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World Economy Review - August 2017

The world economy looks well on its way to a year of faster, firmer growth after rising at its most rapid pace in 2 1/2 years in the second quarter.

The expansion is broad based as long-time laggards Japan and the euro area perk up. Even more encouraging: The gains look sustainable because they`re not generating much in the way of inflation or other excesses that frequently presage a downturn, economists said.

Global gross domestic product is projected to increase by 3.4 percent in 2017 and 3.5 percent in 2018, according to the median forecast of economists surveyed by Bloomberg. While that would be a come down from an estimated 4 percent plus pace in the second quarter, it would still represent a clear acceleration from last year`s 3.1 percent advance.

The pick-up has been paced by budding rebounds in Europe and Japan, two economies that until now had been seen as drags on the global economy.

After years of lackluster growth, the euro-area economy is starting to build momentum. The expansion accelerated to 0.6 percent in the second quarter, and it`s more evenly spread across the 19-nation region than in the past. The Netherlands posted the strongest data in a decade and Italy, long an slouch in the region, may see the best performance since 2010 this year.

That`s good news for European Central Bank President Mario Draghi, who wants to make sure the recovery is well established before reining in stimulus. Inflation is still undershooting the ECB`s goal and there`s little sign of significant wage gains as yet. That`s allowing Draghi to take his time in scaling back support for the region`s economy.

A 4 percent annualized surge in Japanese GDP in the second quarter put the nation in an unexpected spot: at the top of the growth table among the Group of Seven industrial economies.

The strongest domestic demand in years helped drive Japanese GDP to a sixth consecutive quarter of expansion, elevating hopes for a sustainable recovery in an economy that`s been better known in recent years for tepid inflation and a declining population than beating forecasts.

While the unexpected strength in Europe and Japan is providing fuel for the global upswing, the expansion`s fate ultimately rests on the performance of the world`s two biggest economies, the U.S. and China. And there the omens are favorable.

JPMorgan Chase & Co. this week raised its forecast for U.S. growth in the third quarter to an annualized 2.25 percent from 1.75 percent. The move followed news of an unexpectedly strong rise in retail sales in July. GDP rose 2.6 percent in the second quarter.

Shoppers splurged at Internet retailers, department stores, restaurants and auto dealerships last month, boosting sales by 0.6 percent, the most this year.

Consumers are benefiting from a strong jobs market and healthy balance sheets while companies are enjoying a revival in profits and rock-bottom borrowing costs, he said. At the same time, the risks to the U.S. from abroad have diminished as world growth has strengthened.

Low inflation -- it`s fallen short of forecasts for five straight months -- means there`s little pressure on the Federal Reserve to act forcefully to rein in the recovery, even with unemployment at a 16-year low.

In China, a multi-year slowdown has stabilized, with economists forecasting an expansion of 6.7 percent this year. The IMF increased its estimate for the nation`s average annual growth rate through 2020 -- to 6.4 percent from 6 percent -- while warning that it would come at the cost of rising debt that increases medium-term risks to growth.

Of course, there`s always the chance that something could happen to upset the worldwide expansion, from an outbreak of hostilities between North Korea and the U.S. to a sudden swoon in financial markets as central banks scale back their support.

Yet for now at least, the global economy is on a “positive trajectory,” said Bloomberg Intelligence Chief Economist Michael McDonough. “There`s a pretty good foundation to build on for the next year or so.”

Economy of the United States

The U.S. economy grew faster than initially thought in the second quarter, notching its quickest pace in more than two years, and there are signs that the momentum was sustained at the start of the third quarter.

Gross domestic product increased at a 3.0 percent annual rate in the April-June period, the Commerce Department said in its second estimate. The upward revision from the 2.6 percent pace reported last month reflected robust consumer spending as well as strong business investment.

Growth last quarter was the best since the first quarter of 2015 and followed a 1.2 percent pace in the January-March period. Economists had expected that second-quarter GDP growth would be raised to a 2.7 percent rate.

Growth estimates for the third quarter are as high as a 3.4 percent rate. With GDP quickening in the second quarter, the economy grew 2.1 percent in the first half of 2017. While that was up from the 1.9 percent reported last month, economists said it was unlikely growth this year would breach Republican President Donald Trump`s ambitious 3.0 percent target.

U.S. factory output fell in July, pulled down by tumbling auto production. The Federal Reserve says factory production dropped 0.1 percent in July. Overall industrial production - which adds output by mines and utilities - rose 0.2 percent. Mining output rose 0.5 percent, and utility production rose 1.6 percent. Economists polled by Reuters had forecast industrial production increasing 0.3 percent in July. The drop in automotive production was partially offset by a 0.2 percent rise in other manufacturing production.

