World Economy Review - February 2016
Paris-based Organization for Economic Co-operation and Development (OECD), a think tank funded by wealthy countries, cut its 2016 global growth forecast to 3 per cent in its interim economic outlook, from the 3.3 percent it forecast in November.
The OECD poured cold water on any lingering hopes of a pick-up in global economic growth this year, slashing its forecasts for the United States, Europe and Brazil and urging world leaders to act collectively to strengthen demand.
The OECD forecast would mean global growth this year would be no higher than in 2015, itself the slowest pace in the past five years.
Trade, investment and wage growth remained too weak, the OECD said, urging world leaders to deploy all policy levers to stimulate growth urgently.
"Monetary policy cannot work alone," it said. "A stronger collective policy response is needed to strengthen demand," it added, urging countries with room for fiscal expansion to raise public investment in infrastructure projects.
The US and Germany suffered the biggest downgrades among major developed economies, with the OECD slashing its 2016 forecast by half a percentage point for both countries to 2.0 percent and 1.3 percent respectively.
The OECD now expects US and euro zone growth to slow from the previous year, to 1.4 per cent for the latter, and to pick up only marginally in 2017 to 2.2 percent and 1.7 percent respectively.
The OECD left its forecasts for Chinese growth unchanged for the next two years, but it still expects growth to slow to 6.5 percent in 2016 and 6.2 percent in 2017.
In the euro zone, the positive effect of lower oil prices on activity has been less than expected, the OECD said, while very low interest rates and a weaker euro had yet to lead to sustained stronger investment.
Across the Atlantic, US growth slowed in the second half of last year under the weight of a stronger dollar, which dragged on exports, and the impact of lower oil prices on the country`s large oil and gas industry.
Among the largest emerging economies, Brazil was seen as a major victims of falling commodity prices, with a recession expected to be deeper than feared at -4.0 percent this year.
In a rare bright spot, the OECD raised its 2016 forecast for India`s growth by 0.1 percentage points to 7.4 percent.
Economy of the United States
U.S. economic growth slowed in the fourth quarter, but not as sharply as initially thought, with businesses less aggressive in their efforts to reduce unwanted inventory, which could hurt output in the first three months of 2016.
Gross domestic product increased at a 1.0 percent annual rate instead of the previously reported 0.7 percent pace, the Commerce Department said. Economists polled by Reuters had expected that fourth-quarter GDP growth would be revised down to a 0.4 percent pace. The economy grew at a rate of 2.0 percent in the third quarter.
U.S. industrial production rose in January after three straight months of declines, buoyed by a strong utilities index and growing manufacturing sector. Industrial output increased 0.9 percent after a downwardly revised 0.7 percent decline in December, the Federal Reserve said. The U.S. central bank had previously reported a 0.4 percent drop for December. Economists polled by Reuters had forecast industrial production rising 0.4 percent last month.
The utilities index rose 5.4 percent last month, following a 2.9 percent drop the month before. The rise in output also reflected a 0.5 percent increase in manufacturing. Analysts had expected manufacturing to tick up 0.3 percent, according to a Reuters poll. The mining index was flat last month and down 9.8 percent from the same period a year ago. With output on the rise, the percentage of industrial capacity in use rose to 77.1 percent from a downwardly revised 76.4 percent in December.
The U.S. trade deficit widened by 2.2 percent in January to $45.7 billion, the Commerce Department said. December`s trade deficit was revised up to $44.7 billion from the previously reported $43.4 billion. U.S. exports fell 2.1 percent in January to $176.5 billion, the fourth consecutive monthly decline, while imports declined by 1.3 percent to $222.1 billion, the department said in a report. Analysts had forecast a $44 billion trade deficit in January.
U.S. consumer prices were unchanged in January, as the rising costs of housing and health care were largely offset by cheaper oil. But the annual pace of inflation showed signs of acceleration. The Labor Department said that prices have risen 1.4 percent over the past 12 months, compared to a year ago when annual inflation was close to zero. Consumer prices climbed at the fastest annual rate since October 2014.
Core inflation, which excludes volatile energy and food costs, rose 0.3 percent in January. Over the past 12 months, this category closely watched by the Federal Reserve has climbed 2.2 percent.
The U.S. unemployment rate remained unchanged at 4.9 percent in February, a month in which a better-than-expected 242,000 new jobs were created, the government said. In its report, the Labor Department also upwardly revised its employment figure for January, saying that 172,000 jobs were created instead of 151,000.
