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31.03.2014 15:14 World Bank sees Russian capital flight, hit to GDP if Crimea crisis deepens

The Russian economy may contract markedly this year and the country could see record capital outflow of $150 billion if the crisis over Moscow`s annexation of Ukraine`s Crimea deepens, the World Bank warned. In the first estimate by a leading international institution of the likely economic damage from the Kremlin`s standoff with the West over Ukraine, the bank said Russia`s gross domestic product (GDP) might shrink by 1.8 percent in 2014. The forecast 1.8 percent contraction represents the World Bank`s high-risk scenario, but still assumes the international community will refrain from trade sanctions. In an alternative low-risk scenario, assuming only a short-lived impact from the Crimean crisis, the bank sees GDP growth of 1.1 percent this year, compared with the 2.2 percent it predicted in its last report in December. In its low-risk scenario, the World Bank expects Russia`s economic growth to inch up to 1.3 percent next year. The high-risk scenario envisages 2.1 percent growth, largely due to a low base this year.

26.03.2014 22:40 Colombia Surpasses Argentina As Latin America`s Third-Largest Economy Due To Inflation, Currency Changes, GDP Growth

Argentina, once the third-strongest economy in the western hemisphere, extended its decades-long decline by ceding the No. 3 spot among Latin American economies to Colombia later this year -- thanks to the second-weakest currency in the region, soaring inflation, weak economic growth and chronic political problems, Capital Economics said on Monday. Brazil and Mexico remain No. 1 and No 2, respectively. There are several reasons for the decline. The Colombian peso has remained relatively stable for the past year, with a current exchange rate of 1,990 pesos per $1. On the other hand, the Argentinean peso steadily dropped against the dollar all through last year, falling 20 percent to a current 7.9 pesos per $1. Another factor contributing to the rise of Colombia against Argentina is its low inflation, which averaged 2.19 percent last year and with predictions of a little more than 1 percent annually for 2014, Capital Economics said Monday. This is a far cry from the inflation drama Argentina has been dealing with: the government just recently admitted the real figures, which clock in at 3.5 percent monthly and more than 20 percent annually. Added to these two factors, the gross domestic product of Colombia is expected to be close to 5 percent this year but 3.6 percent for Argentina.

19.03.2014 16:35 Analysts slash China GDP forecasts

Investment banks slashed forecasts for China`s GDP growth after Beijing reported the biggest slowdown in investment for more than a decade and the slowest retail sales expansion for nine years. Confidence was further undermined by news that a well-known steel mill has failed to repay loans that came due last week. Ting Lu, China economist at Bank of America Merrill Lynch, said the bank was cutting its first quarter GDP growth forecast to 7.3 per cent from 8 per cent and the full year forecast to 7.2 per cent from 7.6 per cent previously. Nomura Securities revised down its first quarter forecast to 7.3 per cent from 7.5 per cent previously but kept its full year prediction at 7.4 per cent. UBS revised down its full year forecast to 7.5 per cent from 7.8 per cent previously. Barclays said it was revising downward its first quarter forecast to 7.3 per cent, but did not say what its previous projection had been. However, the bank is keeping its full year forecast at 7.2 per cent for the full year. Mizuho Securities said it was cutting its first quarter forecast to 7.2 per cent, but did not give a comparative number.

18.03.2014 20:22 India`s GDP Expanded 4.7% Last Quarter

India`s economic growth remained stuck below 5% for the seventh consecutive quarter last quarter as inflation and waning investor confidence continued to drag on Asia`s third-largest economy. The government said that gross domestic product during the October to December quarter rose 4.7% from a year earlier, compared with the 4.8% and 4.4% expansion in the preceding two quarters. A poll of 16 economists by The Wall Street Journal had predicted 4.9% growth. While some economists and executives are cautiously optimistic that India`s period of stagflation - during which it struggled with high inflation rates even as economic growth has been slowing - is coming to an end, many warn it could be years before India returns to the near 10% expansion rate it witnessed just a few years ago. The data showed output services such as financing, insurance and real estate grew 12.5% from a year earlier. Farm output also increased 3.6%. However, the manufacturing sector contracted 1.9%. Rising borrowing costs, overburdened infrastructure, bureaucratic red-tape and uncertainty over tax policies have spooked consumers and corporations, dragging down growth in the South Asian nation. The country`s pace of economic expansion halved to a decade-low of 4.5% in the fiscal year ended last March from about 9% until two years before that.

