlikely.
Australia: With indications that growth is slowing due to external factors, the RBA is likely to cut rates in November.
Indonesia: An increasingly uncertain policy environment could lead to delays in reforms and sustained current account
deficits.
EEMEA (Emerging Europe, Middle East and Africa) and Latin America
South Africa: With inflation now falling fast into target and growth slowing, the SARB may cut rates further.
Hungary: In a difficult spot having rejected the IMF aid conditions over policy concerns, market pressure should force a deal
in 2013.
Poland continues to outperform strongly , a recession is difficult to envisage, as such we don‟t see cuts occurring this year.
Turkey: Rebalancing continues and is likely to pave the way for an upgrade to investment grade.
Economic growth in Brazil will likely be well below 2% in 2012, despite the Selic policy rate falling to 7.50%.
Mexico: Inflation will likely remain above the target and growth will likely moderate in H2 2012.
Argentina‟s growth looks set to slow down in 2012, but inflation to stay high. ARS real appreciation should continue.
Nomura | Global Economic Outlook Monthly 15 October 2012
4
Charles St-Arnaud +1 212 667 1986 [email protected]
Martin Whetton +61 2 8062 8611 [email protected]
Australia | Economic Outlook
Slower growth in H2, but back to trend in 2013
Growth is likely to slow in H2, due to the impact on exports and the terms-of-trade of
slower Asian growth. We believe the RBA will cut rates by another 25bp in Q4.
Activity: After a strong start to the year, the Australian economy grew at trend in Q2.
Household spending was resilient, likely supported by the previous cuts in the policy rate, while
investment slowed markedly, especially in the housing sector. Net exports contributed positively
to growth as exports remained strong while imports slowed. However, net exports should act as
a small drag on the economy later this year, as imports should remain strong owing to robust
business investment expectations but exports should still be affected by slowing growth in Asia
and the impact of the recent currency strength. Moreover, the decline in commodity prices will
also impact the terms-of-trade, likely leading to a decline in gross national income. We also
expect fiscal policy to continue to act as a small drag on the economy.
Inflation: CPI inflation dropped sharply in H1 and likely bottomed in Q2. We expect inflation to
rise in H2, owing to the impact from the carbon tax and a reduction in the deflationary pressures
from the past appreciation of the Australian dollar. Underlying inflation has also moderated in
recent quarters, and we expect it to remain close to the 2-3% RBA target over the forecast
horizon.
Policy: The RBA cut its policy rates by 25bp at the October meeting and signaled that it is likely
to cut again. We expect a further 25bp reduction in the official rate before the end of the year
but this depends more on external factors, such as continued weakness in Asia and the
eurozone crisis, than on domestic factors. Moreover, the latest budget shows that fiscal policy
will be restrictive this year, leaving the burden of stimulating the economy to the RBA.
Risks: A disorderly resolution to the European debt crisis, a strong currency and a sharp
slowdown in Chinese growth remain the main downside risks to the outlook. On the flip side, an
improvement in risk sentiment, increased global trade and renewed increases in commodity
prices represent upside risks to growth and inflation.
Fig. 1: Details of the forecast
% q-o-q ar. 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2011 2012 2013 2014
Real GDP (% y-o-y) 4.4 3.7 3.1 3.0 2.3 2.3 2.5 2.7 2.1 3.6 2.4 2.8
Real GDP 5.6 2.6 2.1 1.9 2.5 2.8 2.7 2.8 2.1 3.6 2.4 2.8
Personal consumption 7.5 2.3 2.1 2.1 2.3 2.5 2.5 2.6 3.3 3.8 2.3 2.6
Private investment 15.8 2.3 6.6 7.1 8.5 8.5 8.6 8.7 11.4 9.9 7.6 8.4
Business investment 23.0 4.7 8.0 8.5 10.1 10.0 9.9 9.9 14.8 14.4 9.2 9.7
Dw elling investment -7.9 -6.7 1.1 1.4 2.0 2.4 2.9 3.3 1.3 -5.4 1.5 3.2
Government expenditures 4.3 7.8 -0.2 -0.2 -0.2 -0.2 -0.2 -0.2 0.1 2.5 0.3 -0.2
Exports -3.5 10.2 6.0 6.0 7.5 8.0 8.0 8.0 -1.3 5.7 7.4 8.0
Imports 4.4 3.7 6.0 8.0 7.6 7.5 7.5 8.0 11.5 7.5 7.2 8.0
Contributions to q-o-q GDP:
Domestic f inal sales 8.8 3.6 2.1 2.2 2.6 2.7 2.7 2.8 3.5 4.1 2.6 3.0
Inventories -1.2 -2.2 0.0 0.1 0.0 0.1 0.0 0.0 0.8 -0.2 -0.1 -0.1
Net trade -2.0 1.2 0.0 -0.4 -0.1 0.0 0.0 -0.1 -2.1 -0.3 0.0 -0.1
Unemployment rate 5.2 5.2 5.2 5.3 5.4 5.5 5.5 5.5 5.1 5.2 5.4 5.3
Employment, 000 25 40 1 12 12 23 46 58 11 19 35 71
Consumer prices 1.6 1.2 1.6 2.1 2.7 2.8 2.4 2.5 3.4 1.6 2.6 2.5
Trimmed mean 2.1 1.9 2.3 2.4 2.6 2.6 2.5 2.5 2.7 2.2 2.6 2.5
Weighted median 2.2 2.0 2.3 2.2 2.5 2.6 2.5 2.5 2.5 2.2 2.5 2.5
Fiscal balance (% GDP) -3.4 -1.8 -0.2 0.1
Current account balance (% GDP) -2.3 -2.6 -3.0 -3.0
RBA cash rate target 4.25 3.50 3.50 3.00 3.00 3.00 3.25 3.50 4.25 3.00 3.50 4.00
3-month bank bill 4.30 3.54 3.36 3.05 3.00 3.00 3.30 3.60 4.50 3.05 3.60 4.00
2-year government bond 3.47 2.46 2.49 2.50 2.50 2.55 2.65 2.70 3.16 2.50 2.70 3.10
5-year government bond 3.58 2.58 2.56 2.55 2.50 2.50 2.55 2.60 3.29 2.55 2.60 3.20
10-year government bond 4.08 3.04 2.94 2.75 2.95 3.00 3.10 3.20 3.67 2.75 3.20 3.60
AUD/USD 1.04 1.02 1.05 1.03 1.00 0.99 1.00 1.00 1.02 1.03 1.00 1.00 Notes: Quarterly real GDP and its contributions are seasonally adjusted annualized rates. CPI inflation includes the impact from, the carbon tax, but not the underlying measures. Interest rate
and exchange rate forecasts are end of period. Numbers in bold are actual values. Table reflects data available as of 15 October 2012. Source: Australian Bureau of Statistics, Reserve Bank
of Australia, Nomura Global Economics
Nomura | Global Economic Outlook Monthly 15 October 2012
5
Tony Volpon +1 212 667 2182 [email protected]
Brazil | Economic Outlook
Inflation storm on the horizon
The combination of a record low policy rate and a “dirty band” preventing BRL from
appreciating will likely lead to soaring inflation in 2013
Activity: The Brazilian economy had a fairly poor start to the year, with H1 GDP growing merely
0.6% y-o-y, and investment falling 2.9% y-o-y. Policymakers have rolled out a series of
monetary and fiscal stimuli this year in an attempt to revive growth. However, given the
structural issues on the supply side, ongoing drags from credit markets and a still troubled
international environment, GDP growth will likely remain sluggish at 1.3% in 2012. Given the
gradually improving global growth profile and the lagged effects of domestic stimuli, we should
see more robust growth in 2013, reaching 4.1%.
Inflation: Consumer prices are currently around 5.3% and we expect inflation pressures to
accelerate, given the ongoing commodity price shock and the very accommodative monetary
policies in Brazil. Tradable goods prices are low at around 3.0%, yet several factors – inclement
weather in Brazil and the US, the recent surge in world food prices and BRL above 2.0 – are
already pushing up domestic food prices and we expect this to continue, with inflation ending
2012 at 5.3%. As a result of faster growth, a low base of comparison, the lagged effects of a
weaker currency and a lower policy rate, inflation will likely accelerate in 2013, ending the year
at 5.7%.
Policy: The Central Bank of Brazil (BCB) has slashed its policy rate, Selic, by 525bp since
August 2011, and stated in the October communiqué that “stability of monetary conditions for a
sufficiently long period is the best strategy.” We believe the “stability for long period” language
offers a strong signal that the easing cycle is coming to an end, and the key question now is
how long the BCB will stay put, even in the face of rising inflation.
Risks: The biggest risk, we believe, is the likelihood of a persistent supply shock as a result of
the recent run-up in commodity prices, further amplified by monetary easing from major central
banks. Such a shock should push up inflation rapidly and force the BCB to hike Selic in 2013,
despite still slow GDP growth, leading to a state of lower growth, higher inflation and still higher
rates (see “Inflation storm on the horizon”, August 15 2012). We now expect the new hiking
cycle to start in Q2 2013, as rising consumer prices threaten to go above 6%, and we think Selic
will likely finish 2013 at 9%.
Details of the forecast
Notes: Annual forecasts for GDP and its components are year-over-year average growth rates. Annual CPI forecasts are year-on-year changes for Q4. Trade data are a 12-month sum. Interest rate and currency forecasts are end of period. Contributions to GDP growth do not include taxes. Numbers in bold are actual values, others forecast. Table reflects data available as of 12 October 2012. Source: Nomura Global Economics.
% y-o-y change unless noted 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 2012 2013
Real GDP 2.1 1.8 0.8 0.5 1.8 2.1 3.3 4.4 1.3 4.1
Personal consumption 2.8 2.8 2.5 2.4 4.2 4.1 4.4 5.7 3.3 5.0
Fixed investment 2.5 2.0 -2.1 -3.7 -1.5 -1.1 4.5 8.1 -2.1 6.2
Government expenditure 1.2 1.3 3.4 3.1 3.8 3.5 4.0 1.2 4.0 3.6
Exports 4.1 3.7 6.6 -2.5 -1.7 -2.3 -0.5 5.5 1.4 4.5
Imports 5.8 6.4 6.3 1.6 5.2 2.7 7.5 11.3 5.1 9.8
Contributions to GDP growth (pp)
Industry 0.5 0.4 -0.4 0.1 0.4 0.5 0.8 1.1 0.3 1.0
Agriculture 0.1 0.1 0.0 0.0 0.1 0.1 0.2 0.2 0.1 0.2
Services 1.2 1.0 0.9 0.3 1.0 1.2 1.9 2.5 0.7 2.3
IPCA (consumer prices) 7.3 6.5 5.2 4.9 5.3 5.4 5.7 5.8 5.4 5.7
IGPM (wholesale prices) 7.5 5.1 3.2 5.1 8.1 7.5 7.0 6.4 6.0 5.6
Trade balance (US$ billion) 5 30 29 24 22 20 18 21 20 25
Current account (% GDP) -3.0 -3.0
Fiscal balance (% GDP) -2.0 -2.0
Net public debt (% GDP) 36.0 35.0
Selic % 12.00 11.00 9.75 8.50 7.50 7.25 7.25 8.25 7.25 9.00
BRL/USD 1.88 1.86 1.83 2.01 2.03 1.98 1.92 1.88 1.98 1.85
Nomura | Global Economic Outlook Monthly 15 October 2012
6
Charles St-Arnaud +1 212 667 1986 [email protected]
Canada | Economic Outlook
Suspending disbelief
Financial markets have positioned for a smooth path to sovereign debt relief in Europe and deficit reduction in the US.
Activity: Growth in Q2 was around potential, supported by business investment and inventory
accumulation. Net exports were the major drag to growth, as production disruptions in the oil
industry have resulted in anemic exports gains, while strong domestic demand, led by business
investment, has boosted imports. For the rest of 2012, we expect growth of around 2%. We
expect personal spending growth to remain modest as households gradually reduce their debt
burdens and income growth remains slow. Business investment in machinery and equipment is
likely to slow, after a strong Q2, but should remain strong. Below-trend global growth and the
strong Canadian dollar will likely mean that net exports are not a significant source of growth.
However, the impact from the strong currency is partly reversed by weaker funding costs, owing
to strong foreign inflows into Canadian securities.
Inflation: With some spare capacity and the output gap likely to close in 2013, we think
inflationary pressures are likely to remain contained. We expect headline inflation to fall
gradually to 1.6%, as the impact from high food and energy prices gradually disappears, and
end the year close to the central bank‟s 2% target. Core inflation should follow a similar pattern,
reaching a low of 1.7%.
Policy: With considerable monetary stimulus in place, and a narrowing of the output gap, we
expect the BoC to remain on hold in 2012, waiting for some clarity on the US fiscal cliff and the
eurozone crisis before reducing the amount of stimulus and taking any further action. We expect
the BoC to be cautious about tightening monetary policy and to bring rates to 1.75% by end-
2013. The latest budgets show that the various levels of government are in consolidation mode,
causing a small drag on the economy.
Risks: A disorderly resolution of the euro-area debt crisis remains an immediate risk to the
Canadian economy, However, we think the threat from the US „fiscal cliff‟ is much bigger and
would have a much larger impact on the Canadian economy, given the strong economic links
between the two countries. On the upside, domestic demand may be more resilient than
expected, and the US economy may perform better than expected. Moreover, QE3 in the US
could be positive for Canada by boosting commodity prices and the terms of trade.
Fig. 1: Details of the forecast
Notes: Quarterly real GDP and its contributions are seasonally adjusted annualized rates (saar). Inflation measures and calendar year GDP are year-over-year percent changes. Interest rate
forecasts are end of period. Numbers in bold are actual values. Table reflects data available as of 15 October 2012. Source: Bank of Canada, Statistics Canada, Nomura Global Economics.
