World Economy Review

Fitch Ratings has come out with its report on `global economic outlook`. According to the rating agency global economy is on the modest recovery path. Fitch Ratings forecasts that the economic growth of major advanced economies (MAE) will be modest at 1.1% in 2012, followed by gradual acceleration to 1.8% in 2013. Compared with the previous Global Economic Outlook (GEO), published 12 December 2011, short-term risks to the global economy have lessened and growth trajectories of MAEs are more divergent. Fitch`s global growth forecast is 2.3% for 2012 and 2.9% in 2013, compared with 2.4% and 3.0% previously.
Weak Outlook in Europe: Given the 0.3% qoq decline in Q411 and weaker recent PMI indicators, a recession in H112 is now likely. Real GDP is projected to contract 0.2% in 2012, and grow by 1.1% in 2013, amidst higher dispersion among larger member states. Downside risks remain though. Fiscal consolidation and tighter credit conditions are key obstacles to growth. For Italy and Spain, Fitch forecasts 2012 GDP to contract 1.6% and 1.0% respectively. For Germany and France positive growth of 0.7% and 0.3% is expected.
Solid Growth in the US: Recovery in the US is gaining momentum, with qoq growth rates of 0.5% and 0.7% in Q311 and Q411 respectively. Growth is supported by the stronger-than-expected improvement in labour market conditions and indicators pointing to strengthening business and household confidence. Fitch has upgraded its 2012 US growth forecast by 0.4ppts to 2.2%, whilst keeping the 2013 forecast unchanged at 2.6%. For Japan and the UK, Fitch projects GDP to increase 1.9% and 0.5% respectively for 2012.
Emerging Markets Power Growth: Economic growth of BRIC countries will remain robust over the forecast horizon, well above MAE and global growth. Nevertheless, Brazil in particular, but also China and India slowed during 2011 and China is expected to slow further this year. To acknowledge the increasing weight of BRIC economies in global developments, Fitch is now publishing its world GDP growth forecast on a purchasing power parity basis, along with the market exchange rate based forecast.
Decrease in Tail Risks: Since December 2011, financial tensions in the eurozone have eased, the probability of tail events, with severe global consequences, has declined. Significant downside risks persist. There are two scenarios in the Appendix: a sharp increase in long yields and an oil price shock. Additionally US fiscal consolidation or global imbalances could unwind in a disorderly fashion. Conversely, improvement in private sector balance sheets could generate stronger demand and improved financial conditions could boost confidence.
Loose Monetary Conditions Persist: Fitch maintains that due to the still fragile recovery, monetary tightening is unlikely over the next quarters. Despite recent oil price increases, major central banks will maintain record low interest rates at least until end of 2012. The success of the ECB`s three-year LTRO operations highlights that non-standard measures can contribute significantly to the normalization of financial markets and improve the functioning of monetary transmission mechanism.
India appears to be reaching the bottom of the current economic cycle. Real GDP grew just 6.1% yoy in Q411, down from 6.9% yoy in Q311. A breakdown by expenditure shows that domestic demand appears to have stabilized as private consumption rebounded, rising 6.2% yoy in Q411, compared to a 2.9% yoy increase in Q311. Equally vital, fixed investment fell 1.2% yoy in Q411, following a 4.0% yoy decline in Q311. Up-to-date high frequency indicators also paint an encouraging picture. Industrial production unexpectedly increased 6.8% yoy in January compared with a 2.5% yoy rise in December. Manufacturing PMI remains elevated, reaching 56.6 in February, slightly below 57.5 in January. As a consequence, Fitch is forecasting that real GDP could grow around 7.5% in FY2012-13, up from an estimate of 7.0% in FY2011-12.

