World Economy Review - November 2011

The global economic outlook has deteriorated significantly, the Organization for Economic Cooperation and Development said, as it urged the European Central Bank to act decisively to prevent the euro-zone sovereign debt crisis from deepening and possibly dragging the U.S. economy to the brink of recession.
In its twice-yearly report on the global economic outlook, the OECD lowered its growth forecasts for the world`s largest economies, and said the euro zone is headed toward a mild recession. It also warned that the bloc`s debt crisis, now affecting countries previously seen as safe havens, could "massively escalate economic disruption if not addressed."
The Paris-based think tank cut its forecasts among its 34 members to 1.9% this year and 1.6% in 2012, from 2.3% and 2.8% in May. The OECD said it expects the euro zone`s economy to contract by 1% at an annualized rate in the last quarter of this year and by 0.4% in the first three months of 2012. For 2012, the OECD said the 17-country bloc`s economy will only grow by 0.2%.
The German government managed to sell barely half the bonds it had offered in an auction last week, a sign that the currency area`s troubles are affecting its strongest economies. In order to stop the contagion, policy makers need to secure "credible and substantial increases" in the capacity of the European Financial Stability Fund, the euro zone`s bailout vehicle, together with a greater use of the ECB`s balance sheet, Mr. Padoan said.
But there is little sign that euro-zone governments will agree on the measures the OECD believes are needed. Germany opposes France`s plan to give the ECB a greater role in restoring calm to the bond markets. The ECB currently buys limited amounts of government bonds on the open market to stem the rise in borrowing costs.
The OECD warned that possible but unlikely outcomes, such as a disorderly default on government debt, or a breakup of the currency area would have repercussions around the world. The OECD also warned that continued troubles in Europe, along with spending cuts and tax increases set to take place following the failure to reach a deal by the U.S. Congressional debt committee could push the U.S. economy to the brink of recession.
The OECD expects the world`s largest economy to grow by 2% in 2012, having forecast an expansion of 3.1% in May. It expects growth to pick up again to 2.5% in 2013. But without action in Congress, the OECD projects that U.S. economic growth would be barely measurable at 0.3% next year that will only improve to 1.3% in 2013.
The economic slowdown also is affecting trade, the OECD said, as it cut its prediction for global trade growth to 6.7% for this year and 4.8% for 2012, less than the 8.1% and the 8.4% increase previously expected.
The OECD said developing economies will continue to make a "substantial" contribution to global economic growth. The OECD said China would be better able to respond to slower growth if the yuan were allowed to appreciate.
"Without such currency policy, domestic monetary policy instruments... have to be kept at comparatively more restrictive levels to keep inflation on track," the OECD said. "Such a strategy involves a risk of an excessive economic slowdown."

