Americans increased their spending in April at the fastest pace in four months, bolstered by a solid gain in incomes. The strong results underscored expectations that the economy is poised to rebound after a lackluster start to the year. Consumer spending rose 0.4 percent in April after a 0.3 percent rise in March, the Commerce Department said Tuesday. It was the best showing since December. Incomes also rose 0.4 percent, double the 0.2 percent March increase. Consumer spending, which accounts for 70 percent of economic activity, grew at the slowest pace in seven years in the first quarter. That was a key reason the economy, as measured by the gross domestic product, expanded by just 1.2 percent at the start of the year. Economists are hopeful GDP growth will rebound to around 3 percent in the current April-June quarter. A key inflation gauge preferred by the Federal Reserve edged up a slight 0.2 percent in April, leaving prices rising just 1.7 percent over the past year _ the slowest 12-month gain this year and below the Fed’s 2 percent target. Even with tame inflation, economists believe the Fed will raise rates for a second time this year when official meet on June 13-14, especially if the employment report due on Friday shows job growth remaining strong.
Monsoon in India: South-west monsoon is set to hit Kerala today even as the Indian Meteorological Department said that conditions are favourable for onset of the rainy season in India. While south Kerala has already started receiving rains, northern part of the state will get more from today onwards, accoding to PTI report. Earlier, the IMD had predicted that the monsoon this year could be normal and bring 96 per cent rainfall in the coutry. A good and favourable monsoon will certainly boost the country’s economy as well as farm sector. On the other hand, a weak monsoon could dent the Narendra Modi government’s growth plans. Already farm sector in the country witnessed two-consecutive droughts in 2014-15 and 2015-16, say reports.The prospects of having good monsoon have arisen because of the reduction of El-Nino, the IMD had said. The monsoon could reach 96 per cent of the long period average (LPA). However, last year, the IMD had made an initial forecast of above normal rainfall, but it belied its prediction and the season ended with normal precipitation. At that time, the southern peninsula had registered deficient rainfall and several parts of Tamil Nadu, Karnataka and Kerala reeled under drought-like situation, according to PTI report.Eminent agriculture scientist M S Swaminathan had said that a normal monsoon this year will definitely prove to be a boost for the farm sector. He, however, had said that good prices and market opportunities are equally important to ensure better income for farmers. Swaminathan, who is regarded as the father of India’s Green Revolution, said that one should not think of the monsoon in isolation but link it with the market.
GDP growth is expected to slow to 7.2 per cent in January-March from 7.6 per cent in the preceding quarter, but recovery is on the cards due to easier financial conditions, says a report. According to Japanese financial services major Nomura, demonetisation effect is expected to slow GDP growth to 7.2 per cent in the January-March quarter of this year (from a revised 7.6 per cent in October-December 2016).On the monetary policy front, Nomura said: “We expect the RBI to stay on hold at its June 7 policy meeting and maintain its neutral monetary policy stance. In our base case, we expect policy rates to stay on hold throughout 2017, followed by a cumulative 50 bps of rate hikes starting in April 2018.”In April, the RBI left key policy rate unchanged at 6.25 per cent for the third review in a row citing upside risks to inflation. It had, however, increased the reverse repo rate — which it pays to banks for parking funds with it — by 0.25 per cent to 6 per cent, narrowing the policy rate corridor. The report noted that notwithstanding the recent undershooting on inflation, the central bank is expected to remain cautious given the drop was largely driven by ongoing deflation in pulses and vegetable, which is transitory.Moreover, uncertainties emanating from implementation of the Goods and Services Tax, monsoons and house rent allowance increases are also expected to weigh on inflation, it added.
World Bank expects India, the fastest growing major economy in the world, to grow at 7.2 percent in the current fiscal and further up to 7.7 per cent by 2019-20 on strong fundamentals, reform momentum and improving investment scenario.“Economic activity ought to accelerate in 2017-18. GDP is projected to grow at 7.2 per cent from 6.8 per cent in 2016- 17. Growth increases gradually to 7.7 per cent by 2019-20, underpinned by a recovery in private investments,” World Bank said at the launch of ‘India Development Report’. The report says demonetization in November 2016 caused a slight disruption to India’s growth recovery, following a favorable monsoon last fiscal, but things seem to be bettering.“India remains the fastest growing economy in the world and it will get a boost from its approach to GST which will reduce the cost of doing business for firms, reduce logistics cost of moving goods across states while ensuring no loss in equity,” said Junaid Ahmad, World Bank Country Director in India. The World Bank report says that the overall impact of GST on equity and poverty is likely to be positive.
Standard & Poor’s is likely to follow its regular ratings review schedule for China and does not see any basis at this point for an out-of-schedule committee meeting, a senior director at the ratings agency told Reuters on Monday. Moody’s Investors Service last week cut its sovereign ratings on China by a notch, putting them on par with those of Fitch Ratings. That put S&P one step above the two agencies, holding an AA- rating with a negative outlook that it has maintained since March 2016. “I don’t think there has been anything that could justify the calling of an out-of-schedule committee at this point in time, so we are likely to follow our regular review pattern,” Kim Eng Tan, S&P’s Asia-Pacific senior director of sovereign ratings, said in a phone interview. Tan declined to say when the next regular review would be. Moody’s cut China’s sovereign ratings to A1, saying it expects the financial strength of the world’s second-largest economy to erode in coming years as growth slows and debt continues to mount. Fitch on Friday maintained its A+ rating on China, citing its “strong macroeconomic track record”, though the agency also noted an accompanying build-up of imbalances and vulnerabilities. But nobody is expecting any form of financial instability anytime in the near future, Tan told Reuters. “Despite the (Moody’s) downgrade, all the major agencies have really high ratings on China, whether it’s A+ or AA-, they are both high ratings,” he said.
