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World Economy Review - March 2010

World trade is expected to grow 9.5 percent in 2010, after suffering its biggest collapse since World War II in 2009, the head of the World Trade Organization Pascal Lamy said. "Our economists are forecasting a world trade growth for 2010 of 9.5 percent with developing countries` trade growing 11 percent and industrialized countries` trade growing by 7.5 percent," the WTO director-general said. "This means that trade-wise, there is light at the end of the tunnel and it`s certainly a good forecast, good news for the world economy," he added.
World trade plunged 12 percent in 2009 due to a "sharp contraction in global demand" during the economic crisis. Amid last year`s slump, China overtook Germany to become the world`s top exporter with some 1.20 trillion US dollars worth of merchandise exported in 2009, according to WTO data. Germany exported 1.12 trillion US dollars of merchandise, while the world`s biggest importer, the United States, was in third place with 1.06 trillion US dollars worth of exports last year.
The WTO noted that the trade slump last year was particularly magnified by the "product composition of the fall in demand, by the presence of global supply chains, and by the fact that the decline in trade was synchronized across countries and regions." Underlining the scale of the downturn, Patrick Low, chief economist at the WTO, said that the projected growth of 9.5 percent this year would need to be repeated in 2011 in order for the global economy to recover to peak trade levels reached in 2008 before the crisis struck. "If you need to do it in one year, you`ll need 14 percent," he added.
The economist warned that the 2010 forecast could yet prove over-optimistic if currency and commodity prices were to show wild swings, or if the financial markets were to show other adverse developments. On the other hand, "if unemployment were to be reduced faster than is predicted then that would have a good effect on trade growth rates," added Low. But while trade prospects appear healthy this year, prospects on the so-called Doha Round of negotiations for a global trade deal were more gloomy. "The outcome is that we are not where we wanted to be," said Lamy, after a week of meetings of the 153 WTO member states on ways to reach a deal on the long-running negotiations. "Yes, we made some limited progress since (2008) but obviously not enough to enter into the final game which will take some time," Lamy added.
The WTO chief also distanced himself from the 2010 target set by the Group of 20 developed and developing leaders for the conclusion of the Doha talks. "The technical reality is that given what`s on the table, it`s technically feasible, but it wasn`t a technical orientation. It was a political orientation," Lamy said. "I did not declare this political orientation. The answer to your question lies with the leaders, not with me," the WTO director-general said in response to a question on whether an accord was still possible by year-end.
he Doha talks began in 2001 with a focus on dismantling obstacles to trade for poor nations. However, it has been dogged by intractable disagreements. These include how much the United States and the European Union should reduce farm aid and the extent to which developing countries such as India and China should lower tariffs on industrial products. Successive deadlines to conclude the talks have been repeatedly missed.

