Articles in Category: Macroeconomics

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Falling infection rates to the lowest level since January and President Xi Jinping’s visit to Wuhan yesterday suggest all is returning to normal in China.

Some are looking for a V-shaped bounce back and maybe even a softer hit to Q1 GDP growth than previously feared.

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A Reuters poll of Economists reported last week a revised growth forecast for the first quarter, falling to a median of 3.5% this quarter from 6.0% in the fourth quarter of 2019 — optimistically, a full percentage point lower than predicted in their last poll Feb. 14.

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The Construction Monthly Metals Index (MMI) dropped four points this month for a March MMI reading of 75.

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This morning in metals news, stock markets took heavy losses Monday, U.S. raw steel production is up 1.1% in the year to date and concerns abound regarding workers at Baowu Steel’s Wuhan plant amid the coronavirus outbreak.

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The Financial Times reported the eurozone’s economy is growing at the slowest rate since the bloc’s debt crisis seven years ago, according to data published late last week.

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The Eurozone grew at a quarterly rate of 0.1% in the fourth quarter, its slowest rate of expansion since early 2013.

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This morning in metals news, miner Glencore released its 2019 production results, the coronavirus fallout continues and U.S. Steel is planning to temporarily close its Gary Works No. 4 blast furnace in April.

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This morning in metals news, the Bureau of Economic Analysis (BEA) released U.S. real GDP growth figures for Q4 2019, Moody’s says the coronavirus will impact spending in China and Nucor Corporation reported its Q4 2019 and full-year 2019 financial results.

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Despite noting some positive developments, the International Monetary Fund (IMF), downgraded its growth projections for 2019-2021, citing a number of pressures ranging from climate change to geopolitical tensions to extant trade tensions.

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In its January 2020 World Economic Outlook, the IMF forecast growth will rise from 2.9% in 2019 to 3.3% in 2020 and 3.4% in 2021. However, the forecasts were revised downward from the IMF’s October Outlook — by 0.1% for 2019 and 2020 and by 0.2% for 2021.

“The downward revision primarily reflects negative surprises to economic activity in a few emerging market economies, notably India, which led to a reassessment of growth prospects over the next two years,” the IMF report stated. “In a few cases, this reassessment also reflects the impact of increased social unrest.”

Slowing growth

Concerns have abounded in recent years regarding the prospect of a global recession.

Growth levels in China, for example, started to level off and then decline post-2012, albeit after a period of significant growth that would’ve been unreasonable to expect to continue. In 2007, China’s annual GDP growth soared to 14.23% but fell to 9.65% the following year, according to the World Bank. Growth has continued to slide since then, reaching 6.57% in 2018.

Similarly, Germany, the manufacturing powerhouse of Europe, has seen weakening activity. According to the IHS Markit/BME Germany Manufacturing PMI, German manufacturing activity contracted once again in 2019.

“Germany’s manufacturing sector closed out 2019 with another weak performance and remains a thorn in the side of the economy,” said Phil Smith, IHS Markit’s principal economist. “Falling goods production across the fourth quarter of the year bodes ill for final growth figures, while sustained cuts to workforce numbers at factories continue to pose a threat to Germany’s so-far solid consumer spending.

“Importantly, however, the forward-looking survey measures for new orders and output expectations both give off more positive signals as we move into the new year. What’s more, the US-China ‘phase one’ trade deal and a potentially clearer path to Brexit make for a more settled backdrop on the international stage.”

Overall, Germany’s GDP has been up and down. After a significant contraction of 5.70% in 2009, growth bounced back to 4.18% in 2019 but hasn’t reached that level since; in 2018, Germany’s GDP growth hit 1.53%, according to the World Bank.

Of course, trade tensions have weighed on economies around the world and generated uncertainty. Despite a so-called “Phase One” trade deal between the U.S. and China, the U.S. maintains an overwhelming majority of its previously imposed tariffs as a bargaining chip for compliance (and for future Phase Two negotiations, if and whenever they occur).

Throw in an escalation of Middle East tensions and a paralyzed WTO Appellate Body (currently unable to make decisions for lack of judges) and it’s not surprising that economic forecasts list more reasons for pessimism than for cheery optimism.

With that said, the Phase One deal and the U.S. Senate’s recent approval of the United States-Mexico-Canada Agreement represented positive steps toward an easing of trade-related tensions; a further rollback of U.S. tariffs on China would certainly ease tensions even more and boost certainty in the global business community.

The world will be watching to see where U.S.-China negotiations go next. Given the negotiating timeline of Phase One and the significant amount of tariffs that remain on Chinese goods, the next phase is likely to be even more complicated and tense — making an agreement before this year’s U.S. presidential election seem unlikely.

Nonetheless, the IMF did point to some positive signs, even as it revised growth projections downward.

