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Core Viewpoint - Ecuador's National Assembly approved a $46.3 billion budget for 2026, focusing on social programs, security, and infrastructure development, reflecting a 13% increase from 2025 [1] Budget Overview - Total budget spending is set at $46.3 billion, which is 33.27% of GDP, based on a projected real GDP growth of 1.8% and a nominal GDP of $139.1 billion [1] - Total revenue is estimated at $46.3 billion, including $21.7 billion in current revenues, $8.5 billion in capital revenues, and $16.1 billion in financing [1] Expenditure Breakdown - Current spending is allocated $23.5 billion, with $1.8 billion for public investment and $10.5 billion for capital expenditures [2] - The budget projects an overall deficit of $5.4 billion, with a financing requirement of $10.5 billion primarily for debt amortization [2] Social Support and Local Government Funding - The budget prioritizes social support, with $6.3 billion allocated for transfers and subsidies, including $1.8 billion for social assistance programs and $3.9 billion for social security systems [3] - Transfers to local governments will total $4.1 billion, with mandatory funding for education and health increasing by $695 million each [4] Impact on Construction Industry - The 2026 budget is expected to have a mixed impact on the construction industry, with capital spending and public investment programs supporting infrastructure activity [5] - However, tight fiscal conditions and a significant deficit may limit the scale and timing of project execution, leading to moderate growth in the construction sector [5]

Investment Rating - The report projects a real GDP growth of 4.8% for 2026, which is above the consensus expectation of 4.5% [7]. Core Insights - China's manufacturing competitiveness and rare earth controls are expected to drive export volumes growth of 5-6% annually [7]. - The current account surplus is projected to be 4.2% of GDP, significantly higher than the consensus of 2.5% [7]. - Although the property market has not yet bottomed, its negative impact on GDP growth is expected to lessen [7]. - Government consumption growth is anticipated to increase, compensating for weak household consumption in 2026 [7]. - Investment is expected to rebound from 2025 to 2026 [7]. Economic Growth - The report anticipates a gradual reflation process in China, with PPI inflation expected to rise from -2.6% in 2025 to -0.7% in 2026 and headline CPI inflation increasing from 0% in 2025 to 0.6% in 2026 [7]. - The fiscal deficit is projected to widen by 1.2 percentage points of GDP, reaching 12.2% in 2026 [33]. Policy Outlook - The report expects a 20 basis points cut in policy rates and a year-end USDCNY exchange rate of 6.85 [7]. - The 15th Five-Year Plan continues to prioritize manufacturing, technology, and security [7]. Investment Trends - Investment growth is expected to rebound in 2026 due to policy support and a low base effect [42]. - The report highlights that the high-tech sector is projected to contribute an average of 1 percentage point to real GDP growth over the next five years [59].

Summary of Japan Economic Outlook 2026 Industry Overview - **Industry**: Japanese Economy - **Forecast**: The Japanese economy is expected to grow steadily, with a projected real GDP growth of **0.8%** in 2026, primarily driven by domestic demand [2][4] Key Points and Arguments Economic Growth - **Domestic Demand**: The growth is led by solid domestic consumption and capital expenditure (capex), supported by a structural shift towards a labor shortage economy and continued high wage growth [2][4] - **Private Consumption**: Expected to grow by **0.9%** in 2026, aided by wage growth and a decrease in inflation [4][12] - **Capex Growth**: Anticipated to continue its upward trend, driven by investments in software and R&D to address labor shortages [4][23] Inflation and Wages - **Inflation**: Underlying inflation is expected to rise moderately, with core CPI likely to fall below **2%** year-on-year by mid-2026 due to slowing food prices and government price controls [6][69] - **Wage Growth**: The 2026 shunto wage negotiations are expected to yield wage growth in the low **3%** range, despite a potential slowdown due to weaker earnings at large manufacturers [6][69] Monetary Policy - **Bank of Japan (BOJ)**: Expected to increase the policy rate to **1%** with a **25 basis points** hike in July 2026, transitioning from annual to semi-annual rate hikes [8][9] - **Terminal Rate**: The terminal rate is projected at **1.5%**, which aligns with the neutral rate level [8][9] Fiscal Policy and Debt Management - **Fiscal Soundness**: Japan's government debt-to-GDP ratio has been declining, but concerns remain regarding the sustainability of fiscal policies under the Takaichi administration [9][12] - **Impact of Tax Cuts**: Permanent tax cuts and spending increases could reverse the declining trend of the debt-to-GDP ratio, necessitating careful monitoring of fiscal policies [9][12] External Demand and Exports - **Export Trends**: Exports are expected to decelerate slightly due to Japan-China diplomatic tensions and US tariff policies, with a forecasted contribution of external demand to GDP growth at **-0.2 percentage points** in 2026 [5][46] - **US Tariffs**: The effective US tariff rate on Japan remains high, impacting export prices and volumes [46][47] Risks and Considerations - **Labor Shortages**: The structural labor shortage is a significant factor influencing wage growth and capex, with companies increasingly investing in software and R&D to mitigate these shortages [23][32] - **Market Confidence**: Securing market confidence in fiscal policy and appropriate debt management will be crucial as interest rates rise [9][12] Additional Important Insights - **Consumer Behavior**: Households aged 60 and older, which constitute over 50% of Japanese households, are less affected by real wage improvements, impacting overall consumption growth [20][21] - **Capex Characteristics**: The current capex uptrend is characterized by a shift from machinery investment to software investment, with growing order backlogs amid tightening supply constraints [31][32][33] This comprehensive outlook highlights the steady growth trajectory of the Japanese economy, driven by domestic demand, while also addressing the potential risks and challenges posed by external factors and fiscal policies.

