BEIJING—China's manufacturing sector presented a mixed picture in May, as an official gauge of factory activity recorded modest gains while a private index pointed to continuing sluggishness.
Analysts said that the conflicting results meant that Beijing probably would roll out more government support in the months ahead to spur momentum in the world's second largest economy.
The official manufacturing Purchasing Managers' Index came in at 50.2 in May, up from 50.1 in April. That marked the third month in a row that it was above the key level of 50, which separates expansion from contraction compared with the previous month. Economists attributed the rise to government support measures.
Meanwhile, the final reading from a private survey compiled by HSBC HoldingsHSBC-0.40% PLC and research house Markit rose to 49.2 in May from 48.9 in April, but the result was still the third month in a row in negative territory.
"A series of government support measures is starting to show some effects," said Zhao Qinghe, analyst at China's National Bureau of Statistics, which released the official data on Monday. "But the manufacturing sector still faces downward pressure."
Weak domestic demand, a slumping property market and sluggish exports have combined to pinch economic growth. Growth came in at 7% year over year in the first quarter, the worst showing in six years, according to the official statistics.
In addition, exports in April fell a surprising 6.4% from a year ago, extending a 15% slide in March and showing that the economy was getting little lift from overseas demand.
The government has responded with an array of policy measures to support growth, including stepped-up spending on infrastructure projects and tax breaks for businesses and consumers. The central bank has also slashed interest rates and encouraged banks to lend more of their deposits.
"We expect monetary policy to continue to ease," said Yang Zhao, economist at Nomura International. "We still expect growth of 6.6% in the second quarter though that should be the bottom for the year," he said.
The official PMI subindex measuring new orders climbed to 50.6 from 50.2 in April, while the production subindex improved to 52.9 from 52.6, according to the statistics bureau.
Analysts said that the continuing weakness in the HSBC-Markit survey probably reflects the survey's bias toward greater weighting of smaller and export-oriented companies, which are often slower to benefit from government stimulus measures. The HSBC index showed particularly weak export business as well as more softness in employment.
Meanwhile, the nonmanufacturing sector also showed a mixed picture. The official index for nonmanufacturing activity remained in positive territory, though it dipped to 53.2 in May from 53.4 in April. However, it was the lowest showing for that index since December 2008, according to data provider Wind Information.
—Grace Zhu contributed to this article.
Write to William Kazer at william.kazer@wsj.com
Corrections & Amplifications
China's official manufacturing Purchasing Managers' Index came in at 50.2 in May. An earlier version of this article misstated the PMI figure in the third paragraph. [June 1]
Workers look at machines moving newly made raw bricks at a factory in Huaibei, Anhui province July 31, 2014.
Reuters/China Daily
Growth in China’s giant factory sector edged up to a six-month high in May but export demand continued to shrink, prompting companies to shed workers and keeping alive worries about a protracted economic slowdown, an official survey showed on Monday.
A similar survey on the services sector showed activity cooled to its slowest rate in over five years, reinforcing views that authorities will have to roll out more stimulus in coming months.
The official manufacturing Purchasing Managers’ Index (PMI) edged up to 50.2 from April’s 50.1, the National Bureau of Statistics (NBS) said on its website, in line with analysts’ forecast for a 50.2 reading.
A reading above 50 points indicates growth on a monthly basis, while one below that points to contraction.
The non-manufacturing Purchasing Managers’ Index (PMI) edged down to 53.2, from April’s 53.4, the NBS said.
Growth in China’s services companies has been more resilient than at ailing factories, but the sector too has succumbed to the broader economic cooldown in recent months.
However, Zhang Liqun, an analyst at the China Federation of Logistics and Purchasing, argued that a rise in overall new orders pointed to some steadying market demand.
“This shows stabilization in economic growth,” Zhang said.
Still, the muted PMI reports suggested that China’s economy is still struggling despite recent interest rate cuts and other policy stimulus, suggesting the government may have to do more to support growth.
A private sector survey which focuses on small and medium-sized firms showed activity contracted for the third straight month as export orders shrank at the sharpest rate in nearly two years.
The final HSBC/Markit Purchasing Managers’ Index (PMI) stood at 49.2 in May, little changed from a preliminary reading of 49.1, and up a touch from April’s 48.9.
China’s central bank has cut interest rates three times in six months to lower the real cost of borrowing for companies. Many analysts predict it will lower rates at least once more this year.
Weighed down by a property downturn, factory overcapacity and high levels of local debt, China’s economic growth is expected to slow to a quarter-century low of around 7 percent this year from 7.4 percent in 2014.
That has fueled investor speculation that China’s central bank, which has cut interest rates three times in six months, will lower rates at least once more this year.
As the first major indicator that is released each month, China’s official manufacturing PMI is closely watched by investors for clues about the health of the Chinese economy.
(Reporting by Koh Gui Qing; Editing by Kim Coghill)
DES MOINES — A mere 240 people live in the rural northeast Iowa town of Kensett, so when more than 300 crowded into the community center on Saturday night to hear Senator Bernie Sanders of Vermont, many driving 50 miles, the cellphones of Democratic leaders statewide began to buzz.
