World Economy Review - September 2013

Fitch international ratings agency revised outlook for global GDP growth in 2013 downwards, Global Economic Outlook report published by the agency said. "The agency`s experts forecast global GDP growth in 2013 at 2.3 percent, which is 0.1 percent lower than the expected outlook for June of this year. In 2014, the global GDP growth will amount to 2.9 percent, decreasing by 0.2 percent in comparison to the previous outlook," report said.
The agency left the same outlook for 2015 unchanged and in particular, Fitch expects global GDP growth of 3.2 percent. "The outlook revision was caused by softer data from the U.S., than it was expected, as well as lowering of outlooks for most emerging markets, which indicates the increasing influence of developing countries in the global economy," the document said.
Alongside with this, the agency`s experts, underscored that the dynamics of growth of the world economy will improve in the second half of 2013 and in 2014. "GDP in most developed world economies will grow on average by 0.9 percent in 2013, by 1.8 percent in 2014, as well as by 2.1 percent in 2015," the report said.
Fitch has trimmed its forecast of the US economy from 1.9 per cent to 1.6 per cent on the back of recent data revisions and mixed economic indicators in the third quarter. US growth is expected to strengthen to 2.6 per cent in 2014 and 3 per cent in 2015.
In Japan, the agency says GDP growth could be as high as 1.8 per cent for 2013 aided by a short-term buoying caused by the reflationary `Abenomics` strategy. However, it is likely to moderate to 1.5 per cent in 2014 and 1.2 per cent in 2015 as momentum slows.
Looking to emerging markets, Fitch has downgraded its outlook for all four of the so-called Bric economics of Brazil, Russia, India and China. For example, the Chinese economy is tipped to expand by 7.5 per cent this year while Indian growth is viewed as coming in at just 4.8 per cent. ”Higher interest rates and less buoyant capital inflows will complicate policy trade-offs in many emerging markets, adding to growth strains from domestic structural bottlenecks, declining returns on investment and China`s rebalancing,” Fitch says.
Fitch confirmed the expectations on lowering the prices for oil to $105 and $100 per barrel in 2013 and 2014 respectively, and kept the forecasted price per barrel of oil in 2015 at the level of $100.

Economy of the United States

The U.S. government left its estimate for economic growth in the second quarter unchanged, but said prices for goods and services purchased by U.S. households fell for the first time in four years. The Commerce Department said the gross domestic product expanded at a 2.5 percent annual rate in the April-June period.
Also in the report, the department said its price index for consumer purchases, which is the Federal Reserve`s preferred gauge of inflation, fell at a 0.1 percent rate. That is a worrisome sign for the national economy because it suggests businesses have little leverage to raise prices. It was the first decline since the first quarter of 2009, which were some of the darkest days of the 2007-09 recession. Even stripping out volatile food and energy costs, prices rose at only a 0.6 percent rate, also the weakest reading for this so-called core category since early 2009. The report also showed government austerity dragged on U.S. economic growth a little less in the second quarter than initially estimated, chipping about a tenth of a point off the growth rate.
Industrial production advanced 0.4 percent in August after having been unchanged in July; the gains in August were broadly based. Following a decrease in July of 0.4 percent, which was steeper than previously reported, manufacturing production rose 0.7 percent in August. The output of mines moved up 0.3 percent, its fifth consecutive monthly increase, and the production of utilities fell 1.5 percent, its fifth consecutive monthly decrease. At 99.4 percent of its 2007 average, total industrial production in August was 2.7 percent above its year-earlier level. Capacity utilization for the industrial sector increased 0.2 percentage point in August to 77.8 percent, a rate 0.6 percentage point above its level of a year earlier and 2.4 percentage points below its long-run (1972-2012) average.
