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04.09.2014 14:25 World Economy Review - August 2014

The UK has edged up the global rankings in a major annual survey by the World Economic Forum (WEF). Its Global Competitiveness Report sees the UK rise one spot to ninth on the list, while Switzerland and Singapore retain first and second place. The US improved its competitiveness position for the second consecutive year, climbing two places to third.

But the WEF warns that the global economy`s health is at risk, despite years of monetary stimulus and reforms. Each year, the WEF, best known for its annual Davos economic meeting, benchmarks countries against 12 factors, including infrastructure, education and training, labour market efficiency, technological readiness and innovation. The aim is to produce a comparative picture of what is driving competitiveness, productivity, and prosperity in 144 countries.

The UK wins plaudits for adopting technology to enhance productivity, and for its general business environment. Finland (4th) and Germany (5th) both drop one place. Among emerging market economies, Saudi Arabia (24th), Turkey (45th), South Africa (56th), Brazil (57th), and India (71st) all fell in the rankings. But China (28th) rose one position.

The report said that that top-ranked countries had common factors driving competitiveness. "The leading economies in the index all possess a track record in developing, accessing and utilizing available talent, as well as in making investments that boost innovation. "These smart and targeted investments have been possible thanks to a coordinated approach based on strong collaboration between the public and private sectors," the report said.

In Europe, the report warns of a widening split between countries in the South and North. "While the divide between a highly competitive North and a lagging South and East persists, a new outlook on the European competitiveness divide, between countries implementing reforms and those that are not, can now also be observed," the WEF said.

The report also sounds a warning that the health of the global economy is at risk, despite years of what the WEF calls "bold monetary policy". It saw "uneven implementation of structural reforms across different regions and levels of development as the biggest challenge to sustaining global growth".

Klaus Schwab, founder and executive chairman of the WEF, added: "The strained global geopolitical situation, the rise of income inequality, and the potential tightening of the financial conditions could put the still tentative recovery at risk and call for structural reforms to ensure more sustainable and inclusive growth."

Russia has reached the 53rd place against the 64th place out of 144 countries in the global competitiveness rating of the World Economic Forum (WEF), but repercussions of the situation in Ukraine may worsen the country`s rank. The jump is attributed to some improvements linked with efficiency of the local market of goods and services, exploitation of information and communications technologies and separate competitiveness of local companies, according to the report.

Russia`s economy has been experiencing a great number of deep-rooted problems that must be solved to raise the country`s competitiveness. Among the most serious problems, the forum`s senior economist Benat Bilbao-Osorio highlighted the existence of monopolies and oligopolies, which prevents other companies from entering the market, and insufficient investments into innovative development.

The Ukrainian conflict may have considerable negative influence on the level of competitiveness of both economies of Russia and Ukraine due to their size and importance, Bilbao-Osorio said, commenting on the report. Ukraine was ranked 76th, up from 68th.

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04.08.2014 19:56 World Economy Review - July 2014

The International Monetary Fund has cut its global economic growth forecast for 2014 because of weakness in the world`s two biggest economies. The IMF says the global economy will grow by 3.4 per cent this year, down from its April forecast of 3.7 per cent. The IMF expects global growth to accelerate to 4.0% in 2015.

The revision reflects a weak first quarter in the US which makes up almost a quarter of global GDP. The IMF now expects the US economy to grow at 1.7 per cent in 2014, which would be the weakest rate since the country`s recession officially ended five years ago. That is down from its April prediction of 2.8 per cent, mostly because of a severe cold snap in the first quarter. The US economy shrank at an annual rate of 2.9 per cent in the first three months of the year.

IMF chief economist Olivier Blanchard says it is unlikely that weakness will be repeated. "It looks like a one off ... which is due to an unusually harsh weather," he said. "So factors which do not have obvious implications for the future, but just explain why growth was so bad in that quarter."

The IMF`s forecast for China has also been lowered to 7.4 per cent from 7.6 per cent, with problems in the country`s housing market noted. Among the so-called BRICS countries of Brazil, Russia, India, China and South Africa, India was the only one to avoid a downgrade.

Among those developing economies, the biggest reduction was for Russia`s growth, as a result of investors pulling money out of the country because of its involvement in the conflict in Ukraine. Russia`s economy is now expected to grow at a rate of 0.2 per cent from 1.3 estimated previously.

Dr Blanchard says the IMF`s Russia forecasts exclude the effects of recent sanctions the US has imposed on the country. "These sanctions could probably further decrease the growth rate of Russia," he said.

The IMF said there were bright spots in the global economy which included growth pick-ups in Japan, Germany, Spain and the United Kingdom. The organization expects the Euro area to expand 1.1%, and Japan to gain 1.5%.