Kurt Meyer, the county party chairman who organized the event, sent a text message to Troy Price, the Iowa political director for Hillary Rodham Clinton. Mr. Price called back immediately.
"Objects in your rearview mirror are closer than they appear," Mr. Meyer said he had told Mr. Price about Mr. Sanders. "Mrs. Clinton had better get out here."
The first evidence that Mrs. Clinton could face a credible challenge in the Iowa presidential caucuses appeared late last week in the form of overflow crowds at Mr. Sanders's first swing through that state since declaring his candidacy for the Democratic nomination. He drew 700 people to an event on Thursday night in Davenport, for instance — the largest rally in the state for any single candidate this campaign season, and far more than the 50 people who attended a rally there on Saturday with former Gov. Martin O'Malley of Maryland.
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Who Is Running for President (and Who's Not)?
The first-in-the-nation caucuses, on Feb. 1, loom as a major test for Mrs. Clinton: She came in third in Iowa during her presidential run in 2008, and anything less than a decisive victory this time would rattle her shell of inevitability and raise questions about her strengths as a standard-bearer for an increasingly liberal Democratic Party.
Mr. Sanders is considered the Senate's most left-wing member, and he has been inspiring fervor among the Democratic base at recent rallies and town-hall-style meetings, including on Wednesday in the first presidential primary state, New Hampshire.
Mrs. Clinton is far ahead in the polls, fund-raising and name recognition, however, and she is expected to continue to have a much more organized and sophisticated campaign operation in Iowa and nationwide than Mr. Sanders has. Her mix of centrist and progressive Democratic views may yet prove more appealing to the broadest number of party voters as well, while some of Mr. Sanders's policy prescriptions — including far higher taxes on the wealthy and deep military spending cuts — may eventually persuade Democrats that he is unelectable in a general election.
Even before Mr. Sanders drew unexpected levels of support at his Iowa events, advisers to Mrs. Clinton's presidential campaign were emphasizing that they expected the caucuses to be competitive.
"We've said from day one that we take nothing for granted, and two, we're humble, which is a direction from Hillary herself," said Matt Paul, Mrs. Clinton's Iowa director.
Judging from Mr. Sanders's trip here last week, there is real support for his message — though some Democrats also simply want to send a warning shot to Mrs. Clinton to get her to visit here more.
Mrs. Clinton's large Iowa staff, which arranged her earlier visits to the state, when she met with small groups on a "listening tour" in carefully controlled settings, has taken the posture of not overreacting to Mr. Sanders or taking him too seriously. The Clinton team did not send anyone to observe or record the Sanders events, for instance.
Other Democratic strategists in the state, unaffiliated with any candidate, said Mrs. Clinton's aura of inevitability, with a nearly 50-point lead over Democratic rivals in most recent nationwide polls, was one of her greatest challenges.
"At this point, expectations are really probably the toughest thing for the Clinton camp to manage," said Brad Anderson, who ran President Obama's re-election campaign in Iowa in 2012.
Almost as important as who wins the Iowa caucuses is the candidates' finishing order. A strong second-place finish here can propel a candidate as the race heads to New Hampshire and other early voting states.
If Mrs. Clinton wins the caucuses but not by a significant margin, she will risk being embarrassed, and the runner-up will look like a serious challenger to what once appeared to be Mrs. Clinton's inevitable road to the nomination.
"Let's say she wins by less than 20 percent," said Mr. Meyer, chairman of the Tri-County Democrats. "That's a two-ticket-out-of-Iowa thing."
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Grant Woodard, a Democratic strategist close to the Clinton team but not working for it, said, "They understand they're going to be challenged, and they're preparing for that inevitability."
That challenge may be emerging sooner than expected. The large crowds for Mr. Sanders were a sign of many voters' desire to hear and meet Democratic candidates in free-flowing town-hall-style gatherings, with policy issues discussed in detail, which Mrs. Clinton has so far avoided. Her campaign has promised that such events will follow this summer.
Mr. Sanders's stop at a brewery in Ames on Saturday was so mobbed that more than 100 people who could not fit inside peered through the windows.
Along with a picture of the scene he posted on Twitter, Steffen Schmidt, a political science professor at Iowa State University who teaches a course on the caucuses, wrote, "Hillary should worry."
Iowa Democrats "truly hate Clinton's 'listening tour' campaign," Mr. Schmidt said in a follow-up email exchange. "They feel neglected."
But one reason the Clinton campaign may not be visibly breaking a sweat is that it is far ahead in building a network of organizers in Iowa, who are key to turning out voters in a caucus state. The campaign has 30 paid organizers around the state who are contacting Democrats at every level, from likely caucus attendees to local and statewide elected officials. The numbers are sure to grow as the caucuses approach.
Mr. Sanders has just two paid staff members so far in the state. "One of the problems we're having is things are moving so fast our infrastructure hasn't kept up with our political reality," Mr. Sanders said in an interview. His Iowa director, Pete D'Alessandro, said he was planning to hire up to 30 paid staff members by midsummer.
