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World Economy Review - June 2010

The World Bank cut Russia`s 2010 gross domestic product growth forecast to 4.5 percent from a previous 5 percent to 5.5 percent, citing poor first-quarter data and new global risks, and saying recovery is likely to be bumpy.
The new forecast for 2010 still remains more optimistic than that of Russia`s government, which sees the economy expanding 4 percent, and that of the International Monetary Fund, which said that GDP is likely to grow 4.25 percent this year. "After a disappointing first quarter in 2010, a number of leading indicators for April-May show a pickup in economic activity that is likely to be sustained throughout the rest of the year," the bank said in its report. The economy grew 2.9 percent in the first quarter of the year, following its deepest contraction in 15 years in 2009 of 7.9 percent.
At the same time, the bank upgraded its forecast for Russia`s GDP growth in 2011 to 4.8 percent from 3.5 percent in its last quarterly report on Russia in March. The forecast revision was made in assumption of rising households` disposable income, an increase in consumption, lower unemployment rate and a revival of lending activity in Russia, the World Bank`s lead economist for Russia, Zeljko Bogetic, said.
The bank said Russia`s economy is recovering but not as fast as had been predicted earlier, and further forecast revisions are likely in the near future given "lots of uncertainty". "There is always a possibility of a bad surprise," Bogetic said, adding that prudent fiscal policy and a tighter budget deficit are crucial for the economic recovery in Russia.
Retaining a positive outlook for Russia, the bank`s economists warned of external risks, especially from Europe and from Russia`s crucial factor - oil prices. "The possible contagion and the broader debt crisis in Europe could transmit new shocks to Russia through two key channels: oil prices and financial/capital flows," the bank said. "A likely growth slowdown in the EU and an increase in risk premiums could then lower oil prices and, thus, export and budget revenues, exerting downward pressure on the exchange rate and capital flows."
Given stable oil prices, however, there should not be a large move "in either direction" this year in the ruble`s exchange rate, which is currently more flexible than in the past, reflecting market forces and external factors, Bogetic said.
The World Bank also said that given Russia`s current trends in inflation and money supply, the downward outlook for inflation in 2010 remains unchanged in the range of 7 percent to 8 percent, slightly higher from the official forecast of 6 percent to 7 percent. "But risks of higher inflation are related to a possible relaxation in the fiscal stance due to the planned increases in pensions and public wages, and the monetization of the deficit in the future," the bank said.

