World Economy Review - January 2012

The International Monetary Fund cut its forecast for global economic growth in 2012 and 2013, citing growing financial strains and rising downside risks as Europe`s debt crisis entered a “perilous new phase.” In an update of its world economic outlook, the Washington-based institution said it expects global output to grow by 3.3% in 2012, down from 3.8% in 2011 and from a September forecast of 4%. Global output is forecast to expand 3.9% in 2013, down from a previous forecast of 4.5%. “Global growth prospects dimmed and risks sharply escalated during the fourth quarter of 2011, as the euro-area crisis entered a perilous new phase,” the IMF said.
The IMF said it now expects rising sovereign bond yields and deleveraging by banks to push the euro-zone economy into a “mild recession” in 2012. It also warned that overly aggressive austerity measures could backfire. The IMF expects the 17-nation euro-zone economy to shrink 0.5% in 2012, followed by growth of 0.8% in 2013. The IMF had previously projected growth of 2.1% in 2012 and 1.5% in 2013.
The report comes a day after IMF Managing Director Christine Lagarde warned that the global economy could slide into a “1930s moment” unless Europe gets a grip on its debt crisis and other economic engines, including the United States and China, meet their responsibilities. Lagarde emphasized the need for stronger, growth-oriented policies, as well as larger firewalls and deeper fiscal integration across the euro zone. Read more about Lagarde`s `1930s moment` warning.
The IMF left its forecast for U.S. economic growth in 2012 unchanged at 1.8%, but pegged 2012 growth at 2.2%, down from an earlier projection of 2.5%. Japan is forecast to rebound from a 0.9% contraction in 2011 to grow 1.7%, down from a September forecast of 2.3%. Japan is forecast to grow 1.6% in 2012, down from the earlier estimate of 2%. The IMF said “sufficient” fiscal adjustment is under way in most advanced economies. It urged countries to let automatic stabilizers - such as unemployment and other benefits - operate freely as long as they can readily finance higher deficits.
Without naming countries, the IMF said nations with very low interest rates or other factors that provide room for maneuver on the fiscal front, including some countries in the euro zone, should reconsider the pace of deficit reduction. At the same time, a lack of a credible, medium-term plan to rein in debt in the United States and Japan provides another downside risk to the global economy, the IMF said. “As long as public debt levels are projected to rise over the medium term, and in the absence of a well-defined and credible fiscal consolidation strategies, there is the possibility of turmoil in global bond and currency markets,” the report said. “A more immediate risk is that an accident-prone political economy will lead to excessive fiscal tightening in the near term in the United States.”
While the IMF slashed growth forecasts for the euro zone, the updated projections “see global activity decelerating but not collapsing,” the report said. The IMF expects most advanced economies to avoid falling back into recession, while emerging and developing economies are forecast to slow from a fast growth pace in 2011. But the report emphasized that the forecast is based on the assumption that euro-zone policy makers intensify their efforts to address the crisis and that policies limit deleveraging by euro-zone banks, avoiding a severe credit crunch.
Overall, emerging and developing economies are forecast to see 2012 growth of 5.4%, down from a September estimate of 6.1%. Growth in 2013 is forecast at 5.9%, down from the September outlook of 6.5%. China is now expected to see growth slow from 9.2% in 2011 to 8.2% in 2012, re-accelerating to 8.8% in 2013. The IMF previously forecast growth of 9% in 2012 and 9.5% in 2013.
The report states that Russia`s GDP growth will slow down in 2012 and 2013. The IMF said that although some imbalances in the Russian economy remain, the country is ready to survive a new crisis and to manage it even better than it did in 2008-2009. The deterioration of the current debt crisis in Europe and a slowdown in the economic growth of the leading developed and developing countries have prompted the IMF revised its forecast on Russia to “less optimistic”. According to the report, Russia`s GDP in 2012 will grow by 3.3% instead of the 4.4% forecast earlier. In addition to that, that the IMF experts predict the country`s budget deficit will grow up to 1.4% of Russia`s GDP.