Mrs. Clinton's advisers are most concerned that Mr. Sanders might prove effective, particularly in the Democrats' televised debates, at painting Mrs. Clinton as squishy or untrustworthy on liberal issues.
The crowds at Mr. Sanders's Iowa events appeared to be different from the state's famously finicky tire-kickers. Many said they had already made up their mind to support Mr. Sanders. They applauded his calls for higher taxes on the rich to pay for 13 million public works jobs, for decisive action on climate change and for free tuition at public colleges.
"Look at all these people," said Phyllis Viner, 68, a yoga instructor who attended his Davenport event at St. Ambrose University.
Lindsay O'Keefe, 22, who took a picture of a Sanders poster that read, "Paid for by Bernie 2016 (not the billionaires)," called Mr. Sanders "a really valuable candidate" who can "push Hillary to the left" even if he does not defeat her.
The next day, in Muscatine, Iowa, after a rally at a community college drew twice the expected audience of 50, Mr. Sanders seemed to be experiencing a contact high from the size of his crowds. He sat on a picnic table outside for a short interview.
"Be amazed at what you saw here," he said, adding, "I want to win this."
Greek Prime Minister Alexis Tsipras held a phone call on Sunday with German Chancellor Angela Merkel and French President Francois Hollande where the three leaders agreed needed to reach a deal with its lenders quickly, a Greek official said.
Athens and its euro zone and International Monetary Fund (IMF) creditors have been locked in talks for months without luck on a deal. Pressure to strike one has intensified as Athens faces a debt payment on June 5 as well as the expiration of its bailout program on June 30.
“(The teleconference) took place in a very good climate,” the official said, adding that all three recognized the need for a quick deal.
It was the second call in four days between the three leaders Tsipras pushes for a political solution for the country’s economic troubles.
(Reporting by Renee Maltezou, Editing by Deepa Babington)
India is raking up its economic reputation since Narendra Modi took over the Prime Ministerial role. Data on Friday indicated that the Indian economy has grown faster than that of China in the first quarter of the year. A 7.5 percent growth was registered by India, which is a little higher than the 7 percent growth shown by China in the same quarter.
Despite facing criticism over the land acquisition bill and farmer suicides, Narendra Modi is encouraging investment friendly policies, owing to which India is making a great recovery in the economic sector. The Prime Minister has to be credited for this rise and growth of the Indian economy.
When we consider sectors like Finance, Insurance and Real Estate, the growth has been recorded to be 11.5 percent. Many experts have come out in open to praise the policies of India and how they are progressing over the time. The managing director of the International Monetary Fund Christine Lagarde said that India retains a bright spot in the cloudy global horizon. Rajiv Biswas, Asia Pacific chief economist for the research firm HIS also said, "The Indian economy has shown signs of gradual recovery, but over the last year this has not met market expectations".
Modi government has been receiving an ample of praise due to the acceleration of the Indian economy in the recent past. They are planning to spend $ 11 billion this year on the projects of railways, road and other infrastructure. This is done in order to derive more private investment in the country.
The Central Stats Office however saw a decline in the economic growth of India which has come down to 6.6 percent from 7.5 percent on Friday. It raises a substantial number of questions on the new method that is used for measuring an economic activity.
Shares of US automakers are set to rise as investors are awaiting the May sales data, expected to touch record levels. Car buying platform Edmunds.com stated that a seasonal-adjusted rate of 17.4 million is expected to match the estimated sales of 1.6 million new cars and trucks in May.
Chief investment strategist David Kudla of Mainstay Management in Grand Blanc, Michigan stated that the May sales is getting closer to $ 40 billion, and added that May 2015 appears to become one of the best months ever. August 2014 marked the record sales of $ 40.3 billion. In April, weak auto results lead to low overall retail sales, but it is set to rebound in May.
Senior analyst at Edmunds.com in Santa Monica Jessica Caldwell said that the timing of the Memorial Day holiday was another big factor in the jump in the car sales. The demand for sports utility vehicles and trucks were driven by the low gas prices. Caldwell added that the full week of May after the holiday weekend proved to be an advantage for shoppers to take advantage of the deals, communicated in dealer and automaker marketing messages.
Chief investment officer Jack Ablin at BMo private bank in Chicago said that credit for auto loans has seen expansion, helping the sector to grow. Ablin mentioned that the strong dollar caused a "headwind," and GM recalls, but he expects the growth in auto sales to continue. Currently, GM and Ford appear undervalued at current levels: GM's price-to-earnings ratio stands at 7.62, way below the S&P's ratio of 17.4. Ford's P/E ratio stands at 9.77, according to Thomas Reuters data.
Though the rise in shares caused by the sales is expected, it could be a bad new for the wider market as any sign of consumer strength could push the US Federal Reserve to raise the interest rates. Analysts expect that the hike could come later this year, but it remains unclear if it would happen in September or December.
It looks like shareholders of the US automakers are in for a good year. Investors are carefully looking towards next week's release of the May sales data, which is actually expected to be near record levels.
"This is going to be one of the best months ever," explains Mainstay Capital Management chief investment strategist David Kudla.