% 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2011 2012 2013 2014
Real GDP 1.8 1.8 1.9 2.0 2.2 2.3 2.3 2.2 2.4 2.0 2.1 2.3
Personal consumption 0.7 1.1 1.5 1.5 1.8 1.8 1.8 1.8 2.4 1.6 1.7 1.8
Non residential f ixed invest 5.8 9.4 7.0 7.0 6.5 6.5 6.5 6.5 13.1 6.5 6.8 6.5
Residential f ixed invest 11.5 1.8 4.0 4.0 5.0 5.0 5.0 5.0 2.3 5.9 4.5 5.0
Government expenditures -2.0 -0.5 0.0 0.0 0.3 0.3 0.3 0.3 0.1 -1.6 0.2 0.3
Exports 4.0 0.8 4.0 4.2 4.3 4.3 4.3 4.2 4.6 4.8 4.0 4.2
Imports 5.2 6.4 4.0 4.0 4.2 4.2 4.2 4.2 7.0 4.0 4.3 4.2
Contributions to GDP:
Domestic f inal sales 1.4 1.8 2.0 2.0 2.2 2.2 2.2 2.2 3.0 1.8 2.1 2.2
Inventories 0.9 1.9 0.0 0.0 0.0 0.0 0.0 0.0 0.2 0.0 0.1 0.0
Net trade -0.4 -1.8 -0.1 0.0 0.0 0.0 0.1 0.1 -0.8 0.2 -0.1 0.1
Unemployment rate 7.4 7.3 7.3 7.3 7.3 7.2 7.2 7.2 7.5 7.3 7.2 7.1
Employment, 000 41 120 17 50 60 60 60 60 51 57 60 63
Consumer prices 2.3 1.6 1.3 1.7 1.8 1.8 2.0 2.0 2.9 1.7 1.9 2.0
Core CPI 2.1 1.7 1.6 1.7 2.0 2.0 2.0 2.0 1.7 1.8 2.0 2.0
Fiscal balance (% GDP) -4.4 -3.8 -3.0 -2.2
Current account balance (% GDP) -2.8 -3.4 -3.7 -3.7
Overnight target rate 1.00 1.00 1.00 1.00 1.00 1.00 1.25 1.75 1.00 1.00 1.75 3.00
3-month T-Bill 0.91 0.87 0.97 1.00 1.00 1.00 1.30 1.80 0.82 1.00 1.80 3.00
2-year government bond 1.20 1.03 1.07 1.20 1.20 1.30 1.60 2.20 0.95 1.20 2.20 3.20
5-year government bond 1.57 1.21 1.31 1.40 1.50 1.80 2.10 2.30 1.28 1.40 2.30 3.20
10-year government bond 2.11 1.74 1.73 1.90 2.00 2.10 2.30 2.50 1.94 1.90 2.50 3.40
USD/CAD 1.00 1.02 0.98 0.98 1.00 1.00 0.99 0.97 1.02 0.98 0.97 0.97
Nomura | Global Economic Outlook Monthly 15 October 2012
7
Zhiwei Zhang +852 2536 7433 [email protected]
Wendy Chen +86 21 6193 7237 [email protected]
China | Economic Outlook
Leading indicators suggest an economic recovery in Q4
The growth outlook depends on the strength of housing and infrastructure investments
Forecast change: We revise down our GDP growth forecast for 2013 to 7.7% from 7.9% as our
European team revised down its 2013 euro-area growth forecast to -0.9% from 0.8%. We keep
our 2012 GDP growth forecast unchanged at 8.1%.
Activity: Macro data remain mixed but recent data releases provided positive signals. Growth in
industrial production slowed to 8.9% y-o-y in August from 9.2% in July; fixed asset investment
eased to 20.2% from 20.4%, while retail sales rose marginally to 13.2% from 13.1%. In contrast,
export growth rose sharply to 9.9% y-o-y in September from 2.7% in August, import growth
rebounded to 2.4% from -2.6%, and the PMI rebounded to 49.8 from 49.2, with a big jump in
new orders. Leading indicators in the property sector rose sharply in August: growth in new
housing starts jumped to 14% y-o-y from -27% in July, while developers' land purchase growth
snapped back to 66% from -39% in July.
Inflation: CPI inflation edged down to 1.9% y-o-y in September from 2.0% in August, driven
mostly by base effects. We believe CPI inflation climb to 3.1% in Q4 and 4.2% in 2013 as
growth rebounds and food prices accelerate. The PPI dropped to -3.6% y-o-y from -3.5%.
Policy: Policy easing has picked up. The government announced last month that it had
approved many infrastructure projects with a total investment value of about RMB1trn. Total
social financing rose sharply to RMB 1.6trn in September from 1.2trn in August. This reinforces
our view that the authorities are becoming less tolerant of slower GDP growth as the economy
approaches the official annual target of 7.5%, while the upcoming Communist Party meeting on
8 November imparts a further sense of urgency. We expect the People‟s Bank of China to cut
the bank reserve requirement ratio (RRR) by 50bp in October to boost infrastructure investment
further. We maintain our forecast for no interest rate cuts over the remainder of 2012, as a cut
would risk reigniting the property bubble and could damage bank profitability.
Risks: The key risks to our forecast are related to exports and the property market. If crises
escalate in Europe or the US, our export forecast may be too optimistic. If property prices rise
quickly and the government is forced to take further action to cool the sector, any rebound in
property investment could be temporary and offer less support for a growth recovery in Q4.
Details of the forecast
% y-o-y growth unless otherwise stated 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014
Real GDP 8.1 7.6 7.7 8.8 8.4 8.0 7.4 7.0 8.1 7.7 7.5
Consumer prices 3.8 2.9 1.9 3.1 3.5 4.2 4.5 4.5 2.9 4.2 4.0
Core CPI 1.5 1.3 1.1 1.8 2.0 2.1 2.4 2.1 1.4 2.2 2.0
Retail sales (nominal) 14.9 13.9 13.2 15.0 16.2 15.9 15.5 15.6 14.3 15.8 16.0
Fixed-asset investment (nominal, ytd) 20.9 20.4 20.4 21.0 20.8 21.2 21.3 22.0 21.0 22.0 20.0
Industrial production (real) 11.6 9.5 9.2 12.0 10.9 10.7 10.5 10.3 10.6 10.6 10.5
Exports (value) 7.6 10.5 4.5 6.0 3.0 4.0 6.0 6.0 7.1 5.4 6.0
Imports (value) 6.9 6.5 1.4 8.0 7.0 8.0 9.0 9.0 5.6 8.3 10.0
Trade surplus (US$bn) 1.1 68.8 79.5 41.8 -16.0 53.4 70.4 29.4 191.2 137.2 65.7
Current account (% of GDP) 1.7 1.0 -0.4
Fiscal balance (% of GDP) -1.5 -1.5 -1.6
New increased RMB loans 8.0 9.0 9.0
1-yr bank lending rate (%) 6.6 6.3 6.0 6.0 6.0 6.0 6.3 6.5 6.0 6.5 6.5
1-yr bank deposit rate (%) 3.5 3.3 3.0 3.0 3.0 3.0 3.3 3.5 3.0 3.5 3.5
Reserve requirement ratio (%) 20.5 20.0 20.0 19.0 18.0 18.0 18.0 18.0 19.0 18.0 17.0
Exchange rate (CNY/USD) 6.29 6.35 6.28 6.28 6.27 6.25 6.24 6.22 6.28 6.22 6.22 Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts are modal forecasts (i.e., the single most likely outcome). Table reflects data available as of 15 October 2012. Source: CEIC and Nomura Global Economics.
Nomura | Global Economic Outlook Monthly 15 October 2012
8
Nick Matthews +44 (0) 20 710 25126 [email protected]
Stella Wang +44 (0) 20 710 20599 [email protected]
Euro Area | Economic Outlook
Deeper and more protracted contraction as consolidation bites
We have revised down our growth forecasts and expect aggressive fiscal
consolidation to deepen recessionary forces. Spain continues to delay a call for help.
Activity: We downgraded our forecasts in Euro area Economics: Marking down growth, 5
October, and expect recessionary forces to deepen across the area. While foreign demand is
likely to remain weak, we expect aggressive fiscal consolidation in a growing number of large
economies to adversely affect domestic demand in those countries. With no monetary policy
offset and already negative output gaps, we (like the IMF) believe the fiscal multiplier might be
close to unity in the case of Italy and Spain and these countries will experience much deeper
recessions than currently expected (particularly by their respective governments). We forecast
euro area GDP to contract by 0.9% in 2013 after a slightly smaller contraction in 2012.
Inflation: We expect euro area headline inflation to fall back to 1.8% on average next year and
then to 1.6% in 2014, driven by softening core inflation trends due to weak domestic demand.
Upside risks will likely remain from further additional administered price/indirect tax increases to
deliver fiscal consolidation in some member states.
Policy: No discussion on changing interest rates at the last ECB meeting suggests the chances
of a rate cut in December (our baseline) are reduced, though we think the ECB will need to
revise down its growth forecast much further in December. President Draghi continues to stress
conditionality as the essential part of Outright Monetary Transactions (OMTs) and also set out
further limits (i.e. purchases will stop around quarterly reviews and full market access is
required; for more details see Ready and Waiting... (Post ECB meeting), 4 October or last
month‟s GEOM, 10 September). These are further indications that OMTs should not be
confused with a full QE-type programme as they come with more strings attached than investors
would have liked, which could make smooth execution more difficult. Spain continues to delay
an official call for help, but our baseline remains an ECCL is requested by end-month.
Risks: A number of risks and limits to current support mechanisms remain related to
conditionality, maturity restrictions, limited EFSF/ESM financial resources and the uncertain
seniority status. Whether the sovereign bank nexus can be effectively broken now also needs
clarification, given the recent guidance on ESM direct bank recaptalisation from some AAA
countries that legacy assets should be the responsibility of national authorities (see Implication
of statement on ESM from Germany, Netherlands and Finland, 26 September).
Details of the forecast
% 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014
Real GDP -0.1 -0.7 -1.4 -1.6 -0.8 -0.6 -0.2 -0.1 -0.6 -0.9 0.0
Household consumption -0.7 -1.0 -1.7 -1.7 -1.7 -1.5 -1.5 -1.5 -1.1 -1.6 -1.4
Fixed investment -5.1 -3.5 -7.0 -6.6 -5.6 -4.5 -3.9 -3.6 -3.9 -5.3 -3.2
Government consumption 0.7 0.4 -0.8 -0.8 -0.8 -0.8 -0.8 -0.8 0.0 -0.7 -0.5
Exports of goods and services 2.6 5.3 0.9 -3.1 0.6 1.6 2.6 2.6 2.3 0.8 2.7
Imports of goods and services -1.2 3.7 -4.7 -7.0 -2.8 -2.1 -0.8 -0.4 -1.4 -2.9 0.2
Contributions to GDP:
Domestic f inal sales -1.3 -1.1 -2.5 -2.4 -2.2 -1.9 -1.7 -1.6 -1.4 -2.0 -1.4
Inventories -0.6 -0.4 -1.5 -0.9 -0.2 -0.5 -0.1 0.1 -0.9 -0.5 0.2
Net trade 1.8 0.9 2.6 1.7 1.6 1.7 1.6 1.4 1.7 1.7 1.3
Unemployment rate 10.9 11.1 11.4 11.5 11.6 11.8 11.9 12.0 11.2 11.8 12.0
Compensation per employee 1.9 1.7 1.8 1.4 0.9 0.7 0.4 0.3 1.7 0.6 0.6
Labour productivity 0.4 0.2 -0.2 -0.4 -0.7 -0.5 -0.3 0.1 0.0 -0.4 0.5
Unit labour costs 1.5 1.4 2.0 1.8 1.6 1.2 0.7 0.2 1.7 0.9 0.1
Fiscal balance (% GDP) -3.3 -3.1 -2.9
Current account balance (% GDP) -0.3 0.1 0.5
Consumer prices 2.7 2.5 2.6 2.5 2.0 1.9 1.7 1.5 2.6 1.8 1.6
ECB main refi. rate 1.00 1.00 0.75 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50
3-month rates 0.78 0.65 0.22 0.52 0.67 0.67 0.67 0.67 0.52 0.67 0.67
10-yr bund yields 1.81 1.60 1.41 1.25 1.31 1.38 1.44 1.50 1.25 1.50 1.75
$/euro 1.32 1.25 1.29 1.28 1.25 1.20 1.18 1.18 1.28 1.15 tbc Notes: Quarterly real GDP and its contributions are seasonally adjusted annualised rates. Unemployment rate is a quarterly average as a percentage of the labour force. Compensation per employee, labour productivity, unit labour costs and inflation are y-o-y percent changes. Interest rate and exchange rate forecasts are end of period levels. Numbers in bold are actual values, others forecast. Table reflects data available as of 10 September 2012. Source: Eurostat, ECB, DataStream, Nomura Global Economics.
Nomura | Global Economic Outlook Monthly 15 October 2012
9
Young Sun Kwon +852 2536 7430 [email protected]
Aman Mohunta +91 22 6617 5595 [email protected]
Hong Kong | Economic Outlook
Looming fiscal stimulus
We expect expansionary FY13 budget given weak external demand.
Forecast change: We cut our GDP growth forecast from 3.5% to 2.5% for 2013.
Activity: The volume of retail sales growth increased to 3.2% y-o-y in August from 1.4% in July.
We believe that, although private consumption is weakening, it should not weaken sharply, as it
is still supported by a tight labour market and positive wealth effects from buoyant property
prices. Further, domestic demand should remain supported by infrastructure works, while visitor
arrival numbers continue to show double-digit growth (up 20% y-o-y in August). That said, Hong
Kong‟s export slump looks set to continue into at least Q3, and could start having multiplier
effects on domestic demand. Looking ahead, we expect fiscal stimulus and a moderate
improvement in the external demand to lift real GDP growth to 2.5% in 2013 up from 1.5% in
2012. A modest recovery in the global economy should boost GDP growth further to 4% in 2014.
Inflation: CPI inflation surged to 3.7% y-o-y in August from 1.6% in July on higher food prices,
although the rise in residential prices has tapered off and growth in residential mortgage lending
has moderated, which, with a lag, should help ease inflationary pressures. Inflation should
remain moderate through 2013, driven by inflation-mitigating fiscal measures (e.g., a temporary
waiver of public housing rents and subsidies on electricity) but higher food and fuel prices would
restrict a sharp fall. We see CPI inflation slowing from 4.0% in 2012 to 3.5% in 2013. In 2014, a
positive output gap will likely push up CPI inflation to 3.9%.
Policy: Hong Kong's fiscal policy is expansionary as the budget for FY12 (starting in April 2012)
includes not only inflation-mitigating measures but also an income tax reduction for individuals
of up to HKD12,000 per person and a 14.8% increase in capital expenditure. This should
continue to help stabilize inflation and support the job market. We expect the FY13 budget to
also be expansionary given that external demand remains weak.
Risks: As a small, open economy and financial hub, Hong Kong is one of the most vulnerable
in Asia to a deeper-than-expected global economic downturn. An economic hard-landing in
China would be especially detrimental to Hong Kong through both trade and financial channels.