Summary of Key Points from the Conference Call Industry Overview - The report focuses on the Indian economy, particularly its growth outlook for CY26 and the impact of various fiscal and monetary policies on consumption and investment trends. Core Insights and Arguments 1. **Proactive Policy Measures**: Indian policymakers have shifted towards supporting growth in CY25 through a combination of monetary easing, including a 125 basis point cut in policy rates, and fiscal measures aimed at consumption support, resulting in a real GDP growth of 7.6% year-on-year (yoy) in CY25 despite nominal GDP growth being at a six-year low due to low inflation [2][12][36]. 2. **Consumption Recovery**: The report anticipates a sustained recovery in rural consumption and an improvement in urban consumption driven by earlier monetary easing and GST rate rationalization, forecasting real GDP growth of 6.7% yoy for CY26 [3][17]. 3. **Inflation Outlook**: Headline inflation is expected to average 3.9% yoy in CY26, close to the Reserve Bank of India's (RBI) target of 4%, limiting further repo rate cuts. A potential additional 25 basis point cut could occur if trade-related uncertainties persist [4][20][21]. 4. **Fiscal Policy Adjustments**: The central government is targeting a fiscal deficit of 4.0-4.2% of GDP in FY27, with a shift in fiscal policy towards consumption support rather than public capital expenditure, which is expected to moderate [4][27][64]. 5. **External Balance**: India's current account deficit is projected to remain contained at 1.0% of GDP in CY26, supported by robust services exports and favorable oil prices [5][28][101]. Additional Important Insights 1. **Bank Credit Growth**: Bank credit growth is expected to recover to around 13% yoy in CY26, driven by improved financial conditions and a rebound in urban consumption [16][50]. 2. **Investment Trends**: Public capital expenditure growth is anticipated to remain muted, while conditions for private capital expenditure could improve if trade uncertainties are resolved, although a lag in actual execution is expected [53][62]. 3. **Welfare Spending**: Increased cash transfers to low-income households, particularly women, are expected to weigh on state fiscal finances, with these transfers accounting for approximately 0.7% of India's GDP [69]. 4. **Core Inflation Dynamics**: Core inflation is projected to decline to 3.8% yoy in CY26, influenced by moderating gold prices and the effects of GST rate cuts on consumer prices [89]. This summary encapsulates the key points from the conference call, highlighting the economic outlook for India, the implications of fiscal and monetary policies, and the expected trends in consumption and investment.

Summary of Key Points from the Conference Call Industry Overview - **Industry**: Chinese Economy and Policy Outlook - **Company**: Morgan Stanley Asia Limited Core Insights and Arguments - **GDP Target**: The GDP growth target is expected to remain around 5%, which has been largely confirmed by the Central Economic Work Conference (CEWC) [3] - **Fiscal Policy**: Initial fiscal package is flat, with a potential mid-year top-up of 0.5% of GDP confirmed [3] - **Monetary Policy**: Anticipated interest rate cuts of 10-20 basis points and reserve requirement ratio (RRR) cuts of 25-50 basis points, but with a dovish tone indicating limited room for further cuts [3] - **Infrastructure Investment**: A front-loaded infrastructure push is confirmed for Q1, focusing on urban renewal, AI+, and green transition [3] - **Housing Policy**: Vague language around housing guardrails, with potential for inventory buybacks and adjustments to provident-fund financing to support mortgage interest subsidies [3] - **Service Consumption**: Selective tweaks in service consumption are expected in the second half of 2026, but specifics are pending [3] - **Anti-involution Strategy**: A gradual, market-oriented approach is being adopted, though execution challenges remain [3] Trade-in Scheme Updates - **Equipment Upgrade**: Coverage expanded to include elevator installations, elderly care institutions, and fire rescue facilities, with less subsidy per vehicle on average [4] - **Consumer Goods Trade-in**: Coverage narrowed from 12 categories in 2025 to 6 in 2026, with reduced subsidies for home appliances and consumer electronics [4] Currency Insights - **USDCNY Strength**: The recent strengthening of the USDCNY is attributed to a weaker dollar, while the RMB basket remains stable [5][6] - **Seasonal Trends**: USDCNY typically strengthens at year-end due to foreign exchange conversions by exporters [11] Inflation and Economic Indicators - **CPI Trends**: Weak underlying demand indicated by food CPI; a more sustained increase in core CPI may not occur until 2H26-2027 [16] - **GDP Deflator**: Expected to remain negative with nominal growth likely staying below 4% in 2026, with a potential mild positive shift from 2027 due to welfare upgrades [18] - **PMI Insights**: December PMI strength attributed to quarter-end production pushes, robust exports, and infrastructure pass-through [20] Additional Important Points - **PPI Expectations**: Month-over-month PPI is likely to soften in December, although year-over-year may rebound from a favorable base [22] - **Market Sentiment**: The overall economic sentiment reflects cautious optimism, with a focus on gradual policy adjustments and infrastructure investments to stimulate growth [3][20]

