World Economy Review - February 2012

Average gross domestic product (GDP) growth in the fourth quarter of 2011 in the area of the Organization for Economic Cooperation and Development (OECD) slowed down to a stagnating 0.1 percent from 0.6 percent in the third quarter, the Paris-based organization said.
Quarterly GDP growth in the United States accelerated to 0.7 percent in the fourth quarter of 2011, up from 0.5 percent in the previous three months, while that of Japan shrank by 0.6 percent following a strong technical rebound of 1.7 percent in the July-to-September period, indicated the latest data in a monthly OECD report.
However, quarterly GDP growth in the 17-member Eurozone and the wider European Union as a whole saw their first down by 0.3 percent in both regions since the second quarter of 2009.
Among all major European economies whose data was available, only France registered a 0.2-percent GDP growth in the fourth quarter of 2011, down from 0.3 percent in the third quarter, while Germany and Britain contracted by 0.2 percent and Italy contracted by 0.7 percent.
Year on year, GDP growth in the OECD area stood at 1.3 percent in the fourth quarter of 2011 against 1.7 percent in the previous quarter, the OECD report said. "For the whole of 2011, GDP in the OECD area grew by 1.8 percent, down from 3.1 percent in 2010," the OECD concluded.
The OECD forecasts German GDP growth to slow to 0.4% this year before picking up to 1.9% next year. On a workday-adjusted basis, it expects GDP growth of 0.6% in 2012 and 1.9% in 2013.
Germany`s labor market still remains in relatively good shape, the OECD remarked. This is due to a decline in structural unemployment as well as a significant increase of flexibility in working hours, demonstrating the beneficial effects of past labor market reforms, it reasoned.
Public debt has increased notably in the crisis, but the budget deficit is the lowest among G7 countries, partly due to the strong labor market, the report pointed out. It projected a German public deficit of 1.0% of GDP this year and 0.5% next year.
The weakening of growth in Germany is projected to come mainly from slowing investment and consumption spending, which may temporarily suffer from adverse confidence effects, as well as from weaker trade growth, the report stated.
The OECD forecast HICP harmonized inflation for Germany of 1.6% this year and 1.5% next year. The institution cautioned, however, that its latest forecasts are "surrounded by an unusually high level of uncertainty and, notably, considerable downside risks."
These risks relate mostly to a further significant worsening of the Eurozone debt crisis which would have considerable adverse effects on the domestic banking system, possibly leading to severe constraints on credit supply, the OECD explained. At the same time, growth could also develop more favorably if contagion of the crisis to other countries can be contained, leading to an improvement in confidence, the OECD said.

