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World Economy Review - April 2009

The latest forecast by the IMF in its World Economic Outlook shows the global economy contracting in 2009 by 1.3%. While the rate of contraction should moderate from the second quarter of 2009 onward, output per capita is projected to decline in countries representing three-quarters of the global economy. Growth is projected to reemerge in 2010, but at 1.9% it would be sluggish relative to past recoveries. IMF Chief Economist Olivier Blanchard told reporters that the world economy was being battered by competing crosscurrents, with the collapse in confidence and demand continuing to pull the economy down and government stimulus measures and natural stabilization mechanisms pulling the economy up. “This is not the time for complacency, and the need for strong policies, both on the macro and especially on the financial fronts, is as acute as ever. But, with such policies in place, there is light at the end of this long tunnel. World growth can turn positive by the end of this year, and unemployment can start decreasing by the end of next year.” The IMF experts revised their January forecasts down significantly, particularly for the export nations Germany and Japan, namely, by over three percentage points. The IMF is predicting that growth in Germany will decline by 5.6% in 2009, whereas the six German economic research institutes, which have also published their forecasts, are expecting a drop of –6%. The forecasts are thus getting closer to our prediction of –7%. Eurozone GDP is expected to shrink by 4% this year, and to contract further by 1% in 2010. In comparison, the figures for the US appear almost upbeat: there, the IMF is expecting GDP contraction of “only” 2.8% in 2009, and stagnation next year. The United Kingdom`s economy was forecast to shrink by 4% in 2009 and the United States by 2.8%. The International Monetary Fund says Russia`s GDP will drop as much as 6 percent this year. The forecast is the most pessimistic analyst outlook on Russia so far. The IMF said Russia`s economy would gain 0.5 percent in 2010. The IMF has changed its forecast for the fall in Ukraine`s GDP in 2009 from 3% to 8%, but it expects the country`s economy to resume growth next year. In 2010, Ukraine`s GDP will grow by 1%, according to the revised forecast contained in the IMF`s World Economic Outlook. According to the forecast, Ukraine`s average annual inflation will slow from last year`s 25.23% to 16.8% this year and 10% next year. At the same time, the current account surplus will reach 0.6% of GDP this year and 1.4% of GDP next year compared, to a deficit of 3.7% of GDP in 2007 and 7.2% of GDP in 2008. IMF experts say that among all the regions of the global economy, the CIS countries are forecast to experience the largest reversal of economic fortune over the near term. The reason is that their economies are being badly hit by three major shocks: the financial turbulence, which has greatly curtailed access to external funding; slumping demand from advanced economies; and the related fall in commodity prices, notably for energy.