Economy of the United States

With a downward revision to exports offset by an upward revision to non-residential fixed investment, the Commerce Department released a report showing that the pace of U.S. economic growth in the fourth quarter was unrevised. The report showed that GDP increased at an annual rate of 3.0 percent in the fourth quarter, unchanged from the previous estimate and in line with economist estimates. The GDP growth in the fourth quarter still reflects a notable acceleration from the 1.8 percent growth seen in the third quarter.
The Commerce Department said the fourth quarter GDP growth primarily reflected positive contributions from private inventory investment, consumer spending, non-residential fixed investment, exports, and residential fixed investment. At the same time, negative contributions from federal government spending and state and local government spending limited the upside. Imports, which are a subtraction in the calculation of GDP, also increased during the quarter. The report also showed that consumer spending increase in by 2.1 percent in the fourth quarter, unrevised from the previous estimate but up from the 1.7 percent growth seen in the third quarter. Business investment increased by an upwardly revised 6.3 percent in the fourth quarter compared to the 4.3 percent increase previously reported.
As mentioned above, however, the upward revision was offset by a downward revision to the pace of export growth. Exports increased by a downwardly revised 2.7 percent compared to the previously reported 4.3 percent growth. Federal government spending, which increased 2.1 percent in the third quarter, fell by an unrevised 6.9 percent in the fourth quarter, with defense spending tumbling by 12.1 percent. The Commerce Department also said its reading on core consumer prices, which exclude food and energy prices, rose by 1.3 percent in the fourth quarter compared to a 2.1 percent increase in the third quarter.
Industrial production in the U.S. unexpectedly came in unchanged in the month of February, according to a report released by the Federal Reserve, with a sharp drop in mining output offsetting continued growth in the manufacturing sector. The report showed that industrial production was unchanged in February after rising by a revised 0.4 percent in January. Economist had expected production to increase by 0.5 percent after initial data showed that production was unchanged in the previous month.
Mining output showed a notable decrease during the month, tumbling by 1.2 percent in February following a 1.6 percent drop in the previous month. On the other hand, manufacturing output crept up by 0.3 percent in February compared to an upwardly revised 1.1 percent increase in January. A 1.1 percent drop in the output of motor vehicles and parts limited the upside for manufacturing, with the drop coming after an 8.6 percent jump in January. Excluding the drop in the output of motor vehicles and parts, manufacturing output increased by 0.4 percent in February. Utilities output came in unchanged in February after falling by 2.2 percent and 3.0 percent in January and December, respectively.
The report also showed that capacity utilization edged down to 78.7 percent in February from an upwardly revised 78.8 percent in January. Capacity utilization in the manufacturing sector edged up to 77.4 percent from 77.3 percent, while capacity utilization in the mining sector fell to 90.5 percent from 91.6 percent. The Fed said capacity utilization in the utilities sector dipped to 74.3 percent in February from 74.4 percent in the previous month.
The U.S. trade deficit widened sharply in January, driven higher by record imports of autos, capital goods and food, government data showed. The trade gap expanded 4.3% in January to $52.6 billion from $50.4 billion in December, the Commerce Department said. This is the largest monthly differential between imports and exports since October 2008 and came in much bigger than expected. Analysts surveyed by MarketWatch had predicted that the deficit would reach $49 billion. The December deficit was revised from its prior estimate of $48.8 billion. The higher December deficit will subtract from economic growth in the final three months of the year, now estimated at a 3% rate of expansion in gross domestic product. For all of 2011, the nation`s trade deficit totaled a revised $560 billion, compared with the prior estimate of $558 billion.
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in February on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.9 percent before seasonal adjustment. The gasoline index rose sharply in February, accounting for over 80 percent of the change in the all items index. The gasoline increase led to a 3.2 percent rise in the energy index despite a decline in the index for natural gas. The food index was unchanged in February, with the food at home index unchanged for the second month in a row as major grocery store food indexes were mixed.
The index for all items less food and energy rose 0.1 percent in February after increasing 0.2 percent in January. Indexes for shelter, new vehicles, medical care, and household furnishings and operations all advanced, while indexes for apparel, recreation, used cars and trucks, and tobacco all declined. The all items index has risen 2.9 percent over the last 12 months, the same figure as last month. The index for all items less food and energy was up 2.2 percent, a slight decline from last month`s 2.3 percent figure, while the 12-month change in the food index fell to 3.9 percent in February, its lowest level since last June. In contrast, the 12-month change in the energy index was 7.0 percent in February compared to 6.1 percent in January.
Nonfarm payroll employment rose by 227,000 in February, and the unemployment rate was unchanged at 8.3 percent, the U.S. Bureau of Labor Statistics reported. Employment rose in professional and businesses services, health care and social assistance, leisure and hospitality, manufacturing, and mining.

