Country Updates by the Numbers
For those who are interested in really diving into the numbers, I am including some country updates that show changes in key economic indicators and measures more recently and going back further.
The Chinese economy expanded 6.7% year-over-year (y-o-y) in the first quarter of 2016, slightly slower than the 6.8% y-o-y increase recorded in the fourth quarter of 2015. The consumer price index eased to 2.0% y-o-y in May, from 2.3% y-o-y in April, largely due to lower food price inflation, while producer prices declined 2.8% y-o-y in May, compared to a 3.4% y-o-y decrease in March. Industrial output grew 6.0% y-o-y in May, unchanged from April, while retail sales growth edged down to 10.0% y-o-y in May, from 10.1% y-o-y in April. Growth in fixed-asset investment, however, declined to 9.6% y-o-y in the first five months of 2016, from 10.5% y-o-y in the four-month period ended April. Foreign exchange reserves declined by US$27.9 billion to US$3.2 trillion in May, after increasing in March and April, largely due to strength in the US dollar. German Chancellor Angela Merkel met President Xi Jinping in China, where both leaders agreed to strengthen bilateral cooperation. Moreover, Chinese companies signed agreements valued at US$15.0 billion with German companies and deals worth US$4.1 billion with US companies during the quarter.
GDP growth in South Korea eased to a revised 2.8% y-o-y in the first quarter of the year, from 3.1% y-o-y in the final quarter of 2015. Weaker growth in private consumption and exports and a decline in corporate investment were among the key reasons for the slowdown. Growth in government expenditure, however, accelerated in the first three months of the year. Concerns about weakening domestic consumption coupled with continued weakness in exports led the Bank of Korea (BOK) to reduce the benchmark interest rate by 25 basis points (0.25%) to a record low of 1.25%. This was the BOK’s first rate cut since June 2015. The consumer price index eased to 0.8% y-o-y in May, from 1.0% y-o-y in April, largely due to higher food price inflation. The government announced a US$17.0 billion fiscal stimulus package to support the domestic economy and reduced its 2016 GDP growth forecast to 2.8% from 3.1%, citing potential impact from Brexit and corporate restructuring. Finance Minister Yoo Il-ho announced plans to inject more than US$9.0 billion into state-run banks to support the restructuring of the shipping industry. After unexpectedly losing its majority in the National Assembly in parliamentary elections held in April, the conservative Saenuri Party regained a majority in June with the rejoining of seven members, giving the party 126 seats compared to the 122 seats held by the main opposition Minjoo Party.
India’s GDP grew 7.9% y-o-y in the first three months of 2016, compared to a revised 7.2% y-o-y growth in the last three months of 2015. The growth was supported by private consumption. Economic growth accelerated to 7.6% y-o-y in the fiscal year 2015/2016, from 7.2% in the preceding year. The Reserve Bank of India maintained its benchmark interest rate at a five-year low of 6.5% in June, after a 25 basis- point (0.25%) cut in April as domestic conditions for growth showed signs of gradual improvement. The consumer price index increased to 5.8% y-o-y in May, from a revised 5.5% y-o-y rise in April, largely driven by a 7.6% y-o-y growth in food inflation. Wholesale prices rose for the second consecutive month in May, up 0.8% y-o-y, compared to 0.3% y-o-y in April, mainly due to an increase in food and manufactured goods prices. The Nikkei/Markit India manufacturing Purchasing Managers’ Index (PMI) rose to 51.7 in June, from 50.7 in May, while the services PMI decreased to 50.3, from 51.0 in the same months.4
The government eased foreign direct investment restrictions, allowing 100% foreign participation in nine sectors, including civil aviation, pharmaceuticals and single-brand retailing. The lower and upper houses of parliament passed a finance bill, which is expected to strengthen the central bank’s independence in setting monetary policy, and also passed the Insolvency and Bankruptcy Code 2016, which should increase the ease of doing business in the country.
