World Economy Review

The International Monetary Fund`s World Economic Outlook (WEO), published in April of 2007, predicts that the average world growth rate of 4.9 percent in the period 2003-2006 will continue at least for the next two years.
The WEO forecast 2007-08 released by IMF the US economy growth is expected to come down to 2.2% this year, from 3.3 percent in 2006, which would be the slowest since 2002, when it was recovering from a recession.
Euro zone growth will slow a bit this year after a strong performance in 2006, but the European Central Bank should still lift interest rates to keep inflation at bay, the IMF said. The International Monetary Fund also said it was not clear if this showed a fundamental improvement in the common currency zone`s economic performance, and urged more reform to catch up with the wealthier United States.
"Growth in the euro area is projected to moderate to 2.3 percent in 2007 and 2008, still somewhat above potential," the IMF said in the spring edition of its World Economic Outlook. In its last forecast in September IMF expected Eurozone economies to collectively expand at a 2.0 percent pace this year and next.
Britain should see economic growth of 2.9% this year, also better than the IMF previously thought. Next year, growth in the country should slow a tad and clock in at 2.7%.
Japan continues to recover from a decade-long stagnation. It is expected to post economic growth of 2.3% this year, up a notch from 2.2% last year. Growth should fall back to 1.9%t next year. In China, the economy is expected to grow by around 10% in 2007.
Russia is expected to see economic activity increase by 6.4% this year, compared with 6.7% last year. In 2008, Russia`s economy is expected to grow by 5.9%.

United States Economy

Hit by rising energy prices and a weak housing market, the U.S. GDP slowed to 1.3% real annualized growth in the first quarter of 2007, the weakest expansion in four years, the Commerce Department estimated. The first estimate of first-quarter real gross domestic product was lower than the 1.7% expected by economists. GDP growth was led by consumer spending, state and local government spending, and business investments, offsetting drags from housing, foreign trade, inventories and federal government spending. Final sales of domestic product increased 1.6%, the weakest in five quarters. Led by higher energy costs, the GDP price index increased 4.0%, the most in 16 years. Meanwhile, core consumer prices - which exclude food and energy costs - increased at a more moderate 2.2% annual pace.
The ISM`s national Purchasing Managers Index rose in April to a 12-month high of 54.7 points, from March’s near-neutral 50.9, indicating the expansion is accelerating. (Readings higher than 50 indicate manufacturing is expanding; readings of 42 or higher indicate expansion in the overall economy.) The improvement was well above that anticipated by 77 economists surveyed by Bloomberg News, who forecast the PMI would edge up to 51.
Meanwhile, U.S. industrial production fell by 0.2 percent in March after a 0.8 percent increase in February and a 0.4 percent decrease in January, the Federal Reserve reported this week. The 0.2 percent decline in industrial production, an indicator of the output of mines, factories and utilities, was led by a 7.0 percent drop in output of utilities. Output in the manufacturing sector, however, moved up 0.7 percent in March, the strongest showing since December.
The increase followed a 0.1 percent gain in February and was led by advances in the production of durable goods. Mining output, including oil production, also edged up 0.1 percent in March, compared with a gain of 0.3 percent in the previous month. Overall industrial production for March was 2.3 percent above the level in the same month of 2006. The rate of capacity utilization for total industry fell 0.2 percentage point to 81.4 percent in March. It was the same as its year-earlier level and 0.4 percentage point above its 1972-2006 average.
The final April reading of its consumer sentiment index slipped from 88.4 March to 87.1. It was the third straight monthly fall in the index. April’s final result was the lowest since 85.4 in September 2006, although it was up from the 85.3 preliminary April reading.
Sales of new U.S. homes rose 2.6 percent in March but fell short of the pace expected by analysts while the number of new homes for sale was little changed, according to a government report on Wednesday. New single-family home sales rose to an annual rate of 858,000 units from a revised rate of 836,000 in February, the Commerce Department said. Analysts polled by Reuters were expecting March sales to rise to 888,000 from the previously reported rate of 848,000 units in February. In March, the median sales price of a new home rose $2,200 to $254,000 from $251,800 in February.
The Commerce Department`s data comes a day after a real estate trade group reported a weaker-than-expected month of existing homes sales. The sales pace of existing homes dropped 8.4 percent in March, the biggest tumble in more than 18 years, the National Association of Realtors said. Home resales, which represent 85 percent of the housing market, fell to an annualized 6.12 million units.

