World Economy Review - December 2008

In Washington, the Institute of International Finance, an association of world financial institutions, has issued a grim economic forecast, saying that all of the major economies are weak or in recession. The institute says global growth in 2009 will be negative for the first time since reliable statistics became available in 1960. Growth is projected to be minus four-tenths of one percent, compared to 2008 growth of nearly two percent.
“Steep declines in real gross domestic product are likely in the current quarter and in the next quarter in the United States, the Euro-zone countries and in Japan. Overall, 2009 will see falls in output in these countries and rising unemployment, but a revival of growth may start in the late summer of next year, forecast the economists at the Institute of International Finance. World GDP is expected to decline for the first time in recent history in 2009 with a projected fall of 0.4 percent, after a 2 percent gain this year”, report says.
The IIF forecast that the U.S. economy will decline by 1.3 percent next year after an advance of 1.2 percent this year, while the Euro Area economies fall by 1.5 percent in 2009 after a 0.9 percent drop in 2008, and Japan`s economy falls by 1.2 percent next year after zero growth this year. The IIF predicted further slowing in the leading emerging market economies, although their average growth rate in 2009 at 3.1 percent, after 5.9 percent in 2008, will exceed that of the mature economies by some 5 percentage points. Particularly weak growth is seen in central, eastern and southern Europe with growth of just 0.3 percent likely for 2009 after 4.5 percent in 2008.
Stronger growth is seen in Asia/Pacific, yet here too there is a significant slowing with growth in the region as a whole seen at 5.7 percent after 7.4 percent in 2008 – the forecasts include growth for China in 2009 of 6.5 percent after 9.3 percent this year, and a slowing of India`s growth to 5 percent from 6.2 percent last year.
Meanwhile, according to a report released by the World Bank, world GDP growth will be 2.5 percent in 2008 and 0.9 percent for 2009. HSBC is even gloomier about the global economy, expecting it to contract by 0.1% next year.

Economy of The United States

There`s been no change in the U.S. economy`s pulse, according to the most recent GDP data from the U.S. Commerce Department. The U.S. economy contracted at a 0.5% annual rate in Q3, the Commerce Department announced, in its final reading on the quarter. The rate was unrevised from the previous estimate, but it was the weakest quarterly growth rate since Q1 2001. Economists surveyed by Bloomberg News had expected the economy to contract at a 0.5% annualized rate in Q3. One danger sign for the economy: consumer spending, which accounts for 60-65% of U.S. GDP, declined at a revised 3.8% annualized rate in Q3, worse than the 3.7% annualized decline estimate announced earlier. One bright spot concerns inflation: core consumer inflation, which excludes the often-volatile food and energy component, was revised lower to a 2.4% annualized rate in the quarter, from the 2.6% previous annualized rate. The 2.4% rate is roughly within the U.S. Federal Reserve`s "comfort zone" for inflation. Wang called the inflation data "very tame." Further, Wang expects the world`s largest economy to shrink at a troubling 4.0% rate in Q4, and to keep contracting through at least through the end of Q2 2009. That would mean a recession of 18 months - the longest U.S recession since 1947.
U.S. industrial production fell in November for the third time in four months, led by a slump at automakers as sales plummeted. Output at factories, mines and utilities dropped 0.6 percent, less than forecast, after an increase of 1.5 percent in October that was more than previously reported, the Federal Reserve said. Economists had forecast industrial production would fall 0.8 percent, according to the median projection in a Bloomberg News survey. Estimates ranged from a decline of 2 percent to a gain of 0.4 percent. Factory output, which accounts for about four-fifths of industrial production, decreased 1.4 percent, led by declines in output of metals, furniture and construction supplies as well as autos. Aircraft production was one of the only manufacturing categories showing gains during the month, as work resumed at Boeing Co. following a strike. Utility production increased 1.6 percent after rising 0.7 percent a month earlier. Mining output, which includes oil drilling, rose 2.5 percent. Motor vehicle and parts production declined 2.8 percent in November following a 3.6 percent decrease the prior month, the report said. Automakers assembled cars and light trucks at an annual rate of 7.31 million vehicles during the month, the lowest rate since January 1990. Production of consumer durable goods, including automobiles, furniture and electronics, fell 3 percent. Utility production increased 1.6 percent after rising 0.7 percent a month earlier. Mining output, which includes oil drilling, rose 2.5 percent. Capacity utilization, or the proportion of plants in use, fell to 75.4 percent from 76 percent in October. Economists had forecast that figure would fall to 75.6 percent, according to the Bloomberg survey.
The Consumer Price Index for All Urban Consumers (CPI-U) decreased 1.9 percent in November, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported. The November level of 212.425 (1982-84=100) was 1.1 percent higher than in November 2007. The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) decreased 2.3 percent in November, prior to seasonal adjustment. The November level of 207.296 (1982-84=100) was 0.7 percent higher than in November 2007. The Chained Consumer Price Index for All Urban Consumers (C-CPI-U) decreased 2.0 percent in November on a not seasonally adjusted basis. The November level of 122.284 (December 1999=100) was 0.7 percent higher than in November 2007. Please note that the indexes for the post-2006 period are subject to revision.
Nonfarm payroll employment fell sharply (-533,000) in November, and the unemployment rate rose from 6.5 to 6.7 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported. November`s drop in payroll employment followed declines of 403,000 in September and 320,000 in October, as revised. Job losses were large and widespread across the major industry sectors in November.