Economy of the United States

The US Commerce Department said that during the third quarter, the country`s gross domestic product (GDP) grew at 2 percent, compared with earlier estimations of 2.5 percent, reported Khaleej Times. The department added that the rate of growth recorded in the period was higher than second quarter`s 1.3 percent pace, a period which was affected by high gasoline prices that hampered spending, in addition to the consequences of Japan`s earthquake and tsunami which restrained auto output. It also said that during the third quarter, business inventories declined by USD8.5 billion, which trimmed 1.55 percentage points from GDP growth, on the other hand, consumer spending during the period was revised slightly down to a 2.3 percent growth pace due to adjustments to motor vehicle fuels and lubricants. It is worth noting that during the fourth quarter, pace of economic growth might surpass 3 percent, recording the fastest pace in eighteen months.
With mining output showing a significant rebound in the month of October, the Federal Reserve released a report showing a bigger than expected increase in industrial production for the month. Capacity utilization also increased by more than anticipated. The report showed that industrial production increased by 0.7 percent in October following a revised 0.1 percent decrease in September. Economists had expected production to increase by 0.4 percent compared to the 0.2 percent growth originally reported for the previous month.
The bigger than expected increase in industrial production was largely due to a jump in production in mining sector, which surged up by 2.3 percent in October after falling by 0.5 percent in September. Production in the manufacturing sector also rose by 0.5 percent in October after climbing by 0.3 percent in each of the two previous months. On the other hand, utilities output edged down by 0.1 percent in October, although that represents a slowdown from the 2.0 drop seen in September and the 3.1 plunge seen in August.
The Federal Reserve noted that total industrial production in October is at 94.7 percent of its 2007 average and is up 3.9 percent from the same month a year ago. As mentioned above, the report also showed that capacity utilization increased to 77.8 percent in October from a revised 77.3 percent in September. The capacity utilization rate had been expected to increase to 77.6 percent from the 77.4 percent originally reported for the previous month. Capacity utilization in the mining sector showed a notable increase, rising to 92.7 percent in October from 90.7 percent in September. While capacity utilization in the manufacturing sector also rose to 75.4 percent from 75.1 percent, capacity utilization in the utilities sector dipped to 77.5 percent from 77.7 percent.
The Commerce Department stated that US trade deficit declined by 4.00% to $43.1 billion in the month of September. The statistics showed that trade deficit was below the average analysts estimates at Wall Street of $45.4 billion. In addition to that, government also adjusted the deficit in August to $44.90 billion from earlier $45.60 billion.
National exports grew faster as compared to imports in September and strike a peak level. Exports climbed 1.40% in the month of September following a 0.10% increase in August. Meanwhile, imports mounted 0.30% in September after turning down 0.20% a month ago. However, United States trade gap with China remained almost unchanged at $28.06 billion in contrast with the last year`s same month.
The cost of living in the U.S. unexpectedly fell in October for the first time in four months, a sign that inflationary pressures may be starting to recede. The consumer-price index declined 0.1 percent from the prior month after a 0.3 percent rise, a report from the Labor Department showed. The so-called core rate that excludes volatile food and fuel costs rose 0.1 percent, matching September as the smallest gain this year.
Receding raw-material costs compared with earlier this year may make it easier for some retailers to hold the line on prices as they compete for consumers coping with stagnating incomes entering the holiday shopping season. Less inflation also gives Federal Reserve officials more leeway to take additional measures should the economy falter.
The median forecast called for no change in the consumer price index, according to a Bloomberg News survey. Estimates of the 86 economists surveyed ranged from a decline of 0.2 percent to a 0.3 percent gain. Economists projected a 0.1 percent gain in core prices, according to the survey median.
Overall consumer prices increased 3.5 percent in the 12 months ended October. The core CPI climbed 2.1 percent from October 2010. Fed policy makers aim for long-run overall inflation of 1.7 percent to 2 percent, according to their Nov. 2 forecast.
The U.S. labor market strengthened in November as private employers continued to add jobs at a healthy pace, while the unemployment rate fell to its lowest level since March 2009. The unemployment rate fell to 8.6% in November from 9.0% the previous month. The rate hadn`t been below 9% since March, when it was 8.8%. The rate is now lower than at any point since March 2009, when it was 8.6% as well.
In another positive development, October`s figure for nonfarm payrolls was revised upward to show a gain of 100,000 from a previously reported 80,000, while September was revised up to a 210,000 gain from 158,000. The results, while confirming the labor market remains sluggish, were broadly positive. Economists surveyed by Dow Jones Newswires forecast payrolls would rise by 125,000 last month and that the jobless rate would remain at 9%.
The Labor Department data showed that some industries fared better than others. Retail trade rose by 50,000 jobs, with much of the increase occurring in clothing and electronics and appliance stores, the Labor Department said. Leisure and hospitality jobs rose by 22,000, and professional and business services registered a gain of 33,000. Health-care jobs rose 17,000, while manufacturing changed little.
The number of unemployed, according to the household survey, fell by 594,000 to 13.3 million. A broader measure that accounts for both job seekers and part-time workers who would prefer to be working full time - the so-called underemployed - fell to 15.6% from 16.2% in October.

