WERO n°3: China, US, Turkey, Philippines

1/24/2018 - Report
ic_blogtagSouth AfricaChinaJapanPhilippinesRussiaArgentinaTurkeyUnited StatesGross Domestic Product (GDP)GrowthManufacturingMonetary PolicySector Risk


China:  Stronger, faster? 

Not really Real GDP increased by +6.8% y/y in Q4 (the same pace as in Q3), taking full-year 2017 growth to +6.9%. However, the quarterly growth rate indicates a slowing momentum (+1.6% q/q in Q4 compared to +1.8% in Q3). Growth in Q4 was mainly driven by the tertiary sector (+8.3% y/y, up from +8% in Q3). Expansion in the secondary sector eased further to +5.7% y/y in Q4 (from +6% in Q3). High frequency indicators for December also point to slower impetus. Firstly, nominal retail sales growth moderated to +9.4% y/y (from +10.2% in November). Secondly, cumulative YTD urban investment growth remained at a low level of +7.2% y/y. Thirdly, real industrial production edged up slightly to +6.2% y/y in December from +6.1% in November, yet it is still low compared to previous rates (e.g. +6.6% y/y in September 2017). As expected, the authorities’ moves to improve growth quality (for example financial and property market tightening and cuts in overcapacity) have started to dent growth. Against this background, we maintain our forecast of a deceleration of GDP growth to +6.4% in 2018. 

U.S.:  Manufacturing and housing robust

The manufacturing sector continues to thrive. Regional Fed surveys from New York, Richmond, and Philadelphia indicated continued expansion in manufacturing although at a slower pace than last month, while the Chicago survey of general conditions rose to 0.27 from 0.11. Manufacturing industrial production gained +0.1% m/m to +2.4% y/y, just below last month’s three and one-half year high. Fourteen of 19 sub-sectors are growing y/y. Frigid weather drove utilities output up a sharp +5.6% m/m which put the headline industrial production up to +3.6% y/y, the fastest pace in three years. On the housing front, homebuilders remain highly optimistic; even though sentiment slipped from 74 to 72 points, it’s still the highest in almost 13 years. Volatile housing data showed permits were virtually unchanged but starts fell -8.6% m/m in December, perhaps due to weather. Overall the economy continues to demonstrate strength and we expect Friday’s Q4 GDP report to do the same. We maintain our 2018 forecast of +2.6% GDP growth and three to four interest rate hikes.

Turkey:  Mixed signals

The Monetary Policy Committee (MPC) kept its set of policy interest rates unchanged last week, as inflation eased slightly to 11.9% y/y in December and the TRY stabilized against the USD since the previous MCP meeting in mid-December (though it lost -3% against the EUR). We do not expect rate hikes in the near term since inflation is forecast to ease slightly to an average 9% in 2018 while GDP growth should slow, so that the MPC is likely to begin modest monetary loosening this year. Meanwhile the current account balance posted a hefty deficit of –USD4.2bn in November, taking the cumulative shortfall in the first 11 months of 2017 to –USD39.4bn, a +37% y/y increase. Worrisome, net FDI inflows covered only 19% of that shortfall. While the trade deficit widened to –USD51bn in January-November (–USD14bn y/y) largely due to the weakened TRY, the services surplus increased by +USD4bn to +USD19bn as tourism from Russia rebounded last year. On a positive note, Turkstat’s Consumer Confidence Index jumped to 72.3 points in January, up from 65.1 in December and well above the average 68.6 recorded for all of 2017. This bodes well for retail sales growth – which picked already up to an average +3.3% y/y in October-November from +1.4% in Q3 2017 – in the next months.

Philippines:  Robust  growth ahead

Real economic growth slowed to +6.6% y/y in Q4 2017 (from +7% in the previous quarter), taking growth for all of 2017 to +6.7%. On the production side, growth was driven by a strong expansion in industry (+7.3% y/y) and services (+6.8% y/y) while agriculture increased at a more modest pace (+2.4% y/y). On the expenditures side, exports kept rising at a high pace (+18.6% y/y) and public consumption remained a strong driver (+14.3% y/y), followed by investment (+9.3% y/y). Looking ahead, we expect growth to remain robust and edge up to +6.8% in 2018, for several reasons. Firstly, the exports outlook is well oriented, supported by higher economic growth in advanced economies. Secondly, the continued rise in remittances and a solid job market portend firm growth in private consumption. Lastly, investment is set to remain firm, underpinned by a strong business sentiment (manufacturing PMI at 54.2 in December) and a rise in public infrastructure spending (as part of the “Build, Build, Build” program).

Download the document