The U.S. trade deficit increased less than expected in July as both exports and imports fell, suggesting that trade could contribute to economic growth in the third quarter. The Commerce Department said the trade gap rose 0.3 percent to $43.7 billion. June`s trade deficit was revised down slightly to $43.5 billion from the previously reported $43.6 billion. Economists polled by Reuters had forecast the trade shortfall widening to $44.6 billion in July.

Exports of goods and services fell 0.3 percent to $194.4 billion in July. Exports of motor vehicles and parts fell by $0.6 billion, but exports of capital goods rose by $0.9 billion. Imports of goods and services slipped 0.2 percent to $238.1 billion in July. Imports of motor vehicles and parts fell by $0.8 billion and crude oil shipments declined by $1.0 billion.

U.S. consumer prices rose less than expected in July, pointing to benign inflation that could make the Federal Reserve cautious about raising interest rates again this year. The Labor Department said the Consumer Price Index edged up 0.1 percent last month after being unchanged in June. That lifted the year-on-year increase in the CPI to 1.7 percent from 1.6 percent in June. Economists polled by Reuters had forecast the CPI rising 0.2 percent in July and climbing 1.8 percent year-on-year.

Stripping out the volatile food and energy components, consumer prices gained 0.1 percent for the fourth straight month. The so-called core CPI rose 1.7 percent in the 12 months through July - it has now increased by the same margin for three straight months.

U.S. job growth slowed in August as employers added 156,000 jobs, though still enough to suggest that most businesses remain confident in an economy now in its ninth year of recovery from the Great Recession. The unemployment rate ticked up from 4.3 percent to a still-low 4.4 percent, the Labor Department said. The government also revised down its estimate of job growth in June and July by a combined 41,000, leaving an average monthly gain this year of a solid 176,000.

Economy of the European Union

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

Compared with the same quarter of the previous year, seasonally adjusted GDP rose by 2.2% in the euro area and by 2.3% in the EU28 in the second quarter of 2017, after +1.9% and +2.1% respectively in the previous quarter.

In June 2017 compared with May 2017, seasonally adjusted industrial production fell by 0.6% in the euro area (EA19) and by 0.5% in the EU28, according to estimates from Eurostat, the statistical office of the European Union. In May 2017, industrial production rose by 1.2% in both zones.

In June 2017 compared with June 2016, industrial production increased by 2.6% in the euro area and by 2.9% in the EU28.

The first estimate for euro area (EA19) exports of goods to the rest of the world in June 2017 was ˆ187.2 billion, an increase of 3.9% compared with June 2016 (ˆ180.2 bn). Imports from the rest of the world stood at ˆ160.7 bn, a rise of 6.2% compared with June 2016 (ˆ151.3 bn). As a result, the euro area recorded a ˆ26.6 bn surplus in trade in goods with the rest of the world in June 2017, compared with +ˆ28.9 bn in June 2016. Intra-euro area trade rose to ˆ157.5 bn in June 2017, up by 3.5% compared with June 2016. These data are released by Eurostat, the statistical office of the European Union.

The first estimate for extra-EU28 exports of goods in June 2017 was ˆ158.0 billion, up by 4.0% compared with June 2016 (ˆ151.9 bn). Imports from the rest of the world stood at ˆ150.9 bn, up by 3.9% compared with June 2016 (ˆ145.2 bn). As a result, the EU28 recorded a ˆ7.1 bn surplus in trade in goods with the rest of the world in June 2017, compared with +ˆ6.7 bn in June 2016. Intra-EU28 trade rose to ˆ286.2 bn in June 2017, +3.9% compared with June 2016.

Euro area annual inflation is expected to be 1.5% in August 2017, up from 1.3% in July 2017, according to a flash estimate from Eurostat, the statistical office of the European Union. Looking at the main components of euro area inflation, energy is expected to have the highest annual rate in August (4.0%, compared with 2.2% in July), followed by services (1.6%, stable compared with July), food, alcohol & tobacco (1.4%, stable compared with July) and non-energy industrial goods (0.5%, stable compared with July).

The euro area (EA19) seasonally-adjusted unemployment rate was 9.1% in July 2017, stable compared to June 2017 and down from 10.0% in July 2016. This is the lowest rate recorded in the euro area since February 2009. The EU28 unemployment rate was 7.7% in July 2017, stable compared to June 2017 and down from 8.5% in July 2016. This remains the lowest rate recorded in the EU28 since December 2008. These figures are published by Eurostat, the statistical office of the European Union.

Eurostat estimates that 18.916 million men and women in the EU28, of whom 14.860 million in the euro area, were unemployed in July 2017. Compared with June 2017, the number of persons unemployed increased by 93 000 in the EU28 and by 73 000 in the euro area. Compared with July 2016, unemployment fell by 1.928 million in the EU28 and by 1.309 million in the euro area.

