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World Economy Review - July 2009

The World Economic Outlook (WEO) of the International Monetary Fund (IMF), July edition, notes that the global economy is beginning to pull out of recession unprecedented since World War II, but stabilization is uneven and the recovery is expected to be sluggish. Accordingly, global activity is forecast to fall by 1.4% in 2009, but to expand by 2.5% in 2010, which is 0.6% higher than envisaged in the April 2009 WEO. The higher annual average growth rate for 2010 largely reflects carryover from a markup in growth during the final half of 2009. On a Q4 to Q4 basis, real GDP growth is projected at 2.9% in 2010, compared with 2.6% in the April 2009 WEO forecast. Accordingly, GDP in the advanced economies is projected to decline by 3.8% in 2009 before growing by 0.6% in 2010.
Growth projections in emerging Asia have been revised upward to 5.5% in 2009 and 7% in 2010. Growth projections for emerging Africa and the Middle East have been revised downward by 0.3% and 0.5% in 2009, respectively, while those for 2010 are broadly unchanged.
The IMF, in its annual report on the U.S. economy, stuck to earlier forecasts that gross domestic product will shrink by 2.6 percent in 2009 and then rise by 0.8 percent in 2010. The report was prepared before U.S. data showed the economy contracted by a 1.0 percent annual rate in the second quarter. "As a result of their increasingly strong and comprehensive policy measures, the sharp fall in economic output seems to be ending, and confidence in financial stability has strengthened," the IMF said in its report, which followed consultations with U.S. officials and institutions. "Nevertheless, with financial strains still elevated, the recovery is likely to be gradual, and risks are tilted to the downside," it said.
The IMF said unwinding fiscal and monetary stimulus measures would have to wait until a sustainable recovery is underway. But they need to develop exit strategies from stimulus programs, strengthen financial regulation and in the medium term cut budget deficits.
The IMF`s North American division deputy, Marcello Estevao, said rising unemployment is the greatest threat to recovery efforts. "The weakness in the labor market is going to reflect into the weakness in the housing market. When people lose jobs, wages don`t grow as much, it`s harder for people to pay their mortgage, Estevao said. "There is substantial uncertainty exactly how this feedback would play out. And that is one of the reasons we have this very gradual recovery outlook for the U.S." He said the IMF sees U.S. GDP growing "a little bit" in the second half, with a sustained recovery not starting until the second quarter of 2010. The IMF`s forecast for unemployment was unchanged, seeing 2009 unemployment averaging 9.3 percent and rising to 10.1 percent for 2010.

Economy of The United States

The U.S. economy shrank 1 percent in the second quarter, beating analysts` expectations and providing fresh evidence that the effects of the economic downturn are weakening. The report on gross domestic product from the U.S. Department of Commerce`s Bureau of Economic Analysis paints a far more optimistic picture than the 6.4 percent contraction the agency cited for the first quarter. That figure was revised from an initial estimate of a 5.5 percent contraction. The first quarter was the weakest for the U.S. economy in almost 30 years.
According to Dow Jones Newswires, economists on average had expected a 1.5 percent decrease in GDP in the second quarter. The bureau cites “much smaller decreases in nonresidential fixed investment, in exports, and in private inventory investment, upturns in federal government spending and in state- and local-government spending, and a smaller decrease in residential fixed investment.”
Still, the latest GDP report shows the U.S. economy has contracted for four consecutive quarters for the first time in more than 60 years. GDP is a measure of the value of all goods and services produced in the United States. It is a widely followed barometer of the nation`s economic health. Meanwhile, the bureau has revised downward its estimate of the economy`s growth in 2008, saying it expanded at just 0.4 percent, less than the 1.1 percent initially reported.
After having fallen 1.2% in May, industrial production decreased 0.4% in June, the Federal Reserved reported on July 15. For the second quarter as a whole, output fell at an annual rate of 11.6%, a more moderate contraction than in the first quarter, when output fell 19.1%. Manufacturing output moved down 0.6% in June, compared with a 1.2% drop in May. Production of durable goods fell 0.7%. The indexes for machinery; computer and electronic products; electrical equipment, appliances, and components; and motor vehicles and parts all posted decreases of more than 1%. Output increased for several industries, most notably for wood products, primary metals, and miscellaneous manufacturing. The gain of 1.7% for primary metals follows 10 consecutive monthly decreases for the industry.
The output of nondurable goods fell 0.4%. Declines in the indexes for food, beverage, and tobacco products; apparel and leather; paper; and chemicals were only partly offset by increases in the indexes for printing and support, petroleum and coal products, and plastics and rubber products. The output of business equipment fell 0.8% in June. The production of industrial and other equipment and of information processing equipment declined, while the output of transit equipment was unchanged. Transit equipment fell in the second quarter after having increased substantially in the first quarter, when the output of aircraft rebounded from a strike. The output of defense and space equipment increased 0.8% in June.
The U.S. unemployment rate fell in July for the first time in 15 months as employers cut far fewer jobs than expected, giving the clearest indication yet that the economy was turning around from a deep recession. U.S. employers shed 247,000 jobs in July, the Labour Department said on Friday, the least in any month since last August, taking the unemployment rate down to 9.4 percent from June`s 9.5 percent.
"It suggests the recession will be ending before the end of the year. There isn`t any part of the economy that hasn`t shown some slowing in deterioration," said Joe Davis, chief economist at investment company Vanguard in Valley Forge, Pennsylvania. Recent data ranging from home sales to manufacturing have pointed to an economy starting to dig itself out of one of the worst recessions since the Great Depression of the 1930s.
The easing in the unemployment rate could have been the result of the labour force shrinking by 422,000 in July, far more than the 155,000 decline in June, suggesting some jobless workers may have given up looking for work.

