6/5/20: 1Q 2020 US GDP:

From Factset: "The decrease in first-quarter real GDP was largely driven by the 7.6% decline in consumer spending, which subtracted 5.3% from the total GDP number. Investment was also a drag on growth, while an improvement in the trade deficit partially offset these negatives. We may see downward revisions to these numbers with the next two data revisions, and second-quarter growth is expected to be far worse. Analysts surveyed by FactSet are currently expecting a 29.9% contraction in Q2."

Yeeks!

7/1/20: Tax cuts, trade and growth: The Trumponomics Effect

My article on U.S. economy and the implied risks to investors for Manning Financial and Cathedral:
https://cfc.ie/2019/12/10/tax-cuts-trade-and-growth-the-trumponomics-effect/.

#USEconomy #Economics #Markets #USgrowth #GlobalGrowth #GlobalEconomy #SecularStagnation @cathedrlfinance @sheehymanning 

22/6/18: 'Skeptical' IMF tends to be over-optimistic in its U.S. growth forecasts

In recent weeks, the IMF came under some criticism for posting relatively gloomy forecasts for the U.S. economy, especially considering the White House rosy outlook that stands out in comparison. see for example, WSJ on the subject here: https://www.wsj.com/articles/imf-sees-u-s-potential-growth-at-half-the-pace-of-white-house-estimates-1528995732.

Which begs two questions:

1. Does IMF have any grounds to stand on its forecasts divergence from the White House? and
2. Are IMF forecasts for the U.S. economy actually any good?

Firstly, the grounds:

Per above chart, the IMF is not alone in being less than exuberant about forward growth forecasts for the U.S. In fact, it is White House that appears to be an outlier when it comes to 2020-2023 outlook.

Secondly, per the question above, I crunched through IMF's semi-annual forecasts releases from April 2013 on (period prior to 2013 is too volatile in terms of overall fundamentals to take any forecast errors seriously). The chart below summarizes these against the actual outrun:

On the surface, it appears that IMF forecasts in recent years carried massive errors compared to outrun. So I did a little more digging around. I took 1, 2, 3, and 4 years-ahead forecasts, averaged them over different forecast releases, and estimated 90 and 95 percent confidence intervals for these. Here is the resulting chart:

What does the data tell us? It says that IMF forecasts have, on average, overstated actual growth outrun. In other words, IMF forecasts have been over-optimistic, not excessively pessimistic, in the recent past. More that that, IMF's current (April 2018 WEO release) forecast for the U.S. GDP growth is even more optimistic than already historically optimistic tendencies of the Fund imply. In other words, even though the first chart above shows the IMF forecast for the U.S. growth to be pessimistic, compared to that of the White House, in reality, IMF's forecasts tend to be wildly optimistic.

Average error for 1 year ahead forecast for the U.S. in IMF releases has been 0.037 percentage points (very small), rising to 0.476 percentage points for 2 years ahead forecasts (more material error), and 0.867 percent for 3 years ahead forecasts. Augmenting data (to achieve larger number of observations to 2000-2006, 2011-2014 periods, 4 years ahead average forecasts has been 0.867 percentage points above the outrun growth. And so on.

So, to summarize:

1. IMF is not unique in being less optimistic on the U.S. economy than the White House;
2. IMF's history of forecast errors suggests that the Fund tends to be overly optimistic in its forecasts and that current official Fund forecasts are more likely to be reflective of significant over-estimation of future growth than under-estimation;
3. IMF's forecasts more than 1 year out should be treated with some serious caution - something that applies to all forecasters.

30/4/17: The Scariest Chart in the World

The scariest chart in the world this week, indeed this month, comes from the U.S. and plots U.S. real GDP growth with 1Q 2017 print at just 0.7% y/y.

Yes, the print ranks 13th from the bottom for any positive growth quarter since 2Q 1947. And yes, the rate of growth is (a) preliminary (subject to revisions) and (b) seeming one-off (driven by fall-off in consumer demand, despite strong indicators on consumer confidence side). There are reason and heaps of arguments why this print should not be treated as huge concern and that things might improve in 2Q and on.

