World Economy Review

The euro zone economy will grow 1.6 percent this year with inflation well above the European Central Bank`s target, but the aggregated budget deficit will fall more than previously thought, the European Commission said. In its twice-yearly economic forecast the European Union executive kept its forecast of 1.6 percent growth in 2011, first made in February, and raised its inflation forecast for this year to 2.6 percent from the 2.2 percent projected in February. "The main message in our forecast is that the economic recovery in Europe is solid and continues, despite recent external turbulence and tensions in the sovereign debt market," Economic and Monetary Affairs Commissioner Olli Rehn said.
The Commission said the overall budget deficit of the 17 countries using the euro would shrink to 4.3 percent of gross domestic product this year from 6.0 percent in 2010, rather than to 4.6 percent from 6.3 percent as forecast last November. Next year, the overall euro zone government deficit will fall further to 3.5 percent of GDP rather than 3.9 percent as forecast in November.
"Public deficits are clearly declining. It is now essential to strengthen these trends of growth and consolidation and also ensure that they translate into more and better jobs," Rehn said. "This calls for continued fiscal consolidation and determined implementation of structural reforms that help job creation and improve the competitiveness of our economies," he said.
But the Commission also forecast that unless policies changed, Greece, which is struggling to put its public finances in order under a joint EU and IMF bailout programme, would miss its deficit and debt targets this year and next. The Commission forecast that without policy shifts, Greece would have a budget deficit of 9.5 percent of GDP this year and 9.3 percent in 2012, rather than the 7.6 percent and 6.5 percent respectively envisaged in the EU/IMF programme.
Greek debt would rise to 157.7 percent of gross domestic product this year and to 166.1 percent in 2012, rather than be 145.2 and 148.8 percent as under the EU/IMF plan targets. Ireland, also under an EU/IMF programme would be broadly on track with its fiscal deficit adjustment, the Commission said.

Economy of the United States

US Annualized GDP increased in the first quarter of 2011 by 1.8% compared to the previously registered 3.1% and against analystґs expectations of a 2.2% growth. Real Personal Consumption Expenditure slowed down from 4.0% registered in the fourth quarter of 2010 to 2.2% in the first quarter of 2011. US Gross Domestic Purchases Price Index increased in the first quarter of 2011 by 3.8%, following the previously registered 2.1% and exceeding economists` expectations of a 1.9% growth.
U.S. industrial production (IP) was unchanged in April, below market expectations for a 0.4% increase. The increase in March was revised slightly lower, to 0.7% from the previously reported 0.8% increase, while February`s previously reported 0.1% increase was revised to show a 0.3% decline. With the flat reading for IP, the capacity utilization rate slipped to 76.9% from a downwardly revised 77.0% (previously reported as 77.4%) in March.
The flat IP reading in April reflected a decline in manufacturing output that was offset by rising utilities and mining output. Manufacturing production fell 0.4% following 0.6% and 0.2% increases in March and February, respectively. Much of this weakness reflected an 8.9% drop in production of motor vehicles and parts that was largely due to parts shortages that resulted from the earthquake and tsunami in Japan. Excluding motor vehicles and parts, factory production rose a modest 0.2% in April. Utilities output rose 1.7% in April, building on the 0.7% increase in March. Mining output rose 0.8% following a 1.4% increase in March.
The trade deficit rose 6 percent to $48.2 billion, the Commerce Department said. That`s the highest level since June 2010. Exports increased to $172.7 billion, the most on records dating back to 1992. A weaker dollar has made U.S. goods cheaper overseas. Exports have also risen because of rapid growth in developing countries. U.S. companies exported more autos, chemicals, and agricultural goods in March.
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in April on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported. Over the last 12 months, the all items index increased 3.2 percent before seasonal adjustment.
The energy index posted another increase in April as the gasoline index continued to rise, the latter accounting for almost half of the seasonally adjusted all items increase. The household energy index also rose, with all of its major components posting increases. The food index increased as well in April, though the 0.5 percent rise in the food at home index was the smallest increase this year. Within the food at home component, the indexes for meats, poultry, fish, and eggs, for dairy and related products, and for nonalcoholic beverages all posted notable increases, though the fresh vegetables index did decline following recent advances.
The index for all items less food and energy rose 0.2 percent in April, the third increase of that size in the last four months. Indexes making major contributions to that increase included those for new vehicles, used cars and trucks, medical care, and shelter.
The 12-month increases of major indexes continue to climb. The all items index rose 3.2 percent for the 12 months ending April 2011, the highest figure since October 2008. The energy index has now risen 19.0 percent over the last 12 months, with the gasoline index up 33.1 percent. The food index has risen 3.2 percent while the index for all items less food and energy has increased 1.3 percent; both figures represent increases over recent months.
The U.S. Bureau of Labor Statistics reported that unemployment in May remained at 9.1 percent, while non-farm payroll employment added only 54,000 jobs, following gains that averaged 220,000 jobs in the prior three months. The Labor Statistics release indicates that among the major worker groups, the unemployment rates for adult men (8.9 percent), adult women (8.0 percent), teenagers (24.2 percent), whites (8 percent), blacks (16.2 percent) and Hispanics (11.9 percent) showed little or no change during the month of May, while the number of those jobless for 27 weeks and over increased by 361,000, to 6.2 million.