The February figure beat forecasts by analysts, who had projected the creation of 198,000 new jobs that month. But despite the expansion in payrolls, average hourly earnings of private-sector workers fell by $0.03, or 0.1 percent, to $25.35. Salaries rose 2.2 percent compared to February 2015.
Economy of the European Union
Seasonally adjusted GDP rose by 0.3% in both the euro area (EA19) and the EU28 during the fourth quarter of 2015, compared with the previous quarter, according to a flash estimate published by Eurostat, the statistical office of the European Union. In the third quarter of 2015, GDP grew by 0.3% and 0.4% respectively.
Compared with the same quarter of the previous year, seasonally adjusted GDP rose by 1.5% in the euro area and by 1.8% in the EU28 in the fourth quarter of 2015, after +1.6% and +1.9% respectively in the previous quarter.
Over the whole year 2015, GDP rose by 1.5% in the euro area and by 1.8% in the EU28.
In December 2015 compared with November 2015, seasonally adjusted industrial production fell by 1.0% in both the euro area (EA19) and the EU28, according to estimates from Eurostat. In November 2015 industrial production fell by 0.5% in both zones.
In December 2015 compared with December 2014, industrial production decreased by 1.3% in the euro area and by 0.8% in the EU28. The average industrial production for the year 2015, compared with 2014, rose by 1.4% in the euro area and by 1.7% in the EU28.
The first estimate for euro area (EA19) exports of goods to the rest of the world in December 2015 was 167.5 billion, an increase of 3% compared with December 2014 (162.1 bn). Imports from the rest of the world stood at 143.2 bn, also a rise of 3% compared with December 2014 (138.5 bn). As a result, the euro area recorded a 24.3 bn surplus in trade in goods with the rest of the world in December 2015, compared with +23.6 bn in December 2014. Intra-euro area trade rose to 130.3 bn in December 2015, up by 2% compared with December 2014. These data are released by Eurostat.
The first estimate for extra-EU28 exports of goods in December 2015 was 156.0 billion, up by 7% compared with December 2014 (145.8 bn). Imports from the rest of the world stood at 135.5 bn, up by 1% compared with December 2014 (134.4 bn). As a result, the EU28 recorded a 20.5 bn surplus in trade in goods with the rest of the world in December 2015, compared with +11.4 bn in December 2014. Intra-EU28 trade rose to 234.7 bn in December 2015, +3% compared with December 2014.
Euro area annual inflation is expected to be -0.2% in February 2016, down from 0.3% in January, according to a flash estimate from Eurostat. Looking at the main components of euro area inflation, services is expected to have the highest annual rate in February (1.0%, compared with 1.2% in January), followed by food, alcohol & tobacco (0.7%, compared with 1.0% in January), non-energy industrial goods (0.3%, compared with 0.7% in January) and energy (-8.0%, compared with -5.4% in January).
The euro area (EA19) seasonally-adjusted unemployment rate was 10.3% in January 2016, down from 10.4% in December 2015, and from 11.3% in January 2015. This is the lowest rate recorded in the euro area since August 2011. The EU28 unemployment rate was 8.9% in January 2016, down from 9.0% in December 2015, and from 9.8% in January 2015. This is the lowest rate recorded in the EU28 since May 2009. These figures are published by Eurostat.
Eurostat estimates that 21.789 million men and women in the EU28, of whom 16.647 million were in the euro area, were unemployed in January 2016. Compared with December 2015, the number of persons unemployed decreased by 163 000 in the EU28 and by 105 000 in the euro area. Compared with January 2015, unemployment fell by 2.034 million in the EU28 and by 1.445 million in the euro area.
Economy of Japan
Japan`s economy contracted an annualized 1.4 percent in the final quarter of last year as consumer spending slumped, adding to headaches for policymakers already wary of damage the financial market rout could inflict on a fragile recovery.
The contraction in gross domestic product (GDP) was bigger than a median market forecast for a 1.2 percent decline and followed a revised 1.3 percent increase in the previous quarter, Cabinet Office data showed. It matched a fall marked in April-June last year.
Private consumption, which makes up 60 percent of GDP, fell 0.8 percent, more than a median market forecast for a 0.6 percent decline, a sign Abe`s stimulus policies have so far failed to nudge households into boosting spending.
In a glimmer of hope for policymakers, however, capital expenditure rose 1.4 percent, confounding market expectations for a 0.2 percent decrease.
While domestic demand shaved 0.5 percentage point off GDP growth, external demand, or net exports, added 0.1 point due to a decline in the value of imports caused by falling oil prices.