Economy of The United States

The slumping U.S. economy barely improved early this year, with businesses slashing spending and inventories, according to a surprising report indicating the recession didn`t ease as much as expected. Gross domestic product decreased at a seasonally adjusted 6.1% annual rate January through March despite rising consumer spending, the Commerce Department said in its first estimate of first-quarter GDP. The 6.1% drop was much bigger than Wall Street expected and hardly different than a 6.3% plunge in the fourth quarter, when the recession that began in December 2007 deepened. Economists surveyed by Dow Jones Newswires expected a 4.6% drop in GDP during the first three months of 2009. With a 0.5% drop in the third quarter, GDP has now fallen three consecutive quarters. That hasn`t happened in 34 years, since third-quarter 1974 through first-quarter 1975.
Price indicators within report suggested inflationary pressures rose in first-quarter 2009, easing fears of deflation. For instance, the price index for personal consumption expenditures fell by 1.0%, a decline much smaller than the fall of 4.9% in the fourth-quarter 2008. The PCE price gauge excluding food and energy rose 1.5%, after increasing 0.9% in the fourth quarter. GDP acts as a scoreboard for the economy by measuring all goods and services produced. Its biggest component is consumer spending, which accounts for about 70% of GDP.
First-quarter spending increased 2.2%, after dropping 4.3% in the fourth quarter. Purchases of durable goods rose 9.4% in the first quarter, after decreasing by 22.1% October through December. First-quarter non-durables spending climbed by 1.3%. Services spending rose 1.5%. International trade boosted the economy early this year, adding 1.99 percentage points to GDP. U.S. exports plunged 30.0% and imports decreased 34.1%. In the fourth quarter, trade deducted 0.15 of a percentage point out of GDP; exports in that period were 23.6% lower and imports fell by 17.5%.
U.S. industrial production fell by 1.5 percent in March, the fifth consecutive monthly drop and worse than the 1 percent decline expected by analysts, the Federal Reserve reported. The bigger-than-expected drop in overall industrial production, an indicator of the output of mines, factories and utilities, followed decreases of 1.5 percent in February and 2.1 percent in January. The U.S. central bank`s report showed that manufacturing output declined 1.7 percent in March, much steeper than the 0.6 percent drop in February. That marked its fifth straight monthly decline. Decrease in electronic goods production, as well as declines in appliance, furniture and carpet manufacturing drove the reduction last month. Auto industry production rose 1.5 percent, the second straight gain after a steep fall in January. Sales for General Motors Corp., Ford Motor Co. and other automakers are down sharply compared with a year ago, but rose 25 percent in March compared with the previous month. Mining output, a category that includes oil and natural gas production, plunged 3.2 percent last month, much worse than the 1.0 percent drop in February. Output at the nation`s utilities, however, rose by 1.8 percent in March, after warmer-than-usual weather caused a steep 7.7 percent drop in February. The overall operating rate for manufacturing, mining and utilities was 69.3 percent of capacity last month, a rate below its year-earlier level of 79.8 percent and its 1972-2008 average of 80.9 percent. The March rate was down from the 70.3 percent rate in the previous month.
The U.S. recession will be over in September, but not the unemployment, which may continue to rise until the second half of 2010, says a survey released April 10th. The Blue Chip Economic Indicators survey of private economists predicts a 5 percent and 1.8 percent contraction in U.S. gross domestic product for the first two quarters of the year respectively. The third quarter of 2009 brings a more hopeful prediction of 0.4 percent growth. The survey, conducted April 3-6, revealed a "long road ahead" attitude from the economists. It showed much of the anticipated turnaround in the economy, now in its 16th month of recession, would be driven by some improvement in consumer spending, housing, business inventories and exports. Yet, above-trend growth was not expected until the second half of 2010.
"The end of the decline isn`t the beginning of the recovery," said David Resler of Nomura Securities. "It`s like a boxing match. Even if you win the fight, it`s not going to feel as good when you get out of the ring as when you went in." Indeed, economists` prospects for the labour market remain bleak and just 12 percent expect the unemployment rate to fall some time this year. More than a third of respondents expect the jobless rate to peak in the first half of 2010, while about half did not see unemployment declining until the second half of next year. By December of this year, the economists on average expect the unemployment rate to reach 9.5 percent, up from the 8.5 percent reported for March.

