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World Economy Review - November 2010

The United Nations warned that world growth in the next two years will not be enough to recover jobs lost in the financial crisis and that key countries could be heading for a double-dip recession.
The United States, Japan and major European economies are all at risk of a new recession, said a UN report which predicted the world economy will expand by 3.6 percent this year before falling to 3.1 percent in 2011 and 3.5 percent in 2012.
The World Economic Situation and Prospects 2011 report said the growth would be "far from sufficient" to recover the jobs lost in the financial and economic crises. At least 30 million jobs were lost between 2007 and 2009, and the report said it could take five years to create the 22 million needed to get back to pre-crisis employment levels.
"The road to recovery from the Great Recession is proving to be long, winding and rocky," said the annual UN survey, which predicted US growth will fall from 2.6 percent this year to 2.2 percent next year and then rise again to 2.8 percent in 2012. The US jobless rate may rise above 10 percent next year from the current 9.6 percent, the UN warned.
Recovery will continue to be driven by the emerging economic powers - China, India and Brazil - said the report. China`s growth will fall from 10.1 percent to 8.9 percent in 2011 before hitting the critical 9.0 percent target again in 2012. Japan`s output growth will fall from 2.7 percent this year to 1.1 percent in 2011 and then rise to 1.4 percent. India will go from 8.4 percent to 7.1 percent next year and then 7.3 percent in 2012. Brazil will go from 7.6 percent growth this year to just 4.5 percent in 2011 and then 5.2 percent in 2012.
The 16-nation Eurozone will fall from a predicted 1.6 percent this year to 1.3 percent in 2011 and then 1.9 percent, the report said. Britain`s economy will grow 1.8 percent in 2010, 2.1 percent next year and then 2.6 percent in 2012.
"The recovery of the world economy has started to lose momentum since the middle of 2010, and all indicators point at weaker global economic growth," said the report.
Meanwhile, GDP growth among the members of the Organization for Economic Cooperation and Development (OECD) has fallen to 0.6 per cent in the third quarter of 2010. This quarter`s result marks the sixth consecutive quarter of growth within the OECD. However, it is down on the 0.9 per cent growth recorded the previous quarter.
The Euro area and EU recorded overall slower levels of growth; GDP increased by 0.4 per cent, down on the 1.0 per cent recorded in the second quarter. Germany recorded growth of 0.7 per cent, down on 2.3 per cent growth experienced in the second quarter. GDP growth also decelerated in France (0.4 per cent), Italy (0.2 per cent) and the United Kingdom (0.8 per cent).
Growth rates rose in Japan (0.9 per cent) and the United States (0.5 per cent), compared with the previous quarter. In comparison with the year before, GDP in the OECD area has expanded by 3.1 per cent, equalizing the rate in the previous quarter.

Economy of the United States

The U.S. economy expanded at a faster clip than initially forecast in the third quarter, helped by more robust consumer spending and by stronger exports, the Commerce Department estimated. The economy grew at a 2.5% annualized pace in the quarter, revised up from the initial estimate of 2.0%, the government said in its second estimate of quarterly gross domestic product. GDP growth was 1.7% during the second quarter.
U.S. consumers are on the mend, and soon could be spending freely. That`s good news for retailers - and the economy. Economists surveyed by MarketWatch had been expecting GDP to be revised to 2.4% growth for the September quarter. Economists forecast growth will come in around a 2.3% rate in the final three months of 2010.
The economy has grown 3.2% in the past four quarters, slightly above the 2.75% rate that most economists say is the long-run potential. It`s the strongest year-over-year growth since the first quarter of 2005. Not adjusted for inflation, the economy grew 4.8% to $14.75 trillion on an annualized basis in so-called nominal terms.
U.S. industrial production was unchanged in October following an unrevised 0.2% decline in September. The flat reading in October was below market expectations for a 0.3% increase. As well, the capacity utilization rate held steady at September`s upwardly revised level of 74.8% (previously reported as 74.7%).
The unchanged level of industrial production in October follows the first decline in the series since hitting a recessionary low in June of 2009. Manufacturing output rose 0.5% in the month, while September`s initially report 0.2% decline was revised up to a 0.1% increase. Within this component, the production of durable goods rose 0.9%, with increases recorded in most categories, while non-durable manufacturing production rose 0.2%. Mining production fell for the first time in four months, down 0.1% in October. Utilities output fell a sizeable 3.4% in October following declines of 2.2% and 1.0% in September and August, respectively, because this component continues to unwind some of the weather-related gains recorded during the summer.
The manufacturing sector has shown considerable strength for the last year, and today`s report suggests that the sector is carrying that momentum into the fourth quarter. The steady improvements in overall industrial production since hitting the trough in June 2009, however, have only managed to help recover just more than half of the lost production and industrial production remains 7.2% below its pre-recessionary peak. As well, the capacity utilization rate has trended higher from the low of 68.2% also seen in June 2009 to this month`s reading of 74.8%, but this still remains well below the greater than 80% averaged during the previous two decades. The environment of excess capacity and subdued inflation continues to suggest that the Fed will maintain its highly accommodative monetary policy stance throughout 2011.
The U.S. trade deficit narrowed by 5.3% in September to $44.0 billion, the Commerce Department said Wednesday. The trade deficit was below the consensus forecast of Wall Street economists of a deficit of $45 billion. The smaller-than-expected deficit should add a few percentage points to third quarter GDP, currently estimated at a 2.0% growth rate. Exports inched higher while imports declined in September. The U.S. trade deficit with China widened to $27.8 billion in compared with $22.1 billion in the same month last year. The deficit for the first nine months of the year was $379.1 billion, which is more than the trade gap for the entire year in 2009.
The US Department of Labor released October`s Consumer Price Index. The monthly inflation data turned out at 0.2%, while the annual CPI printed a 1.2% increase. When volatile elements, namely Food and Energy, are excluded the MOM CPI yielded no change and the YoY ticked up 0.6%.
The monthly inflation could not live up to the expectations of rising to 0.3% from the previous 0.1%, the year-over-year followed suit and rose by the same margin from the previous 1.1%. The MoM Core CPI was unchanged, neglecting a forecast of 0.1%, while the pace of the YoY slowed from the previous 0.8%, and did so more than the anticipated 0.7%.
The US jobless rate surged to 9.8 percent in November, a hammer blow to the economic recovery and to President Barack Obama`s hopes for a quick end to high unemployment. The world`s largest economy created many fewer jobs than expected and the unemployment rate rose from 9.6 percent to its highest level since April, the Labor Department reported.
A measly 39,000 jobs were created during the month, well short of the 130,000 predicted by economists and well beneath the levels needed to dent unemployment rates.
Job losses in the retail and manufacturing sector led the decline as the employment market once again proved unable to untether itself from the long-ended recession. The jobless rate has remained above nine percent for the last 19 months, leaving more than 15 million jobseekers unemployed.

