World Economy Review

The International Monetary Fund says the U.S. financial system is "slowly recovering," but remains vulnerable to crisis, in part because Congress and the administration have failed to streamline a regulatory system marked by turf battles and overlapping responsibilities. "We asked many times why bolder action could not be undertaken," said the IMF`s Christopher Towe, who oversaw the agency`s first broad review of the U.S. financial sector.
Administration officials have argued that proposals to eliminate regulatory agencies would have become bogged down in Congress, saying higher priorities included a procedure to shut systemically important institutions that run into deep trouble.
The IMF said the U.S. system, where the Federal Reserve, Federal Deposit Insurance Corp., and state regulators share responsibility for regulating U.S. banks, and where the Commodities Future Trading Commission and Securities and Exchange Commission tussle over regulating futures markets, made coordinating oversight and uncovering new risks difficult.
The new Financial Stability Oversight Council, charged with uncovering and defusing systemic risks, could also be hampered, the IMF said.
A senior Treasury official said the administration`s financial overhaul improved oversight by making "regulator shopping" nearly impossible, as the Fed has the lead role in overseeing systemically significant institutions.
The IMF also conducted a stress tests of banks in the U.S., though it didn`t grade individual institutions. Its simulation found that if the U.S. economy fell into recession again, banks overall could have to raise as much as $76 billion to have an adequate capital cushion.
"The numbers are not frightening," said Mr. Towe, but they suggest "supervisory agencies need to be mindful" of lurking problems.
The Treasury official said the IMF largely pointed out problems in regional and smaller banks that have heavy exposure to commercial real-estate loans. In adverse circumstances, regional banks would have to raise a total of $8 billion to $13 billion, which he called a "drop in the bucket" compared with the more than $200 billion raised by U.S. banks since the U.S. Treasury carried out its own stress tests last year.

Economy of the United States

The U.S. economy slowed in the second quarter as a scarcity of jobs eroded consumer spending, leaving the rebound dependent on a surge in business investment.
Gross domestic product grew at a 2.4 percent annual pace, less than forecast, after a 3.7 percent first-quarter gain that was larger than previously estimated, according to Commerce Department data issued today in Washington. Other reports showed business activity unexpectedly accelerated in July and consumer sentiment fell less than projected. The median forecast of 81 economists surveyed by Bloomberg News projected a 2.6 percent second-quarter growth rate. Estimates ranged from gains of 1 percent to 4 percent.
U.S. industrial output rose 0.1% in June as higher mining and utility production offset a decline in manufacturing, the Federal Reserve reported. The increase was a modest upside surprise, as economists were expecting a 0.1% decline after a 1.3% increase in May. Industrial output is up 8.2% compared with a year ago after falling at the fastest rate since World War II. Capacity utilization, a key gauge of inflationary pressures, was unchanged at 74.1%. Manufacturing output fell 0.4% in June after a 1% gain in May. It was the first decline since February.
The U.S. trade deficit widened in May to the highest level in 18 months as a rebounding economy pushed up demand for imports of foreign-made cars, computers and clothing. The trade deficit increased 4.8 percent to $42.3 billion, the largest imbalance since November 2008, the Commerce Department reported Tuesday. American exports of goods and services rose 2.4 percent but this increase was outpaced by a 2.9 percent rise in imports. The rise in the May deficit came despite the fact that oil imports dropped by 9.1 percent to $27.6 billion as both the price of oil and the volume of shipments declined slightly.
The 2.4 percent rise in exports in May compared to April pushed sales of American goods and services to $152.3 billion, the highest level since September 2008. While sales of soybeans, wheat and other farm products were down in May, demand for American-made autos, industrial machinery, medical equipment and commercial aircraft all increased.
Imports rose 2.9 percent to $194.5 billion, the highest level since October 2008, reflecting big gains in imports of cars, computers, oil drilling equipment and industrial machinery. The price index declined 0.1 percent last month, following a 0.2 percent fall in May and a 0.1 percent drop in April. The index, designed as an overall gauge of price pressures from the grocery store to college tuition, is still higher than it was a year ago. But the recent trend suggests that the Fed hasn`t completely removed deflation risks.
The United States unemployment rate remained unchanged at a high 9.5% as employers and companies remained nervous about hiring new workers and the public sector laid off 143,000 temporary 2010 US Census workers during July. State and local governments, facing major budget deficits, also laid off many people.
Overall, the 131,000 jobs lost during July far exceeded economist`s predictions of 65,000 jobs lost. The private sector added just 71,000 jobs during July, also less than the 90,000 economists predicted. Around 200,000 gains each month are needed just to hold the unemployment rate steady against first time entrants into the job market. Including the Census workers, the government laid off 202,000 people at federal, state, and local levels.