“On the positive side, market sentiment has been boosted by tentative signs that manufacturing activity and global trade are bottoming out, a broad-based shift toward accommodative monetary policy, intermittent favorable news on US-China trade negotiations, and diminished fears of a no-deal Brexit, leading to some retreat from the risk-off environment that had set in at the time of the October WEO,” the report stated. “However, few signs of turning points are yet visible in global macroeconomic data.”

Emerging markets, developing economies

As the IMF notes, subdued growth in India accounts for “the lion’s share of the downward revisions.”

The IMF estimates India’s 2019 growth at 4.8%, 5.8% in 2020 (1.2 percentage point down from the October outlook) and 6.5% in 2021 (0.9 percentage point down from the October outlook).

“The global growth trajectory reflects a sharp decline followed by a return closer to historical norms for a group of underperforming and stressed emerging market and developing economies (including Brazil, India, Mexico, Russia, and Turkey),” the report stated. “The growth profile also relies on relatively healthy emerging market economies maintaining their robust performance even as advanced economies and China continue to slow gradually toward their potential growth rates.”

Also of note, the IMF reported that without monetary easing efforts in advanced and emerging market economies, the global growth projections would be down an additional 0.5 percentage point for each year in question.

As a whole, emerging markets and developing economies are projected to experience growth of 4.4% in 2020 (up from an estimated 3.7% in 2019) and 4.6% in 2021.

“The growth profile for the group reflects a combination of projected recovery from deep downturns for stressed and underperforming emerging market economies and an ongoing structural slowdown in China,” the IMF stated.

Growth stabilizing in advanced economies

Meanwhile, in advanced economies, growth is expected to reach 1.6% in 2020-2021, down 0.1 percentage point from the IMF’s October outlook, “mostly due to downward revisions for the United States, euro area and the United Kingdom, and downgrades to other advanced economies in Asia, notably Hong Kong SAR following protests).”

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In the U.S., the IMF projected growth to fall from 2.3% to 2.0% in 2020 and 1.7% in 2021.

In the euro area, growth is expected to pick up from 1.2% to 1.3% in 2020 and 1.4% in 2021.

In the U.K., growth is expected to stabilize at 1.4% in 2020 and 1.5% in 2021, as the U.K. prepares to formally withdraw from the E.U. at the end of the month (after which attention will shift to the type of trade arrangement that can be reached between the two parties in a post-Brexit world).

Pragmatically, you could hope Indian Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP) focus on Hindu nationalism is more a smokescreen to deflect attention from a deteriorating economy than it is the start of India’s spiral to increasing polarization and fragmentation of its multicultural democracy.

The economy has certainly been on a slide for much of the last year and the BJP has been harassed increasingly by the opposition Indian National Congress over its handling of the economy.

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India’s consumer price index increase reached 7.35% in December 2019 from a year earlier, the third month in a row in which it has breached the Reserve Bank of India’s 4% target.

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2020 will — economically, anyway — be shaped in no small part by what happens in China.

The world’s second-largest economy has been on a slide in terms of GDP growth for years now. The 18-month trade war with the U.S. has contributed to that decline and has been the cause of considerable investor anxiety.

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November proved to be a strong month for housing starts in the U.S.

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According to recent data from the U.S. Census Bureau and the Department of Housing and Urban Development, housing starts in November came in at a seasonally adjusted annual rate of 1.37 million, which marked a 3.2% increase from October and 13.6% from November 2018’s 1.20 million.

In addition, single-family housing starts reached a rate of 938,000 in November, which was up 2.4% from October. The rate for units in buildings with five units or more was 404,000.

Meanwhile, units authorized by building permits in November came in at a seasonally adjusted annual rate of 1.48 million, up 1.4% from October’s 1.46 million. The November rate was also up 11.1% compared with November 2018 permits.

The rate for single-family housing permits reached 918,000, up 0.8% from October, while authorizations for units in buildings with five units or more totaled 524,000.

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Housing completions reached a seasonally adjusted annual rate of 1.89 million in November, down 6.6% from October but up 7.3% on a year-over-year basis. Single-family housing completions were down in November, reaching a rate of 883,000 (down 3.6% from October). Completions of units in buildings with five units or more checked in at a rate of 295,000.

Fannie Mae upgrades housing forecast

In other housing news, in a report this week, Fannie Mae touted “strength in labor markets and consumer spending” as factors behind its sunnier forecast for the U.S. housing market.

According to the Fannie Mae Economic and Strategic Research Group, homebuilders are set to expand production as a result of strength in the aforementioned economic indicators.

“Housing appears poised to take a leading role in real GDP growth over the forecast horizon for the first time in years, further bolstering our modest-but-solid growth forecasts through 2021,” said Doug Duncan, Fannie Mae senior vice president and chief economist. “In our view, residential fixed investment is likely to benefit from ongoing strength in the labor markets and consumer spending, in addition to the low interest rate environment. Risks to growth have lessened of late, as a ’Phase One’ U.S.-China trade deal appears to be in place and global growth seems likely to reverse course and accelerate in 2020. With these positive economic developments in mind, we now believe that the Fed will hold interest rates steady through 2020.”