Economy of Eurozone

GDP increased by 0.8% in both the euro area (EA17) and the EU27 during the first quarter of 2011, compared with the previous quarter, according to flash estimates published by Eurostat, the statistical office of the European Union. In the fourth quarter of 2010, growth rates were +0.3% in the euro area and +0.2% in the EU27. Compared with the same quarter of the previous year, seasonally adjusted GDP increased by 2.5% in both the euro area and the EU27 in the first quarter of 2011, after +2.0% and +2.2% respectively in the previous quarter. During the first quarter of 2011, US GDP increased by 0.4% compared with the previous quarter (after +0.8% in the fourth quarter of 2010). Compared with the same quarter of the previous year, US GDP rose by 2.3% (after +2.8% in the previous quarter).
In March 2011 compared with February 2011, seasonally adjusted industrial production fell by 0.2% in the euro area (EA17) and by 0.3% in the EU27. In February production rose by 0.6% and 0.4% respectively. In March 2011 compared with March 2010, industrial production grew by 5.3% in the euro area and by 4.6% in the EU27.
The first estimate for the euro area (EA17) trade balance with the rest of the world in March 2011 gave a 2.8 bn euro surplus, compared with +2.7 bn in March 2010. The February 2011 balance was -3.0 bn, compared with +1.4 bn in February 2010. In March 2011 compared with February 2011, seasonally adjusted exports rose by 1.1% and imports by 0.3%.
The first estimate for the March 2011 extra-EU27 trade balance was a 9.6 bn euro deficit, compared with -8.9 bn in March 2010. In February 2011 the balance was -10.1 bn, compared with -7.5 bn in February 2010. In March 2011 compared with February 2011, seasonally adjusted exports fell by 0.2%, while imports rose by 0.6%.
Euro area annual inflation is expected to be 2.7% in May 2011 according to a flash estimate issued by Eurostat, the statistical office of the European Union. Euro area annual inflation was 2.8% in April 2011, up from 2.7% in March. A year earlier the rate was 1.6%. Monthly inflation was 0.6% in April 2011. EU3 annual inflation was 3.2% in April 2011, up from 3.1% in March. A year earlier the rate was 2.1%. Monthly inflation was 0.5% in April 2011.
The euro area (EA17) seasonally-adjusted unemployment rate was 9.9% in April 2011, unchanged compared with March. It was 10.2% in April 2010. The EU27 unemployment rate was 9.4% in April, compared with 9.5% in March. It was 9.7% in April 2010. Eurostat estimates that 22.547 million men and women in the EU27, of whom 15.529 million were in the euro area, were unemployed in April 2011. Compared with March 2011, the number of persons unemployed fell by 165 000 in the EU27 and by 115 000 in the euro area. Compared with April 2010, unemployment decreased by 702 000 in the EU27 and by 457 000 in the euro area.