Details of the forecast
% y-o-y growth unless otherwise stated 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014
Real GDP (sa, % q-o-q, annualized) 1.6 0.8 3.0 3.5 -1.3 4.1 4.2 7.7
Real GDP 0.7 1.1 1.7 2.2 1.2 2.3 2.6 3.6 1.5 2.5 3.5
Private consumption 6.5 3.7 2.2 1.8 2.4 3.4 3.8 4.8 3.5 3.6 4.4
Government consumption 2.3 3.5 3.0 3.2 3.5 3.7 4.0 4.2 3.0 3.8 4.4
Gross f ixed capital formation 12.9 5.7 5.4 4.9 5.8 5.8 5.7 5.6 7.0 5.7 6.1
Exports (goods & services) -3.9 0.1 0.7 2.3 4.9 5.4 5.6 6.2 -0.2 5.5 7.2
Imports (goods & services) -2.0 0.8 1.4 2.5 6.0 6.3 6.7 6.9 0.7 6.5 7.6
Contributions to GDP (% points)
Domestic f inal sales 7.4 4.1 3.0 2.6 3.2 4.0 4.3 4.9 4.2 4.1 4.8
Inventories -1.8 -1.4 0.4 0.0 0.2 0.3 0.4 0.1 -0.7 0.3 -0.5
Net trade (goods & services) -4.1 -1.6 -1.3 -0.2 -2.1 -2.0 -1.8 -1.0 -1.8 -1.7 -0.6
Unemployment rate (sa, %) 3.4 3.3 3.2 3.3 3.3 3.3 3.2 3.2 3.3 3.2 3.2
Consumer prices 5.2 4.2 2.9 3.6 3.2 3.4 3.6 3.8 4.0 3.5 3.9
Exports -1.2 2.0 5.7 7.4 9.6 11.0 10.9 11.2 3.6 10.7 12.3
Imports 0.9 2.3 5.5 7.0 10.6 11.5 11.5 11.7 4.0 11.3 12.4
Trade balance (US$bn) -12.7 -15.9 -14.8 -15.6 -15.0 -18.1 -17.2 -18.0 -58.9 -68.3 -77.2
Current account balance (% of GDP) 2.7 -0.2 -1.4
Fiscal balance (% of GDP) -0.2 -0.1 -0.2
3-month Hibor (%) 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40
Exchange rate (HKD/USD) 7.76 7.76 7.75 7.75 7.75 7.75 7.75 7.75 7.75 7.75 7.75 Source: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts are modal forecasts (i.e., the single most likely outcome). Table reflects data available as of 11 October 2012. Source: CEIC and Nomura Global Economics.
Nomura | Global Economic Outlook Monthly 15 October 2012
10
Peter Attard Montalto +44 (0) 20 710 28440 [email protected]
Hungary | Economic Outlook
Little clarity on backstop path, rate cuts could still occur
We think 2012 will be a crunch year, when funding difficulties and recession throw
fiscal policy off track. An IMF backstop is now expected in January/February.
Policy, fiscal and funding: Since the 2010 election there has been a fiscally conservative but
highly unorthodox policy, which we saw as unsustainable owing to one-off and distortive
measures. Add in downgrades, deleveraging and patchy capital flows and we think things will
come to a head this year with still some potential funding difficulties. We think the IMF and EU
are needed to prevent this, by providing a backstop and engendering a change in policy
direction. The government can now fund its FX redemptions until February and as such, talks
won‟t restart in the near future. Thus, we think a backstop is not likely to be in place until around
January/February time. A key barrier to talks, however, is the financial transactions tax on the
central bank (an issue which the EU has started treaty infringement proceedings on) as well as
the macro assumptions in the budget which are too bullish. Changing these factors would
create a significant hole in the budget. In addition, the government is attempting to push on with
costly and unfunded growth and jobs programmes. We judge them to be unfunded, in part,
because they purport to use budget reserves that will already be eaten up by low growth
according to our model. Once the economy starts its recovery and a backstop is provided, we
think EURHUF could strengthen to around 294 by end-2013 from “crisis” lows, which required
the government to act (around 315-320). We are concerned about the sustainability of the
current government programme into the 2014 elections given the lack of growth and popularity,
so we do not see an IMF/EU backstop lasting beyond the end of 2013.
Rates and inflation: We expect the bulk of the rate cuts to start once a deal is reached with the
IMF/EC on a backstop in January/February. Our medium-run forecast, regardless whether there
are “early” cuts or not, is that by Q3 of next year rates will be down to around 5.00% thanks to
heavy and rapid cuts after a backstop deal is signed. The headline inflation picture is very bleak
throughout much of 2012, with a peak of 6.6% in Q3, and we see it remaining above target until
late Q2 2014 due to new tax increases. However, core inflation remains very subdued thanks to
low growth.
Growth: We expect a sharp slowdown in consumption as unemployment climbs and exposure
to eurozone core consumption markets takes a hit in this second crisis period after the balance
of payments event in 2008. However, net trade will likely remain supportive as the surplus
climbs through 2012. Private sector investment will probably contract too, accelerated by
deleveraging. However, there is likely to be a lasting impact from the government‟s policy,
weakening FDI with little external help. Our key concern is potential declining growth over the
past four years from 4.0% before the crisis, first to 2.5% and now to just 1.75%.
Figure 1. Details of the forecast Figure 2. Headline and core ex-VAT CPI.
2010 2011 2012 2013
Real GDP % y-o-y 1.2 1.7 -1.1 0.3
Nominal GDP USD bn 128.7 140.2 150.0 150.7
Current account % GDP 1.09 1.4 2.0 1.0
Fiscal balance % GDP -3.2 -6.2 -4.2 -3.0
Structural balance -5.5 -5.0 -6.5 -5.5
CPI % y-o-y * 4.7 4.1 6.0 4.8
CPI % y-o-y ** 4.9 3.9 5.9 5.0
Core CPI ex VAT % y-o-y ** -0.4 2.6 2.1 2.7
Unemployment rate % 10.8 10.7 11.5 11.0
Reserves EUR bn *** 32.3 35.1 30.8 28.1
External debt % GDP*** 139.8 138.9 131.6 130.6
Public debt % GDP 81.3 82.8 80.9 79.5
MNB policy rate %* 5.75 7.00 6.25 5.00
EURHUF* 279 315 286 294
1.5
2.5
3.5
4.5
5.5
6.5
Jan-2011 Sep-2011 May-2012 Jan-2013 Sep-2013
Constant tax core
Headline
Notes: * End of period. ** Period average. Bold is actual data. *** Includes IMF/EU funds. Source: Nomura Global Economics
Nomura | Global Economic Outlook Monthly 15 October 2012
11
Sonal Varma +91 22 403 74087 [email protected]
Aman Mohunta +91 22 6617 5595 [email protected]
India | Economic Outlook
Still a lot needs to be done
The pickup in reform momentum is positive, but fundamental issues affecting
investments and inflation have yet to be addressed.
Forecast change: We are revising down our GDP forecasts to 6.4% from 6.6% in 2013 and to
6.6% from 6.8% in 2014 to reflect weaker external demand.
Activity: Recent reforms have reversed months of policy paralysis and boosted sentiment.
However, economic fundamentals will take time to catch up for various reasons. First, many of
these announcements still need to be implemented. Second, external demand remains very
fragile going into 2013. Third, risks on the fiscal deficit and inflation remain in place. As such, we
expect weak exports and investment demand to keep real GDP growth subdued at 5.5% and
6.4% y-o-y, in 2012 and 2013 respectively from 7.5% in 2011.
Inflation: WPI inflation jumped back to 7.6% y-o-y in August and is likely to inch closer toward
8% in the coming months due to the direct and indirect impacts from the recent hike in
administered fuel prices. Recent INR appreciation could reduce imported inflationary pressures,
but with food inflation likely to accelerate, we expect headline inflation to remain sticky above
7%. A sudden sharp movement in fruit and vegetable prices in either direction is a key risk.
Policy: We expect the Reserve Bank of India (RBI) to keep policy rates unchanged in 2012 as
inflation remains elevated and the fiscal deficit large. We expect the RBI to cut rates by 50bp in
H1 2013 and by another 75bp in 2014, but only once inflation eases. We anticipate fiscal
slippage of 0.7 percentage points (pp) from the budgeted 5.1% of GDP in FY13 (year ending
March 2013) due to the government‟s inability to control subsidies and reduced tax revenues
from weak growth. We expect the fiscal deficit to remain above 5% of GDP for the next two
years, as populist policies take hold ahead of the April 2014 elections.
Risks: A rise in oil prices and a sharp global downturn are the key downside risks. A revival in
global growth and quick turnaround by the government on investment projects are upside risks.
Details of the forecast
% y-o-y growth unless otherwise stated 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014
Real GDP (sa, % q-o-q, annualized) 5.9 5.3 6.1 6.5 7.0 5.9 6.1 7.1
Real GDP 5.3 5.5 5.5 5.7 6.4 6.4 6.3 6.5 5.5 6.4 6.6
Private consumption 6.1 4.0 3.5 4.1 4.6 5.7 5.5 6.2 4.4 5.5 6.9
Government consumption 4.1 9.0 5.5 7.0 5.0 4.6 4.6 3.8 6.3 4.5 5.4
Fixed investment 3.6 0.7 2.0 3.9 6.1 9.0 9.1 9.3 2.5 8.3 8.4
Exports (goods & services) 18.1 10.1 9.9 9.1 4.5 9.2 8.8 9.4 12.0 7.8 9.7
Imports (goods & services) 2.0 7.9 6.5 5.8 9.5 10.4 6.7 4.7 5.6 7.6 9.7
Contributions to GDP (% points)
Domestic f inal sales 1.3 5.7 5.3 5.4 7.7 7.5 6.3 5.7 4.4 6.8 7.1
Inventories 0.0 0.0 0.1 0.1 0.0 0.1 0.2 0.2 0.0 0.1 0.2
Net trade 4.0 -0.2 0.1 0.1 -1.4 -1.2 -0.2 0.7 1.1 -0.5 -0.7
Wholesale price index 7.5 7.5 8.0 8.2 7.5 7.3 7.0 7.2 7.8 7.2 6.9
Consumer prices 7.2 10.1 9.7 10.7 10.0 8.7 8.7 9.4 9.5 9.2 9.0
Current account balance (% GDP) -3.7 -2.7 -2.8
Fiscal balance (% GDP) -5.8 -5.2 -5.0
Repo rate (%) 8.50 8.00 8.00 8.00 7.75 7.50 7.50 7.50 8.00 7.50 6.75
Reverse repo rate (%) 7.50 7.00 7.00 7.00 6.75 6.50 6.50 6.50 7.00 6.50 5.75
Cash reserve ratio (%) 4.75 4.75 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.75
10-year bond yield (%) 8.54 8.18 8.15 8.10 7.80 7.80 7.80 7.50 8.10 7.50 7.00
Exchange rate (INR/USD) 51.2 54.0 52.7 54.5 55.9 57.3 58.6 60.0 54.5 60.0 57.0
Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. CPI is for industrial workers. Fiscal deficit is for the central government and for fiscal year, e.g, 2012 is for the year ending March 2013. Table reflects data available as of 11 October 2012. Source: CEIC and Nomura Global Economics.
Nomura | Global Economic Outlook Monthly 15 October 2012
12
Euben Paracuelles +65 6433 6956 [email protected]
Lavanya Venkateswaran +91 22 3053 3053 [email protected]
Indonesia | Economic Outlook
Some improvement
External balances are improving but could remain under pressure given the weak
global backdrop and risks of domestic policy swings.
Forecast changes: For 2013, we lower our forecasts for GDP growth to 6.1% from 6.3%, the
policy rate to 6.25% from 6.50%, and the fiscal balance to -2.0% of GDP from -1.9%.
Activity: Our forecast of a slowdown in H2 growth was supported by the sharp drop in export
growth, which fell 16.2% y-o-y in July/August after a 9.0% drop in Q2. The weakness was broad
based and is likely to persist given weak global demand. Indeed, our European team‟s
downgrade of their 2013 GDP growth forecast for the euro area led us to trim our 2013 GDP
growth forecast. But our downgrade is relatively modest given the strength of domestic demand,
as evidenced by still-buoyant credit growth (23.6% y-o-y in August) and consumer confidence.
The trade deficit has narrowed and FX reserves are up, providing some respite to concerns
about external imbalances. However, this may prove temporary, as the narrowing was driven by
a decline in imports in August resulting from the month‟s extended holidays. Longer term, the
risk of a more uncertain pre-election policy environment remains and could add to external
deficits and lead to slower FDI inflows (see Asia Special Report: Indonesia: Policy swings).
Inflation and monetary policy: CPI inflation eased to 4.3% y-o-y in September from 4.6% in
August due to lower food prices and core inflation. Inflation is likely to remain comfortably within
Bank Indonesia‟s (BI) 3.5-5.5% target range this year, but we expect it to gradually rise because
of strong domestic demand and a weaker IDR. As such, we think it remains appropriate for BI to
maintain its tightening bias which should manifest in the form of administrative measures rather
than outright rate hikes. We pushed out the timing of our first rate hike forecast to Q3 2013.
Fiscal policy: We expect the official fiscal deficit targets of 2.2% and 1.6% of GDP for 2012 and
2013, respectively, to be missed, in part because of still-large subsidies. For 2013, the proposed
budget does not account for an adjustment in fuel prices (see Asia Economic Alert: Indonesia:
2013 budget - another missed opportunity?, August 23). We expect a higher 2013 fiscal deficit
of 2% of GDP, as the government attempts to provide more fiscal support to growth.
Risks: Downside risks stem from external shocks: a deeper recession in the euro area, a hard
landing in China and large capital outflows. In addition, more protectionist policy
announcements could further generate negative sentiment on investment.
