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07.04.2013 18:51 World Economy Review - March 2013

The International Monetary Fund (IMF) is planning to cut its U.S. growth forecast for this year due to higher taxes and spending cuts, Italian news agency ANSA said, citing a draft of the IMF`s next World Economic Outlook report. The U.S. economy, the world`s biggest, will expand 1.7 percent this year, down from the 2.0 percent predicted in January, ANSA reported. The next round of IMF forecasts is scheduled to be published in mid-April.
Higher tax rates for wealthy Americans and $85 billion in government spending cuts known as the "sequester" are slowing growth this year, but the U.S. economy will still expand 3 percent in 2014 as previously forecast, the draft report said, according to ANSA.
The world economy will expand 3.4 percent in 2013, down from a previous forecast of 3.5 percent, and Japan will grow 1.5 percent, up from 1.2 percent previously, the report said. In 2014, Japan will expand 1.1 percent compared with 0.7 percent previously, and the UK will grow by 1.8 percent, down from 1.9 percent in the last forecast, it added.
Forecasts for the main euro zone countries and for the euro zone as a whole were unchanged from January, according to the report, which cited Italian political uncertainty and tighter fiscal policy in the United States as risks to growth. Italian elections held a month ago gave no single group a working majority in parliament, leaving the euro zone`s third-largest economy in limbo as the bank crisis in Cyprus renews fears of an outbreak of market turmoil in the currency bloc.
The global economy is facing "new risks and old perils persist," the IMF draft report said, according to ANSA, adding: "in the short term key risks are related to developments in the euro zone, including the uncertainty tied to the results of the Italian elections, and to budget policy in the U.S."
Despite the fiscal head winds of higher payroll taxes and government spending cuts, the U.S. economy is set to grow 3.5% in the first quarter of 2013, according to a new forecast that was published by the Organization for Economic Cooperation and Development, a group of mainly advanced economies.
The latest OECD forecast sees U.S. GDP growth in the second quarter slipping back to 2% as fiscal spending cuts weigh on the economy. Still, the near-term outlook for the U.S., as well as some other major economies, has brightened in recent weeks.
The OECD predicted that Japan`s economy, the world`s third largest, would expand 3.2% in the first quarter, thanks to fiscal and monetary stimulus. Germany, the fourth-biggest economy, is expected to rebound as well, with its GDP advancing 2.3% in the first quarter, even as several other major Eurozone countries remain stuck in the mud. China, the world`s second-largest economy behind the U.S., is likely to grow well above 8% in the first half of this year, the OECD said.

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02.03.2013 18:11 World Economy Review - February 2013

The International Monetary Fund (IMF) slightly lowered its forecast for global economic growth in 2013 to 3.5% (versus 3.6% forecast in October), and in 2014 to 4.1% (vs. 4.2% in October). The growth rate in 2012 stood at approximately 3.2%. In reference to the expected moderate growth in the next year, said the chief economist of the IMF: It`s clear that financial markets are ahead of the real economy. The question is whether they are too much ahead or not What we know is that it always takes some time for financial markets` optimism to feed to the real economy and at this stage there are still obstacles to it.
The IMF economists estimate that the Eurozone`s economy will contract in 2013 by 0.2%, compared to the previous forecast (October) of a 0.2% growth. The IMF warned that the Eurozone still poses a major risk to global economy. Nonetheless, they predict that the economic situation will improve and that in 2014 the Eurozone`s economy will grow by 1%.
The IMF economists slightly cut their forecast for the U.S. economic growth in 2013 to 2% (vs. 2.1% forecast in October), but, at the same time also raised their economic growth forecast for 2014 to 3% (vs. 2.9% forecast in October). The fund said: U.S. politicians have to insure that the country gets through the debates regarding raising the debt ceiling without severe fiscal restraints. Politicians must agree on a credible medium-term fiscal consolidation plan, focused on entitlement and tax reform.
The IMF did not change their estimates regarding the Chinese economy a growth of 8.2% this year and 8.5% in 2014. The fund`s chief economist said that It`s not the rates that we saw before the crisis, but these rates are long gone, but added that things are generally fine.
To summarize the global economic situation we note the phrase that the IMF managing director, Christine Lagarde, has coined: We stopped the collapse, we should avoid the relapse, and it`s not time to relax.

