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Japan - Q1 2007 GDP grows at its fastest pace since Q4 2005
Situation
- On a quarterly basis GDP grew by 0.81% in Q1 2007 (as compared to 1.32% in Q4 2006)
- On a annual basis GDP grew by 2.68% p.a in Q1 2007 (as compared to 2.42% p.a in Q4 2006)
Background
- Japan - Orders grow marginally in Apr’07
- Japan - Dramatic fall in new orders in Mar’07 ( strongest fall since May ‘02 )
- Japan - Production grows at a declining rate in Apr’07
Bank of Japan ( BOJ) governor Toshihiko Fukui has said that the central bank intended to adjust interest rates “gradually” as the economic fundamentals improve. The bank seems to be treating a growth of 2% p.a as a situation wherein they can start tightening monetary policy.
The empahisis is gradually shifting from growth concerns to inflation concerns.
Macro picture
| USA | Euro Zone | Japan | UK | India | |
| 2006q01 |
3.69% |
2.23% |
2.66% |
2.43% |
10.35% |
| 2006q02 |
3.51% |
2.85% |
2.15% |
2.75% |
8.89% |
| 2006q03 |
2.95% |
2.79% |
1.47% |
2.90% |
9.22% |
| 2006q04 |
3.13% |
3.33% |
2.42% |
2.96% |
8.64% |
| 2007q01 |
1.90% |
3.42% |
2.68% |
2.85% |
9.08% |
Conclusion (click on image for a larger visual) 
If the growth rate remains above 2% p.a , the BOJ would feel comfortable in raising interest rates. This in turn could cap growth at this area
As such growth could range between 2.50% p.a (initially) and 1.50% p.a towards early 2008
Related Links
USA - Q1 2007 GDP annual growth revised to a lower level (lowest since 2003 Q3)
Situation
- On a Quarterly basis GDP grew by 0.16% ( was 0.61% in Q4 2006)
- On an annual basis GDP grew by 1.90% p.a in Q1 2007 ( was 3.128% p.a in Q4 2006)
Background
- New orders have grown in Apr’077 ( for the first time since Sept’06)
- Production in Apr’07 grew at the slowest pace since Apr’04 ( reflecting the weak New Orders situation in Q1 2007 )
- USA - Producers prices remain high in Apr ‘07
- USA - Inflation rate (CPI) drops marginally in Apr’07
- USA - Record fiscal surplus in Apr’07 (highest since Apr’01)
- USA - Fed meeting : No change in interest rate ( Fed remains open to hiking rates)
Crosshair
GDP p.a % growth
| USA | Euro Zone | Japan | UK | India | |
| 2006q01 |
3.69% |
2.23% |
2.73% |
2.43% |
10.35% |
| 2006q02 |
3.51% |
2.85% |
2.12% |
2.75% |
8.89% |
| 2006q03 |
2.95% |
2.79% |
1.45% |
2.90% |
9.22% |
| 2006q04 |
3.13% |
3.33% |
2.38% |
2.96% |
8.64% |
| 2007q01 |
1.90% |
3.42% |
2.19% |
2.85% |
9.08% |
Conclusion
Even considering a possible drop in fed rates post Aug’07 - GDP growth looks like dropping down to a 1.00% p.a towards end 2007
Related links
Euro GDP continues to grow at a faster pace in Q1 2007
Situation
- On a quarterly basis GDP grew by 0.92% ( was 0.89% in Q4 2006)
- On an annual basis GDP grew by 3.42% p.a in Q1 2007 ( was 3.33% p.a in Q4 2006)
Background
- Europe - New Orders grow in Mar’07
- Euro area - Production growth sustained in Mar’07
- Euro area - Core inflation ( CPI ) growth at its highest since Jun’04
- Interest rates have been raised in Dec’06 towards 3.5% and in Mar’07 towards 3.75%.
