World Economy Review - July 2018
A recent report by the International Monetary Fund (IMF) warned of uneven economic growth around the world and rising tensions in trade.
Xinhua spoke with noted Argentine economist Jorge Marchini, vice president of the Foundation for Latin American Integration (FILA), about the IMF`s latest "World Economic Outlook Update" released on July 16th.
"There is unevenness in the effects of growth. One (region) is the United States, which has growth and impetus, the other is Europe, which is in neutral. The Asiatic drive is important and in Latin America, (growth) is negative," said Marchini.
The IMF forecast global economic growth for this year and the next to register 3.9 percent, but not across the board, with gross domestic product (GDP) contracting in some regions and expanding in others.
For Latin America, the IMF downgraded its growth forecast from 2 percent to 1.6 percent, mainly due to sluggish growth in Brazil and Mexico, the region`s No. 1 and No. 2 economies, and the financial crisis gripping its third-biggest economy, Argentina.
High inflation, a volatile currency and a huge public deficit led Argentina`s government to recently apply for a 50-billion-U.S.-dollar loan from the IMF.
Marchini blamed uneven expansion on the current interrelated dynamics of trade, which leads to ripple effects.
"The world today opens pathways to economic growth for some countries, but at the same time that tends to cause an imbalance in the global economy," he said.
As an example, he noted the United States, whose economy shows signs of recovery, is increasingly applying protectionist measures that impact other economies, especially in nearby Latin America.
"There is an international climate with many unknowns and fears, which sparks protectionism in the global economy and successive tensions between the United States and China and Europe, with repercussions in Latin America," said the economist.
"It`s a complicated international scenario," said Marchini. "The change in U.S. interest rates (which rose to 2 percent) has also had a negative impact on Latin American countries, practically of which have a balance of payment deficit, meaning they spend more than they earn."
While in the past two years the global economy has shown signs of recovery following the 2008 world financial crisis, countries continue to suffer from the aftermath, especially those with high debt or very open and expansive monetary policies, he said.
Latin America`s downgraded growth forecast is a reflection of recent changes in the political landscape of its leading economies, said Marchini.
Argentina, for example, has shifted from the early optimism that marked the first two years of President Mauricio Macri`s term to greater "pessimism," following the devaluation of the national currency.
Mexico is in a kind of holding pattern. The renegotiation of the North American Free Trade Agreement (NAFTA) with the United States and Canada is dragging on. At the same time, the country elected its first left-of-center president, Andres Manuel Lopez Obrador, on July 1, but he doesn`t take office until Dec. 1.
"In Mexico, the renegotiation of NAFTA plus the political change have generated a measure of doubt regarding what could happen in terms of Mexico-U.S. ties," said Marchini.
"In Brazil, the picture is above all political, taking into account that the country is mired in a slow economy and also finds itself in an election period with many unknowns," added Marchini.
Brazilians go to the polls on Oct. 7 to elect a new president, but the field of candidates has yet to be determined.
Other regional countries are also in flux, he said, including Colombia, where the government will be changing hands, and Venezuela, which continues to grapple with "serious (economic) difficulties."
Economy of the United States
Gross domestic product grew at a solid 4.1 percent pace in the second quarter, its best pace since 2014, boosting hopes that the economy is ready to break out of its decade-long slumber.
The number matched expectations from economists surveyed by Reuters and was boosted by a surge in consumer spending and business investment.
That`s the fastest rate of the growth since the 4.9 percent in the third quarter of 2014 and the third-best growth rate since the Great Recession. In addition to the strong second quarter, the Commerce Department revised its first-quarter reading up from 2 percent to 2.2 percent.
In addition to the rise in consumer and business spending, increases in exports and government spending also helped. Personal consumption expenditures rose 4 percent while business investment grew 7.3 percent and federal government outlays increased by 3.5 percent.
US industrial production rebounded last month signaling further strength in the economy in the second quarter, driven by the manufacturing and mining sectors.
Industrial production - which measures output at factories, mines and utilities - climbed 0.6 per cent month-on-month in June, in line with expectations, the Federal Reserve said. That followed a 0.5 per cent decline in May.
Manufacturing output grew 0.8 per cent from the previous month - as production of motor vehicles and parts rebounded - just ahead of the 0.7 per cent increase expected in a Thomson Reuters survey. Meanwhile, mining output climbed 1.2 per cent driven by gains in energy prices, though the advances in both industry groups was partially offset by a 1.5 per cent drop in utilities.