Economy of European Union

The Eurozone`s manufacturing sector growth remained at a 13-month low in April, with gains in employment offset by weaker output and new orders, sources said of a key survey. The purchasing managers` index (PMI) for the euro zone manufacturing sector remained flat at 55.4 in April, the same level as in March, and just below analysts` expectations for a 55.5 reading.
Despite missing expectations, the sector continues to grow at a fairly healthy rate. A reading above 50 indicates expansion. A more detailed look at the survey shows that the output sub-index fell to 56.9 from 57.4, while the new orders component fell to 55.8 from 56.4. Both of these sub-indices reached their lowest levels since January of 2006. This was partially offset by gains in the employment expectations index, which rose to 53.3 from 52.9, reaching its highest level since November 2000.
Economists polled by Thomson Financial News had forecast 57.2 points. European business and consumer confidence stayed close to a six-year high this month, as resurgent exports and corporate investment help the euro-area economy overcome increased interest rates and a U.S. slowdown.
The German purchasing managers` index for manufacturing rose to 57.0 points in April from 56.9 in March but narrowly missed expectations, market sources said. The purchasing managers index for the French manufacturing sector rose to 53.9 in April from 53.8 in March.
An index of sentiment among executives and consumers in the euro region slipped to 111.0 from a revised 111.1 in March, the European Commission in Brussels said. Economists had expected the April confidence index to rise to 111.7 from a previously reported 111.2 in March, according to the median of 27 forecasts in a Bloomberg News survey. Business confidence in Germany, Europe`s biggest economy, unexpectedly rose this month to the second-highest level on record, the Ifo institute said April 25.
Euro-area industrial confidence increased in April to the highest since the data were first collated in 1990, today`s report showed. Also the commission estimates the euro area grew 0.6 percent in the first quarter from the prior three months, twice the rate of expansion in the U.S.
An upbeat commission report last month said Eurozone gross domestic product (GDP) would grow by 2.4 percent growth in 2007, marking continuing economic dynamism across the 13-nation currency bloc. It said GDP growth through the euro area had risen by 2.7 percent in 2006, the strongest growth in the currency zone in six years, despite higher energy prices, tighter monetary conditions and a slowdown in the US.
"We continue to have an optimistic view of 2007," European Union economic affairs commissioner Joaquin Almunia told reporters. "However, anticipated buoyant growth in the 13-nation euro area could slow down in the face of "downside risks from the external side," -Almunia warned. Jean-Claude Juncker, who is Eurogroup chairman and Luxembourg`s prime minister said there was "no reason for us to be worried. Eurozone economic growth remains strong".

Economy of Japan

Better than an initial estimate of a decline of 0.2%, Japan`s industrial output rose by a revised 0.7% in February from the previous month, the government said, while maintaining its upbeat assessment of the overall economy. Year-on-year output was up 3.1%, according to the Ministry of Economy, Trade and Industry. The government also maintained its upbeat view of the economy in a monthly report, although it slightly downgraded its view on industrial production.
"The economy is recovering, despite weakness in industrial production in some sectors," the Cabinet Office said, dropping a reference in last month`s report to weakness in consumer spending. Over the short term, the government remained positive about the outlook, saying "economic recovery is expected to continue, supported by domestic private demand as high corporate profits feed into the household sector. It said that private consumption "is showing a pick-up", upgrading its earlier view that private consumption was "almost flat." The report indicated that Japan`s economy has now been expanding for 63 months, its longest post-war boom.

Economy of Russia

Russia`s gross domestic product (GDP) grew 7.9%, year-on-year, in the first quarter of 2007, the Russian economics minister said Thursday. In January-March 2006, GDP increased 5.0%. "The first quarter is characterized by a new wave of accelerated economic growth," - Gref said. Net capital inflow into Russia increased 150% in January-March 2007, year-on-year, to $18.3 billion.
Net capital inflow into Russia hit a record level of $41.6 billion in 2006. Wages in Russia grew 18.4% and real incomes were up 13.0% in the first quarter of 2007, compared with the same period of 2006. Industrial output expanded 8.4%, year-on-year, in January-March 2007, making a major contribution to accelerated GDP growth. The ruble`s real effective rate to the dollar/euro currency basket gained 2.6% in the first three months of 2007.The Russian Economic Development and Trade Ministry raised its forecast for GDP growth in 2007 from 6.2 percent to 6.5 percent, Andrei Klepach, director of the ministry`s macroeconomic forecasting department, said in Kazan on Friday.
The revise follows the positive results of the first two months of 2007 and a review of the forecast for industrial production, Klepach was quoted by the Interfax news agency as saying. According to the ministry`s updated forecast, GDP growth in Russia will be 6.1 percent in 2008, 6.0 percent in 2009 and 6.2 percent in 2010. The forecast for industrial production in 2007 has also been raised to 5.2 percent from 4.3 percent, he said. The forecasts for GDP growth and industrial production in the 2008-2010 period have been increased as well, Klepach said.