World Economy Review - October 2011

Real gross domestic product (GDP) is projected to grow by about 3.9 percent this year, 3.8 percent in 2012 and 4.6 percent in 2013 on average in G20 countries if without comprehensive policy action to heal euro area debt crisis and secure fiscal policy in the United States, the Paris-based Organization for Economic Cooperation and Development said.
The OECD lowered its 2011 GDP growth estimates for the Eurozone from 2% to 1.6% and the 2012 estimate from 2% to 0.3%. For the United States, GDP is expected to expand by just 1.7% this year, from a previous forecast of 2.6% growth, and by 1.8% next year, down from initial estimates of 3.1% growth. China`s GDP growth estimate was raised from 9% to 9.3% for 2011, but lowered from 9.2% to 8.6% for 2012.
In a brief outlook report about G20 members, OECD expected "marked slowdown" in the euro area with "negative growth" in some economies while the US growth is projected to be "weak" with "a gradual pick-up from 2012."
The short-term economic outlook is heavily weighed down by uncertainties in the major advanced countries so that G20 leaders need to take "bold decisions" and "decisive actions" shortly, OECD Secretary-General Angel Gurria urged when presenting the report ahead of the G20 Summit in Cannes. Refusing to detail which eurozone countries would see the "negative growth", Gurria warned "this projection would happen if no actions were taken."
According to the OECD projection, GDP growth to remain weak in the advanced G20 economies over the next two years while the pace of activity in the major emerging markets is likely to be lower than in the pre-crisis period.
Due to slow economic growth, "unemployment is set to remain high in many advanced countries" with an average rate at 8.1 percent for 2011, 8.2 percent for 2012 and 8.0 percent for 2013, the OECD data showed. "Employment is the elephant on the table, not under the table," Gurria underscored.
As to euro area debt crisis, Gurria praised EU leaders` deal on Oct. 26 "an important first step" to address the debt and banking crisis, but he also pointed out these measures must be implemented "promptly and forcefully."
Many acclamation as well as buoyant market followed the EU bailout package passed on Oct. 26 as it finally agreed to recapitalize European banks with over 100 billion euros (140.18 billion U.S. dollars) and increased the EU bailout fund to 1 trillion euros (1.40 trillion U.S. dollars), but economists also called for more specific details to follow up.
"However, more detailed information is needed on the specific measures, including the options for EFSF enhancement," the OECD note said. "For the first time, we are talking about fiscal union, de facto fiscal union," Gurria added referring to solutions to Eurozone debt crisis. Current situation is "moving toward the right direction" but "decision" "execution" and "action" are what`s most in need.
Out of concern on G20 fiscal situation, the OECD note additionally revealed public debt against GDP ratios for the United States, Eurozone and Japan. The U.S. public debt is to bulge from 97.6 per cent of GDP this year to 103.8 percent in 2012 and 108.7 percent in 2013. The Euro zone`s data will be 95.2 percent, 97.2 percent and 97.6 percent from 2011 to 2013 in order while that for Japan is to reach 212.3 percent, 219.8 percent and 227.6 percent in order.
Gloomy outlook in advanced countries also increased risks of "unchanged" global imbalances while Chinese current account surplus is falling but that of the high-saving and oil-exporting countries are collectively rising.