Economy of Japan

Japan`s economy contracted 0.9% quarter-on-quarter in the January-March quarter, worsening from the downwardly revised 0.8% drop for the October-December quarter (from -0.3%), the Cabinet Office said. The larger-than-expected contraction of the Japanese economy for the second consecutive quarter was due to weak capital investment and private consumption, as well as a drop in net exports, in the aftermath of the March 11 earthquake and tsunami, the government said.
Gross domestic product dropped at an annualized pace of 3.7% in the first quarter, down from a revised -3.0% annualized drop in the fourth quarter (revised from -1.3% annualized). The Q1 contraction was larger than the MNI survey median that called for a 0.5% quarter-on-quarter fall, or an annualized rate of 1.8%. Economists` forecasts ranged from flat q/q to -1.1%, or at an annualized pace of -0.1% to -4.3%. Private economists expect the April-June GDP to show an even larger contraction, supply chain disruptions caused by the March 11 disaster have significantly weighed on manufacturing production.
Q1 domestic demand fell 0.8% q/q after a revised 0.7% fall in the fourth quarter of 2010. Domestic demand cut 0.8 percentage point from Q1 GDP, down from -0.7 point contribution the previous quarter. Within domestic demand, private consumption, which makes up about 55% of GDP fell again, but not as much as in Q4. Consumer spending dropped 0.6% q/q in Q1 vs -1.0% in Q4, contributing -0.3% percentage point to Q1 GDP (vs. -0.6 point in Q4).
Capital spending, however, fell 0.9% in Q1, reversing from the 0.1% gain in Q4, marking the first quarterly drop in six quarters. Capex contributed -0.1 percentage point to Q1 GDP (vs. 0.0 point in Q4). Changes in private inventories cut an additional 0.5 percentage point from Q1 GDP after contributing 0.0 percentage point in the fourth quarter. Housing construction rose 0.7% in the first quarter, after rising 3.2% q/q in Q4. This category`s made no contribution to overall GDP in Q1.
Net exports subtracted 0.2 percentage point from the Q1 GDP after pushing down the growth rate 0.1 percentage point in Q4. Exports were up 0.7% on quarter, posting the first quarterly rise in two quarters, after -0.8% in the previous quarter. Imports rose 2.0% q/q, marking the first quarterly rise in two quarters (vs -0.3% in Q4). From a year earlier, Q1 GDP fell 1.0%, posting the first y/y drop in five quarters, after rising 2.2% in Q4.
Japan`s economy grew 2.3% in fiscal 2010 ended on March 31, marking the first growth in three years, after falling 2.4% in fiscal 2009 and 4.1% in fiscal 2008. In nominal terms, Q1 GDP fell 1.3% q/q, or an annualized -5.2%, the second consecutive drop.
Japan`s industrial production rose 1.0 percent in April from the previous month as the country struggles to recover from the aftermath of the devastating March 11 earthquake that disrupted nationwide supply chains of industrial products, the government said. The figure represents a rebound from a record 15.5 percent plunge marked in March, but undershot the average market forecast of a 2.2 percent increase in a Kyodo News survey.
The Ministry of Economy, Trade and Industry said in its basic assessment that output "appears sluggish at a low level" due to the quake, but added that "It is expected to recover gradually." The index of output at factories and mines stood at 83.5 against the base of 100 for 2005, the ministry said in a preliminary report. Figures are adjusted for seasonal factors.
By sector, output by general machinery makers grew 12.8 percent, partly helped by firm demand of semiconductor manufacturing equipment at home and abroad. Declining sectors included electronic parts and devices as well as information and communication electronics equipment, with such products as mobile phones and liquid crystal televisions facing difficulty of parts procurement due to the quake, a ministry official said.
Looking ahead, manufacturers polled by the ministry anticipated that output will grow 8.0 percent in May and increase 7.7 percent in June. The index of industrial shipments lost 2.7 percent to 82.7 and that of industrial inventories was up 0.5 percent to 98.2.
Japan`s trade balance fell for the first time in three months in April as supply chain problems from the March earthquake and tsunami sharply curtailed exports. Japan swung into a trade deficit of Y463.7bn ($5.7bn) as exports fell 12.5 per cent from a year earlier, and imports rose 8.9 per cent on higher demand for fuel. The deficit was significantly smaller than the median estimate of 24 economists surveyed by Bloomberg, which was for a shortfall of Y704bn.
Despite the lower than forecast figure, the deficit highlights the impact of the March earthquake and tsunami, which knocked out a wide range of production sites and affected some of Japan`s biggest exporters, including Toyota, Sony and Hitachi. Vehicle exports were particularly hard hit, declining 67 per cent year-on-year, as carmakers were unable to source many parts from manufacturers whose facilities had been damaged by the disaster.
Core consumer prices in Japan climbed 0.6 percent on year in April, the Ministry of Internal Affairs and Communications said - rising for the first time in 25 months. That was in line with expectations following the 0.1 percent contraction in March. Overall inflation for Japan was up 0.3 percent on year, also matching forecasts following the flat reading in the previous month. Overall CPI was also up 0.3 percent on month.
Among the individual components, fuel costs were up 3.3 percent on year, while transportation costs were up 2.0 percent and education was up 0.3 percent. Moving lower were prices for furniture, down 3.3 percent, while food was down 1.0 percent, recreation was down 0.9 percent, medical care was down 0.7 percent and housing was down 0.5 percent.
On month, clothing prices were up 3.7 percent, while fuel was up 0.6 percent, transportation was up 0.5 percent, furniture was up 0.3 percent and recreation and education each were up 0.1 percent. Food was down 0.2 percent and housing eased 0.1 percent.
Japan`s unemployment rate rose to 4.7% in April from 4.6% in March for the first deterioration in six months amid the impact from the massive earthquake and tsunami in March, the government said. The seasonally adjusted figure remained at a level that the government considers high. The data released by the Ministry of Internal Affairs and Communications did not factor in the three prefectures severely damaged by the March 11 disaster—Iwate, Miyagi and Fukushima.
Separate data showed the country`s job availability deteriorated for the first time in 17 months, with the ratio of job offers to job seekers dropping to 0.61 in April from 0.63 in March. This means 61 jobs were available for every 100 seekers, said the Ministry of Health, Labor and Welfare. The number of jobless people totaled 29.2 million, up 20,000 from the previous month while that of people dismissed from their jobs rose 40,000, with the ministry underlining that the negative fallout from the quake apparently spread outside the prefectures.
The natural disaster has disrupted the nationwide supply chain of industrial products, weighing heavily on output and exports and seriously striking the sentiment of companies and households. The jobless rate for men stayed unchanged at 5%. That for women rose to 4.2% from 4.1% for the first increase in two months. The number of jobholders came to 59.69 million, down 140,000, for the second consecutive month of decline.

