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World Economy Review - June 2017

In its latest economic outlook, the Organization for Economic and Cooperation Development (OECD) projected accelerated global growth for the 2017-2018 period, saying "greater efforts are needed to ensure that the benefits from growth and globalization are more widely shared."

Updating its last estimate issued on March, the Paris-based think-tank saw global growth in 2017 at 3.5 percent, up by 0.2 percentage. The figure was set to accelerate to 3.6 percent in 2018 due to "stronger business and consumer confidence, rising industrial production and recovering employment and trade flow."

"Among the major advanced economies, the recovery will continue in the United States," the organization estimated.

However, it revised down its gross domestic product (GDP) forecast this year to 2.1 percent this year and 2.4 percent next year from previous estimates of 2.4 percent and 2.8 percent respectively.

The organization report showed a steady outlook for the euro area at 1.8 percent over the period while that of Japan would increase to 1.4 percent this year before slowing to 1.0 percent in 2018.

In China, growth is expected to slow to 6.6 percent in 2017 and 6.4 percent the following year in 2018, according to the OECD data.

"After five years of weak growth, there are signs of improvement. The modest cyclical expansion underway will not, however, be sufficient to sustain strong gains in standards of living across OECD countries," said OECD Secretary-General Angel Gurria.

Gurria recommended "deeper, sustained and collective commitment to coherent policy packages that support inclusiveness and productivity growth," to ensure that the benefits of economic recovery would be translated into the improvement of people`s standards of living.

"We need a more inclusive, rules-based globalization that works for all, centered on people`s well-being," he added.

Economy of the United States

The U.S. economy slowed less sharply in the first quarter than initially estimated due to unexpectedly higher consumer spending and a bigger jump in exports. Gross domestic product increased at a 1.4 percent annual rate instead of the 1.2 percent pace reported last month, the Commerce Department said in its final assessment.

It was still the slowest growth rate since the second quarter of last year. Economists polled by Reuters had expected GDP growth to remain unchanged at a 1.2 percent rate.

Exports in the first quarter were revised to show a gain of 7.0 percent from the previously reported 5.8 percent. Business spending on equipment was revised to show it increasing at a 7.8 percent rate in the January-March period rather than the 7.2 percent previously estimated. Businesses accumulated inventories at a rate of $2.6 billion in the first quarter, rather than the $4.3 billion reported last month. Inventory investment rose at a $49.6 billion rate in the fourth quarter of last year.

The output of consumer goods rose 0.2 percent in May. The indexes for consumer energy products and consumer non-energy nondurables rose 1.0 percent and 0.3 percent, respectively, but the index for consumer durables decreased 0.8 percent. Business equipment posted a decline of 0.7 percent, with all of its major components registering decreases. The output of defense and space equipment rose 0.6 percent, while the indexes for construction supplies and business supplies each moved down 0.3 percent. The production of materials edged up 0.1 percent, with a gain of 1.0 percent for energy materials outweighing a sizable decline for durable materials and a smaller decline for nondurable materials.

Manufacturing output decreased 0.4 percent in May following a strong gain in April. Factory production has increased 1.4 percent over the past 12 months. The index for durables fell 0.8 percent in May, while the index for nondurables edged up 0.1 percent; the output of other manufacturing (publishing and logging) moved up 0.3 percent. Almost all major industry groups within durables posted declines; within nondurables, a large gain in chemicals outweighed declines in most other industries.

Mining output rose 1.6 percent in May. Production has increased about 1.5 percent per month, on average, so far this year; the index in May was 8.3 percent higher than its year-earlier level. Even so, output in May was still 10.0 percent below its peak in December 2014. The index for utilities advanced 0.4 percent, as higher output for gas utilities more than offset a small decrease for electric utilities.

Capacity utilization for manufacturing declined 0.3 percentage point in May to 75.5 percent, a rate that is 2.9 percentage points below its long-run average. Durables recorded a decrease in utilization, while nondurables and other manufacturing (publishing and logging) each posted increases. The operating rate for each group remained below its respective long-run average; the greatest shortfall was for other manufacturing. Utilization for mining moved up 1.1 percentage points to 84.3 percent but remained below its long-run average. The operating rate for utilities rose 0.3 percentage point to 76.6 percent.

The U.S. trade deficit narrowed in May. The politically sensitive trade gap with China also slid. The Commerce Department says the U.S. deficit in the trade of goods and services fell 2.3 percent in May to a seasonally adjusted $46.5 billion. U.S. exports rose modestly to $192 billion - highest since April 2015 - on rising shipments of cars and consumer goods, including cellphones. Imports fell slightly. U.S. imports fell to $238.5 billion versus $238.8 billion in April.

The deficit in the trade of goods with China fell by 6.2 percent to a seasonally adjusted $30.1 billion.

The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.1 percent in May on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported. Over the last 12 months, the all items index rose 1.9 percent.