But... the really scary stuff is longer-term trend in U.S. growth. And that is illustrated in the chart below:

Look at the grey bars: these take periods of expansion in the U.S. economy and average rates of growth over these periods. Notice the patter? Why, yes, the average expansion-consistent rates of growth have fallen, steadily, since 1975 through today. Worse, controlling for volatile growth (average rates) in pre-1975 period, an exponential trend for average expansion-consistent growth rates (the yellow line) is solidly trending down.

The latest period of economic expansion is underperforming even that abysmal trend. And 1Q 2017 is underperforming that worse than abysmal average.

Now, let me highlight that point: yellow line only considers periods of consistent growth (omitting official recessions, and one unofficial recession of  2001). So, no: the depth of the Great Recession has nothing to do with the yellow line direction. If anything, given the depth of the 2008-2009 crisis, the most current grey bar should have been at around 4%, almost double where it sits today.

That is what makes the chart above the scariest chart of April. And will probably make it the scariest chart of May too.

27/1/17: U.S. GDP Growth is Down, Not Quite Out...

So President Trump wants U.S. economy growing at 4 percent per annum. And he wants a trade tussle with Mexico and China, and possibly much of the rest of the world, or may be a trade war, not a tussle. And he wants tariffs on imports from Mexico to pay for the Wall. And all of this is as likely to support his 4 percent growth target, as a crutch is to support a two-legged sheep.

Take the latest U.S. GDP figures. The latest preliminary estimates for the 4Q 2016 U.S. GDP growth came out today. It is pretty ugly. The markets expected 4Q GDP print to come in up 2.2 percent, with some forecasters being on a much more optimistic side of this figure. Instead, q/q growth (preliminary estimate) came in at 1.9 percent. This puts full year 2016 growth estimate at 1.6 percent which, if confirmed in subsequent revisions, will be the one of the two lowest rates of growth over 2010-2016 period. In 2015, FY growth was 2.6 percent.

The key reason for the drop in growth that everyone is talking about is net exports. In 4Q 2016, net exports subtracted 1.7 percentage points from the U.S. GDP, which is the largest negative impact for net trade figures since 2Q 2010. This was ugly. But less-talked about was a rather not-pretty 1 percentage point positive contribution to GDP from inventories which was the largest positive contribution since 1Q 2015. And more: inventories overall contribution to 2016 FY growth was higher than in both 2014 and 2015.

Quarterly GDP Growth and Contributions to Growth

Source: ZeroHedge

Good news: business investment rose, adding 0.67 percentage points to overall growth, and private sector equipment purchases rose 3.1 percent. Good-ish news: (after-tax) disposable personal income rose 1.5 percent in real terms on an annualised basis, but this marked the lowest growth rate in income over 3 years. Slower rate of growth in personal income over 4Q 2016 was down to “deceleration in wages and salaries”. Structurally, this suggests we might see some capex growth in 2017, while wages and salaries growth slowdown is likely to give way to more labour costs inflation, consistent with headline unemployment figures. If so, 1.6 percent annual growth can shift to 2-2.2 percent range.

Adding a summary to the above, BEA report notes:  “The increase in real GDP in 2016 reflected positive contributions from PCE [private consumption], residential fixed investment, state and local government spending, exports, and federal government spending that were partly offset by negative contributions from private inventory investment and nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.” In other words: borrowed money-based personal spending, plus borrowed money-based government spending, borrowed money-based property ‘investments’ were up. Capacity investments were down.

So, about that 4% target figure, Mr. President... time to hire some Chinese 'state statisticians' to get the figures right?..


In a final caveat: this is the first print of GDP growth and it is subject to future revisions.

9/2/16: Sales and Capex Weaknesses are Bad News for U.S. Jobs Growth

In a note from February 4, Moody Analytics have this two key messages about the U.S. economy, none pleasant:

• Business sales are ‘mediocre’ outside energy sector, so that jobs growth singled by business sales outside energy sector should be slowing; and
• Capex slowdown is about to smack jobs growth even further to the downside.