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03.02.2013 19:07 World Economy Review - January 2013

With GDP growth forecast at 3.5% for 2013, up from 2.7% last year, Latin America`s contribution to global growth will rise to 9% this year from the 8.4% average in 2009-11, Deutsche Bank said in a report. The investment bank is forecasting the region to show strong and stable growth generally this year thanks to supportive demographics and balanced fiscal policies.
But while Chile, Colombia and Peru will continue to deliver stable growth, Brazil`s growth will remain disappointing unless more effective steps to boost investment and competitiveness are taken. As for Argentina and Venezuela, Deutsche Bank is forecasting more of the same in 2013: high inflation, loose policies, political risk and social unrest. The investment bank is also projecting the region`s GDP growth to accelerate to 3.9% in 2014.
Even though the share of global GDP in developed markets (DMs) and emerging markets (EMs) is broadly balanced (52% compared to 48%), the latter will remain the engine for growth in 2013, Deutsche Bank said. At 5.4%, over 80% of global growth in 2013 will come from EMs, with 62% from EM Asia alone (39% from China and 5% from India).
In turn, the CEEMEA region (Central Eastern Europe, the Middle East and Africa), will expand 3.5% this year, thus accounting for 12% of global growth. In DMs, only the US will make a significant contribution. Deutsche Bank is forecasting DMs and US growth at 1% and 2%, respectively, in 2013.
The investment bank is forecasting global growth of 3.2% for this year compared to 2.9% in 2012. "2013 will likely mark the dawn of the post-crisis era," the report reads.
"While structural long-term issues such as high debts across the developed world and unbalanced growth models in emerging economies remain unsettled, 2013 could be a year of stabilization after years of crisis-fighting. Supporting this view is the fact that global growth appears to be bottoming out and looks set to begin a slow ascent back to trend levels in the second half of 2013."
And while a return to stronger growth in US and Europe will increase DMs` contribution, EMs will still account for around 75% of growth in 2014, according to Deutsche Bank.
Deutsche Bank (DB) also cut its forecast for U.S. crude by 10% to $90 a barrel for the first quarter of 2013, citing increasing supply from the U.S. and lower expectations for global growth. For 2013, the bank expects U.S. crude to average $96.25 a barrel, 8.1% lower than the previous forecast in October, and Brent crude to average $112.50 a barrel, 0.9% lower than the previous forecast. Brent will average the first quarter at $108 a barrel, the note said.
"Given expectations for robust U.S. oil supply growth, the global oil balance implies that if OPEC doesn`t curb production significantly, implied inventory builds in first-half 2013 could be sizable," said Deutsche Bank.
OPEC`s next meeting is May 31, but the bank could act unofficially to change the production ceiling before that. Still, Deutsche Bank said it expects a rebound in growth over the coming six months, of which energy, industrial metals and bulk commodity sectors will be the major beneficiaries. This growth in global economy should be positive for oil demand, with the U.S. expected as a modest growth engine this year and China forecast to return to potential growth rates by the second half of 2013.

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30.12.2012 19:38 World Economy Review - December 2012

