In its latest World Economic Outlook, the IMF revised downward its forecast of 2013 global growth, to +3.3% (-0.2pps from January 2013) reflecting weaker expected performance by both advanced economies (-0.1pps to +1.2%) and emerging economies (-0.2pps to +5.3%). While global economic conditions are still improving, the lower 2013 projections reflect persistent divergence within the advanced economies, particularly the slow, if steady, recovery in the US (+1.9%) and the prolonged recession in the eurozone (-0.3%) set against the resilience of emerging economies, with emerging Asia +7.1% again leading
the way. The IMF expects global growth to recover progressively in 2014 (+4%) helped by stronger US growth (+3%) and modest recovery in the eurozone (+1.1%). The IMF scenario remains slightly more optimistic than that of EH on a stronger expected recovery in the US, Japan and emerging economies.
China: GDP growth below expectations
Q1 GDP growth was +7.7% y/y according to official data released last week. This was slightly below expectations and less than in Q4 2012 (+7.9%). Other data released for March were not encouraging as industrial output (+8.9% y/y) was slower than in January-February, as was fixed asset investment and the increase in electricity production was also down on that period. Retail sales, however, were slightly stronger at 12.6% (12.3% in January-February) and the manufacturing PMI was also up on the
previous month and in positive territory. Real estate investment growth in March was down on January-February, but still stronger than in 2012. Credit expansion was very strong in Q1 but did not appear to pass through to GDP growth, which raises the question of whether such stimulus is as effective as in the past. The data are unlikely to prompt a big policy response and emphasise the shift to more-moderate growth in China. EH retains a GDP forecast of +8% in 2013, although downside risks
US: Relatively weak data, uncertain policy response
Economic data turned moderately softer in the last week, with retail sales falling -0.4% mo/mo in March, although after stripping out autos and gasoline from the data, sales fell by only -0.1% mo/mo. The four-week moving average of weekly jobless claims increased to its highest level in almost two months, confirming the weakness evident in the March employment report. Consumer sentiment in the first half of April plunged to a nine-month low driven by expectations of higher unemployment and lower after-tax income. Perhaps it is data like this that led Fed Chairman Ben Bernanke to repeat his view that monetary conditions will remain accommodative for some time. However, the official minutes released from the Fed’s March meeting show that some members think that quantitative easing should stop by the end of this year, if not sooner.
European Union: Latest trade data
The merchandise trade balance for the eurozone as a whole continued to improve in February, registering a surplus of EUR10.4 billion, markedly above expectations of EUR5bn. For the EU27, the trade surplus was EUR1.8 billion. However, the improvement in the eurozone resulted mainly from a generalised fall in imports from the rest of the world (-7% to EUR138.3 billion) as exports remained broadly stable (-1% to EUR148.6 billion). EH expects this trend to continue through 2013 as the prolonged recession in the eurozone is likely to weigh on the strength of private consumption and therefore lead to further downward adjustments in imports, although improving cost competitiveness (notably in the Southern European countries) may allow some increase in exports intra- and extra-zone. Nevertheless, the strength of the EUR is likely to remain a headwind.