Take their numbers with a gulp of some oxygen.

Point 1: Business sales

The old-fashioned statistics don’t quite fudge stuff as well as the more modern hoopla about users, unique visits and signups deployed in the ICT sector. So here we go:

“Don’t fall into the trap of believing all is well outside of oil & gas. According to Bloomberg News, the 52% of the S&P 500 that has reported for 2015’s final quarter incurred over-year setbacks of -4.9% for sales and -5.7% for operating income. To a considerable degree, the declines were skewed lower by annual plunges of -34.2% for the sales and -64.2% for the operating profits of the latest sample’s 18 energy companies. For the 53% of the S&P 500’s non-energy companies that have reported for Q4-2015, sales barely rose by 0.6% annually, while the 2.6% increase by operating income fell considerably short of long-term profits growth of 6.5%.”

You’ve heard it right: in a recovery the U.S. is having, sales are up 0.6% y/y. Know of any real business that lives off something other than sales? I don’t.

Based on the Commerce Department broad estimate of business sales “that sums the sales of manufacturers, retailers and wholesalers. …even after excluding sales of identifiable energy products, what I refer to as core business sales posted annual increases of merely +2.1% for 2015 and +1.0% for Q4-2015”.

“…payrolls have been surprisingly resilient to the slowest growth by business sales excluding energy products since Q4-2009.” But, based on 3-mo average payrolls correlation with 12-mo average business sales data (estimated by Moody’s at 0.87), 2015 figures for sales suggest “…the average increase of private sector payrolls may descend from 2015’s 213,000 new jobs per month to 42,000 new jobs per month. Unless core business sales accelerate, 2016’s macro risks are most definitely to the downside.”

A handy chart:

Point 2: Capex headwind for jobs growth

“Business outlays on staff and capital spending are highly correlated. Over the past 33 years, the yearly percent change of payrolls revealed a strong correlation of 0.84 with the yearly percent change of real business investment spending.”

So, based on 2015 yearly increase in capital spending private sector payrolls “should have approximated 0.8% instead of the actual 1.9%. In other words, Q4-2015’s 1.6% yearly increase by real business investment spending favored a 91,000 average monthly increase by 2015’s payrolls, which was considerably less than the actual average monthly increase of 221,000 jobs.”

All of which puts into perspective what I wrote recently about the U.S. non farm payroll numbers here: http://trueeconomics.blogspot.com/2016/02/5216-three-facts-from-us-labor-markets.html

You really have to wonder, just how long can the U.S. economy continue raising the bar on additional bar staff hiring before choking on shortages of sales and capital investment?

16/10/15: Euro Area Inflation, via Pictet

An interesting chart highlighting the poor prospects for inflationary expectations in both Euro area and the U.S. via Pictet:

5yr/5yr swaps are basically a measure of market expectation for 5 year average inflation starting from 5 years from today, forward (so years 6-10 from today). This is a common referencing point for the ECB technical view of inflation expectations, and as the above clearly shows, we are heading for testing January 2015 lows.

Here’s Picket analysis (comments and emphasis are mine): “In September, headline inflation in the euro area dipped back into negative territory (-0.1% y-o-y) for the first time in six months.

"This weakness must be put into context though as it is primarily due to the steep slide in energy prices. If volatile components (food and energy) are stripped out, core inflation was steady at +0.9% y-o-y. Furthermore, prices of services, which better reflect domestic conditions, rose.

"Nonetheless, falling commodity prices, coupled with the rise in the euro’s trade-weighted value, caused the inflation outlook to worsen. Long-run inflationary expectations, as measured by the break-even swap rate, have been softening steadily since early July and have now reached their lowest level (1.56%) since February this year.

…In parallel, findings from economic and business surveys (PMIs, European Commission surveys) for the third quarter showed decent resilience despite the worries about the Chinese economy. They point to GDP growth of around 0.4% q-o-q in Q3 and Q4.”

