Global Economic Outlook and Strategy - Kadin Indonesia

More documents

Recommendations

Info

February 28, 2008 Global Economic Outlook and Strategy Improved financial conditions will be necessary to avoid the worst outcomes. Risks to euro area growth are to the downside... ...while Japan may show little impact from slower global growth. In recent days, however, financial markets have improved marginally in response to the likelihood that Fed officials will continue to pursue a risk-management approach to policy and hints that some regulators’ efforts may be reducing the probability of select risk outcomes (see Figures 8 and 9). Considerable additional improvement remains necessary. The Euro Area Has Started to Slow GDP growth in the euro area slowed markedly in late 2007, and confidence indicators suggest that the expansion remains somewhat below trend early this year, although not dramatically so. Still, the risks to the growth outlook remain on the downside, reflecting not only the global slowdown, but also, and more importantly, disappointing domestic consumption. Against a backdrop of less favorable labor market conditions, tighter lending standards suggest that a significant rebound of consumer outlays is less likely than before. The near-term inflation outlook is uncertain, as food and energy prices may rise further. However, medium-term price prospects remain favorable because the economic slowdown limits the risk of a rise in inflation expectations and wage growth. The European Central Bank (ECB) probably will keep official rates unchanged until near-term inflation and wage risks diminish. If inflation moderates rapidly starting in the second quarter and wages are contained, the ECB probably will lower rates this year, although not aggressively. The rise in the latest German ifo business survey will no doubt encourage ECB officials to consider that growth will not be far below potential. Muted Impact on Japanese Economy Japan’s economic outlook remains relatively favorable and stable among the major industrialized countries. Real GDP grew a stronger-than-expected 3.7% annualized in the fourth quarter of 2007, driven by strong gains in exports and business investment. While exports will inevitably decelerate in 2008 in the context of the slower global economy, we still expect near or slightly above-trend growth this year. Trade statistics for January indicate that Japan’s exports remain on a solid upward track, driven by exports not bound for the United States. Moreover, negative effects from the Figure 6. United States — Year-to-Year Percent Change in Imports and the Average of ISM New Orders and Imports (Six-Month Lag), 1996–Jan 08 25% 20 15 10 70 65 60 Figure 7. United States — Nominal Final Domestic Demand (Yearto-Year Percent Change, Four-Quarter Lag) and Change in Two-Year Annualized Core CPI (Percent), 1990–Jan 08 9% 9 1.2% Final Demand (Left) 8 Core CPI (Right) 0.8 7 6 0.4 5 55 5 0.0 0 -5 -10 Growth of Imports (Left) Imports&Orders (Right) 50 45 4 3 2 -0.4 -0.8 -15 1996 1998 2000 2002 2004 2006 40 1 1990 1993 1996 1999 2002 2005 2008 -1.2 Sources: Institute for Supply Management and Bureau of Economic Analysis. Sources: Bureau of Economic Analysis and Bureau of Labor Statistics. 6
February 28, 2008 Global Economic Outlook and Strategy The change in BoJ leadership will not alter policy. Rising commodity prices have helped some industrial economies. Strong fundamentals have insulated some emerging economies... ...from deteriorating global growth. government’s economic policies — namely, the enforcement of the revised Building Standard Law and tax and social security burden hikes for the household sector — will diminish meaningfully or even reverse in 2008. Finally, financial conditions remain much more favorable than in other industrialized countries as damages to banks’ capital from subprime mortgage-related structured products have been limited. Bank of Japan (BoJ) Governor Fukui will leave office on March 19. The government is scheduled to announce its proposal for the next governor and two deputy governors next week. Press reports suggest that Mr. Toshiro Muto, a current deputy governor, is likely to be nominated to replace Mr. Fukui. The basic thrust of monetary policy (that is, gradual rate hikes to more normal levels) will likely remain largely intact. While uncertainties surrounding the U.S. economy and global financial markets will likely continue to dissuade the BoJ from hiking rates until around the turn of this year, the next policy action will probably be a rate hike unless the domestic economy slows much more sharply than we now expect. Strong Commodities Demand Is Boosting Some Industrial Countries In contrast to developments in the major industrial economies, economic growth has remained resilient in a number of smaller industrialized economies that principally are leveraged to the boom in commodity prices, such as Australia. Indeed, many commodity prices have continued to rise this year, especially energy-related commodities, iron ore, food, and some base metals, despite the marking down of prospects for global economic growth. The strength of commodity prices reflects ongoing supply bottlenecks and still rampant demand in China and emerging economies generally. Against this backdrop, a deteriorating outlook for inflation forced both the Reserve Bank of Australia and the Riksbank to raise official interest rates in February, and we expect more monetary policy tightening in Australia and Norway, while the Reserve Bank of New Zealand is likely to maintain a tightening bias this year. Strong Fundamentals Are Bolstering Many Emerging Economies... Strong economic growth is likely to continue in emerging Asia, despite the weakening of the U.S. economy. However, Asia’s resilient growth is not because it has decoupled from the United States, but because it enjoys greater policy flexibility from improved macroeconomic fundamentals. China is likely to step up public-sector dominated spending on infrastructure and the resource sectors in the face of slowing exports. This could also happen in many other economies, including Korea, Hong Kong, Singapore, Thailand, the Philippines, and even Indonesia. This implies that, in the short term, while headline growth could moderate, Asian economies could become more dependent on investment. As a result, commodity demand intensity could increase. Deteriorating global prospects, especially in the major economies, have so far had only a modest impact on Latin American economies. Growth remains generally strong, although somewhat slower than in 2007, and should remain above trend with a regional average of 4.4% for 2008. After a temporary selloff, currencies have strengthened, with the Brazilian real, Peruvian sol, and Colombian and Chilean pesos making new highs against the U.S. dollar in recent weeks. China will appoint its new government for the next five years at the National People’s Congress meetings starting March 5. A new president just took office in Korea. In general, we do not expect these political changes to have a significant impact on 7
Page 1 and 2: See the Disclosure Appendix for the
Page 3 and 4: February 28, 2008 Global Economic O
Page 5: February 28, 2008 Global Economic O
Page 43 and 44: ANALYST CERTIFICATION Disclosure Ap

Global Economic Outlook and Strategy - Kadin Indonesia

Create successful ePaper yourself

Delete template?

Save as template?