The Brazilian economy contracted 5.4% y-o-y in the first quarter (which was not as bad as forecasters had feared), following a 5.9% y-o-y decline in the fourth quarter of 2015. This was the eighth consecutive quarterly decline in GDP, as investment and consumption continued to decrease. The central bank maintained its key interest rate at a nine-year high of 14.25% during the quarter, amid an economic recession, political instability and concerns about the government’s fiscal situation. Consumer prices rose 9.3% y-o-y in May, the same pace as in April, and remained higher than the central bank’s 2.5% to 6.5% target range. The current account deficit narrowed to US$29.5 billion or 1.7% of GDP in the 12-month period ended May, from US$34.1 billion (2.1% of GDP) in the 12-month period ended April. The Senate voted to formally initiate impeachment proceedings against President Dilma Rousseff in May, which required her to step down for up to 180 days, pending the result. Vice President Michel Temer took over as the country’s acting president.
South Africa’s economy contracted 0.2% y-o-y in the first quarter of 2016, the first contraction in more than six years. In comparison, GDP grew a revised 0.5% y-o-y in the last quarter of 2015. Declines in mining and manufacturing were among the key reasons for the contraction. Weak global demand and lower commodity prices resulted in an 8.5% y-o-y decrease in mining production, while manufacturing declined 0.9% y-o-y in the first quarter. The manufacturing PMI increased to 53.7 in June, from 51.9 in May.5 The South African Reserve Bank maintained its key interest rate at 7.0% in May, after raising the rate by 75 basis points (0.75%) in the first quarter. The consumer price index eased to 6.1% y-o-y in May, from 6.2% y-o-y in April, but remained just above the Reserve Bank’s 3% to 6% target range. International ratings agencies Standard & Poor’s and Moody’s affirmed South Africa’s sovereign rating at BBB- and Baa2, respectively, while Fitch Ratings maintained a BBB- rating with a stable outlook.6
The Russian economy contracted by 1.2% y-o-y in the first quarter of 2016 (a better result than forecasters had expected), following a 3.8% y-o-y decline in the fourth quarter of 2015. The Economy Ministry expects GDP contraction in 2016 to slow down to 0.2% y-o-y, from 3.7% y-o-y in 2015. The Central Bank of Russia reduced its benchmark interest rate by 50 basis points (0.5%) to 10.5% in June, on lower inflation expectations. This was the central bank’s first rate cut since July 2015. The central bank lowered its year-end inflation forecast to 5.0%–6.0% from 6.0%–7.0% and estimated GDP growth at 1.3% for 2017. Consumer prices rose 7.3% y-o-y in May, the same pace as in April and March, and at the lowest level in more than two years. Fitch Ratings affirmed Russia’s local and foreign currency sovereign debt rating at BBB- with a negative outlook.7 Prime Minister Dmitry Medvedev signed a decree mandating state-owned companies to pay at least 50% of profits as dividends, as part of efforts to reduce the budget deficit, amid relatively lower oil prices.
GDP growth in Turkey eased to 4.8% y-o-y in the first quarter of 2016, from 5.7% y-o-y in the final quarter of 2015. Household consumption and government expenditure were key growth drivers. Growth in household consumption accelerated to 6.9% y-o-y in the first three months of the year, from 4.7% y-o-y in the last three months of 2015, while government spending increased 10.9% y-o-y, compared to 8.1% y-o-y in the same periods. Turkey’s central bank maintained its benchmark interest rate at 7.5% during the quarter on concerns about inflation. However, the central bank lowered the overnight lending rate by 50 basis points (0.5%) to 9.0%, for the fourth consecutive month, while keeping the overnight borrowing rate unchanged at 7.25%. Consumer prices rose 6.6% y-o-y in May, unchanged from April. Aimed at expanding bilateral relations with East Africa, Prime Minister Recep Tayyip Erdogan visited Uganda, Kenya and Ethiopia during the quarter. The ruling Justice and Development Party elected former transport minister Binali Yildirim to succeed Ahmet Davutoglu as the party chairman and country’s prime minister.
Mark Mobius, executive chairman of the Templeton Emerging Markets Group