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07.11.2013 18:17 World Economy Review - October 2013

Global growth is still in low gear and the drivers of growth are shifting, says the IMF`s latest World Economic Outlook (WEO) report. The IMF forecasts global growth to average 2.9 percent in 2013 - below the 3.2 percent recorded in 2012 - and to rise to 3.6 percent in 2014.
Much of the pickup in growth is expected to be driven by advanced economies. Growth in major emerging markets, although still strong, is expected to be weaker than the IMF forecast in its July 2013 WEO Update. This is partly due to a natural cooling in growth following the stimulus-driven surge in activity after the Great Recession. Structural bottlenecks in infrastructure, labor markets, and investment have also contributed to slowdown in many emerging markets.
This transition is leading to tensions, with emerging market economies facing both the challenge of slowing growth and changing global financial conditions, said Olivier Blanchard, the IMF`s chief economist and head of the Research Department.
Indeed, these growth transitions, combined with an approaching turning point in U.S. monetary policy, have led to new challenges and risks. In particular, long-term interest rates in the United States and many other economies have increased more than expected. Although the U.S. Federal Reserve recently decided to not slow the pace of its asset purchases yet and capital outflows from emerging markets have subsided somewhat, bond yields remain well above levels of early May. And there is a distinct risk that financial conditions will tighten from their current, still supportive levels.
In the United States, the projections are based on the key assumption that the ongoing shutdown in the federal government will be short-lived and the debt ceiling will be raised on time. Growth is expected to rise from 1,5 percent this year to 2,5 percent in 2014 driven by continued strength in private demand, which is supported by a recovering housing market and rising household wealth.
In the euro area, policy actions have reduced major risks and stabilized financial conditions, although growth in the periphery is still constrained by credit bottlenecks. The region is expected to gradually pull out of recession, with growth reaching 1 percent in 2014.
In Japan, fiscal stimulus and monetary easing under the authorities` new policy package - the so-called Abenomics - has enabled an impressive rebound in activity. But the expected unwinding of fiscal stimulus and reconstruction spending together with consumption tax hikes will lower growth from 2 percent this year to 1,25 percent in 2014.
In China, growth is projected to decelerate slightly from 7,5 percent this year to 7,25 percent in 2014. Policymakers have refrained from stimulating activity amid concerns for financial stability and the need to support a more balanced and sustainable growth path.
Overall, growth in emerging market and developing economies is expected to remain strong at 4,5-5 percent in 2013-14, supported by solid domestic demand, recovering exports, and supportive fiscal, monetary and financial conditions. Commodity prices will continue to boost growth in many low-income countries, including those in sub-Saharan Africa. But economies in the Middle East and North Africa, Afghanistan, and Pakistan region will continue to struggle with difficult economic and political transitions.

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07.10.2013 13:29 World Economy Review - September 2013

Fitch international ratings agency revised outlook for global GDP growth in 2013 downwards, Global Economic Outlook report published by the agency said. "The agency`s experts forecast global GDP growth in 2013 at 2.3 percent, which is 0.1 percent lower than the expected outlook for June of this year. In 2014, the global GDP growth will amount to 2.9 percent, decreasing by 0.2 percent in comparison to the previous outlook," report said.
The agency left the same outlook for 2015 unchanged and in particular, Fitch expects global GDP growth of 3.2 percent. "The outlook revision was caused by softer data from the U.S., than it was expected, as well as lowering of outlooks for most emerging markets, which indicates the increasing influence of developing countries in the global economy," the document said.
Alongside with this, the agency`s experts, underscored that the dynamics of growth of the world economy will improve in the second half of 2013 and in 2014. "GDP in most developed world economies will grow on average by 0.9 percent in 2013, by 1.8 percent in 2014, as well as by 2.1 percent in 2015," the report said.
Fitch has trimmed its forecast of the US economy from 1.9 per cent to 1.6 per cent on the back of recent data revisions and mixed economic indicators in the third quarter. US growth is expected to strengthen to 2.6 per cent in 2014 and 3 per cent in 2015.
In Japan, the agency says GDP growth could be as high as 1.8 per cent for 2013 aided by a short-term buoying caused by the reflationary `Abenomics` strategy. However, it is likely to moderate to 1.5 per cent in 2014 and 1.2 per cent in 2015 as momentum slows.
Looking to emerging markets, Fitch has downgraded its outlook for all four of the so-called Bric economics of Brazil, Russia, India and China. For example, the Chinese economy is tipped to expand by 7.5 per cent this year while Indian growth is viewed as coming in at just 4.8 per cent. Higher interest rates and less buoyant capital inflows will complicate policy trade-offs in many emerging markets, adding to growth strains from domestic structural bottlenecks, declining returns on investment and China`s rebalancing, Fitch says.
Fitch confirmed the expectations on lowering the prices for oil to $105 and $100 per barrel in 2013 and 2014 respectively, and kept the forecasted price per barrel of oil in 2015 at the level of $100.

