World Economy Review - August 2008

The latest from the International Monetary Fund (IMF) has downgraded its world growth forecast for this year to 3.9% from 4.1% issued just a month ago, and projects 2009 growth at 3.7%, down from 3.9%. The fund left unchanged its 2008 forecast for U.S. growth at 1.3%, but shaved its outlook for 2009 growth to 0.7% from 0.8%. It cut its forecast for Eurozone growth the most; expansion this year is expected at 1.4%, down from 1.7%, while 2009 growth is forecast at 0.9%, down from 1.2%.
The IMF has lowered its growth forecast for Britain to 1.4% in 2008, dropping to 1.1% in 2009. Over the next few quarters growth is expected to be 0.1% to 0.2% quarter-to-quarter, says Chopra. It would only take a small shock to push the country into a recession, as defined as two consecutive quarters of negative growth.
Japan`s real GDP is forecast to register a slower growth of 1.4% in 2008 (2007:2.1%) as the trade exposure to the US takes its toll. China, while a magnet for investment and retail sales, remains one of the largest sources of FDIs with its GDP growth surging to 11.4% in 2007. Despite a bleak global outlook and higher interest rates, China`s economy is still predicted to grow by about 10% in 2008 and 2009.
All in all, Latin America is expected to post GDP growth of 4.5 percent this year, the IMF predicts. Brazil, Latin America`s largest economy, will likely expand by 4.9 percent this year. Mexico, the second-largest economy, will grow by 2.4 percent. Argentina`s economy, the region`s third-largest, should end up the year with GDP growth of 7.0 percent. Venezuela`s economy, Latin America`s fourth-largest, is expected to increase by 5.8 percent this year.

Economy of The United States

The US economy grew at a revised 3.3% annually in the second quarter of 2008, the Commerce Department said, much higher than its first estimate of 1.9%. The rebound was linked to strong US exports, helped by the weak dollar, while government tax rebates also boosted consumer spending. GDP grew at a rate of 0.9% in the first quarter, after a 0.2% contraction in the last three months of 2007. The data showed that exports grew at an annualised rate of 13.2%, higher than the government`s initial estimate of 9.2%.
Imports fell at a rate of 7.6% as the US economic slowdown reduced demands for goods made overseas. The improved trade balance added 3.1 percentage points to second-quarter GDP, the biggest since 1980. The slowdown in the housing market was evident, as builders cut back and businesses reduced their spending. Consumer spending, boosted by the government`s $600 tax rebate payments, rose by 1.7%, slightly higher than the previous quarter`s 1.5%. Some observers said that the figures lent support to the argument that the US was not heading for a recession.
US industrial production and capacity usage across a range of industries rose for the second straight month in July, surprising economists, who predicted flat production and falling capacity use. The Federal Reserve reported a 0.2% rise in July industrial output following a downwardly unrevised 0.4% gain in June. Capacity use in US factories rose slightly to 79.9% in July. The Fed initially reported a 79.9% rate for June, but downwardly revised that to 79.8%. Economists polled by Thomson Reuters IFR Markets were expecting industrial production to remain unchanged in July, and expected capacity use to come in at 79.8%.
July`s increased output was due to a 1.0% rise in durable output, including a 2.5% increase in the production of automotive products. Within major industry groups, manufacturing output rose 0.4%, mining output rose 0.9%, and utilities fell 1.9%.
The U.S. unemployment rate hit 5.7 percent in July, according to the U.S. Department of Labor. That`s a slight gain from May and June, when the rate was 5.5 percent for each month. The national unemployment rate was 4.7 percent in July 2007.
The department counted 8.8 million unemployed workers last month, up from 7.2 million a year earlier. About 207,000 workers re-entered the labor force last month. Currently, 2.7 million unemployed workers are classified as re-entrants into the labor market, with 623,000 entering in the past year.

Economy of The European Union

The euro zone economy contracted 0.2% in the second quarter of 2008 compared to Q1, when GDP had risen 0.7%, according to data released by Eurostat on Thursday.Among the member states for which there is data, Cyprus showed the strongest growth rate with its economy rising 0.7% quarter-over-quarter. Conversely, Germany led the way in declines, with its economy shrinking 0.5% over the same period, down from the 1.3% jump seen in the previous period.
In June 2008 compared with May 2008, seasonally adjusted industrial production remained unchanged in the euro area (EA15) and grew by 0.1% in the EU27. In May production fell by 1.8% and 1.3% respectively. In June 2008 compared with June 2007, industrial production decreased by 0.5% in the euro area and by 0.3% in the EU27. These estimates are released by Eurostat, the Statistical Office of the European Communities.
In June 2008 compared with May 2008, production of energy increased by 1.0% in the euro area and by 0.6% in the EU27. Non-durable consumer goods grew by 0.9% and 0.7% respectively. Durable consumer goods fell by 0.1% in the euro area and by 0.4% in the EU27. Intermediate goods declined by 0.2% in the euro area, but remained stable in the EU27. Capital goods decreased by 0.4% and 0.3% respectively.
In June 2008 compared with June 2007, production of capital goods increased by 1.4% in both zones. Non-durable consumer goods fell by 0.6% in the euro area and by 0.7% in the EU27. Energy declined by 0.8% and 0.3% respectively. Intermediate goods decreased by 1.1% in the euro area and by 0.9% in the EU27. Durable consumer goods fell by 5.3% and 3.7% respectively.
The euro zone`s annual rate of inflation fell to 3.8% in August from 4% in July, adding to signs that price pressures are easing in the 15-country bloc, even as data suggest economic growth will continue to slow.
The decline in the inflation rate was the first since March, although it remains above the European Central Bank`s target of just below 2%. However, economists expect the inflation rate to fall further, with some forecasting that it will slip below 3% by the end of the year. The decline in food and oil prices since June has had an immediate impact on inflation expectations, a key concern for the central bank.
According to a monthly survey carried out by the European Commission, the measure of inflation expectations in the euro zone fell to 22 from 30 in July. It was the second-largest monthly drop in the measure`s 18-year history, and brought the survey down to its lowest level since July 2007 and below its long-term average.

