GDP UPDATE

May 2007

INDUSTRY ANALYSIS

1. AMERICAS

U.S.

The Commerce Department reported that the U.S. economy slowed to a seasonally adjusted annualized real growth rate of just 1.3 percent in the first quarter of 2007. Following a fourth quarter rise of 2.5 percent, this marks the slowest rate of growth in four years, largely a result of a slumping housing market and rising inflation. With the robust 5.6 percent GDP (Gross Domestic Product) increase from one year ago now removed from the year-over-year total, growth for the last twelve months now stands at an anemic 2.1 percent.

CANADA

Economic growth in Canada accelerated in February, growing by 0.4 percent month-on-month after 0.1 percent growth in January, Statistics Canada announced. Economists had forecast a more modest rise of 0.2 percent.

Excluding oil and gas extraction and utilities, economic activity grew by 0.2 percent.

CHILE

Chile's economy expanded at its fastest pace in almost two years in March and the central bank reported that exports surged to a record, increasing the chance that policy makers will lift rates this year.

The economy grew 6.5 percent in March from a year earlier, the fastest since June 2005. Growth was faster then the 6 percent median forecast from 13 analysts in a Bloomberg survey. The bank also reported that the trade surplus widened to $2.6 billion in April.

“This was higher than expected,” said Luis Cancino, head of currency and debt trading at Scotiabank Sud Americano in Santiago. “The market is now pricing in that there will be one or two rate hikes.”

Chile's peso, which has gained to its strongest in a year on surging exports, will likely continue to strengthen after these reports on growth and trade, Cancino said. The currency is up 5.8 percent against the dollar since Feb. 5 on higher prices for copper, the country's top export.

Chile's trade surplus in April was larger than the $2.4 billion forecast from eight analysts in a Bloomberg survey. Exports rose to a record $5.86 billion, while imports fell from the previous month to $3.26 billion, the central bank said.

Finance Minister Andres Velasco said these figures show the economy is on track to meet the government's forecast for 5.7 percent growth in 2007.

``Exports are growing,” he told reporters at the Finance Ministry in Santiago. ``We have a package of policies that allow us to guard against fluctuations, up or down, in the price of copper.”

Chile is saving almost all its surplus from copper sales in foreign accounts in dollars in a bid to secure future spending and avoid stoking a rally in the peso. Government holdings surged 40 percent in the first quarter to $14.2 billion.

In the first quarter, the economy grew an accumulated 5.9 percent, the fastest pace since the beginning of 2005, Velasco said.

2. ASIA

CHINA

(1) Efforts by the Chinese government to temper the country’s incendiary growth failed in the first quarter, with gross domestic product growth of 11.1 percent, for a total of 5.028 billion yuan ($657.82 million). Industry production grew 18.3 percent year-over-year, with the refining of raw materials up 26.2 percent, and the manufacturer of electronic and telecom products up 26.1 percent, and motor vehicles rose 22.3 percent, with cars gaining 32.1 percent. Overall, heavy industry year-over-year growth was 19.6 percent, compared to 15.6 percent growth in light industry.

Profits for industry enterprises were up 43.8 percent compared to 2006, with 35 out of 39 industrial divisions showing year-on-year profit growth. The chemical industry was among the top five divisions with profit increases, joining steel, electric power, manufacturing of transportation equipment, and petroleum processing and coking.

Trade remains robust, with the total value of imports and exports up 23.3 percent to $457.7 billion. Exports made up $252.1 billion of that figure, with imports accounting for $205.7 billion—growth of 18.2 percent from last year compared to 27.8 percent for exports. China’s trade surplus grew by $23.1 billion to $46.4 billion. By the end of the first quarter, China had $1.2 trillion in foreign exchange reserves, an increase of $135.7 billion over the end of 2006.

(2) China's GDP grew by an enviable annual average of 9.67 percent from 1978 to 2006, elevating the Communist giant as the world's fourth largest economy and third largest trading nation.

"The annual GDP growth rate was much higher than that of the world economy, which was about 3.3 percent on average in the same period", China's top planner, Ma Kai said. "During the period, China has beefed up its comprehensive national strength and elevated its international status", Ma, Minister of the National Development and Reform Commission, said.

China has become the world's fourth largest economy and third largest trader, he noted.

"The per capita disposable income of urban residents rose from 343 yuan (USD 44) in 1978 to 11,759 yuan (USD 1,521) in 2006, while the per capita net income of farmers grew from 134 yuan to 3,587 yuan", Ma said.

Meanwhile, China's budgetary revenues rose from 113.23 billion yuan to 3.93 trillion yuan.

"As it opens wider to the outside world, China has received more foreign direct investment than any other developing country for 14 straight years and by the end of 2006 there were 590,000 foreign-invested firms in China", Ma said. "But we must be aware that as a large developing country, China still faces a number of difficulties and challenges in economic development, including the increasing environmental restraints, the arduous industrial restructuring and the growing gap between urban and rural areas", the senior official said.

The above news is excerpted from the May GDP Update which is part of the World Market for Your Products and is also included in most other McIlvaine market reports.