Economy of the United States

The US economy grew at a weaker-than-expected 2.7 percent rate in the first quarter, a third and final revision from the US Commerce Department showed. The estimate was the second downward revision of gross domestic product growth for the January-March period, which was initially calculated at 3.2 percent before being adjusted down to 3.0 percent in late May.
The final reading was lower than the average analyst forecast of 3.0 percent, but it marked the third consecutive quarter of growth for the US economy after it emerged from the country`s worst recession since the Second World War.
In a statement, the Commerce Department said that the final figure reflected "an upward revision to imports and a downward revision to personal consumption expenditures that were partly offset by upward revisions to exports and to private inventory investment." The rate of growth was well below the pace of the final quarter of 2009, when GDP was estimated at 5.6 percent, the strongest growth in six years. Driving the first quarter final figure down was a revision of growth in consumer spending to 3.0 percent from a previous estimate of 3.5 percent.
U.S. industrial production rose faster than expected in May, lifted by a jump in utilities as warm weather prompted people to crank up the air conditioning, Federal Reserve data showed. Industrial output rose 1.2 percent in May after a downwardly revised 0.7 percent advance in April. Economists polled by Reuters were looking for a 0.9 percent increase for May.
Utilities output jumped 4.8 percent, reversing three months of declines. The Fed attributed the sharp rise to unseasonably warm temperatures that boosted air conditioning usage. Manufacturing output climbed 0.9 percent.
Capacity utilization, a measure of slack in the economy, rose 1 percentage point to 74.7 percent, the highest since October 2008. While that was well ahead of the recession-capped level of 68.5 percent a year ago, it was still 5.9 points below its average from 1972 to 2009.
The U.S. trade deficit rose to the highest level in 16 months as exports fell for the second time in three months, a potentially worrisome sign that Europe`s debt troubles are beginning to crimp American manufacturers. The Commerce Department said Thursday the trade deficit widened to $40.3 billion in April, up by 0.6 percent from March. U.S. exports dropped 0.6 percent, while imports declined by 0.4 percent.
U.S. manufacturing has been a standout performer as the U.S. recovers from the worst recession in decades. But the concern is that Europe`s debt crisis will slow growth in that part of the world and dampen demand in a key U.S. export market.
For April, exports slipped to $148.8 billion, with demand for U.S. farm products falling by $647 million and weakness spread across a number of manufactured goods from electric generators to industrial machinery and aircraft engines. Imports edged down to $189.1 billion, with demand for oil basically unchanged from March while total consumer goods imports dipped by $741 million. The biggest decline came in pharmaceutical products.
The Bureau of Labor Statistics said that seasonally adjusted consumer prices fell 0.2 percent last month, after a decline of 0.1 percent in April. The drop was almost entirely the result of lower energy prices - gasoline fell 5.2 percent in May, the largest decline this year.
The core Consumer Price Index, however, which excludes volatile food and energy prices, rose slightly in May, by 0.1 percent. That core figure was flat in April and March, but the May increase was the second for the year. Prices for housing, used cars, apparel and medical care all rose last month, the statistics showed. The figures suggest that, for now, inflation is tame, well below the Federal Reserve`s unofficial target of about 2 percent. The Fed`s policy committee is set to meet for two days next week.
Total nonfarm payroll employment declined by 125,000 in June, and the unemployment rate edged down to 9.5 percent, the U.S. Bureau of Labor Statistics reported. The decline in payroll employment reflected a decrease (-225,000) in the number of temporary employees working on Census 2010. Private-sector payroll employment edged up by 83,000.

Economy of the European Union

GDP increased by 0.2% in both the euro area (EA16) and the EU27 during the first quarter of 2010, compared with the previous quarter, according to first estimates released by Eurostat, the statistical office of the European Union. In the fourth quarter of 2009, growth rates were +0.1% in the euro area and +0.2% in the EU27.
Compared with the first quarter of 2009, seasonally adjusted GDP increased by 0.6% in the euro area and by 0.5% in the EU27, after -2.1% and -2.3% respectively for the previous quarter.
In April 2010 compared with March 2010, seasonally adjusted industrial production grew by 0.8% in the euro area (EA16) and by 0.5% in the EU27. In March production increased by 1.5% and 1.4% respectively. In April 2010 compared with April 2009, industrial production increased by 9.5% in the euro area and by 7.8% in the EU27.
The first estimate for the euro area (EA16) trade balance with the rest of the world in April 2010 gave a 1.8 billion euro surplus, compared with +2.6 bn in April 2009. The March 2010 balance was +4.5 bn, compared with +1.5 bn in March 2009. In April 2010 compared with March 2010, seasonally adjusted exports fell by 2.4% and imports by 3.5%.
The first estimate for the April 2010 extra-EU27 trade balance was a 10.2 bn euro deficit, compared with -7.8 bn in April 2009. In March 2010 the balance was -7.2 bn, compared with -9.2 bn in March 2009. In April 2010 compared with March 2010, seasonally adjusted exports fell by 2.4% and imports by 2.8%.
Euro area annual inflation is expected to be 1.4% in June 2010 according to a flash estimate issued by Eurostat, the statistical office of the European Union.
Euro area annual inflation was 1.6% in May 2010, up from 1.5% in April. A year earlier the rate was 0.0%. Monthly inflation was 0.1% in May 2010.
EU annual inflation was 2.0% in May 2010, unchanged compared with April. A year earlier the rate was 0.8%. Monthly inflation was 0.2% in May 2010.
The euro area seasonally-adjusted unemployment rate was 10.0% in May 2010, unchanged compared with April. It was 9.4% in May 2009. The EU27 unemployment rate was 9.6% in May 2010, unchanged compared with April. It was 8.9% in May 2009. Eurostat estimates that 23.127 million men and women in the EU27, of whom 15.789 million were in the euro area, were unemployed in May 2010. Compared with April 2010, the number of persons unemployed decreased by 37 000 in the EU27. In the euro area, the number of persons unemployed increased by 35 000. Compared with May 2009, unemployment rose by 1.801 million in the EU27, and by 0.991 million in the euro area.

