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					                                                                         2007 年 12 月 10 日

         Global Watch
                         《Global Economy》

1. US Economy
 Subprime issue threatening the economy ...............................................1

2. European Economy
 Economy is expanding but the pace is slowing down. .............................2

3. Chinese Economy
 Robust investment supporting uplift of the regional economies ...........4

   This is an abstract of our monthly reports on the Japanese Economy.
   The information and the views contained herein are subject to change
   without notice.

                   Economic Research Department
1. US Economy                                                      By Tadao Hosoo, Economist

Subprime issue threatening the economy

         The revised real GDP grew by an annualized 4.9% on a quarter-on-quarter basis in the
July-September quarter of 2007, accelerating from 3.8% growth in the previous April-June
quarter. However, a number of more recent indicators for October clearly show signs of a
slowdown, raising anxiety over the influence of the subprime mortgage issue.
         In the household sector, the number of non-farm employees in October increased by
166,000, representing a favorable employment environment. Retail sales (on a core basis
excluding automobiles, building materials, and gasoline) remained flat due to poor sales of
furniture and clothing, but housing starts reached 1.23 million, a small increase from the
previous month, which marked a 14-year low.
         In the corporate sector, the October ISM indicators, which represents the business
confidence among companies, were 50.9 in the manufacturing industry and 55.8 in the
non-manufacturing industry, both above the threshold of 50. However, shipments of capital
goods (on a core basis excluding defense-related goods and aircraft), which indicates the trend of
fixed investment, decreased by 1.2% from the previous month after a four-month increase.
         The personal consumption expenditure (PCE) price index on a core basis excluding food
and energy, which the Federal Reserve Board watches closely, rose by 1.8% in September
compared to the year before, which is within the 1 to 2% range considered to reflect price
         The Federal Open Market Committee (FOMC) meeting held on October 30-31 decided
to lower the Federal Funds rate by 0.5 percentage points to 4.5%. As the effects of the subprime
mortgage problem are spreading, it is largely expected in the financial markets that the Federal
Funds rate will be decreased again at the FOMC meeting scheduled on December11. However,
as the sense of caution is increasing towards inflation due to such factors as the oil price
increase, the Fed's actions will need to be watched closely.                       (2007.11.30)

 Economic Research Dept.                            Global Watch(Global Economy) November 2007
                                          Chart 1 : U.S. Economic indicators
                     8                       10-year government bond yield
                     2                  FF rate

                    5                                           Core consumer price
                                                                (yoy, excl. food and energy)

                   (%)                                                                         (thousand)
                  10.0                                                                                1000
                   7.5                             Industrial production(yoy, L-H)                   750
                   5.0                                                                               500
                   2.5                                                                               250
                   0.0                                                                               0
                  -2.5                                                                               -250
                  -5.0    Number of employed person                                                  -500
                          (Change from the previous month, R-H)
                  -7.5                                                                               -750
                         96   97   98   99    00    01     02     03     04    05    06    07

2. European Economy                                                       By Tadao Hosoo, Economist

Economy is expanding but the pace is slowing down.

        The revised real GDP growth rate for the July-September quarter was 2.6% on a
year-on-year basis, superseding the supposed potential growth rate of about 2%. However, the
Economic Sentiment Indicator compiled by the Commission of the European Communities for
October was 105.9, showing another decline for five months in a row. Due to factors such as the
detrimental effects of the subprime mortgage issue, it appears that the momentum to push the
economy upward has clearly peaked out.
        In the household sector, the unemployment rate in September improved to 7.3%,
breaking the record low figure. The consumer confidence index in October, however, was minus

Economic Research Dept.                                 Global Watch(Global Economy) November 2007
6.1, which was apparently affected by the subprime issue, marking another drop for three
consecutive months.
        In the corporate sector, the mining and manufacturing confidence index in October was
1.6, marking another drop for four months in a row. The increase in exports is beginning to
plateau, and it seems the expansion phase of the corporate sector is in a recess.
        Regarding price trends, the consumer price index in October rose by 2.5% on a
year-on-year basis, a further increase from the previous month and exceeding the 2 percent
reference rate set by the European Central Bank (ECB) for two months in a row.
        The ECB, at its governing council on November 8, left the short-term repo rate
unchanged at 4%. While ECB president Jean-Claude Trichet continues to express concerns of
inflation, he is also anxious about the unfavorable effects of the subprime issue on the economy,
thus it is likely that the interest rate will remain unchanged for the time being.(2007.11.30)