Economy of the United States

The growth of U.S. GDP in the final quarter of 2009 was most significant in the last six years. According to verified data, U.S. GDP rose in fourth quarter to 5,6%. Initially, a month ago, reported the growth of the economy during the reporting period by 5,9%. Compared with the same period of 2008, GDP increased by 0,1%. For all the same in 2009 U.S. GDP declined by 2.4%. Compared with the originally published, the government revised downward investment in business structures, expenditure on services and investment in inventory. The downward revision to U.S. GDP is not good but at the same time it is important to realize that 5.6 percent GDP is still the strongest pace of growth reported since the third quarter of 2003, more than 6 years ago. It is also the fastest pace of fourth quarter GDP growth of all G7 nations which is not something to dismiss. In the fourth quarter, the U.S. economy grew at least 5 times faster than the Eurozone and U.K. A downward revision in personal consumption, weaker gross private investment and a larger than previously estimated decline in government consumption all contributed to the downward revision of GDP.
The output of the nation`s factories, mines and utilities rose 0.1% in February despite winter storms in the Northeast, the Federal Reserve said Monday. The increase was unexpected. Economists had expected a 0.2% decline. Factory activity alone fell 0.2% after rising 0.9% in January. Production of motor vehicles and parts fell 4.4% in February. Excluding autos and trucks, industrial production rose 0.3% in the month. The output of mines rose 2.0% in February while the index for utilities rose 0.5%. Capacity utilization - a gauge of slack in the economy -- rose to 72.7% in February from 72.5% in January. This is the highest level since December 2008.
The US trade deficit fell unexpectedly in January, following a big drop in imports of oil and foreign cars. The US Commerce Department said the trade gap was a seasonally adjusted $37.3bn (Ј24.9bn), 6.6% lower than the revised December figure of $39.9bn. Imports dropped 1.7%, with crude oil imports at their weakest level since February 1999, at 245 million barrels. US exports fell by 0.3% in January, with less machinery, agricultural products and civilian aircraft sold. The trade gap`s fall was a surprise. Economists had expected it to widen further after it increased by nearly 10% between November and December.
US consumer prices showed no rise between January and February, according to official figures, indicating little sign of inflationary pressures. The report from the US Labor Department showed the consumer price index was flat in February, though prices were 2.1% higher than a year ago. Core inflation - which strips away food and energy costs - saw a 0.1% rise.
The figures reinforce the Federal Reserve`s view that low inflation will allow interest rates to remain low. On Tuesday, the Fed said it would keep interest rates at near-zero for an "extended period" in the absence of inflation. Analysts said the weakness in the US economy had prevented retailers from charging more for their goods, while a rise in food costs had been offset by a fall in energy bills. A weak recovery is expected to keep inflation low for the rest of the year.

Economy of the European Union

GDP increased by 0.1% in both the euro area (EA16) and the EU27 during the fourth quarter of 2009, compared with the previous quarter, according to first estimates released by Eurostat, the statistical office of the European Union. In the third quarter of 2009, growth rates were +0.4% in the euro area and +0.3% in the EU27. Compared with the fourth quarter of 2008, seasonally adjusted GDP declined by 2.1% in the euro area and by 2.3% in the EU27, after -4.1% and -4.3% respectively for the previous quarter.
During the fourth quarter of 2009, household final consumption expenditure was stable in both the euro area and the EU27 (after -0.2% in both zones in the previous quarter). Investments fell by 0.8% in the euro area and by 1.3% in the EU27 (after -0.9% and -0.7% respectively). Exports increased by 1.7% in the euro area and by 1.9% in the EU27 (after +2.9% and +2.5%). Imports increased by 0.9% in the euro area and by 1.4% in the EU27 (after +2.8% in both zones). Over the whole year 2009, GDP decreased by 4.1% in the euro area and by 4.2% in the EU27, compared with +0.6% and +0.8% respectively for 2008.
In January 2010 compared with December 2009, seasonally adjusted industrial production grew by 1.7% in the euro area (EA16) and by 1.8% in the EU272. In December 2009 production increased by 0.6% and 0.3% respectively. In January 2010 compared with January 2009, industrial production increased by 1.4% in the euro area and by 1.5% in the EU27.
In January 2010 compared with December 2009, production of energy increased by 2.6% in the euro area and by 2.2% in the EU27. Durable consumer goods rose by 2.0% and 1.7% respectively. Intermediate goods grew by 1.4% in the euro area and by 0.3% in the EU27. Capital goods fell by 0.3% in the euro area, but gained 0.4% in the EU27. Non-durable consumer goods decreased by 0.3% in the euro area, but rose by 0.5% in the EU27.
Among the Member States for which data are available, industrial production rose in thirteen and fell in six. The highest increases were registered in Ireland (+15.3%), Bulgaria (+4.9%), Estonia (+4.5%) and Denmark (+3.9%), and the largest falls in Portugal and Finland (both -2.2%), Latvia (-1.6%) and Spain (-1.1%).
In January 2010 compared with January 2009, production of intermediate goods grew by 4.2% in the euro area and by 3.9% in the EU27. Capital goods increased by 0.5% and 1.7% respectively. Non-durable consumer goods remained stable in the euro area and rose by 0.2% in the EU27. Production of energy decreased by 0.6% and 2.4% respectively. Durable consumer goods declined by 1.9% in the euro area, but increased by 1.5% in the EU27.
Among the Member States for which data are available, industrial production rose in twelve and fell in seven. The highest increases were registered in Malta (+14.3%), Poland (+11.0%), the Czech Republic (+8.0%) and Romania (+6.8%). The largest decreases were registered in Denmark (-9.8%), Lithuania (-5.5%), Greece (-4.4%) and Spain (-2.5%).
The first estimate for the euro area (EA16) trade balance with the rest of the world in January 2010 gave a 8.9 bn euro deficit, compared with -12.1 bn in January 2009. The December 20092 balance was +4.1 bn, compared with -1.7 bn in December 2008. The first estimate for the January 2010 extra-EU27 trade balance was a 22.5 bn euro deficit, compared with -28.0 bn in January 2009. In December 2009 the balance was -2.5 bn, compared with -11.2 bn in December 2008.
Euro area annual inflation is expected to be 1.5% in March 2010 according to a flash estimate issued by Eurostat. It was 0.9% in February 2010, down from 1.0% in January. A year earlier the rate was 1.2%. Monthly inflation was 0.3% in February 2010. EU annual inflation was 1.4% in February 2010, down from 1.7% in January. A year earlier the rate was 1.8%. Monthly inflation was 0.3% in February 2010.
The euro area (EA16) seasonally-adjusted unemployment rate was 10.0% in February 2010, compared with 9.9% in January. It was 8.8% in February 2009. The EU27 unemployment rate was 9.6% in February 2010, compared with 9.5% in January. It was 8.3% in February 2009. For the euro area this is the highest rate since August 1998 and for the EU27 since the start of the series in January 2000.
Eurostat estimates that 23.019 million men and women in the EU27, of whom 15.749 million were in the euro area, were unemployed in February 2010. Compared with January 2010, the number of persons unemployed increased by 131 000 in the EU27 and by 61 000 in the euro area. Compared with February 2009, unemployment went up by 3.139 million in the EU27 and by 1.844 million in the euro area.

