World Economy Review

The International Monetary Fund warned that an “uneven recovery is also a dangerous one” for the global economy as it again downgraded its growth forecasts for 2013, while holding out the prospect of relief late in the year.
In its twice-yearly World Economic Outlook, the fund outlined high medium-term risks stemming from doubts about the eurozone`s ability to claw its way out of its crisis, and the ability of the US and Japan to cut public sector deficits and debt.
But the IMF recognized that short-term perils had abated as financial markets approved of the eurozone`s crisis management last year and the US authorities` willingness to come to arrangements to limit automatic and rapid fiscal tightening under sequestration. The IMF believes the world economy is running at three speeds, with emerging market and developing economies still strong, but the US doing much better than the eurozone among advanced economies.
Reflecting this nuanced view of the global economy, the IMF revised down its 2013 global growth forecast 0.2 percentage points to 3.3 per cent and kept the 2014 forecast constant at 4 per cent. The downward revision was shared among emerging and advanced economies, with the exception of Japan, where the IMF became markedly more optimistic following the strenuous efforts of Tokyo to defeat deflation through its revolution on monetary policy.
The IMF expects the US to grow 1.9 per cent this year and 3 per cent next, while the eurozone will contract 0.3 per cent in 2013 and grow only 1.1 per cent in 2014.
The downgrades to 2013 growth, however, were almost entirely the result of bad figures for the end of last year and the fund was optimistic that a stronger recovery was now in train. While it said the recovery would be bumpy, the IMF said “global economic prospects have improved again”, adding “activity is expected to gradually accelerate starting in the second half of 2013”.
Leading the global recovery are emerging economies, the IMF said. Even though the annual rate of Chinese economic growth slowed to 7.7 per cent in the first quarter of 2013, the fund expects the world`s second-largest economy to achieve 8 per cent growth in 2013 and 8.2 per cent in 2014, both better than 2012, although significantly slower than what China achieved for much of the past decade.
And in many of the poorest developing countries, the prospects were better than they had been in China and the large emerging economies when they had similarly low levels of development. “The prospects of many of today`s dynamic low-income countries appear stronger than those of their peers during the 1960s and 1970s,” the WEO said.
Hampered by divergences in growth rates around the world, the fund was pleased that it saw global trade imbalances continuing to moderate, not solely because demand in countries with high rates of imports were weak.
This improvement in global imbalances was reflected in a softening of its concern about currencies. It said the US dollar and the euro were “moderately overvalued and the renminbi moderately undervalued”. It had no concerns about Japanese monetary policy pushing the yen down too far, saying that “complaints about competitive exchange rate depreciations appear overblown”. Mr. Blanchard added that regarding Japanese monetary policy, “there was a need for a dramatic change … and Japan`s doing this”.
While it said there was “no silver bullet” that could simultaneously solve problems of deficient demand and high public debt in any country, it recommended the US and Japan work harder to sort out their medium-term budget deficits. In the eurozone, it urged countries with “fiscal space”, code for Germany, to ease further and it called on Britain to “consider” less austerity.

Economy of the United States

The US economy grew at a pace of 2.5 per cent in the first quarter of 2013, with cuts in government spending offsetting private consumption and investment gains, the Commerce Department says. The first estimate of GDP growth in the first quarter was a solid rebound from the previous quarter`s poor 0.4 per cent pace, but it came in below the average analyst forecast of 2.8 per cent.
Consumer spending gained 3.2 per cent, a pick-up from the fourth quarter, and business investment continued to grow, albeit at a slower pace, gaining 2.1 per cent. But federal government spending, hit by the "sequester" budget cuts which took effect during the quarter, continued to drag on the economy, falling 8.4 per cent.
With unusually cold weather leading to a jump in utilities output, the Federal Reserve released a report showing a bigger than expected increase in U.S. industrial production in the month of March. The report showed that industrial production rose by 0.4 percent in March following an upwardly revised 1.1 percent increase in February. Economists had expected production to edge up by 0.2 percent.
The increase in production in March was largely due to a 5.3 percent jump in utilities output, which came on the heels of a 2.5 percent increase in February. The sharp increase in utilities output more than offset a 0.1 percent drop in manufacturing output as well as a 0.2 percent decrease in mining output.
The modest drop in manufacturing output came despite a continued increase in the production of motor vehicles and parts, which jumped by 2.9 percent in March after rising by 2.0 percent in February.
The report also showed that the capacity utilization rate edged up to 78.5 percent in March from 78.3 percent in February. While capacity utilization in the utilities sector jumped to 82.9 percent from 78.7 percent, capacity utilization in the manufacturing and mining sectors edged down to 76.4 percent and 87.5 percent, respectively.
The U.S. trade gap narrowed unexpectedly in February as crude oil imports fell to their lowest level since March 1996 and overall exports increased slightly, a Commerce Department report showed. The deficit narrowed to $43.0 billion, from an unrevised $44.5 billion in January. The consensus estimate of Wall Street analysts surveyed before the report was for the trade gap to widen slightly to $44.6 billion. The lower-than-expected deficit could prompt analysts to raise their estimates of first-quarter U.S. economic growth.
The United States imported 205 million barrels of crude in February, down sharply from 261 million the previous month. The 17-year low came as monthly crude oil import prices rose nearly $2 a barrel from January to $95.96. Higher imports of autos, consumer goods, capital goods and food offset the reduced imports of oil and other industrial supplies and material, leaving overall imports unchanged from January at $228.9 billion. U.S. imports from China fell in February to their lowest level in nearly a year. The bilateral U.S. trade gap with China narrowed to $23.4 billion, also the lowest since March 2012.
Overall U.S. exports grew 0.8 percent in February to $186.0 billion, just shy of the record level. Increased exports of industrial supplies and materials, other goods and autos were partly offset by lower exports of capital goods, consumer goods and food.
The consumer price index declined last month as the cost of gasoline fell sharply and food prices were unchanged. The tame reading is the latest evidence that the sluggish economy is keeping inflation in check. The consumer price index declined a seasonally adjusted 0.2% in March, after jumping 0.7% in February, the Labor Department said. Gas prices fell 4.4%, reversing part of February`s 9.1% gain.
Except for February`s large increase, consumer prices have declined or been unchanged in four of the past five months. In the past year, consumer prices have risen 1.5%. That`s the smallest yearly increase in the past eight months.
Excluding the volatile food and energy categories, core prices rose 0.1%. In the 12 months ending in March, they rose 1.9%. That`s below the Federal Reserve`s inflation target of 2%. Core prices were pushed up by small increases in rent and new cars. Used cars and trucks jumped 1.2% and airline fares rose 0.6%.

