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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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09.10.2010 16:52 World Economy Review - September 2010

The global economy will grow slightly more slowly than previously expected next year, the International Monetary Fund (IMF) has said. It predicted GDP would increase by 4.2% in 2011, down from an earlier forecast of 4.3%. And while economic recovery was likely to continue, it warned that risks were high. There are worries that as governments try to reduce their debt burdens and cut spending, growth may suffer.
The IMF also said that the global financial system remained the weak link in the economic recovery. It predicted a gradual improvement in the financial system, but added that there was a substantial risk of further problems.
The latest report, the IMF`s World Economic Outlook, highlighted the difference in growth expected in the advanced and emerging economies.
In advanced economies - including the US, the UK, Japan and key EU nations - it said that the financial sector was "still vulnerable to shocks", adding that "growth appears to be slowing" as government stimulus efforts began to be withdrawn. This would lead to growth of 2.8% in 2010 and 2.2% next year - from an earlier prediction of 2.4%.
However, economic growth in what it classes as emerging and developing economies - which include Brazil, Russia, India and China - will be 6.4% next year, it said, unchanged from earlier predictions. This year it is expecting growth of 7.1%, slightly better than previously stated.
The IMF forecast was prepared for the annual autumn meeting it holds with the World Bank. It said that while its prediction of 2.6% growth for the US in 2010 was historically weak in the aftermath of a recession, it was a vast improvement on the 2.6% decline in US economic activity in 2009.
And it said growth prospects were weaker in Europe - with the 16 nations in the Eurozone set to see their economies average 1.7% growth this year and 1.5% in 2011.
The report also suggested that there were more than 210 million people across the globe who are unemployed - an increase of more than 30 million since 2007.

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04.09.2010 14:12 World Economy Review - August 2010

The number of unemployed the world over has reached an all-time high. According to the International Monetary Fund and International Labour Organization, 210 million people are currently redundant. Unemployment growth is basically due to the world financial crisis. According to experts, some 440 million new jobs will be required in the next decade to resolve the problem.
The number of young unemployed across the world has soared to a record high and is likely to climb further this year, a United Nations agency reported Thursday, amid a U.S. government report that that jobless claims in America jumped to five-month high.
The International Labor Organization said in its 2010 report that out of 620 million youths ages 15 to 24 in the global work force, 81 million were unemployed at the end of 2009, and warned of a lost generation as more youths lose hope of finding work. The youth unemployment rate increased from 11.9 percent in 2007 to 13.0 percent in 2009, the report said.
According to International Labor Organization projections, the global youth unemployment rate is expected to continue its increase through 2010, to 13.1 percent, followed by a moderate decline to 12.7 percent in 2011.
The report found that unemployment has hit youths harder than adults during the financial crisis and that the recovery of the job market for young men and women is likely to lag behind that of adults.
Unemployment can have a long-term negative effect on young people and can be costly for governments, the report said. The crisis is an opportunity to re-assess strategies for addressing the serious disadvantages that young people face as they enter the labor market, it said.
The report also estimated that 152 million young people, or about 28 percent of all the young workers in the world, worked but remained in extreme poverty in households surviving on less than $1.25 (in U.S. dollars) per person per day in 2008.
The result is that the number of young people stuck in working poverty grows and the cycle of working poverty persists through at least another generation, said Juan Somavia, director-general of the International Labor Organization.

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08.08.2010 14:32 World Economy Review - July 2010

The International Monetary Fund says the U.S. financial system is "slowly recovering," but remains vulnerable to crisis, in part because Congress and the administration have failed to streamline a regulatory system marked by turf battles and overlapping responsibilities. "We asked many times why bolder action could not be undertaken," said the IMF`s Christopher Towe, who oversaw the agency`s first broad review of the U.S. financial sector.
Administration officials have argued that proposals to eliminate regulatory agencies would have become bogged down in Congress, saying higher priorities included a procedure to shut systemically important institutions that run into deep trouble.
The IMF said the U.S. system, where the Federal Reserve, Federal Deposit Insurance Corp., and state regulators share responsibility for regulating U.S. banks, and where the Commodities Future Trading Commission and Securities and Exchange Commission tussle over regulating futures markets, made coordinating oversight and uncovering new risks difficult.
The new Financial Stability Oversight Council, charged with uncovering and defusing systemic risks, could also be hampered, the IMF said.
A senior Treasury official said the administration`s financial overhaul improved oversight by making "regulator shopping" nearly impossible, as the Fed has the lead role in overseeing systemically significant institutions.
The IMF also conducted a stress tests of banks in the U.S., though it didn`t grade individual institutions. Its simulation found that if the U.S. economy fell into recession again, banks overall could have to raise as much as $76 billion to have an adequate capital cushion.
"The numbers are not frightening," said Mr. Towe, but they suggest "supervisory agencies need to be mindful" of lurking problems.
The Treasury official said the IMF largely pointed out problems in regional and smaller banks that have heavy exposure to commercial real-estate loans. In adverse circumstances, regional banks would have to raise a total of $8 billion to $13 billion, which he called a "drop in the bucket" compared with the more than $200 billion raised by U.S. banks since the U.S. Treasury carried out its own stress tests last year.

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