Economy of the United States

The U.S. economy expanded at a 2.8% annual rate in the fourth quarter, the Commerce Department said. The gross domestic product growth rate followed a 1.8% gain in the prior quarter. GDP for the full year expanded at a 1.7% rate, below the 3% growth rate in 2010. The fourth-quarter rate was below economists` estimates of 3%, Bloomberg reported. Consumer spending, which accounts for about 70% of the economy, grew at a 2% rate. Inventory growth added 2%.
Industrial production increased 0.4 percent in December after having fallen 0.3 percent in November. For the fourth quarter as a whole, industrial production rose at an annual rate of 3.1 percent, its 10th consecutive quarterly gain. In the manufacturing sector, output advanced 0.9 percent in December with similarly sized gains for both durables and nondurables. The output of utilities fell 2.7 percent, as unseasonably warm weather reduced the demand for heating; the output of mines moved up 0.3 percent. At 95.3 percent of its 2007 average, total industrial production in December was 2.9 percent above its level of a year earlier. The capacity utilization rate for total industry rose to 78.1 percent, a rate 2.3 percentage points below its long-run (1972-2010) average.
After declining for four straight months, the U.S. trade deficit widened in November, bringing the trade gap up to its highest level since June. The nation`s trade deficit widened 10.4% in November to $47.8 billion, the Commerce Department said. This is the largest increase since May. Exports fell 0.9% to $177.8 billion in November, the second straight drop after hitting a record high in September. Imports rose 1.3% to $189.7 billion in November. Imports have been treading water after hitting $226.2 billion in May. Analysts surveyed by MarketWatch had expected a deficit of $43.6 billion.
The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in December on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 3.0 percent before seasonal adjustment. Similar to last month, the energy index declined in December and offset increases in other indexes. The gasoline index declined for the third month in a row and the household energy index declined as well. The food index rose in December, with the index for food at home turning up after declining last month.
The index for all items less food and energy increased 0.1 percent in December after rising 0.2 percent in November. The indexes for shelter, recreation, medical care, and tobacco all posted increases, while the indexes for used cars and trucks, new vehicles, and apparel all declined.
The all items index has risen 3.0 percent over the last 12 months, a decline from last month`s 3.4 percent figure. Recent declines in the energy index have brought its 12-month change down to 6.6 percent from 19.3 percent in September. The 12-month change in the index for all items less food and energy held at 2.2 percent, while the 12-month change in the food index edged up from 4.6 percent to 4.7 percent.
The U.S. unemployment rate fell for the fifth straight month after a surge of January hiring, a promising shift in the nation`s outlook for job growth. The unemployment rate dropped to 8.3 percent from 8.5 percent in December. That`s the lowest in nearly three years. The Labor Department says employers added 243,000 jobs in January, the most in nine months. Employers have added an average of 201,000 jobs per month in the past three months. That`s 50,000 more jobs per month than the economy averaged in each month last year. The January jobs report was filled with other encouraging data and revisions. Hiring was widespread across many high-paying industries. Pay increased. And the economy added 200,000 more jobs in 2011 than first thought.

Economy of the European Union

IHS Global Insight estimates that Eurozone GDP contracted around 0.4% quarter-on-quarter in the fourth quarter of 2011.
In November 2011 compared with October 2011, seasonally adjusted industrial production fell by 0.1% in both the euro area (EA17) and the EU27. In October production decreased by 0.3% in both zones. In November 2011 compared with November 2010, industrial production dropped by 0.3% in the euro area and by 0.2% in the EU27.
In November 2011 compared with October 2011, production of non-durable consumer goods fell by 0.8% in the euro area and by 0.6% in the EU27. Durable consumer goods decreased by 0.8% in the euro area, but rose by 0.1% in the EU27. Capital goods remained stable in both zones. Intermediate goods remained stable in the euro area and grew by 0.1% in the EU27. Production of energy increased by 0.5% in the euro area, but dropped by 0.2% in the EU27.
Among the Member States for which data are available, industrial production fell in ten and rose in nine. The largest decreases were registered in Ireland (-9.4%), Sweden (-3.0%) and Slovakia (-2.4%), and the highest increases in the Czech Republic (+2.7%), Poland (+1.6%), Greece, France and Lithuania (all +1.1%).
In November 2011 compared with November 2010, production of energy fell by 5.8% in the euro area and by 6.6% in the EU27. Durable consumer goods decreased by 4.0% and 2.1% respectively. Non-durable consumer goods dropped by 1.3% in the euro area and 0.7% in the EU27. Intermediate goods fell by 1.1% and 0.8% respectively. Capital goods increased by 4.3% in the euro area and by 4.5% in the EU27.
Among the Member States for which data are available, industrial production fell in nine and rose in ten. The highest decreases were registered in Greece (-8.2%), Spain (-7.0%), Ireland (-4.4%), Malta (-4.3%) and Italy (-4.1%), and the largest increases in Poland (+9.9%), Latvia (+8.5%), the Czech Republic (+5.4%), Romania (+3.3%) and Germany (+3.2%).
The first estimate for euro area (EA17) trade with the rest of the world in November 2011 gave a 6.9 bn euro surplus, compared with -2.3 bn euro in November 2010. The October 2011 balance was +1.0 bn, compared with +3.1 bn in October 2010. In November 2011 compared with October 2011, seasonally adjusted exports rose by 3.9%, while imports remained stable.
The first estimate for the November 2011 extra-EU27 trade balance was a 7.2 bn euro deficit, compared with -16.8 bn in November 2010. In October 2011 the balance was -11.2 bn, compared with -9.5 bn in October 2010. In November 2011 compared with October 2011, seasonally adjusted exports rose by 2.8%, while imports fell by 0.6%.
Euro area annual inflation is expected to be 2.7% in January 2012 according to a flash estimate issued by Eurostat, the statistical office of the European Union. Euro area annual inflation was 2.7% in December 2011, down from 3.0% in November. A year earlier the rate was 2.2%. Monthly inflation was 0.3% in December 2011. EU annual inflation was 3.0% in December 2011, down from 3.4% in November. A year earlier the rate was 2.7%. Monthly inflation was 0.3% in December 2011.
The euro area (EA17) seasonally-adjusted unemployment rate was 10.4% in December 2011, unchanged compared with November. It was 10.0% in December 2010. The EU27 unemployment rate was 9.9% in December 2011, also unchanged compared with November. It was 9.5% in December 2010.
Eurostat estimates that 23.816 million men and women in the EU27, of whom 16.469 million were in the euro area, were unemployed in December 2011. Compared with November 2011, the number of persons unemployed increased by 24 000 in the EU27 and by 20 000 in the euro area. Compared with December 2010, unemployment rose by 923 000 in the EU27 and by 751 000 in the euro area.