Manufacturing output rose 0.7 percent in August after having decreased 0.4 percent in July. The index in August was 2.6 percent above its year-earlier level. The factory operating rate increased 0.4 percentage point to 76.1 percent, a rate 2.6 percentage points below its long-run average. Mining output increased 0.3 percent in August and stood 7.5 percent above its year-earlier level. The operating rate for mines edged down 0.1 percentage point to 90.0 percent, a rate 2.7 percentage points above its long-run average. The production of electric and gas utilities fell 1.5 percent, and the operating rate for the sector declined 1.1 percentage points to 74.7 percent, a rate 11.5 percentage points below its long-run average.
The U.S. monthly international trade deficit increased in July 2013 according to the U.S. Bureau of Economic Analysis and the U.S. Census Bureau. The deficit increased from $34.5 billion in June (revised) to $39.1 billion in July as exports decreased and imports increased. The previously published June deficit was $34.2 billion. The goods deficit increased $4.5 billion from June to $58.6 billion in July; the services surplus decreased $0.1 billion from June to $19.4 billion in July.
Exports of goods and services decreased $1.1 billion in July to $189.4 billion, reflecting a decrease in exports of goods. Exports of services were virtually unchanged. Imports of goods and services increased $3.5 billion in July to $228.6 billion mostly reflecting an increase in imports of goods. Imports of services also increased.
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in August on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported. Over the last 12 months, the all items index increased 1.5 percent before seasonal adjustment.
Increases in the indexes for shelter and medical care contributed to the increase in the seasonally adjusted all items index; they also accounted for most of the 0.1 percent increase in the index for all items less food and energy. Within all items less food and energy, the indexes for personal care, tobacco, and apparel rose as well, while the indexes for airline fares, household furnishings and operations, and used cars and trucks declined.
The food index rose slightly in August, with the fruits and vegetable index rising 1.2 percent and four of the six major grocery store group indexes increasing. The energy index declined 0.3 percent, due mostly to a sharp decline in the index for natural gas. The gasoline and electricity indexes also declined slightly, while the index for fuel oil rose.
The all items index increased 1.5 percent over the last 12 months. The index for all items less food and energy has risen 1.8 percent over the last year; the 12-month change has remained in the range of 1.6 percent to 2.3 percent since June of 2011. The food index rose 1.4 percent over the last 12 months, a figure that has held steady since May. The energy index declined 0.1 percent over the last 12 months.
Total nonfarm payroll employment increased by 169,000 in August, and the unemployment rate was little changed at 7.3 percent, the U.S. Bureau of Labor Statistics reported. Employment rose in retail trade and health care but declined in information.
Both the number of unemployed persons, at 11.3 million, and the unemployment rate, at 7.3 percent, changed little in August. The jobless rate is down from 8.1 percent a year ago. Among the major worker groups, the unemployment rates for adult men(7.1 percent), adult women (6.3 percent), teenagers (22.7 percent), whites (6.4 percent), blacks (13.0 percent), and Hispanics (9.3 percent) showed little change in August. The jobless rate for Asians was 5.1 percent (not seasonally adjusted), little changed from a year earlier.

