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06.03.2011 17:10 World Economy Review - February 2011

Sharply rising oil prices could prove a drag on global economic recovery this year, the International Energy Agency (IEA) warned. With oil already topping the $100 per barrel mark as political instability in the Middle East adds to upwards pressure from rising commodity prices, the worldwide "oil burden" is set to hit 4.7 per cent of total economic output this year, up from 4.1 per cent in 2010.
"The combination of higher prices, emerging inflationary pressures and instability in the Middle East is not a healthy one," the IEA`s monthly oil report said. "Under current assumptions for global GDP, oil price and oil demand, the global oil burden could rise to 4.7 per cent in 2011, getting close to levels that have coincided in the past with a marked economic slowdown."
The IEA also increased its forecast of global demand for oil in 2011 to 89.3 million barrels per day, its fifth increase in as many months, as economic growth recovers, particularly in emerging economies such as China.
Separately, the Organization of Petroleum Exporting Countries in its Oil Market Report, February 2011, said the world economic growth in 2011 "remains unchanged at 3.9 per cent," noting that it had previously revised it up to 3.9 per cent in January from the 3.8 per cent initial projection.
Consequently, the report said the United States economy "is now expected to expand by 2.9 per cent and the Euro-zone raised to 1.4 per cent. Growth for developing countries remain almost unchanged, with China growing at 8.8 per cent and India at 8.5 per cent in 2011." However, the report said, "despite increased activity in the manufacturing sector, which has led to a broad-based improvement in global sentiment, significant challenges remain. "The extraordinary sovereign debt levels, rising inflation rates, combined with the possibility of overheating in developing countries, constitute concerns that might influence the 2011 growth trend.".
Meanwhile, the World Bank has published an optimistic forecast for the African continent. It is projecting output growth of 5.3% in 2011 and 5.7% in 2012 compared to 4.7% in 2010 and 1.7% in 2009. The recovery is a return to the buoyant growth rate which prevailed before the global financial crisis.

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06.02.2011 13:27 World Economy Review - January 2011

The World Bank has again revised its 2010 growth estimate for the global GDP saying that it has expanded by 3.9 per cent in 2010, driven mainly by strong domestic demand in developing countries. The report contended that East Asia and Pacific region, with GDP growth estimated at 9.3 percent for 2010, led the global recovery. This was on the back of an estimated 10 per cent increase in Chinese GDP and a 35 per cent increase in its imports.
However, the bank in its Global Economic Prospects 2010, said the global growth is expected to be lower at 3.3 per cent in 2011, before picking up to 3.6 per cent in 2012. These predictions are based on easing of restructuring activities in developed countries. ``The world economy is entering into a new phase of recovery,`` Justin Yifu Lin, the World Bank`s chief economist and senior vice president of development economics, told reporters.
``On the upside, strong developing-country domestic demand growth is leading the world economy, yet persistent financial sector problems in some high-income countries are still a threat to growth and require urgent policy actions,`` said Lin.
The developed countries would be showing a recovery of 2.8 per cent in 2010 after a negative growth of 3.4 per cent in 2009. However, growth will be subdued at 2.4 per cent in 2011 with marginally higher growth of 2.7 per cent in 2012.
The Chinese GDP growth rate will slow to 8.7 percent this year from 10 percent in 2010, and a key challenge in 2011 will be to ensure that anti-inflationary measures do not "significantly" reduce growth, the World Bank said.
Amid credit-tightening measures to combat inflation and surging property prices, China`s growth is expected to ease to 8.4 percent in 2012, the bank said.
Despite the slowdown, China will spearhead Asia`s economic expansion. According to the bank`s forecast, the overall growth rate for developing Asian economies will ease to 8 percent from last year`s 9.3 percent as governments rein in credit to cool inflationary pressures.
The economic recovery in developing Europe and Central Asian countries will slow this year, weighed down by high unemployment and flagging exports, the World Bank said in a report published. Economic growth in the regions will slow to 4% in 2011 from 4.7% in 2010, the organization`s Global Economic Prospects report said. The World Bank said growth for developing Europe and Central Asia will firm to 4.2% in 2012.