Economy of the European Union

Euro area (EA16) and EU27 GDP both increased by 0.2% during the first quarter of 2010, compared with the previous quarter, according to second estimates from Eurostat, the statistical office of the European Union. In the fourth quarter of 2009, growth rates were +0.1% in the euro area and +0.2% in the EU27.
In comparison with the same quarter of the previous year, seasonally adjusted GDP rose in the first quarter of 2010 by 0.6% in the euro area and by 0.5% in the EU27, after -2.1% and -2.3% respectively in the previous quarter.
In the first quarter of 2010, among Member States for which seasonally adjusted GDP data are available, Ireland (+2.7%) recorded the highest growth rate compared with the previous quarter, followed by Sweden (+1.4%) and Portugal (+1.1%).
In May 2010 compared with April 2010, seasonally adjusted industrial production grew by 0.9% in the euro area (EA16) and by 1.0% in the EU272. In April production increased by 0.9% and 0.5% respectively.
In May 2010 compared with May 2009, industrial production rose by 9.4% in the euro area and by 8.7% in the EU27.
In May 2010 compared with April 2010, production of durable consumer goods grew by 2.4% in the euro area and by 1.8% in the EU27. Capital goods increased by 1.0% and 1.7% respectively. Intermediate goods rose by 0.8% in both zones. Production of energy gained 0.6% in the euro area and 1.3% in the EU27. Non-durable consumer goods grew by 0.6% and 0.9% respectively. Among the Member States for which data are available, industrial production rose in sixteen and fell in six. The highest increases were registered in Ireland (+7.5%), Slovenia (+4.5%), Poland and Sweden (both +3.4%), and the largest decreases in Luxembourg (-6.6%) and Portugal (-0.7%).
In May 2010 compared with May 2009, production of intermediate goods grew by 14.7% in the euro area and by 13.7% in the EU27. Capital goods increased by 8.6% and 9.0% respectively. Durable consumer goods rose by 6.3% in the euro area and by 7.7% in the EU27. Production of energy gained 5.7% and 4.3% respectively. Non-durable consumer goods grew by 3.7% in the euro area and by 3.3% in the EU27.
Industrial production rose in all Member States for which data are available, except Greece (-6.3%) and Bulgaria (-1.7%). The highest increases were registered in Estonia (+17.2%), Luxembourg (+13.5%), Sweden (+13.4%), Latvia (+13.2%) and Germany (+13.1%).
The first estimate for the euro area (EA16) trade balance with the rest of the world in May 2010 gave a 3.4 billion euro deficit, compared with +2.2 bn in May 2009. The April 20102 balance was +0.3 bn, compared with +2.6 bn in April 2009. In May 2010 compared with April 2010, seasonally adjusted exports rose by 1.6% and imports by 4.2%.
The first estimate for the May 2010 extra-EU271 trade balance was a 15.1 bn euro deficit, compared with -7.0 bn in May 2009. In April 20102 the balance was -11.0 bn, compared with -7.8 bn in April 2009. In May 2010 compared with April 2010, seasonally adjusted exports rose by 0.9% and imports by 4.1%.
Euro area1 annual inflation is expected to be 1.7% in July 2010 according to a flash estimate issued by Eurostat, the statistical office of the European Union. Euro area annual inflation was 1.4% in June 2010, down from 1.6% in May. A year earlier the rate was -0.1%. Monthly inflation was 0.0% in June 2010. EU3 annual inflation was 1.9% in June 2010, down from 2.0% in May. A year earlier the rate was 0.6%. Monthly inflation was 0.0% in June 2010.
The euro area (EA16) seasonally-adjusted unemployment rate was 10.0% in June 2010, unchanged compared with May. It was 9.5% in June 2009. The EU27 unemployment rate was 9.6% in June 2010, unchanged compared with May4. It was 9.0% in June 2009.
Eurostat estimates that 23.062 million men and women in the EU27, of whom 15.771 million were in the euro area, were unemployed in June 2010. Compared with May 2010, the number of persons unemployed decreased by 32 000 in the EU27, while it increased by 6 000 in the euro area. Compared with June 2009, unemployment rose by 1.466 million in the EU27, and by 0.788 million in the euro area.