Economy of Japan

Japan GDP growth revised down to 3.8 growth. Japan`s economy grew slightly less than initially estimated in the October-December quarter, the government said, chiefly due to weaker capital investment. Gross domestic product (GDP) expanded at an annual 3.8 percent pace in the October-December quarter, a downgrade from the preliminary figure of 4.6 percent released last month, according to the Cabinet Office. On a quarterly basis, the world`s second-largest economy grew 0.9 percent in the three months ended December 31 from the July- September period, slower than the preliminary reading of a 1.1 percent growth.
Capital investment, the amount companies spend on new assets, gained 0.9 percent from the previous quarter, down from an initial reading of 1 percent. Private inventory pushed down the GDP by 0.1 percentage point, instead of the first estimate of the positive contribution of 0.1 point. "Even though the growth rate is still positive, we still need to watch economic conditions closely," Chief Cabinet Secretary Hirofumi Hirano told a press conference, stressing that Japan`s economic condition remains severe.
Japan`s factory output has fallen for the first time in a year, providing further evidence of the country`s fragile economic recovery. Industrial production fell by 0.9% in February, following strong growth in January, official figures showed. The fall was bigger than analysts had expected and comes as the economy struggles against deflation. Separately, figures showed Japan`s unemployment rate remained unchanged in February at 4.9%.
Japan`s merchandise trade surplus widened in February as exports continued to show significant improvements especially with the increasing demand in the Asian region. Japan`s exports sector is recovering gradually supporting the economy that makes us believe recovery will be sustained.
Japan`s merchandise trade balance surplus widened to 651.0 billion yen in February compared with a previous surplus of 85.2 billion yen that was revised to 63.0 billion yen, and it topped analysts` estimates of 560.6 billion yen. The adjusted merchandise trade balance surplus came at 470.5 billion yen last month from 728.4 billion yen that was revised to 651.1 billion yen, and market projections referred to 389.2 billion yen.
However, the trade surplus widened as the exports sector performance continued to advance especially with the increasing demand from China, Japan`s main trade partner. Exports jumped 45.3% in February from a year earlier following an incline by 40.9%, which reflects the progress witnessed in global demand in the last period. On the other hand, imports climbed 29.5% in February from a year ago compared with 8.6% in January, but it came below analysts` estimates of 33.0%. Advancing exports are encouraging manufacturers to increase production, so companies` demand for workers increase, keeping in mind that unemployment fell to 4.9% in February the lowest in 10 months, to signal easing deteriorations in the labor market.
Japanese consumer prices fell for the 12th straight month in February and at a slightly faster pace than expected, government data showed Friday, another reminder of the lingering deflation that is eating away at private demand in the world`s second largest economy.
The core consumer price index, which excludes volatile fresh food prices, fell 1.2% from a year earlier in February, the Ministry of Internal Affairs and Communications said. That was a sharper drop than the 1.1% decrease expected by economists polled by Dow Jones Newswires and the Nikkei, though it also represented a more moderate decline than the 1.3% fall in January.
Japan`s persistent price falls have led the government to put pressure on the Bank of Japan to consider further monetary easing, since the central bank has said it doesn`t tolerate deflation. Dropping prices weigh on demand by pushing down company profits, in turn tightening the job market. It also makes loans more expensive to pay off in real terms. Japan has suffered through deflation for much of the past 10 years.
Meanwhile, the pace of decline in the so-called core-core CPI, which excludes volatile food and energy prices, slowed in February. The index dropped 1.1% from a year earlier, compared with a 1.2% fall in the previous month.