Picket projects growth of 1.5% y/y for 2015, “led by domestic demand” that is expected to “continue to benefit from normalisation of the jobs market, subdued inflation, the gradual revival in consumer confidence and an upturn in lending to the private sector.”

In short, sensible view of inflation - low inflation, per Pictet is helping, not hurting the euro economy.

10/10/15: IMF: Un-Clued on U.S. Monetary Policy Normalisation

For all the positivity chatter about the return of the U.S. growth and 'normalisation' of the interest rates environment pushed into the world of unsuspecting journos by the IMF in its latest WEO Regional Outlook: Western Hemisphere, there is a nagging suspicion that something is strangely amiss.

Take the pesky problem of the U.S. monetary policy being exceptionally loose (or accommodative) since 2008. Chart below shows this by plotting a rate gap between policy rate and the 'neutral rate' with negative values indicating accommodation. Note, neutral rate is defined as the rate consistent with the economy achieving full employment and price stability over the medium term. Note also that adding in QE (over and above simple policy rate) pushes the metric of accommodation well beyond all historical comparatives in size (depth) and duration (length of time accommodation is present):

Now, naturally, one would expect these 'accommodative policies' to create a vast sea of surplus (relative to 'natural rate' consistent) liquidity (aka: money) in the U.S. system. And, naturally, one would expect that any 'normalisation' in the monetary policy would entail removing this surplus over time. Which, again, naturally, should translate into higher rates.

IMF obliges, providing us with this handy chart tracing forward expectations for U.S. policy rate:

The lift-off suggested in the chart above is rather steep and is steeper than the lift-off suggested by market pricing of futures (red line). In a sum, the chart above says: We have no idea what 'normalisation' will look like, but let's hope it will be more benign than the Fed signals and Primary Dealers Survey have been.

But here is a pesky little thing: You won't spot the same dynamics in IMF WEO forecast for either inflation or Libor rates. And the reason is pretty obvious: the more aggressive the Fed path in the chart above, the lower are growth projections in the chart below:

IMF forecasts from 2016 out to 2020 fall squarely in line with 2010-2015 averages for GDP growth (aka inflationary pressures) but are in excess of the 2010-2015 average for inflation itself.

In simple terms, despite all the talk about 'normalisation' of rates, the IMF is really saying that through 2020, we can expect the monetary environment (and with it the interest rates outlook) to be more benign than over pre-crisis average. Worse, inflation is expected to accelerate even though growth is expected to slip.

How does any of this square well with the idea of the Fed rate going to 3.75% as projected in the second chart above? Does any of this square well with projected 2016 interest rates for the Fed going to 1.2-1.3% against Libor under 1.2%? Does any of this square well with forecast inflation jump from 0.906% in 2015 to 1.404% and inflation outlook heading toward 2.322% by 2020?

In short, IMF expectations on both Libor and the Fed rate can be very tight.  Especially over the 2016-2018 horizon. If the Fed does stick to its signalled path (chart 2 above), growth will suffer relative to IMF projections (last chart above), despite already heading toward 2010-2015 average by 2019.

In the mean time, none of the IMF forecasts are consistent with Fed policies addressing in any reasonable way the built up of monetary policy excesses of the past.

Welcome to the world of forecasting after ZIRP. Shall we call it Fudge?..

29/5/15: That U.S. Engine of Growth Is Going 'Old Fiat' Way

Folks, what on earth is going on in the U.S. economy? Almost 2 months ago I warned that the U.S. is heading for a growth hick-up (http://trueeconomics.blogspot.ie/2015/04/4415-another-sign-of-us-growth-slowdown.html). Now, the data is pouring in.

1Q 2015 GDP growth came in at a revised -0.7%. And that's ugly. So ugly, White House had to issue a statement, basically saying 'damn foreigners stopped buying our stuff and weather was cold' for an excuse: https://m.whitehouse.gov/blog/2015/05/29/second-estimate-gdp-first-quarter-2015. Rest is fine, apparently, though U.S. consumers seem to be indifferent to Obamanomics charms and U.S. investors (in real stuff, not financial markets) are indifferent to the charms of ZIRP.

