World Economy: Still a bumpy road
World trade decreased further in February (-0.7% mo/mo). Total exports decreased for most regions except the US (+0.3% mo/mo) and Africa and the Middle East (+1.2% mo/mo). A significant drop was posted by Japan (-2.4% mo/mo) and Central and
Eastern Europe (-1.8% mo/mo). If global trade remains at the same level in March, growth in world trade in Q1 2013 will reach +0.5% q/q (+0.5% for advanced economies and +0.4% for emerging economies). EH expects global trade to post moderate growth in 2013 (+3.6% after +2.1% in 2012). Global industrial momentum recovered slightly in February (+0.5% mo/mo) from flat in January, led by the US (+1.1% mo/mo) in the advanced economies and by Asia and Africa/Middle East in the emerging economies. If world industrial production remains at the same level in March, Q1 2013 production will increase by +0.8% q/q (+0.7% q/q in advanced economies and +1.1% q/q in emerging economies).
US: Latest economic indicators
Real GDP growth in Q1 was weaker than expected at +2.5% q/q annualised. Consumption was positive but growth in final sales (after change in inventories) was weak at +1.5%. Investment contributed positively but net exports and government spending both acted as a drag on growth. Real disposable personal income fell -5.3% q/q, largely reflecting a correction from the rapid increase in Q4 2012 (+6.2%) to avoid tax measures. Spending cuts, taxes, budget uncertainty and anaemic employment reports suggest the weakness will continue. April consumer confidence recovered from a disappointing March but remains markedly below average. Housing data continue to be positive, with prices in the Case-Shiller Index increasing for the 13th consecutive month in February, at +9.4% y/y. However, half of the 20 cities in the sample show double digit annual growth, a rate which may not be sustainable.
Spain: Reduction in the pace of austerity
The European Commission endorsed—a formal approval is expected by end-May—the plan of the Spanish cabinet to delay the reduction in the country’s fiscal deficit to -3% of GDP (from the current -10.6%) by two years, to 2016, given the weak economic environment. This is a positive development as it shows that the European fiscal framework is becoming more flexible (also in Portugal and France) to limit the potential adverse consequences of corrective policies. Indeed, the severe recession registered in 2012 (-1.4%), together with the increase in interest expenditures, triggered a significant slippage in the 2012 fiscal target of -6.3%, which is now this year’s target. Even so, this is likely to prove challenging, given the second consecutive year of recession expected in 2013 (EH forecasts GDP will contract by -1.5%) and the banking sector bailout (EUR40 billion, equivalent to 4% of GDP) that weighs on interest expenditures.
Taiwan: Lower than expected Q1 growth
Q1 growth slowed by more than expected, according to the official advance estimate. Real GDP increased by +1.5% y/y, after +3.7% in Q4 2012, although this was still above the full year 2012 pace of +1.2%, and contracted by -0.8% q/q (+1.8% in Q4 2012). The main factor in the slowdown was a negative net export contribution. Export growth held up (+4.8% y/y) but there was a very strong surge in imports (+6.9%), partly the result of increasing imports of capital goods. Personal consumption growth was also markedly lower but a positive feature was fixed investment, which continued the upturn from Q4 2012 (+10.6% y/y). The economy is still likely to strengthen through the year, but full year growth of GDP may now be closer to +3% than +3.5%.