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World Economy Review - March 2009

The International Monetary Fund forecasts the global economy will contract by between 0.5 and 1.5 percent this year, Italian news agency ANSA reported, citing an IMF document. The grim projections, dated March 18, are the latest in a series of downward revisions by the IMF as the global recession deepens.
IMF official Teresa Ter-Minassian told reporters the Fund saw world growth contracting by 0.6 percent this year - figures which a spokesman for the Washington-based body said were "unofficial and already out of date". The fund`s most recent official forecasts, in January, pointed to growth of 0.5 percent.
The latest document, which ANSA said had been presented to officials from the Group of 20 rich and emerging nations, forecasts a gradual recovery next year with global gross domestic product growing by between 1 percent and 2 percent.
The IMF forecasts GDP will fall by 2.6 percent this year in the United States and contract by 3.2 percent in the euro zone. But the document cited by ANSA forecasts 5.8 and 0.2 percent contractions respectively this year and next in Japan, the world`s second largest economy, compared with Ter-Minassian`s forecasts for a 5.0 percent shrinkage and zero growth. Both said growth in 2010 would be 0.2 percent in the United States and 0.1 percent in the euro zone. The document cited by ANSA forecast that GDP in relatively dynamic emerging economies would grow by between 2.0 percent and 2.5 percent this year and by 3.5 percent and 4.5 percent in 2010.
At that time, the World Bank more than halved its forecast for growth in developing nations, from 4.4 percent to 2.1 percent. The revision reflects the speed and ferocity with which the financial crisis has restricted economic activity since the World Bank issued its last forecast in November.
With the developing world cooling off, the World Bank had previously said it expected the global economy to contract but had not provided an estimate. Earlier, it said it expected world output to decline by 1.7 percent. And while the bank said growth should resume next year, it might not be robust.
In a separate report released on March 31, the Organization for Economic Cooperation and Development, which includes the United States and other industrialized powers, said it estimated that the economies of its 30 member countries would shrink by an average of 4.3 percent this year. The OECD predicted that global trade would shrink by more than 13 percent this year.

