1.2 World Economic Performance in Q1/2009
In Q1, global recession was deepening and turned the world economy into the worst crisis in 80 years. GDP in the US, Europe and Japan declined at an alarming rate. Global trade and manufacturing production contracted at a faster pace and resulted in severe economic recession in NIEs and other ASEAN export-dependent economies. Other countries faced with either sharp slowdown or contraction. Overall, the global economy in the first quarter was heading to a broader base downturn. Some emerging countries in Central Europe and Latin America experienced with financial difficulties due to the reduction of capital inflow that coincided with capital flight as well as the tighter condition in international financial market. The severely global crisis led Brazil, Russia India and China (BRIC countries), which once seem relatively immune to global recession, to serious slowdown (China and India) and economic contraction (Russia and Brazi l) . The developments in major economies in the first quarter can be summarized as follows:
- The US economy contracted for three consecutive quarters. In the first quarter, the US GDP plunged by 2.6 percent, a faster pace of economic contraction than that of 0.8 percent in the last quarter of 2008. In term of quarter on quarter, the US economy plunged by 6.1 percent compare to 6.3 percent in previous quarter, indicating continued severe contraction of economic activities in the first quarter.
Supported by tax withheld and a better credit market condition, private consumption expanded by 2.2 percent in the first quarter, compare to a contraction of 4.3 percent in the fourth quarter of 2008. Consumption of durable goods increased by 9.4 percent compare with 22.1 percent contraction in the last quarter of 2008. Export and import declined by 30.0 and 34.1 percent respectively while private investment declined at an alarming rate of 51.8 percent.
On production side, though ISM manufacturing index slightly picked up to 36.3 percent, it pointed to a further contraction of economic activities. Housing market remained weak although existing and new home sales increase in February. Unemployment rate continued to increase, from 7.6 percent in January to 8.5 percent and 8.9 percent in May an April respectively. The layoffs are particular high in services sector, manufacturing sector and construction sector. Against this development, the Federal Reserve extended its qualitative easing measure worth 1.25 trillion USD to purchase up to 300 billion USD of long-term Treasuries and up to 750 billion USD of agency mortgage-backed securities while kept its policy rate unchanged at 0 - 0.25 percent.
- The Euro Zone Economy (16) contracted for four consecutive quarters. In the first quarter of 2009, Euro zone economy contracted at a faster pace of 4.6 percent (YOY), compare to that of 1.4 percent in the last quarter of 2008. In terms of quarter on quarter, Euro zone GDP plunged further by 2.5 percent, accelerated pace of contraction compare to that of 1.6 percent in the fourth quarter of last year. The sharp economic contraction led by severely downturn in major members such as Germany (contracted by 3.8 percent (QOQ), the fastest pace since 1970), Italy (contracted by 2.4 percent (QOQ), the fastest
The sharp economic contraction in Euro zone is due to the deepening production contraction and tightening financial conditions that caused domestic demand to decline. Although several countries have launched economic stimulus packages, in particular measures to support automobile production in Germany, France, Italy and Spain, industrial production in March continued to retreat by 20.2 percent, from the same period last year, the fastest contraction pace since 1976.
Likewise, construction production index in February markedly declined by 11 percent. Meanwhile export sector which is the main growth driver shrank by 20.3 and 17.0 percent in February and March respectively. The sharp contraction in production and export raise layoff pressures. Unemployment rate continually escalated to 8.9 percent in March, the highest level since July 2005. Domestic demand continued to decline in tandem with production contraction and the rise in jobless rate. In March, retail sales retreated by 0.6 percent from the previous quarter and 4.2 percent from the same period last year. Against this negative development, the European Central Bank lowered its policy rate further by 0.50 percent in March, 0.25 percent in April, and another 0.50 percent in May. As a result, lending and deposit rate declined to 1.75 and 0.25 percent respectively.
- The UK Economy plunged for three consecutive quarters. In the first quarter of 2009, UK economy plunged from the same period last year by 4.1 percent, compared to that of 1 percent in the previous quarter. In terms of quarter on quarter, the UK economy contracted at a faster pace of 1.9 percent, compare to 1.5 percent in the last quarter of 2008, which is the fastest pace of economic contraction since 1979
The sharp contraction of economic activities negatively effected labor market. Jobless rate picked up gradually from 5.3 percent in the fourth quarter last year to 7.1 percent in the first quarter of 2009. Manufacturing and service sector contracted severely. Manufacturing sector shrank by 5.5 percent in the first quarter led by 6.2 percent contraction of industrial sector, 3.4 percent contraction of mining and quarrying sector while electricity, gas & water production declined by 1.9 percent. Nevertheless, real estate sector expanded 4 percent due to strong expansion of business transaction in London. Meanwhile, the decline in export caused current account to record a deficit of ? 8.3 billion in the first quarter, slightly higher than the deficit ? 8.0 billion in the fourth quarter last year. To stimulate economic activity, the Bank of England cut its policy rate further by 0.5 percent in March
- Japan: the deepest contraction among G-7 countries. Japanese economy contracted by 9.7 percent (YOY), compare to 4.3 percent in the forth quarter of 2008. In terms of quarter on quarter, the Japanese economy plunged by 4.0 percent, compare to 3.8 percent contraction in the last quarter of 2008, which is the first 4 consecutive quarters contractions since 2002. The severely contraction of Japanese economy is mainly attributable to the decline in global demand as well as and Yen appreciation which resulted in 26.0 percent contraction of export in the first quarter. The trade spillovers seriously affected manufacturing production as indicated by the reduction of an average of industrial production index of 33.9 percent in
- The Chinese Economy grew by 6.1 percent (YOY), the slowest pace in 10 years. In the first quarter, the Chinese economy expanded by 6.1 percent, slowed down from 6.8 percent in the last quarter of 2008, which is the weakest expansion in a decade. The slowdown led by the weakening external demand. Export retreated by 19.7 percent with the sharp decline in export to US, EU, and Japan of 14.8 percent, 22.1 percent, and 16.1 percent respectively. Meanwhile import declined markedly by 30.7 percent. However, the domestic demand which is the main growth driver of Chinese economy continued to expand robustly which is attributable to implementation of government stimulus package worth 4 trillion RMB (586 billion USD) as
- The Indian Economy in first quarter of 2009 likely to expand by 3.7 percent (YOY), slowdown from 4.9 percent in previous quarter, which is the slowest pace since 1997. The weaker performance of Indian economy was mainly attributable to export demand reduction in particular demand for electronic
- The NIEs Economies experienced with severe production contract io n . NIEs countries confronted witht he drastically downturn due to export collapsed. In the first quarter, South Korean, Taiwanese, Hong Kong, and Singaporean economies drastically fell further by 4.3, 10.2, 7.8, and 11.5 percent respectively compare to the last quarter which declined by 3.4, 8.4, 2.6, and 4.2 percent respectively. Overall NIEs’
Reflecting the impact of industrial sector, labor market and domes t ic demand have been weakened markedly. Therefore, unemployment rate of South Korea, Taiwan, Singapore and Hong Kong in March increased to 3.7, 5.8, 3.2 and 5.2 percent respectively, ascended from 3.3, 8.3, 2.5 and 4.6 percent in January. In March, retail sale index of Taiwan and Singapore contracted by 4.5 and 7.7 percent compare with declined by 1.0 percent and expanded by 7.4 percent in January.