Economy of the European Union

Eurozone GDP grew by 0.2% quarter-on-quarter (q/q) in the third quarter – driven by a rebound in activity in Germany and France. The figure matched the 0.2% seen in the second quarter and compares with a 0.5% rise in UK output in the third quarter. However, it remains down sharply on the 0.8% growth the Eurozone posted in the first quarter and experts are still predicting an overall contraction in the fourth quarter. Compared with the same quarter of the previous year, Eurozone GDP increased by 1.4% despite increasing fears over sovereign debt in the 17 nation euro area.
Germany`s GDP rose 0.5% q/q and France`s at a rate 0.4%q/q. At the other end of the scale Greek output fell 5.2% in the third quarter compared to the year before. Quarter-on-uarter figures were not available. Germany`s said it growth was driven by consumer spending, despite the figure coming as the ZEW economic sentiment index for Germany showed its lowest reading since August 2008 on worries over the state of Greece and Italy. Cyprus, the Netherlands and Portugal all posted falls in GDP compared to the second quarter. Growth of Eurozone`s GDP from July to September was the same as in the second quarter, but the outlook for the last three months of 2011 is dim, with the region`s deepening debt crisis weighing on sentiment and consumer confidence. The European Commission expects the economy of the 17 countries using the euro to shrink 0.1 percent in the last three months of the year against the third quarter and to stagnate in the first quarter of 2012.
In September 2011 compared with August 2011, seasonally adjusted industrial production fell by 2.0% in the euro area (EA17) and by 1.3% in the EU27. In August production rose by 1.4% and 1.0% respectively. In September 2011 compared with September 2010, industrial production increased by 2.2% in both zones. These estimates are released by Eurostat, the statistical office of the European Union.
In September 2011 compared with August 2011, production of capital goods declined by 4.2% in the euro area and by 3.1% in the EU27. Durable consumer goods fell by 3.8% and 1.7% respectively. Intermediate goods dropped by 2.2% in the euro area and by 1.7% in the EU27. Production of energy decreased by 1.4% and 1.2% respectively. Non-durable consumer goods fell by 1.3% in the euro area and by 0.5% in the EU27.
Among the Member States for which data are available, industrial production fell in eleven, remained stable in the United Kingdom and rose in ten. The highest decreases were registered in Estonia (-10.9%), Portugal (-5.8%), Italy (-4.8%), Ireland (-3.5%) and Germany (-2.9%), and the largest increases in Slovakia (+3.2%), Poland and Sweden (both +1.9%) and Slovenia (+1.5%).
In September 2011 compared with September 2010, production of capital goods increased by 5.7% in the euro area and by 6.0% in the EU27. Intermediate goods rose by 2.0% and 2.2% respectively. Non-durable consumer goods grew by 0.6% in the euro area and by 1.1% in the EU27. Durable consumer goods fell by 1.3% and 1.4% respectively. Production of energy decreased by 2.9% in the euro area and by 3.8% in the EU27.
Among the Member States for which data are available, industrial production rose in fourteen and fell in eight. The highest increases were registered in Latvia (+9.6%), Lithuania (+8.3%) and Poland (+7.9%), and the largest decreases in Italy (-2.7%), Greece (-2.3%) and Denmark (-2.2%).