Economy of The United States

US real gross domestic product (GDP) fell at an annual rate of 6.3 percent in the fourth quarter of 2008, according to final estimates released by the Bureau of Economic Analysis. In the third quarter, real GDP decreased 0.5 percent. Corporate profits fell 16.5%, the largest decline since the fourth quarter of 1953. The GDP estimates released March 26th are based on more complete source data than were available for the preliminary estimates issued last month. In the preliminary estimates, the decrease in real GDP was 6.2 percent.
The decrease in real GDP in the fourth quarter primarily reflected negative contributions from exports, personal consumption expenditures, equipment and software, and residential fixed investment that were partly offset by a positive contribution from federal government spending. Imports, which are a subtraction in the calculation of GDP, decreased. Most of the major components contributed to the much larger decrease in real GDP in the fourth quarter than in the third. The largest contributors were a downturn in exports and a much larger decrease in equipment and software. The most notable offset was a much larger decrease in imports. The price index for gross domestic purchases, which measures prices paid by US residents, decreased 3.9 percent in the fourth quarter, 0.2 percentage point less of a decrease than the preliminary estimate; this index increased 4.5 percent in the third quarter. Excluding food and energy prices, the price index for gross domestic purchases increased 1.2 percent in the fourth quarter, compared with an increase of 2.8 percent in the third.
U.S. industrial production fell for the fourth straight month in February, driving output to its lowest level in nearly seven years, according to Federal Reserve data that pointed to a worsening economy. The Federal Reserve said industrial production fell 1.4 percent after dropping by a revised 1.9 percent the prior month, which was previously reported as a 1.8 percent contraction. Compared to the same period a year-ago, output declined 11.2 percent with the index now at 99.7, the lowest level since April 2002, the central bank said. Economists polled by Reuters had forecast production falling 1.1 percent in February.
The huge U.S. trade deficit fell to its lowest level in six years in January as the deepening recession cut U.S. demand for oil and other imported goods. The trade deficit is the gap between what the United States exports and what Americans buy from foreigners. The Commerce Department says the deficit fell 9.7 percent in January, narrowing the gap to $36 billion for the month. It is the sixth month in a row the gap has narrowed. While the recession has cut U.S. demand for foreign goods, it is also reducing the sales of American-made products overseas, but not quite as deeply.
The US inflation rate climbed 0.4 percent in February, the largest increase in seven months as the US battles a deep recession that has driven down consumer prices, the Labour Department said. February`s rising seasonally-adjusted rate followed a 0.3-percent increase the month before. Consumer prices were level over the course of 2008 for the first time since 1955 and fell in the year`s final three months as a massive financial crisis spread across the economy.
The new figures could ease concerns at the US central bank that record low interest rates aimed at reviving the economy are causing deflation. The monthly increase was led by climbing petrol, clothing and automobile prices. Energy prices jumped 3.3 percent in February while food prices dropped 0.1 percent. The cost of energy has plunged 29.2 percent since July. Excluding the more volatile food and energy prices, inflation stood at 0.2 percent on the month, the Labour Department said.
The U.S. unemployment rate is expected to have jumped to 8.5 percent in March. This would be the highest level since 1983, when the economy was still shaking off the debilitating effects of stagflation, with its low economic growth and sharp price rises.
Gault, at IHS Global Insight, expects 750,000 job losses for March - which would be the worst month since 1949. He said the unemployment rate would continue rising this year before peaking at more than 10 percent in the first half of next year, perhaps well after the economy starts to grow. The U.S. jobless rate will reach 9.4 percent this year and remain elevated through at least 2011, threatening the nation`s longer-term growth potential, a monthly Bloomberg News survey indicated. The peak in unemployment surpasses the 8.8 percent estimated last month, according to the median of 54 projections in a survey taken from March 2 to March 9. The average rate for the next two years will exceed the 25-year high of 8.1 percent reached in February, the survey shows.
A recent survey that polled 51 forecasters revealed that the economy of the U.S. performs weaker than the experts expected a month ago. Yet the analysts say that the recovery will likely to come later this year. The study was conducted by the Blue Chip Economic Indicators prior to the unemployment report released by the government on March 6. According to the respondents the U.S. GDP will drop at a 5.3% annual rate in the Q1 and will further decline at a 2% rate in the Q2. However the third quarter is expected to record the expand in the economy at a 0.5% rate with a 1.8% in the fourth quarter. For the whole year experts predict a 2.6% decline, the largest annual contraction since the Great Depression, while a month ago analysts forecasted a decrease of 1.9%.
The change in the prospects reflects a large drop in business inventories, decreases in non-residential fixed investment and falls in residential investment. The survey says that in the first half of the year the economy will also be pressured by "continued, albeit diminishing declines in consumer spending and falling exports”. Consumer spending is expected to start awakening in the second quarter affected by the energy costs, tax cuts contained in a recently passed fiscal stimulus package and some loosening of credit conditions. Yet the experts note that the spending will be modest in view of reminders of sharp declines in home prices and retirement savings and stubbornly high levels of unemployment. The recovery is forecast to quicken next year with a 2.3% annual growth rate to be recorded in 2010.