Economy of the European Union

In February 2013 compared with January 2013, seasonally adjusted industrial production1 grew by 0.4% in both the euro area (EA17) and the EU27, according to estimates released by Eurostat, the statistical office of the European Union. In January production fell by 0.6% and 0.5% respectively. In February 2013 compared with February 2012, industrial production decreased by 3.1% in the euro area and by 2.5% in the EU27.
In February 2013 compared with January 2013, production of energy grew by 2.6% in the euro area and by 1.8% in the EU27. Durable consumer goods increased by 1.3% in the euro area and remained stable in the EU27. Capital goods rose by 0.9% and 0.6% respectively. Intermediate goods fell by 0.1% in the euro area, but increased by 0.2% in the EU27. Non-durable consumer goods dropped by 1.5% and 1.3% respectively.
Among the Member States for which data are available, industrial production rose in ten and fell in twelve. The highest increases were registered in the Netherlands and Slovenia (both +3.4%), the Czech Republic (+1.6%) and Portugal (+1.3%), and the largest decreases in Estonia and Malta (both -3.9%), Lithuania (-3.7%) and Denmark (-3.0%).
In February 2013 compared with February 2012, production of energy fell by 6.1% in the euro area and by 5.9% in the EU27. Durable consumer goods dropped by 4.8% and 4.5% respectively. Capital goods decreased by 3.5% in the euro area and by 2.8% in the EU27. Intermediate goods fell by 3.0% and 2.5% respectively. Non-durable consumer goods grew by 0.1% in the euro area and by 0.7% in the EU27.
Among the Member States for which data are available, industrial production fell in sixteen and rose in six. The largest decreases were registered in Finland (-7.5%), Spain (-6.5%), Greece (-3.9%) and Italy (-3.8%), and the highest increases in Romania (+6.5%), Bulgaria (+5.1%) and Slovenia (+3.3%).
The first estimate for the euro area (EA17) trade in goods balance with the rest of the world in February 2013 gave a 10.4 billion euro surplus, compared with +1.3 bn in February 2012. The January 20132 balance was -4.7 bn, compared with -9.2 bn in January 2012. In February 2013 compared with January 2013, seasonally adjusted exports rose by 0.1% while imports fell by 2.1%. These data are released by Eurostat, the statistical office of the European Union.
The first estimate for the February 2013 extra-EU27 trade balance was a 1.8 bn euro surplus, compared with -13.1 bn in February 2012. In January 2013 the balance was -16.8 bn, compared with -25.0 bn in January 2012. In February 2013 compared with January 2013, seasonally adjusted exports fell by 0.1% and imports by 2.3%.
Euro area annual inflation is expected to be 1.2% in April 2013, down from 1.7% in March, according to a flash estimate4 from Eurostat, the statistical office of the European Union. Looking at the main components of euro area inflation, food, alcohol & tobacco is expected to have the highest annual rate in April (2.9% compared with 2.7% in March), followed by services (1.1% compared with 1.8% in March), non-energy industrial goods (0.8% compared with 1.0% in March) and energy (-0.4% compared with 1.7% in March).
The euro area (EA17) seasonally-adjusted unemployment rate was 12.1% in March 2013, up from 12.0% in February. The EU27 unemployment rate was 10.9%, stable compared with February. In both zones, rates have risen markedly compared with March 2012, when they were 11.0% and 10.3% respectively. These figures are published by Eurostat, the statistical office of the European Union.
Eurostat estimates that 26.521 million men and women in the EU27, of whom 19.211 million were in the euro area, were unemployed in March 2013. Compared with February 2013, the number of persons unemployed increased by 69 000 in the EU27 and by 62 000 in the euro area. Compared with March 2012, unemployment rose by 1.814 million in the EU27 and by 1.723 million in the euro area.
Among the Member States, the lowest unemployment rates were recorded in Austria (4.7%), Germany (5.4%) and Luxembourg (5.7%), and the highest in Greece (27.2% in January), Spain (26.7%) and Portugal (17.5%).