Economy of Russia

Russia`s gross domestic product (GDP) has grown 4.1 percent year-on-year in the first quarter of 2011, the Federal Statistics Service (Rosstat) said. "In the first quarter of 2011, the physical volume of gross domestic product compared to the same period of 2010 amounted to 104.1 percent to preliminary estimates," the service said in a statement, adding that it will give more details about Russia`s Q1 GDP growth in the middle of June. However, the growth was slower than a previous forecast of 4.5 percent from the Economy Ministry.
In April, Russian Prime Minister Vladimir said Russia`s GDP was projected to grow at about 4.2 percent this year, adding that the forecast meant that by early 2012 "the Russian economy will fully recover losses caused by the crisis." In 2010, Russia recorded a 4-percent GDP growth after the worst recession in decades with its economy shrinking 7.9 percent in 2009.
The Russian Federation, National Bureau of Statistics data released on the 18th, Russia`s industrial production in April this year, an increase of 4.5%, lower than analysts expected an increase of 5.2% for last 16 months, lowest point since Statistics show that the first three months of this year, Russia`s industrial production growth was 6.7% 5.8% and 5.3% in the first four months of total Russian industrial production grew by 5.5%, lower than the same period in 2010 9.7% 4 slowdown in industrial production growth slowed with a number of areas of production or decrease the data show, in April, Russia`s processing and manufacturing industry grew 5.3%, lower than the growth rate of the first three months of this year In addition, the mining industry Production grew 1.4%, 2.3% of energy production, steel production fell 0.9%, pig iron production fell 6.3%
Consumer price inflation in Russia is not expected to exceed 5.2% in January–June, First Deputy Chairman of the CBR Alexei Ulyukayev told reporters on the sidelines of an investment forum. Ulyukayev also reiterated that the bank was keeping its forecast for 2011 inflation at around 7%. Earlier in May, the bank`s Chairman Sergei Ignatyev said that he expected Russia`s consumer price inflation to be below 5.5% in January–June and not to exceed 1.5% in July–December.
Consumer price inflation in Russia amounted to 4.6% from January 1 through May 23, the Federal State Statistics Service said earlier. Deputy Prime Minister and Finance Minister Alexei Kudrin said in early May he expected Russia`s consumer price inflation at 6.5%–7.5% in 2011. Consumer prices in Russia rose 8.8% in 2010, the statistics service said earlier.