Goods and Service tax (GST) implementation will have a modest impact on the CPI inflation, ICRA said on Monday. It also added that Reserve Bank of India (RBI)’s Monetary Policy Committee (MPC) will keep the repo rate unchanged in the upcoming policy review in June 2017 on the back of progress of monsoon and GST transition. However, the tone of the policy statement is expected to be far less hawkish than the April 2017 statement as well as the minutes of the MPC’s April 2017 meeting, given the ebbing of some inflation risks in the intervening period. Naresh Takkar, managing director and Group CEO, ICRA, said: “The CPI inflation has remained below 4%, i.e. the medium term target, for six consecutive months. Moreover, several of the inflation risks highlighted by the MPC in April 2017 have subsequently abated, with the improved outlook for the monsoon, rate structure of the goods and services tax (GST) and easing of commodity prices. At the same time, there is a visible improvement in volume growth in a number of sectors post-remonetisation, although a broad-based revival in private sector investment remains elusive.” The year-on-year (YoY) CPI inflation eased sharply to a series-low 3.0% in April 2017, led by food inflation. Moreover, the core-CPI inflation (excluding food & beverages and fuel & light) declined to 4.5% in April 2017 from 4.9% in March 2017.
India’s GDP numbers for the fiscal 2015-16 and 2016-17 are expected to be revised to 8.3 per cent and 7.6 per cent, respectively, because of new IIP and GDP series, says a report. According to SBI’s research report Ecowrap, the GDP numbers scheduled to be released on May 31, is expected to be “pleasant affair” and the new IIP and WPI series will impact all GDP numbers from 2013-14. “We expect 2013-14 GDP growth to be revised from 6.5 per cent to 7.3 per cent, while 2015-16 GDP is expected to be revised from 7.9 per cent to 8.3 per cent because of new IIP and GDP series. 2016-17 GDP growth is expected to be revised from 7.1 per cent to 7.6 per cent,” the Ecowrap report said. It further said the level of remonetisation has reached 80 per cent of the total extinguished currency in circulation as on May 19, 2017. “We also estimate that nearly 65 per cent of incremental deposits of Rs 7 lakh crores that came into the system between November 8, 2016 and May 12, 2017 is still sloshing around,” it said. A better GDP number, coupled with abundant liquidity and very soft inflation numbers going forward, will make the job of RBI monetary management relatively “difficult”, the report authored by Soumya Kanti Ghosh, Chief Economic Adviser, Economic Research Department, SBI said.
Stock markets in Asia were subdued in holiday-thinned trading Monday as investors hunkered down ahead of a raft of economic data later this week that will provide fresh insight into the world economy. Japan’s benchmark Nikkei 225 index rose 0.2 percent to 19,726.55 and South Korea’s Kospi added 0.5 percent to 2,367.89. Hong Kong’s Hang Seng dipped 0.2 percent to 25,599.94 and Australia’s S&P/ASX 200 lost 0.3 percent to 5,737.40. Markets in mainland China as well as the U.S. and Britain are closed for holidays. A full slate of economic reports this week will give investors plenty to digest, beginning with Eurozone business and consumer confidence readings on Tuesday. China’s latest official factory and service industry purchasing managers’ indexes, out Wednesday, will be among the most watched, with analysts watching to see if the gauge indicates that manufacturing growth momentum slows further. The ISM index for U.S. manufacturing is due a day later. U.S. private and official payroll numbers are also scheduled for release. They’ll give fresh clues on employment and hiring the world’s No. 1 economy and could bolster Fed policymakers’ reasoning as they prepare to gradually raise interest rates again.
We see the goods and services tax (GST) rate fitment as a key and perhaps the last crucial milestone achieved in the roll-out of the tax regime. In this note, we analyse the new GST rates for various products (and the likely benefits for various sectors/companies). We believe that while corporates would pass on the direct benefits of GST, they would aim to retain partly the indirect benefits from the saving in logistics costs, streamlining of business processes and the seamless flow of input credits. While GST laws include anti-profiteering measures (which say that the benefits of the reduction in the tax rate and input credit shall be passed on by a commensurate reduction in prices and the government may appoint an authority/empower an existing authority to monitor profiteering), we believe such measures are difficult to implement and would be a retrograde step, similar to price controls, if implemented in haste. First, it would be difficult to assess the commensurate price cuts. Second, the government may not have sufficient bandwidth to check/monitor the pricing/profitability of the entire gamut of tax-paying entities. In our view, pricing/profitability would be driven more by industry dynamics, rivalry and competitive intensity than by government directives on price cuts.
Foreign investors have pumped in nearly USD 4 billion in the country’s capital market so far this month due to finalisation of GST rates for bulk of the items and stable outlook for the rupee. Interestingly, most of the funds have been invested in the debt markets by the foreign portfolio investors (FPIs). According to latest depository data, FPIs invested a net Rs 9,007 crore in equities during May 2-26, while they poured Rs 15,769 crore in the debt markets during the period under review, translating into a net inflow of Rs 24,776 crore (USD 3.85 billion). This comes following a net inflow of close to Rs 94,900 crore in the last three months (February-April) on several factors, including expectations that BJP’s victory in recently held assembly polls will accelerate the pace of reforms. Prior to that, such investors had pulled out over Rs 3,496 crore from debt markets in January. Market experts said the huge inflow could be attributed to a slew of factors including finalisation of GST rates for bulk of the items by the GST Council. The move has cleared the decks for the rollout of the historic Goods and Services Tax (GST) from July 1. The investors’ sentiment got a further boost after the US Federal Reserve signalled that it will wait for more data for a rate hike.