Global Economic Overview – January 2013
Thomas White International
February 13, 2013
Global Economic Outlook Continues to See Moderate Recovery
Global economic trends continued the moderate positive momentum from earlier months and helped sustain investor sentiment in January. The unexpected decline in U.S. economic output for the fourth quarter of last year was mostly due to a sharp fall in government spending and a smaller inventory buildup, while consumer and business spending exceeded forecasts. Also, recent data suggest that U.S. labor market gains during last year were better than earlier estimates. If lawmakers succeed in avoiding the automatic spending cuts scheduled for March as well as putting together an agreement to increase the debt ceiling before May, U.S. economic growth is expected to see a steady improvement this year. While fourth quarter GDP data from the U.K. and Russia confirmed that the region is yet to see a recovery, select Asian economies including China have reported faster than expected growth.
Global equity prices gained further in January, continuing the uptrend that started during the second half of last year. The manufacturing sector saw a healthy start to the year, as a global index of factory output touched a ten-month high in January. Output expanded at a faster pace in the U.S., China, Brazil, India and Mexico. While manufacturing trends from most of the Euro-zone and Japan remain subdued, data for January suggest that they are stabilizing. Though global services activity moderated from December, the pace of expansion remained healthy. The decline in global trade volumes also appear to have slowed down, as most Asian exporters and Latin American countries such as Brazil have reported gains in overseas shipments.
Global Industry Spotlight for the Month: Automobiles
After the deep slump during the global recession, automobile sales have seen a healthy recovery across most markets, except Europe. Sales volume data for the month of January suggest that this trend will continue, and most forecasters now expect global automobile sales to expand this year. In developed markets such as the U.S., the introduction of more fuel efficient models with improved technology continues to encourage consumers to replace their older vehicles as average gasoline prices remain close to historic highs. This trend has not caught on in Europe, where smaller and more fuel efficient vehicles have been historically popular due to relatively higher fuel prices. In addition, high unemployment and the decline in average income levels have hurt automobile sales in markets such as Spain, Italy, and France. In the large emerging countries such as China and India, the expanding middle class population continues to drive demand growth for cars, despite the relatively higher interest rates.
Among the mass market vehicle manufacturers, American and Asian companies have seen the most growth in recent years as the demand recovery has been the most robust in their home markets. Most European manufacturers have struggled with excess capacity and declining volumes, except the few that have a strong overseas presence. At the same time, most major luxury vehicle manufacturers have thrived as high income consumers who are less affected by weak labor markets and government austerity measures have sustained their purchases.
Still, the emerging demographic and consumer behavior trends suggest that it will be difficult for annual vehicle sales in the U.S. and Europe to regain the peaks seen before the global recession. In most developed markets, studies indicate that the average monthly travel by car and vehicle ownership among the younger population is either stagnant or declining. Also, the rapid pace of population growth in cities compared to suburban areas, especially in the U.S., as well as the growing popularity of online shopping will also likely reduce the need for driving. At the same time, if emerging economies continue to expand at the current pace, demand growth in those countries could potentially offset subdued sales volumes in the developed markets. In that scenario, manufacturers may have to look at shifting some of their production capacity from regions such as Europe to the large developing countries.
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