Economic Update

Friday | December 07, 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 D. Vijiya Rao - Research Analyst Vijiya.d@angelbroking.com (022) 2921 2000 Extn. 6134 Anish Vyas - Research Associate anish.vyas@angelbroking.com (022) 2921 2000 Extn. 6104

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Economic Update
Friday | December 07, 2012

Global recovery continues but at a slower pace The global economy is gaining traction but continues to grow at a slower pace. The International Monetary Fund (IMF) in its latest report of October 2012 has revised its growth forecast for the advanced economies to 1.5 percent from 2.0 percent in 2013. The emerging economies are expected to grow 5.6 percent down from 6.0 percent. The global economy is projected to grow at 3.3 percent and 3.6 percent in 2012 and 2013 respectively. The factors that are underplaying the growth in the advanced nations are fiscal consolidation and continued weakening of financial system. The declining growth in the advanced countries sort some support by the stimulus measures by the major central bankers. The uncertainty on the economic growth of the nations still persists as the worries about the resolution of the Euro zone sovereign debt crisis still continue to loom large and the inability of the European leaders to contain the contagion spreading to other regions. The other factor which is impacting the revival is the US fiscal cliff issues to agree on a plan to meet the challenges of the cliff. The uncertainties and the stalled growth in the developed economies are affecting the emerging economies coupled with domestic weakness. The loose monetary policies by the central bankers in the developed economies have triggered volatile capital inflows in the emerging economies. The US demonstrated signs of recovery with the leading indicators gaining pace in the month of October. The business activity in the US as measured by the Institute for Supply Management-Chicago Inc, the purchasing managers index showed some stabilization and the index expanded to a five month high of 51.7 in October from 51.5 in the previous month. The Markit Flash Manufacturing Purchasing Managers Index (PMI) also displayed a strong improvement in the manufacturing conditions in the nation which rose to 52.4 in November from 51.0 in October.

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Source: Reuters, Angel Research

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Economic Update
Friday | December 07, 2012

Source: Reuters, Angel Research

On the employment market scenario, the jobless claims, that is the number of people filing for jobless benefits decreased to 393,000 in the week ended November 24 indicating that the jobs market may be stabilizing. The US employment market performed better in October with the number of new jobs creation at 171,000 as against 148,000 in September. But, the unemployment rate increased to 7.9 percent as compared to 7.8 percent demonstrating that the hiring has picked up but the unemployment remains high. The volume of all goods and services produced measured by Gross Domestic Product (GDP) expanded at 2.7 percent in the third quarter as compared to 1.3 percent in the second quarter. US pending home index, a leading indicator of housing sector, increased 5.2 percent to 104.8 in October as compared to 99.6 in September. The US housing starts climbed 3.6 percent in October to an 894,000 levels. However, a proxy to the future construction that is the building permits decline to 866,000 levels at 2.7 percent in October. The Federal Reserve Bank of Philadelphias general economic index declined to minus 10.7 in November from 5.7 in October. In Europe, the economy slid to recession as the GDP of the 17 nation bloc fell to 0.1 percent in the third quarter 2012 as compared to the previous quarter. But, Flash Manufacturing PMI edged up at 46.2 levels in October while the services PMI fell to 45.7 in the month. Germany and France, the biggest economies of the Euro zone were also affected by the contagion effect. Although the Ifo Business Climate Index of Germany rose to 101.4 in October, the first gain in the eight months which reflects that the Europes largest economy is regaining some strength but the industrial production of Germany fell by 1.8 percent in the month of September as 0.5 percent fall in the previous month. French flash

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manufacturing PMI contracted at a slower pace in November at 44.7 as compared to 43.7 in the previous month. The services PMI also displayed a decline at 46.1 in November. The retail sales volume

