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World Economy

OPEC Monthly Oil Market Report – September 2017

15

Canada

Economic development in Canada continued to improve significantly.

GDP growth

in 2Q17 was reported to

reach a considerable level of 4.5% q-o-q SAAR, after achieving an already high level of 3.4% q-o-q SAAR in

1Q17 GDP. Private household consumption was a significant driver of this positive development at 4.6%

q-o-q SAAR and 4.7% q-o-q SAAR. Additionally, exports turned out to be very supportive in 2Q17 with a

growth rate of 9.6% q-o-q SAAR, compared with 1.5% q-o-q SAAR in 1Q17.

Industrial production

increased by 7.4% y-o-y in June, after reaching 10.3% y-o-y in May, marking the highest rate since 2000 and

compared with 4.6% in April.

Retail trade

also continued to expand to the considerable level of 7.4% y-o-y in

June, after reaching 7.3% y-o-y in May and 7.0% y-o-y in April, all at a seasonally adjusted level. The

PMI

for

manufacturing remained at a significant level, standing at 54.6 in August, after reaching 55.5 in July and 54.7

in June. Taking this positive momentum into consideration, the

GDP growth

forecast for 2017 was revised

up to 2.5% from 2.3% Growth in 2018 remains unchanged at 1.9%.

OECD Asia Pacific

Japan

Japan’s recovery seemed to continue, as

GDP

for

2Q17

was reported at 2.6% q-o-q SAAR, compared with

1.2% q-o-q SAAR in 1Q17. While this underlines solid momentum and strengthening of the Japanese

economy, it is much lower than the initial growth estimate by the Statistical Office of 4.0% q-o-q SAAR for

2Q17. This revision was obviously due to a considerable markdown in corporate capital spending. Private

consumption, which makes up 60% of GDP growth, rose by 3.4% q-o-q SAAR, significantly more than in

1Q17, when it only increased by 1.5% q-o-q. The positive trend is also visible in the latest labour market

developments, with ultra-low unemployment and open jobs to application rates that are at a record high.

Besides these improving circumstances on the domestic front, exports are also doing well, and a rise in

investment and ongoing monetary and fiscal stimulus are all currently shoring up growth for this year and the

next. However, the upside to the current annual growth rate of more than 1% still seems to be limited by

tightness in the labour market and very high utilisation rates in the industrial sector.

Business sentiment is holding up well and supporting the current growth trend. Inflation rose in the last

available month of July, although it remained very low. Wage growth also remained very low, despite

tightness in the labour market. In the meantime, the Bank of Japan (BoJ) continued its monetary stimulus

with negative or ultra-low interest rates. Ongoing geo-political tensions on the Korean-Peninsula may add

some risk to the growth dynamic in the Japanese economy. So far these developments have not impacted

economic activity, but continued turmoil raises the risk of a yen appreciation, with a consequent negative

effect on exports and lower investments.

Inflation

was higher in July, increasing by 0.5%, compared with 0.3% y-o-y in June and 0.4% y-o-y in May.

Despite tight labour markets, wages rose slowly in the past months, up by 0.2% in July, the lowest level in

the past four months. This is certainly also a concern and is keeping inflation from moving higher in Japan.

Core inflation (which excludes food and energy) actually fell by 0.1% y-o-y in July, however this is still the

highest level in five months and above the -0.2% seen in June. Core inflation now remains negative for the

sixth month in a row as low inflationary or deflationary trends remain persistent. Given this muted price

environment, the BoJ revised its inflation target lower in the past months and now expects only to reach 2%

inflation by around 2019. The

unemployment rate

remained at the extremely low level of 2.8% for a second

month in a row.

Japanese exports

rose by a large 13.3% y-o-y in July after hitting 9.7% y-o-y in June and after already

seeing strong growth in the previous months of the year. The rise in exports was again very much supported

by the export of industrial goods and capital equipment, which mostly backed this positive trend in trade.

Additionally,

industrial production

continued its recovery, rising for the twelfth consecutive month, up by

4.9% y-o-y in July, after a rise of 5.2% y-o-y in June. This was supported again by a strong trend in

manufacturing, which climbed by 4.6% y-o-y in July, compared with 5.5% y-o-y in June. A continuation of the

positive trend is expected, when considering that manufacturing orders – a front-running indicator – rose by

4.9% in June and 8.3% y-o-y in May.

Some improvement was also reflected in

domestic demand

. Retail trade rose by 1.9% y-o-y, but the

expansion trend is decelerating after reaching 2.2% y-o-y in June and 2.1% y-o-y in May. While near-term

growth is uncertain, given wage developments, the trend still seems solid.