Key Economic Updates

Remittance Sending Countries

UK GDP contracts more than expected, further weakness ahead

On 23 January 2009, the Office for National Statistics reported that gross domestic product (GDP) for the fourth quarter contracted by about 1.5%, more than economists' expectations of about 1.2% decline according to a Bloomberg News survey, from the previous quarter. This second consecutive quarter of contraction in the economy confirms that UK has entered into a recession for the first time in 16 years. The fall in GDP was largely due to 1% quarter-on-quarter (Q-o-Q) decline in the services sector (contributes to about 75% of the GDP), while industrial production fell3.9% Q-o- Q. Chief European and UK Economist at IHS Global Insight, Howard Archer said “The financial crisis and credit crunch is obviously hitting the business services and finance sector hard, while the sharp housing market slowdown and falling consumer spending is also weighing down heavily on the services sector.”

US initial jobless claims rose last week more than expected

On 27 January 2009, the US Department of Labor reported that seasonally adjusted initial jobless claims for the week ended 10 January 2009 increased more-thanexpected to 524,000 from upwardly revised claims of 470,000 in the previous week. However, the number of continuing jobless claims declined 100,000 to about 4.5 million in the week. The unemployment rate in US climbed to a 16 year high of 7.2% in December as there were 577,000 job losses in the month revised from 524,000 reported earlier. President of the Federal Reserve Bank of Philadelphia, Charles I. Plosser said “I do not expect the unemployment rate to stray into the double digits during this recession. Yet, I also don't expect it to begin coming down soon. Keep in mind that unemployment is a lagging indicator. It will not begin to come down until after the economy is well on its way to recovery.”

US GDP sees biggest drop in nearly 27 years

On 30 January 2009, the Commerce Department reported that US Gross Domestic Product (GDP) declined 3.8% annually in the fourth quarter as compared to a fall of 0.5% in the third quarter, recording the biggest fall since the first quarter of 1982. The US President, Barack Obama said “It's a continuing disaster for America's working families. The recession is deepening and the urgency of our economic crisis growing.”

Canada's jobless rate rises to 6.6% in December

On 9 January 2009, Statistics Canada reported that jobless rate in Canada rose to a three-year high of 6.6% in December from 6.3% in November, while total number of job losses was 34,000 in the month as compared to 70,600 in November. Economists, polled by Bloomberg, had expected the unemployment rate to reach 6.5% and job losses to the tune of 20,000 for the month. Bank of Canada Deputy Governor, Pierre Duguay said that the economy has entered into recession due to weak global demand and fading consumer and business confidence.

Oil output cut to depress Saudi economy but inflation will ease in 2009

According to a Saudi bank, the economy of Saudi Arabia is expected to contract by about 1.6% in real terms and by about 23.2% in nominal terms in 2009, following a steep drop in crude prices and expected reduction in output. This decline is estimated to cause the GDP per capita income of the country to decline to $14,065 in 2009 from its peak of $18,854 since the end of the first oil boom in early 1980s. The bank said “Overall, we anticipate real GDP growth in the Kingdom of just over 5.0% in 2008. This is reasonably high by historical standards, but it should be emphasised that this mainly reflects buoyant economic conditions in the first half of the year. Private investment, consumption and net exports are all likely to have weakened sharply in the second half. For 2009, the Saudi economy seems likely to contract in real terms.”

Spain's December inflation at 1.5%, below estimates

According to preliminary data released by the government on 5 January 2009, inflation in Spain eased to a ten-year low of 1.5% in December from 2.4% in November. This was the fifth consecutive monthly decline from its peak of 5.3% in July and was better than expectations of about 1.9% according to a Reuters' survey. This fall in inflation was largely due to a fall in food and oil prices.

Dubai's GDP up 13% in 2008

According to preliminary data released by the government on 27 January 2009, the gross domestic product (GDP) of Dubai grew 13-16% in nominal terms and 6-7% in real terms in 2008. The wholesale and retail sector contributed about 37% to the GDP. Director General of the economic development department, Sami Dhaen Al Qamzi said “Overall the 2008 results are healthy, we have overall growth in the economy and GDP.”

Remittance Sending Countries

Mexico's inflation eases in the first half of January

According to the Mexican central bank, annual inflation in Mexico eased to 6.36% in the first half of January 2009 from 6.53% in December 2008 while the consumer prices grew 0.15% in the first half of January, lower than an estimated increase of 0.23% according to a forecast of 17 economists polled by Bloomberg. Economist at UBS AG in Mexico City, Gabriel Casillas said “The slowing annual rate means inflation has already peaked, making it easier for the central bank to further cut the benchmark interest rate to bolster a faltering economy.”

Mexico's December manufacturing index hits an all-time low

According to the Mexican Institute of Financial Executives, Mexico's manufacturing index fell to its record low of 43.6 in December from 44.6 in November. The agency said “This suggests that the decline in manufacturing activity has not only persisted in the last month of the year, but that it seems to be intensifying”. According to a poll of analysts conducted by the central bank on 19 December 2008, the Mexican economy is expected to contract by about 0.1% this year due to worsening recession in the US.

China's GDP to grow 8-9% in 2009

According to a senior government economist, the gross domestic product (GDP) growth of China is expected to slow down to 8%-9% in 2009, due to falling exports. Chief Economist of the State Information Centre, Fan Jianping said “Once an economy has established a downtrend, the cooling in the economic growth will last for a period of time. It is forecast that our country's economy will slow further in 2009 from 2008. But government policies to expand domestic consumption will partly offset the negative impact of the slowdown in export growth, so it is still very hopeful that China's GDP could grow between 8 and 9% in 2009.”

China's industrial output rises 12.9% in 2008

According to a data released by the National Bureau of Statistics (NBS), China's industrial output rose by 5.7% in December as compared to an increase of 5.4% recorded in November, while the industrial output rose by 12.9% year-on-year in 2008, which is 560 basis points lower than the growth registered in the previous year. By sector, the industrial output climbed 13.2% for the heavy industry and 12.3% for the light industry in 2008. The statistics also showed that the total profits of China's industrial enterprises increased by about 4.9% in the first 11 months last year to about CNY2.4 trillion.

RBI cuts key rates to stimulate economy

On 2 January 2009, the Reserve Bank of India cut the repurchase rate to 5.5% from 6.5% and the reverse-repurchase rate to 4% from 5%. The central bank also reduced cash reserve ratio by 0.5% to 5.0% to provide additional liquidity of about INR200 billion to the banking system. The central bank has cut key rates aggressively since mid-October last year to reduce the effects of global economic slowdown. The RBI, in a statement giving explanation for this step, said “Exports registered a negative growth for the two recent consecutive months, October-November 2008, for the first time since February 2002. The index of industrial production registered a negative growth of 0.4% during October 2008. Business confidence has been dented significantly. There are clear signs of deceleration in investment demand.”

Philippine inflation averaged 9.3% in 2008

According to data released by the government on 6 January 2009, average inflation in Philippines reached a 10-year high of 9.3% in 2008, mainly due to rise in oil and food prices. However, according to National Statistics Office, annual inflation dipped to 8.0% in December from 9.9% in November following fall in food and oil prices. The agency said “The annual inflation rate for food alone further improved to 13.4% in December from 14.5% in November.” Central bank Deputy Governor, Diwa Guinigundo said “Inflation will be much more benign this year. It could be closer to 6%, if not even below it.” The expected easing of inflation would offer more head room for further rate cuts by the central bank and provide impetus to the economy.