World Economy Review - February 2010

OECD countries experienced 0.8 per cent growth in the fourth quarter of 2009, up from 0.6 per cent in the previous quarter according to seasonally-adjusted data. The United States and Japan led the growth, with GDP rising by 1.4 and 1.1 per cent respectively. By contrast, GDP growth in the euro area slowed to 0.1 per cent in the fourth quarter compared to 0.4 per cent in the third quarter. GDP growth in France was relatively strong, at 0.6 per cent but German GDP remained unchanged on the previous quarter and in Italy, GDP declined by 0.2 per cent. The United Kingdom recorded positive GDP growth of 0.1 per cent in the fourth quarter after six consecutive quarters of contraction.
Relative to a year earlier, GDP in the OECD contracted by 0.7 per cent, compared to a 3.4 per cent decline in the third quarter of 2009. With the exception of the United States, where GDP was 0.1 per cent higher than a year earlier, GDP contracted in all the Major Seven economies. Most of the year-on-year decline in OECD GDP reflected developments in the euro area (13 countries), which accounted for 0.5 percentage points of the total.
The International Monetary Fund (IMF) admitted a prevailing uncertainty about economic recovery, as the world has been hit by a strong crisis of bleak prospects. The IMF recently revised up its global growth forecast for this year and next and now expects the world economy to expand by 3.9% in 2010, followed by 4.3% in 2011.
The projected expansion is heavily skewed towards the emerging economies, however, notably Asia, and within the advanced economies there is also a pronounced dichotomy, this time between the US and Europe.
The US economy picked up momentum in the latter part of 2009, growing by 1.4% in the final quarter, and the most recent data implies a strong start to 2010, with the result that the consensus GDP forecast for the year as a whole has moved higher and now stands at 3%.
In contrast, the euro economy lost momentum in the final months of last year - Italy contracted and German growth was flat – leaving GDP growth in the fourth quarter at just 0.1%. Moreover, the most recent data points to a weak first quarter exacerbated by adverse weather, and the consensus growth forecast for 2010, currently 1.2%, may well be revised down.

Economy of The United States

The world`s largest economy recorded a 5.9 percent increase in annualized gross domestic product (GDP) according to the latest revision from the Commerce Department, which had originally put growth in the fourth quarter of last year at 5.7 percent.
The higher growth rate – the fastest since the third quarter of 2003 - was driven by increases in manufacturing and in capital expenditure by businesses, and in spite of a lower-than-expected increase in consumer spending, rising 1.7 percent against 2.8 percent in the third quarter.
However, nearly two-thirds of the growth in GDP came from changes in business inventories, and not by actual sales growth, as companies simply slowed the rate at which they had been reducing stock levels. The problems in the US housing market could also act as a drag on sustained growth, with the National Association of Realtors reporting that house sales fell 7.2pc in January, falling to the lowest annual rate of sales since last summer.
Industrial production in the U.S. rose more than forecast in January, indicating factories were leading the recovery entering the new year.
Output at factories, mines and utilities climbed 0.9 percent after a 0.7 percent increase the prior month, figures from the Federal Reserve showed today in Washington. Manufacturing gained 1 percent as factories produced more consumer goods and business equipment.
Investment in new equipment will probably be sustained in coming months as companies take advantage of the global recovery. Growing overseas demand and efforts to replenish stockpiles will help keep factories expanding and may generate the jobs needed to boost consumer spending.
U.S. trade deficit widened to a seasonally adjusted $40.2 billion in December as imports of crude oil surged, outpacing a large increase in exports, the Commerce Department reported. It was the largest trade gap in a year. Economists surveyed by Market Watch were looking for the gap to widen to $37.7 billion from $36.4 billion in November. Imports of goods and services increased $8.4 billion, or 4.8%, to $189.2 billion, led by higher imports of petroleum, autos, and capital goods. Imports of crude oil rose 9.2% to 8.9 million barrels a day from 8.2 million in November. The average price rose 0.9% to $73.20 a barrel, the highest since October 2008. Exports of goods and services rose $4.6 billion, or 3.3%, to $142.7 billion, led by higher exports of civilian aircraft and industrial materials.
On a seasonally adjusted basis, the January Consumer Price Index for All Urban Consumers (CPI-U) rose 0.2 percent, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the index increased 2.6 percent before seasonal adjustment. The seasonally adjusted increase in the all items index was due to a rise in the energy index. An increase in the gasoline index was the main factor, and the indexes for fuel oil and natural gas rose as well, though the electricity index declined.
The index for all items less food and energy fell 0.1 percent in January. This decline was largely the result of decreases in the indexes for shelter, new vehicles, and airline fares. In contrast, the medical care index posted its largest increase since January 2008, and the index for used cars and trucks increased significantly for the sixth month in a row.
Nonfarm payroll employment was little changed (-36,000) in February, and the unemployment rate held at 9.7 percent, the U.S. Bureau of Labor Statistics reported today. Employment fell in construction and information, while temporary help services added jobs. Severe winter weather in parts of the country may have affected payroll employment and hours; however, it is not possible to quantify precisely the net impact of the winter storms on these measures.