Economy of The European Union

Euro area (EA16) GDP fell by 2.5% and EU27 GDP by 2.4% during the first quarter of 2009, compared with the previous quarter, according to second estimates from Eurostat, the Statistical Office of the European Communities. In the fourth quarter of 2008, growth rates were -1.8% in both zones. In comparison with the same quarter of the previous year, seasonally adjusted GDP declined in the first quarter of 2009 by 4.9% in the euro area and by 4.7% in the EU27, after -1.7% and -1.6% respectively in the previous quarter.
In the first quarter of 2009, all Member States for which seasonally adjusted GDP data are available registered a negative growth rate compared with the previous quarter, except Poland (+0.4%) and Cyprus (0.0%).
In May 2009 compared with April 2009, seasonally adjusted industrial production grew by 0.5% in the euro area (EA16) and by 0.1% in the EU272. In April production fell by 1.4% and 0.8% respectively. In May 2009 compared with May 2008, industrial production declined by 17.0% in the euro area and by 15.9% in the EU27.
In May 2009 compared with April 2009, production of capital goods increased by 1.2% in the euro area and by 0.5% in the EU27. Non-durable consumer goods grew by 0.8% and 0.4% respectively. Intermediate goods rose by 0.3% in the euro area and remained stable in the EU27. Energy declined by 0.2% in the euro area, but grew by 1.2% in the EU27. Durable consumer goods fell by 2.9% and 1.0% respectively.
Among the Member States for which data are available, industrial production rose in eight, fell in eleven and remained stable in Italy. The highest increases were registered in Lithuania (+7.3%), Germany (+3.7%), Slovenia (+2.9%) and France (+2.6%), and the most significant falls in Latvia (-4.0%), Spain (-2.9%), Sweden (-2.6%) and Finland (-2.2%).
In May 2009 compared with May 2008, production of non-durable consumer goods fell by 2.2% in the euro area and by 2.0% in the EU27. Energy decreased by 9.3% and 6.0% respectively. Durable consumer goods declined by 21.2% in the euro area and by 17.2% in the EU27. Capital goods dropped by 22.1% and 21.2% respectively. Intermediate goods fell by 23.4% in the euro area and by 22.5% in the EU27.
Industrial production fell in all Member States for which data are available. The largest decreases were registered in Estonia (-29.9%), Finland (-23.2%) and Luxembourg (-22.9%), and the smallest in Ireland (-4.1%), Poland (-5.1%) and Greece (-7.4%).
The first estimate for the euro area (EA16) trade balance with the rest of the world in May 2009 gave a 1.9 bn euro surplus, compared with -3.8 bn in May 2008. The April 2009 balance was +2.7 bn, compared with +2.2 bn in April 2008. In May 2009 compared with April 2009, seasonally adjusted exports fell by 2.7% and imports by 2.8%.
The first estimate for the May 2009 extra-EU27 trade balance was a deficit of 6.8 bn euro, compared with -20.7 bn in May 2008. In April 2009 the balance was -8.2 bn, compared with -14.9 bn in April 2008. In May 2009 compared with April 2009, seasonally adjusted exports fell by 1.0% and imports by 3.2%.
Euro area annual inflation is expected to be -0.6% in July 2009 according to a flash estimate issued by Eurostat, the Statistical Office of the European Communities. It was -0.1% in June. The euro area (EA16) seasonally-adjusted unemployment rate was 9.4% in June 2009, compared with 9.3% in May. It was 7.5% in June 2008. The EU27 unemployment rate was 8.9% in June 2009, compared with 8.8% in May. It was 6.9% in June 2008. For the euro area this is the highest rate since June 1999 and for the EU27 since June 2005.
Eurostat estimates that 21.526 million men and women in the EU27, of which 14.896 million were in the euro area, were unemployed in June 2009. Compared with May, the number of persons unemployed increased by 246 000 in the EU27 and by 158 000 in the euro area. Compared with June 2008, unemployment went up by 5.024 million in the EU27 and by 3.170 million in the euro area.

