World Economy Review - September 2009

The International Monetary Fund (IMF) raised its 2010 growth forecast for the world economy to 3.1 percent from 2.5 percent, saying the global recession "is ending." In its latest World Economic Outlook (WEO), IMF predicted that the global economy would grow by 3.1 percent in 2010, 0.6 percent higher than its prediction in July. It envisioned the world economy would have a contraction of 1.1 percent in 2009. The global recession "is ending," but the pace of recovery is slow and activity remains far below pre-crisis levels, said the report.
Advanced economies are projected to expand sluggishly through much of 2010, with unemployment continuing to rise until later in the year. Annual growth in 2010 is projected to be about 1.3 percent, following a contraction of 3.4 percent in 2009, the report said.
Among the major advanced economies, the projection for U.S. growth in 2009 as a whole is minus 2.7 percent, but has been improved to 1.5 percent in 2010. Growth rate is also projected to go up in the euro area, which is expected to turn from minus 4.2 percent in 2009 to 0.3 percent in 2010, while the picture in Britain is to turn bright as it would register a 0.9-percent growth in 2010 from a contraction of 4.4 percent.
In emerging and developing economies, real gross domestic development (GDP) growth is estimated to reach almost 5.1 percent in 2010, up from 1.7 percent in 2009, said the report, adding that the rebound is driven by China, India and a number of other Asian economies. China will lead Asia out of the economic recession by growing by 8.5 percent this year and 9.0 percent in 2010, the report said. India is expected to expand by 5.4 percent this year and 6.4 percent next year. Russia would grow 1.5 percent in 2010 from minus 7.5 percent in 2009.
The WEO presents the IMF`s analysis and projections of economic developments at the global level in major country groups and in many individual countries. It focuses on major economic policy issues, and analysis of economic development and prospect.

Economy of the United States

The recession-hit US economy contracted just 0.7% in the second quarter of 2009, much less than the previous projection of 1%, signaling that economic recovery is round the corner. Battered by one of the worst financial crisis in nearly 80 years, the world`s largest economy shrank at a staggering pace of 6.4% in the first three months of 2009. In its earlier estimate, the GDP contraction was projected at 1%. The much lesser GDP fall is mainly on account of smaller decreases in non-residential fixed investment and in exports, in addition to an upturn in federal government spending, among others.
The current-dollar GDP - the market value of the nation`s output of goods and services -- dropped $26.8 billion in the second quarter to $14.15 trillion. Recently, the US Federal Reserve said the country`s economy has picked up and the financial conditions have improved. US industrial production jumped 0.8 percent in August, the second straight monthly gain, the Federal Reserve reported in a further sign of a reviving manufacturing sector. Overall industrial output gained for a second month in August after eight consecutive monthly declines. The report also revised upward the July increase to 1.0 percent from an earlier estimate of 0.5 percent. Aside from a hurricane-related rebound in October 2008, the gain in July marked the first monthly increase since December 2007.
Manufacturing output increased 0.6 percent in August, helped in part by a jump in auto production. But the index excluding motor vehicles and parts increased 0.4 percent. The report also showed production at mines advanced 0.5 percent in August and utility output increased 1.9 percent. Total industrial production was 10.7 percent below its level of a year earlier, the Fed said.
The capacity utilization rate, a sign of slack in the industrial economy, rose to 69.6 percent, from a revised 69.0 percent in July. The August level is 11.3 percentage points below its average for the period 1972 through 2008.
Government data showed that prices paid by US consumers rose 0.4% in August, driven mostly by higher prices at the pump. Core CPI, which is less energy and food, rose 0.1%, well within the inflationary range the Federal Reserve looks for in gauging the rate of inflation. The US Department of Labor report indicated that food prices in August had gone up 0.1%, the smallest gain since January. Compared to year-ago levels, core consumer prices were up 1.4%, the smallest increase since February 2004. What really hit home in the inflation rate in August was the cost of energy. Gasoline prices were up 9.1% in August and energy prices as a whole rose 4.6% last month.
Unemployment in the United States has risen to 9.8%, from 9.7%, the Labor Department said. The level met economists` expectations. Nonfarm payrolls data also showed that U.S. employers cut 263,000 jobs in the month of September, higher than the 216,000 that were shed in August. Economists had expected a much smaller drop of 175,000 jobs last month.

