The Lastest Macroeconomic News
07.05.2014 18:35 Why the Russian sanctions don`t work
The obvious objection is that economic gestures from the United States and Europe have proved pathetically ineffectual in deterring Russia and only emphasizes the West`s lack of conviction and planning. Russian President Vladimir Putin, meanwhile, has achieved what were probably his main goals: gaining tacit international recognition for the annexation of Crimea, as an irreversible fait accompli; and extracting an admission from Ukrainian President Oleksandr Turchynov that Kiev is “helpless” to prevent the country`s disintegration as long as Russia remains hostile. In addition to conceding these huge gains to Putin and undermining U.S. credibility as a global policeman in the Middle East and Asia, economic sanctions could prove disastrous for several more subtle reasons. First, the transformation of what was a military-diplomatic dispute about Ukraine`s borders into an economic confrontation between the West and Russia is likely to tempt other powerful countries, such as China and Israel, into taking military action to settle their territorial disputes. Also if economic sanctions start seriously threatening Russian wealth abroad, they will play into Putin`s hands in the short-term by forcing the oligarchs to repatriate their foreign assets. The long-term effects of isolating Russia economically could be even more perverse. If economic sanctions were to force Russia onto a path of greater self-reliance and protectionism, its domestic manufacturing and service industries would almost certainly grow much bigger, even if their quality and productivity fell further behind Western standards. Certainly not the outcome that economic sanctions are supposed to produce.
04.05.2014 17:09 IMF says Russian economy already in recession, bleeding capital
Russia`s economy is already in recession and is expected to lose at least $100 billion in investment this year, largely due to the "geopolitical uncertainties" created by its conflict with Ukraine, the International Monetary Fund mission chief in Moscow said. As investors flee and Western powers threaten Moscow with increased sanctions for its seizure of Ukrainian territory, the IMF has lowered its growth forecast for Russia this year to 0.2%, down from the 1.3% that had been expected before the Ukraine crisis unfolded. In a report posted on the fund`s website after the latest round of consultations with Russian economic leaders, the IMF blamed the declining outlook on both the security situation and the Russian government`s failure to adopt structural reforms and cut red tape. "Fostering competition across sectors and regions, improving governance, and lifting heavy regulations are necessary to attract high-quality investment and boost potential growth," the IMF report stated. But Antonio Spilimbergo, the IMF economist in charge of Russia, told reporters in Moscow that the darkening outlook for the Russian economy was due to "the difficult current situation and the significant level of uncertainty related to geopolitical tensions and sanctions." The sanctions have had little direct effect on the economy in the few weeks they have been in place. But the threat of a more damaging toll if Russian meddling in Ukraine`s affairs continues has undermined investor confidence and spooked the currency and stock markets. "This all has a very negative effect on the investment climate," Spilimbergo said of the sanctions and the mounting violence in eastern Ukraine. The IMF expects capital outflows from Russia this year to be $100 billion, he said, but noted that capital flight could be even worse if the uncertainties inflicted by the Ukraine conflict persist or worsen. Russia`s economy shrank by 0.5% in the first quarter of this year, the IMF said, after a stagnant end to 2013.
02.05.2014 15:21 U.S. GDP Grew A Glacial 0.1% In The First Quarter 2014
The U.S. economy grew in the first quarter - but very, very, very slowly. Most economy watchers blame frigid winter weather for dampening forward progress but not everyone is convinced weather tells the whole story. The Bureau of Economic Analysis` advance estimate of first quarter 2014 real gross domestic product shows output produced in the U.S. grew at a glacial 0.1% rate. This is growth relative to fourth quarter 2013, when real GDP increased 2.6%. Economists were anticipating growth around 1.1%. Most of the weakness came from trade and inventories which subtracted 80 basis points and 60 basis points from overall GDP respectively. According to BEA, the slowing growth also reflected a downturn in nonresidential fixed investment growth, as well as lower state and local government spending. Federal government spending, on the other hand, picked up 0.7% but that growth come off of a quarter than included the 16 day government shutdown and a 12.8% decline. To the extent GDP grew, BEA said it was a reflection of a decreased in imports and an increase in personal consumption. The price index for gross domestic purchases - which measures prices paid by U.S. residents - increased 1.4% versus 1.5% growth in the fourth quarter. Real personal consumption expenditures increased by 3%, compared to 3.3% in the fourth.