Kudla explains that May sales are approaching $ 40 billion, which is extremely close to the $ 40.3 billion record set in August 2014.
Indeed, then, this could be a great sign that the slumping US auto industry is poised to rebound. Edmunds.com senior analyst Jessica Caldwell notes that the timing of the Memorial Day holiday also managed to bump up sales in the month of May. Caldwell says, "Because there was a full week of May after the holiday weekend, shoppers had plenty of time to take advantage of the deals being widely communicated in dealer and automaker marketing messages."
Estimated sales numbers in May is approaching 1.6 million new cars and trucks, reaching a seasonally-adjusted annual rate of approximately 17.4 million vehicles, according to online car-buying platform Edmunds.com And, it seems that credit for auto loans has been expanding, which is one of the best signs for the auto sector, according to BMO Private Bank chief investment officer Jack Albin.
Albin goes on to say, "The strong dollar created a headwind, and GM had some high-profile product recalls, but given current trends, I would expect sales growth to continue."
Finally, experts state, "Good data would make the Fed raise rates sooner. I believe the stock market would sell off (on strong auto data) because it would shorten that timeline."
Rise in shares of US automakers is highly likely to be triggered by next week’s May sales data. May sales are approaching $ 40 billion, touching almost the $ 40.3 billion record in August 2014. May is expected to turn out to be a great month for auto sectors in terms of recovery.
David Kudla, chief investment strategist of Mainstay Capital Management in Grand Blanc, Michigan, said May sales are getting closer to $ 40 billion, not far from the $ 40.3 billion record in August 2014. Kudla said May 2015 appears to become one of the best months ever.
Decline in gas prices has triggered the sales of sports utility vehicles and trucks. Jessica Caldwell, senior analyst at Edmunds.com in Santa Monica, California, said that another big factor behind the jump in car sales is the timing of the Memorial Day holiday.
"Because there was a full week of May after the holiday weekend, shoppers had plenty of time to take advantage of the deals being widely communicated in dealer and automaker marketing messages", said Caldwell.
Jack Ablin, chief investment officer at BMO Private Bank in Chicago, said credit for auto loans has seen expansion, which is helping the sector to grow.
Caldwell added that a headwind was created by the strong dollar, and GM had to announce recalls from some high-profile products, but the current trend of rise in auto sales is not going to upset soon.
The auto market could be affected by rise in interest rates by the US Federal Reserve more quickly than expected.
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So the Narendra Modi government gets a nice anniversary present. Three days after it completes one year in office, numbers put out by the Central Statistical Office (CSO) show the economy grew 7.3 per cent in 2014-15 against 6.9 per cent in 2013-14. It's quite clear now that the economy is on the mend.
As this report shows, the sectors which have done much better in 2014-15 than in 2013-14 are manufacturing, the utilities (electricity, gas, water supply etc), construction (though there has been a decline quarter on quarter) and financial, real estate and professional services.
Questions will be raised about the manufacturing growth figure of 7.1 per cent since the index of industrial production (IIP) showed a growth of just 2.3 percent. Remember, however, that the IIP figure relates only to the organised sector and to goods shipped out of the factory gate. The national accounts figure covers the unorganised sector as well and is about gross value added at basic prices. It also now includes some manufacturing-related services which were earlier put in the services basket.
Are the better numbers a sign that this government has managed the economy well? Certainly the government can take credit for some of the decline in inflation, though the fall in global oil and commodity prices also played its part. This has revived the consumption story – at 60.1 per cent private consumption as a percentage to GDP in 2014-15 is slightly better than in 2013-14 when it was 59.7 per cent.
According to Devendra Pant, chief economist at India Ratings, the fact that food inflation did not shoot up in March and April after the unseasonal rains has given some confidence to the rational consumer. There is also a budding investment recovery – gross fixed capital formation (GFCF) at constant prices grew 4.6 per cent against 3 per cent in 2013-14. The improved business environment is responsible for this.
Yet, there are areas of concern that need to be addressed for 2015-16.
The consumption story may be recovering, but it is still a source of worry, with the numbers fluctuating quarter on quarter. Private consumption dipped to 59.7 per cent of GDP in Q4 from 61.1 per cent in Q3.
State Bank of India's chief economic advisor Saumya Kanti Ghosh points out in an Ecowrap report that growth in both per capita gross national disposable income (GNDI, or income available for spending after paying taxes) and in per capita private final consumption expenditure (PFCE) has declined. While per capita GNDI growth has come down to 8.8 per cent in 2014-15 from 12 per cent in 2013-14, per capita PFCE growth has fallen to 9.8 per cent from 13.8 per cent.
"For every drop in GNDI, the PFCE has dropped more sharply," says Ghosh, who finds the contraction in demand glaring.
So a close watch needs to be kept on this – revival of demand is the key to a more sustained recovery. A lot will depend on inflation (the monsoons could prove a wild card) and interest rates (2 June will tell us how this will pan out).
Pant notes that the focus has to be on reviving domestic demand – global trade recovery is expected to be weak. In fact, the numbers show a quarter on quarter decline in exports as a percentage of GDP – from 23.9 per cent in Q1 to 21.2 per cent in Q4.