Details of the forecast
% y-o-y growth unless otherwise stated 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014
Real GDP (sa, % q-o-q, annualized) Real GDP 6.3 6.4 6.0 5.8 5.6 6.0 6.3 6.5 6.1 6.1 6.2
Private consumption 4.9 5.0 5.5 5.2 5.3 5.3 5.5 5.5 5.2 5.4 5.6
Government consumption 5.9 7.0 9.0 10.0 5.0 8.0 8.0 8.0 8.3 7.5 7.0
Gross fixed capital formation 10.0 12.3 11.2 10.0 9.9 8.8 8.8 7.1 10.9 8.6 9.0
Exports (goods & services) 7.9 1.9 2.7 4.8 5.0 6.0 11.0 8.0 4.2 7.6 10.0
Imports (goods & services) 8.0 10.9 8.0 6.6 6.5 6.5 6.2 14.0 8.3 8.4 11.9
Contributions to GDP (% points) Domestic final sales 5.5 6.2 6.5 6.6 5.7 5.7 5.9 5.9 6.1 6.0 6.0
Inventories 2.0 2.3 0.8 -0.6 0.0 0.0 -0.9 -0.1 1.1 -0.3 -0.3
Net trade (goods & services) 0.7 -3.2 -1.7 -0.2 0.0 0.2 2.9 -1.6 -1.1 0.4 0.2
Consumer prices 3.7 4.5 4.5 5.1 5.2 4.9 5.0 5.0 4.5 5.0 5.1
Exports 5.3 -7.6 -5.0 2.8 5.6 5.9 7.6 15.1 -1.3 8.7 8.0
Imports 21.4 8.9 9.0 11.5 7.2 6.2 4.8 17.3 12.4 9.0 14.4
Merchandise trade balance (US$bn) 1.7 -1.3 -0.7 -1.2 1.0 -1.6 0.8 -2.7 -1.5 -2.5 -3.3
Current account balance (% of GDP) -1.5 -3.2 -2.2 -2.0 -0.8 -2.3 -1.2 -3.1 -2.2 -1.9 -1.6
Fiscal Balance (% of GDP) -2.4 -2.0 -2.2
Bank Indonesia rate (%) 5.75 5.75 5.75 5.75 5.75 5.75 6.00 6.25 5.75 6.25 6.75
Exchange rate (IDR/USD) 9146 9433 9591 9600 9625 9650 9675 9700 9600 9700 9600
Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts are modal (i.e., the single most likely outcome). Table reflects data available as of 11 October 2012. Source: CEIC and Nomura Global Economics.
Nomura | Global Economic Outlook Monthly 15 October 2012
13
Tomo Kinoshita +81 3 6703 1280 [email protected]
Japan | Economic Outlook
Weaker external demand likely leads to a recession in H2 2012
We expect decelerating demand across the globe to hurt exports and business
investment in 2012 and 2013.
Forecast change: We have revised down our real GDP growth forecast for 2012 further to
2.0% from 2.3% and 2013 forecast to 0.5% from 1.1%.
Activity: Japan's exports and production have been affected more severely than expected by
the deterioration in the European economy, anemic recovery in the Chinese economy, and the
abrupt decline in business sentiment seen over the past few months in other parts of Asia ex-
Japan. The global slowdown in production looks likely to persist through the end of this year,
which we think will weigh on Japan‟s exports as the global slowdown in capital investment hurts
Japan‟s capital goods exports. As a result, real GDP growth is likely to be negative in both Q3
and Q4 2012. We nonetheless expect a brighter picture to emerge from the beginning of 2013
as Japan benefits from a recovery in the manufacturing sector in the rest of Asia including
China. Capex by non-manufacturers should also stay resilient in 2013.
Inflation and monetary policy: We expect core inflation (CPI excluding fresh food) to improve
only marginally from 0% in 2012 to 0.1% in 2013 as the recession in H2 2012 should delay the
closing of the output gap. This is likely to increase political pressure on the Bank of Japan (BOJ)
to take more aggressive easing measures. We expect the BOJ to implement further easing
policy by the end of this year.
Policy: We expect post-quake reconstruction spending by the government to contribute to
growth until Q1 2013. The enactment of the consumption tax hike bill on 8 August was an
important fiscal achievement to tackle the medium-term budget deficit problem. We expect the
government to raise the consumption tax rate from 5% to 8% in April 2014 and further to 10% in
October 2015, as scheduled.
Risks: External factors continue to represent the main risks facing the Japanese economy.
These external factors include an expansion and prolonging of the risks associated with
European government debt, a decline in confidence in US economic policy, and concerns about
a global economic slowdown, all of which could have a negative impact on the Japanese
economy via financial market turmoil in the form of further strengthening of the yen and
weakening of share prices.
Details of the forecast
% 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014
Real GDP 5.3 0.7 -2.2 -0.3 1.7 0.4 1.7 1.6 2.0 0.5 1.2
Private consumption 5.0 0.5 -0.4 -1.2 0.7 1.0 1.2 1.9 2.4 0.4 1.2
Private non res f ixed invest -6.3 5.6 -7.8 0.4 3.6 5.0 5.1 4.4 2.3 2.1 5.7
Residential f ixed invest -6.3 3.8 4.5 4.9 7.0 8.6 7.0 3.6 1.6 6.2 -2.9
Government consumption 4.4 0.6 1.2 0.9 1.4 1.4 1.2 1.2 2.0 1.2 1.2
Public investment 15.2 7.2 8.9 10.7 8.2 -36.1 -3.3 -8.0 7.8 -3.3 -10.1
Exports 14.3 5.0 -12.2 1.1 1.0 4.9 3.8 3.1 2.1 0.7 5.6
Imports 9.1 6.7 -3.0 -0.1 3.2 4.9 4.8 6.5 5.5 2.7 5.9
Contributions to GDP:
Domestic f inal sales 3.7 1.9 -0.3 0.0 1.7 -0.2 1.6 1.7 2.5 0.7 1.2
Inventories 1.2 -0.8 -0.2 -0.5 0.3 0.5 0.2 0.3 -0.1 0.1 0.0
Net trade 0.4 -0.4 -1.7 0.2 -0.3 0.1 -0.1 -0.4 -0.4 -0.3 0.0
Unemployment rate 4.6 4.4 4.3 4.4 4.5 4.5 4.4 4.3 4.4 4.4 4.2
Consumer prices 0.3 0.2 -0.3 0.0 -0.2 0.0 0.2 0.1 0.0 0.0 2.0
Core CPI 0.1 0.0 -0.2 0.0 0.1 0.1 0.1 0.1 0.0 0.1 2.0
Fiscal balance (f iscal yr, % GDP) -9.6 -10.4 -9.4
Current account balance (% GDP) 1.3 1.6 2.0
Unsecured overnight call rate 0-0.10 0-0.10 0-0.10 0-0.10 0-0.10 0-0.10 0-0.10 0-0.10 0-0.10 0-0.10 0-0.10
JGB 5-year yield 0.32 0.22 0.19 0.11 0.17 0.15 0.12 0.15 0.11 0.15 0.20
JGB 10-year yield 0.99 0.83 0.77 0.73 0.82 0.82 0.85 0.88 0.73 0.88 1.10
JPY/USD 82.9 79.8 78.0 82.0 83.0 85.0 86.0 88.0 82.0 88.0 90.0 Note: Quarterly real GDP and its contributions are seasonally adjusted annualized rates. Unemployment rate is as a percentage of the labor force. Inflation measures and CY GDP are y-o-y percent changes. Interest rate forecasts are end of period. Fiscal balances are for fiscal year and based on general account. Table reflects data available as of 15 October. All forecasts are modal forecasts (i.e., the single most likely outcome). Numbers in bold are actual values, others forecast. Source: Cabinet Office, Ministry of Finance, Statistics Bureau, BOJ, and Nomura Global Economics.
Nomura | Global Economic Outlook Monthly 15 October 2012
14
Euben Paracuelles +65 6433 6956 [email protected]
Lavanya Venkateswaran +91 22 3053 3053 [email protected]
Malaysia | Economic Outlook
Signalling fiscal responsibility
The government's fiscal deficit targets look ambitious, but considering the upcoming
elections they show the government's strong committment to fiscal consolidation.
Forecast changes: We reduce our 2013 GDP growth forecast to 4.0% from 4.3% previously.
Activity: The weakness in exports has deepened in Q3 with average export growth of -3.6% y-
o-y in July/August versus 4.0% in Q2. Industrial production, however, continues to grow at a
faster rate than implied by export growth, suggesting that domestic demand remains strong.
This is likely to be supported by additional expenditures ahead of the national elections, which
in our base case will be held in November, and must be called before April 2013. We reiterate
our 2012 GDP growth forecast of 4.8% because of the strong fiscal stimulus, but reduce our
2013 forecast to 4.0% (versus the government assumption of 4.5-5.5% in the budget) to reflect
the downgrade in our growth forecast for the euro area, but also the likely fiscal consolidation
after the elections.
Inflation and monetary policy: Headline inflation remained stable at 1.4% y-o-y in August.
This brings year-to-August inflation to 1.8% y-o-y. Core CPI inflation, however, eased further to
1.5% from 1.6% in July. Producer price inflation (which leads the CPI by 2 months) declined by
0.5% y-o-y in August from -0.2% in July (and -0.9% in June), consistent with our view that CPI
inflation could come off further in the next few months before gradually rising towards year-end.
We still expect Bank Negara Malaysia (BNM) to keep the policy rate unchanged late Q3 2013,
unless external conditions deteriorate more sharply, in which case it would have room to cut.
Fiscal policy outlook: The 2013 budget aims to reduce the fiscal deficit to 4.0% of GDP from
4.5% in 2012. The announcement of more one-off handouts was accompanied by deficit-
improving measures. In our view, this reflects the government continuing to strike a balance
between achieving political objectives without undermining fiscal responsibility. Nonetheless, we
think the 2013 fiscal deficit target still looks ambitious. We expect a deficit of 4.5% of GDP in
2013 based on higher-than-budgeted operating expenditures (Asia Economic Alert: Malaysia:
Budget 2013 - signalling fiscal responsibility, October 1).
Risks: With exports nearly 100% of GDP, a sharp drop in commodity prices and a collapse of
global growth is the biggest downside risk. The political cycle also poses significant negative
risks that could dim prospects for structural reforms.
Details of the forecast
% y-o-y growth unless otherwise stated 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014
Real GDP 4.9 5.4 4.7 4.3 4.1 3.5 4.0 4.5 4.8 4.0 4.6
Private consumption 7.4 8.8 7.9 8.1 7.6 4.8 4.9 5.3 8.0 5.6 5.5
Government consumption 7.3 9.4 13.3 9.6 8.0 5.9 4.6 4.4 10.0 5.4 4.5
Gross fixed capital formation 16.2 26.1 19.4 10.7 8.2 5.2 5.0 7.6 18.0 6.4 7.0
Exports (goods & services) 2.8 2.1 1.8 2.1 4.4 5.7 7.1 6.6 2.2 5.9 7.2
Imports (goods & services) 6.8 8.1 8.2 7.9 8.2 8.6 8.3 7.2 7.8 8.1 8.5
Contributions to GDP (% points)
Domestic final sales 8.1 11.6 10.1 8.4 6.8 4.6 4.5 5.5 9.5 5.3 5.4
Inventories -0.2 -1.2 -0.1 0.9 0.2 1.1 0.1 -0.8 -0.1 0.1 0.0
Net trade (goods & services) -3.1 -4.9 -5.3 -5.0 -2.9 -2.2 -0.6 -0.2 -4.6 -1.4 -0.8
Unemployment rate (%) 3.0 3.0 3.0 3.2 3.1 3.1 3.0 2.9 3.0 3.0 3.1
Consumer prices 2.3 1.7 1.3 1.6 2.0 2.4 2.7 2.5 1.7 2.4 2.5
Exports 3.9 0.9 -0.1 4.7 4.7 7.9 10.2 8.4 2.3 7.8 10.4
Imports 6.4 5.7 5.3 11.5 8.4 11.0 11.5 8.9 7.2 10.0 14.4
Merchandise trade balance (USD bn) 9.7 6.8 7.3 7.1 8.5 5.8 7.4 7.3 31.0 29.0 23.1
Current account balance (% of GDP) 8.0 4.1 8.0 5.9 7.3 2.7 7.7 6.0 6.5 6.2 5.7
Fiscal Balance (% of GDP) -4.9 -4.5 -4.2
Overnight policy rate (%) 3.00 3.00 3.00 3.00 3.00 3.00 3.25 3.50 3.00 3.50 4.00
Exchange rate (MYR/USD) 3.06 3.18 3.06 3.07 3.06 3.05 3.03 3.02 3.07 3.02 2.92
Note: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts are modal forecasts (i.e., the single most likely outcome). Table reflects data available as 11 October 2012. Source: CEIC and Nomura Global Economics.
Nomura | Global Economic Outlook Monthly 15 October 2012
15
Benito Berber +1 212 667 9503 [email protected]
Mexico | Economic Outlook
Growth supported by domestic demand
Growth will likely remain above potential in 2012.
Activity: The Mexican economy is on track to expand above potential in 2012. However, there
are risks to growth associated with a decelerating outlook in the US and the eurozone. On the
positive side, domestic demand in Mexico has picked up, evidenced by strong private
consumption and investment. Consumption has been supported by credit. After growing at an
annual pace of above 4% rate year to date, we now expect growth to moderate to between 3%
and 3.5% for the rest of the year. For 2013, we expect the economy to expand at 3.5%.
Inflation: Inflation remains above 4%, the upper bound of the target band. We estimate that the
output gap has already closed. Agricultural prices have been the main culprit of high inflation.
For 2013, we expect most of the supply-side shocks to dissipate; therefore, we forecast inflation
to moderate to 3.4%.
Policy: We forecast the central bank of Mexico (Banxico) to keep the policy rate unchanged at
4.50% until 2014. There remains a pass-through of the depreciating exchange rate into inflation.
Under most scenarios of the exchange rate, Banxico‟s reaction function will remain unaffected
in the coming years. A rate cut is still possible if the economy decelerates, if MXN appreciates
significantly. We do not expect the rate to be tightened this year unless US economic activity
accelerates significantly. Our medium-term view for the MXN remains sanguine due to the
improvement in fundamentals. We forecast that MXN will strengthen to 12.00 by 4Q 2013.
Risks: The main risk is a double-dip recession in the US economy, which seems unlikely. In
terms of inflation, we see the following risks to our call: (1) pass-through effects due to MXN
depreciation; and (2) increases in gasoline prices. In terms of fiscal policy, the main risk stems
from a protracted downward correction in oil prices that would put pressure on fiscal revenues.
Details of the forecast
% y-o-y change unless noted 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 2011 2012 2013
Real GDP 4.5 3.9 4.6 4.1 2.7 3.5 3.7 3.4 3.9 3.7 3.5
Personal consumption 5.2 4.3 4.3 3.3 1.7 4.7 4.3 3.1 4.6 4.5 3.5
Fixed investment 9.0 5.9 8.6 6.2 2.4 3.2 3.2 3.2 8.2 3.0 3.2
Government expenditure 0.5 1.8 2.9 1.7 5.3 0.4 1.3 0.4 0.6 3.9 3.1
Exports 4.3 3.1 5.1 6.3 4.9 7.2 5.1 4.4 6.7 4.1 4.0
Imports 6.2 3.8 7.1 4.0 2.7 6.3 4.7 3.6 6.8 4.3 3.9
Contributions to GDP (pp):
Industry 1.3 1.1 1.4 1.2 0.8 1.0 1.1 1.0 1.2 1.1 1.0
Agriculture 0.2 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.2 0.2 0.1
Services 2.9 2.5 2.9 2.6 1.7 2.2 2.4 2.2 2.5 2.4 2.2
CPI 3.14 3.82 3.73 4.34 4.60 4.00 3.55 3.70 3.82 4.10 3.40
Trade balance (US$ billion) -3.9 -0.7 1.8 1.5 -4.1 -3.9 -3.8 -3.8 -1.5 -4.7 -15.2
Current account (% GDP) -0.9 -1.5 -1.5
Fiscal balance (% GDP) -2.6 -2.2 -2.2
Gross public debt (% GDP) 35.6 37.3 35.0
Overnight Rate % 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50
USD/MXN 13.90 13.94 12.81 13.36 12.86 12.70 12.70 12.50 13.94 12.70 12.00 Notes: Annual forecasts for GDP and its components are year-over-year average growth rates. Annual CPI forecasts are year-over-year changes for Q4. Trade data are period sums. Interest rate and currency forecasts are end of period. Contributions to GDP do not include taxes. Numbers in bold are actual values, others forecast. Table reflects data available as of 15 October 2012. Source: Nomura Global Economics.