26.04.2014 20:43 Even Without Sanctions, Russia`s Economy Is Looking Sicklier Than Ever
Signs of Russia`s growing economic distress became even clearer, as the central bank unexpectedly raised interest rates for the second time since March, while Standard & Poor`s cut the country`s debt rating to one notch above junk. In lifting the benchmark borrowing rate from 7 percent to 7.5 percent, the bank said it was acting to cool inflation that`s now running above 7 percent. But, says economist Tim Ash of Standard Bank in London, “it has nothing to do with inflation. It`s all about signaling that the central bank is shoring up its defenses” to strengthen the ruble and stem the flight of capital from the country. Whether the bank can achieve those goals looks doubtful. The ruble, the second-worst-performing currency among developing countries this year, continued to lose ground today, trading above 36.01 against the dollar. And, as S&P noted in its downgrade announcement, the standoff over Ukraine could spur capital outflows, which already exceeded $50 billion during the first three months of the year. Ash predicts the total could reach as much as $200 billion by yearend. With Russian companies and consumers facing higher borrowing costs, the rate hike will depress an economy that`s already in danger of tipping into recession. And continuing political uncertainty over Ukraine means that foreign companies “will not invest in Russia`s real economy, they`ll just stall their investment,” Ash says. Moreover, “inflation is likely to remain relatively high,” above 7 percent this year, emerging-markets economist Liza Ermolenko of Capital Economics in London wrote in a note to clients. “This is the result of Russia’s deep-seated economic problems - in particular, the fact that wages have been growing well ahead of productivity.”
23.04.2014 14:16 World economy on steady course at best, China a worry, polls show
The world economy can expect steady growth at best over the coming year, but any rapid slowdown in China as it tries to rebalance its economy could upset the still-unsteady progress, Reuters polls showed. Growth in the United States, the world`s largest economy, looks set to outpace its peers, with Japan and the euro zone still lagging and emerging markets - particularly Latin America - in for a challenging year. The poll results suggest that exuberance in financial markets, especially stock markets, may have been overdone in the past few years on expectations for a robust pick-up in global growth. With a few notable exceptions like Britain, developed economies are also showing scant evidence of an imminent and significant improvement in hiring, particularly so in the euro zone and the United States. Overall, the world economy is expected to grow 3.4 percent this year, just a tad below the 3.6 percent projected by the IMF and the January Reuters poll. That is still better than the 2.9 percent clocked last year. With so many economies at best humming along at a modest rate of expansion, much will depend on China, the world`s second-largest economy, which for many years was the driver of global growth.
21.04.2014 15:47 China GDP Growth Slows to 7.4%
China`s gross domestic product growth slipped in the first quarter to its slowest level in 18 months as the world`s second-largest economy continued to downshift. Reduced momentum in investment and consumption - key drivers of the economy - were behind the moderately weaker quarterly growth. The 7.4% growth over the year-earlier period was below the 7.7% level seen in the fourth quarter of 2013, and slightly below the target of "about 7.5%" set by China`s leadership for all of 2014. But it came in slightly above economists` expectations, according to a Wall Street Journal survey of analysts. The weakened growth signals more choppy waters ahead for the world economy, as China is a major global growth engine. The slightly faster-than-expected result also muddies the waters on whether Beijing will step up measures aimed at supporting growth. In early April, the government announced a series of "mini-stimulus" measures to offset recent slippage in trade and industrial production. These included the acceleration of planned spending on railroad infrastructure and a razing and rebuilding program for shantytowns. Further weakness moving into the second quarter could prompt planners to double down on these more modest investments, although few expect a major stimulus of the sort seen in late 2009 after the global financial crisis. Industrial production grew 8.8% in March, slightly below analyst expectations of 9%. This compares with 8.6% year-over-year growth in January and February, which were combined to limit distortions from the Lunar New Year holiday, according to the bureau. Fixed-asset investment - covering areas such as machinery, land and buildings - edged up to 17.6% in the first quarter, slightly below expectations, compared with 17.9% year-over-year in January-February. Analysts attributed the result in part to problems in the housing sector. Retail sales, meanwhile, posted 12.2% year-over-year growth for March, in line with the consensus and a modest increase over the 11.8% year-over-year rise seen in January and February.
18.04.2014 16:13 Russian economy hit by Ukraine fallout; 0% growth in 2014 possible
Russia`s economy has been hit hard by the Ukraine crisis, prompting finance officials to cut growth forecasts for this year to near zero and draining the country`s hard currency reserves as investors flee an uncertain market, Kremlin officials disclosed. In an address to the lower house of parliament, Economic Development Minister Alexei Ulyukayev said $63 billion had been converted from rubles to hard currencies and taken out of the country in the first quarter of this year. If that pace of capital flight continues, Russia could easily surpass the $120 billion lost at the height of the global economic crisis six years ago. "The acute international situation of the past two months" was to blame, Ulyukayev said, referring to the unrest in neighboring Ukraine following the Feb. 21 ouster of President Viktor Yanukovich, a Kremlin ally. Russian troops then seized the strategic Crimean peninsula from Ukraine, raising the threat of international sanctions on Russia`s vital energy trade. Russian Finance Minister Anton Siluanov also issued an ominous forecast for the national economy at a government meeting a day earlier, the Russia Today news agency reported. "GDP growth is estimated as rather low, 0.5%. Perhaps it will be around zero," Siluanov said of the expansion outlook this year. Russian economic growth already dropped from 4.3% in 2011 to 1.3% last year. Russian financial planners had predicted 2.5% GDP growth this year, before the Ukrainian turmoil and the Kremlin`s widely condemned Crimean land grab.
