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BarCap July8 Global Economics Weekly Signs of a Partial Turn

BarCap July8 Global Economics Weekly Signs of a Partial Turn

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Published by: r3vans on Jul 11, 2011
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Global Forecasts 2Global Synthesis 3Global Rates and Inflation 5Global Markets Watch 6United States
Outlook 7InFocus: Auto sector getting out of reverse gear 9Data Preview & Review 11
Euro Area
Outlook 13Data Preview & Review 15
United Kingdom
Outlook 17Data Preview & Review 19
Outlook 20Data Preview & Review 22
Emerging Asia
China Outlook 23Asia Outlook 25InFocus: Thailand A tactical long 27Data Preview & Review 29
Outlook 31Data Preview & Review 33
Latin America
Outlook 36Data Preview & Review 38
Country Snapshots 39Global Weekly Calendar 41 
Signs of a partial turn
Economic data in Japan are improving as the economy is beginning to heal fromthe contraction after the earthquake.
US manufacturing data are bottoming out as the temporary factors impedinggrowth are starting to fade.
We have downgraded our GDP forecast for the euro area, and look for apersistent slowing in growth, in part due to the effects of tighter fiscal policy.
In China, we believe that policy firming and tighter credit conditions are alsoyielding a more lasting slowing in growth than in the US or Japan.
Developed Economies
United States: A production turn - To everything there is a season 7
A V-shaped recovery appears to be taking hold in Japan, easing supply chaindisruptions to auto production and sales in the US.
Euro area: Austerity hurts and inflation bites 13
Following the strong growth in Q1 this year, and given what we believe was a weak Q2,real GDP growth in H2 is set to be more modest than thought previously.
UK: Q1 wan, Q2 too 17
The available data suggest that growth in Q2 was even weaker than the disappointing0.5% expansion in Q1, and we now expect growth to have been just 0.2% q/q.
 Japan: An interim assessment 20
The BoJ will re-visit its GDP and CPI forecasts next week, likely projecting modest realgrowth and core inflation for FY11. This will not reflect the CPI rebasing.
Emerging Markets
China: Rate hike cycle close to an end 23
The PBoC delivered an overdue benchmark interest rate hike on Wednesday, ahead of therelease of the June CPI data, which we expect to jump to 6.3% y/y from 5.5% in May.
Emerging Asia: Inflation pains linger on 25
Bank Negara Malaysia kept rates on hold due to moderation in external demand. Weexpect the central bank to raise the policy rate 25bp in September.
EEMEA: Doves rule as inflation peaks and growth slows 31
Global commodity prices are moderating and prospects for local harvests are improving.
Latin America: A currency war again? Yes, but not for long…. 36
As commodity price pressures dissipate and headline inflation moves south, thecrusade against currency appreciation is starting to re-emerge in the Latin region.
Barclays Capital | Global Economics Weekly
8 July 2011 2
America States1. America5.
Asia/Pacific Japan-3.5-
Emerging Asia9. Kong11.9- Korea5.
Europe and Africa area3.41.11.2
Ireland5.1- Kingdom1. Europe & Africa2. Repub. Africa4.
Consumer prices% annual chgReal GDP% over previous period, saarConsumer prices% over a year agoReal GDP% annual chg
Note: Arrows appear next to numbers if current forecasts differ from that of the previous week by 0.5pp or more for quarterly annualized GDP, by 0.2pp or more forannual GDP and by 0.2pp or more for Inflation. Weights used for real GDP are based on IMF PPP-based GDP (2008-2010 average). Weights used for consumer pricesare based on IMF nominal GDP (2008-2010 average). Source: Barclays Capital
Barclays Capital | Global Economics Weekly
8 July 2011 3
Signs of a partial turn
We estimate that Q2 11 was the weakest quarter for real global GDP growth since therecession, and that the slowdown has been widespread across economies. We look formoderately stronger Q3 11 growth, but that turn up is expected to be limited in scope.Some reasons for the growth slowdown are expected to be short-lived, notably, the effectsof the Japanese earthquake and the energy price surge earlier this year. However, otherfactors, such as the effect of fiscal tightening in Europe and that of monetary tightening inChina, are likely to persist. As a result, we expect the Q3 11 growth improvement to be ledby Japan and the US, with little improvement in the euro area or China.
 Japan beginning to recover
This week’s data showed some more signs of healing in Japan following the abruptweakening after the earthquake. The composite index of consumption, which helps inforecasting GDP-based consumption, increased 0.3% in May after a 1.9% rise in April andhas now retraced more than half of its March drop (Figure 1). New auto sales gained 15.7%m/m in June after a 29.6% climb in May, and have now reversed about 80% of the post-earthquake decline. While we still expect a 2.3% annualized drop in real GDP growth inQ2 11, the moves up in the consumption-related series suggest we are on track for a turn tosignificantly positive GDP growth in Q3 11; we look for a 3.7% annualized gain.
US manufacturing growth appears to be bottoming out
We expect US economic growth to be weak again in Q2 11; our tracking estimate stands atan annualized 1.5% pace, below our 2.0% forecast. However, the past week did bring sometentative signals that the slowdown in the manufacturing sector and consumer spendingmay be starting to ease. After three consecutive declines, the ISM manufacturing index roseto 55.3 in June from 53.5 in May, suggesting that the worst of the manufacturing slowdownis over (Figure 2). The June employment report, however, showed no pickup from May’smeager job growth; indeed, private sector job growth edged down to 57k from 73k. Weinterpret the labor market weakness as a lagged response to the H1 11 slowdown in real
Dean Maki+1 212 526 1731dean.maki@barcap.com
Figure 1: Japanese consumption indicators moving up Figure 2: US manufacturing is bottoming; employment is not
100150200250300350400450500 Jan-09Jul-09Jan-10Jul-10Jan-11104105106107108109110111112 Japan auto salesReal consumption index, rhsThousIndex 2000=100
-1000-800-600-400-2000200400 Jan-09Jul-09Jan-10Jul-10Jan-1110203040506070Change in private payrollsUS ISM manufacturing, rhs1m change, ThousIndex
Source: Cabinet office, JAMA, JMVA, Haver Analytics, Barclays Capital Source: BLS, ISM, Haver Analytics
 Japanese consumption data areimprovingManufacturing data in the US have started to modestly improve

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