Outlook of GDP

16 December 2010

During the recovery from this recession, there have been talks about a double-dip recession or a sharp V-shaped recovery. It now seems both of these views do not materialize in 2010. As a matter of fact, the recovery in North America has been in general rising steadily, albeit at a slow pace. Earlier this week on December 14, the rate-setting U.S. Federal Open Market Committee (FOMC) said, "Information received since the Federal Open Market Committee met in November confirms that the economic recovery is continuing, though at a rate that has been insufficient to bring down unemployment... Household spending is increasing at a moderate pace, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in non residential structures continues to be weak." The U.S. Government will continue to keep the interest rates low for an extended period and to carry out the new stimulus.

The Canadian economy is basically similar to the United States, due to the fact that a majority of Canadian exports goes south and many large corporations have operations on both sides of the border. However, Canada will shift from stimulus to fiscal restraint and leave its economy grows on its own so that the Bank of Canada might continue the steady increase of the interest rate in 2011. It is expected that Canada will accomplish a 2.9% GDP growth for 2010 but lag the rate of expansion in the United States in 2011.

China and the other emerging economies will still be the focus of the global economy in 2011. Nevertheless, China is trying to bring its hot economy to a soft-landing by gradually imposing monetary constraints. The average unemployment rate in China has been about 4% between 2007 and 2010, comparing to the 9-10% rates between 2004 and 2006; however, China's unemployment rate should be much higher if its migrant workers are included and raise the figure above 9%. The inflation rate in China stands about 5% and the food price has risen to 11.7% recently. Thus, China might lower its import of materials in the future.

The following list the outlook of GDP growth for 2009-2011:

* Projected GDP growth
** Other advanced economies include Canada, Switzerland, Norway, Israel, Iceland, Cyprus, Korea, Australia, Taiwan, Hong Kong, Singapore, New Zealand

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The Stock Market and the Global Economy

6 August 2010

A brief note of the economy and the market

The recovery of the global economy is apparently slowing down. Today, both Canada and the United States reported a sharp job loss in July. Canada had a net loss of 9,300 jobs - a gain of 129,700 part-time jobs eclipsed by a massive loss of 139,000 full-time jobs. In the United States, 131,000 non-farm jobs were lost that brought the unemployment rate to 9.5%. The Canadian unemployment rate was 8%.

However, the GDP data seems to be holding up but the real GDP is expected to moderate to mid-2% in the second half of 2010.

qtr/qtr,%change, a.r.	Q1,2009	Q2,2009	Q3,2009	Q4,2009	Q1,2010	Q2,2010	Q3,2010	Q4,2010
Canada	-7.0	-2.8	0.9	4.9	6.1	2.7 est.	2.0 est.	2.7 est.
U.S.	-4.9	-0.7	1.6	5.0	3.7	2.4	2.0 est.	2.4 est.

Source: BMO Capital Market Economics, 30 Jul 2010

Furthermore, tighter fiscal and monetary policies in Canada will dampen growth to 3.0% in 2011 from an estimated 3.3% in 2010. The American growth might be moderate to about 2.9% in 2011, as similar tighter fiscal policy would slow down domestic spending.

With the uncertainties in the recovery, the stock markets dropped sharply last May and are now trading basically flat. Personally, I had cut down my trade volume in July but still experienced a monthly loss in trading (a first since December 2008). Luckily or unluckily, I had also drawn down my debt exposure and also shifted my portfolio to income-earning sectors. The prudent approach of Warren Buffet in the stock market might be appropriate for 2010.

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28 January 2010
Earlier in this week, UK announced it has emerged from the worst economic slump with a 0.1% GDP in the last quarter of 2009. The recession in the UK started in 2nd quarter of 2008, and UK is the last Western economy exiting the recession. Japan, Germany and France came out of recession last summer, while US and Canada also joined the recovering economies in the 3rd quarter of 2009. Therefore, this global recession is undoubtedly almost over. Nevertheless, many people worry about the strength and the pace of the recovery. The direct stimuli of the governments in the recession should be winding down in the coming months, thus is the recovery sustainable? Then, might the mushrooming deficit and reduction of central reserve be affecting the future spending by the governments? Also, would the high level of world-wide unemployment be a long-standing problem?

Last year, the stock market was quite exciting with an outstanding quick rally from the low in March. There were also large merging and acquisition of large corporations. My own portfolios was tabulated a 46% rise in market value in 2009 in contrary to a -34% drop in 2008. However, by the late 2009, many financial advisers began to caution stock investors not to be too optimistic in the recovery and said a sharp correction (20+%) of the market might come up. The market was bullish up to first week in 2010. Then, the market saw a setback when China began to tighten the money flow of its banks and US President Barack Obama proposed new regulations for bank activities in mid-January.

The global recovery might actually be slowing down. Germany reported a low 0.5% growth of GDP for 4th quarter in 2009 for growth, while there were weak signs in the North America - the drop in retail sales, etc. With all the financial and political uncertainties, the global recovery might continue to be modest and slow, at times choppy, for 2010.

Last year, some financial advisers thought that the stocks would be a better bet than the corporate bonds for 2009. From the extrapolation of the stock activities over the last few years, the market might continue the general uptrend in 2010. Outside the safe haven of government securities, the stock market might be a rewarding conduit for small investments.