Economy of the European Union

GDP decreased 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 second estimates released by Eurostat, the statistical office of the European Union. In the third quarter of 2011, growth rates were +0.1% in the euro area and +0.3% in the EU27.
Compared with the fourth quarter of 2010, seasonally adjusted GDP rose by 0.7% in the euro area and by 0.9% in the EU27, after +1.3% and +1.4% respectively in the previous quarter. In January 2012 compared with December 2011, seasonally adjusted industrial production grew by 0.2% in both the euro area (EA17) and the EU27. In December production fell by 1.1% and 0.8% respectively. In January 2012 compared with January 2011, industrial production dropped by 1.2% in the euro area and by 1.0% in the EU27.
In January 2012 compared with December 2011, production of energy grew by 1.4% in the euro area and by 0.1% in the EU27. Capital goods increased by 0.7% and 0.8% respectively. Intermediate goods rose by 0.2% in both zones. Durable consumer goods gained 0.1% in the euro-area and remained stable in the EU27. Production of non-durable consumer goods fell by 0.7% and 0.3% respectively.
Among the Member States for which data are available, industrial production rose in fourteen and fell in six. The highest increases were registered in Slovakia (+6.1%), Lithuania (+3.6%) and Malta (+3.3%), and the largest decreases in Finland (-5.1%) and Italy (-2.5%).
In January 2012 compared with January 2011, production of energy fell by 6.2% in the euro area and by 7.7% in the EU27. Durable consumer goods decreased by 2.2% and 1.5% respectively. Non-durable consumer goods dropped by 1.8% in the euro area and by 0.7% in the EU27. Intermediate goods declined by 1.3% and 0.9% respectively. Capital goods increased by 3.1% in the euro area and by 3.3% in the EU27.
Among the Member States for which data are available, industrial production fell in thirteen and rose in seven. The largest decreases were registered in Luxembourg (-10.4%), Finland (-6.0%), Greece (-5.2%) and Italy (-5.0%), and the highest increases in Poland (+9.1%), Latvia (+8.2%) and Slovakia (+7.0%).
The first estimate for the euro area (EA17) trade in goods balance with the rest of the world in January 2012 gave a 7.6 bn euro deficit, compared with -16.1 bn in January 2011. The December 20112 balance was +9.1 bn, compared with -1.7 bn in December 2010. In January 2012 compared with December 2011, seasonally adjusted exports rose by 1.3% and imports by 2.4%.
The first estimate for the January 2012 extra-EU271 trade balance was a 23.8 bn euro deficit, compared with -31.2 bn in January 2011. In December 20112 the balance was +1.6 bn, compared with -12.1 bn in December 2010. In January 2012 compared with December 2011, seasonally adjusted exports rose by 1.5% and imports by 3.5%.
Euro area annual inflation is expected to be 2.6% in March 2012 according to a flash estimate issued by Eurostat, the statistical office of the European Union. Euro area annual inflation was 2.7% in February 2012, unchanged compared with January. A year earlier the rate was 2.4%. Monthly inflation was 0.5% in February 2012. EU annual inflation was 3.0% in February 2012, up from 2.9% in January. A year earlier the rate was 2.9%. Monthly inflation was 0.5% in February 2012.
The euro area (EA17) seasonally-adjusted unemployment rate was 10.8% in February 2012, compared with 10.7% in January. It was 10.0% in February 2011. The EU27 unemployment rate was 10.2% in February 2012, compared with 10.1% in January. It was 9.5% in February 2011.
Eurostat estimates that 24.550 million men and women in the EU27, of whom 17.134 million were in the euro area, were unemployed in February 2012. Compared with January 2012, the number of persons unemployed increased by 167 000 in the EU27 and by 162 000 in the euro area. Compared with February 2011, unemployment rose by 1.874 million in the EU27 and by 1.476 million in the euro area.