Economy of Japan

Japan`s factory output rose again in March, official data showed, the fourth consecutive monthly uptick. The Economy, Trade and Industry Ministry said industrial production expanded 0.2 percent from the previous month, while the rise was stronger on a quarterly basis with a 1.9 percent increase between January and March from the previous three months. "Industrial production shows signs of picking up at a moderate pace," the ministry said in a statement.
The data also came as separate figures showed that the nation`s unemployment rate was at its lowest in more than four years. Japan`s jobless rate stood at 4.1 percent in March, down 0.2 percentage points from the previous month, the lowest level since November 2008, the government said. The reading was slightly better than expected in the market, with the number of unemployed people in March down to 2.8 million from a year ago, the data released by the internal affairs ministry said.
Japan`s merchandise trade balance logged a deficit of Ґ362.4 billion ($3.69 billion) in March, stretching the run of deficits to nine months, as the weak yen pushed up import prices. The deficit was narrower than both the median Ґ430 billion forecast of economists surveyed by Dow Jones Newswires, and February`s revised Ґ779.5 billion. At nine months, the deficit streak is the longest since 1980.
Exports also showed some recovery, rising 1.1% from the same period last year to Ґ6.27 trillion ($63.9 billion), the Ministry of Finance data showed. In February, exports had been down 2.9%. While exports to China remained weak, falling 2.5% on year, sales to the U.S. jumped 7% as demand there began to rise amid a steady if somewhat subdued recovery.
Continuing to darken Japan`s trade picture has been a sharp increase in energy imports. Crude oil imports were up 7% while liquefied natural gas imports were up 8.8%. Japan has been forced to sharply increase its purchases of fossil fuels for electricity production ever since the March 2011 nuclear plant accident in northern Japan. The total cost has been pushed higher by the decline in the yen since mid-November. Japan`s currency has fallen nearly 20% over that period. Overall, imports were up 5.5% to Ґ6.634 trillion.
Economists say that the trade balance will likely remain in the red in coming months but that the broader current account will rebound to a steady surplus as income from Japan`s overseas investments outpace the merchandise trade deficits. As the yen strengthened in recent years, manufacturers have been shifting production overseas to remain more competitive. While this reduces the level of exports and worsens the trade gap, the flow of earnings are captured in the current account figures.
Japan`s core Consumer Price Index fell 0.5% in March from a year earlier, in a sign that the Bank of Japan is still far from its goal of achieving a 2% rise in prices in two years. The decline was slightly worse than a 0.4% fall forecast by economists surveyed by Dow Jones Newswires and The Nikkei. It also comes after a 0.3% fall in February.
The reading of the core index, which excludes fresh food prices, marked the fifth straight month of falling prices. It also shows that Japan has still yet to emerge from 15 years of deflation.

Economy of Russia

Russia`s economy expanded by a less-than-expected 1 percent in the first quarter of 2013, which is likely to force a cut in the growth forecast for the full year, Economy Minister Andrei Belousov said. "The results of the first quarter seem to be worse (than expected)," Belousov told journalists on the way to Hanover as part of an official visit, adding that growth in gross domestic product in the first quarter was probably around 1 percent. He said the ministry would cut the 2013 GDP forecast to below 3 percent in a conservative scenario or to around 3.2 percent in an optimistic one.
The ministry had earlier estimated the economy was likely to grow by 3.6 percent this year. It warned at the end of March that it would probably cut its GDP forecast for 2013. "I can say for sure that in our (new) forecast for 2013 we will cut estimates for exports of natural gas, (and) investment estimates will be lowered. Consequently, the pace of GDP growth will also be lowered," Belousov said.
Russian industrial production rose 2.6% from a year earlier in March and grew 12.1% from the previous month, data from the Federal Statistics Service showed, ending a downward slide that began in December. The country`s industrial output in the first quarter of the year was flat compared with the corresponding period a year earlier, the statistics showed.
In monthly terms, the manufacturing sector saw the most growth, with output up 11.7%, while from a year earlier production rose 2.4%. It also expanded 4.4% in the first quarter from the corresponding quarter a year earlier.
Mining in March increased 0.8% on the year and 7.4% on the month, while in the first quarter it grew 1.9%. Utilities output also rose 1.3% in March on the year, but fell 6.8% on the month. In the first quarter utilities saw a 2.6% boost from the same period a year earlier.