Fitch Ratings says that the contraction of the eurozone and Japanese economy as well as weaker than expected growth in large emerging countries such as Brazil and India in Q312 highlight the underlying weakness and downside risks facing the global economy. In its latest quarterly Global Economic Outlook (GEO) Fitch forecasts global growth of 2.0% in 2012, 2.4% in 2013 and 2.9% in 2014 (based on market exchange rates), down from 2.1%, 2.6% and 3.0% respectively in the previous GEO.
The agency forecasts growth of just 0.9% for major advanced economies (MAE) in2012, followed by only a modest and gradual acceleration to 1.2% in 2013 and 1.9% in 2014. "Global growth outturns are continuing to undershoot expectations and risk remain skewed to the downside. Although forceful ECB intervention has eased tail risks in the eurozone, it has so far failed to arrest economic stagnation, the looming `fiscal cliff` could tip the US economy into recession, and China faces a challenging transition towards a more balanced growth model," says Gergely Kiss, Director in Fitch`s Sovereign team.
The growth of the US economy accelerated in Q312, but the near-term outlook is complicated by the effect of Hurricane Sandy and the looming `fiscal cliff`. Fitch`s baseline assumption is that the `fiscal cliff` will be avoided, but a fiscal tightening of 1.5% of GDP will materialize. Fitch has maintained its 2013 and 2014 US GDP growth forecasts at 2.3% and 2.8%, respectively, as balance sheet adjustment is progressing in the private sector and accommodative financial conditions can counterbalance current headwinds.
The eurozone entered a recession in Q312, which will likely deepen in the coming quarters. Fitch forecasts GDP to contract by 0.5% in 2012, stagnation (-0.1%) in 2013 before a modest recovery of 1.2% growth in 2014. With economic and financial rebalancing proving longer and harder than anticipated the agency lowered its 2013-14 forecast compared to September`s GEO by 0.4% and 0.2% respectively. Private sector confidence remains weak, unemployment in the region as a whole is already at record high and heading towards 12%, while financing conditions are persistently tight in the periphery and core countries` growth momentum is slowing.
Emerging markets face growing challenges. The combination of weak import demand of MAEs and domestic vulnerabilities has led to a soft patch in Brazil and India this year. In China, Fitch`s base case is that a modest monetary and public-investment stimulus will raise growth in Q412 and support output expansion of about 8% in 2013 and 7.5% in 2014, though risks surrounding the medium-term transition towards a more balanced growth model are substantial.
In this edition of the GEO Fitch has analyzed the global repercussions of a hypothetical hard landing of the Chinese economy in which GDP growth slows to 5% in 2013 and 6.5% in 2014. As China`s role in the global economy has grown rapidly over the past decade, such a shock would slow global growth significantly, to 1.7% and 2.1% in 2013 and 2014, respectively. The largest hit would be in South-East Asia owing to close trade links, while commodity exporters would also suffer from a steep fall in oil and other commodity prices. MAEs would face a more persistent impact from the shock as their domestic policies are heavily constrained in responding to any adverse exogenous shocks. Fitch emphasizes a hard landing is a scenario and not its base case for China`s economy.
Ultra-loose monetary conditions are set to endure in MAEs. Fitch expects major central banks to maintain record low interest rates throughout 2013 and, in line with the Fed`s guidance, beyond 2014 in the US. The ECB`s possible rate cut and lagged effects of previous non-standard measures are unlikely to offset negative economic trends sufficiently to improve the near-term growth outlook.

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03.12.2012 23:44 World Economy Review - November 2012

The OECD slashed its global growth forecasts, warning that the debt crisis in the recession-hit euro zone is the greatest threat to the world economy. In light of the dire economic outlook, the Organization for Economic Cooperation and Development urged central banks to prepare for more exceptional monetary easing if politicians fail to come up with credible answers to the debt crisis.
The Paris-based think-tank forecast in its twice-yearly Economic Outlook that the global economy would grow 2.9 percent this year before expanding 3.4 percent in 2013. The estimate marked a sharp downgrade since the OECD last estimated a rate in May of 3.4 percent for this year and 4.2 percent in 2013.
The euro zone is facing two years of economic contraction, while the United States risks a recession if lawmakers there fail to agree a deal to avoid a combination of tax hikes and budget cuts that will otherwise go into effect next year.
Providing the deadlock in Washington is overcome, the world`s biggest economy will grow 2.0 percent next year, the OECD estimated, cutting its forecast from 2.6 percent in May. "The U.S. fiscal cliff is a very important source of concern, but the greatest downside risk remains the euro zone," OECD chief economist Pier Carlo Padoan told Reuters in an interview.
"The reason for that is not only recession, but also the fact that different negative policy (feedback) loops between sovereign debt, the banking situation and exit risks remain. So the overall zone remains in a state of fragility." Cutting its estimates, the OECD forecast that the euro zone economy would contract 0.4 percent this year and another 0.1 percent next year, only returning to growth in 2014 with a rate of 1.3 percent. The OECD warned that diverging financing conditions within the European monetary union threaten to pull it apart if policymakers fail to get a grip on the debt crisis.
"The euro area, which is witnessing significant fragmentation pressures, could be in danger," Padoan wrote in a foreword to the outlook, urging politicians to overcome deadlock over a single European Central Bank-led bank supervisor.
Given the weakness of the global economic outlook, the OECD warned governments against being too zealous in their belt-tightening efforts and recommended that Germany and China even pursue temporary stimulus spending to revive growth.

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