For the gas, the WH added that "The President is committed to further strengthening these positive trends by opening our exports to new markets with new high-standards free trade agreements that create opportunities for the middle class, expanding investments in infrastructure, and ensuring the sequester does not return in the next fiscal year as outlined in thePresident’s FY2016 Budget." Now, be fearful…

Source: @M_McDonough 

Truth is, this is the third at- or sub-zero quarterly reading in GDP growth over the current 'expansion cycle' - which is bad. Bad enough not to have happened since the 1950s and bad enough to push down 4 out of 6 key national accounts lines:

Source: @zerohedge

Good news, 1Q 2014 was even worse than 1Q 2015. Bad news is, 1Q 2015 weakness was followed by April-May mixed bag data.

Un-phased by the White House exhortations, the Institute for Supply Management-Chicago Inc.’s business barometer fell to 46.2 in May from 52.3 in April. Readings lower than 50 indicate contraction. Per Bloomberg: "The median forecast of 45 economists surveyed by Bloomberg called for the measure to rise to 53, with estimates ranging from 51 to 55. The report showed factory employment contracted this month."

Yep, that is a swing of massive 6.8 points on expectations.

Source: @ReutersJamie


Worse news, for the overheating markets that is, "Profits from current production (corporate profits with inventory valuation adjustment (IVA) and capital consumption adjustment (CCAdj)) decreased $125.5 billion in the first quarter, compared with a decrease of $30.4 billion in the fourth. …Profits of domestic non-financial corporations decreased $100.4 billion, in contrast to an increase of $18.1 billion. The rest-of-the-world component of profits decreased $22.4 billion, compared with a decrease of $36.1 billion."

Source: @ReutersJamie

Gazing into the future, the doom is getting doomed.

Source: @GallupNews

The above is via http://www.gallup.com/poll/183407/no-improvement-economic-confidence-index.aspx. The economic confidence index fell two points from the previous weekly score, Economic outlook component at -11, and Current conditions score of -6 higher than outlook. The index has been in negative territory for all but one of the past 14 weekly readings.

Source: @GallupNews 

Yes, the engine of global growth is spewing oil and smoke like the old 'Fix it up, Tony' Fiat... and the White House is just not having any new ideas on sorting it out.

Bad weather… Bad Double-Bad foreigners… Bad Triple-Bad Consumers/Savers…

4/4/15: Another Sign of US Growth Slowdown Risks: ISM

A very interesting chart via Bloomberg's @M_McDonough showing the growing weakness in US Manufacturing:

Local max at November-December 2014 is now being eroded, although ISM is still reading reasonably above 50.

This is just another confirmation of some (early) signs of the US economy shifting toward 'mature expansion' stage of the cycle. Given that all of this is still based on two exogenous factors: the hang-over of lower capex costs and low energy costs, the signal is not good - slowing economy into the Fed rising reversal that might coincide with firming of oil prices in H2 2015 will be a tricky risk to manage.

Note some other data points relating to the slowdown in growth signals: http://trueeconomics.blogspot.ie/2015/04/2415-oh-someone-spotted-us-growth.html.

2/4/15: Oh... someone spotted US growth slowdown risk...

Given that even the Irish Stuffbrokers are starting to wake up to the ongoing slowdown in the US economic growth (yet to smell the traces of the global slowdown next), here is a chart worth contemplating:

Explaining the above, the authors, Markit say: the "Business Outlook Survey, which looks at expectations for the year ahead across 650 US private sector companies, highlighted that business sentiment remained positive in February, but the degree of optimism moderated to a post-crisis low."

More specifically: "At +24 percent, down from +31 percent in October 2014, the net balance of firms expecting a rise in business activity over the year ahead was the lowest since the survey began in late-2009. Weaker business sentiment was recorded in both manufacturing (+32 percent in February, down from +42 percent last October) and services (+22 percent in February, down from +29 percent)."