Economy of the United States

Real GDP increased 3.0 percent (annual rate) in the fourth quarter, an upward revision of 0.2 percentage point from the advance estimate. The upward revision to real GDP reflected an upward revision to nonresidential fixed investment, a downward revision to imports, and an upward revision to consumer spending. In the third quarter, real GDP increased 1.8 percent.
The price index for gross domestic purchases increased 1.1 percent in the fourth quarter, an upward revision of 0.3 percentage point. This revision was mostly due to prices for personal consumption expenditures and reflected revised Bureau of Labor Statistics seasonally adjusted consumer price indexes. Real disposable personal income is now estimated to have increased 0.7 percent in the third quarter and 1.4 percent in the fourth. Real exports of goods and services increased 4.3 percent in the fourth quarter, compared with an increase of 4.7 percent in the third. Real imports of goods and services increased 3.8 percent, compared with an increase of 1.2 percent.
U.S. industrial production was stuck in inertia in January, as one of the drivers of the economy recovery began the year on an unexpectedly soft footing amid declines in power and mining sectors. Industrial output was unchanged last month, the Federal Reserve said. December`s output figures were revised up to a 1.0% gain, after an initial estimate of 0.4% growth. Capacity utilization slipped, easing to 78.5% from an upwardly revised 78.6% the previous month. Operating rates remain a bit below the 1972-2011 average of 80.3%.
The report was worse than expected, with economists surveyed by Dow Jones Newswires forecasting a 0.7% rise in output and capacity utilization of 78.6%. Manufacturing has been a major support to the economy as other areas of activity, such as consumer spending, have remained relatively tame. Year over year, industrial production is up 3.4%. The Fed report showed several sectors posted output gains last month, with manufacturing up 0.7% overall. Production of motor vehicles and parts jumped 6.8%. Excluding autos, production in other parts of the economy fell 0.3%.
Activity in the mining sector declined 1.8%. Utilities output was down 2.5% in December, "as demand for heating was held down by temperatures that moved further above seasonal norms," the Fed said.
The Commerce Department reported that the US trade deficit widened to a six month high. Official data showed that the deficit deepened to $48.8 billion in December, the most since June 2011. Amid stronger US demand -- spurred by the improving economy -- goods imports grew by $2.7 billion, outpacing export growth. That took the full 2011 shortfall to $558 billion. More than half that figure was thanks to the politically sensitive trade deficit with China, prompting more handwringing about Beijing`s huge advantage in the bilateral economic relationship.
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in January on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported. Over the last 12 months, the all items index increased 2.9 percent before seasonal adjustment.
The indexes for food, energy, and all items less food and energy all rose in January, each increasing 0.2 percent. Within the food group, the index for food away from home increased while the index for food at home was unchanged; within the energy group the gasoline index increased while the index for household energy declined.
Within all items less food and energy, the apparel index rose sharply, and the indexes for shelter, recreation, medical care, and tobacco increased as well. The indexes for used cars and trucks and for airline fares both declined, while the new vehicles index was unchanged.
The all items index has risen 2.9 percent over the last 12 months, a slight decrease from last month`s 3.0 percent figure. The index for energy has risen 6.1 percent over the last year and the food index 4.4 percent; both figures are slight declines from last month. The index for all items less food and energy has risen 2.3 percent, its largest 12-month increase since September 2008.