Economy of the United States

The nation`s economy made progress this summer after seemingly coming to a halt earlier this year, as consumer spending, businesses investment exports increased. The Commerce Department said that the economy expanded at an annual rate of 2.5 percent in the July-September quarter - nearly double the 1.3 percent growth in the April-June quarter. Although the expanded growth is a positive sign and will probably ease concerns over a second recessions, economists say it`s not enough lower the 9.1 percent unemployment rate.
Consumer spending - a key driver that represents 70 percent of the economy - increased 2.4 percent in the third quarter, a more than threefold increase over the 0.7 percent in the second. The personal saving rate - as a percentage of disposable personal income - was 4.1 percent in the third quarter, compared with 5.1 percent in the second quarter. Durable goods increased 4.1 percent, in contrast to a decrease of 5.3 percent. Services were up 3 percent, compared with an increase of 1.9 percent.
Business investment increased 16.3 percent in the third quarter, compared to an increase of 10.3 percent in the second, with equipment and software up 17.4 percent. That is compared to an increase of 6.2 percent in the second quarter. Exports increased 4 percent in the third quarter, compared to an increase of 3.6 percent in the second, while imports negated some of the gains - increasing 1.9 percent, compared to an increase of 1.4 percent.
Industrial production increased 0.2 percent in September after having been unchanged in August. Previously, industrial production was reported to have stepped up 0.2 percent in August. For the third quarter as a whole, industrial production rose at an annual rate of 5.1 percent. Manufacturing output moved up 0.4 percent in September after having gained 0.3 percent in August. Production at mines advanced 0.8 percent in September, while the output of utilities decreased 1.8 percent. At 94.2 percent of its 2007 average, total industrial production for September was 3.2 percent above its year-earlier level. Capacity utilization for total industry edged up to 77.4 percent, a rate 1.7 percentage points above its level from a year earlier but 3.0 percentage points below its long-run (1972-2010) average.
The U.S. trade deficit narrowed in August, although the gap with China hit a single-month high. The deficit was little changed, dipping to a four-month low of $45.61 billion in August compared with the upwardly revised July deficit of $45.63 billion, the Commerce Department said. For the year, the deficit is running at an annual rate of $564.3 billion, 13 percent higher than last year.
August exports totaled $177.6 billion - down about $95 million from July - while imports fell $111 million to $223.2 billion. Meanwhile, the trade gap with China hit a record high for a single month, rising to $28.96 billion from $26.96 billion. Through August, the deficit with China is 9 percent higher than the same period in 2010, when there was a record gap between the two nations.
Consumer prices rose again in September as Americans paid more for gasoline and a wide variety of groceries, the government reported. The Labor Department said the consumer price index rose a seasonally adjusted 0.3% last month, pushing the increase over the past 12 months up to 3.9% from 3.8% in August. The spike in consumer prices over the past year means millions of Americans who receive Social Security and other federal benefits will get a 3.6% increase in 2012, based on how the government calculates payments. It will be the first increase in three years.
The core rate of inflation, meanwhile, rose a smaller 0.1% in September, keeping its 12-month increase at 2.0%. It was the smallest increase since March. Economists surveyed by MarketWatch had forecast consumer price index, which tracks inflation at the retail level, to rise by 0.3% in September. The core rate was expected to increase by 0.2%.
In September, energy prices rose 2.0% on the heels of a 1.2% increase in August. Gasoline prices rose the most, but the cost of natural gas and electricity was also sharply higher. Food prices climbed 0.5% last month as the cost of dairy products, cereals, baked goods, fruits and vegetables all surged. Higher prices resulted in a decline in the wages of American workers adjusted for inflation. Real average hourly wages dipped 0.1% in September. Yet because workers put more hours on the job, real weekly wages actually rose 0.2% last month. The average workweek rose by 0.3%. Still, real weekly wages are down 2.0% “since reaching a recent peak in October 2010,” the Labor Department said. Higher consumer prices accounts largely for the decline in real earnings.