And here is the comparative to other major advanced economies:

Oh, and the US weakness is compounded (and compounds) broader expected global weakness: http://trueeconomics.blogspot.ie/2015/04/2415-bric-business-outlook-12-months.html and current ongoing slowdown: http://trueeconomics.blogspot.ie/2015/04/2415-bric-manufacturing-pmi-march-marks.html. Even though the Global PMI for Manufacturing sector came out with basically no change in March (51.8) compared to February (51.9), overall growth has been trending well below immediate post-crisis recovery years and pre-crisis period:

Just at the time when Irish official forecasters are revving up their numbers for 2015-2016, because being myopic is what we do best...

31/3/15: Six out of Seven Signs the US Economy is Weaker in Q1

That economic recovery in the U.S. - the engine for growth in far away places, like Ireland, the hope of the IMF, the beacon of the dream that debt stimulus is a fine way to repair structurally weakened (let alone devastated - as in the Euro area) economies is... err... coughing diesel:

Source: @M_McDonough

In basic terms, five out of six tracked Economic Surprise sub-indices are in the red now, with four of them in the red for some time. And the overall Bloomberg Economic Surprise index is in the red, and has been in the red for most of the Q1. And the overall index is falling in steep ticks... which is not good... not good at all.

20/1/2015: IMF Global Growth Outlook 2015-2016: Europe Slips, U.S. Powers Away

My analysis of the IMF update to the World Economic Outlook is now available on Learn Signal blog: http://blog.learnsignal.com/?p=148

31/5/2014: One Chart of the Week, 5 charts of the last 5 years

If you see one chart this weekend, make it count. Here's a contender:

Source: https://twitter.com/okonomia/status/471713359424139264/photo/1

The above shows US GDP growth starting with the end of each recession from 1954 through the last one (where all growth indices are set at 100). And guess what: this time is different. Despite massive, un-parallel, unprecedented monetary expansion and QE, the current recession and recovery signal both - the sharpest decline from the pre-crisis peak and the shallowest recovery from the crisis trough. 

To confirm this - see the historical deviations from the potential GDP:

And this is not just about GDP. Here are changes in employment:

And unemployment:

These charts come from (except for the first one) http://www.cbpp.org/cms/index.cfm?fa=view&id=3252.

And the famous chart from the CalculatedRisk blog tracking percentage of jobs losses:

That's right... all of this 'wealth creation' in the financial markets is hardly about the real economy... Which means that one day, either fundamentals will have to catch up with financial markets valuations (by growth vastly outstripping capital gains), or financial markets will have to scale down the cliff back to fundamentals (by financial markets correcting massively to the downside). Or both... Which one is the 'soft landing'? You guess...

1/2/2014: US GDP growth Q4 2013

US Q4 GDP numbers posted a surprisingly strong performance, with third quarter in the row coming at above the 2009-2013 average rates:

Source: Pictet

At the top level, GDP posted 3.2% q/q expansion and annual (y/y) growth accelerated from 1.3% to 2.0% to 2.7% between Q1 and Q4 2013.

The quality of growth also improved. In Q2-Q3 2013, personal consumption grew 1.8% and 2.0% respectively (annualised), with Q4 2013 growth registering 3.3%. Private final demand grew 4.0% in Q4 2013, against 3.4% and 2.8% in Q2 and Q3. Bad news came only on private residential investment side, where activity declined massive 9.8% having posted  14.2% and 10.3% expansions in Q2 and Q3.

Government spending fell 4.9% in Q4 2013, compared to decline of 0.4% in Q2 2013 and growth of 0.4% in Q3 2013.

Excluding Government spending, GDP grew 5.2% in Q4 2013, beating 5.0% growth in Q3 2013 and 3.2% growth in Q2 2013.

23/1/2014: Remember that 'upbeat' IMF Growth Outlook?..

A quick note on the IMF update to the World Economic Outlook, released earlier this week. Here are some charts showing core forecasts progressions for growth and other global economy's performance metrics, with brief comments from myself.

The core point in the below is where does one exactly find the 'good news' relating to the IMF upgrading growth conditions expectations? The answer is that, contrary to media reports, the upgrades evaporate when once compares January 2013 forecasts against January 2014 ones, although there are some improvements in comparative for October 2013 against January 2014 forecasts. Materially, however, the upgrades are minor.