Economy of The European Union

GDP increased by 0.1% in both the euro area (EA16) and the EU27 during the fourth quarter of 2009, compared with the previous quarter, according to flash estimates published by Eurostat, the statistical office of the European Union. In the third quarter of 2009, growth rates were +0.4% and +0.3% respectively. Compared with the same quarter of the previous year, seasonally adjusted GDP decreased by 2.1% in the euro area and by 2.3% in the EU27 in the fourth quarter of 2009, after -4.0% and -4.3% respectively in the previous quarter. During the fourth quarter of 2009, US GDP increased by 1.4% compared with the previous quarter, after +0.6% in the third quarter. US GDP rose by 0.1% compared with the same quarter of the previous year (-2.6% in the previous quarter). Over the whole year 2009, GDP fell by 4.0% in the euro area and by 4.1% in the EU27.
In December 2009 compared with November 2009, seasonally adjusted industrial production fell by 1.7% in the euro area (EA16) and by 1.9% in the EU272. In November production grew by 1.4% and 0.9% respectively. In December 2009 compared with December 2008, industrial production declined by 5.0% in the euro area and by 4.9% in the EU27. Compared with 2008, the average production index for 2009 fell by 14.9% in the euro area and by 13.9% in the EU27.
The Eurozone posted a trade surplus in December, reversing a deficit a year earlier but only because exports contracted less then imports and weak monthly growth in imports indicates a still fragile economic recovery, data showed.
The European Union`s statistics office Eurostat said the unadjusted external trade surplus of the 16 countries that use the euro was 4.4 billion euros in December, up from a 1.8 billion deficit a year earlier and up from a revised four billion surplus in November.
Adjusted for seasonal swings, the Eurozone trade surplus was even higher at seven billion euros in December, against 5.3 billion in November, with exports climbed 3.1 percent month-on-month and imports rising only 1.7 percent.
Unadjusted exports fell one percent year-on-year to 111.8 billion euros, while imports slid 6 percent to 107.4 billion. Over the whole of 2009, the Eurozone had a trade surplus of 22.3 billion euros, a sharp change from a 54.7 billion deficit built up during 2008.
Inflation in the 16 countries that use the euro fell in February, official figures showed, in a further sign that price pressures remain subdued in the wake of the recession.
Eurostat, the EU`s statistics office, said that Eurozone prices are estimated to have risen by 0.9 percent in February from the year before. That rate is down from the 11-month high of 1 percent recorded in January. The decline was unexpected - the consensus in the markets was for inflation to hold steady at 1 percent.
Unemployment in the 16 countries that use the euro held steady at 9.9 percent in January for the third month running, official figures showed. In its first estimate for the month, the EU`s statistics office said around 15.7 million people were unemployed in the Eurozone, up 136,000 on the previous month. On an annual basis, unemployment has risen by 2.2 million in the Eurozone. Within the Eurozone, the Netherlands had the lowest unemployment rate at 4.2 percent while the highest was in Spain, where 18.8 percent of the available labor force was unemployed.
In the 27-country EU, which includes non-euro members such as Britain and Spain, the unemployment rate was 9.5 percent in January for the second month running. The highest unemployment rate in the EU is Latvia`s 22.9 percent.