Economy of Asia

The Japanese economy contracted for the first time in four quarters in the second quarter ended in June as the key growth drivers of exports, private consumption and capital investments lost momentum, signalling that the world`s second-largest economy was slipping into a recession, data showed.
Gross exports, which have supported the recovery of the world`s second-largest economy in recent years, fell for the first time in 13 quarters in the past quarter, hit by slowing exports to the European Union.
"The latest GDP report endorsed our view that the Japanese economy was already in a recession as the corporate sector, which has shown relative strength, is losing momentum due to a slowdown in the global economy", - Bank of Tokyo Mitsubishi UFJ chief economist Kazuto Uchida said.
Japan`s industrial production unexpectedly rebounded in July as demand in Asia helped exporters withstand a slump in shipments to the U.S. Factory output gained 0.9 percent from June, when it fell 2.2 percent, the Trade Ministry said today in Tokyo. The median estimate of 37 economists surveyed by Bloomberg News was for a 0.3 percent decline.
Japan`s merchandise trade surplus tumbled 86.6 percent to 91.15 billion yen ($830.5 million) in July from a year earlier, missing the consensus forecast, as surging prices of crude oil and other commodities lifted imports, the Ministry of Finance said. The surplus in July was much smaller than the 225.1 billion yen economists had expected. The finance ministry said exports rose 8.1 percent to 7.63 trillion yen while exports by volume rose 7.4 percent, the first rise in two months. In June, export by volume posted a 1.4 percent fall, the first fall in 16 months. By market, exports to the United States fell 4.1 percent, marking the 11th straight month of decline and the longest stretch since Japan`s exports to the world`s biggest economy fell for 14 straight months until February 2004. But the annual decline slowed from a 15.4 percent drop in June, which was the biggest since a 21.1 percent fall in November 2003.
Exports to the European Union rebounded 4.1 percent in July following a 11.2 percent decline in June, which was the steepest since March 2002. In addition, exports to Asian countries rose 12.7 percent, much faster than a 1.5 percent increase in June. Meanwhile, imports increased 18.2 percent to 7.54 trillion yen in July, the tenth straight monthly rise. In July, crude oil imports surged 69.1 percent as the average price of crude oil jumped 89.2 percent to a record $131.50 a barrel. Imports of other commodities also increased due to rising prices, with imports of coal jumping 109.7 percent and liquefied natural gas up 59.3 percent.
Japan`s core inflation rose at its fastest pace in nearly 11 years in July due to rising gasoline and food prices, government data showed. The core consumer price index, which excludes fresh food prices but includes energy costs, rose 2.4 percent last month from a year earlier, the Ministry of Internal Affairs said. It was the fastest rise in core CPI since October 1997 when it jumped 2.4 percent.
The July core reading followed a 1.9 percent rise in June and was faster than the consensus forecast of a 2.3 percent rise, according to a survey by Thomson IFR Markets. It was the tenth straight month of increase for the core CPI.
Overall CPI rose 2.3 percent in July, the fastest since October 1997 when it rose 2.5 percent and also the tenth consecutive monthly jump, the Ministry of Internal Affairs said. Gasoline prices rose 28.7 percent, following an 24.2 percent increase in June.

Economy of Russia

RIA Novosti cited Mr Elvira Nabiullina Economic Development Minister of Russia as saying that Russia`s GDP grew 7.9% in January to July 2008. He said that "The growth rates of gross domestic product remain rather high. It was 7.9% in the first seven months". The RF Federal Statistics Service announced recently the real cash income of Russia`s population soared 7.0% YoY in July. On average, the real income stepped up by 7.4% YoY from January through July. The real income increased 1.8% on month in July of 2008.
Russia`s GDP growth amounted to 8.5 percent in the first quarter of 2008 compared to the same period a year earlier, and was severalfold greater than in developed countries, Russian Federal State Statistics Service (Rosstat) reported today. During the same period, GDP rose 2.6 percent in Germany, 2.5 percent in the US, and 2.3 percent in the UK. At the same time, Russia`s consumption expenditures are nearly two times higher than GDP growth rate. In particular, Russia`s household consumption expenditures surged 14.1 percent in Q1 2008, while in some developed countries the figure was lower than GDP growth rate.