Economy of the European Union

GDP fell by 0.3% in both the euro area (EA17) and the EU27 during the fourth quarter of 2011, compared with the previous quarter, according to flash estimates published by Eurostat, the statistical office of the European Union. In the third quarter of 2011, growth rates were +0.1% and +0.3% respectively.
Compared with the same quarter of the previous year, seasonally adjusted GDP increased by 0.7% in the euro area and by 0.9% in the EU27 in the fourth quarter of 2011, after +1.3% and +1.4% respectively in the previous quarter.
During the fourth quarter of 2011, GDP in the United States increased by 0.7% compared with the previous quarter (after +0.5% in the third quarter of 2011). In Japan GDP declined by 0.6% in the fourth quarter of 2011 (after +1.7%).
In December 2011 compared with November 2011, seasonally adjusted industrial production fell by 1.1% in the euro area (EA17) and by 0.6% in the EU272. In November3 production remained stable in both zones. In December 2011 compared with December 2010, industrial production dropped by 2.0% in the euro area and by 0.9% in the EU27. Compared with 2010, the average production index for 2011 increased by 3.5% in the euro area and by 3.3% in the EU27.
In December 2011 compared with November 2011, production of energy fell by 2.0% in the euro area and by 1.2% in the EU27. Capital goods decreased by 0.8% and 0.1% respectively. Intermediate goods dropped by 0.7% in the euro area and by 0.2% in the EU27. Non-durable consumer goods remained stable in the euro area and rose by 0.4% in the EU27. Production of durable consumer goods increased by 0.2% and 0.4% respectively.
Among the Member States for which data are available, industrial production fell in twelve and rose in eleven. The largest decreases were registered in Malta (-2.9%), Germany (-2.7%), Greece and Latvia (both -2.4%), and the highest increases in Denmark (+3.3%), Finland (+2.6%) and Ireland (+2.5%).
In December 2011 compared with December 2010, production of energy fell by 11.9% in the euro area and by 10.6% in the EU27. Durable consumer goods decreased by 3.9% and 0.7% respectively. Non-durable consumer goods dropped by 0.8% in the euro area, but rose by 0.8% in the EU27. Intermediate goods fell by 0.5% in the euro area, but grew by 0.5% in the EU27. Capital goods increased by 0.8% and 2.3% respectively.
Among the Member States for which data are available, industrial production fell in fifteen and rose in eight. The highest decreases were registered in Greece (-12.4%), Luxembourg (-9.6%) and Portugal (-8.9%), and the largest increases in Poland (+10.0%), the Czech Republic (+4.4%) and Latvia (+3.2%).
The first estimate for the euro area (EA17) trade in goods balance with the rest of the world in December 2011 gave a 9.7 bn euro surplus, compared with -1.7 bn in December 2010. The November 2011 balance was +6.3 bn, compared with -2.3 bn in November 2010. In December 2011 compared with November 2011, seasonally adjusted exports rose by 0.1% while imports fell by 0.9%.
The first estimate for the December 2011 extra-EU271 trade balance was a 1.7 bn euro surplus, compared with -12.1 bn in December 2010. In November 20112 the balance was -7.5 bn, compared with -16.8 bn in November 2010. In December 2011 compared with November 2011, seasonally adjusted exports rose by 1.4% while imports fell by 0.5%.
During 2011, euro area trade recorded a deficit of 7.7 bn euro, compared with -14.7 bn in 2010. The EU27 recorded a deficit of 152.8 bn in 2011, compared with -159.5 bn in 2010.
Euro area annual inflation is expected to be 2.7% in February 2012 according to a flash estimate issued by Eurostat, the statistical office of the European Union. Euro area annual inflation was 2.6% in January 2012, down from 2.7% in December 2011. A year earlier the rate was 2.3%. Monthly inflation was -0.8% in January 2012. EU annual inflation was 2.9% in January 2012, down from 3.0% in December 2011. A year earlier the rate was 2.7%. Monthly inflation was -0.6% in January 2012.
The euro area (EA17) seasonally-adjusted unemployment rate was 10.7% in January 2012, compared with 10.6% in December 2011. It was 10.0% in January 2011. The EU27 unemployment rate was 10.1% in January 2012, compared with 10.0% in December 2011. It was 9.5% in January 2011.
Eurostat estimates that 24.325 million men and women in the EU27, of whom 16.925 million were in the euro area, were unemployed in January 2012. Compared with December 2011, the number of persons unemployed increased by 191 000 in the EU27 and by 185 000 in the euro area. Compared with January 2011, unemployment rose by 1.488 million in the EU27 and by 1.221 million in the euro area.