Economy of The European Union

Euro area (EA15) GDP fell by 1.6% and EU27 GDP by 1.5% during the fourth quarter of 2008, compared with the previous quarter, according to second estimates from Eurostat, the Statistical Office of the European Communities. In the third quarter of 2008, growth rates were -0.3% in both zones. In comparison with the same quarter of the previous year, seasonally adjusted GDP declined in the fourth quarter of 2008 by 1.5% in the euro area and by 1.4% in the EU27, after +0.6% and +0.7% respectively in the previous quarter. In the fourth quarter of 2008 and among the Member States for which seasonally adjusted GDP data are available, Slovakia (+2.1%) recorded the highest growth rate compared with the previous quarter, followed by Cyprus (+0.6%), Greece and Poland (both +0.3%). In the fourth quarter of 2008, household final consumption expenditure declined by 0.3% in the euro area and by 0.4% in the EU27 (after +0.1% and 0.0% respectively in the previous quarter). Investments fell by 4.0% in the euro area and by 3.3% in the EU27 (after -0.7% and -1.1%). Exports fell by 6.7% in the euro area and by 6.1% in the EU27 (after -0.2% and -0.3%). Imports decreased by 4.7% in the euro area and by 5.0% in the EU27 (after +1.3% and +0.9%). Among the main partners of the EU, GDP decreased by 1.6% in the US in the fourth quarter of 2008 (-0.1% in the previous quarter). In Japan GDP fell by 3.2% in the fourth quarter of 2008 (-0.4% in the previous quarter). Compared with the fourth quarter of 2007, GDP declined by 0.8% in the US (+0.7% in the previous quarter) and by 4.3% in Japan (-0.2% in the previous quarter). Over the whole year 2008, GDP grew by 0.8% in the euro area and by 0.9% in the EU27, compared with +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 declined by 0.6% in Japan (+2.4% in 2007).
In February 2009 compared with January 2009, seasonally adjusted industrial production fell by 2.3% in the euro area (EA16) and by 1.9% in the EU27. In January production decreased by 2.4% and 2.3% respectively. In February 2009 compared with February 2008, industrial production declined by 18.4% in the euro area and by 17.5% in the EU27.
These estimates are released by Eurostat, the Statistical Office of the European Communities. In February 2009 compared with January 2009, production of energy fell by 1.0% in the euro area and by 1.3% in the EU27. Non-durable consumer goods decreased by 1.4% and 1.1% respectively. Intermediate goods dropped by 2.4% in the euro area and by 2.0% in the EU27. Capital goods declined by 3.0% and 2.3% respectively. Durable consumer goods fell by 4.3% in the euro area and 2.9% in the EU27. Among the Member States for which data are available, industrial production fell in sixteen and rose only in Portugal (+2.4%), Greece (+1.7%) and Poland (+0.4%). The most significant falls were registered in Lithuania (-4.1%), Estonia (-3.6%), Italy (-3.5%) and Germany (-3.2%). In February 2009 compared with February 2008, production of energy fell by 3.6% in the euro area and by 3.5% in the EU27. Non-durable consumer goods decreased by 6.3% and 5.4% respectively. Durable consumer goods declined by 22.1% in the euro area and by 21.0% in the EU27. Intermediate goods dropped by 24.2% and 23.7% respectively. Capital goods fell by 24.7% 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 (-30.2%), Latvia (-24.2%) and Spain (-22.0%), and the smallest in Greece (-4.9%), the Netherlands (-5.9%) and Denmark (-11.8%).
Euro area annual inflation is expected to be 0.6% in April 2009 according to a flash estimate issued by Eurostat, the Statistical Office of the European Communities. It was 0.6% in March.
The euro area (EA16) seasonally-adjusted unemployment rate was 8.9% in March 2009, compared with 8.7% in February. It was 7.2% in March 2008. The EU27 unemployment rate was 8.3% in March 2009, compared with 8.1% in February. It was 6.7% in March 2008.
Eurostat estimates that 20.154 million men and women in the EU27, of which 14.158 million were in the euro area, were unemployed in March 2009. Compared with February, the number of persons unemployed increased by 626 000 in the EU27 and by 419 000 in the euro area. Compared with March 2008, unemployment went up by 4.061 million in the EU27 and by 2.816 million in the euro area. These figures are published by Eurostat, the Statistical Office of the European Communities.
Among the Member States, the lowest unemployment rate was recorded in the Netherlands (2.8%), and the highest rates in Spain (17.4%), Latvia (16.1%) and Lithuania (15.5%).
Compared with a year ago, three Member States recorded a fall in their unemployment rate, twenty-three an increase and the rate remained stable in the Netherlands. The falls were observed in Romania (6.1% to 5.8% between the fourth quarters of 2007 and 2008), Bulgaria (6.1% to 5.9%) and Greece (7.9% to 7.8% between the fourth quarters of 2007 and 2008). The highest increases were registered in Lithuania (4.3% to 15.5%), Latvia (6.1% to 16.1%) and Spain (9.5% to 17.4%).
The unemployment rate for males rose from 6.5% to 8.6% between March 2008 and March 2009 in the euro area and from 6.2% to 8.3% in the EU27. The female unemployment rate increased from 8.2% to 9.2% in the euro area and from 7.3% to 8.3% in the EU27.
In March 2009, the youth unemployment rate (under-25s) was 18.1% in the euro area and 18.3% in the EU27. In March 2008 it was 14.5% and 14.6% respectively. The lowest rate was observed in the Netherlands (5.7%), and the highest rates in Spain (35.4%) and Latvia (29.3% in the first quarter of 2009).

