The Chinese Cntral Bank said the economy is on a sound footing, thanks to long-standing stimuli such as urbanisation and in spite of weakening global demand. .
It said the economy is likely to retain its momentum in the second half of the current year after growing 10.4% in the first half.
Hong Kong Q2 GDP narrowed to +4.2% y/y from 7.3% in Q1 (revised from 7.1%), weakest in nearly 5 years, and far below median forecast for +5.9% y/y. It represented -1.4% q/q SA, the first contraction since the SARS outbreak in 2003, and comes against the backdrop of growing nervousness about fallout from a global slowdown.
It interrupts what had been a strong expansion, featuring robust retail sales, supported by strong tourist arrivals, including spillover from the Chinese economy. The HK GDP continues a mixed bag of Q2 GDP reports out of Asia so far, with economies including China and Indonesia continuing strong, but Japan, Singapore and now HK reporting q/q contraction in Q2 in the face of global uncertainties.
Indonesia Q2 GDP growth accelerated slightly to +6.39% y/y from +6.32% y/y in Q1 (revised from +6.28%), beating median forecast for 6.1%. It extends the steady GDP growth of recent years, and left the economy on track toward projected 6.0% annual growth in 2008 after 6.3% in 2007. Despite the uncertainties surrounding global demand, Indonesia has enjoyed support from continued growth in exports. Similarly, domestic demand has helped the economy sustain its momentum through mid-year, even as households and businesses have been pinched by higher food and energy prices. On that front, the CPI soared to +11.9% y/y in July, obliging the Bank Indonesia to hike interest rates by 25 bps four straight months, reaching 9.0% in Aug-08, and the healthy Q2 GDP would point to another rate hike next month.
Q1 2008 — revised down to 0.9% from 1.0% prior
Q4 2007– revised down to -0.2% from 0.6% prior
Q3 2007 — revised up to 4.9% from 4.8% prior
Q2 2007 — revised up to 4.8% from 3.8% prior
Q1 2007 — revised down to 0.1% from 0.6% prior
Q2 Advance GDP grew 1.9%, falling short of expectations and after a downwardly revised 0.9% rise in Q1.
The GDP Price Index was much lower than expected at 1.1%, the lowest since Q2 ‘98, from a downwardly revised 2.6% in Q1. The Core GDP Price Index grew 1.4% in Q2, down from 2% last quarter.
The PCE Price Index was up 4.2%, the highest since Q4 ‘07, while the Core PCE Price Index was up 2.1% from 2.3% last quarter.
Net exports surged 9.2% and were the largest driving force behind Q2 GDP, accounting for 2.42% of growth in Q2 from 0.8% in Q1. Imports fell 6.6%, the largest decrease since Q3 ‘01.
Q2 fixed private investment fell 14.8%, the largest decline since Q4 ‘06, but subtracted only 0.62% from GDP following a 1.12% subtraction in Q1. Residential fixed investment fell 15.6% in Q2 following a 25.1% decline in Q1.
Personal Consumption grew 1.5%, an improvement from 0.9% in Q1, despite a 3% decline in durable goods. Nondurable goods were up 4% and Services rose 1.1%. Consumer spending contributed 1.08% to Q2 GDP, an improvement from the 0.61% contribution in Q1.
Private business inventories fell $62.2bln, from $10.2bln in Q1, and shaved 1.92% from Q2 GDP after subtracting only a marginal amount in Q1. Government spending rose 3.4%.
Overall, Q2 GDP shows the benefits of the weaker USD via the boost in export and corresponding drop imports. The government stimulus package is also likely to have boosted personal consumption over the period.
Q2 advance GDP is expected at 2.2% (range: 0.9% to 4.2%) following a 1% increase in Q1.
The consumption component of GDP should receive a generous boost from the government stimulus package, which should help real consumption improve from the 1% increase in Q1 (the lowest reading since Q2 ’01). Real consumption is expected to bounce back to 1.7% in Q2 despite the negative impact of higher food and energy prices. Durable goods consumption was down 6% in Q1 and consumption in services was up 3.1%.
Fixed income investment is expected to fall 2.7% in Q2, from a 6.9% drop in Q1, thanks to a more than 20% expected drop in residential construction which fell 24.6% in Q1 ’08 and dropped 25.2% in Q4 ’07. The remain few — if any — bright spots in the housing market going forward as rising unsold home inventories and the corresponding drop in home values will receive little support from dried up credit markets.
Inventories are expected to fall $20bln in Q2, from a $1.3bln Q1 decline, as a result of production cutbacks and perhaps slightly-better-than-expected demand.
Net exports are expected to jump by $56bln—nearly 2% of GDP—following a $23bln increase in Q1. The weak USD and the resulting demand destruction from higher energy import prices are the largest factors in the expected surge in Q2 net exports. Import fell 0.7% in Q1 ’08 following a 1.4% decrease in Q4 ’07.