Industrial output in Japan was up a seasonally adjusted 3.7 percent on month in January, the Ministry of Economy, Trade and Industry said in a preliminary reading. That beat forecasts for an increase of 3.2 percent following the 1.7 percent decline in December. On a yearly basis, industrial production slipped 3.8 percent - matching forecasts following the 1.9 percent contraction in the previous month.
According to the ministry`s Survey of Production Forecast in Manufacturing, Japanese industrial production is expected to decrease by 5.2 percent in February and to increase by 3.1 percent in March this year, both month on month.
The trade deficit fell by 45% in January in Japan, thanks to falling oil prices helped to alleviate the energy bill, but exports declined sharply, particularly to Asia. The balance came in at -645.9 billion yen (5 billion euros), compared to a negative $ 1.1738 trillion a year earlier, a figure no surprise to analysts surveyed by Bloomberg.
Exports declined in value for the fourth consecutive month, to 5.3516 trillion yen (41 billion euros), with degradation over time: this time the decline was 12.9% on year, after -8% in December, 3.3% in November and -2.2% in October.
On the import side, down 18% in value to 5.9976 trillion yen, Japan continues to enjoy the plummeting price of black gold, which have lost 70% since June 2014, when a barrel was trading more than 100 dollars.
Falling fuel costs kept Japan`s core consumer prices unchanged in January from a year earlier, well below the central bank`s 2 percent target, highlighting the daunting task policymakers` face in attempting to lift Japan out of stagnation. The core consumer price index, which excludes volatile fresh food prices, stood at 102.6 against the 2010 base of 100, the Ministry of Internal Affairs and Communications said. The flat growth in the core consumer price index (CPI), which includes oil products but excludes volatile fresh food prices, matched a median market forecast and followed a 0.1 percent rise in December, data showed.
Japan`s unemployment rate in January registered its lowest level in three months, falling to 3.2 percent from 3.3 percent the previous month and reflecting a continuation of the tight labor market, the government said.
The unemployment rate for men declined 0.2 points from the previous month to 3.4 percent while that for women was unchanged at 2.9 percent, according to data released by the Internal Affairs and Communications Ministry. The number of unemployed people dropped a seasonally adjusted 4.1 percent to 2.12 million, while the number of workers increased 1.0 percent to 64.58 million.
Economy of Russia
Russia`s economic contraction continued in January, the country`s economy ministry said. In annual terms, gross domestic product fell 2.5% in January after shrinking by 3.5% in December. In monthly terms, seasonally adjusted GDP contracted 0.1% in January, the ministry said. While the main economic indicators suggest that a recession in Russia`s oil-dependent economy in underway, the pace of deterioration is lower than last year.
According to Russia`s Federal Statistics Service, in January 2016, industrial production increased by 0.4%. The Central Bank notes that net of seasonal factor the production grew by 0.6%, according to the document.
A slight increase in industrial output, taking into account the seasonal factor, has been observed for the second month in a row. However the dynamics of growth varied for different types of industry.
In January 2016, the processing sector showed a slight decrease, while in December 2015 the processing sector accounted for most of the growth in overall index of industrial production. The main factor in the growth of industrial production in January was the production and distribution of electricity, gas and water, the Central Bank said.
Consumer inflation in Russia is set to slow further in February, the central bank said. Annual inflation is seen slowing to 8.3%-8.8% in February from 9.8% in January. Inflation has slowed to single-digit readings thanks to base effect and falling consumer demand, the central bank said. Despite slowing inflation, the central bank`s key target, the bank has warned it may hike interest rates to counter negative implications from the ruble`s oil-driven weakness.
The unemployment in Russia remains at 5.8% or 4.4 mln people for the third month in a row, Labor Minister Maxim Topilin told a meeting on the situation in the labor market and measures to support employment.
"The unemployment rate under the methodology of the International Labor Organization remains at around 5.8% for the third month in a row, it is 4.4 million people," Topilin said. The minister said that during the previous economic crisis in February 2009, the unemployment rate was 9.2%.
Russia`s GDP decline at 2016 year-end may be slightly above 1% if its current positive dynamics continues, the Central Bank said. "Our assessment of the GDP as of the end of the second quarter of 2016 was also slightly improved in comparison to January. Now it suggests dynamics will be close to zero. The first assessment of the third quarter of 2016 subject to statistical data available for the time being shows resumption of slight growth of 0.2-0.3% in the quarter. If such positive dynamics continue until the year end, the GDP decline as of 2016 year-end will be most likely a bit above 1%," the regulator reported.
January figures of certain indicators prompt to be cautious on the above assessments and these may be changed as new short-term statistics data become available, the Central Bank said.