Economy of The European Union

Third-quarter gross domestic product in the 15-nation euro zone shrank by 0.2% from the second quarter, the Eurostat reported Thursday, matching the statistical agency`s preliminary estimate. On an annual basis, Eurostat revised down third quarter GDP growth to 0.6% from its preliminary estimate of 0.7%. The euro-zone economy has matched a commonly used definition of recession by contracting for two consecutive quarters. Eurostat has estimated that euro-zone GDP declined by 0.2% in the second quarter. The euro-zone announcement came a day after Europe`s biggest national economy and the world`s fourth-largest, Germany, announced its own recession. Many economists say the situation is unlikely to improve before 2010. "It`s just the beginning," Bank of America economist Gilles Moec said in a research note on Friday. "The full impact... has yet to be felt on corporate investment."
In October 2008 compared with September 2008, seasonally adjusted industrial production1 fell by 1.2% in both the euro area (EA15) and the EU27. In September production decreased by 1.8% and 1.3% respectively. In October 2008 compared with October 2007, industrial production declined by 5.3% in the euro area and by 5.0% in the EU27. In October 2008 compared with September 2008, production of non-durable consumer goods grew by 0.3% in the euro area and by 0.1% in the EU27. Production of energy fell by 0.1% and 1.1% respectively. Durable consumer goods dropped by 1.4% in the euro area and by 0.7% in the EU27. Capital goods declined by 2.0% and 1.7% respectively. Intermediate goods decreased by 2.0% in both zones. In October 2008, among the Member States for which data are available, industrial production fell in nineteen and grew only in Portugal (+1.3%). The most significant falls were registered in Ireland (-6.4%), Lithuania (-5.6%), Estonia (-5.0%), Latvia (-3.7%) and Romania (-3.4%). In October 2008 compared with October 2007, production of energy fell by 1.3% in the euro area and by 2.1% in the EU27. Non-durable consumer goods decreased by 2.5% and 2.7% respectively. Capital goods declined by 5.2% in the euro area and by 4.9% in the EU27. Intermediate goods dropped by 7.4% and 7.2% respectively. Production of durable consumer goods fell by 8.4% in the euro area and by 6.3% in the EU27. In October 2008, among the Member States for which data are available, industrial production fell in eighteen and rose only in Poland and Slovakia (both +0.1%). The most significant falls were registered in Spain (-12.8%), Estonia (-11.0%), Ireland (-10.0%), Latvia (-9.0%) and France (-7.5%).
The first estimate for the euro area (EA15) trade balance with the rest of the world in October 2008 gave a 0.9 bn euro surplus, compared with +4.2 bn in October 2007. The September 20082 balance was -4.5 bn, compared with +2.9 bn in September 2007. In October 2008 compared with September 2008, seasonally adjusted exports fell by 2.5% and imports by 4.6%. The first estimate for the October 2008 extra-EU27 trade balance was a deficit of 17.1 bn euro, compared with -15.3 bn in October 2007. In September 20082, the balance was -23.5 bn, compared with -16.6 bn in September 2007. In October 2008 compared with September 2008, seasonally adjusted exports fell by 2.0% and imports by 4.5%.
Euro area annual inflation was 2.1% in November 20082, down from 3.2% in October. A year earlier the rate was 3.1%. Monthly inflation was -0.5% in November 2008. EU annual inflation was 2.8% in November 2008, down from 3.7% in October. A year earlier the rate was 3.1%. Monthly inflation was -0.4% in November 2008.