Nomura | Global Economic Outlook Monthly 15 October 2012
16
Euben Paracuelles +65 6433 6956 [email protected]
Lavanya Venkateswaran +91 22 3053 3053 [email protected]
Philippines | Economic Outlook
Sticking to an easing bias
Upward pressure on the currency is likely to prompt another rate cut this year.
Forecast change: We lower our 2013 GDP growth forecast from 6.3% to 6.0%. We also revise
down our fiscal deficit forecast to 2.2% of GDP this year, but raise it to 2.6% in 2013.
Activity: Domestic demand, namely investment spending and private consumption, continued
to bolster growth in H1 even as the contribution from net exports weakened. The consumer and
business confidence indices for Q3 continue to suggest that growth momentum remains strong,
putting GDP growth in 2012 well on track to our forecast 6.0%. For 2013, we expect more
progress in infrastructure projects under the public-private partnership scheme and more fiscal
support ahead of mid-term elections. As a result, we forecast still robust GDP growth of 6.0%
despite the downgrade of euro area 2013 GDP growth by our European economics team.
Inflation and monetary policy: Bangko Sentral ng Pilipinas (BSP) kept the policy rate
unchanged at 3.75% at its September meeting. BSP sees headline inflation as driven by
“transitory” factors such as flooding and oil prices, and remaining within the 3-5% target. Indeed,
inflation in September eased to 3.6% y-o-y from 3.8% in August. Upward pressure on PHP
remains a primary policy parameter for BSP, in our view. We continue to expect another 25bp
cut in the policy rate in one of the remaining two meetings this year. Thereafter, we expect BSP
to keep its loose monetary stance, maintaining the policy rate at 3.5% through H1 2013.
Fiscal policy: In August, the fiscal balance swung to a surplus of PHP2.5bn from a deficit of
PHP39.2bn in July, reflecting slower expenditure growth of 10.4% y-o-y from 21.8% in July.
Expenditures excluding interest payments, however, still rose by a higher 13.9% in August.
Surprisingly, revenue growth slowed to 4.3% in August from 15.3% in July. We expect this to
increase in the coming months, helped in part by privatization proceeds which in turn provide
more room for expenditure disbursements. On a 12-month rolling sum basis, the fiscal deficit till
August was 2.3% of GDP. This is partly behind the reduction of our fiscal deficit forecast for this
year. For 2013, we expect the deficit to widen given elections and the strong bias to use the
available fiscal space to improve the pace and quality of spending.
Risks: The main risk to our forecast is an external shock from Europe. Slower progress on
governance reforms, as well as fiscal and infrastructure spending could also hurt growth.
Details of the forecast
% y-o-y growth unless otherwise stated 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014
Real GDP (sa, % q-o-q, annualized) 12.6 1.5 1.3 9.0 14.7 0.1 1.0 7.0
Real GDP 6.3 5.9 5.6 6.0 6.5 6.1 6.0 5.5 6.0 6.0 5.8
Private consumption 5.1 5.7 5.8 6.0 6.1 6.8 5.8 5.6 5.7 6.1 5.9
Government consumption 20.9 5.9 14.3 18.1 10.9 13.5 3.8 7.8 14.1 9.2 8.0
Gross fixed capital formation 3.9 8.5 10.8 12.8 11.1 12.1 11.9 11.5 8.9 11.6 14.5
Exports (goods & services) 10.9 8.3 4.6 4.3 3.2 3.3 7.7 7.6 7.2 5.3 9.0
Imports (goods & services) -3.2 4.4 5.9 5.1 13.9 14.7 13.5 9.8 3.0 13.0 13.0
Contribution to GDP growth (% points)
Domestic final sales 6.4 6.1 7.6 8.4 7.8 8.5 6.9 7.3 7.2 7.6 8.2
Inventories -7.2 -2.4 -1.4 -1.7 3.6 3.2 2.1 -0.1 -3.1 2.1 0.0
Net trade (goods & services) 7.1 2.1 -0.6 -0.7 -4.9 -5.5 -2.9 -1.6 1.9 -3.7 -2.4
Exports 4.8 10.5 4.6 4.3 3.2 3.3 7.7 7.6 6.1 5.4 9.0
Imports -1.5 2.3 10.2 12.0 14.2 14.7 13.5 9.8 5.6 13.0 13.0
Merchandise trade balance (US$bn) -2.6 -1.4 -3.6 -5.0 -4.4 -3.2 -4.8 -5.8 -12.6 -18.2 -22.7
Current account balance (US$bn) 0.9 1.6 2.3 0.3 0.1 1.8 1.0 2.0 6.2 4.9 4.7
Current account balance (% of GDP) 1.6 2.5 3.8 0.4 0.2 2.8 1.5 2.6 2.5 1.8 1.5
Fiscal balance (% of GDP) -2.2 -2.6 -2.2
Consumer prices (2006=100) 3.1 2.9 3.5 3.9 4.4 4.6 4.4 4.2 3.4 4.4 4.5
Unemployment rate (sa, %) 6.9 7.5 7.5 7.0 6.8 6.8 6.5 6.5 7.2 6.7 6.5
Reverse repo rate (%) 4.00 4.00 3.75 3.50 3.50 3.50 3.75 4.00 3.50 4.00 4.50
Exchange rate (PHP/USD) 42.90 42.10 41.7 42.0 41.8 41.5 41.3 41.0 42.0 41.0 39.7
Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts are modal forecasts (i.e., the single most likely outcome). Table reflects data available as of 11 October 2012. Source: CEIC and Nomura Global Economics.
Nomura | Global Economic Outlook Monthly 15 October 2012
17
Peter Attard Montalto +44 (0) 20 710 28440 [email protected]
Poland | Economic Outlook
NBP dovishness but not ready to cut - growth still outperforming
The economy will likely avoid recession despite external shocks and a tightening of
the currently loose fiscal policy.
Growth: As the most closed economy in the region, Poland is well placed to weather severe
external shocks. A narrowing trade deficit in real terms should actually be slightly supportive to
growth through H2, though a stronger currency threatens the deficit improvement. Fiscal policy
is due to be tightened throughout this year with numerous austerity measures introduced,
including pension reforms and mining taxes. A small drag may be felt through 2013 from
government reforms and because accelerated EU structural fund projects subside. Monetary
policy being slightly dovish, coupled with still positive real credit growth should support GDP, as
should private investment, which remained strong into Q1. We see gross fixed capital formation
growth slipping from 7.6% in 2011 to a still healthy 3.6% in 2012. Real disposable income
growth of around 2.5% this year, levered by some credit growth, should help cushion
consumption growth, which we see falling from 3.0% in 2011 to 1.3% in 2012. All together, we
see growth in 2012 falling to 2.6% from 4.3% in 2011. In 2013 we expect a drag from public
sector investment and government spending and the trough of the eurozone crisis to see growth
of around 2.3%. Deleveraging should hit Poland the least thanks to profitable foreign banks.
Currency: We expect to see USD/PLN moving lower due to the following factors: an orthodox
central bank can easily hike if animal spirits start up again, and because the central bank is
unlikely to get concerned about currency strength anytime soon (unlike some other EMs). Also,
it is unlikely to react to a global QE by cutting (again unlike many other EMs).
Rates and inflation: We think CPI inflation will remain very sticky outside the target range until
into Q1 2013, but from there dropping to around 3% by end-2013. Core inflation should remain
under control around target thanks to neutral policy rates. Overall, we expect the MPC to remain
conservative, inflation centric and forward looking, but with a dovish bias because of the growth
numbers. The tone of the most recent MPC statement and the press conference made it far
from a done deal that there would be a cut in November – there was no strong pre-commitment
as in April. Our baseline remains for now only 75bp of cuts starting next year in a slow, short
cycle lower.
Fiscal and politics: Prime Minister Tusk has announced ambitious budgetary and structural
reforms for the four years of this parliament – sufficient to avoid a downgrade. They should bring
the deficit to less than 3.0% of GDP in 2013, though not as targeted in 2012 given lower growth.
Growth matters the most. Without it, the political dynamic for consolidation becomes more
difficult and there has already been an allowance for lower growth through slower fiscal
consolidation in the 2013 budget. Implementation will be the key after only limited success over
the past four years.
Figure 1. Details of the forecast Figure 2. Inflation outlook
2010 2011 2012 2013
Real GDP % y-o-y 3.9 4.3 2.6 2.3
Nominal GDP USD bn 469.8 513.6 541.3 589.5
Current account % GDP -4.6 -5.0 -4.5 -5.0
Fiscal balance % GDP -7.8 -5.1 -3.4 -2.9
CPI % y-o-y * 3.1 4.6 3.6 3.0
CPI % y-o-y ** 2.6 4.3 4.0 3.2
Core CPI ex VAT % y-o-y ** 1.5 2.4 2.0 2.2
Population mn 38.2 38.2 38.0 37.8
Unemployment rate % 12.3 12.5 13.0 12.2
Reserves EUR bn ** 70.0 74.3 71.2 71.9
External debt % GDP 66.9 62.7 53.1 47.9
Public debt % GDP 53.3 53.5 52.8 52.2
NBP policy rate %* 3.50 4.50 4.75 4.00
EURPLN* 3.96 4.47 4.40 4.00
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
Jan-2008 Jun-2009 Nov-2010 Apr-2012 Sep-2013
Headline Expectations Core% y-o-y
Notes: *End of period, **Period average, Bold is actual data. Source: Nomura Global Economics
Nomura | Global Economic Outlook Monthly 15 October 2012
18
Euben Paracuelles +65 6433 6956 [email protected]
Lavanya Venkateswaran +91 22 3053 3053 [email protected]
Euben Paracuelles +65 6433 6956 [email protected]
Lavanya Venkateswaran +91 22 3053 3053 [email protected]
Singapore | Economic Outlook
Tolerating slower growth
The drag from weak exports is unlikely to be met with strong counter-cyclical policies.
Forecast change: We lower our 2013 and 2014 GDP growth forecasts to 3.4% and 4.2%,
respectively, from 4.2% and 4.6%.
Activity: According to the GDP flash estimates for Q3, the economy grew by 1.3% y-o-y which
implies a sequential contraction of 1.5% q-o-q saar. Q2 GDP growth, however, was revised
significantly higher to 0.2% q-o-q saar (from -0.7% earlier), suggesting that the economy
avoided a technical recession (i.e., two sequential quarters of negative growth). Tentative signs
of a pick-up in electronics exports, and importantly, our view that the Chinese economy is
bottoming, suggest that growth in Q4 should pick up. As such, we reiterate our 2012 GDP
growth forecast of 1.8% (within the government‟s forecast of 1.5-2.5%). For 2013, however, we
have reduced our GDP growth forecasts to reflect a deepening recession in the euro area,
where we now forecast 2013 GDP growth of -0.9% from -0.6% in 2012. We believe this will
have a significant impact on Singapore‟s open economy, particularly as we do not expect the
government to implement strong counter-cyclical policy to offset the external headwinds (see
Singapore: don't count on counter-cyclical policy, 27 August 2012).
Inflation and monetary policy: The Monetary Authority of Singapore (MAS), at it 12 October
meeting, continued its FX policy of a modest and gradual appreciation of the S$NEER policy
band; the slope, width and mid-point of the band were unaltered. This was in line with our
expectations, which were mainly based on the view that the growth and inflation mix remained
consistent with the MAS‟s previous assessment of the outlook. Indeed, the policy statement had
a more hawkish tone, and alluded to upside risks to headline and core inflation from a tight
labour market and potentially higher food and services costs, respectively.
Fiscal policy: In tandem with these policies, we think the fiscal stance will also remain neutral
this year, with the government expected to run a 0.2% of GDP fiscal surplus. For 2013, we
expect only a small deficit of 0.2% of GDP, with the government‟s focus remaining on social
spending as well as more incentives for firms to adopt productivity-enhancing measures.
Risks: With exports accounting for twice its GDP, Singapore remains the most vulnerable
economy in South-east Asia to a global growth slowdown. A worsening of the European debt
crisis and further weakness in China could lead to slower investment spending and negative
wealth effects, which would add further downside risks to growth.
Details of the forecast
% y-o-y growth unless otherwise stated 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014
Real GDP (sa, % q-o-q, annualized) 9.5 -0.7 -1.2 2.3 11.9 -5.5 10.4 1.5
Real GDP 1.5 2.0 1.2 2.4 2.9 1.7 4.5 4.3 1.8 3.4 4.2
Private consumption 4.7 1.8 0.6 2.3 4.1 5.1 5.0 4.7 2.3 4.7 3.5
Government consumption -4.0 -0.9 -8.8 5.0 3.8 4.9 11.8 3.0 -2.4 5.6 4.0
Gross fixed capital formation 17.0 1.8 1.0 3.0 2.0 1.8 4.4 7.0 5.3 3.8 5.7
Exports (goods & services) 2.2 2.3 2.6 3.0 3.2 3.9 5.4 7.1 2.5 4.9 10.1
Imports (goods & services) 4.7 2.8 2.6 5.4 2.8 3.7 5.5 8.1 3.9 5.1 11.1
Contributions to GDP (% points)
Domestic final sales 4.8 1.0 -0.3 2.0 2.5 2.6 3.8 3.7 1.9 3.2 3.1
Inventories 0.7 1.3 0.6 4.0 -1.2 -2.5 -1.1 0.5 1.6 -1.1 1.0
Net trade (goods & services) -4.0 -0.3 0.9 -3.6 1.7 1.6 1.8 0.2 -1.8 1.3 1.2
Unemployment rate (sa, %) 2.1 2.0 2.4 2.6 2.6 2.5 2.4 2.4 2.3 2.5 2.5
Consumer prices 4.9 5.3 4.3 4.5 3.2 2.8 2.6 2.6 4.8 2.8 3.8
Exports 6.0 -0.5 -3.0 -0.7 3.5 6.8 8.2 9.8 0.1 7.3 12.1
Imports 11.7 2.6 -2.0 0.8 4.2 6.6 8.3 10.8 3.1 7.4 13.1
Merchandise trade balance (US$bn) 7.2 6.7 10.8 9.3 6.8 7.4 11.7 9.2 33.1 35.0 36.0
Current account balance (% of GDP) 16.2 16.3 23.1 11.7 13.3 12.9 26.2 16.3 16.8 17.3 18.1
Fiscal Balance (% of GDP) 0.2 -0.2 0.4
3 month SIBOR (%) 0.47 0.46 0.37 0.38 0.38 0.41 0.41 0.44 0.38 0.44 0.50
Exchange rate (SGD/USD) 1.26 1.27 1.23 1.24 1.23 1.23 1.22 1.21 1.24 1.21 1.19
Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts are modal forecasts (i.e., the single most likely outcome). Table reflects data available as of 11 October 2012. Source: CEIC and Nomura Global Economics.