Economy of Japan

Japan`s economy shrank an annualized 2.3% in the October-December period, contracting for the fourth quarter in five as exports and manufacturing faltered amid weak overseas demand, the strong yen and flooding in Thailand. Economists surveyed by Dow Jones Newswires had forecast that the nation`s real, or price-adjusted, gross domestic product would decline an annualized 1.6% from the previous quarter.
The GDP figure released by the Cabinet Office highlights that Japan`s economy remains vulnerable to external factors as a sustainable recovery from the stresses of last year`s earthquake, tsunami and nuclear disasters remains elusive. Japan`s economy surged to annualized growth of 5.6% during the July-September period on strong gains in exports and production, a result that snapped three straight quarters of contraction and fueled optimism of sustained growth.
Not annualized, GDP shrank 0.6% in the fourth quarter from the third, according to the Cabinet Office data. The GDP deflator, a measure of inflationary pressures, stood at -1.6% during the latest quarter, up from a revised -2.1% during the July-September quarter. Private consumption, which accounts for over half Japan`s economy, expanded 0.3%.
Japan`s industrial production in January rose by a bigger-than-expected 2.0 percent from the previous month as companies stepped up output of cars and electronic products, according to the government. The rise beat average market expectations of around 1.5 percent growth and followed a revised month-on-month rise of 3.8 percent in December.
Industrial production is showing "signs of an upward movement," the economy, trade and industry ministry said in a monthly report, upgrading its assessment for December, which said the production "appears to be flat". Main contributors to the January growth were transport, information and communications and the steel industry, it said. By item, production rose for passenger cars, digital cameras and car navigation systems.
A survey of producers by the ministry showed industrial output was expected to rise 1.7 percent in February and another 1.7 percent in March.
Japan posted a record trade deficit in January as the yen`s strength and weaker global demand eroded manufacturers` profits and slowed the nation`s recovery from last year`s earthquake and tsunami. The gap widened to 1.48 trillion yen ($19 billion) and shipments dropped 9.3 percent from a year earlier as energy imports surged, a Ministry of Finance reported. The median estimate of 28 economists surveyed by Bloomberg News was for a shortfall of 1.46 trillion yen.
January exports fell 9.3 per cent on a yearly basis. The biggest decline came from China`s demands which fell 20.1 per cent. Exports to Europe fell 7.7 per cent, while trade with the US was up 0.6 per cent.
In Japan, the country`s trade deficit of 2.49 trillion yen in 2011 was the second largest since World War II. That also contributed to the nation`s current-account surplus sliding to a 15-year low in 2011.
Japan`s unemployment rate inched up to 4.6 percent in January from a revised 4.5 percent in the previous month, the government said. The figure was roughly in line with economists` forecasts. The unemployment rate for men stayed flat at 4.9 percent while that for women rose to 4.4 percent from 4.0 percent in December, the internal affairs ministry said. The ministry also said January household spending fell by an inflation-adjusted 2.3 percent year-on-year. The fall was bigger than a 0.8 percent drop economists had expected.
Japan`s core consumer prices fell year on year for the fourth consecutive month in January, suggesting mild deflation may persist this year as lackluster wage growth curtails domestic demand. Core consumer prices declined an annual 0.1 percent, slightly less than the median estimate for a 0.2 percent decline, and a narrower measure that excludes both food and energy also fell in a sign that the Bank of Japan faces a long campaign to pull the economy out of deflation.
Core consumer prices in Tokyo, available a month before the nationwide data, declined 0.3 percent in the year to February. That compares with the median estimate for a 0.4 percent annual fall.

Economy of Russia

Russia`s gross domestic product (GDP) grew by 3.9 per cent in January 2012 compared with a year earlier, Russian economy minister Elvira Nabiullina said. Nabiullina said that when seasonal factors are taken into consideration, GDP fell by 0.1 per cent compared to December 2011, attributing the slowdown to slower growth in retail sales and investments.
International ratings agency Standard & Poor forecast that Russia`s gross domestic product growth is to slow to 3.5 percent in 2012, the agency said. "Following 4.2 percent growth in 2011, we think the slowdown will lead to GDP growth of about 3.5 percent for the full year," S&P Chief Economist for Europe Jean-Michel Six said in a statement.
Last year Russia`s gross domestic product grew by 4.2 percent, the world`s third highest growth rate among leading economies. The government expects it to grow 3.7 percent this year. Russian industrial-production growth accelerated last month, exceeding economist forecasts as manufacturing expanded. Output rose 3.8 percent in January compared with a year earlier from 2.5 percent a month earlier, the Federal Statistics Service said. The median forecast in a Bloomberg News survey of 17 economists was for growth of 2.7 percent.
The increase signals the resiliency of the world`s biggest energy exporter as Europe`s sovereign-debt crisis and slower growth in China threaten to damp demand for the country`s resources. Manufacturing may continue to support the economy after new car and light commercial vehicle sales advanced 20 percent in January.
Russia`s inflation decelerated in February to the slowest annual rate since the Soviet Union collapsed two decades ago as non-food costs eased. Consumer prices rose 3.7 percent from a year earlier, compared with 4.2 percent in January, the Federal Statistics Service in Moscow said. Prices rose 0.4 percent from a month earlier. Economists estimated increases of 3.9 percent and 0.5 percent, two surveys showed.