Economy of Japan

Japan`s gross domestic product in October-December 2011 is expected to have posted the first fall in two quarters, down a real 0.4% q/q, or an annualized -1.5%, due mainly to deterioration in net exports, following +1.4% q/q in Q3, -0.5% in Q2 and -1.7% in Q1, according to the median forecast of economists surveyed by Market News International.
Japan`s economy is expected to shrink 0.4 percent in fiscal 2011, the country`s central bank forecast, a reversal of its previous projection of 0.3 percent growth. The Bank of Japan said it expected growth of 2.0 percent in fiscal 2012, a slight reduction from its previous prediction of 2.2 percent growth.
Japanese industrial production made a bigger than expected rebound in December, as manufacturers compensated for major floods in Thailand by boosting production in Japan. Government figures showed that factory output rose by 4 percent from November, when production took a hit after supply chains were disrupted by Thailand`s worst flooding in seven decades. The Trade and Industry Ministry said the recovery was driven by increased output in the automotive and electronic component industries. Surveyed manufacturers predict that industrial output will continue to rebound. They project a 2.5 percent increase in January and 1.2 percent increase in February.
Some analysts warn that the encouraging figures may only represent a temporary rebound, and that Japanese exports will continue to suffer from a strong yen and weak external demand. Industrial output for the entire year fell by 3.5 percent, as manufacturers also struggled to deal with the effects of a March earthquake and tsunami, as well as the European debt crisis.
Japan posted a merchandise trade deficit of 496.53 billion yen in December, the Ministry of Finance said - remaining in the red for the third consecutive month as the recovery from the devastating earthquake and tsunami on March 11 continues to stall. The headline figure was well shy of expectations for a shortfall of 154.9 billion yen following the downwardly revised 687.6 billion yen deficit in November. The original November reading was a deficit of 684.729 billion yen.
Exports contracted 8.3 percent on year in December to 3.508 trillion yen, also missing forecasts for a decline of 7.4 percent following the 4.5 percent fall a month earlier. It also marked the third straight monthly fall following three straight months of gain. Imports climbed 5.6 percent on year to 4.005 trillion yen, climbing for the 24th consecutive month. That compares to forecasts for an increase of 8.0 percent on year after surging an annual 11.4 percent in the previous month. The adjusted trade balance showed a deficit of 567.6 billion yen - well below forecasts for a shortfall of 384.9 billion yen following the downwardly revised 534.2 billion yen deficit in November.
For all of 2011, Japan has posted its first annual trade deficit in more than 30 years. The preliminary reading showed a trade deficit of 2.492 trillion yen. Exports fell 2.7 percent on year to 65.554 trillion yen, while imports jumped 12.0 percent to 68.047 trillion yen.
Japan`s core consumer prices fell for the third consecutive month in the year to December, and mild deflation is expected to persist this year as energy prices stabilize and worries about Europe`s debt crisis suppress wage growth and economic activity. Core consumer prices declined an annual 0.1 percent, matching the median estimate, and a narrower measure that excludes both food and energy also fell in a sign that Japan continues to grapple with a strong yen, which pushes down import prices and makes exporters reluctant to raise salaries.
Annual data showed the core CPI slipped 0.3 percent in 2011, the third straight yearly fall. Japan`s consumer inflation has been around zero or minus for over a decade, except a 1.5 percent rise in 2008 on the back of an increase in energy prices.
The unemployment rate in Japan came in at a seasonally adjusted 4.6 percent in December, the Ministry of Internal Affairs and Communications said. That was slightly above forecasts for 4.5 percent, which would have been unchanged from the previous month. The number of employed persons was 62.22 million, while the number of unemployed persons was 2.75 million. The participation rate was 58.9 percent, down from 59.2 percent.