First for Advanced Economies:

The above chart shows evolution of real GDP growth for 2013 from the most recent forecast (January 2013) to the latest estimate (January 2014). The notable feature of this is the deterioration in underlying economic conditions over 2013, with forecast from January 2013 overestimating expected outrun for Global Economy growth and for all major advanced economies, save Spain, Japan and the UK. In case of Spain, forecast and outrun differ in terms of shallower expected decline in real GDP now expected for Spanish economy, compared to January 2013 forecast. In the case of Japan and the UK, the difference in higher estimated growth rates compared to forecast.

Moving on to 2014 forecasts for real GDP growth:

Much has been said in the media on foot of the IMF upgrade of its forecasts for global growth for 2014. This analysis is solely based on the comparing IMF outlook published in October 2013 against the forecast published this month. However, looking at January 2013 forecast against January 2014 forecast shows that the IMF outlook for the global economy has deteriorated since a year ago, from 2014 real GDP growth forecast of 4.1% to 3.7%. The same applies to all major advanced economies, save Germany, Italy, Japan and the UK.

Another important note here is that in the case of Italy and Germany, the difference between January 2013 and January 2014 forecasts is well within the margin of error. And that for the Advanced Economies as a whole, the forecast between two dates has not moved at all.

Thus, overall, the news analysis of 'greater optimism' from the IMF with respect to growth is really unwarranted - there is very little significant change to the upside in the IMF latest outlook.

Things are a little better for 2015 outlook:

However, we only have two points for comparing these forecasts: October 2013 and January 2014, so the above analysis (12 months span between forecasts) is not really available. Nonetheless, there is a significant marking up of global growth expectations between two forecast dates (from 2.9% to 3.9%), and  small downgrade in Advanced Economies growth forecast from 2.5% to 2.3%.

In addition, only Spain and the UK received a significant (statistically) growth upgrade, with the Euro area, Germany and Italy upgrades being within the margin of error.

The matters are actually far worse for the Emerging and Developing economies. 2014 forecasts are shown below:

With exception of Sub-Saharan Africa, all other major emerging and developing economies and regions have been downgraded in January 2014 forecast compared to January 2013 forecast.

When it comes to 2015 forecasts: there are more upgrades to growth forecasts:

But none - save for Developing Asia, China and MENA - are within statistically meaningful range.

The really devastating - the thesis of 'improved IMF outlook' - evidence comes from looking at the IMF forecast for Global Growth (controlling for FX rates):

Summary of the above chart is simple and ugly:

• Lower growth estimates for 2013
• Lower growth forecast in 2014, compared to the forecast published a year ago
• Lower growth forecast in 2015

And now, recall the 'salvation by trade' argument for Europe and Ireland? The 'exports-led recovery' story? Here are IMF latest forecasts for global trade volumes growth, and for imports by the advanced economies (AE) and emerging and developing markets (EM & developing):

Summary of the above chart is also simple and ugly:

• Lower trade growth in 2014 and 2015
• Lower imports growth in Advanced Economies in 2014 and 2015
• Lower imports growth in EMs in 2014 and 2015

So basic question is: Who will be buying all the exports that are supposed to grow across all European states?.. Martians?

3/3/2013: Global Economic Outlook - economists' consensus

BlackRock Investment Institute published a summary of the views of over 430 economists from more than 200 institutions, spanning over 50 countries that form the BlackRock Investment Institute's Economic Cycle Survey Panel. It is worth stressing that:
1) These are not the views of the Institute, but the views of the Panel, and
2) Since the Panel is still in the process of built up, some countries have 'thin' coverage - with small number of respondents specialising in the specific country analysis.

The aggregate view from the most recent round of surveys is presented below (due to size limitations, it is probably best to view this as a separate image, so double click on the image below):

13/2/2013: BlackRock panel economic outlook for H1 2013

Not surprisingly - and in line with the likes of CESIfo Index measuring global economic conditions (see link here) - BlackRock Institute report on global economic outlook also signaled that analysts' expectations are turning positive.