Economy of Japan

Japan`s gross domestic product contracted more than first estimated in the July-September quarter, the government said, further evidence of a deepening slump in the world`s second largest economy. The Cabinet Office said GDP - a measure of the value of goods and services - shrank at a 1.8 percent annual rate in the July-September quarter compared with the initial estimate of a 0.4 percent contraction. Japan`s economy slipped into recession in the third quarter of this year with GDP contracting 0.5 percent from the previous quarter. A recession is usually defined as two consecutive quarters of negative growth. Last week, Japan raised its estimate of fiscal 2007 economic growth to 1.9 percent from 1.7 percent, citing a stronger-than-expected rise in capital investment. But the U.S. has been in a recession for a year now, adding to pressure on Japan`s export-dependent economy.
Japan`s industrial output fell a record 8.1% in November from the previous month as Japanese companies produced less automobiles and other machinery on waning demand, official figures showed Friday. The drop reportedly represents the biggest decline in industrial production since the government started releasing the data in 1953. Economists expected industrial output to fall 6.8%, after it fell 3.1% in October.
Japan`s inflation rose at the slowest pace in seven months in November as oil and commodity costs tumbled and the deepening recession weakened demand. Consumer prices excluding fresh food rose 1 percent from a year earlier, less than 1.9 percent in October, the statistics bureau said today in Tokyo. The median estimate of 36 economists surveyed by Bloomberg News was for 1.1 percent.
Costs of fuel and commodities, which drove inflation to a decade high last quarter, are plunging amid a global slowdown. A deepening recession at home is also eroding demand, increasing the risk the world`s second-largest economy may slip into deflation next year, analysts say.

Economy of Russia

Russia`s GDP grew 1.6% in November, but dropped by 0.7% when adjusted for seasonal factors, the Economic Development Ministry said. "The indication of the negative consequences of the global financial crisis on Russia`s economy grew in November. GDP growth was 1.6% after 6.9% in September and 5% in October on the same period last year," the ministry said. "Since July there has been a decline once seasonal factors are excluded, in November it was 0.7%," the ministry said.
Industrial output fell 7.5% in November, the second consecutive monthly decline, the ministry reported. "The industrial production index was 91.3% in November 2008 against November 2007, which means a 7.5% output decrease as compared to October, excluding seasonal factors," the ministry`s monitoring report read. The ministry said this was the result of a recession in manufacturing industries, as well as electricity, gas and water production and distribution.
According to the ministry`s preliminary forecast, Russia`s GDP in January-November grew 6.5%.
Russia`s GDP will grow about 2% in 2009 while inflation will be 10-12%, presidential aide Arkady Dvorkovich said. Last week, Russian Economic Development Minister Elvira Nabiullina said Russia`s forecast GDP growth for 2009 was 2.4%, while inflation was predicted to be 11% against 13.5% for this year.
The Russian Economy Ministry expects gross domestic product (GDP) to grow 2.6 percent in the fourth quarter of 2008, down from 6.2 percent in the preceeding period, implying full-year growth of 6 percent. "Taking into account the latest Rosstat (statistics agency) data, the Economy Ministry estimates GDP growth for the fourth quarter of 2008 at 2.6 percent," the ministry said. Article Controls. "This means that in November-December, excluding seasonality, the growth has continued to slow down. As a whole, 2008 GDP growth will be 6 percent. It is a positive result achieved mainly thanks to first-half expansion," it said. Russia`s economy is under pressure as the global financial crisis threatens the first reversal after a decade of growth fuelled by high prices for oil, its main export commodity. Deputy Economy Minister Andrei Klepach said Russia was already in a recession that could last for more than two quarters, and that full-year economic growth would be lower than the 6.8 percent previously forecast. The comments, the first official acknowledgement the economy was shrinking, came at the end of a week of bad numbers: third quarter GDP growth was the slowest in three years and the October trade surplus hit a 13-month low. Within hours, Prime Minister Vladimir Putin told a different story, trumpeting full year growth of around 6 percent for 2008 and predicting that Russia would weather the financial storm. Russia`s GDP growth slowed to 6.2 percent in the third quarter, year-on-year, down from 7.5 percent in the second quarter, while the Economy Ministry had expected it to be around 7.1 percent.