12.03.2014 14:41 Brazil economic growth allays recession fears

Brazil avoided slipping into recession last year as the Latin American country leaned once again on its crumbling pillars of economic growth household consumption and government spending. The economy grew 0.7 per cent in the fourth quarter, above all analysts` estimates and in contrast to data from the central bank this month indicating Brazil may have entered a technical recession. However, economists cautioned against reading too much into the results. Fourth-quarter growth was based on a weak comparison of a 0.5 per cent contraction in the previous quarter and was helped by a 4.1 per cent rebound in volatile export figures that may be difficult to maintain. While the data showed a surprise expansion in investment of 0.3 per cent, there was little sign that the country is letting go of its exhausted, consumption-led model of growth, they said. Household consumption grew 0.7 per cent in the quarter, while government spending rose 0.8 per cent together, they account for about 84.5 per cent of the Brazilian economy. Last year the economy grew by 2,3 percent - much higher rate, than 1,0 percent in 2012. Investment rose 6.3 per cent in 2013 but made little impact on Brazil`s investment rate, which rose to 18.4 per cent from 18.2 per cent of GDP. It is one of the lowest in the region and needs to reach at least 20 per cent. Bureaucracy and inefficiency also mean that when investments are made it can still take a long time for the effects be felt throughout the economy.

07.03.2014 00:09 RPT-Fitch: Crisis to Weigh on Russia Economy

The crisis in the Ukraine has increased the risks to Russia`s already weakening economy presented by currency depreciation and capital flight, Fitch Ratings says. The situation is still highly unpredictable but Russia`s sovereign credit profile is robust and events so far do not have implications for the country`s `BBB` rating. Market reaction to Russia`s intervention in Crimea saw the rouble fall 2.2% to an all-time low against the US dollar on Monday, while the MICEX index of Russian shares fell 10.8% and yields on rouble sovereign debt rose sharply. The Central Bank of Russia (CBR) raised its key interest rate by 150bp to 7%, and intervened to support the rouble, selling USD11bn. Losses were partly recovered on Tuesday as tensions appeared to ease. Higher energy prices and a weaker rouble should provide a fillip to sovereign finances by boosting the local-currency value of oil and gas exports, which contribute around half of federal government revenue and current external receipts. This will keep the fiscal deficit within the target of 0.6% of GDP in the budget, making up for a shortfall in non-oil revenue. But the economic drag through lower business and consumer confidence and a loss of purchasing power will be more significant.

05.03.2014 23:04 Why Europe will balk at Russian sanctions

The deployment of Russian troops in Crimea has drawn condemnation from Washington and Europe, along with talk of potential sanctions if diplomacy fails. The United States has put trade and investment pact talks with Russia on hold, while Secretary of State John Kerry has talked about isolating Moscow through visa bans and freezing assets. But European leaders, who meet Thursday to discuss the crisis, have been more circumspect, instead emphasizing the need for diplomacy and international mediation. That`s hardly surprising when you consider the extent to which the economies of the European Union and Russia are intertwined. With the eurozone still emerging from its own crisis, European leaders will think long and hard about any measures that might put that recovery at risk. Russia is the EU`s third-biggest trading partner after the U.S. and China. Trade in goods totaled a record 336 billion euros ($462 billion) in 2012, more than 10 times the volume between Russia and the U.S. Add in exports of services, and the value of the Russia-EU relationship rises to $520 billion. Russia is the EU`s single-biggest supplier of energy. Oil and gas prices rose sharply Monday on fear of supply disruptions through Ukraine, which account for about half of Russian flows. EU exports, meanwhile, are largely made up of machinery and transport, chemicals, medicines and agricultural products. Nowhere is Europe`s reliance on Russian energy more acute than in Germany.