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07.01.2011 18:51 World Economy Review - December 2010

Fitch Ratings says in its latest quarterly Global Economic Outlook (GEO) that despite significant financial market volatility, the global economic recovery is proceeding in line with its expectations, largely due to accommodative policy support in developed markets and continued emerging-market dynamism.
Fitch has marginally revised up its projections for world growth to 3.4% for 2010 (from 3.2%), 3.0% for 2011 (from 2.9%), and 3.3% for 2012 (from 3.0%) compared to the October edition of the GEO.
Accommodative policy measures extended by the US government have provided a boost to Fitch`s US growth outlook - these include the proposed extension of a number of tax measures, and the introduction of a second round of quantitative easing. Incoming data has also turned more positive (including strong GDP quarterly growth in Q310), reflecting strength in private consumption and corporate profitability. Consequently, Fitch has raised its US growth forecasts by 0.6% in both 2011 and 2012 to 3.2% and 3.3% respectively. Unemployment is now also expected by Fitch to moderate to 9.1% in 2011 and 8.7% in 2012. Despite the improved outlook, the agency`s view remains that the recovery will continue to be mild by historical standards in light of still weak labour and housing markets.
Persistently weak domestic demand continues to weigh on growth prospects in Japan in the medium term. Fitch has made only marginal revisions to its Japan forecasts, revising up expected 2010 GDP growth to 3.2% from 3% after Q310 growth came in at 1.1% against the agency`s expectation of 0.6%, while revising 2011 growth down to 1.5% from 1.6%.
Fitch has also marginally revised down its medium term forecast growth in the UK from 2.3% to 2.0% in 2011 and 2.6% to 2.4% in 2012, reflecting still weak consumer and business confidence in the context of heightened volatility in Europe and plans for fiscal consolidation at home. In the euro area, the agency has stated that although economic challenges facing the peripheral economies are significant, the severity of the market turmoil is not warranted by underlying fundamentals. Still, heightened volatility has eroded the growth outlook for a number of countries, resulting in a downward revision of some of Fitch`s growth forecasts in the area.
Conversely, the agency has revised up its outlook for Germany due to its view that secular growth is now emerging along with the expected cyclical rebound following the contraction in 2009. Overall, Fitch has marginally reduced its growth forecasts for the euro area to 1.7% in 2010 and 1.5% for 2011. For 2012, the agency has increased its growth outlook to 2.1%.
Emerging markets continue to outperform expectations and Fitch has raised its 2010 forecasts for China, Brazil, and India due to still buoyant economic growth. However, the agency has revised down its Russian forecast as the pace of recovery proved weak, partly as a result of the severe drought and heatwave in the summer. Fitch forecasts growth of 8.4% for these four countries (the BRICs) in 2010, and 7.4% for each of 2011 and 2012.
The December 2010 GEO outlines Fitch Rating`s baseline quarterly macroeconomic projections, with a special focus on the MAEs.

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06.12.2010 22:02 World Economy Review - November 2010