Economy of the European Union

GDP increased by 0.4% in the euro area (EA16) and by 0.5% in the EU27 during the third quarter of 2010, compared with the previous quarter, according to first estimates released by Eurostat, the statistical office of the European Union. In the second quarter of 2010, growth rates were +1.0% in both zones.
Compared with the third quarter of 2009, seasonally adjusted GDP increased by 1.9% in the euro area and by 2.2% in the EU27, after +2.0% in both zones for the previous quarter.
In September 2010 compared with August 2010, seasonally adjusted industrial production fell by 0.9% in the euro area (EA16) and by 0.5% in the EU27. In August 2010 production rose by 1.1% and 0.9% respectively. In September 2010 compared with September 2009, industrial production increased by 5.2% in the euro area and by 5.8% in the EU27.
The first estimate for the euro area (EA16) trade balance with the rest of the world in September 2010 gave a 2.9 bn euro surplus, compared with +1.4 bn in September 2009. The August 20102 balance was -5.0 bn, compared with -1.7 bn in August 2009. In September 2010 compared with August 2010, seasonally adjusted exports rose by 0.6%, while imports fell by 2.5%.
The first estimate for the September 2010 extra-EU27 trade balance was a 11.7 bn euro deficit, compared with -10.5 bn in September 2009. In August 20102 the balance was -17.7 bn, compared with -11.2 bn in August 2009. In September 2010 compared with August 2010, seasonally adjusted exports rose by 0.7%, while imports fell by 1.5%.
Euro area annual inflation is expected to be 1.9% in November 2010 according to a flash estimate issued by Eurostat, the statistical office of the European Union. Euro area annual inflation was 1.9% in October 2010, up from 1.8% in September. A year earlier the rate was -0.1%. Monthly inflation was 0.4% in October 2010. EU3 annual inflation was 2.3% in October 2010, up from 2.2% in September. A year earlier the rate was 0.5%. Monthly inflation was 0.3% in October 2010.
The euro area1 (EA16) seasonally-adjusted unemployment rate was 10.1% in October 2010, compared with 10.0% in September. It was 9.9% in October 2009. The EU27 unemployment rate was 9.6% in October 2010, unchanged compared with September. It was 9.4% in October 2009.
Eurostat estimates that 23.151 million men and women in the EU27, of whom 15.947 million were in the euro area, were unemployed in October 2010. Compared with September, the number of persons unemployed increased by 84 000 in the EU27 and by 80 000 in the euro area. Compared with October 2009, unemployment rose by 0.590 million in the EU27 and by 0.402 million in the euro area.