14.04.2014 15:30 Euro zone`s February output suggests gradual recovery strengthening
Output at the euro zone`s factories rose broadly in line with expectations in February, driven by production of intermediate and non-durable goods, suggesting the bloc`s recovery is gradually strengthening, EU data showed. industrial output in 18 countries using the single currency rose 0.2 percent on the month, in line with market expectations. A revised for January was flat, according to Eurostat, the EU statistics office. Compared with the same period last year, industrial output increased by 1.7 percent in February. That was slightly above the expectations of analysts polled by Reuters, who foresaw a 1.5 percent rise, after downwardly revised 1.6 percent growth in January. The monthly rise was driven by 0.6 percent growth in production of intermediate goods. Output of non-durable consumer goods was up 0.5 percent, Eurostat said. Capital goods` output in the bloc remained stable. Production of durable consumer goods fell 1.2 percent on the month and the highly volatile production of energy down by 1.7 percent. Analysts say modest increases in industrial production supported belief that recovery of the 9.5 trillion-euro economy continues to firm gradually. The euro zone recovery modestly accelerated to 0.3 percent growth, quarter on quarter, in the final quarter of last year. Eurostat will publish a flash estimate for first-quarter GDP growth on May 15. The situation in the euro zone`s southern countries, continued to improve in February, after they imposed austerity measures and wide-reaching structural reforms aimed at cleaning up public finances and restoring sustainable growth. Compared with the same period of the last year, industrial production rose by 4.1 percent in Portugal, 3.2 percent in Spain and 1.4 percent in Greece, which returned to the bond market last week for the first time since 2010. Europe`s strongest economy, Germany, reported a 4 percent rise on the year in February, after a 4.1 percent jump a month earlier.
10.04.2014 21:07 Thinktanks raise German growth forecast to 1.9 pct
A group of four leading economic institutes raised their forecast for German growth in 2014, saying that Europe`s largest economy would accelerate its growth thanks to strong domestic demand. In a joint report released on Thursday, the four institutes said German gross domestic product (GDP) would grow by 1.9 percent in 2014, higher than their previous forecast of 1.8 percent last autumn. Domestic demand would be the main driver, said the group of institutes, which include DIW in Berlin, Ifo in Munich, IW in Halle and RWI in Essen. "The German economy is experiencing an upturn in spring 2014," said the institutes, noting increasing output, number of new orders, improving employment situation, as well as sentiment among companies and consumers. Thanks to a recovering economy in the rest of eurozone, which is Germany`s most important trading partner, external uncertainties continued to fade, despite the deteriorating demands from emerging markets. At the start of 2014, investment activity gained momentum, and construction was also boosted by a mild winter, said the institutes. They expected production to increase significantly during the rest of the year. Private consumption, bolstered by faster increase of disposable income and rising employment level, would make the biggest contribution, they said. Investment, driven by low interest rates, strong financial position of governments and a high level of confidence in corporations, would also stimulate growth, according to the thinktanks. "International trade, by contrast, is not expected to provide any impulse," read the report, citing larger increase in imports than in exports due to steep increase in investment.
09.04.2014 17:04 IMF cuts Russia growth forecast to 1.3 % over geopolitical risk
The International Monetary Fund has sharply downgraded the Russian growth forecast to 1.3 percent in 2014, as the crisis in Ukraine continues to rattle investors and send capital flowing out. “Based on what has happened, growth in Russia is lower than what it would have otherwise been,” Olivier Blanchard, the IMF Director of Research told reporters in Washington DC. Blancard warned of massive capital outflows and investor hesitation over the geopolitical events unfolding in Ukraine. The Ukraine crisis sparked a rapid outflow of capital, and by the end of March, $70 billion is estimated to have escaped. In all of 2013 $63 billion flowed out of the country, according to Deputy Economic Minister Andrey Klepach. Russia is the world`s fifth largest economy by purchasing power, and the growth forecast was cut 0.6 percent from the institution`s original 2 percent forecast. Growth in 2015 will be 2.3 percent according to the IMF`s April 2014 growth report. “There are probably two main channels effecting Russia from an economic point of view. First is the investment climate, and the hesitation by investors on putting or leaving money in Russia, so one can except fairly substantial outflows,” Blanchard said. Another reason for the downgrade is that the IMF expects Russia will have to hike interests rates which could spur further inflation. The Washington DC-based fund predicts inflation will slow to 5.8 percent but that price growth will continue to accelerate was the ruble weakens. The ruble has so far weakened 7.5 percent against the dollar in 2014.
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