The U.S. trade deficit grew in June for the first time in four months as imports increased and the value of shipments overseas declined against a backdrop of escalating tensions with America`s trading partners. The gap widened 7.3 percent to $46.3 billion from a revised $43.2 billion in the prior month, Commerce Department data showed.
Overall exports dropped 0.7 percent to $213.8 billion, despite record overseas shipments of petroleum and all industrial supplies and materials. Imports climbed 0.6 percent to $260.2 billion, boosted by pharmaceuticals, crude oil, chemicals and other industrial supplies. The median estimate of economists surveyed by Bloomberg called for a June trade deficit of $46.5 billion.
The U.S. Labor Department said that the consumer price index ticked up 0.2 percent in July. Annual inflation matched the 2.9 percent pace from June, which had been the highest level since February 2012.
Core prices, which exclude the volatile food and energy categories, rose 0.2 percent in June and 2.4 percent from a year earlier. Core prices have risen at the fastest annual pace since September 2008.
The U.S. unemployment rate dipped to 3.9 percent in July, down from 4.0 percent in June, and the nation`s economy added 157,000 jobs last month, according to the U.S. Bureau of Labor Statistics.
The average monthly job gain for the economy over the last 12 months is 203,000, according to the report. Previous job growth reports for the U.S. economy were revised upward by a total of 59,000. The nation`s economy added 268,000 jobs in May (up from the previous report of 244,000) and 248,000 in June (up from the previous report of 213,000), according to the BLS report.
Among the major worker groups, the unemployment rates for adult men (3.4 percent) and Whites (3.4 percent) declined in July. The jobless rates for adult women (3.7 percent), teenagers (13.1 percent), Blacks (6.6 percent), Asians (3.1 percent), and Hispanics (4.5 percent) showed little or no change over the month, according to the U.S. Bureau of Labor Statistics report.
In July, average hourly earnings for all employees on private nonfarm payrolls rose by 7 cents to $27.05, according to the report. Over the year, average hourly earnings have increased by 71 cents, or 2.7 percent.
Economy of the European Union
Seasonally adjusted GDP rose by 0.3% in the euro area (EA19) and by 0.4% in the EU28 during the second quarter of 2018, compared with the previous quarter, according to a preliminary flash estimate published by Eurostat, the statistical office of the European Union. In the first quarter of 2018, GDP had grown by 0.4% in both the euro area and the EU28.
Compared with the same quarter of the previous year, seasonally adjusted GDP rose by 2.1% in the euro area and by 2.2% in the EU28 in the second quarter of 2018, after +2.5% and +2.4% respectively in the previous quarter.
In May 2018 compared with April 2018, seasonally adjusted industrial production rose by 1.3% in the euro area (EA19) and by 1.2% in the EU28, according to estimates from Eurostat. In April 2018, industrial production fell by 0.8% in both zones. In May 2018 compared with May 2017, industrial production increased by 2.4% in both zones.
The first estimate for euro area (EA19) exports of goods to the rest of the world in May 2018 was 189.6 billion, a decrease of 0.8% compared with May 2017 (191.2 bn). Imports from the rest of the world stood at 173.1 bn, a rise of 0.7% compared with May 2017 (171.9 bn). As a result, the euro area recorded a 16.5 bn surplus in trade in goods with the rest of the world in May 2018, compared with +19.3 bn in May 2017. Intra-euro area trade rose to 162.3 bn in May 2018, up by 0.5% compared with May 2017.
The first estimate for extra-EU28 exports of goods in May 2018 was 160.9 billion, down by 2.7% compared with May 2017 (165.4 bn). Imports from the rest of the world stood at 160.7 bn, down by 1.4% compared with May 2017 (163.0 bn). As a result, the EU28 recorded a 0.2 bn surplus in trade in goods with the rest of the world in May 2018, compared with +2.3 bn in May 2017. Intra-EU28 trade rose to 294.7 bn in May 2018, +1.6% compared with May 2017.
Euro area annual inflation is expected to be 2.1% in July 2018, up from 2.0% in June, according to a flash estimate from Eurostat.
Looking at the main components of euro area inflation, energy is expected to have the highest annual rate in July (9.4%, compared with 8.0% in June), followed by food, alcohol & tobacco (2.5%, compared with 2.7% in June), services (1.4%, compared with 1.3% in June) and non-energy industrial goods (0.5%, compared with 0.4% in June).