Investments may have grown a bit, but at 28.7 per cent of GDP, the investment rate is lower than the previous year's 29.7 per cent. At a press briefing on the state of the economy on 26 May, chief economic advisor Arvind Subramaniam noted that though the number of stalled projects has come down, there's been no pick up in fresh private investments.
Industry is hoping for public investment to lead the way (Subramaniam has been talking about this), but the compulsions of fiscal consolidation may prove a hurdle. Business sentiment has improved, but are still subdued and concerns on this front need to be addressed.
The agricultural story is weak – gross value added (GVA) in the sector has been declining quarter on quarter, with a 1.4 per cent decline in Q4, which has to do with the unexpected rains. For the coming year, the uncertainty over the monsoons is a source of worry. Agriculture accounts for only 15 per cent of GDP and may not pull down the aggregate numbers hugely, but rural demand still drives overall demand and so is an area of concern. A likely dip in food production could spike inflation which too could affect demand.
The government can take heart at economy having turned the corner but it will be a while before it gets back into the pink of health. That will require a lot of nurturing. One wrong step could spoil the story again.
The 7.5 per cent growth in Gross Domestic Product (GDP) recorded in the fourth quarter (the number for the full fiscal year 2015 is 7.3 per cent) theoretically makes India the fastest growing major economy in the world, beating China (the Chinese economy grew 7 per cent in the March quarter and 7.4 per cent for the full calendar year 2014) and far ahead of other comparable economies.
For the Reserve Bank of India (RBI), which will announce its monetary policy on Tuesday, the GDP numbers are unlikely to claim any major influence on its rate cut stance. A quarter percentage rate cut is a fair expectation.
The GDP numbers are a victory for the NDA government. The NDA has already claimed victory on achieving an economic turnaround during Narendra Modi's first year of rule. True, the status of being the fastest growing economy gives a perception boost to India before the world. But even while the prevalent mood may be one of celebration, a little caution is warranted. A check would reveal that the GDP numbers aren’t as solid as it appears just yet.
Here is what the data on Friday showed: The growth in the fourth quarter came a higher-than-expected 7.5 per cent. The big support came from manufacturing, services and construction sectors. The major drag was agriculture, which for the full year expanded by just 0.2 per cent, compared with 3.7 per cent in the whole of last year, presumably on account of poor monsoons.
But, there are three areas, where economists have raised concerns.
First, despite the feel-good factor offered by the growth number, the sharp drop in the Gross Value Added (GVA) is disappointing. A note on the GDP figures from the State Bank of India has, in fact, gone ahead and called the 7.5 per cent growth in Q4 as a bit "fortuitous", given that subsidy numbers for the March quarter had declined significantly.
"The decline in GVA is primarily attributable to the slowdown in Services, driven by a public administrative sub-segment (0.1 per cent in Q4 FY15 vis-Ã -vis 19.7 per cent in Q3). This was not entirely unexpected, as the government had virtually stopped spending in Q4 to meet the deficit target," SBI economists noted.
Rating agency, Care has noted that capital formation in the economy continues to decline and this is something the government needs to address in the years ahead. As Firstpost has noted before, fiscal discipline is a must but that cannot come at the cost of choking funds meant for capex expansion.
Somehow, finance minister Arun Jaitely seems to have a different notion. Given that higher public spending is key to reboot growth, the NDA's obsession with fiscal deficit numbers is something that can potentially delay the growth recovery on the ground. Hence, the decline in the GVA, led by a broad-based slowdown in industrial expansion, is indeed a worry.
Second, some economists have begun sounding caution on the sharp downward revision in the third quarter number (revised downwards to 6.6 per cent from 7.5 per cent) saying this signals the beginning of further slowdown in the second half of last fiscal year. Even though numbers of the first two quarters were also released, the revisions were, albeit, marginal.
"The downward revision in Q3 suggests some loss of momentum began in the second half of FY2015. The GVA (gross value added), however, has a different story to tell, showing a marked sequential slowdown from Q2 onwards, implying that larger growth has come on account of net taxes on products,” Reuters quoted Yes Bank chief economist, Shubhada Rao as saying.
Third, there is still a protruding disconnect seen between the GDP numbers and the high frequency macro data. This is something economists have highlighted ever since the new GDP series came into effect.
The factory output numbers for the recent months, bank credit growth and the movement trend of the stressed assets in the banking system indicate things haven't really improved. If at all, it may have worsened in some areas. The stark contrast between the GDP figures and ground reality should be questioned.
"The higher growth number in value added in sectors like manufacturing and services like finance, trade, transport, etc. have pushed growth up. However, these numbers do not adequately reflect the lower growth numbers in IIP (Index of Industrial Production) or the banking business numbers," a note from rating agency, Care, said.
According to the latest RBI data, on a year-on-year (y-o-y) basis, non-food bank credit increased by just 8.9 per cent in April 2015 as compared with the increase of 14.2 per cent in the year-ago period. Loan growth to industries slowed to 6.4 per cent compared with 12.3 per cent in the year-ago period.