Nomura | Global Economic Outlook Monthly 15 October 2012
19
Peter Attard Montalto +44 (0) 20 710 28440 [email protected]
South Africa | Economic Outlook
Structural MPC dovishness in a year of crucial political battles
Battles could occur around the ANC conferences, between external weakness and
domestic strength, and between inflation and growth for the SARB.
Growth: GDP for Q2 surprised us strongly to the upside, printing at 3.0% y-o-y vs our forecast
of 2.3% and the previous print of 2.1%. Given this we shifted our growth forecast up to 2.4% for
this year from 2.1% previously and to 2.9% next year from 2.7% previously. However, due to the
recent industrial action, we are expressing doubt over these revised forecasts. We expect
growth to slow through H2 anyway as contagion from the external sector spreads, but the
economy is clearly leaving the first half at a much higher base than we thought. A contraction in
private sector investments this year should give way to a boost from the government‟s
infrastructure drive through the end of next year. In 2013, we see a recovery to 2.9%, but any
upside potential is likely to be capped due to limited credit growth and a sluggish recovery
globally.
Currency, inflation and rates: Our current rate call is for a rate cut of 50bp to occur in January.
We no longer think there will be a second cut given the recent rating downgrade and the
reaction of both the currency and bond markets to WGBI inclusion which has been tepid to say
the least. The currency weakening towards 9.0 in USDZAR has been orderly so far and the
balance of payments integrity has not been called into question. If this were to change then FX
intervention and rate hikes could occur, but we are not there yet. We think hikes would be more
likely to occur if core inflation started moving higher faster and risked breaching targets. Note
also that inflation has been in target since May, falling to 5% in August, having peaked at 6.3%
in January.
Politics and fiscal: We are currently seeing a structural breakdown in the traditional societal
structures around labour, and strike action is occurring because of the linkages between union
leadership, the ANC and BEE funds. The problem we have with the current situation is that we
cannot see how it ends easily without employers deciding themselves to grant large wage
increases. The government is doing nothing. We cannot see this situation or lack of control over
the circumstances changing yet, unless we get a more meaningful market, rating or sovereign
risk shock. The outcome of that, however, may simply be centralised minimum wages and large
increases for workers, which harms competitiveness. The battle for the ANC leadership is likely
to be a key driver of policy direction – more free market if Deputy President Motlanthe wins the
contest, more interventionist if President Zuma continues in his post. The National Treasury
presented a highly conservative budget as the deficit fell sharply to -3% in FY 2014/15, yet it is
based on many assumptions which we see as overly ambitious and which the NT admits are
risks. As such, with lower growth but offset by another year of meaningful underspending and a
good wage settlement, we see the deficit at -4.4% in the current FY 2012/13.
Figure 1. Details of the forecast Figure 2. Inflation outlook
2010 2011 2012 2013
Real GDP % y-o-y 2.9 3.2 2.4 2.9
Current account % GDP -1.5 -3.8 -5.7 -5.9
PSCE % y-o-y* 5.5 6.2 7.7 9.5
Fiscal balance % GDP -5.6 -4.4 -4.4 -3.9
FX reserves, gross USD bn* 43.8 48.9 50.1 50.3
CPI % y-o-y * 3.5 6.1 4.8 5.5
CPI % y-o-y ** 4.3 5.0 5.4 5.0
Manufacturing output % y-o-y 5.0 2.4 0.5 1.8
Retail sales output % y-o-y 5.4 5.7 4.5 3.3
SARB policy rate %* 5.50 5.50 5.00 4.50
EURZAR* 9.0 10.5 9.6 9.0
USDZAR* 6.82 8.09 8.00 7.50
0
2
4
6
8
10
12
Sep-09 May-10 Jan-11 Sep-11 May-12 Jan-13 Sep-13
FoodCore CPIServicesHeadline
% y-o-y
Notes: PSCE – Private sector credit extensions. * End of period. ** Period average. Bold is actual data. Source: Nomura Global Economics
Source: Nomura Global Economics
Nomura | Global Economic Outlook Monthly 15 October 2012
20
Young Sun Kwon +852 2252 1370 [email protected]
South Korea | Economic Outlook
Prolonged sub-potential growth
The negative output gap should persist through 2013, exerting disinflationary pressure.
We expect CPI inflation to remain within the BOK's target.
Forecast changes: We cut our 2012 and 2013 GDP growth forecasts to 2.3% and 2.5% from
2.5% and 3.0%, respectively, while raising our 2012 and 2013 CPI inflation forecasts to 2.2%
and 2.7% from 2.0% and 2.5%. We also raise our current account surplus forecast for 2012-14.
Activity: Our Europe team expects euro area GDP to contract by 0.9% in 2013 after a 0.6% fall
in 2012. We expect China‟s GDP growth to slow to 7.7% in 2013 from 8.1% while US GDP
growth will likely ease to 1.9% from 2.1%. That said, we expect Korea‟s export slump to
continue into 2013. The new government will likely increase social welfare spending, which
should partly offset the export slump. However, a high household debt burden (156% of
disposable income) and falling house prices will likely constrain consumption growth. The
business investment by large conglomerates should remain weak at a time when uncertainty
surrounding the global business outlook and new government reforms remain elevated. As a
result, we forecast Korea‟s GDP growth to rise slightly to 2.5% in 2013 from 2.3% in 2012, far
below our estimated potential GDP growth of 3.5%, which we expect to be reached only in 2014.
Inflation: A negative output gap and stable KRW should exert downward pressure on inflation,
but higher food prices and fading favorable base effects (from a one-off decline in school fees
and expenses) should push CPI inflation up to 2.7% in 2013 from 2.2% in 2012, still below the
midpoint of the Bank of Korea‟s (BOK) new inflation target range of 2.5-3.5% for 2013-15
Policy: We expect the BOK to stay on hold at 2.75% through 2013, as growth should increase
slightly and CPI inflation should rise modestly, each from a very low base on a sequential basis.
Risks: As a small, open, financially integrated economy, Korea is vulnerable to sudden
changes in global economic conditions, commodity prices and financial markets. The eurozone
crisis, the looming US fiscal cliff and an economic hard-landing in China remain the dominant
downside risks to our growth outlook. Domestically, the new government could formulate a
supplementary budget in 2013, which provides an upside risk to our economic outlook.
Details of the forecast
% y-o-y growth unless otherwise stated 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014
Real GDP (sa, % q-o-q, annualized) 3.5 1.1 0.4 2.0 2.8 3.6 3.2 3.6
Real GDP (sa, % q-o-q) 0.9 0.3 0.1 0.5 0.7 0.9 0.8 0.9
Real GDP 2.8 2.3 1.6 1.7 1.6 2.2 2.9 3.3 2.3 2.5 3.5
Private consumption 1.6 1.1 1.3 2.2 1.8 2.0 2.0 2.1 1.8 2.0 2.3
Government consumption 4.4 3.6 2.9 4.7 2.2 4.1 4.1 4.1 3.7 3.5 4.1
Business investment 9.1 -3.5 -2.1 3.3 -5.4 5.1 5.1 5.1 1.8 1.7 7.7
Construction investment 2.1 -2.1 -1.6 -1.0 1.2 3.9 3.9 4.1 -1.4 2.9 4.1
Exports (goods & services) 5.0 3.2 1.6 5.5 1.9 3.0 2.5 2.5 3.2 2.5 4.8
Imports (goods & services) 4.6 0.5 0.7 5.4 0.6 3.0 2.5 2.5 2.9 2.2 5.2
Contributions to GDP growth (% points)
Domestic final sales 2.8 0.8 0.4 1.6 1.2 2.2 2.8 3.1 1.6 2.0 3.0
Inventories -0.1 0.1 0.6 -0.4 -0.4 -0.3 -0.1 0.0 0.2 0.1 0.2
Net trade (goods & services) 0.1 1.4 0.5 0.6 0.8 0.3 0.2 0.2 0.5 0.4 0.3
Unemployment rate (sa, %) 3.4 3.3 3.1 3.2 3.2 3.2 3.2 3.2 3.3 3.2 3.2
Consumer prices 3.0 2.4 1.6 1.6 1.9 2.7 3.1 3.2 2.2 2.7 3.0
Current account balance (% of GDP) 2.6 1.6 1.5
Fiscal balance (% of GDP) 1.3 1.0 1.0
Fiscal balance ex-social security (% of GDP) -1.2 -1.3 -1.0
BOK official base rate (%) 3.25 3.25 3.00 2.75 2.75 2.75 2.75 2.75 2.75 2.75 3.25
3-year T-bond yield (%) 3.55 3.30 2.83 2.80 2.80 2.90 3.00 3.00 2.80 3.00 3.30
5-year T-bond yield (%) 3.69 3.42 2.93 2.90 2.90 3.00 3.05 3.10 2.90 3.10 3.50
Exchange rate (KRW/USD) 1133 1154 1118 1120 1115 1110 1105 1100 1120 1100 1100
Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts are modal forecasts (i.e., the single most likely outcome). Table reflects data as of 11 October 2012. Source: Bank of Korea, CEIC and Nomura Global Economics.
Nomura | Global Economic Outlook Monthly 15 October 2012
21
Young Sun Kwon +852 2536 7430 [email protected]
Aman Mohunta +91 22 6617 5595 [email protected]
Taiwan | Economic Outlook
Hinges on the global outlook
The economy should benefit from an upcycle in global electronics demand.
Forecast change: We cut our 2013 GDP growth forecast from 3.5% to 3.0%.
Activity and inflation: Exports increased 10.4% y-o-y in September, exceeding market
expectations by a wide margin. GDP growth should recover more visibly in Q3, but from a very
low base. A gradual recovery in global demand for electronics should help lift GDP growth from
1.5% in 2012 to 3.0% in 2013 and further to 4.0% in 2014. CPI inflation slowed to 3.0% y-o-y in
September from 3.4% in August as a typhoon-led one-time surge in food prices reversed. Given
that electricity tariff hikes will be implemented in multiple stages, inflation is unlikely to become a
serious negative factor for growth through our forecast horizon.
Cross-strait relationship: We expect economic linkages between Taiwan and China to
continue to strengthen, through further trade liberalization under the Economic Cooperation
Framework Agreement and an increase in tourist arrivals from China. Taiwan‟s central bank and
China‟s PBoC signed a Currency Settlement MOU on 31 August, which should significantly
boost RMB-related business in Taiwan‟s capital markets. Improving cross-strait ties is a
structural transformation that, over time, should unleash major benefits for Taiwan‟s economy.
Monetary and fiscal policy: The CBC left the discount rate unchanged at 1.875% at its policy
meeting in September, citing downside risks to growth from weak exports. The policy rate is
already very low and with inflation set to rise, we judge that the discount rate is only likely to be
cut if greater downside risks to growth materialize. The government seems focused on reducing
the budget deficit through various measures, including the introduction of a capital gains tax.
Risks: Another deep recession in advanced economies would have a large impact on Taiwan‟s
open economy. Positive risks include a stronger-than-expected recovery in the global
electronics cycle and a faster-than-expected liberalization of trade and investment with China.
Details of the forecast
% y-o-y growth unless otherwise stated 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014
Real GDP (sa, % q-o-q, annualized) 2.8 0.5 7.2 4.4 1.5 -0.4 4.3 7.1
Real GDP 0.4 -0.2 2.1 3.7 3.4 3.1 2.4 3.1 1.5 3.0 3.5
Private consumption 1.4 0.8 1.0 1.8 1.9 2.6 2.8 2.8 1.3 2.5 3.2
Government consumption 2.7 2.4 1.0 1.5 3.0 3.5 3.0 2.6 1.9 3.0 3.4
Gross f ixed capital formation -10.2 -5.2 0.6 0.5 7.5 5.0 4.0 5.5 -3.6 5.4 4.5
Exports (goods & services) -3.3 -3.3 2.5 3.8 3.0 3.2 3.2 3.2 0.3 3.2 3.3
Imports (goods & services) -7.5 -7.5 2.4 3.5 2.0 2.2 2.1 2.4 -1.2 2.2 3.5
Contributions to GDP grow th (% points)
Domestic f inal sales -2.4 -1.0 1.5 4.7 4.1 3.1 3.2 2.8 0.8 4.4 3.2
Inventories 1.4 0.4 0.3 -0.5 -0.4 0.0 -0.4 0.1 0.4 -0.7 0.2
Net trade (goods & services) 1.6 0.6 0.5 1.0 1.1 1.2 1.2 1.1 0.9 1.1 0.5
Exports -4.0 -1.3 5.0 6.3 5.5 5.7 5.7 5.7 0.5 5.7 6.3
Imports -5.9 -3.1 6.9 7.7 3.5 3.7 3.6 3.9 0.6 3.7 5.0
Merchandise trade balance (US$bn) 5.7 5.6 6.9 8.5 7.3 7.3 8.9 10.3 26.6 33.7 39.6
Current account balance (% of GDP) 9.6 8.9 7.0 8.1 7.3 7.4 8.1 9.0 8.4 8.0 7.5
Fiscal balance (% of GDP) -1.8 -1.9 -2.0
Consumer prices 1.3 1.6 2.9 2.1 2.1 1.2 0.2 1.1 2.0 1.2 1.5
Unemployment rate (%) 4.1 4.2 4.3 4.3 4.3 4.2 4.2 4.2 4.3 4.2 4.2
Discount rate (%) 1.88 1.88 1.88 1.88 1.88 1.88 2.00 2.13 1.88 2.13 2.13
Overnight call rate (%) 0.42 0.51 0.38 0.51 0.51 0.64 0.41 0.51 0.51 0.76 0.76
10-year T-bond (%) 1.27 1.23 1.19 1.29 1.31 1.42 1.29 1.29 1.29 1.55 1.55
Exchange rate (NTD/USD) 29.5 29.8 29.3 29.8 29.7 29.6 29.5 29.4 29.8 29.4 29.0 Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts are modal forecasts (i.e., the single most likely outcome). Table reflects data available as of 11 October 2012. Source: CEIC and Nomura Global Economics.