Economy of the European Union

Economic growth in the EU and Eurozone is slowing, the Commission said in its latest assessment for the second half of the year. GDP growth in the EU in the second half of 2011 is now expected to be subdued. Based on the outlook for the seven largest EU countries, GDP is expected to expand by only 0.2% in both the EU and Eurozone in the third quarter and by 0.2% in the EU and 0.1% in the Eurozone in the fourth. As growth was strong in the first quarter of 2011, annual GDP for the whole year is projected to balance out at 1.7% for the EU and 1.6% for the Eurozone.
In August 2011 compared with July 2011, seasonally adjusted industrial production rose by 1.2% in the euro area (EA17) and by 0.9% in the EU27. In July production grew by 1.1% and 0.9% respectively. In August 2011 compared with August 2010, industrial production increased by 5.3% in the euro area and by 4.3% in the EU27. These estimates are released by Eurostat, the statistical office of the European Union.
In August 2011 compared with July 2011, production of capital goods grew by 2.1% in the euro area and by 1.6% in the EU27. Intermediate goods rose by 1.7% and 1.4% respectively. Non-durable consumer goods increased by 1.1% in the euro-area and by 0.7% in the EU27. Production of energy remained stable in the euro area and gained 0.3% in the EU27. Durable consumer goods remained stable in both zones. Among the Member States for which data are available, industrial production rose in twelve and fell in ten. The largest increases were registered in Portugal (+8.2%), Ireland (+4.4%) and Italy (+4.3%), and the highest decreases in Denmark (-3.0%), Sweden (-2.7%) and Bulgaria (-2.1%).
In August 2011 compared with August 2010, production of capital goods increased by 12.2% in the euro area and by 10.6% in the EU27. Intermediate goods rose by 5.3% and 4.7% respectively. Durable consumer goods grew by 2.8% in the euro-area and by 1.1% in the EU27. Non-durable consumer goods gained 1.9% and 1.8% respectively. Production of energy fell by 3.5% in the euro area and by 3.6% in the EU27. Among the Member States for which data are available, industrial production rose in seventeen and fell in five. The highest increases were registered in Estonia (+22.7%), Ireland (+10.1%), Germany (+7.8%) and Romania (+7.7%), and the largest decreases in Greece (-12.3%) and Malta (-2.2%).
The first estimate for euro area (EA17) trade with the rest of the world in August 2011 gave a 3.4 bn euro deficit, compared with -6.3 bn euro in August 2010. The July 2011 balance was +2.5 bn, compared with +4.6 bn in July 2010. In August 2011 compared with July 2011, seasonally adjusted exports rose by 4.7% and imports by 2.7%. The first estimate for the August 2011 extra-EU27 trade balance was a 17.8 bn euro deficit, compared with -19.2 bn in August 2010. In July 2011 the balance was -9.0 bn, compared with -7.5 bn in July 2010. In August 2011 compared with July 2011, seasonally adjusted exports rose by 2.9% and imports by 3.2%.
Euro area annual inflation is expected to be 3.0% in October 2011 according to a flash estimate issued by Eurostat, the statistical office of the European Union. Euro area annual inflation was 3.0% in September 2011, up from 2.5% in August. A year earlier the rate was 1.9%. Monthly inflation was 0.8% in September 2011. EU annual inflation was 3.3% in September 2011, up from 2.9% in August. A year earlier the rate was 2.3%. Monthly inflation was 0.6% in September 2011.
The euro area (EA17) seasonally-adjusted unemployment rate was 10.2% in September 2011, compared with 10.1% in August. It was 10.1% in September 2010. The EU27 unemployment rate was 9.7% in September 2011, compared with 9.6% in August. It was 9.6% in September 2010. Eurostat estimates that 23.264 million men and women in the EU27, of whom 16.198 million were in the euro area, were unemployed in September 2011. Compared with August 2011, the number of persons unemployed increased by 174 000 in the EU27 and by 188 000 in the euro area. Compared with September 2010, unemployment rose by 215 000 in the EU27 and by 329 000 in the euro area.