Economy of Russia

Russia`s gross domestic product growth slowed to 3.9 percent year-on-year in February, deputy minister Andrei Klepach said, reiterating a forecast for the pace of expansion to pick up in the second half of 2010. In January, the economy -- which weathered its deepest contraction in 15 years in 2009 -- grew 5.2 percent. "We did not expect anything good in the first quarter," Klepach told reporters. "Although the numbers do not make us happy, they are not the worst," he added, forecasting an improvement later in the year.
In month-on-month terms, GDP actually shrank 0.9 percent in February, data showed on Friday, underlining the fragility of the economic recovery and backing expectations for another interest rate cut in coming weeks. Klepach forecast March inflation at 0.6-0.8 percent, slightly lower than the 0.9 percent seen in February. Imports rose to $15.6 billion in February from $13.4 billion in the same month of 2009, Klepach said, in part reflecting the recent appreciation of the rouble. Exports improved even more to $28.7 billion from $18.6 billion, illustrating the higher prices and better global demand for oil and commodities.
Russian industrial production expanded at a slower pace in February, led by manufacturers of steel pipes and rail freight containers, signaling the recovery of domestic demand hasn`t gained full steam. Output at factories, mines and utilities rose 1.9 percent after a 7.8 percent gain in January, the Federal Statistics Service in Moscow said. Non-seasonally adjusted output rose 4.8 percent from January, which began with a 10-day holiday. The median estimate of 12 economists in a Bloomberg survey was for annual and monthly increases of 6.6 percent. In January-February period Russian industrial production grew 5.8 percent from the year earlier.
The World Bank said Russia`s economy would see a robust yet jobless recovery this year, hiking up its growth forecast for 2010 to 5.5%. "Russia is likely to witness robust but relatively jobless recovery," the bank said in a report launched in Moscow. The Russian economy is likely to rebound by about 5% to 5.5% in 2010, followed by more moderate growth of 3.5% in 2011, the bank said. The Russian economy had contracted 7.9% in 2009.
But the lender warned that the recovery of the labor market will lag GDP growth in 2010 and expects the unemployment rate to stay around 9% in the March quarter, with some improvement throughout the year. "Russia will likely experience moderate job growth recovery with sustained high unemployed rates," the report said. The bank also expects higher oil prices will increase Russia`s fiscal revenues and likely lower the fiscal deficit of the government. The lender projects the deficit to fall to just 3% of GDP in 2010 and sees the budget balancing itself next year.
End-2010 consumer price inflation is likely to be between 7-8%, the bank said, reflecting relatively slow growth in money supply and credit constraints. - 01.04.2010 21:55