- Members of the ECB have said that interest rates would again be be increased in Jun’07
Crosshair
GDP - Annual growth rate
|
|
USA |
Euro Zone |
Japan |
UK |
India |
| 2006q01 |
3.69% |
2.23% |
2.73% |
2.43% |
9.30% |
| 2006q02 |
3.51% |
2.85% |
2.12% |
2.75% |
8.89% |
| 2006q03 |
2.95% |
2.79% |
1.45% |
2.90% |
9.22% |
| 2006q04 |
3.13% |
3.33% |
2.38% |
2.96% |
8.64% |
| 2007q01 |
2.06% |
3.42% |
2.19% |
2.85% |
|
Conclusion
( click on images for a better visual)
- Can expect a GDP growth range of 3% to 4% for Q2 2007
- Growth should start dropping from Q4 2007 to a 1.50% area p.a towards mid 2008
Related links
- Euro area GDP - Up by 3.28 percent per annum in Q4 2006 ( 2.73 percent per annum in Q3 2006) USA - Q1 2007 GDP annual growth slumps to its lowest since 2003 Q3
- UK - GDP grew at 2.96 percent per annum in Q4 2006 as compared to 2.90 percent in Q3 2006
- Japan - GDP growth stronger in Q4 2006
- India - GDP growth at 8.64 percent p.a for Q4, October - December 2006
Japan - Dramatic fall in new orders in Mar’07 ( strongest fall since May ‘02 )
Situation
- On a monthly basis orders contracted by -15.73% ( 2.78% growth in Feb’07)
- On a yearly basis order contracted by -16.46% p.a ( 5.83 % p.a growth in Feb’07)
Background
- Production growth rate drops in Mar’07
- Orders grow at a slower pace in Feb’07
- This site expected that the strong fall in new orders would be post mid’07 towards mid’08 ( click here )
The fall has happened much earlier and much faster than expected
Conclusion ( click on image for a bigger visual) 
- In the April-June period the total amount of machinery orders is forecasted to decrease by 3.3%
- Even if New orders grows on a monthly basis by 9.33% ( the highest month on month growth in the past 12 months) in Apr’07 over Mar’07 , the annual growth will be a decrease of -2.91% p.a
- We can now expect a decrease in new orders between - 3 % p.a and -17% p.a till end ‘07 - mid ‘08
- Production can be expected to continue declines - following the trend in New Orders .
Japans GDP cannot be expected to offer a very positive picture for Q2 and Q3 2007
In the current circumstances Bank of Japan ( BOJ ) is not going to be looking at hiking interest rate anywhere in the near future , but may again consider dropping rates
Related links
- Japan - Orders grow at a slower pace in Feb’07
- USA - New Orders declines in Mar’07
- Europe - New Orders growth rate drops in Feb 2007
- Japan - Production growth rate drops in Mar’07
- USA - Production grows in Mar’07 at the slowest pace since Sept’05
- Euro area - Production (IIP) grows in Feb’07
- UK - Production - annual growth rate slips to a negative in Mar’07
- India - Production grows in Mar’07
USA - Record fiscal surplus in Apr’07 (highest since Apr’01)
Situation
The impact of large individual tax deposits resulted in budget receipts of $383.6 billion and a
surplus of $177.7 bn for Apr’07
Fiscal deficit as a % of Real GDP stood at - 6.17% at the end of Q1 2007 ( Q1 always tends to have the worst fiscal situation as a % of GDP)
Background ( click on image for a larger visual) 
- April always tend to have the largest monthly surplus of the year.
- Within this - this $177.7 bn has been the largest surplus since Apr’01 ( $ 189.8 bn )
- Since 1980 this is the second highest monthly surplus ( after Apr’01)
- As can be seen in the image the savings rate has steadily improved along with the improvement in the fiscal situation
Conclusion ( click on image for a larger visual) 
- Q2 always tends to have the best fiscal situation (Q2 for both 2005 and 2006 were at a fiscal surplus)
- We can expect the surplus as a % of GDP to be to be towards a 4.50% for Q2 2007.
Related links
- USA - Deficit increases in Mar’07 ( on an annual basis)
- USA - Q1 2007 GDP annual growth slumps to its lowest since 2003 Q3
- USA - Relationship between Fiscal Deficit and Savings rate ( since 1981 )
- USA - Relationship between GDP and Savings rate ( Quarterly data since 1985 )
- USA - Fiscal situation as a percentage of GDP, under the recent four Presidencies ( since 1980 )
- USA - Manner in which the Deficit has been financed since 1995 ( Savings viz external debt)
USA - New Orders declines in Mar’07
Situation
On a monthly basis : New orders increased by 3.1 % in Mar’07 ( - 5.7 % decline in Feb’07)
On a yearly basis : New orders decreased by -1.278 % p.a in Mar’07 ( -0.354 % p.a decline in Feb’07)
Background
- Shipments, up following two consecutive monthly decreases, increased 1.5 % .This followed a - 0.6% Feb’07 decrease.