Economy of the European Union

GDP rose by 0.3% in the euro area (EA17) and by 0.4% in the EU27 during the second quarter of 2013, compared with the previous quarter, according to second estimates published by Eurostat, the statistical office of the European Union. In the first quarter of 2013, growth rates were -0.2% and -0.1% respectively.
Compared with the same quarter of the previous year, seasonally adjusted GDP fell by 0.5% in the euro area and remained stable in the EU27 in the second quarter of 2013, after -1.0% and -0.7% respectively in the previous quarter.
Among Member States for which data are available for the second quarter of 2013, Portugal (+1.1%) recorded the highest growth compared with the previous quarter, followed by Germany, Lithuania, Finland and the United Kingdom (all +0.7%). Cyprus (-1.4%), Slovenia (-0.3%), Italy and the Netherlands (both -0.2%) registered the largest decreases.
In July 2013 compared with June 2013, seasonally adjusted industrial production fell by 1.5% in the euro area (EA17) and by 1.0% in the EU28, according to estimates from Eurostat, the statistical office of the European Union. In June industrial production increased by 0.6% and 0.9% respectively. In July 2013 compared with July 2012, industrial production dropped by 2.1% in the euro area and by 1.7% in the EU28.
In July 2013 compared with June 2013, production of capital goods fell by 2.6% in the euro area and by 1.6% in the EU28. Durable consumer goods decreased by 2.2% and 0.5% respectively. Energy dropped by 1.6% in the euro area and by 1.2% in the EU28. Non-durable consumer goods declined by 0.9% and 0.5% respectively. Intermediate goods fell by 0.7% in the euro area and by 0.6% in the EU28. Among the Member States for which data are available, industrial production fell in twelve, rose in ten and remained stable in the United Kingdom. The largest decreases were registered in Ireland (-8.7%), Malta (-6.7%), Portugal (-3.2%), Greece (-2.8%) and Germany (-2.3%), and the highest increases in Lithuania (+3.3%), Denmark (+2.3%), Estonia (+2.1%) and Finland (+2.0%).
In July 2013 compared with July 2012, production of durable consumer goods fell by 3.9% in the euro area and by 1.8% in the EU28. Capital goods dropped by 3.3% and 1.9% respectively. Energy decreased by 2.8% in the euro area and by 4.4% in the EU28. Intermediate goods declined by 1.2% in both zones. Non-durable consumer goods fell by 0.7% in the euro area and by 0.4% in the EU28. Among the Member States for which data are available, industrial production fell in fifteen, rose in seven and remained stable in Slovenia. The largest decreases were registered in Greece (-8.2%), Ireland (-7.9%), Malta (-7.7%) and Sweden (-6.2%), and the highest increases in Estonia (+7.8%), Romania (+7.3%) and Poland (+3.8%).
The first estimate for the euro area (EA17) trade in goods balance with the rest of the world in July 2013 gave a 18.2 billion euro surplus, compared with +13.9 bn in July 2012. The June 2013 balance was +16.5 bn, compared with +12.8 bn in June 2012. In July 2013 compared with June 2013, seasonally adjusted exports fell by 1.6% and imports by 0.1%. These data are released by Eurostat, the statistical office of the European Union.
The first estimate for the July 2013 extra-EU28 trade balance was a 10.4 bn euro surplus, compared with +1.3 bn in July 2012. In June 2013 the balance was +9.0 bn, compared with -1.7 bn in June 2012. In July 2013 compared with June 2013, seasonally adjusted exports fell by 1.0% while imports rose by 0.3%.
Euro area annual inflation is expected to be 1.1% in September 2013, down from 1.3% in August, according to a flash estimate 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 September (2.6%, compared with 3.2% in August), followed by services (1.5%, compared with 1.4% in August), non-energy industrial goods (0.3%, compared with 0.4% in August), and energy (-0.9%, compared with -0.3% in August).
The euro area (EA17) seasonally-adjusted unemployment rate was 12.0% in August 2013, stable compared with July. The EU28 unemployment rate was 10.9%, also stable compared with July. In both zones, rates have risen compared with August 2012, when they were 11.5% and 10.6% respectively. These figures are published by Eurostat, the statistical office of the European Union.
In August 2013, 26.595 million men and women were unemployed in the EU28, of whom 19.178 million were in the euro area. Compared with July 2013, the number of persons unemployed remained nearly stable in both the EU28 and the euro area. Compared with August 2012, unemployment rose by 882 000 in the EU28 and by 895 000 in the euro area.
Among the Member States, the lowest unemployment rates were recorded in Austria (4.9%), Germany (5.2%) and Luxembourg (5.8%), and the highest in Greece (27.9% in June 2013) and Spain (26.2%). Compared with a year ago, the unemployment rate increased in sixteen Member States, fell in eleven and remained stable in Poland. The highest increases were registered in Cyprus (12.3% to 16.9%) and Greece (24.6% to 27.9% between June 2012 and June 2013). The largest decreases were observed in Latvia (15.6% to 11.4% between the second quarters of 2012 and 2013) and Estonia (10.1% to 7.9% between July 2012 and July 2013).

