In the headlines this week:
- Japan: BoJ policy statement and GDP revision
- US: Policy signals
- China: Still moderate growth
- Austria: Stagnation
Figure of the week: +1% Japan’s revised Q/Q Q1 GDP growth
Following a decisive electoral victory in 2012, Macky Sall took over the presidency from longserving Abdoulaye Wade. Sall has a clear popular mandate to govern but his presidential term will be challenging, given macro-economic imbalances, structural deficiencies and need to improve perceptions of a generally weak business environment. Large fiscal and current account deficits (-6.8% and -8.5% of GDP in 2012, respectively) are unsustainable in the long term and currently managed through inflows of financial aid. Membership of the CFA franc zone offers some limitation on exchange rate and transfer risk. Despite inefficient and erratic energy and power supplies, EH expects GDP growth of +4% in 2013 and +4.5% in 2014, compared with a long-term annual average of +4%.
Venezuela: Growth slows sharply
The economy slowed sharply in Q1 as GDP increased by just +0.7% y/y after an annual
increase of +5.5% in 2012. Petroleum sector output increased (+0.9% y/y) but construction (-1%), manufacturing (-3.7%) and mining (-25.5%) all contracted. Inflation in May accelerated sharply, to 35.1% y/y. The Q1 current account surplus was USD1.7 billion (USD7.5 billion in Q1 2012). Lower oil prices impacted export earnings but non-oil exports also fell as companies struggle to source raw material inputs. Exchange controls and other government intervention limit inputs to production and create consumer shortages, so inflation is likely to stay high and growth low. Oil prices remain crucial. Meanwhile, the audit by the National Electoral Commission confirmed President Maduro’s election win.
Philippines: Highest regional GDP growth
Q1 GDP growth accelerated to +2.2% q/q (+1.9% in Q4 2012) and +7.8% y/y (+7.1% in Q4), making the Philippines the fastest growing economy in the region, as surging domestic demand offset weakening exports. Robust private consumption expanded by +5.1% y/y in Q1 (+6.2% in Q4), infrastructure projects boosted government consumption growth to +13.2% (+9.5% in Q4) and strong construction activity propelled fixed investment growth of +16.8% (+19.7% in Q4). However, exports collapsed, falling by -7% y/y in Q1 (+8.6% in Q4), while imports retained modest growth of +1.6% (+8% in Q4). EH expects domestic demand to retain momentum amid an ongoing weak global environment in 2013, resulting in full year GDP growth of around +6%.
Latvia: Good news (at last)
Last week, the European Commission and the ECB recommended that Latvia should be
allowed to adopt the EUR at the start of 2014. The final decision will be made by the
European Council of Ministers, scheduled for 9 July. As a consequence, S&P this week
raised its rating of Latvia by one notch to BBB+, with a stable outlook. Meanwhile, according to the Central Statistical Bureau, Q1 GDP growth was revised upwards to +3.6% y/y (from a +3.1% flash estimate) and +1.4% q/q (from +1.2%), making Latvia the fastest growing economy in Europe in Q1. Strong private consumption contributed +3.4pps to Q1 y/y growth and government consumption added +0.2pps, while fixed investment subtracte.