On the other side, banks are sitting with bad loans of over Rs 3,00,000 crore on their books and a substantial chunk of restructured loans, which together constitutes over 12 per cent of the total bank loans given. More worryingly, fresh slippages from restructured loans too have shown an increase in the last one year.
Data sourced from corporate debt restructuring cell (CDR), a forum of banks that takes up cases of large restructuring proposals, shows that Rs 57,000 crore worth restructured assets were tagged as failed loans and accounts that failed to recover despite recasts, at the end of March quarter. This almost double from the year-ago period.
Thus, while the GDP numbers indeed offer a hope that economy is in a recovery mode, they should be seen with a bit of caution. The celebrations can, perhaps, wait.
India’s economy grew faster than China’s in the quarter through March, data showed on Friday, but a sharp downward revision for the previous quarter fuelled doubts about the accuracy of a new method used to measure economic activity.
Asia’s third-largest economy grew 7.5 percent year-on-year in the last quarter, according to the data, outstripping China’s 7 percent growth in the same quarter and beating a Reuters poll of economists who forecast 7.3 percent growth.
India also celebrated faster growth than its larger neighbour in the December quarter, but on Friday the Central Statistics Office sharply revised growth down to 6.6 percent from 7.5 percent, further distorting the picture.
“At face value, today’s GDP figures for (January-March) suggest that India is the fastest-growing major economy in the world,” said Shilan Shah, India Economist at Capital Economics.
“In reality though, the GDP data remain wildly inconsistent with numerous other indicators that point to continued slack in the economy.”
Economists were already having a hard time reconciling the headline numbers with dismal corporate earnings, weak industrial activity and an elusive recovery in bank credit.
Full-year growth for the fiscal year ending in March came in at 7.3 percent, data on Friday showed, up from 6.9 percent in 2013/14, a tad lower than an official estimate of 7.4 percent.
Back in December, the government estimated growth for the year would be 5.5 percent using the old methodology. That would have represented a modest improvement after two successive years of growth below 5 percent — the worst in a quarter century.
But the Statistics Office’s reworking of the numbers has transformed India’s official growth pace under Prime Minister Narendra Modi, who made economic reforms a priority during his first year in office.
CONFUSION ABOUNDS
The new method measures economic activity by market prices instead of factor costs, taking into account gross value addition in goods and services as well as indirect taxes.
Government statisticians say this conforms with global practice and helps demonstrate structural changes in the economy.
However, they failed to explain several gaps in the new GDP data, leading to confusion that risks wrong-footing financial markets and policymakers.
Friday’s data compounded the problem. Headline GDP accelerated from the previous quarter but another measure of economic activity in the data showed growth slowed down to 6.1 percent in the last quarter from 6.8 percent in the December quarter.
“There are methodological issues,” said D.K. Joshi, chief economist at Crisil. “That is why there is a variance between the volume indicators available at the ground level and value indicators which are being increasingly used in the computation of the GDP.”
The Reserve Bank of India (RBI) has also voiced caution over the new series. RBI Governor Raghuram Rajan said this week that the economy was still slow in picking up. The RBI is widely expected to cut interest rates for the third time this year at a policy review on Tuesday.
“These numbers should not influence the central bank,” said Joshi, who expects a 25 basis point rate cut on June 2.
India’s economic outlook has improved over the past year. It was on the brink of losing its investment grade credit ratings midway through last year but is now widely seen as a potential engine of global growth.
By any measure, its performance compares favourably with many. Both the United States and Brazil reported economic contractions in the March quarter.
But few believe India is running on full steam. Around 60 percent of the economy is not showing signs of improvement from the slowdown, said Pranjul Bhandari, chief India economist at HSBC.
(Writing by Rajesh Kumar Singh; Editing by Frank Jack Daniel and Katharine Houreld)
New York: Shares of US automakers may finally be able to accelerate.
Investors are closely awaiting next week’s May sales data, expected to come in near record levels. Meeting those forecasts could be enough to lift the sector – among the cheapest in the market – putting the sting of product recalls and tepid recent growth in the rear view mirror.
Estimated sales of 1.6 million new cars and trucks in May would make for a seasonally-adjusted annual rate of 17.4 million vehicles, according to Edmunds.com, a car buying platform.
“This is going to be one of the best months ever,” said David Kudla, chief investment strategist of Mainstay Capital Management in Grand Blanc, Michigan. Kudla sees May sales approaching $ 40 billion, not far from the $ 40.3 billion record in August 2014.
Weak auto results contributed to flat overall retail sales in April, but May is expected to represent a rebound. Lower gas prices could boost demand for sports utility vehicles and trucks, which have higher price tags and better margins.
There is also pent-up demand for new vehicles as consumers have been holding on to their cars for longer since the financial crisis. The average age of US cars is now between 10 and 11 years, Kudla said.
The timing of the Memorial Day holiday also helped May sales, according to Jessica Caldwell, senior analyst at Edmunds.com in Santa Monica, California.
“Because there was a full week of May after the holiday weekend, shoppers had plenty of time to take advantage of the deals being widely communicated in dealer and automaker marketing messages,” Caldwell said.