Economy of Eurozone

GDP fell by 0.1% in the euro area (EA16) and by 0.2% in the EU27 during the second quarter of 2009, compared with the previous quarter, according to first estimates released by Eurostat, the Statistical Office of the European Communities. In the first quarter of 2009, growth rates were -2.5% in the euro area and -2.4% in the EU27. Compared with the second quarter of 2008, seasonally adjusted GDP declined by 4.7% in the euro area and by 4.8% in the EU27, after -4.9% and -4.8% respectively for the previous quarter.
In July 2009 compared with June 2009, seasonally adjusted industrial production fell by 0.3% in the euro area (EA16) and by 0.2% in the EU27. In June production decreased by 0.2% and 0.1% respectively. In July 2009 compared with July 2008, industrial production declined by 15.9% in the euro area and by 14.7% in the EU27. These estimates are released by Eurostat, the Statistical Office of the European Communities.
In July 2009 compared with June 2009, production of non-durable consumer goods increased by 0.7% in the euro area and by 0.6% in the EU27. Intermediate goods grew by 0.3% and 0.1% respectively. Durable consumer goods fell by 0.8% in the euro area and by 0.7% in the EU27. Production of energy decreased by 1.2% and 0.4% respectively. Capital goods dropped by 1.8% in the euro area and by 1.3% in the EU27.
In July 2009 compared with July 2008, production of non-durable consumer goods fell by 0.6% in the euro area and by 1.0% in the EU27. Production of energy decreased by 7.0% and 6.2% respectively. Intermediate goods declined by 20.1% in the euro area and by 19.4% in the EU27. Durable consumer goods dropped by 21.2% and 18.7% respectively. Capital goods fell by 23.2% in the euro area and by 21.9% in the EU27.
The first estimate for the euro area (EA16) trade balance with the rest of the world in July 2009 gave a 12.6 bn euro surplus, compared with -3.5 bn in July 2008. The June 20092 balance was +5.4 bn, compared with -0.8 bn in June 2008. In July 2009 compared with June 2009, seasonally adjusted exports rose by 4.1%, while imports fell by 0.3%. The first estimate for the July 2009 extra-EU27 trade balance was a 0.7 bn euro surplus, compared with -22.4 bn in July 2008. In June 20092 the balance was -4.6 bn, compared with -19.9 bn in June 2008. In July 2009 compared with June 2009, seasonally adjusted exports rose by 3.3%, while imports fell by 0.6%. Euro area annual inflation is expected to be -0.3% in September 2009 according to a flash estimate issued by Eurostat, the Statistical Office of the European Communities. Euro area annual inflation was -0.2% in August 20092, up from -0.7% in July. A year earlier the rate was 3.8%. Monthly inflation was 0.3% in August 2009. EU annual inflation was 0.6% in August 2009, up from 0.2% in July. A year earlier the rate was 4.3%. Monthly inflation was 0.3% in August 2009.
The euro area (EA16) seasonally-adjusted unemployment rate was 9.6% in August 2009, compared with 9.5% in July. It was 7.6% in August 2008. The EU27 unemployment rate was 9.1% in August 2009, compared with 9.0% in July. It was 7.0% in August 2008. For the euro area this is the highest rate since March 1999 and for the EU27 since March 2004.
Eurostat estimates that 21.872 million men and women in the EU27, of which 15.165 million were in the euro area, were unemployed in August 2009. Compared with July, the number of persons unemployed increased by 236 000 in the EU27 and by 165 000 in the euro area. Compared with August 2008, unemployment went up by 5.008 million in the EU27 and by 3.224 million in the euro area.

Economy of Japan

Japan`s economy grew at an annualized rate of 2.3 percent in the second quarter of 2009, a smaller expansion than initially estimated, revised official data showed. The government had reported last month an annualized 3.7 percent growth for the quarter. New data also showed the economy grew 0.6 percent in the three months to June from the previous quarter, still the first positive growth in more than a year but down from the 0.9 percent growth initially estimated. For the January-March quarter, the revised report showed the economy shrank by 3.3 percent from the previous quarter for an annualized contraction of 12.4 percent.
Japan`s industrial production index rose for a sixth month in a row by a seasonally-adjusted 1.8% in August, government data showed Wednesday, and companies surveyed by the Ministry of Economy, Trade and Industry said they expect further increases in the months ahead. The result came in below the 2.0% on-month gain expected by economists polled in a Dow Jones Newswires and Nikkei survey. The output index stood at a seasonally-adjusted 84.1 in August, down 18.7% from the previous year, data showed.
Strength in the steel and iron, transport equipment and electronic parts and devices industries contributed to the increase, the government data showed. Cellular telephones, semiconductor products machinery and small passenger cars were also among the commodities that played a part in the rise.
Consumer prices in Japan were down 2.2 percent on year in August, the Cabinet Office said on Tuesday, further triggering fears of deflation. The result matched forecasts exactly following the 2.2 percent annual fall in July. On a monthly basis, inflation was up 0.3 percent. Core CPI, which strips out volatile prices for fresh food, was down an annual 2.4 percent in August - again matching the forecast after the 2.2 percent annual contraction in the previous month. Minus fresh food and energy, inflation was down 0.9 percent on year.
Among the individual components, food was up 1.1 percent on month, while housing was flat, fuel shed 0.5 percent, furniture was down 0.7 percent, clothing fell 1.6 percent, medical care eased 0.1 percent, transportation added 0.2 percent and education was flat. On an annual basis, food was down 0.1 percent, while housing eased 0.2 percent, fuel dropped 9.1 percent, furniture was down 3.1 percent, clothing shed 0.6 percent, medical care was flat, transportation dropped 7.6 percent and education added 0.9 percent.
Japan`s unemployment rate fell to 5.5 percent in August after reaching a record high a month earlier, the government said. The jobless rate in the world`s No. 2 economy hit 5.7 percent in July, the highest level in the country`s post-World War II era amid mounting job and wage cuts. Analysts had been predicting the figure would continue climbing. The unexpected decline suggests the worst may be over for Japan`s workers, with the nascent economic recovery starting to reach individuals and families. Japan emerged from a yearlong recession, its steepest on record, in the April-June quarter.

Economy of Russia

Russia`s economy shrank by 10.5 percent in August, year-on-year, worse than in July or June, Economy Minister Elvira Nabiullina said, adding that the forecast for the whole of 2009 remained unchanged. “For the whole year we are not changing the estimates. It was and remains (minus) 8.5 percent,” she said. Preliminary figures for August came as a surprise after the government said the economy has started showing the first signs of recovery. Russian GDP shrank 9.3 percent in July, year-on-year, and 10.1 percent in June. Nabiullina also said the government was considering providing state loan guarantees to Russia`s largest car maker AvtoVAZ, but gave no details.
Russia`s industrial output declined by 3 percent in August, reversing growth of the previous two months and indicating that recovery is still a distant prospect, according to new government figures released. Industrial production fell 14 percent in January-August compared to a year ago, and 3 percent compared to July, the Federal Statistics Service said. Manufacturing was on the rise in June and July.