Economy of Japan

Japanese Industrial Production decreased 1.5% over the June month, showing a decrease for the first time in four the months. On yearly basis, it showed an increase of 17.0% from June 2009. The index reached 94.7(seasonally adjusted). Expectations were around an increase of 0.2% through the month and 18.9% over the year.
Japan`s trade surplus for June rose 41.1 per cent from a year earlier, thanks to a steady recovery in exports, official data showed. The surplus reached 687.0 billion yen (S$10.7 billion) in June, marking the 13th straight month of improvement on year-earlier levels, according to the Ministry of Finance. The figure compared with market expectations of 700 billion yen. Exports rose 27.7 per cent to 5.87 trillion yen, the seventh consecutive monthly rise, beating market expectations of a 23.1-per cent increase. Robust Asian demand for Japanese autos and steel drove the better-than-expected rise in exports, marking the seventh straight monthly increase, the ministry said. Meanwhile, imports jumped 26.1 per cent, led by crude oil, liquefied natural gas and non-ferrous metals.
Japan`s core consumer price index fell 1.0 percent in June from the same time a year earlier, the Ministry of Internal Affairs said in a report. The key consumer price index (CPI), excluding volatile fresh food prices, fell for the 16 successive month to a preliminary 99. 3 against the base of 100 for 2005, the ministry said. The reading was below economists` expectations for a 1.1 percent decline. Core consumer prices in the Tokyo metropolitan area fell 1.3 percent in July from a year earlier, following a 1.3 percent drop in June, the min. This compares with a market forecast for a 1.2 percent decline.
Japan`s unemployment rate rose to 5.3% in June from 5.2% in May, as the number of the unemployed rose from the previous month, data from the Ministry of Internal Affairs and Communications showed.
But the data also showed that the number of unemployed people fell when compared with a year earlier, the first drop in 20 months, indicating that the labor market is slowly catching up with the recovery in production and exports. The seasonally adjusted unemployment rate for June came in higher than the consensus call for a 5.1% reading. The June jobless rate was below the record high of 5.6% hit in July 2009, but was still higher than the 4.2% rate seen at the start of 2009. In June, the number of unemployed rose by a seasonally adjusted 70,000 from the previous month, or 2.1%, to 3.47 million, compared with a rise of 10,000 in May.
The number of payroll jobs rose by a seasonally adjusted 40,000 month-on-month, or 0.1%, to 62.25 million, after falling 240,000 m/m in May.

Economy of Russia

Russia`s gross domestic product (GDP) increased by 4.2 percent in the first half of the year and by 4.9 percent in June alone, Minister of Economic Development Elvira Nabiullina said. “In principle, these are good dynamics for post-crisis recovery,” she said at a meeting of the government presidium. According to Nabiullina, “the positive trend continued in June” when a 4.9 percent growth was registered as compared to the same period of last year.
Industrial production in the first half of the year increased by 10.2 percent, and processing industries showed a growth of 14.3 percent. “In June, these dynamics continued. There was a growth of 9.7 percent, and 14.7 percent in the processing industry,” the minister said, adding progress in the production of means of transportation and in the chemical industry.
In addition, Russian exports in the first half of the year increased by more than 50 percent, retail trade turnover grew by 3.4 percent, and disposal personal incomes soared by 4.4 percent. “Prices in the first half of the year grew by 4.4 percent,” Nabiullina said, adding that inflation in the same period of 2009 was 7.4 percent.