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Economic Update
Friday | December 07, 2012

of UK fell 0.8 percent in October as compared to rise of 0.6 percent in the previous month on the back of fewer purchases by the shoppers which the policy makers had hoped to revive resulting in the growth of the economy. There are some positive signs on the Greece aid, under which the country would receive $57 billion to meet its debt obligations and budgetary targets. This would give away some of the debt concerns hovering over the entire euro zone. Japanese manufacturing Markit PMI fell to a nineteenth month low at 46.5 in November as against 46.9 in October. This was mainly on the back of deteriorating operating conditions driven by decrease in the output, new orders and weak employment conditions in the nation. The Bank of Japan held off its monetary easing programme and kept its rates between zero and 0.1 percent. It was widely expected that the Japanese government would expand its asset purchase programme by 11 trillion yen ($135 billion) in order to revive growth of the stalled economy which was faced by the quake-tsunami disaster last year. The growth of the country has been also held up in the wake of deflation for the years as the consumers hold up buying in the expectation that the prices of goods and services are likely to go down further resulting in tepid demand and hence discourages firms from investments. Developing nations also hit by the contagion The persistent concerns on the growth of the US and Europe with the US facing the fiscal cliff issues and Europe still facing the debt crisis is spreading as a contagion to other core economies along with the slower growth of the Japanese economy . The worlds second largest economy, China displayed further signs of stabilization with expansion in the manufacturing PMI at 50.6 in November as compared to 50.2 in October thus remaining in an expansion territory for the past two months. The pace of manufacturing activity grew faster for the first time in the 13 months in November thus demonstrating that the economy has started to revive after showing slow growth in the past seven months. Indias HSBC manufacturing Purchasing Managers' Index (PMI), which reflects the business activity of the nations factories rose to 53.7 in November as compared to 52.9 in October majorly supported by the robust export orders and increase in the output. The countrys factory output has expanded for the past three and a half years but it still has to go far to reach the levels of 2007. The Indian economy grew at

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5.3 percent in the second quarter FY 2013 as compared to 5.5 percent in the first quarter FY 2013. The real GDP growth was mainly driven by the robust performance by the services sector which has weight age of 60 percent, recorded a growth of 7.2 percent in the third quarter FY 2013 as compared to 6.9

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Economic Update
Friday | December 07, 2012

percent in the corresponding period previous year. The US fiscal cliff issues which still remains a major concern could weigh on the export demand for the Indian goods and factory output, if law makers are unable to fix the problem. The new export orders and the factory output have expanded since July 2012.

Source: MOSPI, Angel Research

Source: Reuters, Angel Research

Source: Reuters, Angel Research

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Source: SEBI, Angel Research

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Economic Update
Friday | December 07, 2012

Inflation of the nation which is measured by Wholesale Price Index (WPI) eased modestly and stood at 7.45 percent in October 2012 as against 7.81 percent during September 2012. The Reserve bank of India (RBI), in its second quarter monetary policy review in October 2012 has cut the Cash Reserve Ratio (CRR) that is a portion of the deposits that the commercial banks are required to keep with Reserve Bank of India, by 25 basis points to 4.25 percent. This rate cut by the central bank would free up Rs. 17,500 crores of liquidity. The central bank has kept the key interest rates unchanged at 8 percent. A reduction in CRR would lead to more liquidity in the banking system and thus prompting banks to cut interest rates. The International Monetary Fund (IMF) in its World Economic Outlook in October has reduced the India growth projection to 4.9 percent in for 2012 from its earlier projection of 6.2 percent. IMF also lowered its projections for 2013 to 6 percent from 6.6 percent.

Conclusion The global economy is expected to recover but at a slower pace. This gradual recovery would be supported by the growth in the leading indicators from the major nations such as the US, China and India. Also, the Chinese economy might get support from the infrastructure project investments. The Indian economy is also expected to gather pace on the account of policy measures taken by the government of India to revive the economy. But, the global recovery may be restricted by the persistent concerns over the fiscal cliff issues and the euro zone concerns. The Euro zone has fallen into recession in the July- September quarter, although France is showing resilient growth but it cannot make up the deficit across Europe and Germany is also demonstrating a slower growth. All this would weigh on the global recovery. A recovery in the Euro zone is vital for the other nations as well as for the markets, as markets are integrated and the US and China are adopting measures to speed up the economic growth.