Here are two key charts for North American and Western Europe:

I like the cautious, but overall improving outlook for Ireland: still significant proportion of experts expecting continued recession, but crucially, Ireland is (at least in expectations) well-decoupled from the peripheral euro area countries.

Do note Spain's position as the worst expectations performer in the group - must I remind you, Mario Draghi recently praised Spain as the country that serves as an example of how to 'stabilise' crisis-hit banking sector... right...

23/1/2013: IMF WEO Update: Euro Area snapshot

In the previous post (link here) I have looked at the headline numbers from the IMF revision to their World Economic Outlook. Now, a quick summary for the Euro area:


"The euro area continues to pose a large downside risk to the global outlook. In particular, risks of prolonged stagnation in the euro area as a whole will rise if the momentum for reform is not maintained. Adjustment efforts in the periphery countries need to be sustained and must be supported by the center, including through full deployment of European firewalls, utilization of the
flexibility offered by the Fiscal Compact, and further steps toward full banking union and greater fiscal integration."

To summarise the forecasts and their revisions:

The above clearly show that the euro area remains the weak point for global growth and that this picture is likely to continue in 2013 and 2014. More importantly, the revisions since October 2012 show that the IMF pessimism about the euro area growth prospects is getting deeper, compared to other economies.

Time stamp

23/1/2013: IMF World Economic Outlook Update

IMF WEO is out just now. Headline reading is:

"Global growth is projected to increase during 2013, as the factors underlying soft global activity are expected to subside."

"However, this upturn is projected to be more gradual than in the October 2012 World Economic 

Outlook (WEO) projections."

"Policy actions have lowered acute crisis risks in the euro area and the United States. But in the euro area, the return to recovery after a protracted contraction is delayed. While Japan has slid into recession, stimulus is expected to boost growth in the near term. At the same time, policies have 

supported a modest growth pickup in some emerging market economies, although others continue to struggle with weak external demand and domestic bottlenecks. If crisis risks do not materialize and financial conditions continue to improve, global growth could be stronger than projected. However, downside risks remain significant, including renewed setbacks in the euro area and risks of excessive near-term fiscal consolidation in the United States. Policy action must urgently address these risks."

On Global growth drivers:

• The IMF expectations are for World Trade Volumes to rise 3.8% in 2013 and 5.5% in 2014, after posting increases of 5.9% in 2011 and 2.8% in 2012. In other words, the average growth rate in 2011-2012 was 4.4% and in 2013-2014 the projection is for the average of 4.7% growth. Not exactly a massively rapid recovery. 
• World Trade Volume forecasts have been revised down -0.7 ppt for 2013 and -0.3 ppt for 2014 compared to october 2012 forecasts, implying that average growth in trade over 2013-2014 was expected to hit 5.15% annually back in October 2012 and this has been brought down now to 4.7%.
• The IMF further predicts exports volumes for Advanced Economies to rise 2.8% in 2013 and 4.5% in 2014, with annual average of 3.7% forecast. This contrast with exports growth of 5.6% in 2011 and 2.1% in 2012 - an annual average of 3.9%. 
• Back in October 2012, the IMF forecast for exports growth in Advanced Economies was for an average rate of growth of 4.25% pa in 2013-2014. This has now been brought down to 3.7%.
• The IMF forecast for exports growth in the Emerging Markets & Developing Economies for 2013 of 5.5% and 2014 of 6.9%, down from 5.7% and 7.1% projections issued back in October 2012. 
• However, in 2011 the growth rate in exports from the Emerging Markets & Developing Economies reached 6.6% and this has fallen to 3.6% in 2012. Thus, 2011-2012 annual average rate of growth was 5.1%, 2013-2014 projection is for 6.2% and this represents a reduction from October 2012 forecast of 6.4%. In other words, in contrast with the Advanced Economies, the Emerging Markets & Developing Economies are expected to accelerate significantly in growth of exports compared to 2011-2012.