Economic Update

Friday | September 14, 2012

Content
Global scenario Developed economies performance Emerging and developing economies performance

Nalini Rao - Sr. Research Analyst Nalini.rao@angelbroking.com (022) 2921 2000 Extn. 6135 This months rally in gold prices above the $1900/oz mark is indicative of structural problems and difficulties at the global economic level. Investors flocked to gold as a safe-haven investment, leading it to touch all-time highs almost every-day. The recent (last 2-3 days) decline in gold prices is partly due to profit-booking at higher levels coupled with expectations of further stimulus measures by Federal Reserve Chairman Bern Bernanke at the Jackson Hole Angel Commodities Broking Pvt. Ltd. Symposium. On the back of these positive expectations, markets are witnessing a bit of stability, and further trend in Registered Office: G-1, Ackruti Trade Centre, Rd.be based on the outcome of 400 093. the global financial markets would No. 7, MIDC, Andheri (E), Mumbai - the decisions taken by the policymakers and central Corporate Office:this Floor, Ackruti Star, MIDC, Andheri (E), Mumbai - 400 093. Tel: (022) 2921 2000 bankers at 6th symposium.
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Economic Update
Friday | September 14, 2012

Globally weak economic indicators The global economy which has been not in good shape from the past months has shown signs of further weakness. The financial markets were under the stress due to euro area crisis. The economic indicators of developed regions and emerging markets were too discouraging in the last few months thus renewing concerns of slowing global growth. The Federal Reserve Chairman, Ben Bernanke in the annual meet at Jackson Hole Symposium, concluded that the unemployment situation in the nation is not progressing and termed it as a grave concern. This called in for the further accommodative policy actions thus making it favorable for monetary easing. Later at the end of the month the European Central Bankers met to decide on the much awaited programme on bailing out troubled Euro zone countries from the debt crisis. Under the framework, the ECB would be ready to purchase unlimited amounts of bonds of the countries up to three-year maturity. This brought in some positive sentiments for the financial markets which turned green on the announcement in the later part of the month.

GDP growth rate (%)

Source: IMF, Angel Research

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Economic Update
Friday | September 14, 2012

YTD Asset Class Performance (% Change)

Source: Foxpros

The US Labour Department reported that 96,000 jobs were only added in August against revised 141,000 jobs rise in July. However, the unemployment rate fell to 8.1 percent from 8.3 percent. This has further strengthened hopes of further monetary easing or Q3. The numbers are likely to influence the Federal Reserve Meeting which is scheduled on September 12-13. The US existing home sales increased by 4.47 million in July as against a previous rise of 4.37 million a month ago indicating housing sector in US is on the path of recovery. The sovereign debt crisis of Europe is also pushing the economic powerhouse Germany towards the slowdown. The gross domestic product (GDP), of the country rose to 0.3 percent in the second quarter of 2012 as compared to 0.5 percent in the first quarter of 2012. The Euro zone which has been epicenter for most part of the year is likely to slip into recession. The PMI composite output index of the euro zone contracted for the seventh consecutive month in August 2012, at 46.3 down from 46.5 in July. The data in the month of the August showcased a widespread contraction of economic activity across all the nations of the region. The bond yields in the region have risen to the highest levels and the borrowing costs have thus increased forcing nations such as Spain, Italy to seek for the bailout loans.

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Economic Update
Friday | September 14, 2012

Average bond yields (%)

Source: Foxpros

Japans Prelim Gross Domestic Product (GDP) increased on a slower pace by 0.2 percent in the second quarter of 2012 as compared to 0.3 percent in previous quarter. On the other hand Japans Household Confidence increased by 0.8 points to 40.5-mark in August when compared to rise of 39.7-level in July. This indicated that some boost in the economy might be witnessed in the coming months.

Some important economic indicators

Unemployment rate (%) Purchasing Managers Index

Source: Reuters

Source: Reuters

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Economic Update
Friday | September 14, 2012

GDP q-o-q (%)

World trade volumes (%)

Source: Reuters

Source: World Economic Outlook

Government Debt to GDP (%)

Source: Trading economics

Developing economies also facing the contagion Apart from the developed countries, the emerging markets such as India and Chinas economic statistics are also witnessing a slow growth. The countries are partly affected by the external environment and partly by the domestic environment. The weaker global market economic indicators impacted the countries. The domestic environment was affected by a slower demand as a result of monetary tightening and supply constraints. The financial markets in many of these emerging economies witnessed increased investors aversion leading to decline in the capital markets as result of global Page

uncertainty. The markets also witnessed currency depreciation and capital outflows.

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Economic Update
Friday | September 14, 2012

The statistics bureau of China revised the GDP of 2011 to 9.3 percent from the initial reading of 9.2 percent. The countrys agriculture sector grew by 4.3 percent while the manufacturing industry grew by 10.3 percent. The services sector grew by 8.9 percent. However the HSBC purchasing managers index (PMI) plunged to a nine month low of 49.2 in August 2012 from 50.1 in July 2012, demonstrating a decline in the economic growth of the country. Chinese economic growth fell to a three year low of 7.6 percent in the second quarter of 2012 and the other economic statistics and corporate profits have also decreased despite of government stimulus. Since June 2012, the government has reduced its interest rates twice and is injecting money into the economy through investments by state companies. In order to counter the consistently slower growth for two years in the economy, the government has approved for Rmb1tn ($158bn) for infrastructure spending to push up investments in the economy. The National Development and Reform Commission, a nodal planning agency, in September 2012 has approved 25 urban rail projects, 13 highway construction projects, seven waterway projects and nine waste water treatment plants with an estimated total project cost of about Rmb1tn, or 2 per cent of gross domestic product. The overall BRIC (Brazil, Russia, India and China) countries Purchasing Managers Index is also moving in a narrow range with India witnessing a decline at a faster pace as compared to other BRIC nations. Macro economic factors- reflection on the Indian economy The Indian economy grew marginally at 5.5 percent in Q1 of 2012-13 compared to 5.3 percent in the January March quarter on the back of robust farm sector growth. The farm sector posted a modest performance, rising 2.9 percent in April-June quarter compared to 3.7 percent expansion in the previous-year ago period. The manufacturing sector continued to pose a concern as it remained flat at 0.2 percent compared to 7.3 percent in the year earlier period. The index of industrial production (IIP) was higher 0.1 percent as compared to July 2011. The Indian economy, Asia's third-largest, has demonstrated slow growth in the past few quarters due to several factors such as high interest rates, stalled economic reforms and policies, sluggish industrial growth, slowing global economy and gloomy business climate. Indias merchandise exports continued to fall, contracting 9.7 percent in August 2012 to $ 22.3 billion

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whereas the import fell 5.08 percent to $ 38 billion. The fourth straight fall in exports was due to declining global demand.

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Economic Update
Friday | September 14, 2012

Hence, the overall global environment would be majorly impacted by the Euro zone crisis and slow down in the US economy and other major developed economies; and the policy measures by these nations to contain the crisis. The economic growth of China would be riddled with the risk of slowdown in the major global economies and its soft investment scenario in the country. But at the same time some of the infrastructure developments in the country would support consumption of metals. As regards the developed economies, the growth is expected to be resilient. For other leading emerging economies like Russia and India, the slow down would persist partly due domestic factors and partly due macro global economic indicators in the coming quarters. The developed countries are expected to continue reel under the crisis in the coming quarters until accommodative measures are taken in the right direction. The US Federal Reserve has announced aggressive stimulus to boost the stalled economy in form of mortgage debt buy back until weak employment scenario in the nation shows some signs of improvement.

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