Government spending is expected to grow 1.1% in Q2 from 2.1% in Q1. Meanwhile, the Q2 Chain Price Index is expected to increase 1.4% from 2.7% in Q1. The PCE Core Index is expected to rise 2% in Q2 from 2.3% in Q1.
Equity indices have reversed direction again with short covering into data-rich tomorrow. At 8:30am EST, Advance Q2 GDP, Initial Jobless Claims and the Employment Cost Index are out. There is potential for GDP to surprise on the upside due to the stimulus payments. Initial Claims have been volatile of late with a plus 400k reading last week. Readings of over 400k are associated with recessions but the last plus 400k readings have been followed by a plunge in the following week’s Claims data. The ECI is likely to reflect lower costs overall due to higher unemployment and real wages are likely to still be on the downside.
Q2 advance GDP is expected at 2.2% (range: 0.9% to 4.2%) following a 1% increase in Q1.
The consumption component of GDP should receive a generous boost from the government stimulus package, which should help real consumption improve from the 1% increase in Q1 (the lowest reading since Q2 ’01). Real consumption is expected to bounce back to 1.7% in Q2 despite the negative impact of higher food and energy prices. Durable goods consumption was down 6% in Q1 and consumption in services was up 3.1%.
Fixed income investment is expected to fall 2.7% in Q2, from a 6.9% drop in Q1, thanks to a more than 20% expected drop in residential construction which fell 24.6% in Q1 ’08 and dropped 25.2% in Q4 ’07. The remain few — if any — bright spots in the housing market going forward as rising unsold home inventories and the corresponding drop in home values will receive little support from dried up credit markets.
Inventories are expected to fall $20bln in Q2, from a $1.3bln Q1 decline, as a result of production cutbacks and perhaps slightly-better-than-expected demand.
Net exports are expected to jump by $56bln—nearly 2% of GDP—following a $23bln increase in Q1. The weak USD and the resulting demand destruction from higher energy import prices are the largest factors in the expected surge in Q2 net exports. Import fell 0.7% in Q1 ’08 following a 1.4% decrease in Q4 ’07.
Government spending is expected to grow 1.1% in Q2 from 2.1% in Q1. Meanwhile, the Q2 Chain Price Index is expected to increase 1.4% from 2.7% in Q1. The PCE Core Index is expected to rise 2% in Q2 from 2.3% in Q1.
GDP expectations have been raised by the prospect of much higher consumption due to the timing of stimulus package, which roughly overlapped the end of tax (return) season.
Consumer spending is a massive input to GDP and may save the figure from slipping below the 1% level due to slowing production and reduced inventories.
Durable Goods (about 15% of GDP) are showing a 0.8% growth rate ex-transports this quarter versus an average -0.5% rate in Q1.
Indeed, GDP estimates have been raised this week with some economists now calling for a 2%-plus growth rate in Q2.
The final estimate of GDP for Q1 2008 rose 1%, in line with expectations and slightly up from the May estimate of 0.9%.
Small upward revisions to several components contributed to the upward revision. Final sales rose 0.9% (0.7% prior), reflecting a downward revision to inventory investment. Nonfarm inventories are now estimated to have fallen $18.9bln compared with the $13.6bln drop previously reported.
Consumer spending rose 1.1% — its smallest gain since Q2 2001, but revised up slightly due to higher spending on medical services. Overall services spending was up 3.1%, but spending on goods declined. Durable good purchases were off 6.0% and nondurable goods declined 0.2%.
There was a significant upward revision to Q1 exports, now up 5.4%, almost twice the 2.8% rate previously reported. However, some of those gains were netted out by an upward revision to imports (down 0.7% vs. the 2.6% decline reported previously). On net, trade’s contribution to GDP stayed almost constant from the May estimates, adding 0.79% to total growth.
Nonresidential business investment showed a small upward revision, increasing 0.6%. Investment in equipment and software was revised up, mostly due to software spending. Residential construction still acted as a major drag on GDP, reducing growth by more than a percentage point, but an upward revision meant the decline wasn’t as dismal as originally reported.
The GDP price index rose at a 2.7% annual rate in Q1. Core prices rose at a slightly slower pace, up 2.1%. Prices for consumer goods and services rose more quickly, however, with the PCE price index up 3.6% — due to energy higher prices — and the core PCE price index up 2.3%.
Domestic corporate profits showed a strong upward revision, increasing $17.6bln from Q4 levels (previously reported as virtually unchanged). However, profits from the rest of the world fell sharply — down $22.8bln — compared to the $5bln increase reported earlier.
On net, profits after taxes and adjustments for valuation of inventories and depreciation were up 2.5% from Q4 and were 4.3% higher from Q1 2007. The y-o-y gain was are more than a percentage point lower than previously reported.
Nonfinancial corporate profits showed a small gain, but that was largely due to faster write-offs allowed under the Economic Stimulus Act of 2008. Manufacturing, excluding petroleum industries, showed the largest declines.