Economy of Japan

Japan`s economy expanded 0.9 percent in April-June from the previous quarter, government data showed, revised up from a preliminary 0.6 percent increase. The result matched the median market forecast in a Thomson Reuters poll of economists. The revised gross domestic product figure translates into an annualised 3.8 percent growth, up from an initial reading of 2.6 percent and against a median market forecast for a 3.7 percent increase, the data released by the Cabinet Office showed. The upward revision underscores the view Japan`s economy is on track for a moderate recovery and may heighten the case for Prime Minister Shinzo Abe to proceed with a scheduled sales tax increase from next year.
Japan`s industrial output fell 0.7% in August from the previous month, the government said, reflecting the recent weakening in growth of exports and consumer spending. The outcome was weaker than a 0.4% decrease forecast by economists surveyed by The Wall Street Journal and the Nikkei after adjustment for seasonal factors.
Analysts had expected the decline in production as growth in exports and consumer spending -- which affect corporate production decisions -- had been slowing recently. The government downgraded its assessment of the two indicators in its September monthly economic report. But economists expect Japanese firms in general will ramp up production in the coming months to cope with a likely increase in demand just ahead of a planned sales tax hike in April next year to 8% from the current 5%.
According to a corporate survey included in the data released by the Ministry of Economy, Trade and Industry, companies expect output to rise 5.2% in September and increase 2.5% in October.
Japan`s trade deficit swelled to a larger-than-forecast 960.3 billion yen ($9.8 billion) in August, the 14th straight month of red ink, as imports outpaced growth in exports, customs data showed. Economists had forecast the deficit at around 600 billion yen for August. Boosted by higher fuel costs, imports rose 16 percent from a year earlier to 6.74 trillion yen ($68.7 billion) while exports climbed 14.7 percent to 5.78 trillion yen ($58.9 billion). The deficit was a quarter bigger than the 768.4 billion yen gap seen in August 2012.
In surplus for years, Japan`s trade account fell into deficit after the March 2011 earthquake and tsunami on Japan`s northeastern coast caused meltdowns at the Fukushima Dai-ichi nuclear power plant. With all nuclear plants offline for safety checks or maintenance, imports of crude oil and natural gas have soared. Costs of imported fuel, which comprise more than a third of all imports, rose nearly 18 percent in August, despite a slight decline in volume. The value of total imports of food, raw materials and manufactured goods also rose at a double-digit pace from the same month a year earlier, while import volumes of most declined. Ultra-easy monetary policy has weakened the yen, boosting exports, but the increase has not been enough to offset surging import costs.
Prices in Japan rose last month at their fastest pace in almost five years, data showed, suggesting efforts to conquer years of growth-sapping deflation are taking hold. The consumer price index, which measures a basket of everyday goods, but excludes the volatile cost of fresh food, was up 0.8 percent from a year earlier, the biggest monthly rise since November 2008 when they logged a 1.0 percent rise, according to the internal affairs ministry.
It was also the third monthly rise in a row, good news for Prime Minister Shinzo Abe, who has pledged to drag Japan out of its 15-year economic funk with a policy blitz dubbed "Abenomics", lifting prices and wages to get the economy moving again.
The unemployment rate in Japan came in at a seasonally adjusted 4.1 percent in August, the Ministry of Internal Affairs and Communications said. That missed forecasts for an increase of 3.8 percent, which would have been unchanged from the July reading. The job-to-applicant ratio was 0.95 - in line with expectations and up from 0.94 in the previous month. The number of employed persons in August was 63.10 million, up 290,000 or 0.5 percent on year. The number of unemployed persons in August was 2.71 million, down 60,000 or 2.2 percent on year.

Economy of Russia

Russia`s gross domestic product grew by 1.6 percent year-on-year in August, Economy Minister Alexei Ulyukayev said, slowing down from July`s 1.8 percent rise. "August turned out to be slightly worse than July. There is no visible improvement," Ulyukayev told a briefing on the sidelines of an investment forum in the Black Sea resort of Sochi.
GDP was flat in August versus July, on a seasonally adjusted basis, and grew by 1.5 percent in January-August compared with the same period last year, he said. The Russian economy grew at the slowest pace in the second quarter since the 2009 recession, at 1.2 percent year-on-year, reflecting weaker exports and subdued consumer and investor demand at home.
The economy ministry in August cut its 2013 growth forecast for the second time this year, to 1.8 percent from 2.4 percent. The International Monetary Fund cut its Russia growth forecast to 1.5 percent this month, while the World Bank has lowered its growth estimate for Russia this year to 1.8 percent. Ulyukayev also said that Russia`s consumer price index was expected to rise by an annual 6.1 to 6.2 percent in October and that 2013 inflation was seen at 6.0 percent - within the central bank`s target range - and down from 6.6 percent last year.
Russia`s industrial production rose 0.1% on the year in August, boosted by a strong mining sector, having dropped 0.7% the previous month, official data showed. In monthly terms, production increased 0.6% in August after a 1.2% rise in July, federal statistics service data showed. In the first eight months of 2013, production was unchanged from the year-earlier period, when it rose 3.1% compared with 2011.
The mining sector remained the main driver of the industrial output growth, gaining 2% on year. Production in the manufacturing sector contracted 0.2% on year, while the utility sector production declined 2%. Sluggish industrial output growth poses risks for the economy, which is now expected to expand 1.8% this year, slowing from an initial forecast of 3.6% growth. Industry has repeatedly called for cheaper lending although the central bank said it would only lower rates once inflation slows to its target of 5%-6% from 6.5% in August.
Russia`s consumer inflation slowed in September but remained above the central bank`s target, the Federal Statistics Service data showed, reinforcing expectations that interest rates will be left unchanged next week. Annual consumer price inflation decelerated to 6.1% last month from 6.5% in August, but was still above the central bank`s inflation target range of 5%-6%. Prices rose 0.2% on the month in September, taking the year-to-date inflation to 4.7%, which is below a 5.2% reading in the same period a year ago.
The inflation slowdown was expected thanks to a solid harvest this year, which resulted in a decline in food prices. The central bank expects inflation to fit its target by the end of 2013 and has repeatedly said it won`t ease monetary policy before it makes sure that inflationary risks are contained.