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  • IMF Lowering Expectations for Growth in China

    The IMF released its economic outlook for China this morning, and the big takeaway is that IMF economists have lowered their expectations for economic growth. The Chinese economy has, once again, shown its resilience in the midst of a difficult external environment, buoyed by robust corporate profitability and rising household incomes. However, net exports will prove to be a significant drag on growth in the coming two years, with the current account surplus remaining at 3–4 percent of GDP. As a result, growth is expected to fall to 81⁄4 percent this year (from 9.2 percent in 2011), gathering speed in the latter part of this year and rising to 83⁄4 percent in 2013. Here is a look at the IMF's GDP growth projections for China this year: And here is one look at the importance of exports to China's economy: While China weathered the Global Economic Recession of 2008-2009 relatively well, the big concern is that Europe's economic woes will hit China harder this time around. Read the IMF's China Economic Outlook here . (Hat tip Reuters )

  • The World Economic Forum's Future of Manufacturing Project

    Here is a new video from the World Economic Forum on the future of manufacturing. While it comes across as a bit earnest in parts, we are sharing it here because it does a nice job of explaining how manufacturing--"advanced manufacturing" in particular--drives global economic growth. What is your take? Do policymakers need to work harder to drive advanced manufacturing in their economies? Can developed economies like the US compete with the new manufacturing juggernauts like Brazil and China?

  • Growth of Working Age Population May Present India with an Opportunity to Close the Gap with China

    If you are looking for economies of significant growth in the global economy over the last ten years, you can't do better than looking east to India and China. While both economies have had strong runs since introducing economic reform (China first, then India about a decade later), China separated itself from the pack, and from India, with export growth. Ganeshan Wignaraja , Principal Economist at the Asian Development Bank’s Office of Regional Economic Integration, illustrates the export growth for India and China in a recent post at Vox : Wignaraja expects India to begin closing the gap--though he is not willing to argue that India is in position to catch up with China: While India’s working age population is expected to grow by an astonishing 136 million over the next 10 years, China will add a relatively modest 23 million new workers. India’s huge increase in the working-age population is perhaps a mixed blessing. India’s literacy rate of 63%, compared with a rate of 93% in China, suggests that the country may face an imbalance of low-skilled and high-skilled workers just as the knowledge sector of its economy is poised for continued rapid expansion. As Table 2 shows, China allocates significantly more resources than India to infrastructure and R&D, both key determinants of future trade and growth. Estimates by McKinsey, a consulting firm, suggest that just to keep pace with its rapidly growing urban population India will need to spend $1.2 trillion on urban infrastructure over the next 20 years, or eight times its current rate of spending. Both Asian giants have a solid foundation for continued rapid economic growth. Growth in both countries will be driven by exports comprising increasing amounts of medium- and high-tech manufactures, as well as services. India has made great strides in reforms in recent years. Yet China’s economic policies, investment climate, and supply-side conditions remain more favourable than India’s. Accordingly, China’s trade will likely continue growing more rapidly than India’s in the decade ahead. India has scope for closing the gap in trade performance with China by enhancing supply-side measures, such as investing in infrastructure, boosting literacy and skill creation, and fostering industrial R&D. Continuing with economic reforms and regionalism in both giants can also help sustain trade performance. Read Will India overtake China in the next decade? here .

  • GDP Grew During 2nd Quarter, But Not By Much

    The economy grew at an annual rate of 2.4% in the second quarter, according to data released by the Commerce Department this morning. That is a slowdown from the 3.7% growth rate during the first quarter (this is a revised rate, as the Commerce Department had previously put the growth of GDP for the first quarter at 2.7%). While the growth is smaller than many expected, it does represent the fourth straight quarter that real GDP rose. Here's a look at the trend, from the Bureau of Economic Analysis : And some explanation as to what drove the growth, and what held further growth back: The increase in real GDP in the second quarter primarily reflected positive contributions from nonresidential fixed investment, exports, personal consumption expenditures, private inventory investment, federal government spending, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased. The deceleration in real GDP in the second quarter primarily reflected an acceleration in imports and a deceleration in private inventory investment that were partly offset by an upturn in residential fixed investment, an acceleration in nonresidential fixed investment, an upturn in state and local government spending, and an acceleration in federal government spending. Read the release here .

