Premium
- New York
- London
- Barcelona
- Tokyo
- Sydney
Search
GDP Observatory
0
0
GDP growth in 4Q07
Tue, Jan 29 2008, 14:09 GMT
by Marcial Nava
- • GDP growth decelerated significantly in 4Q07, as virtually all components weakened from the previous period
- • Economic indicators suggest that GDP growth slowed further in 1Q08 and output is likely to remain sluggish throughout 2008
- • We expect GDP growth at 1.7% in 2008
GDP growth moderated significantly in the fourth quarter
We estimate that real GDP growth slowed to 1.1% in 4Q07 down from 4.9% in 3Q07. Our GDP forecast implies a 2.6% year-over-year growth rate in 4Q07 from 2.8% in 3Q07. Excluding residential investment, GDP components grew in 4Q07 though at a slower pace than in 3Q07.
Our estimates suggest that personal consumption expenditures (PCE) growth eased to 2.5% in 4Q07 from 2.8% in 3Q07. Consumer spending was supported by gains in personal disposable income and employment. Nevertheless, several companies registered holiday season sales below expectations. Real retail sales posted a quarterly annualized gain of 0.5% in 4Q07 from 18% in 3Q07.
The pace of non-residential investment moderated to 4.9% in 4Q07 from 9.4% in the previous quarter. Capital goods orders declined in the first two months of the fourth quarter after strong gains in the previous period. We expect further weakness in private fixed investment from tighter lending standards and less upbeat business confidence.
The housing meltdown continued in 4Q07 as housing starts declined to their lowest level since 1Q93. We expect residential investment to decrease 23.8% from -20.5% in 3Q07. Exports growth decelerated to 2.9% from 19.3% 3Q07 and imports growth eased to 0.8 from 4.3% in 3Q07, reducing the contribution of net exports to GDP growth.
Our forecasts for the fourth quarter imply that real GDP expanded 2.2% in 2007 following a 2.9% growth rate in 2006.
GDP growth will decelerate further
As we’ve noted repeatedly, ongoing turbulence in financial markets, tightening credit standards and a declining housing market are taking their toll on economic activity. Recent weakness in labor markets –the unemployment rate rose significantly in December- is consistent with a deceleration of PCE. In addition, losses in the stock market have the potential to dampen household net worth further limiting PCE growth. Non-residential investment is likely to be impaired by rising costs of funding, while residential investment will continue decreasing for several quarters. As a result, economic activity will grow below potential for an extended period of time and thus, GDP growth will moderate to 1.7% in 2008. The risks associated to this scenario are elevated and come mostly from the intensification of credit constraints and a deeper adjustment of the housing sector.
Personal Consumption Expenditures
PCE probably grew at a solid pace of 2.9% in 2007. This was the result of robust employment and personal income gains. Going forward, however, the downside risks to PCE have increased. The unemployment rate jumped to 5% in December from 4.7% in November. Employment in the nonfarm payroll rose only 18K in December, well below the average of 111K in 2007. Moreover, significant losses in the stock market are likely to dampen households’ financial wealth.
Real disposable personal income (DPI) expanded robustly despite a slowdown in productivity growth; however, with employment already decelerating real DPI is likely to soften in coming quarters. We look for a 1.3% PCE growth in 2008.
Nonresidential investment
The outlook for non-residential investment looks less optimistic. Corporate profits after tax flattened in 3Q07 while business confidence declined steadily over the past three quarters. Cash flows decreased 4.3% in 3Q07, following a 2.2% fall in the previous quarter.
The financing gap continued to increase and reached $280.5 billion in 3Q07, according to Fed figures. Although this may be positive for C&I lending and nonresidential investment, it is also a source of risks given that credit standards are tightening and that nonfarm nonfinancial corporate profits dropped 6.9% yoy, the sharpest decline since 2Q02.
Declining corporate profits and cash flows together with credit scarcity could dampen capital spending plans. We expect a slowdown in business investment caused by tighter credit conditions, slower sales, and the effects of the housing adjustment in some industries. Risks steam from a credit crunch and its spillover effects on the broader economy.
Residential investment
Recent indicators showed that the housing adjustment intensified in 4Q07 due to problems in the mortgage market and housing oversupply. Thus, residential investment will decline further in 2008, and will not recover until 2009.
In December, housing starts were 1.006 million units, their lowest level since May 1991. Further deterioration in the mortgage market adds downward pressures on residential investment.
Net exports
In the first two months of the fourth quarter, real exports of goods expanded at an average of 8.3% year-on-year. In contrast, imports growth averaged 1.9% in the first two months of 4Q07. Therefore, net exports remain supportive of economic growth.
Going forward, exports growth will continue to be favored by economic growth abroad and a weak exchange rate. Meanwhile, the expected slowdown in domestic demand will reduce the pace of imports. As a result, net exports will continue adding to overall GDP growth.
Published on Tue, Jan 29 2008, 14:20 GMT
Archive
- GDP Growth in 2Q08: revision of forecasts
Published On Fri, Aug 1 2008, 15:57 GMT - GDP growth in 2Q08
Published On Fri, Jul 25 2008, 07:24 GMT - US: GDP Growth in 1Q08
Published On Fri, May 2 2008, 09:03 GMT - US: GDP Growth in 1Q08
Published On Mon, Apr 28 2008, 15:46 GMT - GDP growth in 4Q07
Published On Thu, Jan 31 2008, 08:16 GMT
BBVA Bancomer
| Av. Universidad 1200 Col. Xoco México 03339 D.F.
http://www.bancomer.com/economica | e.economicos@bbva.bancomer.com
Legal disclaimer and risk disclosure
This document was prepared by Banco Bilbao Vizcaya Argentaria’s (BBVA) Research Department on behalf of itself and its affiliated companies (each a BBVA Group Company) for distribution in the United States and the rest of the world and is provided for information purposes only. The information, opinions, estimates and forecasts contained herein refer to that specific date and are subject to changes without notice due to market fluctuations. The information, opinions, estimates and forecasts contained in this document have been gathered or obtained from public sources believed to be correct by the Company concerning their accuracy, completeness, and/or correctness. This document is not an offer to sell or a solicitation to acquire or dispose of an interest in securities.Interested in forex trading? forex brokerage firms!
FXstreet.com will give you a 3 months membership as soon as minimum rebates have been generated (€150 for private trader/ €300 for corporate trader)
[Read Premium full description]
Opinions expressed at FXstreet.com are those of the individual authors and do not necessarily represent the opinion of FXstreet.com or its management.
Risk Disclosure: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.
©2008 "FXstreet.com. The Forex Market" All Rights Reserved.