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11.09.2013 16:54 World Economy Review - August 2013

The OECD trimmed its growth forecasts for China and the United States, warning that lasting recovery is still not firmly on its feet despite a rebound in some countries. A central risk to recovery is how the U.S. Federal Reserve bank winds down its easy-money policies, the OECD said, a concern which has already upset several emerging economies.
Central banks that have provided stimulus need to maintain their lax monetary policies for some time, it advised. "The pace of recovery in the major advanced economies improved in the second quarter and growth is expected to be maintained at a similar rate in the second half of the year," the Organization for Economic Cooperation and Development said. "Activity is expanding at encouraging rates in North America, Japan and the United Kingdom, while the euro area as a whole is no longer in recession," it added.
Nevertheless, it said that the U.S. economy would probably grow 1.7% this year, compared to its forecast of 1.9% in April, after taking into account the latest data. Japan`s forecast was unchanged at 1.6%. Growth for Britain was raised to 1.5% from 0.8%; Germany`s increased to 0.7% from 0.4%; and France`s forecast flipped to 0.3% growth from 0.3% contraction. "While the improvement in growth momentum in OECD economies is welcome, a sustainable recovery is not yet firmly established and important risks remain," it added.
The OECD now sees the economy of China, which is not part of the 34-nation group of advanced economies, growing 7.4% instead of 7.8%. "Growth in China has seemingly already passed the trough and looks set to recover further in the second half of 2013, although the expansion is still expected to be more subdued than in earlier cycles," said the OECD. It also pointed to the perils of the scaling back of U.S. monetary stimulus, which has led to capital outflows from emerging countries and tightening of financial conditions in much of the global economy.
"As emerging economies contributed the bulk of global economic growth in recent years, and since their share of global output has increased so much, this widespread loss of momentum makes for sluggish near-term growth prospects for the world economy," said the OECD. "There is a risk that the financial market volatility and strong capital outflows in recent months in some emerging economies could intensify, exerting an additional drag on growth," it added.
Easy-money policies from central banks that have propped up demand are needed a while longer, said the OECD. "It is necessary to continue to support demand, including through unconventional monetary policies, in order to minimize the risk of the recovery being derailed," it said in its Interim Economic Assessment.
The OECD endorsed the Federal Reserve`s plans to begin gradually reducing the monetary stimulus it injects into the U.S. economy from its current level of $85 billion per month. It said Japan should keep up its stimulus efforts until deflation ends, while the eurozone should be ready to undertake further monetary easing if the recovery fails to take hold.
The OECD said the European Central Bank may need to undertake measures to boost sluggish lending such as "providing direct incentives to banks to extend credit to the real economy." Despite subdued inflationary pressures in China, the OECD recommended caution over monetary easing if growth slows due to the fast increase in lending.