The United Nations warned that world growth in the next two years will not be enough to recover jobs lost in the financial crisis and that key countries could be heading for a double-dip recession.
The United States, Japan and major European economies are all at risk of a new recession, said a UN report which predicted the world economy will expand by 3.6 percent this year before falling to 3.1 percent in 2011 and 3.5 percent in 2012.
The World Economic Situation and Prospects 2011 report said the growth would be "far from sufficient" to recover the jobs lost in the financial and economic crises. At least 30 million jobs were lost between 2007 and 2009, and the report said it could take five years to create the 22 million needed to get back to pre-crisis employment levels.
"The road to recovery from the Great Recession is proving to be long, winding and rocky," said the annual UN survey, which predicted US growth will fall from 2.6 percent this year to 2.2 percent next year and then rise again to 2.8 percent in 2012. The US jobless rate may rise above 10 percent next year from the current 9.6 percent, the UN warned.
Recovery will continue to be driven by the emerging economic powers - China, India and Brazil - said the report. China`s growth will fall from 10.1 percent to 8.9 percent in 2011 before hitting the critical 9.0 percent target again in 2012. Japan`s output growth will fall from 2.7 percent this year to 1.1 percent in 2011 and then rise to 1.4 percent. India will go from 8.4 percent to 7.1 percent next year and then 7.3 percent in 2012. Brazil will go from 7.6 percent growth this year to just 4.5 percent in 2011 and then 5.2 percent in 2012.
The 16-nation Eurozone will fall from a predicted 1.6 percent this year to 1.3 percent in 2011 and then 1.9 percent, the report said. Britain`s economy will grow 1.8 percent in 2010, 2.1 percent next year and then 2.6 percent in 2012.
"The recovery of the world economy has started to lose momentum since the middle of 2010, and all indicators point at weaker global economic growth," said the report.
Meanwhile, GDP growth among the members of the Organization for Economic Cooperation and Development (OECD) has fallen to 0.6 per cent in the third quarter of 2010. This quarter`s result marks the sixth consecutive quarter of growth within the OECD. However, it is down on the 0.9 per cent growth recorded the previous quarter.
The Euro area and EU recorded overall slower levels of growth; GDP increased by 0.4 per cent, down on the 1.0 per cent recorded in the second quarter. Germany recorded growth of 0.7 per cent, down on 2.3 per cent growth experienced in the second quarter. GDP growth also decelerated in France (0.4 per cent), Italy (0.2 per cent) and the United Kingdom (0.8 per cent).
Growth rates rose in Japan (0.9 per cent) and the United States (0.5 per cent), compared with the previous quarter. In comparison with the year before, GDP in the OECD area has expanded by 3.1 per cent, equalizing the rate in the previous quarter.

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05.11.2010 14:56 World Economy Review - October 2010

International Monetary Fund Chief Economist Olivier Blanchard said Thursday the IMF still expects global growth of 4% to 5% this year and next, correcting comments he made in an interview earlier in the day. In remarks earlier, Blanchard had said world economic growth this year and next would be 3% to 4%. However, speaking in London Thursday evening, Blanchard said he had "made a mistake." "The number was just not right. It`s actually 4%-5% so I want to correct it," he said. "There has been no change in the forecast, just a slip of the tongue."
Blanchard praised the Federal Reserve decision to embark on a second round of quantitative easing, saying, "yes, I think it is worth doing" because of the substantial risks the U.S. economy faces. He said the direct impact may prove modest, with U.S. Treasury yields perhaps falling "about 10 to 20 basis points" and other borrowing rates falling less than this. However he said the "psychological effects" may be more effective, lifting inflation expectations and thereby reducing the risk of a deflationary cycle." He said "it`s very important that people continue to expect inflation."
He also said quantitative easing could result in some U.S. dollar depreciation and would likely contribute to the already huge capital inflows into emerging economies--something he said the Fed needed to take into account. Speaking on the global economy, Blanchard predicted that Japan "has a very tough time ahead of it," but that Germany`s growth may allow it to pull "away from the pack."
Blanchard said that the rebalancing of the economy is progressing "too slowly," with U.S. net exports unlikely to pick up much further and the Chinese trade surplus unlikely to shrink. He said significant rebalancing of the global economy--with emerging economies, like China, shifting toward greater domestic demand and currency appreciation, and the U.S. and other advanced economies exporting more--is key to a sustainable recovery.
Blanchard said ideally, emerging nations would allow some of the "explosion" of capital inflows push their currencies higher. However, he said the IMF agreed that there is a risk of "excessive" capital inflows that would be unhealthy. In that context, "it makes sense for countries to use macro-prudential tools and capital controls," he said.
On the U.S., Blanchard painted a bleak picture, saying that not only were net exports unlikely to rise much but that he also does not expect the U.S. housing market to "pick up any time soon." He said the high unemployment rate in the U.S. is causing "enormous problems" in a country unused to it. On Europe, Blanchard said the financial and sovereign debt challenges remain "substantial risks" but that the real economy is performing better than expected. He said fiscal consolidation in Europe and other advanced economies is going to be "a very tough slog."

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