- Inventories, up twelve of the last thirteen months, increased 0.2%. The inventories-to-shipments ratio was 1.23, down from 1.25 in Feb’07.
- New orders had continued declines in Feb’07
- USA - Production growth in Mar’07 was at its slowest pace since Sept’05
- USA - Q1 2007 GDP annual growth slumped to its lowest since 2003 Q3
Conclusion ( click on image for a larger visual)
- Orders look like it could have an initial range ( towards Jun’07) between a drop towards -2.50% p.a and +2.5% p.a growth
- Towards end of 2007 early 2008 orders look like dropping down towards a - 5.0% p.a / - 6.0 % p.a .
- Production can therefore be expected to continue to face declines towards Jun’07
Related links
- USA - New Orders continues declines in Feb’07 ( annual basis)
- Europe - New Orders growth rate drops in Feb 2007
- Japan - Orders grow at a slower pace in Feb’07
Europe - New Orders growth rate drops in Feb 2007
Situation
On a monthly basis : New orders decreased by -0.67 % in Feb’07 ( - 0.09 % decline in Jan’07)
On a yearly basis : New orders increased by 5.26 % p.a in Feb’07 (revised to 9.80% p.a in Jan’07)
Background
- Interest rates have been raised in Dec’06 towards 3.5% and in Mar’07 towards 3.75%.
- Members of the ECB have said that interest rates would again be be increased in Jun’07
- Orders have been declining since the interest rate hike in Dec’06
Conclusion 
(click on image for a better visual )
- New orders look like it can drop towards the 4.50% p.a growth area
- Orders look unlikely to cross the 7.50% p.a growth mark in the next month
- Orders look like they would range between a possible maximum of 9.50% p.a and more likely towards a 4.50% p.a initially , and then drop down towards the 0% mark towards end 2007 . This becomes even more possible if the ECB does hike the interest rates in Jun’07
Related Links
- Euro area - New orders grow in Jan’07 ( but is this sustainable ? )
- USA - New Orders continues declines in Feb’07 ( annual basis)
- Japan - Orders grow at a slower pace in Feb’07
USA - Savings rate improves in Mar’07
Situation
Savings as a % of disposable income has risen to a negative - 0.80% in Mar’07 ( was a negative -1.20% in Feb’07)
Background
- USA - Relationship between Fiscal Deficit and Savings rate ( since 1981 )
- USA - Relationship between GDP and Savings rate ( Quarterly data since 1985 )
- USA - Manner in which the Deficit has been financed since 1995 ( Savings viz external debt)
- USA - Relationship between Fed rate and Savings rate ( data from 1954 )
Conclusion ( click on image for a larger Visual)
The higher interest rates have helped in slowly reducing the savings rate deficit.
In the Fed meeting held on Mar 22nd - the Fed language had some minor changes suggesting a possible change in outlook ( i.e being open to raising rates)
However the large drop in Q1 2007 GDP will now play a part in the direction that the Fed will adopt
It is unlikely that the Fed will consider raising interest rates in the meeting due on May 9 2007.
However it may again change its language - tilting towards a neutral stance / drop in rates stance )
Related links
USA - Q1 2007 GDP annual growth slumps to its lowest since 2003 Q3
Situation
- On a Quarterly basis GDP grew by 0.31% ( was 0.61% in Q4 2006)
- On an annual basis GDP grew by 2.05% p.a in Q1 2007 ( was 3.128% p.a in Q4 2006)
Background
- Production has been dropping sharply
- New orders has been dropping sharply
Conclusion ( click on image for a better visual)
- GDP growth looks like it will range between 2.5% p.a and 1.5% p.a for the next two quarters .
- In order for GDP to grow by 2.5% p.a , the quarterly growth has to be at 1.00% ( since 2006 Q1 quarterly growth has been sub 0.65%)
- With no sign of improvement in the inventory/ shipment levels it is more likely to drop towards the 1.5% p.a area
Related links
- USA - GDP increased at a rate of 3.07% p.a in Q4 2006 (as compared to 2.96% in Q3 2006)
- UK - GDP grew at 2.96 percent per annum in Q4 2006 as compared to 2.90 percent in Q3 2006
- Japan - GDP growth stronger in Q4 2006
- Euro area GDP - Up by 3.28 percent per annum in Q4 2006 ( 2.73 percent per annum in Q3 2006)
- India - GDP growth at 8.64 percent p.a for Q4, October - December 2006