The first estimate for euro area (EA17) trade with the rest of the world in September 2011 gave a 2.9 bn euro surplus, compared with +0.5 bn euro in September 2010. The August 2011 balance was -4.4 bn, compared with -6.2 bn in August 2010. In September 2011 compared with August 2011, seasonally adjusted exports fell by 1.0% and imports by 3.2%.
The first estimate for the September 2011 extra-EU27 trade balance was a 10.5 bn euro deficit, compared with -13.9 bn in September 2010. In August 2011 the balance was -17.8 bn, compared with -19.3 bn in August 2010. In September 2011 compared with August 2011, seasonally adjusted exports fell by 0.7% and imports by 3.4%.
The euro area (EA17) seasonally-adjusted unemployment rate was 10.3% in October 2011, compared with 10.2% in September. It was 10.1% in October 2010. The EU27 unemployment rate was 9.8% in October 2011, compared with 9.7% in September. It was 9.6% in October 2010.
Eurostat estimates that 23.554 million men and women in the EU27, of whom 16.294 million were in the euro area, were unemployed in October 2011. Compared with September 2011, the number of persons unemployed increased by 130 000 in the EU27 and by 126 000 in the euro area. Compared with October 2010, unemployment rose by 440 000 in the EU27 and by 367 000 in the euro area.
Among the Member States, the lowest unemployment rates were recorded in Austria (4.1%), Luxembourg (4.7%) and the Netherlands (4.8%), and the highest in Spain (22.8%), Greece (18.3% in August 2011) and Latvia (16.2% in the second quarter of 2011).
Compared with a year ago, the unemployment rate fell in twelve Member States and increased in fifteen. The largest falls were observed in Estonia (16.1% to 11.3% between the third quarters of 2010 and 2011), Lithuania (18.3% to 15.0% between the third quarters of 2010 and 2011) and Latvia (19.3% to 16.2% between the second quarters of 2010 and 2011). The highest increases were registered in Greece (12.9% to 18.3% between August 2010 and August 2011), Spain (20.5% to 22.8%) and Cyprus (6.0% to 8.2%).
Between October 2010 and October 2011, the unemployment rate for males increased from 9.9% to 10.0% in the euro area and from 9.6% to 9.7% in the EU27. The female unemployment rate increased from 10.4% to 10.6% in the euro area and from 9.7% to 9.9% in the EU27.
In October 2011, 5.482 million young persons (under-25s) were unemployed in the EU27, of whom 3.338 million were in the euro area. Compared with October 2010, youth unemployment increased by 222 000 in the EU27 and by 141 000 in the euro area. In October 2011, the youth unemployment rate was 22.0% in the EU27 and 21.4% in the euro area. In October 2010 it was 20.9% and 20.6% respectively. The lowest rates were observed in the Netherlands (8.2%), Germany (8.5%) and Austria (9.1%), and the highest in Spain (48.9%) and Greece (45.1% in August 2011).
Euro area annual inflation is expected to be 3.0% in November 2011 according to a flash estimate issued by Eurostat, the statistical office of the European Union. Euro area annual inflation was 3.0% in October 2011, unchanged compared with September. A year earlier the rate was 1.9%. Monthly inflation was 0.3% in October 2011. EU annual inflation was 3.4% in October 2011, up from 3.3% in September. A year earlier the rate was 2.3%. Monthly inflation was 0.3% in October 2011.