                            Chart 2 : Euro area Economic sentiment indicator
              (Year 1995=100)
                     90   92      94      96     98       00    02      04     06

               (%)                Chart 3 : Euro area Consumer confidnce







                    90    92      94     96      98       00    02      04     06
             Source: Datastream

Economic Research Dept.                                Global Watch(Global Economy) November 2007
3. Chinese Economy                                                         By Mariko Noda, Economist

 Robust investment supporting uplift of the regional economies

        Despite repeated tightening measures by the government, fixed investment is still
expanding at a high pace. One reason behind this robust expansion is the fact that the
investments authorized by regional governments are increasing at a vibrant pace (Chart 4).
        In discussing the vigorous investments in local regions, there is still the lingering
image that such investments are the cause of environmental destruction and the wasteful use of
resources. However, it must be recognized that active investments have provided for uplifting
regional economies that were left behind from the growth experienced in the coastal areas.

                                     Chart 4 :China Fixed asset investment by
                          (yoy, %)          jurisdiction of management




                                                            Central government
                                                            Local government
                                05                  06                 07 Source: CEIC
                               Note: Figures are accumulated since beginning of the year.

        Chart 5 shows per capita GDP levels in 1997 and 2006, broken down in provinces and
indexed on the national average fixed as 1. This shows that the per capita GDP was the highest
by far in both years at approximately 3.6 times the national average in Shanghai. But looking
more closely, it can be recognized that such cities as Beijing and Tianjin, as well as inland and
northeast regions, such as Neimenggu, Shaanxi, and Jilin, recorded increases in relative levels
of per capita GDP, while Shanghai's relative level of per capita GDP decreased, albeit very
slightly. This means the high economic growth supported by robust investments in local regions
relativized Shanghai's standing, only by a small margin.

Economic Research Dept.                                  Global Watch(Global Economy) November 2007
                              Chart 5: China's Change in the level of GDP per capita over a decade
                    1997       2006     Variation                 1997      2006      Variation              1997       2006     Variation
National average       1.00      1.00               Hebei           0.95       1.05        0.11 Ningxia         0.62      0.73        0.11
Shanghai               3.61      3.56     ▲ 0.05 Heilongjiang       1.13       1.01     ▲ 0.12 Qinghai          0.64      0.73        0.09
Beijing                2.62      3.10        0.48 Jilin             0.86       0.98        0.12 Jiangxi         0.65      0.67        0.02
Tianjin                2.04      2.53        0.49 Xinjiang          0.96       0.93     ▲ 0.03 Sichuan          0.62      0.66        0.04
Zhejiang               1.64      1.97        0.33 Shanxi            0.74       0.88        0.14 Tibet           0.49      0.65        0.16
Jiangsu                1.46      1.79        0.32 Hubei             0.92       0.83     ▲ 0.09 Guangxi          0.61      0.64        0.02
Guangdong              1.62      1.76        0.13 Henan             0.69       0.83        0.14 Anhui           0.68      0.63     ▲ 0.05
Shandong               1.19      1.48        0.29 Hainan            0.86       0.79     ▲ 0.08 Yunnan           0.63      0.56    ▲ 0.07
Liaoning               1.32      1.35        0.03 Chongqing         0.69       0.78        0.08 Gansu           0.49      0.54        0.05
Fujian                 1.43      1.33     ▲ 0.10 Shaanxi            0.58       0.76        0.17 Guizhou         0.34      0.36        0.02
Inner Mongolia         0.74      1.25        0.51 Hunan             0.72       0.74        0.02                        Source: CEIC
Note: Variations are the gap between relative per-capita GDP level in 1997 and 2006. Relative per-capita GDP levels are calculated on the
basis that
    Relative per-capita GDP level in Shanghai is 3.61 times higer than the national average as of 1997, but declined to 3.56 times
(variation is minus 0.05 in 2006).

           The strong desire for improvement seen in local regions is the driving force of China's
overall economic growth. Nevertheless, in order to make the growth sustainable, it is obvious
that the negative aspects of hasty growth mentioned above must be attended to.(2007.11.26)

Economic Research Dept.                                                Global Watch(Global Economy) November 2007

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