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04.08.2013 15:21 World Economy Review - July 2013

Europe`s factories delivered more signs last month the region is gradually leaving recession behind, according to business surveys that also eased immediate fears over the health of China`s economy. The purchasing managers indexes (PMIs), surveying thousands of manufacturers worldwide, showed output in British factories surged in July, and industrial activity in the eurozone rose for the first time in two years.
US factory activity expanded in July at the fastest pace in two years, fuelled by surges in new orders, production and hiring. The gains show manufacturing is rebounding and should provide a spark to growth in the coming months. The Institute for Supply Management says its index of factory activity jumped to 55.4 in July, up from 50.9 in June. A measure of employment rose to its best level in a year. And a gauge of production soared 11.6 points to 65, the highest point since May 2004.
Overall, the European and Chinese PMIs allayed worries the global economy`s mid-year lull will deepen from here, although that view could hinge on how many jobs the US economy - still the global driver - added last month. We`re seeing different trends in different parts of the world, which are to a large extent offsetting each other, said Andrew Kenningham, senior global economist at Capital Economics in London. The eurozone has clearly improved... over the last six months or so, and the survey data in July was pointing to more or less flat GDP and possibly some growth in the third quarter.
Markit`s UK manufacturing PMI jumped to 54.6 in July from 52.9 in June, trumping even the most optimistic forecast in a Reuters poll of economists and triggering a rise in sterling. Readings above 50 signify growth. Markit`s eurozone manufacturing PMI signalled marginal growth among factories for the first time in two years, also rising to 50.3 in July from 48.8. It follows a string of promising economic data out of the eurozone, which has wallowed in recession since the end of 2011.
Manufacturing output rose again in Germany, Italy, the Netherlands and Ireland during July, while there were welcome returns to growth for France and Austria, said Rob Dobson, senior economist at PMI compiler Markit.
In China, the official government factory PMI was a little stronger than expected in July, offering a rare bright spot in an otherwise sluggish Asian manufacturing sector. Although the China PMI surprised and gave a boost to regional share prices and commodities, it also signaled only a modest pace of growth. A rival report from HSBC was much more gloomy, showing factory activity fell to its lowest in nearly a year. China`s official PMI rose to 50.3 in July, contrary to expectations that it would fall to 49.9 from 50.1 in June. The HSBC PMI, compiled by Markit, fell to 47.7 in July, the weakest reading since August 2012, from 48.2 in June.
Elsewhere in Asia, other PMI reports suggested factory output and new orders falling in July in India, South Korea and Taiwan. In Indonesia, a PMI report signaled that output and new orders were holding at similar levels to June.

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02.07.2013 23:35 World Economy Review - June 2013

The World Bank cut its forecasts for this year, citing a deeper than expected recession in Europe and a slowdown in China and India. Renewing fears about growth, it said the global economy was likely to grow by 2.2% this year, a downgrade from its January forecast of 2.4%.
The downbeat forecasts helped to drive a wave of selling in Japan, where the Nikkei index tumbled 6.35% amid fears that central bank stimulus measures led by the US might be withdrawn. The World Bank also cut its forecast for growth in 2014 to 3.1% from 3%, but maintained its prediction that global GDP would increase by 3.3% in 2015.
"While there are markers of hope in the financial sector, the slowdown in the real economy is turning out to be unusually protracted," said Kaushik Basu, senior vice-president and chief economist at the bank. "This is reflected in the stubbornly high unemployment in industrialized nations, with unemployment in the eurozone actually rising, and in the slowing growth in emerging economies."
Michael Hewson, senior market analyst at CMC Markets UK, a financial spread-betting company, said: "European markets have plunged on the open in the wake of the 6.35% decline in the Nikkei overnight as investors continue to worry about the longevity of central bank stimulus measures, while another global growth downgrade from a global organization, this time the World Bank, has prompted investors to question current stock market valuations."
The bank is now predicting the eurozone economy will shrink by 0.6% this year, compared with an earlier forecast of a 0.1% decline in GDP. The currency bloc`s economy is then expected to grow by 0.9% in 2014 and 1.5% in 2015.
The World Bank highlighted slowing growth in China, as authorities there seek to rebalance the economy, and said India`s annual growth had dropped below 6% for the first time in 10 years. It said there was concern that the US might begin to ease its support of the world`s largest economy by withdrawing quantitative easing, or the use of central bank cash to buy up sovereign debt in the hope that financial institutions will reinvest the windfall in the wider economy.
The bank added that austerity programs, high unemployment, and weak consumer and business confidence would continue to impede growth in higher-income countries.
It downgraded its forecasts for developing countries` GDP to 5.1% this year from an earlier forecast of 5.5%. Growth in 2014 and 2015 is expected to be 5.6% and 5.7% respectively.

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