  • China's Exports Up 48.5% from Previous Year

    The economic troubles in the West should be hurting Asia's manufacturing economies, right? With buyers having to scale back? The news out of China this morning then might come as a bit of a surprise: China's exports were up 48.5% in May over the same month last year. It is the highest jump in exports in six years, according to Bloomberg/Business Week . But, as Bloomberg points out, one big reason for the startling figure is that May of 2009 was a a particularly bad month for exports from China. The question now is whether the impact of the problems in Europe are simply on hold, and we'll see lower numbers next month. As Jacob Greber writes, the Asian/Pacific economies (China, South Korea, Australia) that seem to be great places to "weather the European Crisis" right now, will feel the pain of Europe in some form: East Asia wouldn’t be unscathed by a return to recession in the advanced economies, Burns said. “That’s going to have important knock-on effects in East Asia, particularly because it is a very heavy trading region.” The Bank of Korea cited the European situation in keeping its benchmark interest rate at a record-low 2 percent today. “There is a considerable degree of uncertainty over the actual growth path, caused by the fiscal problems of European countries,” Governor Kim Choong Soo and his policy board said in a statement today. At the same time, Asia will continue to lead the global rebound, International Monetary Fund Deputy Managing Director Naoyuki Shinohara said June 9. That brings its own challenges, with increasing capital inflows and the risk of overheating if policy makers fail to take “appropriate” action, he said in a speech in Singapore. Read the full article here .

  • Dallas Fed Economic Letter: Global Trade

    Here's a chart from the Federal Reserve Bank of Dallas that shows what has happened to global trade over the last two years: No huge surprises there. The global economic crisis and the great recession brought about a lower demand for goods. But the rate of the drop, as Jian Wang , senior economist at the Dallas Fed, points out was at 9% globally for 2009. That's the "biggest contraction since World War II." Jiang, in his Economic Letter, shows that imports and experts tend to be more volatile than GDP, and indeed the drop in demand for durable goods during this last recession dropped at a greater rate than GDP. This is especially true when looking at the US economy. And the US economy is key when looking at global trade, as Jiang writes: The expansion of global trade was fueled by strong U.S. demand the past two decades. The country’s close-to-zero household saving rate wasn’t sustainable in the long run. During the current recession, the U.S. savings rate has increased, and the current account deficit has narrowed. If U.S. households’ frugality endures, demand may remain relatively soft in the near future. A quick global trade rebound may depend on trade-surplus countries boosting domestic consumption. Read Durable Goods and the Collapse of Global Trade here .

  • 5.7% Growth for GDP in 4th Quarter

    The US economy grew at a rate of 5.7% in the fourth quarter of 2009, according to data released by The Bureau of Economic Analysis this morning. That represents the highest quarterly growth in 6 years, and the growth was largely on improving inventory data. From the BEA release : The increase in real GDP in the fourth quarter primarily reflected positive contributions from private inventory investment, exports, and personal consumption expenditures (PCE). Imports, which are a subtraction in the calculation of GDP, increased. The acceleration in real GDP in the fourth quarter primarily reflected an acceleration in private inventory investment, a deceleration in imports, and an upturn in nonresidential fixed investment that were partly offset by decelerations in federal government spending and in PCE. The Wall Street Journal 's News Hub team--in this case Kelly Evans , Evan Newmark , and Dennis Berman --breaks down the data in their AM Report:

  • Japan's Export Problem

    Hillary Clinton has landed in Japan --the first stop on her first diplomatic trip as Secretary of State--to find that nation's government under pressure after news its economy shrank 3.3% in the fourth quarter of 2008. It is the biggest drop in gross domestic product since 1974, and Japan's minister for economic and fiscal policy called it "the biggest economic crisis since the war." So why did Japan's economic struggles at the end of last year surpass those of the U.S. and Europe, when the country--and its banking system, which still hasn't been hit as hard--seemed on the outskirts of the meltdown last fall? The answer lies in Japan's dependence on exports. As The Economist points out : Export demand drove the longest post-war recovery, in 2002-08, when the country seemed to be putting its post-bubble “lost decade” well behind it. During the recovery, exports’ share of GDP rose by over half, from 10.6% to 16.5%. That strength is now a weakness as consumers around the world have cut their spending and global trade flows have shrunk: in December, for instance, the value of Japan’s exports fell by 35% compared with a year earlier, after falling by 27% in November. The export shock, it is now clear, is triggering others. A near vertical fall in Japan’s industrial production in a few short months has swiftly wiped out all the gains from six years of recovery (see chart). Economists reckon that by the end of February industrial output will be back to levels last seen around 1987. Japan's banks, as mentioned above, were not caught up in the sub-prime mortgage mess of last year, and its citizens have not carried the levels of debt that their counterparts in the US have, so there are signs that economic recovery could be relatively quick. But, it seems, Japan will not rise unless there is a global recovery. As consumer confidence in the West shows few, if any, signs of improving in the near future, the ripple effects of Japan's export problem bear watching. Clinton is off to China later in the week, another economy highly dependent on exports. It will be interesting to see what economic news she receives on arrival.
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