Economy of Japan

The Japanese government said industrial output rose 1.6% in March, double the 0.8% gain that economists had expected. Output rose for the first time in six months, adding to evidence the worst of the recession may be over. Companies plan to increase production in April and May to replenish inventories that fell 3.3% last month, the report also showed. "We`ve passed the bottom in terms of the level of production," said Masamichi Adachi, a senior economist at JPMorgan Chase & Co. in Tokyo. "The negative side of things is that the recovery will be weak." Overseas shipments gained 2.2% in March from February, the first month-on-month increase since May.
Japan`s trade balance recorded a deficit of 725.3 billion yen (7.36 billion U.S. dollars) in fiscal2008 ending March, the first loss for a fiscal year in 28 years, the finance ministry said.
According to a preliminary report released by the ministry, the nation`s exports sank 16.4 percent year-on-year to 71.14 trillion yen (722.23 billion dollars) in fiscal 2008 while imports went down 4.1 percent to 71.87 trillion yen (729.64 billion dollars). In March, however, the balance in trade saw a surplus of 11 billion yen (111.68 million dollars).
The trade data, measured on a customs-cleared basis, have yet to be adjusted for seasonal factors.
Japanese consumer prices fell for the first time in 18 months in March, stoking fears that the country`s recession could be aggravated by deflation. Data on the 0.1 per cent year-on-year drop in the core consumer prices index came alongside figures showing March unemployment rising to a four-year high of 4.8 per cent and wages falling by the most in six years.
The jobless rate of the world`s second-largest economy increased to 4.8 percent, up from 4.4 percent in February - the worst record since August 2004. Gloomy figures came a day after the government released a hopeful report showing a boost in industrial production by 1.6 percent. The number of jobless Japanese surged 25 percent to 3.35 million from a year earlier, it said.
Meanwhile the Bank of Japan has downgraded its forecast for the economy. It now suggests that GDP will shrink by 3.1% in the year to March 2010, compared to an earlier forecast of 2%, but it argues that a recovery will begin in 2010. And it warned that consumer prices will fall by 1.5%, pushing Japan into deflation. However, its economic forecast is still much more optimistic than the IMF, which forecast a 6.2% fall in the Japanese economy - the largest of any G7 countries. The Bank of Japan said recovery would be dependent on the return of the world economy to global growth, and stability in financial markets. It is keeping interest rates at 0.1%, and hoping that the big stimulus package announced by the Japanese government will help boost growth.

Economy of Russia

The Russian economy contracted by 9.5 percent in the first quarter of 2009, Deputy Economy Minister Andrei Klepach said. Klepach also forecast a second-quarter fall of 8.7 to 10 percent in gross domestic product (GPD) compared to the same period last year. "Correspondingly, the picture that we are starting to see emerge is that of a significant fall in GDP," he said. Klepach added that the International Monetary Fund`s prognosis of an overall six percent drop in GDP for 2009 was "rather realistic."

www.ereport.ru - 04.05.2009 19:58:55