Economy of Asia

Japan`s economy grew 1.1 percent in October-December from the previous quarter, but policy-makers fear the recovery could lose momentum as the effect of stimulus fades. Spending by governments worldwide to fight the deepest recession in decades has continued to underpin growth in the world`s second-biggest economy and its peers in the West. The increase in Japan` gross domestic product (GDP) was bigger than a median market forecast of a 0.9 percent rise. That translated into an annualised increase of 4.6 percent, against a forecast of 3.7 percent growth.
That followed a revised reading of zero growth in the July-September quarter. The U.S. economy grew at an annualised clip of 5.7 percent in the same quarter, while the euro zone economy expanded 0.1 percent on the quarter. Japan`s fourth quarter growth was led by exports and corporate investment, which picked up for the first time since January-March 2008. Economists polled by Reuters expect Japanese growth to slow to 0.2 percent in January-March and the following quarter.
Japanese industrial production rose 2.5% in January from the previous month, fueled by demand for large passenger cars, bearings and gasoline, data from the Ministry of Economy, Trade and Industry showed. The seasonally adjusted monthly gain came in higher than the consensus forecast of a 1.1% rise. Output rose for the 11th straight month in January, with the pace of growth accelerating from +1.9% in December but below the record +5.9% in April 2009. The 2.5% rise was the highest since +5.7% in May 2009.
From a year before, production rose 18.2% y/y in January, following a 5.1% rise in December and recovering from the record 38.4% drop in February 2009. December`s rise was the first y/y gain in 15 months since +0.2% in September 2008. Production has recovered from the record 10.1% drop m/m in January, 2009, backed by a gradual improvement in export volume following sharp domestic and overseas inventory drawdowns. The January month-on-month output gain was led by rises in transport equipment, chemicals (excluding drugs) and fabricated metals. But output is expected to lose steam in the coming two months.
METI`s survey of firms` forecasts showed that production will drop 0.8% in February -- down from the 0.3% gain estimated in last month`s survey.
Japan posted merchandise trade balance of 85.2 billion yen in January, the Ministry of Finance said on Wednesday. That was sharply higher than forecasts that had called for a deficit of 135.8 billion yen following the 545.3 billion yen surplus in December. Exports surged 40.9 percent on year to 4.902 trillion yen, topping expectations for a 40 percent annual increase after the 12.1 percent annual expansion in the previous month. Imports were up 8.6 percent on year to 4.817 trillion yen versus forecasts for an 11.5 percent annual increase after the 5.5 percent decline a month earlier. It was the first annual increase in 15 months.
Japan`s core consumer price index for January fell 1.3% from the same month a year earlier, according to data released by Japan`s Ministry of Internal Affairs and Communications. The drop in core CPI marked Japan`s 11th consecutive month of deflation. The result matched economists` average forecasts as reported separately by Dow Jones Newswires and Japan`s Kyodo News. Compared to December, core CPI -- which excludes volatile fresh-food prices -- was down 0.6%. Overall CPI, which includes all prices, was down 1.3% from a year earlier and down 0.2% from the previous month.
Japan`s unemployment rate unexpectedly fell to a 10-month low in January as the economy added the most jobs in more than 30 years. The jobless rate dropped to 4.9 percent from a revised 5.2 percent in December, the statistics bureau said today in Tokyo. The median forecast of 25 economists surveyed by Bloomberg News was for the rate to be unchanged from a preliminary 5.1 percent.

Economy of Russia

In January 2010, the Russian economy grew 5.2% compared to January 2009, said Deputy Economic Development Minister Andrei Klepach. Compared to December 2009, GDP was up 0.3%. The GDP and economic growth is positive and supported by consumer demand, Klepach pointed out. “Investment demand and risks related to unemployment remain the weak links,” he added. According to the Ministry`s preliminary estimates, the Russian economy grew by over 3% in the fourth quarter of 2009. This year, it is expected to grow 3.1%. The Russian Federal Statistics Service said the country`s GDP dropped by 7.9% in 2009, the biggest decline in the last 15 years. In 2008, it was up 5.6%.
Industrial output in Russia rose 7.8% in January from the same month the year earlier, the statistics office said on Feb. 15. However production fell a steep 20.4% in January from December, a plunge explained by the large number of holiday days in in January. Industrial production fell 10.8% for 2009 as a whole as Russia was hard hit by the economic crisis and only started to recover year-on-year from November.
Russia`s inflation rate fell to the lowest in nearly 12 years in February as rising unemployment damped consumer spending, paving the way for the central bank to cut rates. The rate dropped to an annual 7.2 percent from 8 percent in January, the Federal Service of State Statistics said on its Web site today. The median estimate in a Bloomberg survey of 14 economists was for 7.1 percent. Prices fell 0.9 percent from January. Inflation decelerated to an annual 5.6 percent in July, 1998.
Russia`s unemployment rate jumped to 9.2 percent in January, almost matching a credit-crisis peak of 9.4 percent a year earlier.