Economy of Asia

Japan`s industrial output rose in June for the fourth straight month, increasing by 2.4% from May, the government said. The rise in this key gauge of Japan`s economy was slightly smaller than the 2.5% rise expected on average by economists surveyed by Dow Jones Newswires and the Nikkei. It was less than the revised 5.7% rise in May.
Looking ahead, manufacturers on average reported they expect output to increase 1.6% in July and rise 3.3% in August, according to preliminary data from the Ministry of Economy, Trade and Industry.
Meanwhile, in June a 12.5% rise in electronic equipment and devices and a 10.1% increase in iron steel products led the overall rise in output. Inventories fell 1.0%, compared to a revised 0.7% fall in May, while shipments were up 3.5%, compared to a revised 4.8% rise in May. Industrial production rose 8.3% on quarter in the April-June period, compared with its record 22.1% plunge in the January-March quarter, the data also showed.
Japan`s Consumer Price Index printed squarely in line with expectations in June, showing that annual inflation shrank at an annual pace of -1.8%, the most in at least 33 years. The Bank of Japan has reinforced expectations of negative price growth, noting that the pace of consumer price growth is likely to turn negative, reflecting the declines in the prices of petroleum products, stabilization of food prices, and overall economic weakness. Indeed, utilities and fresh food prices led declines, slipping -5.9% and -4.7% from the previous year.
The operative question going forward is whether the BOJ`s aggressive monetary easing measures will make CPI`s dip into negative territory a temporary affair, or if deflation once again becomes entrenched in the world`s second-largest economy. This would substantially delay any hopes for a recovery in the near term, keeping a lid on economic activity as consumers and businesses are encouraged to wait for the best possible bargain and perpetually delay spending and investment.
Unemployment in Japan has risen to its highest level for six years, sparking fears that the country`s recovery is being hampered by deflation and weak demand at home. The number of people out of work has risen 31% in the last year to 3.48 million, pushing the jobless rate up to 5.4% in June from 5.2% a month earlier. Job availability also fell to a record low of 43 positions for every 100 job seekers, the government said.
The grim unemployment data was accompanied by a warning that prices fell at a record pace last month, showing that deflationary pressures are haunting the world`s second biggest economy. Core consumer prices, which do not include food, dropped by a record 1.7% in the year to June. But the Nikkei stock average defied the gloomy data and gained 1.9% to close at a 10-month high of 10356. The gains were seen as a reflection of better-than-expected earnings results from some major Japanese companies. While recent upturns in exports and factory output suggest that companies may be over the worst of the recession, the effects have yet to be felt among workers and families.
Figures showed that average monthly household income fell 3.2% in June from last year, although spending rose by a modest 0.2%, mainly due to higher housing, transport and healthcare costs. About 70% of the fall in consumer prices was attributed to lower fuel costs, but with those omitted, the cost of living still dropped 0.7%.
Fears of job losses, coupled with falling wages, have locked spending in a downward spiral for the past four months. Analysts expect the trend to continue, even after the full impact of lower fuel costs is felt.

Economy of Russia

The Gross Domestic Product (GDP) of Russia fell 10.1 percent from January to June this year, Economic Development Minister Elvira Nabiullina said. "We can talk about some moderation of the pace of the contraction," Nabiullina said. She added that the industrial output index, calculated on seasonally adjusted basis, was up 0.8 percent month-on-month in June. She estimated that Russia`s economy may shrink 8 percent to 8.5 percent in 2009, news agencies reported. Nabiullina said there have been positive signs for the economy as industrial output increased 0.8 percent in the first half of this year. The minister believed the Russian economy can overcome the negative effects of the current financial and economic crisis as it will gradually ease with government`s anti-crisis measures taking effect. The ministry previously expected Russia`s economy to fall 6 percent to 8 percent this year, while a World Bank report put the figure at 7.5 percent.
Russia`s ministry for economic development has changed its forecast for the country`s 2009 gross domestic product decline to 8.5%, from an earlier forecast of a 6% contraction. GDP should grow minimally next year, by around 1.0%, and then grow by 2.6% in 2011 and by 3.8% in 2012, the agency cited the official as saying. The ministry also revised down its forecast for the country`s industrial output for 2009 to a decline of 12.5% from an earlier forecast of a 9.3% fall, the agency reported. The Organization for Economic Cooperation and Development expects Russia`s gross domestic product to fall 6.8% this year, a sharper contraction than forecast in March, citing further erosion of domestic demand, falling investment and declining output. However, it expects stronger GDP growth in 2010 than previously forecast. In March, the OECD forecast a 5.6% fall in GDP from a previous estimate of 2.3% GDP growth.
The new forecast falls into the range of the latest official estimate given by the Russian government, which expects GDP contraction of between 6% and 8% this year. Between January and May, the country`s economy contracted 10.2%, according to the Ministry of Economic Development. "Reflecting extreme weakness in early 2009, growth for the year as a whole will be sharply negative," the OECD said in its report. "Output declines may end as early as the second quarter, however, and positive growth is expected to continue through 2010." This recovery, the OECD concluded, should allow Russia to record GDP growth next year of 3.7%. This is higher than the organization`s previous estimate of 0.7% growth. In an overall positive report, which forecasts the economy lifting itself out of the crisis faster than many local and international observers expect, the OECD kept its inflation forecast unchanged, saying it may fall back into single digits this year, to 8%, while the government`s official inflation target is around 13%.

www.ereport.ru - 10.08.2009 20:42:19