China: Stable economy eases reshuffle at top
China's economy is showing its muscles. In the first half of 2017, growth accelerated. It is currently a couple of tenths above the government's GDP growth target of around 6.5
per cent. There are two drivers. One is stronger global economic conditions, which in July stimulated 10 per cent yearon-year export growth to both Europe and the US, compared
with falling exports a year earlier. The other is looser credit conditions, stimulating mortgage loan activity and home prices, which in turn have helped boost construction and have had a positive wealth effect on households. The economic expansion has also strengthened the yuan. Our forecast is that the Chinese economy will decelerate in a controlled way. This year GDP growth will be 6.8 per cent, slowing to 6.4 per cent in 2018 and 6.1 per cent in 2019.
India: Low inflation expected to accelerate
GDP growth was unexpectedly weak in the first quarter, ending up at 6.1 per cent year-on-year, a clear deceleration from 7.0 per cent in the fourth quarter of 2016. The currency
(or "demonetisation") reform launched last November severely hurt both retailers and other sectors, but these effects have now faded. Because of unexpectedly slow growth, the
discrepancy between GDP and other statistics that point to a significantly weaker performance has narrowed. Purchasing managers' indices (PMIs) recovered after their
decline following the currency reform. Industrial production has decelerated, along with exports and imports, and car sales are also sluggish. Although we expect a recovery after this year's weak start, we need to revise our GDP forecast downward. We expect GDP to increase by 7.1 per cent in 2017 and by 7.8 per cent in 2018 and 2019.
Russia: Lack of reforms holding back GDP
After having shrunk by 2.8 per cent in 2015 and 0.2 per cent in 2016, the Russian economy is growing again – though at a leisurely pace. GDP expanded by 1.5 per cent year-on-year
during the first half of 2017. Growth was driven mainly by private consumption, which has benefited from receding inflation and lower interest rates as well as falling unemployment. A slight increase in lending to households is a clear sign of gradually rising optimism. Capital spending also contributed a bit to the expansion, although businesses are still cautious about borrowing. Unlike 2016, net exports have contributed negatively to growth, since imports have increased faster than exports this year.
Brazil: Weak economy amid political storm
First quarter 2017 Brazilian GDP rose by an annualised 4.3 per cent rate. The economy has emerged from its deepest recession in modern times, but this has not generated any great optimism. Growth was driven exclusively by a positive trend in net trade, with exports – especially to China – expanding faster than imports. Both households and the government continue to cut back consumption. In addition, capital spending has trended downward since 2013. GDP figures for the second quarter have not yet been published, but monthly data point to a slowdown in growth. The Brazilian economy will keep growing, but heavy household borrowing, rising government debt (now around 73 per cent of GDP) and the corruption scandal surrounding the state-owned oil company Petrobras – the country's largest single source of capital spending – will keep the growth rate slow.