Economy of Japan

Japanese gross domestic product (GDP) grew a revised 1.2 percent in January-March from the previous quarter, above economists` median forecast for a 1.0 percent expansion and unchanged from an initial reading. The revised figure translates into annualised growth of 5.0 percent in real, price-adjusted terms, slightly more than the initial reading of 4.9 percent. Economists expect growth to moderate in the second quarter as the stimulus effect of government support for low-emission cars and electronics on consumption fade.
Japan`s industrial production fell by 0.1% during May, according to separately released data, although the figure was up 20.2% from the year-ago level. The result was worse than a forecast for a flat reading, according to a Reuters survey. The Ministry of Economy, Trade and Industry said its manufacturing survey showed industrial production would grow 0.4% in June and 1.0% in July.
Japan`s core consumer prices fell 1.2 percent in May from a year earlier, down for the 15th straight month, data from the Internal Affairs ministry showed on Friday, as deflation continues to plague the world`s second-biggest economy. The pace of falls in the core consumer price index, which includes oil products but excludes volatile prices of fresh fruit, vegetables and seafood, was less than a median market forecast for a 1.3 percent decline.
Japan`s unemployment rate rose in May to a seasonally adjusted 5.2%, according to government data released Tuesday, marking an increase from 5.1% in April and confounding expectations for a drop in the jobless rate. Economists polled by Dow Jones Newswires and Nikkei had expected an unemployment rate in May of 5.0%.
Average household monthly spending in Japan dipped 0.7% in price-adjusted terms in May compared to the same month last year, Ministry of Internal Affairs data showed. The fall matched April`s drop and was well below economists` average forecast for a 0.5% rise. Average monthly consumption expenditures fell to 280,714 yen ($3,142), while average monthly income per household fell 2.4% in real terms, to 421,413 yen ($4,717).

Economy of Russia

Russian GDP expanded in the first quarter as commodities prices rose and domestic demand showed signs of recovery in the world`s biggest energy exporter. The Moscow based Federal Statistics Service said gross domestic product grew 2.9%YoY matching a preliminary estimate. The economy shrank 3.8% in the fourth quarter.
Higher raw material prices and accelerating domestic demand are prompting companies including OAO Chelyabinsk Zinc, Russia largest zinc producer, to boost output. Mr Alexei Ulyukayev central bank official said May 14th after a 7.9% slump in 2009 which President Mr Dmitry Medvedev called the hardest year since the 1998 crisis growth may top 5% in 2010.
Mr. Vladimir Putin Prime Minister of Russia said rising oil prices are helping Russia achieve a swifter economic recovery and narrow the budget deficit from last year 5.9% of GDP, the first shortfall in a decade. The deficit will probably be 5.4% of GDP.
The budget will be calculated based on the price of Urals crude, Russia export blend of oil averaging USD 75 a barrel this year and in 2011.
Russia`s industrial output grew for the seventh consecutive month in May, official data showed. Production rose 12.6% year-on-year in May, faster than 10.4% in April, the Federal State Statistics Service said. Manufacturing output grew 18.7% annually; production and supply of electricity, gas and water increased 4.1%. In mining, the output rose 5.4%. On a monthly basis, production grew 1.2% after declining 4% in April. Manufacturing output increased 2.8% monthly and production in mining rose 3%.
During the first five months of this year, production rose 10.3% annually. Manufacturing output rose 14.4% during the period and mining production increased 6%. Production of electricity, water and gas also recorded 6% increase. - 02.07.2010 16:57