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The 2009 Economy

10 November 2009

By the end of the 2008, the world was plunged into a deep recession. Only some emerging nations, such as China and India, have managed a growth in GDP. Fortunately, many economists and industrialists now believe that the worst is over in this downturn.

In the summer, the GDP of France and Germany resumed growth in the second quarter. In Asia, Hong Kong's economy expanded again and Japan reported a 3.7% growth. Then, in the fall, the United States reported a 3.5% growth, although the United Kingdom is still in contraction. In a recent meeting, the financial ministers of the G20 countries have decided the global economy still needs the stimulus measures of governments and keeps a loose financial policy. Thus, the yield curve now assumes a steep convex shape with the short-term interest rate kept at the lowest level.

Nevertheless, the price of pulling out of this recession may be quite high. The governments have gone into deficits for this year and the years beyond. Also, the US dollar might be a victim in this financial shake-up. It may lose its lustre in the near future unless a concerted effort could bolster its former solid status.

The weakness of the dollar can be noticed in perceptible signs. Now, Iran and other gulf nations are reluctant to accept the dollar for the shipment of their petroleum exports. After an unexpected capital influx in the second quarter, the Indian central bank bought 200 tons of gold (US$6.7 billion) from IMF to diversify its foreign reserve (US$270 billion). In addition, other central banks such as Sri Lanka and China might consider buying gold as a strategic asset in lieu of the dollar. With this development and the worry of the future inflation, the gold price rose to the first-time level of US$1,100 an ounce on November 6.

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The Economy and the Stock Market in 2008

Aug 13, 2008

The global economy has not recovered from the American credit crisis instead three of G7 countries - Japan, Italy and Canada reported a contraction in their economies for the second quarter this year. China still enjoys the expansion partly due to spending of the Olympics, but her central government has previously indicated to rein in the inflation later this year. In United States, a mortgage institution has reported loss over one billion dollars and many smaller banks or trusts might face closure this year. In this presidential election year, the federal government historically has often tried to keep the economy going on until after a new administration.

For small investors, they see a "recession" or down turn in the stock markets. The following helpful facts are obtained from a Canadian quarterly publication (Altamira Investment Services) for Summer 2008.

According to an analysis in the Merril Lynch Economic Analysis (28 January 2008):

1. There have been 10 recessions in the United States since the end of World War II.
2. Each one has lasted 10 months on average, ranging from 6 to 16 months.
3. Generally, the S&P 500 has peaked 3-6 months before the start of the recession and has declined 20% or more from that peak by the end of the recession.
4. The market anticipates the economy and typically bottoms out 3-6 months before the recession ends.

                      S&P 500 REBOUND AFTER THE EQUITY TROUGH

     TROUGH          1 mon  3 mon  6 mon  1 yr   2 yrs  3 yrs  5 yrs
     -----------------------------------------------------------------
     May-70           6.8%  16.9%  19.7%  44.5%  56.0%  48.3%  28.5%
     Oct-74          20.6%  14.1%  29.9%  38.0%  65.2%  53.9%  75.5%
     March-80         7.8%  18.3%  32.7%  37.1%  21.4%  53.4%  82.3%
     August-82       20.2%  37.8%  42.3%  57.7%  61.7%  86.1% 208.8%
     Oct-90           8.1%   6.7%  27.8%  28.8%  41.6%  56.1%  96.8%
     Sept-01         12.3%  18.0%  18.9% -13.7%   8.3%  16.9%  36.5%
     March-08         6.8%    -      -      -      -      -      -
     -----------------------------------------------------------------
    AVERAGE RECOVERY 11.8%  18.6%  28.5%  32.1%  42.4%  52.4%  88.1%

Dealing with the current stock market trough, the Quarterly Publication advises not to give in "to panic or radically changing your investment strategy in order to become more defensive."

Updates

[1] 29 August 2008
According to Statistics Canada, the Canadian economy escaped a technically defined recession by posting a 0.3% annualized rate in the second quarter. The real GDP was reported to grow at 0.3% rate for the first quarter, but it has now been revised down to -0.8%.

[2] A few small American banks indeed went bankrupt, but the surprise is that many U.S. big banks are also experiencing financially difficulties and need help from the federal government. (Jan 2009)

[3] The global economy has been going through a deep recession in recent decades.

     2008 - ANNUALIZED REAL GDP GROWTH RATES 

     Countries         4th Qtr   3rd Qtr
     ----------------------------------------
     Canada            -3.4%      +0.9%
     United States     -6.2%      -0.5%     

     Euro Zone         -1.5%      
     France            -1.2%      
     Germany           -2.1%      
     Italy             -1.8%      
     United Kingdom    -1.5%      
  
     Australia         -0.5% 
     China             +6.8%      
     India             +5.3%      
     Japan            -12.7%      
     Hong Kong         -2.0%      
     Singapore        -16.4%      
     South Korea       -3.4%      
     Taiwan            -8.3%      
     -----------------------------------------

So, everyone now knows the world's economy is in a deep contraction phase - England, Japan, United States and other economies are in recession. Canada also reports a negative growth for the 4th quarter of 2008.

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[Note: The article is written for personal interest only. No qualified ideas or opinions are given herein]

Note: Page outlay format updated on 28 October 2013

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