Economy of Japan

Japan`s factory output fell unexpectedly in February, latest data showed, suggesting the recovery in the world`s number three economy remained anemic. The fall confounded expectations for a third straight increase, although officials pointed out that manufacturers expect the slowdown to be temporary. The 1.2 percent on-month decline in industrial production was triggered largely by slower automobile and semiconductor output, surprising observers who had tipped a 1.3 percent gain.
The latest figure come despite Japanese firms revving up production in recent months as they recover from last year`s quake-tsunami disaster and record flooding in Thailand, which disrupted production for manufacturers with plants there. Japan`s factories posted a revised 1.9 percent output increase in January and 3.8 percent in December. The economy, trade and industry ministry said a survey of producers pointed to an expected 2.6 percent factory output rise in March and another increase of 0.7 percent in April.
Japan reported an unexpected trade surplus for February and higher-than-forecast exports, adding to evidence of a rebound in the world`s third-biggest economy. Overseas shipments dropped 2.7 percent from a year earlier, the finance ministry said today in Tokyo. The median forecast of 28 economists surveyed by Bloomberg News was for a 6.5 percent decrease. Imports rose a more-than-estimated 9.2 percent, leaving a surplus of 32.9 billion yen ($395 million).
Core consumer prices in Japan were up 0.1 percent on year in February, the Ministry of Internal Affairs and Communications said on Friday - beating forecasts for a contraction of 0.1 percent, which would have been unchanged from the January reading. Overall inflation came in higher by 0.3 percent, topping expectations for a flat reading after adding 0.1 percent in the previous month. On a monthly basis, core CPI and overall inflation both were up 0.2 percent.
Core consumer prices for the Tokyo region - considered a leading indicator for the nationwide trend - were down 0.3 percent on year in March, matching forecasts and remaining unchanged from the February data. Overall Tokyo CPI was down 0.1 percent on year, also in line with forecasts after easing 0.2 percent in the previous month. On month, core CPI and overall inflation both climbed 0.4 percent.
The unemployment rate in Japan came in at a seasonally adjusted 4.5 percent in February, the Ministry of Internal Affairs and Communications said - beating forecasts for 4.6 percent, which would have been unchanged from the January reading. The job-to-applicant ratio was 0.75, beating expectations for 0.74 after showing 0.73 in the previous month.
The number of employed persons in February was 62.26 million, a decrease of 400 thousand or 0.6 percent on year. The number of unemployed persons in February was 2.89 million, a decrease of 140 thousand or 4.6 percent on year. The participation rate was 58.7 percent, down from 59.0 percent a year earlier.

Economy of Russia

Minister of Economic Development, Elvira Nabiullina, said that Russia`s gross domestic product increased by 4.3 percent in January-February 2012 compared to same period last year. In February, the country`s GDP increased by 4.8 percent on an annual basis. The investment volume increased in February by 1.2 percent seasonally adjusted. Industrial production increased in the same month by 1.3 percent, said Nabiullina. Turnover in retail trade increased by1percent. In January, the Russian gross domestic product by 3.9 percent.
Russian industrial production grew more than expected in February, giving the central bank further reason to hold off on lowering borrowing costs in the next few months. Industrial output expanded 6.5% on the year in February, the country`s statistics service said. The consensus among analysts was for a 4.4% increase. Strong performance by the mining, construction, and oil products sectors contributed to the boost, as did utilities, which benefited from a February cold snap, the data showed. After the first two months of the year, industrial production was up 4.9%.
Russia`s foreign trade surplus grew 14.5 percent year-on-year in February to $19.7 billion, Economic Development Minister Elvira Nabiullina said. "Exports amounted to $45 billion in February and imports were $25.3 billion". Seasonally adjusted gross domestic product growth was up 0.5 percent in February compared to the previous month. "Year-on-year growth stood at 4.8 percent in February. Seasonally adjusted growth was 0.5 percent, while it was minus 0.1 percent in January," Nabiullina said.
Russia`s inflation remained unchanged in March at the slowest annual rate since the Soviet Union collapsed two decades ago. Consumer prices rose 3.7 percent from a year earlier and grew 0.6 percent in the month, the Federal Statistics Service said. Economists estimated increases of 3.7 percent and 0.5 percent, two surveys showed. Core inflation, which excludes volatile costs such as energy, was unchanged at 0.5 percent on a monthly basis, bringing the full-year increase to 1.4 percent, according to the statement.