Economy of Japan

Industrial production in Japan was down a seasonally adjusted 4.0 percent on month in September, the Ministry of Economy, Trade and Industry said in a preliminary reading - falling for the first time in six months while continuing to reflect the results of the devastating earthquake and tsunami on March 11. That was well shy of forecasts for a decline of 2.1 percent following the 0.8 percent gain in August.
On an annual basis, industrial production was down 4.0 percent - again missing forecasts for a contraction of 2.3 percent after adding 0.4 percent in the previous month. Shipments in September decreased 2.6 percent on month, falling for the first time in five months. Shipments fell 3.6 percent on year. According to the survey of production forecast, production is expected to rise 2.3 percent in October and 1.8 percent in November.
Japan`s exports rose a stronger than expected 2.4 percent in September from a year earlier, Ministry of Finance data showed, in a sign the resilience of exports could help support the economy`s moderate recovery. The rise in exports was bigger than a median forecast for a 1.0 percent increase and followed a 2.8 percent rise in the year to August. Imports increased 12.1 percent in September, against a forecast of a 12.6 percent rise. The trade balance turned to a surplus of 300.4 billion yen. That followed a deficit in the previous month and compared with a median forecast of a 198.8 billion yen surplus. Exports to Asia, which account for more than half of Japan`s total exports, rose 0.2 percent from a year earlier. Exports to the United States were up 0.4 percent.
Japan`s September unemployment rate and household spending came in better than expected, while consumer inflation matched forecasts, painting a mostly upbeat picture. The Ministry of Internal Affairs said that the jobless rate slid to 4.1% from 4.3% the previous month, even as the government resumed including unemployed people in three earthquake-damaged prefectures that had been stripped out of the data since March. Economists had on average expected the rate to rise to 4.4%, according to a survey reported by Dow Jones Newswires.
Japan`s core consumer price index rose 0.2 percent in September from a year earlier, marking the third successive month of increase, the Ministry of Internal Affairs and Communications said. The CPI reading in the recording period, which excludes volatile fresh food prices, compares with median economists` forecasts for a 0.1 percent rise in the recording period and follows a 0.2 increase logged in May. The index in September came to 99.9 against the 2010 base of 100, the ministry said.
Local analysts have said that Japan`s CPI is set to continue an upward trend into the next month as power prices will likely increase due the fragile state of Japan`s nuclear power plants and the need to burn more fossil fuels at standard electrical plants.

Economy of Russia

Russian domestic demand, fueled by consumer loans, propelled economic growth to the fastest rate in three years in the third quarter, Deputy Economy Minister Andrei Klepach said. Gross domestic product grew 5.1 percent from a year earlier, the highest rate since the third quarter of 2008, compared with 3.4 percent in April-June, Klepach told reporters in Moscow late yesterday. That brought nine-month growth to 4.2 percent, or 0.1 percentage point faster than the government`s full-year forecast.
“The main factors behind the acceleration in GDP growth were household consumption and fixed investment growth, supported by more vibrant construction activity,” Yaroslav Lissovolik, head of research at Deutsche Bank in Moscow, in an e-mailed note today. “We expect growth in the final quarter to stay above 4 percent, which is likely to be supported by higher budget spending at the end of this year and the still-high growth in household consumption.”
Russia, the world`s largest energy exporter, is counting on domestic consumption to balance shrinking demand abroad as Europe, its most important market, fights to contain a debt crisis. Loan growth may reach 30 percent this year, Klepach said, above the central bank forecast of 24 percent, which is “a bit too fast,” First Deputy Chairman Alexei Ulyukayev said last week.
“We`re above forecast on retail sales, even though in September they usually slow,” Klepach said, adding the economic expansion may lose steam in the fourth quarter, slowing to between 3.8 percent and 3.9 percent. Prime Minister Vladimir Putin, who will run for president in next year`s election, said on Oct. 6 that Russia would “do everything” to achieve faster growth of 6 percent to 7 percent annually. GDP expanded 4 percent in 2010 after a record 7.8 percent contraction the previous year. Russia posted an average growth rate of almost 7 percent from 1999 to 2008.
Russia`s industrial production expanded in September at its slowest pace since November 2009 and producer prices unexpectedly fell, hit by slumping local and overseas demand due to concerns about the global economic slowdown. Industrial output rose 3.9 percent last month from a year earlier, the Federal Statistics Service (Rosstat) said down from 6.2 percent growth in August and below analysts` median forecast of a 5.6 percent increase.
The producer price index (PPI) dipped 0.7 percent in September after rising 4.6 percent a month earlier, according to data released by Rosstat. "A slowdown in the export-focused sectors, such as mineral resources extraction and metal production, is still the main factor, which is hampering industrial output growth," said Vladimir Tsibanov, economist at Rosbank. The slowdown in export-oriented industries was also responsible for the fall in producer prices, with prices for mineral extraction down 3.9 percent in September. They were hit by a 6.2 percent slide in oil prices on worries that a slowing global economy would depress demand for oil.