Economy of Japan

Japan`s real gross domestic product rose 0.4% month on month in July on solid export growth, according to estimates released by the Japan Center for Economic Research. Exports jumped 1.7%, thanks partly to a sharp rise in auto shipments to the U.S. This compensated for lackluster domestic demand. Consumer spending dipped 0.2%, cooling after a strong April-June quarter in which a relatively dry rainy season encouraged people to go out, boosting spending on food and apparel. Capital spending also slid 0.2% in July.

Industrial output in Japan fell a seasonally adjusted 0.8% on month in July, the Ministry of Economy, Trade and Industry said. That missed forecasts for a decline of 0.3% following the 2.2% spike in June. On a yearly basis, industrial production climbed 4.7% - again missing forecasts for 5.2% and down from 5.5% in the previous month.

Shipments were down 0.7% on month and up 4.1% on year. Inventories were down 1.2% on month and 2.4% on year. According to the survey of production forecast, industrial output is expected to rise 6.0% in August and fall 3.1% in September.

Japanese exports rose 13.4% in July from a year ago, helped by exports of cars and automotive components. It was the eighth straight monthly gain in exports, data from Japan`s Ministry of Finance showed. The gain was in line with a 14.0% rise expected by economists polled by The Wall Street Journal. Imports increased 16.3% from a year earlier (estimate 17.1%).

Japan`s trade balance for July was a surplus of Y418.8 billion, down 17.0% from a year ago. That was higher than a Y380.0 billion surplus expected by economists in a Nikkei survey.

Japan`s core consumer prices rose 0.5 percent in July from a year earlier, the government said, rising for the seventh straight month but still far below the Bank of Japan`s 2 percent inflation target.

The core consumer price index, which excludes fresh food prices because of their volatility, continued to be lifted by gasoline and electricity amid higher year-on-year crude oil prices, the Ministry of Internal Affairs and Communications said.

The core CPI picked up from a 0.4 percent increase in June as kerosene prices also jumped 21.2 percent. Non-fresh food prices were pushed up by beer due to a revision in the alcohol tax, while rice and domestic beef prices also climbed. Lower costs related to mobile phone contracts continued to be a drag on the index.

The jobless rate in Japan came in at a seasonally adjusted 2.8 percent in July, the Ministry of Internal Affairs and Communications said - in line with expectations and unchanged from the June reading.

The number of employed persons in July was 65.63 million, an increase of 590,000 or 0.9 percent on year. The number of unemployed persons in July was 1.91 million, a decrease of 120,000 or an annual 5.9 percent.

The job-to-applicant ratio was 1.52 - matching forecasts and up from 1.51 in the previous month. The participation rate was 60.5 percent.

Economy of Russia

Russia`s economy expanded by 2.5 per cent in the second quarter, up from 0.5 per cent in the first quarter, as the country gradually recovers from two years of crisis, the state statistics service said. The Rosstat statistics service said in a statement that the gross domestic product (GDP) grew 2.5 per cent in the second quarter, compared to the same period last year.

This figure is slightly lower than the government`s assessment of 2.7 per cent, but much more positive than most economists had predicted. Russia`s government has set a target for the whole of 2017 of two per cent growth.

Russia`s GDP growth in July slowed down to 1.5% in annual terms, according to the Economic Development Ministry.

Russia`s industrial production rose by 1.1 percent year-on-year in July 2017, missing market expectations of 3.3 percent and following a 3.5 percent gain in the previous month. Output contracted for manufacturing (-0.8 percent from 2.9 percent in June) and distribution of water, sewage (-4 percent from -0.3 percent). Meanwhile, production grew at a slower pace for both mining (4 percent from 5.2 percent in June), and electricity and gas (0.1 percent from 0.6 percent). On a monthly basis, industrial production shrank 2.5 percent.

Russia`s trade surplus increased by 8.1 percent to USD 8.69 billion in June 2017 from USD 8.04 billion in the same month a year earlier and above market expectations of a USD 7.5 billion surplus. Exports rose 22.8 percent to USD 29.52 billion and imports went up 30.2 percent to USD 20.83 billion.

Consumer prices in Russia increased 3.3 percent year-on-year in August of 2017, below a 3.9 percent rise in July and lower than market expectations of 3.7 percent. It is the smallest inflation rate since at least 1991, mainly due to a slowdown in cost of food and transport.

Russian unemployment rate came in at 5.1 percent in July 2017, unchanged from the previous month`s two-and-a-half-year low and down from 5.3 percent in the same period a year ago. The number of unemployed people decreased by 220 thousand from the previous year to 3.905 million.

08.09.2017 17:15:20

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