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Waning
optimism in Japan …
The period of rapidly rising optimism about the Japanese growth
prospects is drawing to an end.
Since September, when Japan was seen to be the fastest growing
industrial economy in the world with an expansion of 4.3%, the Consensus
Forecast growth estimate has lost 0.4 percentage points.
Moreover, the speed of downward revisions is accelerating, as the
current 3.9% GDP growth forecast for 2004 is 0.2 percentage points below
November, following on successive 0.1 percentage point downward revisions
in the previous two months.
The renewed scepticism about the ability of Japan to pull clear
from years of sluggish growth is also spilling over into next year.
With GDP growth forecasts for 2005 peaking at 2.1% as recently as
October, the market was already cautious about the economy’s potential
to maintain this year’s rhythm.
Now, Consensus Forecast panellists have become even more sceptical,
expecting economic growth to reach just 1.8% next year.
…
as third quarter growth figures disappoint
Further downward revisions are likely.
On 8 December, the Japanese government published third quarter
growth figures, which were below preliminary estimates.
The 0.1% quarter-on-quarter growth (+0.2% year-on-year) also fell
well short of expectations, which had seen growth around 0.4% qoq and 1.5%
yoy growth.
In addition, the government announced that the economy had actually
contracted 0.1% in the second quarter instead of expanding 0.3% according
to the previous figures.
In the third quarter, weaker global demand pushed down net exports,
which for the first time in eight quarters dropped.
On a positive note, capital spending rose 1.1%, up sharply from a
preliminary estimate of a 0.2% decline.
Economy and Finance Minister Heizo Takenaka claimed that the upward
trend remained intact and that the weakness observed in the recent months
represents only a minor adjustment.
However, the index of coincident indicators published on 7 December
remained below the boom-or-bust 50 point threshold for the third
consecutive month in October, which suggests that weakness persisted into
the final quarter of this year.
Continued
optimism about Latin American growth prospects
With not even one month to go before the end of the year, the outlook
for Latin American GDP growth this year improved once again.
The region is now expected to expand 5.2% this year, 0.2 percentage
points above last month’s forecast.
Moreover, this month’s upward revision was broad-based, as it was
prompted by better projections for five of the seven major economies in
the region: Argentina, Brazil, Chile, Mexico and Venezuela with unchanged
forecasts for Peru and a downward revision for Colombia.
The continuous improvement in growth expectations is the result of
surging export growth in virtually all economies.
Latin American exports will rise close to 20% this year, as global
demand has driven up volumes and commodity prices.
However, even as the impetus from the external sector wanes –
exports are expected to grow less than 5% next year - the outlook for 2005
is also improving, as the external rebound has rekindled domestic demand
in the entire region.
As a result, Consensus Forecasts panellists lifted their growth
projection from 3.7% last month to the current 3.8%, in spite of the
gloomier outlook for the global economy.
Rising
optimism for Argentina and Brazil boosts regional outlook
The
Consensus Forecast for Argentine GDP growth in 2004 added 0.4 percentage
points over last month’s 7.1% projection to the current 7.5%. It
is now obvious that the slowdown of the cyclical rebound from recession
has turned out to be far less pronounced than expected. In addition,
the outlook for next year was also lifted by 0.2 percentage points over
last month to 4.5%. The most important contribution to increased
optimism about regional growth prospects stemmed from Brazil, which
represents 33.4% of Latin American GDP. Consensus Forecast
panellists lifted the GDP growth forecast for Brazil by 0.2 percentage
points over last month to the current 4.5%. The upward revision
follows on a 0.2 percentage point upgrade last month and was motivated by
an increased resilience of the domestic economy. However, strong
domestic demand is forcing the Central Bank to tighten
monetary policy to rein in rising inflationary pressures, which will keep
growth next year constrained at 3.5%.
Chile
benefits from strong commodity prices and booming external demand
The outlook for Chilean economic growth this year increased 0.3
percentage points over last month to 5.4%, as the economy continues to
benefit from robust external demand and strong commodity prices.
In the third quarter, exports grew a staggering 56.9% over the same
period last year, as demand for copper drove up prices and volumes.
However, unemployment remains stubbornly high and the Central Bank
has ended its long-lasting accommodative stance and has embarked on a
tightening cycle.
Nevertheless, panellists also lifted the forecast for 2005 GDP
growth by 0.2 percentage points to 5.0%.
Mexico
seen more optimistically amid resurfacing link to the U.S. economy
The outlook for Mexican GDP growth in 2004 was lifted another notch
from 4.0% expected last month to the current 4.1%, which continues a
series of upward revisions only briefly interrupted last month.
The improved sentiment follows on better-than-expected third quarter
results and reflects restored confidence that the country has decoupled
from the buoyant U.S. economy. The outlook for 2005 was maintained
at a more moderate 3.6% growth level.
Venezuela
benefits from booming oil sector
Finally, Venezuela experienced the eighth consecutive upward revision,
lifting the outlook for economic growth this year to 13.8%. Even
though the economy is profiting from a strong cyclical rebound, the scope
of rebound is surprising, not least since the economic policy environment
is anything but promising. However, the oil price boom is flooding
the country with income that is rekindling not only the oil sector but
also the non-oil economy.
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