Nomura | Global Economic Outlook Monthly 15 October 2012
22
Euben Paracuelles +65 6433 6956 [email protected]
Nuchjarin Panarode +662 638 5791 [email protected]
Thailand | Economic Outlook
Thailand: New growth engines
We expect strong domestic demand to offset export weakness, spurred by loose
monetary and fiscal policies following the 2011 floods.
Forecast changes: We revise down our 2013 GDP forecast to 4.5% from 4.7% and our policy
rate forecast to 2.75% by end-2012 from 3.0%.
Activity: Domestic demand held up in August, with the Bank of Thailand‟s (BOT) composite
indices of private consumption and investment rising 4.1% y-o-y and 19.5%, respectively.
However, from the supply-side, the manufacturing production index (MPI) dropped 11.3% y-o-y
in August, led by export-oriented sectors. We believe the MPI decline is a concern for the BOT,
as it will pull down Q3 GDP. We believe Q3 GDP slowed to 2.8% y-o-y from 4.2% in Q2 as a
result. For 2013, our growth downgrade mainly reflects the cut to our euro area growth forecasts,
but the impact is relatively small as we think domestic demand will stay strong, boosted by loose
macro policies (see Asia Special Report: Thailand: New growth engines, 24 September 2012).
Monetary policy and inflation: CPI inflation accelerated to 3.4% y-o-y in September from 2.7%
in August due to higher refined oil prices and an excise tax increase on tobacco and liquor. But
inflation expectations for the next 12 months, according to the BOT survey, eased to 3.5% from
3.6%. According to the MPC minutes, all MPC members see “the balance of risks for the Thai
economy was skewed towards growth rather than inflation.” We therefore think further monetary
policy easing is possible near-term. With the likely continued drop of the MPI, we now expect
the MPC to cut the policy rate by another 25bp on 17 October.
Fiscal policy: Government spending rose by 13.7% y-o-y in August after rising by 25.6% in
July. For the first eleven months of FY2012, the fiscal deficit was THB356bn, or 81% of the
target. The government cut its spending target for water-management projects to just THB2.0bn
from THB20bn previously due to weak execution. As a result, we revise down our fiscal deficit
forecast for 2012 to 3.8% of GDP from 3.9%, but expect fiscal easing to continue in 2013.
Risks: The downside risks to our forecasts stem from a deepening in the euro area recession,
and domestically, from increased political uncertainty over the constitutional amendment and
reconciliation bill. Slow progress on infrastructure plans could weaken investment sentiment.
Details of the forecast
% y-o-y growth unless otherwise stated 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014
Real GDP (sa, % q-o-q, annualized) 50.8 13.9 1.3 1.3 -0.6 12.2 5.4 7.6
Real GDP 0.4 4.2 2.8 15.2 3.8 3.4 4.5 6.1 5.5 4.5 5.0
Private consumption 2.9 5.3 5.0 6.7 6.0 5.7 3.9 3.1 5.0 4.7 4.2
Public consumption -0.2 5.6 4.7 6.4 0.8 -2.3 -2.7 0.9 4.1 -1.0 -0.8
Gross fixed capital formation 5.2 10.2 10.7 16.0 10.0 7.2 7.5 9.8 10.4 8.6 9.9
Exports (goods & services) -3.2 0.9 -3.1 17.1 4.7 2.6 5.1 3.9 2.4 4.1 5.0
Imports (goods & services) 4.3 8.5 0.3 7.4 3.8 1.3 3.3 3.8 5.0 3.1 5.0
Contribution to GDP growth (% points)
Domestic final sales 2.5 5.7 5.5 7.6 5.2 4.6 3.5 3.7 5.2 4.3 4.4
Inventories 2.9 2.8 -1.3 1.1 -2.3 -2.4 -0.1 0.9 1.4 -1.0 0.0
Net trade (goods & services) -4.7 -4.4 -2.7 7.7 1.3 1.1 1.7 0.7 -1.2 1.2 0.7
Exports -1.4 0.0 -4.5 14.5 6.2 5.5 6.6 3.4 2.1 5.4 6.9
Imports 10.4 11.9 1.2 8.7 2.5 3.7 9.4 5.2 7.2 5.2 7.2
Merchandise trade balance (US$bn) -5.2 -5.2 -3.9 -4.0 -3.3 -4.3 -5.9 -5.3 -18.2 -18.7 -20.6
Current account balance (US$bn) 0.6 -2.5 0.5 0.1 0.7 -1.4 -1.3 -0.6 -1.2 -2.6 -2.8
Current account balance (% of GDP) 0.6 -2.7 0.6 0.1 0.7 -1.4 -1.3 -0.6 -0.3 -0.7 -0.7
Fiscal balance (% of GDP, fiscal year basis) -3.8 -3.5 -3.7
Consumer prices 3.4 2.5 2.9 3.4 3.1 2.9 2.7 2.9 3.0 3.0 3.1
Unemployment rate (sa, %) 0.7 0.9 0.6 0.6 0.9 0.8 0.6 0.6 0.7 0.7 0.7
Overnight repo rate (%) 3.00 3.00 3.00 2.75 2.75 2.75 2.75 2.75 2.75 2.75 3.25
Exchange rate (THB/USD) 30.8 31.8 30.8 30.8 30.7 30.6 30.5 30.4 30.8 30.4 30.0
Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts are modal forecasts (i.e., the single most likely outcome). Table reflects data available as of 11 October 2012. Source: CEIC and Nomura Global Economics.
Nomura | Global Economic Outlook Monthly 15 October 2012
23
Olgay Buyukkayali +44 (0) 20 710 23242 [email protected]
Turkey | Economic Outlook
A healthy rebalancing
A tightening policy helped the rebalancing in 2012. A global slowdown could
accelerate it further, resulting in Turkey reaching investment grade in 2012.
Activity: GDP growth is likely to slow to 3% in 2012 after 8.5% growth in 2011. Unlike in 2008,
stock-building has been light, and net exports are likely to contribute more than 3pp to GDP in
2012, offsetting weak private consumption (1.3% in 2012) and private fixed investment (-0.5% in
2012). We see this as a pretty healthy rebalancing because a faster one would have been
associated with stagflation.
Inflation: Turkey‟s inflation is deteriorating at the expense of a strong fiscal stance. So far it is
largely driven by factors beyond the control of the TCMB, but it looks like the market‟s working
number for the next six months is now around 7.5% (1.0-1.5pp higher than a month ago) with
some upside risks. There are also tentative signs of creeping service price inflation. An
improvement in the growth backdrop could lead to a deterioration in inflation expectations.
Policy: If our framework of a meaningful growth rebound in Q4 2012 and Q1 2013 is right, we
would expect the TCMB to implement some temporary “hikes in disguise” largely for
expectations management purposes later in the last quarter of the year – we think the daily repo
rate could move up to the 6-6.5% area in November or December. These temporary hikes
would not be incompatible with a lowering of the top of the interest rate corridor, and our base
case sees the TCMB narrowing the interest rate corridor. We are referring to the daily repo rate
in these forecasts rather than the 1-week benchmark repo rate (we kept the policy rate constant
in the forecast horizon given the TCMB‟s comfort with the current policy setting).
Fiscal policy: Since H2 2011 fiscal policy has helped the monetary authorities, as the
government has used revenue outperformance as a cushion for a rainy day. The recently
unveiled Medium Term Programme (MTP) for 2013-15 implies that the tight fiscal stance will
continue and it looks like the government intends to avoid running an “election budget” or any
form of “election spending”. While primary surplus estimates are not as ambitious as the past six
or seven years, we still expect the debt-to-GDP ratio to fall towards the low-30% levels.
Rating outlook: We expect Turkey to receive an investment grade rating in 2012 from at least
one rating agency. We think rebalancing and structural reforms are moving in the right direction.
Risks: Terms-of-trade shocks (higher oil prices) and sudden stops of capital inflows are the
main risks. In that scenario, inflation could rise again with unwarranted currency weakness
resulting in a sharp fall in consumer confidence. However, this is not our base case. We think
the risks of capital controls being implemented, on any rapid appreciation, are extremely low.
With EM inflows accelerating in 2012, the likelihood of sudden stops has declined. Tight lending
conditions are currently weighing on credit demand.
Fig. 1: Details of the forecast
2010 2011 2012 2013
Real GDP % y-o-y 9.0 8.5 3.0 4.5
Contributions to GDP by selected items
Private consumption 4.7 5.5 1.3 3.2
Private investments 5.3 4.7 -0.5 2.1
Net exports -4.4 -1.7 2.0 -1.2
CPI % y-o-y * 6.4 10.5 7.5 6.5
CPI % y-o-y ** 8.6 6.5 9.1 6.7
Budget balance % GDP -3.6 -1.2 -1.9 -2.0
Primary balance % GDP 0.5 1.6 1.0 1.0
Public debt % GDP 43.0 42.4 38.0 37.0
Current account % GDP -6.5 -10.0 -7.0 -6.0
TCMB policy rate %* 6.50 5.75 5.75 5.75
USDTRY* 1.54 1.89 1.70 1.70 Notes:* End of period. ** Period average. Bold is actual data. Source: Nomura Global
Economics
Fig. 2: Tighter policy mix
2006
2007
2008
2009
20102011
2012-Mid point of
band
2012 - Top point of
band
-2
0
2
4
6
8
10
12
14
-1 0 1 2 3 4
Ex-ante real rate, %
Cyclically Adj.
Primary Balance,
Source: Nomura Global Economics
Nomura | Global Economic Outlook Monthly 15 October 2012
24
Philip Rush +44 20 7102 9595 [email protected]
United Kingdom | Economic Outlook
Inflections
Intensification of the euro-area crisis remains a serious threat to the UK. The MPC is
responding with aggressively loose policy, despite inflation’s persistent stickiness.
Activity: Underlying growth ground to a halt in 2011 and the subsequent double-dip recession
is being compounded by recurrent intensification of the eurozone‟s sovereign debt crisis. Large
trade and financial relationships with the euro area tie the UK to its apparently bleak economic
fate (see UK Theme: Sounding in a pounding?). Earlier signs of cyclical growth momentum
waned at still weak growth rates leaving the UK on the brink of recession, probably until 2013,
besides when one-off factors boost GDP in Q3 (see UK Theme: Several shocking months).
Beyond that, growth is still constrained by the ongoing domestic deleveraging and the
challenging rebalancing within the euro area (see UK Comment: Forecast: limping into 2014).
Inflation: Inflation has been boosted by a series of “one-off” shocks such as changes to VAT
and energy prices, but underlying inflation is still probably too strong. And there are further “one
offs” from tuition fees. Unlike the MPC, we do not expect a sustained fall below the inflation
target, let alone materially so (see UK Theme: Inflation in a black hole).
Policy: The MPC is responding aggressively to signs of weaker global growth and subdued
domestic demand. Upon completing its latest £50bn programme of gilt purchases in May, the
MPC resisted doing more. But disappointment at demand growth brought the MPC back to
easing mode in July with another £50bn programme, which we expect to be extended by £25bn
in November (see UK Theme: The monetary blunderbuss). Part of demand's ongoing weakness
is attributable to the economy's unavoidable but impeded rebalancing and associated fiscal
consolidation programme. We estimate fiscal policy alone to subtract about 0.9% from GDP in
2012-13, which is a moderation from 1.5% in 2011-12. However, in order to meet its fiscal
mandate of reaching a current structural balance by the end of a rolling five-year period, we
think the government will need to implement more measures. That is because its current
spending plans are conditioned on what we still consider to be an overly optimistic view of
potential growth (see, for example, UK Theme: Policymakers remake mistakes, 24 November
2011). As new measures will probably be back-loaded, we expect the secondary target to be
broken and the UK to lose its AAA rating by May 2015 (see UK Theme: Bending the fiscal
rules).
Risks: Downside risks dominate our growth forecasts, but the risks are to the upside of our
inflation forecasts. With activity dominating the BoE‟s reaction function, we see the risks from it
being that the MPC delivers even more easing than we expect.
Details of the forecast
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014
Real GDP -0.3 -0.4 0.7 -0.2 0.0 0.1 0.2 0.2 -0.3 0.3 1.2
Private consumption 0.3 -0.2 0.5 -0.4 0.1 0.3 0.4 0.4 0.4 0.6 1.6
Fixed investment 3.2 -2.7 1.7 -0.2 -0.6 -0.3 0.2 0.5 1.7 -0.7 4.2
Government consumption 3.1 -1.6 -0.3 -0.4 -0.4 -0.4 -0.4 -0.4 2.0 -1.9 -2.2
Exports of goods and services -1.6 -1.1 1.0 0.9 0.7 0.7 0.8 0.9 0.0 2.8 3.1
Imports of goods and services -0.1 1.4 0.6 0.5 0.7 0.7 0.8 0.8 2.6 2.9 2.6
Contributions to GDP:
Domestic f inal sales 1.4 -0.9 0.5 -0.3 -0.1 0.1 0.2 0.2 1.0 -0.2 1.1
Inventories -1.3 1.2 0.1 0.1 0.1 0.0 0.0 0.0 -0.4 0.6 0.0
Net trade -0.5 -0.8 0.1 0.1 0.0 0.0 0.0 0.0 -0.8 -0.1 0.1
Unemployment rate 8.2 8.0 8.0 8.0 8.0 7.9 7.9 7.9 8.1 7.9 7.7
Consumer prices (CPI) 3.5 2.8 2.4 2.5 2.3 2.7 2.8 2.4 2.8 2.6 2.3
Retail prices (RPI) 3.8 3.1 2.9 3.1 3.0 3.4 3.4 2.8 3.2 3.2 2.6
Announced size of the APF (£bn) 325 325 375 400 400 400 400 400 400 400 400
Official Bank rate 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50
3-month sterling libor 1.03 0.90 0.65 0.65 0.65 0.65 0.65 0.70 0.65 0.70 0.70
10-year gilt 2.20 1.73 1.80 1.60 1.50 1.50 1.60 1.75 1.60 1.75 2.50
£ per euro 0.83 0.81 0.80 0.78 0.77 0.75 0.75 0.75 0.78 0.75 tbc
$ per £ 1.60 1.56 1.60 1.64 1.62 1.60 1.57 1.53 1.64 1.53 tbc Notes: Quarterly figures are % q-o-q changes. Annual figures are % y-o-y changes. Inventories include statistical discrepancy. Inflation is % y-o-y. Interest rates and currencies are end-of-period levels. Numbers in bold are actual values; others forecast. Table reflects data available as of 27 September 2012. Source: ONS, Bank of England, Bloomberg, DataStream, Nomura Global Economics.