Economy of The European Union

GDP fell by 1.5% in both the euro area (EA15) and the EU27 during the fourth quarter of 2008, compared with the previous quarter, according to first estimates released by Eurostat, the Statistical Office of the European Communities. In the third quarter of 2008, growth rates were -0.2% in the euro area and -0.3% in the EU27.
Compared with the fourth quarter of 2007, seasonally adjusted GDP declined by 1.3% in both the euro area and in the EU27, after +0.6% and +0.7% respectively for the previous quarter.
During the fourth quarter of 2008, household final consumption expenditure declined by 0.9% in the euro area and by 0.8% in the EU27 (after +0.1% in both zones in the previous quarter). Investments fell by 2.7% in the euro area and by 2.5% in the EU27 (after -0.6% and -1.0%). Exports decreased by 7.3% in the euro area and by 6.8% in the EU27 (after 0.0% in both zones). Imports dropped by 5.5% in both the euro area and the EU27 (after +1.4% and +1.0%).
Over the whole year 2008, GDP grew by 0.8% in the euro area and by 0.9% in the EU27, compared to +2.6% and +2.9% respectively for 2007. Over the whole year 2008, GDP grew by 1.1% in the US (+2.0% in 2007) and fell by 0.7% in Japan (+2.4% in 2007).
In January 2009 compared with December 2008, seasonally adjusted industrial production fell by 3.5% in the euro area (EA16) and by 2.9% in the EU27, Eurostat said. In December production decreased by 2.7% in both zones. In January 2009 compared with January 2008, industrial production declined by 17.3% in the euro area and by 16.3% in the EU27.
In January 2009 compared to December 2008, production of non-durable consumer goods fell by 1.1% in the euro area and by 0.3% in the EU27. Energy decreased by 1.6% and 0.4% respectively. Durable consumer goods dropped by 2.6% in the euro area and by 1.8% in the EU27. Intermediate goods declined by 3.6% and 3.4% respectively. Capital goods fell by 6.0% in the euro area and 5.7% in the EU27.
Among the Member States for which data are available, industrial production fell in fourteen and rose only in Ireland (+6.7%) and Hungary (+2.5%). The most significant falls were registered in Latvia (-11.2%), Portugal (-9.8%) and Germany (-7.5%).
In January 2009 compared with January 2008, production of energy fell by 2.9% in the euro area and by 4.4% in the EU27. Non-durable consumer goods decreased by 4.9% and 4.0% respectively. Durable consumer goods declined by 18.0% in the euro area and by 18.3% in the EU27. Capital goods fell by 21.4% and 21.1% respectively. Intermediate goods fell by 24.4% in the euro area and by 23.7% in the EU27.
Industrial production fell in all Member States for which data are available. The largest decreases were registered in Estonia (-26.8%), Latvia (-23.9%), Sweden (-21.1%) and Hungary (-21.0%), and the smallest in Ireland (-0.8%), Lithuania (-4.7%) and Denmark (-9.6%).
The EU27 external current account recorded a deficit of 21.0 billion euro in the fourth quarter of 2008, compared with a deficit of 14.2 bn in the fourth quarter of 2007 and a deficit of 60.8 bn in the third quarter of 2008, Eurostat said. In the fourth quarter of 2008, the EU27 external balance of trade in services recorded a surplus of 23.0 bn euro, compared with a surplus of 19.7 bn in the fourth quarter of 2007 and a surplus of 19.3 bn in the third quarter of 2008.
Euro area annual inflation was 1.2% in February 2009, up from 1.1% in January. A year earlier the rate was 3.3%. Monthly inflation was 0.4% in February 2009. EU annual inflation was 1.7% in February 2009, down from 1.8% in January. A year earlier the rate was 3.5%. Monthly inflation was 0.4% in February 2009.
In February 2009, the lowest annual rates were observed in Ireland and Portugal (both 0.1%) and Cyprus (0.6%), and the highest in Latvia (9.4%), Lithuania (8.5%) and Romania (6.9%). Compared with January 2009, annual inflation fell in eleven Member States, remained stable in two and rose in thirteen. The lowest 12-month averages up to February 2009 were registered in the Netherlands and Portugal (both 2.2%) and Germany (2.4%), and the highest in Latvia (14.1%), Bulgaria and Lithuania (both 10.8%).
The main components with the highest annual rates in February 2009 were alcohol & tobacco (3.2%), hotels & restaurants (2.9%) and housing (2.8%), while the lowest annual rates were observed for transport (-2.7%), communications (-1.4%) and clothing (0.1%). Concerning the detailed sub-indices, gas (+0.21 percentage points), restaurants & cafés (+0.15) and electricity (+0.12) had the largest upward impacts on the headline rate, while fuels for transport (-0.78) and heating oil (-0.25) had the biggest downward impacts.
The main components with the highest monthly rates were clothing (1.5%), recreation & culture (1.1%) and transport (0.6%), while the lowest were food (-0.1%), housing and communications (0.0% each). In particular, package holidays (+0.08 percentage points), fuels for transport (+0.07) and garments (+0.06) had the largest upward impacts, while cars (-0.04) had the biggest downward impact.