04.03.2014 00:17 Ukraine crisis: Why it matters to the world economy

The political turmoil is rooted in the country`s strategic economic position. It is an important conduit between Russia and major European markets, as well as a significant exporter of grain. But in the post-Soviet era, it`s a weakened economy. Now, the government is in need of an economic rescue -- and torn between whether Russia or the Western economies (including the European Union) is the savior it needs. Here are five reasons the world`s largest economies are watching what happens in Ukraine. 1. Ukraine is an important tie between Russia and the rest of Europe: Ukraine doesn`t hold the economic power it once did, but it does retain its geography. Russia supplies about 25% of Europe`s gas needs, and half of that is pumped via pipelines running through Ukraine. Moscow has cut off that flow in past disputes with Kiev and a disruption could push up energy prices for businesses and households. 2. Sanctions on Russia: One prospect on the table would be the unusual circumstance of a top-10 global economy placing sanctions on another. But Secretary of State John Kerry said Sunday the U.S. is "absolutely" willing to consider sanctions against Russia. President Obama, he added, "is currently considering all options." 3. European and world trade could be impacted: The impact could be felt beyond Europe if the world`s supply of grain is impacted. Ukraine is one of the world`s top exporters of corn and wheat, and prices could rise even on concern those exports could halt. 4. Ukraine`s government is in debt and needs assistance: The situation arguably would not be so volatile if Ukranian government coffers were more stable or the economy stronger. The country owes $13 billion in debt this year and $16 billion comes due before the end of 2015. Without help, the country appears to be headed for default. 5. Ukraine isn`t the only fragile emerging market: Ukraine`s instability comes at a difficult time for emerging markets worldwide, which are seeing growth slow as the Federal Reserve eases its economic stimulus. The situation in Ukraine could lead investors to reassess the risks of other emerging markets slowing economic growth.

04.03.2014 00:05 Russia Raises Main Rate as Ukraine Crisis Threatens Economy

Russia raised its main interest rate the most since 1998 to shore up the economy as concerns that President Vladimir Putin will invade Ukraine sent the ruble tumbling and sparked the biggest stock selloff in five years. The one-week auction rate, the benchmark introduced in September, was increased temporarily to 7 percent from 5.5 percent, the Bank Rossii said on its website today. The 150 basis-point move was accompanied by similar increases in other major lending rates. Putin gained parliamentary approval to send troops into Ukraine last week after Pro-Russian forces took control of the neighboring country`s Crimea region. European and U.S. leaders have threatened sanctions against Russia, creating risks that economic growth will stall, demand for the country`s assets will dry up and a selloff in the currency will deepen. Foreign reserves fell to a three-year low of $490 billion on Feb. 7, a week after Deputy Economy Minister Andrey Klepach said that capital outflows may reach $35 billion in the first quarter, more than half of the $63 billion that left Russia in all of 2013. The ruble is trading above the last announced level of the central bank`s corridor, raised to 35.40 to 42.40 on Feb. 28, which means that regulator is selling foreign currency and buying rubles without daily limits to slow its depreciation. Yields on government bonds jumped most after the unexpectedly rate increase aimed at stemming short-term volatility. The yield due February 2027 rose 48 basis points, or 0.48 percentage point, to 8.84 percent, the highest since June 2012 and within 25 points of the record high.

02.03.2014 00:33 Great economic miracle of Russia: Myth or reality?

Scientists and economists who recently met with Vladimir Putin believe that Russia has sufficient scientific and technical reserve for economic growth. According to the scientists, the activation of the intellectual potential and the rise in labor productivity will help the economy. Economist Igor Bogdanov told Pravda.Ru about possible obstacles. Russian President Vladimir Putin met with economists from RAS to identify and discuss the points of growth of the currently stagnant Russian economy. The President was presented a report compiled by 70 scientists. According to Rossiyskaya Gazeta, head of RAS Vladimir Fortov who presented the report stated that the main reserve of growth for the Russian economy was its scientific, technical and intellectual potential. The report shows that Russia has sufficient potential to stimulate the stagnant economy. Head of the Russian Academy of Sciences Vladimir Fortov made a similar comment at a meeting with the President, noting that "it is often easier to implement developments abroad than in Russia." Therefore we may hope that measures to stimulate demand for intellectual resources will also be considered. Economists estimate that if priorities are set according to the developed plan, GDP growth at the rate of 6-8 percent may be expected. Understandably, the report of the Russian Academy of Sciences is only part of the work to find a way out of the impasse faced by Russia last year. Now the biggest decisions are up to the government.


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