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Prospects Weekly: Real GDP growth accelerated in both the United States (US) and China in the third quarter

Global Macroeconomics Team's picture

Recently released data show real GDP growth accelerated in both the United States (US) and China in the third quarter (Q3). Though Q3 GDP data for other large economies are yet to be published, the rebound observed in industrial production in the Euro Area, Brazil, and India suggests GDP growth could have picked up there as well. A recovery in Q3 retail sales in the Euro Area and the United States contributed to the strengthening of GDP, but in Japan retail sales plunged due to the end of a government car subsidy program and reduced department store sales to Chinese tourists. Overall, European domestic demand remains weak a circumstance that has been partially mitigated by strong exports to developing countries.

Third quarter GDP growth strengthens in China and the United States. US GDP growth rose to 2.0% (q/q, saar) in Q3, up from 1.3% in Q2. The acceleration in GDP was driven by strong growth in residential investment (14.4%), and a moderate expansion in government spending (3.7%) and personal consumption (2.0%). China’s Q3 GDP expanded by 9.1% (q/q, saar) up from 8.2% in Q2 with services such as retail trade, construction and financial intermediation recording the fastest growth. Though Q3 GDP data for other major economies have not been released yet, a rebound in industrial production data suggests some strengthening of activity in the Euro Area, Brazil and India. In contrast, weak domestic demand and weak exports to China (partly because of a sovereign dispute over unoccupied islands), suggest that Japanese GDP may have shrunk in Q3. October business sentiment indicators suggest economic activity has continued strengthening into Q4 in the US, China, Brazil, and India, but softened in both the Euro Area and Japan.


Retail sales growth strengthened in most high-income countries during Q3. Supported by a rise in employment (albeit slowly) and consumer confidence (now at a 5-year high). US retail sales growth grew at an annualized 6% pace in the three months ending September, reversing the contraction of the previous three months. Euro Area retail sales growth rebounded a more modest 1.3% in the three months ending August, after contracting in May and June. With unemployment rising and consumer confidence very low, Euro Area retail sales prospects remain weak. In Japan, the end of a government subsidy program and a drop in department store sales to Chinese tourists (due to the above mentioned sovereign dispute) contributed to an 8.7% annualized contraction of retail sales in Q3.


Developing country import demand has helped mitigate domestic weakness in the Euro Area. Reflecting the ongoing adjustment in the Euro Area (fiscal consolidation, deleveraging etc.), domestic demand’s contribution to GDP growth for the first half of 2012 has been negative (-1.8 percentage points). Partly offsetting this weakness, the contribution of net exports has been strongly positive (1.6 percentage points). Unlike the Euro Area, the contribution of net exports to US GDP was neutral. The robust external contribution to Euro Area growth mainly reflects developing country demand. Since 2000 developing economies have been responsible for more than two thirds of the increase in the non-EU exports of France and Germany and 48% of the increase in US exports.


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