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Economic Update
Friday | December 07, 2012

Important Economic Indicators for the month ahead:

Economic Indicator Date and Time Region/Country Projections Significance

Consumer Price Index (m/m)

Dec 9 7:00 a.m.

China

Projected at 2.1% in Nov as compared to 1.7 %

Consumer prices account for a majority of the inflation. Better data than the forecast is good for the currency. A leading indicator which reflects the expectations of economic development In Germany. Reflects change in the output produced by the manufacturers, mines, and utilities. Report gives the FOMC's projection for inflation and economic growth over the next 2 years and, more importantly, a breakdown of individual FOMC member's interest rate forecasts.

German ZEW Economic Sentiment (m/m)

Dec 11 3:00 p.m.

Euro zone

Declined 15.7% in Oct

Industrial Production (m/m)

Dec 12 3:30 p.m.

Euro zone

Declined 2.5% in Oct

FOMC Economic Projections

Dec 13 12:30 a.m.

US

Core Retail Sales (m/m)

Dec 13 7:00 p.m.

US

Declined 0.3% in Oct

Represents change in the total value of sales at retail level. Reflects the number of individuals filing for unemployment insurance. Less count than the previous count is good for the currency.

Unemployment Claims (w/w)

Dec 13 7:00 p.m. Dec 20 7:00 p.m. Dec 27 7:00 p.m.

US

Declined to 370,000 in week ended Dec 1

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Economic Update
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HSBC Flash Manufacturing PMI (m/m) Dec 14 7:15 a.m. China Stood at 50.5 levels in Nov Survey represents the purchasing managers opinion on the business conditions. Survey represents the purchasing managers opinion on the business conditions

German Flash Manufacturing PMI (m/m)

Dec 14 2:00 p.m.

Euro zone

Stood at 46.8 levels in Nov

Core Consumer Price Index (CPI) (m/m)

Dec 14 7:00 p.m.

US

Displayed 0.2% increase in Oct

Represents the change in the price of goods and services purchased by the consumers Consumer prices account for a majority of the inflation. Better data than the forecast is good for the currency. Index is based on the ratings of current business conditions and expectations of future 6 months Building permits reflects the new building projects authorized for construction over a month. Represents change in the total value of sales at retail level. Reflects the number of residential buildings sold during the previous month Index reflects the manufactures opinion of business conditions Represents the difference between spending and income of UK income.

Consumer Price Index (CPI) (m/m)

Dec 18 7:00 p.m.

UK

Showed 2.7% increase in Oct

German Ifo Business Climate (m/m)

Dec 19 2:30 p.m.

Euro zone

Stood at 101.4 levels in Nov

Dec 19 Building Permits (m/m) 7:00 p.m.

US

Declined at 870,000 units in Oct

Retail Sales (m/m)

Dec 20 3:00 p.m.

UK

Decreased 0.8% in Oct

Existing Home Sales (m/m)

Dec 20 8:30 p.m.

US

Rose 4.79 million in Oct

Philly Fed Manufacturing Index (m/m)

Dec 20 8:30 p.m.

US

Fell 10.7 levels in Nov

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Public Sector Net Borrowing (m/m)

Dec 21 3:00 p.m.

UK

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Economic Update
Friday | December 07, 2012
Core Durable Goods Orders (m/m) Dec 24 7:00 p.m. US Rose 1.5% in October Shows the changes in the total value of new purchase orders of durable goods with manufacturers Reflects the change in new building projects authorized for construction over a month

Pending Home Sales (m/m)

Dec 28 8:30 p.m.

US

Increased 5.2 % in Oct

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