Economy of Japan and China

Japan`s gross domestic product (GDP) shrank a real 12.1 percent on an annualized basis in the October-December quarter, up from a 12.7 percent decline in the preliminary report, the cabinet office said. It was the steepest fall in about 35 years for Japan`s economy, which has sank for the third consecutive quarter, the office said. On a quarter-on-quarter basis, the economy contracted by 3.2 percent, the fast pace since the January-March quarter of 1974, when the figure read 3.4 percent, or 13.1 percent on an annualized basis as the first oil crisis took a heavy toll on the world`s second largest economy.
In nominal terms, Japan`s GDP shrank for the third straight quarter, down by 1.6 percent quarter-on-quarter in the October-December period, or 6.4 percent on an annualized basis, compared with an initially reported 1.7 percent quarterly fall, or annualized 6.6 percent decrease.
Consumer spending, which accounts for about 55 percent of Japan`s GDP, saw a real 0.4 percent quarterly fall while corporate capital spending, a main driver of Japan`s six-year economic recovery since 2002, contracted a real 5.4 percent from the previous quarter. Exports tumbled 13.8 percent while imports grew 3.0 percent from the previous quarter. Public investment increased a real 0.1 percent and housing investment jumped 5.7 percent.
Industrial production in Japan fell for a fifth month in a row, down 9.4% in February from the previous month, to stand at 68.7, according to data released March 30th from Japan`s Ministry of Economy, Trade and Industry. The seasonally adjusted index was down 38.4% from the previous year. The Ministry of Economy, Trade and Industry says the figure marks the fifth straight month of decline, with especially steep cutbacks among makers of transportation equipment and general machinery. But the ministry said Monday it is a slight improvement over January`s record 10.2 percent plunge, suggesting output may have already hit bottom. Shipments were at 70.9, down 6.8% from a month ago. However, production is expected to increase 2.9% in March and to rise 3.1% in April, according to the Survey of Production Forecast in Manufacturing, the ministry said. Japan`s trade balance swung into surplus in February for the first time in five months, as a sharp fall in imports offset a record fall in exports for the month.
Japan`s exports dived a record 49.4 percent in February from a year earlier, government data showed on Wednesday, as global demand for Japanese goods such as cars and electronics evaporates amid a deepening financial crisis. It was the fifth straight month of annual drops in exports, following the previous record fall of 45.7 percent in January and larger than the median forecasts from economists for a 47.1 percent drop.
Imports fell 43.0 percent, more than an expected 38.5 percent decline, due largely to falls in oil prices, bringing Japan`s trade balance to a surplus of 82.4 billion yen ($841.6 million) against economists` forecasts for a deficit of 10.9 billion yen. The trade surplus comes after Japan posted its largest trade deficit ever in the export-slowing month of January.

Economy of Russia

Russia`s economy shrank 8 percent in the first two months of the year, the Economy Ministry said on Friday, as First Deputy Prime Minister Igor Shuvalov signaled that growth could return by the year`s end. The Russian economy has been rocked by a collapse in oil prices, vast outflows of capital and waning demand for exports as the global economic crisis intensified. Consequently, gross domestic product (GDP) is likely to contract by 7 percent year-on-year in the first quarter, Economy Minister Elvira Nabiullina told the government on Thursday, according to the text of her speech published on March 20. The ministry stuck by its forecast for full-year contraction of just 2.2 percent, suggesting things could improve before too long. That optimism was picked up by Shuvalov. "In some sectors we are noticing more liveliness, and a positive mood," he said. "We are already near the bottom and we feel that by the end of the year we could have growth... (But) it could be worse if the situation on the external market deteriorates."
The Economy Ministry`s first quarter forecast would be twice as fast as the contraction seen by economists in a Reuters poll and compares to growth of 1.1 percent in the previous quarter. However, data suggests that the situation stabilized in February - even though the slowdown is in full swing and companies are cutting thousands of jobs a day - giving some cause for investors and politicians to feel more optimistic. Authorities have managed a depreciation of the currency, avoiding panic but also reducing imports to keep the current account balance in surplus. Oil is now worth $5 more than the $41 a barrel year average factored into the government`s 2009 forecasts and budget. But any signs of light at the end of the tunnel could be quickly extinguished by a renewed slump in crude prices. "In an optimistic scenario of renewed world economic growth in 2010, and rising oil prices, the Russian economy could grow by between 2 and 4 percent in 2010," Nabiullina said. She added that the realization of government anti-crisis measures - worth some 1.6 trillion rubles ($47 billion) this year - would play an key part in the economy`s turnaround.

www.ereport.ru - 03.04.2009 19:31