Asia:
India Sees Slowest Growth Since ’14 as New Tax Roils Economy
India forecast its economy will expand at the slowest pace since Prime Minister Narendra Modi came to power in 2014, as a chaotic roll out of a new sales tax roiled supply chains and weakened demand. Gross domestic product will grow 6.5 percent in the year through March 2018, the Statistics Ministry said in a statement in New Delhi on Friday. That compares with the 6.6 percent median estimate in a Bloomberg survey of 20 economists and 7.1 percent the previous year. While India is still among the world’s fastest-growing nations, its expansion is far below potential. Modi’s decision in 2016 to invalidate most of the country’s cash and the implementation of the goods and services tax have weakened demand and revenue, forcing the government to borrow more. Room for monetary stimulus is also closing as inflation quickens, turning investors bearish on Indian bonds.
Key Sectors
Gross value added, a key input of GDP, is forecast to grow 6.1 percent, slower than the central bank’s 6.7 percent estimate and 6.6 percent the previous year.
- The deceleration is led by manufacturing, which is estimated to grow 4.6 percent versus 7.9 percent and agriculture 2.1 percent versus 4.9 percent
- Finance and real estate services are seen expanding 7.3 percent versus 5.7 percent and trade, hotels and communication services 8.7 percent versus 7.8 percent
- Government spending is seen rising 9.4 percent versus 11.3 percent
Consumer loan securitization boom put on hold as China clamps down on leverage
A boom in asset-backed securities issued by micro-lenders aiming to expand in China’s fast-growing online credit market looks set to slow this year amid growing regulatory scrutiny. Micro-lenders have raised billions of dollars packaging consumer loans into securities for sale to institutional investors on China’s nascent market for asset-backed securities in order to rapidly expand their loan books. Many of China’s largest internet and technology companies have issued securities backed by micro-loans. Ant Financial Services Group, an affiliate of Alibaba Group Holding, dominates the market and the finance arms of JD.com Inc, Baidu Inc, VIPShop Holdings and Xiaomi Technology have also raised funds through the products. But the market for the securities is set to slow this year, industry sources say, as regulators target lenders’ high debt levels and limited asset disclosure. Rules announced on Dec. 1 limited the amount of lending backed by the products the companies can make. They were also required to consolidate them on their balance sheets.
Europe:
Euro-Area Inflation Slowdown Undermines Hawkish Calls to End QE
European Central Bank policy makers who marked the turn of the year by pushing for an end to crisis-era stimulus measures just got a reminder that they’ll have to wait a while longer for price pressures to pick up. Despite solid economic growth, euro-area inflation slowed to 1.4 percent last month from 1.5 percent, and the underlying rate unexpectedly failed to rise from a meagre 0.9 percent. The data highlight the difficulty for the ECB in judging when to pull back, even as some Governing Council members warn of the dangers of postponing the decision too long. “Does it bode well for the hawks? Not really,” said Piet PH Christiansen, senior ECB and euro-area analyst at Danske Bank A/S in Copenhagen. “We’re going to see very slow normalization of monetary policy and they’re definitely not going to hike interest rates fast.” With largely synchronized growth, and the ECB now referring to an “expansion” rather than a “recovery,” sentiment may be shifting in the 25-member Governing Council. Longtime hawks such as Germany’s Jens Weidmann and Sabine Lautenschlaeger have found some of their views echoed in recent weeks by influential colleagues including Executive Board member Benoit Coeure, a key architect of quantitative easing.
U.S.:
Solid U.S. job growth expected in December; wages seen rising
U.S. employers likely maintained a brisk pace of hiring in December while increasing wages for workers amid growing confidence in the economy, which could pave the way for the Federal Reserve to increase interest rates in March. Nonfarm payrolls probably increased by 190,000 jobs last month, according to a Reuters survey of economists, after a gain of 228,000 in November. Despite the anticipated moderation, employment gains would still be above the monthly average of 170,000 over the past three months. Harsh weather in some parts of the country likely contributed to some of the job growth slowdown in December. For all of 2017, the economy is expected to have created around 2 million jobs, slightly below the 2.2 million added in 2016. The Labor Department is due to release its closely watched employment report at 8:30 a.m. ET (1330 GMT) on Friday. Job growth surged in October and November after being held back in September by back-to-back hurricanes, which destroyed infrastructure and homes and temporarily dislocated some workers in Texas and Florida. A solid employment report would add to the upbeat assessment of the economy signaled in housing, consumer spending and manufacturing data.