Economy of China

China`s economy expanded by 9.2 percent in 2011 from a year earlier and 8.9 percent year-on-year in the fourth quarter, the National Bureau of Statistics (NBS) said. The quarterly growth was the slowest in 10 quarters. China set its full-year growth target at 8 percent in early 2011 after its economy grew 10.4 percent in 2010.
The country`s economy expanded 2 percent in the fourth quarter on a quarterly basis, NBS said. The economy grew 9.1 percent year-on-year in the third quarter of 2011, compared to 9.5 percent in the second quarter and 9.7 percent in the first quarter. According to preliminary statistics, the country`s GDP reached 47.16 trillion yuan ($7.26 trillion) in 2011.
China`s industrial value-added output was up 13.9 in 2011, when compared to the annual figure for 2010, a 1.4 percentage point decrease on the pace of growth registered in 2010, the NBS said. In addition, the profits of large-scale industrial enterprises expanded 24.4 percent from a year earlier to reach 4.66 trillion yuan in the first eleven months of the year. China`s fixed-asset investment rose 23.8 percent from a year earlier to reach 27.81 trillion yuan (4.22 trillion US dollars).
Urban fixed-asset investment rose to 30.19 trillion yuan, up 23.8 percent from a year earlier (or 16.1 percent if you take price factors into account). Investment in real estate climbed 27.9 percent over the course of 2011, reaching a total of 6.17 trillion yuan, 5.3 percentage points lower than the rate of growth recorded in 2010.
China`s CPI rose 4.1 percent in December from a year earlier, 0.1 percentage points lower the 4.2 percent increase registered in November. The inflation rate stood at 5.4 percent for the full year, which was well above the 4 percent target for the year set by the government in early March. The producer price index (PPI), another measure of inflation at the wholesale level, registered a year-on-year increase of 9.1 percent over the course of the year.

Economy of Russia

Russia`s 2011 GDP growth beat the market, coming in at 4.3% year over year compared to 4.1% consensus estimates. Russian statistical agency, Rosstat, published its first estimate of 2011 GDP growth Tuesday, revising 2010 numbers upward slightly to 4.3% from 4% compared to 2009. This implies fourth quarter 2011 growth was around 4.8% compared to the same period in 2010, just a little better than third quarter performance.
Russian agribusiness rose 16.1% last year, the best performing sector in the economy. Russia is a major producer and exporter of wheat. Retail trade also beat out GDP figures by growing 5% last year. At the same time, extraction sectors like mining and energy production grew just 1.7% from 7.1% in 2010. Manufacturing sectors grew at a decent 6.1%, but not as much as they grew in 2010, which was 8.3% in comparison to 2009.
Russian industrial production slowed more than forecast in December to its lowest level since October 2009 because of concern that Europe`s debt crisis would curb demand for exports. Output at factories, mines and utilities advanced 2.5 percent from a year earlier, slowing from a 3.9 percent increase the previous month, the Federal Statistics Service in Moscow said. The median estimate of 11 economists in a Bloomberg survey was for growth of 3.4 percent.
Output at mines advanced 1.8 percent in December, up from 1.3 percent the previous month, the service said. Growth in production at manufacturers slowed to 3.3 percent from an increase of 4.9 percent in November, while output at utilities dropped 5.1 percent after expanding 3.2 percent the previous month. Industrial output for the full year grew 4.7 percent, the statistics service said.