Credit for auto loans is expanding, a positive sign for the sector, noted Jack Ablin, chief investment officer at BMO Private Bank in Chicago.
“The strong dollar created a headwind, and GM had some high-profile product recalls, but given current trends, I would expect sales growth to continue.”
Both GM and Ford appear undervalued at current levels. GM’s forward price-to-earnings ratio is 7.62, well below the S&P 500’s 17.4 ratio, while Ford’s P/E is 8.77, according to Thomson Reuters data.
Both also rank among the cheapest S&P 500 stocks per StarMine’s intrinsic value, which looks at anticipated growth over the next decade. GM is the fourth-cheapest stock in the S&P by this metric, with StarMine estimating that shares should trade at $ 81.69, more than twice its Thursday closing price of $ 36.39. StarMine calculates that Ford is the 10th cheapest stock in the S&P, and that it would need to rise 79 percent to meet its intrinsic value.
Despite that, shares of Ford are down 1.7 per cent in 2015, underperforming the S&P’s 2.6 percent rise. GM is up 3 per cent on the year, thanks largely to a $ 5 billion stock buyback program announced in March.
While auto stocks could rally if the sales come in as expected, it could spell bad news for the broader market, as any sign of consumer strength could nudge the US Federal Reserve into raising interest rates more quickly that is currently anticipated. Most analysts expect the first rate hike to come later this year, but opinions are split on whether it will occur in September or December.
“Good data would make the Fed raise rates sooner. I believe the stock market would sell off (on strong auto data) because it would shorten that timeline,” said Battle who expects a rate hike in the fall.
The numbers first, and then a few questions. The economy grew at 7.3 percent in 2014-15. The new methodology of calculating GDP put growth at close to seven percent in 2013-2014. The base year revision gave a more than two percent push to the UPA's dismal numbers – from 4.7 to 6.9.
Now, if one accepts the current government's 7.3 percent as true then one has to accept the previous government's 6.9 too because methodology and numbers are neutral quantities. The average growth in the decade between 2004 and 2014 was close to eight percent – though former finance minister P Chidambaram would insist it was 8.5 percent.
It could be argued that the gap between the potential of the economy and actual delivery is massive, but that's a matter of subjective interpretation. More than 7.5 percent growth is still respectable. This is when China has decelerated from 10 percent plus in the last three decades to the sub eight territory in recent years and looks set for a prolonged low growth period, the US is still reviving at five percent and the rest of the world is performing poorly.
Let's take out the argument that China and the US are multi-trillion dollar economies and from their base a growth of five percent is much bigger than India's eight percent; the same way you cannot compare Bihar's growth with Gujarat's. The consideration of base is hardly ever in the picture when economists get about the business of comparisons.
What the numbers suggest is India has managed to maintain a steady growth momentum despite the blip over a couple of years due to global headwinds and policy chaos at home. The Narendra Modi government's push to the manufacturing sector through the Make in India initiative and its emphasis on infrastructure as the vehicle of growth are likely to place the country in a trajectory where China used to be not long ago. Take the negativity – there's too much of it around – out of the assessment of the economy, and India's growth story promises to continue on a steady path.
Now, the questions. Was the UPA the victim of a sustained campaign based on incorrect facts or to make it more direct, lies? We can be in denial but we cannot ignore the numbers. If growth is the sole reason why governments fall or continue then the available statistics don't explain the UPA's massive defeat fully.
It is possible that while the bleak narrative of the economy dominated everything else in the run-up to the polls, the whole negative perception about the government had to do with something else, mostly matters little do with economy; or we have got our understanding of growth entirely wrong. It is something that has to be felt by people on the ground. The numbers may please rating agencies and investors but without percolation of the benefits of the growth process deep enough it guarantees no political return. Perhaps there's a lesson for the current dispensation from the predicament of its predecessor. Numbers are a trap.
With the economy looking up should the government shift gear from incrementalism to adventurism? The prime minister and Finance Minister Arun Jaitley have been facing flak from even their biggest supporters for being incrementalists in their approach rather than being bold. After all the BJP has 282 seats of its own, it should not be holding back on big bang reforms.
That is why it was voted for, goes the argument. So far Modi and Jaitley have been wise to ignore them. They are busy bringing in reforms by what would many say is stealth, making changes in bits and pieces with a bigger theme in mind. The message: when quick incremental steps could be effective as well why invite the political risk? If it has worked reasonably well so far there's no point rejecting it. Of course, it does not satisfy the advocates of adventurism.
What's the way to go, confrontation or consensus? Their cheerleaders would like the Modi-Jaitley duo to go for political confrontation to push through a radical economic agenda to pitchfork growth to a higher orbit. If it means riding roughshod over political rivals and allies, so be it. Political players by instinct the duo has struck a different route though. It has gone slow after a series of ordinances. The Land Bill is with the select committee now and the GST Bill is in the process of another round of fine-tuning.
There is gradual realization that confrontation does not help, particularly when there are more areas of convergence than divergence in economic thinking among a large section of the political class. The differences in most cases are over details, not the broad idea itself. When a consensus can be worked out why push oneself into situation which is politically hostile?