Summary of Key Points from the Conference Call Industry Overview - The conference call primarily discusses the **Chinese economy** and its performance indicators, particularly focusing on the **Purchasing Managers' Index (PMI)** for both manufacturing and non-manufacturing sectors in December 2025. Core Insights and Arguments - **PMI Performance**: - The official manufacturing PMI rose to **50.1**, an increase of **0.9 percentage points (pp)** from November, surpassing market expectations (Citi/market: **49.3/49.2**) [4][8] - This marks the first expansion after **eight consecutive months of contraction** [4] - The non-manufacturing PMI also returned to expansion, climbing **0.7pp** to **50.2**, exceeding the consensus of **49.6** [5] - **GDP Forecast**: - The improving PMI data supports a **5% GDP growth target** for 2025, which has been maintained since June [6] - Incremental fiscal funds of approximately **RMB1 trillion** are anticipated as a likely ceiling for the year [6] - **Policy Support**: - Policymakers have pledged measured support for 2026, with a focus on the pace of policy deployment leading up to the National People's Congress (NPC) [6] - Recent government actions include renewing the trade-in program for durable goods and introducing new tax incentives for home purchases [6] - **Sector Performance**: - **Manufacturing Output**: The production index increased by **1.7pp** to **51.7**, driven partly by a low base from November [7] - **Demand Indicators**: New orders rose **1.6pp** to **50.8**, marking a return to expansion for the first time in six months [7] - **Export Orders**: New export orders gained **1.4pp** to **49.0**, the highest in nine months, indicating potential positive year-over-year export growth in December [7] - **Construction Sector**: Construction PMI jumped **3.2pp** to **52.8**, reflecting unseasonably warm temperatures and earlier policy measures [7] - **Price Indices**: - The purchasing price index eased by **0.5pp** to **53.1**, while the producer price index firmed **0.7pp** to **48.9**, which may alleviate some pressure on industrial profitability [7] - **Inventory Levels**: - Finished goods inventories increased **0.9pp** to **48.2**, indicating improving activity but still below the neutral mark of 50 [7] - **Services Sector**: - The services PMI edged up to **49.7**, remaining in contraction for a second consecutive month, reflecting ongoing weakness in domestic consumption [7] Additional Important Insights - The **uneven recovery** is highlighted by the performance disparity between large/medium-sized enterprises and small firms, with the latter showing signs of weakness [4] - The **January-February period** is identified as a critical window for potential rate or reserve requirement ratio (RRR) cuts [6] This summary encapsulates the key points discussed in the conference call, providing a comprehensive overview of the current state and outlook of the Chinese economy as reflected in the PMI data and government policy responses.

Economic Outlook - Tax cuts are expected to provide a boost to growth in the new year, but inflation and labor market risks remain concerns [1] - There are tailwinds for demand from consumer tax policies and a corporate investment boom, but a disconnect between GDP and job growth is anticipated [2] - Productivity growth in the third quarter was significant, but labor input remained flat, raising questions about sustainability [3] Consumer Spending and Income - Growth in real disposable income was reported as zero, which may hinder consumer spending moving into the fourth quarter and next year [4] - A strong second half of 2026 is anticipated due to cash influx from tax refunds into households and struggling small businesses [4] Inflation Trends - Current inflation readings are closer to 3% rather than the targeted 2%, attributed to tariff and goods inflation issues [5][6] - Forecasts suggest a slower decline in inflation rates than previously expected, with potential delays in tariff impacts [7] - The direction of inflation is expected to trend lower, but concerns about real income growth and unemployment may shift focus for the Federal Reserve [8] Fiscal Policy and Economic Stability - The Federal Reserve may need to consider long-term fiscal stability due to significant budget deficits, which are currently at 6% of GDP at full employment [9] - There is a looming concern regarding bankruptcy in social security and the need for reform in entitlement programs [9] - The economic outlook for spring is predicted to be challenging, with a potential stagflation scenario emerging early in the year [11][12]