A decrease in the energy index was the main contributor to the monthly decrease in the all items index. The energy index fell 2.7 percent, led by a decline of 6.4 percent in the gasoline index. The food index rose 0.2 percent, due to increases in four of the six major grocery store food group indexes.

The index for all items less food and energy rose 0.1 percent in May, as it did in April. The shelter index increased 0.2 percent over the month. However, many indexes declined in May, including those for apparel, airline fares, communication, and medical care services.

The all items index rose 1.9 percent for the 12 months ending May, a smaller increase than the 2.2- percent rise for the 12 months ending April. This month`s increase is still a larger rise than the 1.6- percent average annual increase over the past 10 years. The index for all items less food and energy rose 1.7 percent over the previous 12 months; this compares to a 1.8-percent average annual increase over the past decade. The energy index rose 5.4 percent over the last year, while the food index increased 0.9 percent.

Total nonfarm payroll employment increased by 138,000 in May, and the unemployment rate was little changed at 4.3 percent, the U.S. Bureau of Labor Statistics reported. Job gains occurred in health care and mining.

The unemployment rate, at 4.3 percent, and the number of unemployed persons, at 6.9 million, changed little in May. Since January, the unemployment rate has declined by 0.5 percentage point, and the number of unemployed has decreased by 774,000.

Among the major worker groups, the unemployment rate for Whites edged down to 3.7 percent in May. The jobless rates for Blacks (7.5 percent), Asians (3.6 percent), and Hispanics (5.2 percent), as well as those for adult men (3.8 percent), adult women (4.0 percent), and teenagers (14.3 percent), showed little or no change.

Economy of the European Union

Seasonally adjusted GDP rose by 0.6% in both the euro area (EA19) and the EU28 during the first quarter of 2017, compared with the previous quarter, according to an estimate published by Eurostat, the statistical office of the European Union. In the fourth quarter of 2016, GDP grew by 0.5% and 0.6% respectively.

Compared with the same quarter of the previous year, seasonally adjusted GDP rose by 1.9% in the euro area and by 2.1% in the EU28 in the first quarter of 2017, after +1.8% and +2.0% respectively in the previous quarter.

In April 2017 compared with March 2017, seasonally adjusted industrial production rose by 0.5% in the euro area (EA19) and by 0.2% in the EU28, according to estimates from Eurostat. In March 2017 industrial production rose by 0.2% in euro area and by 0.3% in the EU28. In April 2017 compared with April 2016, industrial production increased by 1.4% in both the euro area and the EU28.

The first estimate for euro area (EA19) exports of goods to the rest of the world in April 2017 was ˆ167.7 billion, a decrease of 3% compared with April 2016 (ˆ172.5 bn). Imports from the rest of the world stood at ˆ149.8 bn, a rise of 3% compared with April 2016 (ˆ145.9 bn). As a result, the euro area recorded a ˆ17.9 bn surplus in trade in goods with the rest of the world in April 2017, compared with +ˆ26.6 bn in April 2016. Intra-euro area trade stood at ˆ144.7 bn in April 2017, nearly stable compared with April 2016.

The first estimate for extra-EU28 exports of goods in April 2017 was ˆ144.6 billion, down by 2% compared with April 2016 (ˆ146.9 bn). Imports from the rest of the world stood at ˆ144.6 bn, up by 2% compared with April 2016 (ˆ142.3 bn). As a result, the EU28 recorded a ˆ0.1 bn deficit in trade in goods with the rest of the world in April 2017, compared with a surplus of ˆ4.5 bn in April 2016. Intra-EU28 trade fell to ˆ259.2 bn in April 2017, -1% compared with April 2016.

Euro area annual inflation is expected to be 1.3% in June 2017, down from 1.4% in May 2017, according to a flash estimate from Eurostat.

Looking at the main components of euro area inflation, energy is expected to have the highest annual rate in June (1.9%, compared with 4.5% in May), followed by services (1.6%, compared with 1.3% in May), food, alcohol & tobacco (1.4%, compared with 1.5% in May) and non-energy industrial goods (0.4%, compared with 0.3% in May).

The euro area (EA19) seasonally-adjusted unemployment rate was 9.3% in May 2017, stable compared to April 2017 and down from 10.2% in May 2016. This remains the lowest rate recorded in the euro area since March 2009. The EU28 unemployment rate was 7.8% in May 2017, stable compared to April 2017 and down from 8.7% in May 2016. This remains the lowest rate recorded in the EU28 since December 2008. These figures are published by Eurostat.

Eurostat estimates that 19.092 million men and women in the EU28, of whom 15.011 million in the euro area, were unemployed in May 2017. Compared with April 2017, the number of persons unemployed decreased by 32 000 in the EU28 and by 16 000 in the euro area. Compared with May 2016, unemployment fell by 2.145 million in the EU28 and by 1.452 million in the euro area.