A good mix of sensible economics and good political common sense – that is the best way to keep the momentum going. The shift from a growth path of 7.3 percent to 10 percent would require patience and minimization of opening up conflict areas through hasty moves. The Land Bill has served the warning. The government appears to have taken note.
The dollar had the biggest back-to-back weekly gains versus the yen since November, shrugging off downbeat U.S. economic data as investors see the Federal Reserve moving closer to raising interest rates this year.
The greenback was little changed against most of its major peers as revised data showed the U.S. economy hit a bigger ditch in the first quarter than initially estimated. Bulls are counting on an improved U.S. jobs market and signs inflation is picking up to lead to higher borrowing costs, while central banks in Japan and the euro region keep applying monetary stimulus to revive their economies.
"It's kind of like a Hollywood script which you know the plot already — you have a weak first quarter, you get a stable second quarter, and you get a rebound in the second half of the year," Minh Trang, a senior foreign-exchange trader at Silicon Valley Bank in Santa Clara, California, said by phone. "Yellen and other Fed presidents have all been fairly hawkish. They're all talking about rate hikes, that's been pushing the dollar up."
The dollar gained 2.2 percent this week to 124.15 yen at 5 p.m. in New York. It touched 124.46 on Thursday, its strongest level since December 2002.
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, climbed 1 percent this week to 1,191.94, adding to last week's 2.6 percent advance.
Labor Metrics
The greenback has risen almost every day since May 22, when a key inflation measure climbed faster than economists predicted and Fed Chair Janet Yellen said she expected rates to increase in 2015.
Data next week will help investors determine whether the economy is rebounding fast enough to withstand the first rate increase in almost a decade. Economists surveyed by Bloomberg forecast American employers added more than 200,000 jobs in May, and gains in average hourly earnings accelerated from the previous month.
"As the Fed has mentioned, the strong mandate here does seem to be labor metrics," Lennon Sweeting, a Toronto-based dealer at the broker and payment provider USForex Inc., said by phone. "We'll need to see continuing positive labor metrics in order to see this dollar rally get to the levels it has the potential of getting to."
GDP Contraction
Gross domestic product in the U.S. shrank at a 0.7 percent annualized rate in the first quarter, revised from a previously reported 0.2 percent gain, according to Commerce Department figures issued Friday. The median forecast of 84 economists surveyed by Bloomberg called for a 0.9 percent drop.
Investors are taking the contraction in the GDP in stride as American economy shrank in four out of the seven first quarters since 2009, driven partly by slowing economic activities during winter.
"Everyone's looking forward now to a much more healthy American economy in the remaining three quarters," said Kevin Mahn, president and chief investment officer at Parsippany, New Jersey-based Hennion & Walsh Asset Management, which has about $ 170 million of assets under management. "If other major developed central banks across the globe continue to lower interest rates, the dollar can only get stronger."
The Obama administration on Friday formally removed Cuba from a U.S. terrorism blacklist as part of the process of normalizing relations between the Cold War foes.
Secretary of State John Kerry signed off on rescinding Cuba's "state sponsor of terrorism" designation exactly 45 days after the Obama administration informed Congress of its intent to do so on April 14. Lawmakers had that amount of time to weigh in and try to block the move, but did not do so.
Motorists drive along the Malecon in Havana, Cuba Sept. 27/2001. The Globe and Mail
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Journey through the past as U.S. and Cuba restore ties
A magnet of President Obama smelling a cigar hangs with magnets of Che Guevera in a tourist booth in Old Havana, Havana Cuba on January 20, 2015. (Photo By Deborah Baic/The Globe and Mail) Deborah Baic/The Globe and Mail
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As Cuba-U.S. relations thaw, the thorny matter of property disputes heats up
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How Cuban-Americans in Miami view U.S. policies toward Cuba
"The 45-day congressional pre-notification period has expired, and the secretary of state has made the final decision to rescind Cuba's designation as a state sponsor of terrorism, effective today, May 29, 2015," the State Department said in a statement.
"While the United States has significant concerns and disagreements with a wide range of Cuba's policies and actions, these fall outside the criteria relevant to the rescission of a state sponsor of terrorism designation," the statement said.
The step comes as officials from the two countries continue to hash out details of restoring full diplomatic relations, including opening embassies in Washington and Havana and returning ambassadors to the two countries for the first time since the U.S. severed diplomatic relations with the island in January 1961. The removal of Cuba from the terrorism list had been a key Cuban demand.
U.S. and Cuban officials have said the two sides are close to resolving the final issues but the most recent round of talks ended last Friday with no announcement of an agreement.
Even as many of the biggest hurdles, including the terrorism designation, have been cleared, Washington and Havana are still wrangling over American demands that its diplomats be able to travel throughout Cuba and meet with dissidents without restrictions. The Cubans are wary of activity they see as destabilizing to their government.
Both the U.S. and Cuba say the embassies are a first step in a larger process of normalizing relations. That effort would still have to tackle bigger questions such as the embargo, which only Congress can fully revoke, as well as the future of the U.S. military prison at Guantanamo Bay and Cuba's democracy record.
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