The euro area (EA19) seasonally-adjusted unemployment rate was 8.3% in June 2018, stable compared with May 2018 and down from 9.0% in June 2017. This remains the lowest rate recorded in the euro area since December 2008. The EU28 unemployment rate was 6.9% in June 2018, also stable compared with May 2018 and down from 7.6% in June 2017. This is the lowest rate recorded in the EU28 since May 2008. These figures are published by Eurostat.
Eurostat estimates that 17.105 million men and women in the EU28, of whom 13.570 million in the euro area, were unemployed in June 2018. Compared with May 2018, the number of persons unemployed increased by 4 000 in the EU28 and by 14 000 in the euro area. Compared with June 2017, unemployment fell by 1.657 million in the EU28 and by 1.146 million in the euro area.
Economy of Japan
Japan`s gross domestic product gained a seasonally adjusted 0.5 percent on quarter in the second quarter of 2018, the Cabinet Office said. That exceeded expectations for an increase of 0.3 percent following the 0.2 percent loss in the three months prior.
On an annualized basis, GDP was up 1.9 percent - again topping expectations for 1.4 percent following the 0.6 percent contraction in the previous three months. The GDP deflator was up 0.1 percent on year, beating forecasts for a fall of 0.2 percent and down from 0.5 percent in the first quarter.
Japan`s industrial production decreased in June, suggesting it is easing after recently trending higher, government data showed.
Industrial output fell 2.1% in June from a month earlier, following May`s 0.2% fall, according to the Ministry of Economy, Trade and Industry. The fall was bigger than a 0.4% drop expected by economists surveyed by Nikkei. The drop in output was seen in a broad range of products, including semiconductor-making equipment, personal computers, plastic products, gasoline and carbon fiber. Production increased 1.2% in the April-June quarter from the previous one.
The ministry maintained its assessment on industrial output, and said that production was picking up gradually.
According to a survey included in the report, manufacturers expect output to rise 2.7% in July before expanding 3.8% in August.
Japan`s trade surplus jumped as strong demand for chips and chip-making equipment in China outweighed a drop in car exports to the U.S., data from Japan`s finance ministry showed.
Japan posted a trade surplus of Y721.4 billion ($6.4 billion) in June, surging 66.5% from a year ago, and overshooting an estimate for a surplus of Y534.2 billion from a Nikkei survey. Japan, like many other U.S. trade partners, is under pressure to lower its trade surplus with the U.S., which is pursuing U.S. President Donald Trump`s policy of curbing imports.
Japan`s exports to the U.S. fell 0.9% from a year ago, due to declines in shipments of cars and chip-making tools, the ministry said. Japan`s trade surplus with the U.S. was Y590.3 billion, up 0.5% from a year ago. Mr. Trump has been critical of the Japan`s large trade surplus with the U.S. Japan`s exports to China jumped 11.1% from a year ago on China`s hunger for semiconductors and tools to make them. The rise in Japan`s overall exports--the 19th straight monthly gain--was largely in line with a 7.0% increase tipped by a Wall Street Journal poll of economists.
Overall imports rose 2.5% in tandem with a rise in crude oil prices, with imports from Saudi Arabia leading the way. Exports are expected to continue growing on the back of strength in the global economy, while imports will also likely to stay solid due to higher energy prices and a recovery in domestic demand, analysts said.
Japan`s consumer price inflation stood at 0.7 percent year-on-year in June of 2018, unchanged from the previous month and below market consensus of 0.8 percent. Food inflation hit its lowest since a deflation in last November while cost of transport rose at a faster pace and cost of housing continued to fall. Core inflation rate, which excludes fresh food, rose to 0.8 percent from 0.7 percent in May and in line with estimates. It is the highest figure since March. On a monthly basis, consumer prices went up by 0.1 percent, the same as in the prior month.
Japan`s jobless rate rose in June while the availability of jobs improved to the highest in more than four decades, figures from the Internal Affairs ministry showed.
The seasonally adjusted unemployment rate rose to 2.4 percent from 2.2 percent in June, and compared with economists` median forecast of 2.3 percent.
The jobs-to-applicants ratio rose to 1.62 from 1.60 in June to reach the highest since January 1974. The median forecast was for 1.60.