Economy of Japan

The Japanese economy expanded at a weaker rate than previously reported in Q1, as private consumption growth was slower than in the initial estimate and inventories recorded a sizeable drop, according to revised data released on 8 June. GDP rose 1.0% in Q1 over the previous quarter in seasonally adjusted annualized terms, which was below the 2.2% increase reported in the first release. The print undershot Q4`s result of 1.4% growth and marked the lowest print since Q4 2015. On an annual basis, economic activity rose 1.3% in Q1. The print was down from the 1.6% increase reported in the first estimate and marked a deceleration from Q4`s 1.6% rise.

The Bank of Japan (BoJ) expects the economy to expand between 1.4% and 1.6% in fiscal year 2017, which ends in March 2018. In the subsequent fiscal year, the BoJ sees GDP growth of between 1.1% and 1.3%. FocusEconomics Consensus Forecast panelists see GDP expanding 1.2% in calendar year 2017, which is up 0.1 percentage points from last month`s projection. In 2018, the panel sees the economy growing 0.9%.

Japan`s industrial output fell 3.3 percent in May from the previous month due to lower production of cars and construction equipment, preliminary government data showed, in a sign of a temporary lull in manufacturing activity. The result compared with the median estimate of a 3.2 percent decline in a Reuters poll of economists.

It followed a 4.0 percent increase in April, which was the fastest increase in almost six years, the data from the Ministry of Economy, Trade and Industry showed. Manufacturers surveyed by the ministry expect output to rise 2.8 percent in June and fall 0.1 percent in July.

Japan`s trade deficit widened to JPY 203.4 billion in May 2017 from JPY 47.4 billion in the same month a year earlier while missing market expectations of a JPY 76 billion surplus. Imports jumped 17.8 percent from the previous year to JPY 6,054.7 billion, boosted by higher purchases of mineral fuels, electrical machinery, chemicals and machinery. Exports increased at a slower 14.9 percent to JPY 5,851.4 billion. Still, it was the sixth straight month of increase in exports and the fastest since January 2015, due to higher shipments of transport equipment, machinery, manufactured goods and electrical machinery.

Japanese consumer prices rose at a faster pace in May, increasing for a fifth straight month and offering a small sign of improvement, though inflation still remains far from the Bank of Japan`s 2% target.

The core consumer price index in May rose 0.4% from a year earlier, compared with a 0.3% gain in the previous month, data from the Ministry of Internal Affairs and Communications showed. The rise was largely due to gains in global oil prices from the previous year, and was in line with forecasts by economists polled by the Nikkei. The core CPI excludes fresh food.

The jobless rate in Japan came in at a seasonally adjusted 3.1% in May, the Ministry of Internal Affairs and Communications said. That exceeded expectations for 2.8%, which would have been unchanged from the April reading.

The job-to-applicant ratio was 1.49, beating forecasts for 1.48 - which also would have been unchanged. The number of employed persons in May was 65.47 million, an increase of 760,000 or 1.2% on year. The number of unemployed persons in May was 2.10 million, a decrease of 70,000 or 3.2% on year.

Economy of Russia

The Russian economy advanced 0.5 percent year-on-year in the first three months of 2017, in line with preliminary estimates and following a 0.3 percent expansion in the previous quarter. A rebound in mining, manufacturing and trade and a jump in transportation boosted growth, final figures showed. The economy returned to growth after a two-year recession that was mainly caused by low oil prices and sanctions imposed on Russian individuals and businesses in response to the annexation of Crimea.

Russia`s industrial production increased by 5.6 percent year-on-year in May 2017, following a 2.3 percent rise in the previous month and above market expectations of 2 percent gain. It was the sharpest increase in industrial production since February 2012, as output grew further for both manufacturing (5.7 percent from 0.6 percent in April) and mining (5.6 percent from 4.2 percent). Meanwhile, output rose at a slower pace for electricity and gas (4.7 percent from 5.5 percent in April) and distribution of water, sewage (1.1 percent from 2.1 percent). On a monthly basis, industrial production rose 1.2 percent, recovering from a 2.3 percent drop in April.

Russian trade surplus increased by 21.1 percent to $8 billion in April 2017 from $6.6 billion in the same month a year earlier and below market expectations of a $8.5 billion surplus. Exports rose 20 percent to $26.1 billion and imports went up 19.6 percent to $18.1 billion.

Consumer prices in Russia increased by 4.4 percent year-on-year in June 2017, following 4.1 percent in the previous month and above market expectations of 4.3 percent. It was the highest inflation rate since February, as prices increased at a faster pace for food. On a monthly basis, prices went up 0.6 percent after advancing by 0.4 percent in May.

The unemployment rate in Russia declined to 5.2 percent in May of 2017 from 5.6 percent in the same month a year ago and below market expectations of 5.3 percent. It was the lowest jobless rate since September last year. The number of unemployed people decreased by 358 thousand to 3.945 million while the number of economically active people fell by 500 thousand to 76 million, representing 52 percent of total population.

09.07.2017 13:17:56

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