However, the fund says geopolitical risks from the crises in the Middle East and Ukraine could dent growth further and hinder the global recovery. "Robust demand momentum has not yet emerged despite continued very low interest rates and easing of brakes to the recovery, including from fiscal consolidation or tight financial conditions," the IMF said.

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07.07.2014 16:55 World Economy Review - June 2014

The World Bank cut its global growth forecast amid weaker outlooks for the US, Russia and China, while calling on emerging markets to strengthen their economies before the Federal Reserve raises interest rates.

The Washington-based lender predicts the world economy will expand 2.8% this year, compared with a January projection of 3.2%. The US forecast was reduced to 2.1% from 2.8%, while outlooks for Brazil, Russia and China were also lowered. The setbacks may be temporary: the 2015 estimate for world economic growth was unchanged at 3.4%.

The global economy got off to a bumpy start this year buffeted by poor weather in the US, financial market turbulence and the conflict in Ukraine, the World Bank said in its Global Economic Prospects report. Despite the early weakness, growth is expected to pick up speed as the year progresses.

Developed economies, where domestic demand is improving as fiscal pressure eases and labour markets recover, are providing the global expansion with momentum just as their developing counterparts fail to accelerate. The bank is projecting growth in China and Brazil will slow this year from 2013.

In the report, the World Bank warned emerging markets that the next bout of financial unrest may catch them off guard, recommending smaller budget deficits, higher interest rates and measures to boost productivity.

In the US, Fed policy makers have indicated that they expect the benchmark interest rate, which has been near zero since December 2008, will remain low at least until next year. Over the past year, emerging-market assets have recovered from two sell-off periods, including one after the Fed first indicated in May 2013 plans to trim US monetary stimulus. The extra yield investors demand to hold dollar-denominated debt in developing nations over US. Treasuries has since decreased to the lowest since January 2013.

That recovery is giving countries a respite to strengthen their economies before the inevitable increase in borrowing costs that will follow the Fed`s interest-rate increase, said World Bank economist Andrew Burns, the lead author of the report.

Our advice to these countries is `listen, you`ve got a window here of a year, let`s see what we can do to reduce those vulnerabilities between now and then so that when it does come, you don`t get caught up in the overall problem, he said in an interview.

The bank cut its 2014 forecast for Russia`s growth to 0.5% from a January prediction of 2.2%. It sees Ukraine contracting 5%. A sharp escalation of tensions in Ukraine poses acute risks to the global economy, according to the report. These could operate through a number of channels, including through commodity and financial linkages.

The bank maintained its forecast this year for the euro-area, which is still recovering from its debt crisis, at 1.1%. The forecast for Japan was trimmed to 1.3% from 1.4%. For 2015, the bank raised its predictions for the US, the euro area and Japan, which the bank said could underpin growth in emerging markets.

Still, many developing countries are already growing at a pace close to their potential and face capacity constraints, while others will be hurt by lower commodity prices, according to the bank. As a group, they are projected to grow 4.8% this year, compared with 5.3% forecast in January, the bank said.

The development-aid institution also cut its outlook for Brazil`s expansion to 1.5% from 2.4%. China`s expansion was lowered to 7.6% growth from 7.7%, the bank`s report showed. The bank lowered India`s GDP growth forecast for 2014 to 5.5% compared with 6.2% estimated in January.

Growth rates in the developing world remain far too modest to create the kind of jobs we need to improve the lives of the poorest 40%, World Bank President Jim Yong Kim said in a press release. Clearly, countries need to move faster and invest more in domestic structural reforms to get broad-based economic growth to levels needed to end extreme poverty in our generation.

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10.06.2014 14:53 World Economy Review - May 2014

The United Nations slightly lowered its forecasts for global economic growth in 2014 and 2015 citing a variety of reasons including the exceptionally cold winter in the United States, the escalating political crisis in Ukraine, and financial turbulence earlier this year. The new forecasts predict economic growth of 2.8 percent in 2014 and 3.2 percent in 2015, down from U.N. forecasts in December of 3 percent growth this year and 3.3 percent growth next year.

Pingfan Hong, the head of the U.N.`s Global Economic Monitoring Unit, told a news conference launching the report that more than five years after the financial crisis, the world economy has not recovered back to running at full capacity. Hong said one reason the U.N. lowered its forecasts was because it did not take into account the colder than usual winter in North America, which significantly impeded economic activity in the United States. Nonetheless, the U.S. forecasts remained unchanged - 2.5 percent in 2014 and 3.2 percent in 2015.

The escalating political crisis in Ukraine and Russia`s takeover of Crimea also had an impact on the U.N. forecast because they seriously hurt Ukraine`s economy and sparked a massive outflow of capital from Russia, and further weakened business and consumer confidence in the country, the report said. Ukraine`s economy was initially projected to grow by 2.1 percent this year, but the new forecast projects that it will shrink by 2 percent. Russia`s economy, which had been expected to grow by 2.9 percent this year, will also be hard-hit, with the new forecast projecting just 1 percent economic growth.