Nomura | Global Economic Outlook Monthly 15 October 2012
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Lewis Alexander +1 212 667 9665 [email protected]
David Resler +1 212 667 2415 [email protected]
Ellen Zentner +1 212 667 9668 [email protected]
United States | Economic Outlook
US budget in the crosshairs
A contentious debate over near- and long-term fiscal policy will weigh on the economy.
Activity: In the three years since the Great Recession ended, real GDP has grown at a
lackluster 2.2% pace and at an even slower 1.65% pace during the first half of 2012. Faced with
the unusual uncertainties about the eventual resolution of the US fiscal challenges and the on-
going sovereign debt crisis in Europe, the US economy looks likely to continue along this lower
trajectory through Q2 2013.
In recent months, surveys of confidence have diverged as business caution over slowing
earnings and uncertain fiscal outcomes later this year has increased, while households appear
to have a more optimistic outlook. Other recent data suggest that firming home values have led
to an increase in household wealth from real estate and, going forward, should encourage more
households to spend. After the election, we expect economic activity to slow and both
businesses and consumers to pull back in response to a contentious debate over fiscal policy.
Looking ahead to the second half of next year and beyond, we expect the pace of recovery to
begin to accelerate once Washington policymakers resolve the near-term fiscal and other policy
challenges that have undermined business confidence.
Inflation: Crude oil prices remain volatile and a source of inflation instability. Inflation in the
“core” PCE price index shows no hint of developing pressures as the year-on-year rate of
increase has remained continuously below 2% since Q4 2008. We expect the persistence of
ample economic slack to restrain inflation throughout the forecast horizon.
Policy: In spite of recent improvements, the slow recovery in labor markets is of “grave”
concern for the FOMC. We expect the FOMC to continue its purchases of long-term assets
through Q3 2013. Addressing fiscal policy changes is likely to be contentious, but we ultimately
expect agreement on a long-term deficit reduction plan. Nevertheless, the forecasts shown in
the table below reflect the risk that scheduled fiscal changes could go into effect in January
before a long-term deal is reached.
Risks: The eurozone economic crisis and looming fiscal cliff remain the dominant risks to the
outlook.
Details of the forecast
% 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 2011 2012 2013 2014
Real GDP 2.0 1.3 1.8 1.2 0.5 1.1 2.2 2.6 2.9 3.1 1.8 2.1 1.3 2.7
Personal consumption 2.4 1.5 1.7 2.3 0.7 1.4 2.2 2.6 2.8 2.7 2.5 1.9 1.6 2.6
Non residential f ixed invest 7.5 3.6 -0.8 1.0 -0.3 0.9 4.7 4.8 3.9 8.2 8.6 7.3 1.3 5.1
Residential f ixed invest 20.6 8.4 17.8 11.2 11.4 10.2 10.3 10.2 7.5 8.0 -1.4 12.2 11.5 9.0
Government expenditure -3.0 -0.7 -1.7 -2.2 -2.2 -0.9 -1.0 -0.9 -0.2 -1.0 -3.1 -2.1 -1.6 -0.8
Exports 4.4 5.2 -3.0 2.1 2.9 3.1 3.7 5.3 5.5 4.2 6.7 3.1 2.4 4.6
Imports 3.1 2.8 -0.7 2.7 1.5 1.8 2.3 3.5 3.9 3.1 4.8 2.9 1.8 3.1
Contributions to GDP:
Domestic f inal sales 2.3 1.5 1.2 1.5 0.3 1.2 2.1 2.4 2.6 2.8 1.9 2.0 1.3 2.6
Inventories -0.4 -0.5 0.9 -0.2 0.0 -0.2 0.0 0.0 0.2 0.2 -0.2 0.2 0.0 0.0
Net trade 0.1 0.2 -0.3 -0.2 0.1 0.1 0.1 0.1 0.1 0.0 0.1 -0.1 0.0 0.0
Unemployment rate 8.3 8.2 8.1 7.9 8.1 8.0 8.0 7.9 7.8 7.6 9.0 8.1 8.0 7.6
Nonfarm payrolls, 000 226 67 146 100 100 100 120 150 150 150 139 135 118 169
Housing starts, 000 saar 715 736 748 802 816 837 860 876 897 931 612 750 847 955
Consumer prices 2.8 1.9 1.7 2.4 1.8 1.9 1.6 1.0 1.2 1.3 3.1 2.2 1.6 1.4
Core CPI 2.2 2.3 2.0 1.9 1.8 1.6 1.6 1.7 1.7 1.7 1.7 2.1 1.7 1.8
Federal budget (% GDP) -8.7 -7.0 -6.2 -5.3
Current account balance (% GDP) -3.1 -2.8 -1.6 -1.0
Fed securities portfolio ($trn) 2.61 2.62 2.60 2.72 3.01 3.30 3.59 3.58 3.57 3.57 2.61 2.72 3.58 3.57
Fed funds target 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25
3-month LIBOR 0.47 0.46 0.36 0.40 0.40 0.50 0.50 0.50 0.60 0.60 0.58 0.40 0.50 0.65
TSY 2-year note 0.33 0.33 0.23 0.20 0.30 0.45 0.55 0.65 0.70 0.80 0.24 0.20 0.65 1.10
TSY 5-year note 1.04 0.72 0.63 0.70 0.50 0.70 0.90 1.00 1.10 1.20 0.83 0.70 1.00 1.50
TSY 10-year note* 2.23 1.67 1.63 1.75 1.50 1.75 1.90 2.00 2.00 2.10 1.87 1.75 2.00 2.40
30-year mortgage 3.99 3.66 3.50 3.50 3.40 3.40 3.60 3.70 3.70 3.80 3.95 3.50 3.70 4.10 *The medium term forecast range for the TSY 10-year note is as follows: 1.30-2.30. Notes: Quarterly real GDP and its contributions are seasonally adjusted annualized rates. The unemployment rate is a quarterly average as a percentage of the labor force. Nonfarm payrolls are average monthly changes during the period. Inflation measures and calendar year GDP are year-over-year percent changes. Interest rate forecasts are end of period. Housing starts are period averages. Numbers in bold are actual values. Table reflects data available as of 19 October 2012. Source: Nomura
Nomura | Global Economic Outlook Monthly 15 October 2012
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Peter Attard Montalto +44 (0) 20 710 28440 [email protected]
Olgay Buyukkayali +44 (0) 20 710 23242 [email protected]
Rest of EEMEA | Economic Outlook
Czech Republic: No escape, no safe haven
An ongoing recession in H1 may be inevitable for this most open economy. Politics
remain a key risk under a new coalition with only a marginal majority.
2010 2011 2012 2013
Real GDP % y-o-y 2.7 1.7 -0.7 0.9
Nominal GDP USD bn 197.8 215.5 220.1 221.0
Current account % GDP -3.8 -2.9 -2.5 -2.8
Fiscal balance % GDP -5.0 -4.0 -4.5 -4.0
CPI % y-o-y * 2.3 2.4 2.3 1.6
CPI % y-o-y ** 1.5 1.9 3.2 1.9
Core CPI ex VAT % y-o-y ** 1.3 0.8 0.2 1.0
Population mn 10.5 10.5 10.4 10.4
Unemployment rate % 9.6 8.6 9.0 8.5
Reserves EUR bn ** 31.8 31.1 29.6 29.2
External debt % GDP 46.7 50.8 49.2 47.8
Public debt % GDP 41.3 43.8 45.2 47.0
CNB policy rate %* 0.75 0.75 0.25 0.50
EURCZK* 25.0 25.59 25.20 24.20
*End of period, **Period average, Bold is actual data
GDP will likely contract in 2012 thanks to contamination from the eurozone, owing to the openness of the economy. However, a strong banking system, where deleveraging should only have a small effect, and the lessening of the fiscal drag vs. 2011 are two positives.
We expect the government to make small additional measures to keep fiscal consolidation on track, but with a potentially unstable coalition we believe any stronger action or structural reforms are unlikely. The ruling coalition‟s reduced majority leaves little margin for error, and we doubt deficit targets will be met. However, with steady access to domestic funding and low debt, little additional fiscal consolidation may be needed for the medium-run path to remain credible.
Underlying CPI inflation should stay at the bottom of the target in 2012 before falling in 2013. We think the CNB will stay on hold after October‟s cut until Q3 2013 as we think inflation is under control and fiscal austerity should lead to lower growth.
Source: CSO, CNB, Nomura Global Economics
Romania: Markets should concentrate on fiscal not politics
Twin deficits leave little room for supporting growth in a challenging external demand environment with domestic political and constitutional uncertainties not helping.
2010 2011 2012 2013
Real GDP % y-o-y -1.6 2.5 0.2 0.8
Current account % GDP -4.2 -4.2 -4.0 -5.0
Fiscal balance % GDP -6.5 -4.5 -3.5 -4.0
CPI % y-o-y * 8.0 3.1 4.7 3.4
CPI % y-o-y ** 6.1 5.8 3.3 4.5
External debt % GDP 73.0 72.3 70.0 72.0
Public debt % GDP 30.5 33.3 35.0 33.3
BNR policy rate %* 6.25 6.00 5.00 6.00
EURRON* 4.28 4.33 4.25 4.00
*End of period; **Period average; Bold is actual data
Markets are becoming concerned about Romania due to Moody‟s ratings outlook downgrade to negative, IMF concerns that November elections mean targets are not met and asset fire sales to support higher public sector wages.
We think the external slowdown and minimal credit growth will mean a sluggish recovery in H2, although stronger than others in the region. Romania is also vulnerable to deleveraging, which could pose a serious risk for the balance of payments. While the BNR has a contingency plan that may involve capital controls, tapping the IMF‟s precautionary SBA may be necessary if the situation deteriorates.
Fears of losing the next election may mean the new Victor Ponta-led coalition will not stick to the IMF-backed austerity programme. We see much political risk this year, although the real policy risk is next year.
Source: Ministry of Statistics, Nomura Global Economics
Israel: Slower exports, slower growth, but no recession
An increasingly weak currency and looser monetary policy should help Israel.
2010 2011 2012 2013
Real GDP % y-o-y 4.5 4.8 2.8 3.3
CPI % y-o-y * 2.7 2.2 3.4 3.3
CPI % y-o-y ** 2.7 3.5 2.1 2.6
Budget balance % GDP -3.0 -2.7 -3.0 -3.5
Current account % GDP 3.0 0.3 -0.3 1.0
Policy rate %* 2.00 2.75 2.25 3.00
USDILS* 3.52 3.81 3.80 3.60
*End of period, **Period average, Bold is actual data
Israel‟s export-driven economy outperformed the region in the post-crisis environment thanks to an aggressive monetary policy response resulting in healthy domestic demand. The economy is currently slowing in line with the global backdrop.
Inflationary pressures appear to have subsided and inflation expectations are well anchored. This year‟s electricity price hikes however, may limit the extent of policy easing. With the policy rate at 2.25%, we see no further cuts unless the global economy deteriorates further.
Underlying final demand should not weaken greatly and the recovery in H2 should result in measured rate hikes (75bp to 3.00% by Q3 2013).
Source: BOI, Nomura Global Economics
Nomura | Global Economic Outlook Monthly 15 October 2012
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Boris Segura +1 212 667 1375 [email protected]
Benito Berber +1 212 667 9503 [email protected]
Tony Volpon +1 212 667 2182 [email protected]
Rest of LatAm | Economic Outlook
Argentina: Old habits die hard
Policy moves after the presidential elections damage economic performance
2010 2011 2012 2013
Real GDP % y-o-y 9.2 8.9 2.0 4.0
Consumption % y-o-y 9.4 10.7 4.3 4.2
Gross Investment % y-o-y 21.2 16.6 -7.1 7.3
Exports % y-o-y 14.6 4.3 -5.7 6.7
Imports % y-o-y 34.0 17.8 -5.2 10.8
CPI % y-o-y * 10.9 9.5 9.9 9.7
CPI % y-o-y ** 25.2 21.8 24.7 30.2
Budget balance % GDP *** 1.7 0.3 -0.9 -2.7
Current account % GDP 0.8 0.0 1.8 1.9
Policy Rate % 9.7 14.6 15.0 12.0
USDARS 3.98 4.29 4.90 5.65
* Official data, ** Private estimate, ***Primary budget balance, Bold is actual data
The authorities continue to pursue expansionary fiscal and monetary policies.
Exchange controls are effectively segmenting the FX market, with heavy damage to economic activity and microeconomic efficiency.
Locals are rushing to purchase USDs, as high inflation, policy missteps and other mixed signals sap domestic confidence in the ARS.
We expect faster ARS depreciation, but without a supportive macroeconomic framework we fear that a necessary real depreciation of the currency will be difficult to achieve.
Source: CSO, CNB, Nomura Global Economics.
Colombia: Growth moderating
After a strong half, the growth will likely lose momentum.
We have revised our 2012 GDP growth forecast to 4.5% y-o-y after a strong first half supported by strong domestic consumption and resilient exports.
Inflation and inflation expectations will remain well anchored around 3.0%.
We expect an additional 25bp interest rate cut to 4.50% during the remainder of the year and for the authorities to continue intervening in the FX market to curb COP appreciation.
Source: CSO, CNB, Nomura Global Economics.
Chile: Between rock and a hard place
Domestic demand remains strong in Chile, while inflation has moderated. We expect the central
bank to keep its policy rate on hold in the near term.
Chile‟s economy has shown strong resilience in a turbulent year, as robust consumption and investment continue to support growth. We revise up our 2012 GDP growth forecast to 5.1%, slightly above potential.
Both headline and core inflation are now below target (3%) and the currency‟s recent appreciation should help soften the global commodity price shock. We expect end-2012 CPI inflation of around 3%, with expectations well anchored.
Given around-trend growth, below-target inflation and improving external scenarios, we expect the central bank (BCCh) to remain in “wait-and-see” mode and keep the policy rate on hold at 5%.
Strong imports, driven by domestic demand, and a slightly weaker export profile, are pushing the trade balance lower and current account in negative territory, potentially increasing Chile‟s external vulnerability in the medium term.
Source: CSO, CNB, Nomura Global Economics.
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Nomura | Global Economic Outlook Monthly 15 October 2012
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Disclosure Appendix A-1
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Nomura | Global Economic Outlook Monthly 15 October 2012
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Nomura | Global Economic Outlook Monthly 15 October 2012
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