Economy of Japan

Japan`s economy expanded at an annualised pace of 3.9% in the third quarter as car buyers rushed to make the most of expiring subsidies, data showed, but analysts warned of risks ahead. The July-September figure compared with the previous quarter`s revised 1.8% growth and beat market expectations of 2.5%. On a quarterly basis, the economy grew 0.9% compared with 0.4%. But analysts warned of a looming payback in the fourth quarter without the one-off factors driving Japan`s third quarter growth, amid fears a slowing economy could slide back towards recession.
Japan`s fourth straight quarter of expansion was driven by a consumer rush to make the most of government subsidies for car buyers before they expired in September and a surge in cigarette sales before a new tobacco tax was levied.
A particularly hot summer, which saw record-breaking temperatures, also drove sales of items such as air conditioners during the period, analysts said. Private consumer spending, which accounts for nearly two-thirds of Japan`s gross domestic product, was up 1.1% on-quarter in the period. It was up a revised 0.1% in the previous quarter.
Industrial production in Japan was down by a seasonally adjusted 1.8 percent in October compared to the previous month, the Ministry of Economy, Trade and Industry said in a preliminary report, declining for the fifth consecutive month. That was better than forecasts for a 3.2 percent monthly decline following the 1.6 percent contraction in September. On an annual basis, industrial production added 4.5 percent - again beating expectations for a 3.1 percent increase following the 11.5 percent gain in the previous month.
As a result of the data, the METI changed its assessment of industrial production, saying that it has weakened after a few months of holding steady.
Industries that contributed to the decrease include transport equipment and electronic parts and devices. Commodities that contributed to the decrease include passenger cars and cellular telephones.
According to the Survey of Production Forecast in Manufacturing, production is expected to increase 1.4 percent in November and 1.5 percent in December. Industries that contributed to the increase in November include general machinery, transport equipment and electrical machinery. Industries that contributed to the increase in December include transport equipment, information and communication electronics equipment.
Shipments in October decreased 2.7 percent on month, down for the fourth consecutive month. It showed an increase of 4.4 percent on year. Industries that contributed to the decrease include transport equipment, electronic parts and devices and fabricated metals.
Inventories in October declined 1.5 percent on month, down for the first time in three month. They were up 3.3 percent on year. Industries that contributed to the decrease include information and communication electronics equipment, transport equipment and electrical machinery. The Inventory Ratio in October increased 7.6 percent on month, rising for the second consecutive month. It was down 1.4 percent on year.
Japan`s exports expanded for the 11th straight month in October, up by 7.8 percent year-on-year to 5,723.6 billion yen (68.95 billion U.S. dollars), the finance ministry said. The rate of exports growth, however, continued to slow in the reporting month, hitting a new low in 11 months against the backdrop of global economic slowdown, it said.
Trade surplus rose 2.7 percent to 821.9 billion yen (9.89 billion dollars) with imports expanding 8.7 percent to 4,901.7 billion yen (59.05 billion dollars). Exports to countries in the European Union dropped 1.9 percent to 655.3 billion yen (7.89 billion dollars), marking the first fall in 11 months. The figures are measured on a customs-cleared basis before adjustments for seasonal factors.
Consumer prices in Japan fell 0.6 percent during the month of October, the government said Friday, marking the 20th straight month of declines as the country struggles to keep its economic recovery alive. Japan`s key consumer price index, which excludes volatile fresh food prices, was down from the same month a year ago. Deflation raises individual purchasing power but is generally bad for the overall economy, as it cuts into company profits and can trigger job and wage cuts.
Japan`s unemployment rate worsened slightly in October, as industrial production slipped and household spending was down, the government said. The national unemployment rate rose to 5.1 per cent in October, up from 5 per cent a month earlier. The figure is low by international standards but high historically for Japan.
The total number of jobless in the country decreased to 3.34 million in October, down 100,000 from a year earlier, the government said. Those with jobs increased 150,000 to 62.86 million.

Economy of Russia

Russia`s economy grew by a better-than-expected 3.9% on the year in October, the country`s Economy Minister said. For January to October, Russia`s gross domestic product grew by 3.7%, Economy Minister Elvira Nabiullina said. Russia expects its economy to grow by around 4.0% this year. Russia`s economy was battered over the summer by record heat and its worst drought in decades, which slowed production, destroyed nearly a third of the grain harvest and sent food prices soaring.
Russian industrial production increased an annual 6.6 percent in October, led by the production of cars, trucks and other manufactured goods, beating economists` estimates. Output growth accelerated after a 6.2 percent advance in September, the Federal Statistics Service in Moscow said in an e-mailed statement today. Non-seasonally adjusted output rose 4.2 percent from the previous month. The median estimate of 12 economists in a Bloomberg survey was for an annual increase of 5.4 percent.
Russia`s inflation rate rose to the highest in 11 months in November, putting pressure on the central bank to increase interest rates to keep a lid on consumer-price growth. Inflation gained to an annual 8.1 percent, compared with 7.5 percent in October, the Federal Statistics Service said in an e-mailed statement today. The median estimate in a Bloomberg survey of 15 economists was for 8 percent. Prices advanced 0.8 percent in the month. - 06.12.2010 22:02:06