Hong said the U.N. had also largely discounted the impact of the U.S. Federal Reserve`s decision to taper its bond-buying stimulus program, which had injected more than $2 trillion into financial markets since late 2008 and kept borrowing costs down. The impact on the growth of a few emerging economies was larger than we anticipated, he said.

Hong said one of the key risks for continued global growth and financial stability is the possible shock to the world economy when the Federal Reserve phases out the program, which the U.N. expects in late 2014, and then starts increasing interest rates, which the U.N. expects to start in mid-2015.

The report cites other risks including vulnerabilities in emerging economies, fragilities in European countries using the euro currency, geopolitical tensions in many parts of the world, extreme climates, and environmental disasters. According to the report, for the first time since 2011, the developed economies of North America, Europe and Asia are all expected to grow in the next two years, with overall growth projected at 2 percent in 2014 and 2.4 percent in 2015.

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06.05.2014 17:17 World Economy Review - April 2014

In a matter of six years, India emerged as the world`s third-largest economy in 2011 from being the tenth largest in 2005, moving ahead of Japan, while the US remained the largest economy closely followed by China, latest figures have revealed.
The economies of Japan and the UK became smaller relative to the US, while Germany increased slightly and France and Italy remained the same, according to data released today by the International Comparison Program (ICP), hosted by the Development Data Group at the World Bank Group.
The relative rankings of the three Asian economies - China, India, and Indonesia - to the US doubled, while Brazil, Mexico and Russia increased by one-third or more, the report said. The world produced goods and services worth over USD 90 trillion in 2011 and that almost half of the total output came from low and middle-income countries, it said.
According to the major findings of the ICP, six of the world`s 12 largest economies were in the middle-income category (based on the World Bank`s definition). When combined, the 12 largest economies accounted for two-thirds of the world economy and 59 per cent of the population, it said.
The purchasing power parities (PPPs)-based world GDP amounted to USD 90,647 billion, compared with USD 70,294 billion measured by exchange rates, it said, adding that the share of middle-income economies in global GDP is 48 per cent when using PPPs and 32 per cent when using exchange rates.
The six largest middle-income economies - China, India, Russia, Brazil, Indonesia and Mexico - account for 32.3 per cent of world GDP, whereas the six largest high-income economies - US, Japan, Germany, France, UK and Italy - account for 32.9 per cent, the report said.
Asia and the Pacific, including China and India, account for 30 per cent of world GDP, Eurostat - OECD 54 per cent, Latin America 5.5 per cent (excluding Mexico, which participates in the OECD and Argentina, which did not participate in the ICP 2011), Africa and Western Asia about 4.5 per cent each.
China and India make up two-thirds of the Asia and the Pacific economy, excluding Japan and South Korea, which are part of the OECD comparison. Russia accounts for more than 70 per cent of the CIS, and Brazil for 56 per cent of Latin America. South Africa, Egypt, and Nigeria account for about half of the African economy, said the report.
At 27 per cent, China now has the largest share of the world`s expenditure for investment (gross fixed capital formation) followed by the US at 13 per cent. India, Japan and Indonesia follow with 7 per cent, 4 per cent, and 3 per cent, respectively, the report said. China and India account for about 80 per cent of investment expenditure in the Asia and the Pacific region. Russia accounts for 77 per cent of CIS, Brazil for 61 per cent of Latin America and Saudi Arabia 40 per cent of Western Asia, it said.
The report said low-income economies, as a share of world GDP, were more than two times larger based on PPPs than respective exchange rate shares in 2011. Yet, these economies accounted for only 1.5 per cent of the global economy, but nearly 11 per cent of the world population. Roughly 28 per cent of the world`s population lives in economies with GDP per capita expenditure above the USD 13,460 world average and 72 per cent are below that average.
The approximate median yearly per capita expenditure for the world - at USD 10,057 - means that half of the global population has per capita expenditure above that amount and half below, it said. The five economies with the highest GDP per capita are Qatar, Macao, Luxembourg, Kuwait and Brunei. The first two economies have more than USD 100,000 per capita, the ICP report said.
Eleven economies have more than USD 50,000 per capita, while they collectively account for less than 0.6 per cent of the world`s population. The US has the 12th highest GDP per capita. Eight economies - Malawi, Mozambique, Central African Republic, Niger, Burundi, Congo, Dem. Rep., Comoros and Liberia have a GDP per capita of less than USD 1,000. The five economies with highest actual individual consumption per capita are Bermuda, US, Cayman Islands, Hong Kong and Luxembourg. The world average actual individual consumption per capita is approximately USD 8,647, it said.

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