Economy of Japan

According to the preliminary estimate, Japan`s GDP grew in Q3 2011 by 1.5% on the preceding quarter, in line with expectations. It followed three quarters of decline. The good performance is related to the rapid rebuilding of production capacity after the Great East Japan Earthquake. The outlook for the economy is mixed. On the one hand, activity should remain underpinned by the reconstruction of the earthquake-damaged areas. However, external demand is expected to slow rapidly partly due to the problems in the Eurozone and slowing production in China.
The good performance in Q3 is related to rapid rebuilding of production capacity and the repair of supply chains after the Great East Japan Earthquake. By end September, industrial production was around levels seen before the disaster. The largest contribution came from net exports (0.4%). Exports rebounded by more than 6%, as production disruptions eased. Moreover, exports were driven by pent up demand by foreign customers.
However, imports also rebounded. As some nuclear reactors had been stopped following the disaster, electricity producers had to import more fossil fuels for electricity production. Moreover, due to the disaster at the Fukushima Daiichi plant, prefectures were reluctant to approve the restart of nuclear plants after their regular inspection for maintenance.
Shortly after the disaster, households held back on spending due to the uncertainty and also out of solidarity with the victims of the disaster. In Q3, household confidence was restored and private consumption rebounded by 1%, thus contributing 0.6 percentage point to GDP growth.
Private investment grew by 1.7%, underpinned by the restoration of production capacity. By contrast, public investment fell sharply in Q3, despite the need to restore damaged roads and bridges. This might be related to the political problems in Q3 and the slow process in implementing the reconstruction plans.
Japan`s industrial production climbed a seasonally adjusted 2.4 percent in October from the previous month for the first rise in two months, led by vehicle and general machinery sectors, government data showed.
Looking ahead, manufacturers polled by the Ministry of Economy, Trade and Industry anticipated that output will shrink 0.1 percent in November amid concerns over disrupted supply chains of industrial parts after the recent flooding in Thailand. They expected, however, the output to rise 2.7 percent in December.
Given the latest data and the forecast for the two months, the ministry maintained its basic assessment, saying that the trend of industrial output in general appears to be "flat."
Shuichi Obata, senior economist at Nomura Securities Co., said the bigger-than-expected rebound in October`s production followed a 3.3 percent drop in the previous month and was supported by firm output of vehicles with relatively low inventory ratios.
For October, the index of output at factories and mines stood at 92.7 against the base of 100 for 2005, the ministry said in a preliminary report. By sector, output by transport equipment makers surged 11.6 percent in October, reflecting increased production of vehicles for shipment to North America and Europe, as well as strong production of small vehicles for the domestic market. Output by general machinery makers increased 3.1 percent partly because of firm production of boiler equipment.
On the other hand, production by information and communication electronics equipment makers fell 6.0 percent, having cut output of digital cameras due partly to the lack of necessary parts after the Thai disaster disrupted international supply chains. Output by electronics parts makers was down 5.5 percent.
Japan posted a surprise trade deficit in October as exports fell for the first time in three months amid the yen`s appreciation, Bloomberg reported.
Japan`s Finance Ministry said shipments for October fell 3.7 percent from a year earlier, according to Bloomberg. That was worse than the estimates of 29 economists surveyed by the news agency. Higher energy and food prices led to a 17.9% surge in imports, bringing the nation`s trade balance to 273.8 billion yen, the government report said.
Japan`s core consumer-price index fell in October, signaling the return of deflation after four months of price gains, and raising fresh doubts about the Bank of Japan`s claim of a trend change in the price environment. Core CPI fell 0.1% in October, matching analyst forecasts compiled by Dow Jones Newswires. The CPI result followed a 0.2% rise in September.
Much of the core CPI decline is related to an increase in cigarette taxes and insurance premiums that were unveiled in the same month a year earlier, analysts said. Gas and electricity charges were higher from a year earlier, reflecting higher prices for liquid natural gas as conventional power stations were throttled up to compensate as nuclear power stations throttled back.
Japan`s unemployment rate stood at a seasonally adjusted 4.5 percent in October, the Ministry of Internal Affairs and Communications said in a preliminary report. October`s figure came in higher than consensus forecasts for a reading of 4.2 percent and follows September`s rate of 4.1 percent. According to the ministry, the number of persons employed in the recording period totaled 62.64 million, falling 0.3 percent from a year earlier or by 220,000 people. The reading follows a 0. 5 percent drop logged in September.
Unemployed people in the recording month stood at 2.88 million, the government data showed, which is a 13.8 percent contraction or a decrease of 460,000 people from the previous year and follows a 19.1 percent fall booked a month earlier. The job-to-applicant ratio was in line with consensus forecasts, standing at 0.67, separate data showed, the same reading as a month earlier. The figure translates to 67 jobs available for every 100 people seeking employment.

Economy of Russia

Russia`s GDP grew 4.8 percent in the third quarter this year, the state statistics agency Rosstat said. This figure was more modest than the earlier forecast by Economic Development Ministry, which had predicted the growth in the third quarter would exceed 5 percent. In October, the ministry also said the GDP would grow in the fourth quarter of 2011 by 3.8-3.9 percent.
According to the Rosstat, the higher pace of GDP growth in the third quarter corresponds with the low starting base of the same period in 2010, when the economy has grown by 3.1 percent only. The GDP growth in the second quarter was 3.4 percent. The government`s official forecast says the GDP will grow 4.1 percent in 2011 as a whole, while the IMF is more optimistic with its 4.3-percent forecast.