OPEC Monthly Oil Market Report – November 2017
October’s PMI for the manufacturing sector, as
ISM, also indicated ongoing
support in the underlying economy, with very strong
numbers in both the manufacturing and non-
manufacturing sectors. The manufacturing PMI fell,
but remained at a very high level of 58.7, compared
to 60.8 in September. The important index for the
services sector, which constitutes more than 70%
of the US economy, rose to 60.1, after a level of
59.8 in September.
Given the considerable growth in 3Q17 and
expectations that the current momentum will also
continue in 2018, the US
both 2017 and 2018 was raised by 0.1 percentage
points (pp) each. The growth forecast for 2017 now
stands at 2.2% and GDP growth in 2018 is
estimated to reach 2.4%. This takes into
consideration a slightly positive outcome of the US
administration’s tax proposal, to positively impact
the 2018 GDP growth forecast by 0.1 pp.
Graph 3 - 2: Manufacturing and
non-manufacturing ISM indices
Canada continues to benefit of the US growth dynamic, the recovery in the oil market and the positive
consequence these developments have on rising income and domestic demand. After GDP growth in 2Q17
confirmed the ongoing recovery in the Canadian economy, the momentum seems to continue somewhat in
remained strong, but decelerated, as it rose by 3.8% y-o-y in August,
compared with 5.5% y-o-y in July and the June level of 7.8% y-o-y.
continued to expand to the
considerable level of 7.0% y-o-y in August, albeit slightly lower than in the previous months, when trade
increased by 7.7% y-o-y in July and 7.2% y-o-y in June, all at a nominal seasonally-adjusted level. The
strong, but slightly slowing momentum is also confirmed by the PMI index for manufacturing, which dipped
slightly to 54.3 in October, compared with 55.0 in September.
Taking the ongoing positive momentum into consideration, the
forecast for 2017 was revised
up to 2.9%, from 2.8%. The GDP growth forecast for 2018 remained unchanged at 2.1%.
OECD Asia Pacific
After the elections at the end of October, government-led stimulus measures, in combination with structural
reforms, are expected to continue. These measures, together with strong exports, also led to strong
domestic demand in the recent quarter. 2Q17 GDP growth was supported by the momentum rising by 2.5%
q-o-q SAAR. The ongoing considerable tightness in the labour market has still not led to significantly rising
wages. While the reasons for this development may be manifold, the Prime Minister proposed major wage
increases in the coming year at a range of 3%, which would certainly be a considerable boost to inflation,
which remains low. So far, unions and employee representatives have been relatively passive in demanding
higher wages, despite private sector profitability improving in the past years. According to the trade union,
wage rises stood below 2% in 2016 while based on numbers from the Ministry of Health, Labour and
Welfare, wage growth stood at only 1.0% in the same year. Tax incentives for those companies that are
willing to raise wages considerably higher, could be one aspect that may be envisaged by the government.
The upside to the current growth level is limited, given that the economy seems to have reached its short-
term growth potential and while the government is pursuing structural reforms that may pay off in the medium
to the long-term, the aim of raising inflation could certainly help to overcome a major challenge for the
Japanese economy. However, this may also negatively impact the competitiveness of exporting companies,
depending on the development of the yen compared to the currencies of its most important trading partners.
ISM manufacturing index
ISM non-manufacturing index
Sources: Institute for Supply Management and Haver Analytics.