Economy of Russia
Russia`s economy grew 1.8 per cent in the second quarter compared with the same period last year, the Federal Statistics Service (Rosstat) said in its first GDP estimate for the three months ending June 30.
Although growth was slightly stronger than the 1.3 per cent registered for the first quarter, mainly because Russia`s hosting of the football World Cup from June 15 boosted consumption that month, the pick-up was not as much as expected.
However, analysts said growth might still pick up despite the weak preliminary GDP estimate for the second quarter.
William Jackson, an analyst at Capital Economics, said weakness in the agricultural sector was more than offset by faster growth in industrial production, retail spending and construction. We think that the conditions are still in place for Russia`s economic recovery to gather pace in the coming quarters, he said.
Russia-U.S. confrontation is extending to the economic and trade field as Washington is poised to slap new and powerful sanctions in a move Moscow views as the declaration of an "economic war."
Russia`s industrial production in the first half of 2018 increased by 3 percent year-on-year, Russia`s Federal State Statistics Service Rosstat said.
Russia`s industrial production increased 2.2 percent year-on-year in June 2018, easing from a 3.7 percent growth in the previous month and missing market expectations of 3 percent. Manufacturing production increased at a softer pace (2.2 percent vs 5.4 percent in May), while distribution of water, sewage contracted further (-2.3 percent vs -0.5 percent). Meantime, extraction of raw materials growth picked up to 2.8 percent in June from 1.3 percent in May, and production and distribution of electricity, gas rebounded 1.7 percent, after a 0.7 percent fall in the previous month. Industrial Production in Russia decreased 0.2 percent in June of 2018 over the previous month.
According to the latest forecast by the Russian Economic Development Ministry, Russia`s industrial production is expected to rise by 2.5 percent in 2018 and by 2.1 percent in 2019.
Russia`s trade surplus rose 46.3 percent year on year to 98 billion U.S. dollars in the first half (H1) of the year, the Russian Federal Customs Service said. "The trade balance was positive at 98 billion U.S. dollars, which is 31 billion U.S. dollars more than in January-June 2017," it said in a statement.
Trade turnover amounted to 330.6 billion dollars in H1, up 21.6 percent from the same period a year ago. Exports amounted to 214.3 billion dollars, 26.5 percent up from a year ago. Fuel and energy products accounted for 63.9 percent of exports. Their volume increased by 3.4 percent and value grew by 29.3 percent. Metals, another major export item contributing to the surplus, accounted for 10.6 percent of total exports. Their export volume rose by 15.3 percent year on year while their value surged by 35.1 percent. Imports were worth 116.3 billion dollars, rising by 13.6 percent from H1 in 2017.
Russia`s trade surplus widened by 77.6 percent to USD 15.56 billion in June 2018 from USD 8.76 billion in the same month a year earlier, but still below market expectations of a USD 15.85 billion surplus. Exports climbed 23.8 percent on year to USD 36.57 billion while imports rose only by 1.1 percent to USD 21.02 billion.
Russian consumer price inflation (CPI) ticked up to 2.5% in July, just below the consensus forecast of 2.6%, but is expected to continue to rise to the long-term trend level of 4% over the next year, the Central Bank of Russia (CBR) said.
Due to the planned VAT hikes in 2019 (up to 20% from 18%), the CBR expects inflation to temporarily exceed 4% during the course of 2019. This is a one-off target overshoot that the CBR anticipates for next year, analysts at TD Securities said.
Despite the rise from modern record lows of 2.2%, core inflation remains very weak, leaving the central bank the option to cut rates. The small rise in Russian headline inflation was largely driven by higher food inflation, say economists, while underlying price pressures are very soft.
Russian unemployment rate came in at 4.7 percent in June 2018, unchanged from the previous month`s record low and below last year`s 5.1 percent, as the number of unemployed continued to fall.
The number of unemployed declined by 65 thousand to 3.543 million in June from 3.608 million in the previous month. Compared with the previous year, unemployment fell by 317 thousand from 3.860 million.
Real wages in Russia rose 7.2 percent year-on-year in June, easing from a revised 7.6 percent jump in the previous month and above market expectations of 7 percent. Average nominal wages surged 9.7 percent to RUB 45,840 while annual inflation rate stood at 2.3 percent, close to January`s record low of 2.2 percent. Meanwhile, real disposable personal income in Russia increased by 0.2 percent in June, following a 0.1 percent gain in the previous month.
13.08.2018 15:59:13