Summary of Key Points from the Conference Call Industry Overview - **Industry**: Japan's Economy - **Forecast Period**: 2026 Core Insights and Arguments - **GDP Growth**: Japan's GDP is expected to grow at +1.0% in 2026, a slight decrease from +1.3% in 2025, indicating resilience despite modest decline [1][4] - **Inflation Trends**: Headline inflation is projected to temporarily fall below 2%, with strong wage growth expected to ease consumer purchasing power headwinds [1][4] - **Bank of Japan (BoJ) Rate Hikes**: Anticipation of semiannual rate hikes by the BoJ, with the first expected in July 2026, and a terminal rate projected at +1.5% [5][6] - **Fiscal Policy Constraints**: Fiscal leeway is limited due to high government debt/GDP ratio and the JGB market's exit from quantitative easing, leading to moderate fiscal impulses [1][4][13] Additional Important Points - **Wage Growth**: Expected base pay increase of approximately 3.3% in spring negotiations, supported by labor shortages and corporate profits [20] - **Inflation Deceleration**: Core CPI is projected to decelerate to +1.7% in 2026 from +3.1% in 2025, influenced by government anti-inflation measures [22][23] - **Consumer Purchasing Power**: Recovery in purchasing power anticipated as food and energy inflation slows, allowing for higher service prices [23][24] - **Public Sector Price Adjustments**: Government considering price hikes in medical fees and other public services, which may impact CPI [25][26] - **Investment Trends**: Companies are increasingly investing in value-added products to manage rising costs, despite some sectors facing labor shortages [43][44] Risks and Considerations - **Exchange Rate Risks**: FX movements could impact the timing of rate hikes and overall economic stability [5][8] - **Geopolitical Tensions**: Recent tensions with China pose risks to service exports and tourism, which could affect GDP growth [56] - **Potential for Policy Missteps**: Concerns over unpredictable policy decisions may persist, particularly in the JGB market [1][4][13] This summary encapsulates the key insights and projections regarding Japan's economic outlook for 2026, highlighting growth expectations, inflation trends, fiscal policy constraints, and potential risks.

Summary of the 2026 Consumer Outlook Conference Call Industry Overview - The report focuses on the **U.S. consumer spending** outlook for 2026, highlighting the expected growth trends and underlying economic factors. Key Points and Arguments Consumer Spending Growth - Consumer spending grew at a strong **3.5%** pace in Q3 2025 but is projected to moderate to **2.2%** in 2026 on a Q4/Q4 basis, down from **3.4%** in 2024 [2][5][30] - The slowdown is attributed to slower real income growth, with job gains slowing and tariff-related price increases keeping inflation elevated [2][5] - The new tax bill is expected to provide a **+0.2 percentage point (pp)** boost to household consumption growth in 2026, particularly in the first half of the year [10][18][21] Job Growth and Labor Income - Job growth is anticipated to rebound from **32,000** per month to **70,000** in 2026, driven by reduced tariff impacts and fiscal stimulus [11][14] - Real labor income growth is expected to rise to **2.3%** in 2026, up from **1.9%** in 2025, providing a solid foundation for consumption growth [11][22] Inflation and Wage Growth - Inflation is projected to decline more than wage growth, leading to slightly higher real wage growth of just over **1%** [15][16] - The report estimates that tariff effects have boosted inflation by **0.5pp** so far, with an additional **0.3pp** expected over the next six months [15] K-Shaped Recovery - The consumer economy is expected to exhibit a **K-shaped** recovery, with lower-income households facing the most significant challenges due to government spending cuts and reduced immigration impacting job growth [33][35] - Higher-income households are likely to experience stronger spending growth, benefiting from wealth effects driven by rising equity prices [38] Risks to Consumer Spending - Two major risks to the spending outlook include: 1. A potential weak job market that could restrain income and spending growth, particularly affecting lower-income workers [47][48] 2. A significant decline in equity or asset prices, which could turn the wealth effect into a drag on spending, with estimates suggesting a **20%** decline in equity prices could subtract **0.7pp** from consumption growth [51][52] Overall Consumption Forecast - The forecast for consumption growth in 2026 is solid at **2.2%**, exceeding the consensus forecast of **1.9%**, with stronger growth expected in the first half of the year due to fiscal and wealth effects [30][32] Additional Important Insights - The report emphasizes the importance of the new fiscal legislation and its impact on disposable income and consumption growth [18][21] - It highlights the stabilization of delinquency rates in consumer loans, suggesting that rising delinquency rates may not pose a significant risk to spending [41][42] This summary encapsulates the critical insights from the conference call regarding the U.S. consumer spending outlook for 2026, focusing on growth expectations, underlying economic factors, and potential risks.