World Economy Review

The International Monetary Fund raised its global growth forecast for the first time in more than a year, with the U.S. boosting the outlook while recent improvements remain “very fragile.” The world economy will expand 3.5 percent this year, compared with a January projection of 3.3 percent, the Washington-based IMF said in its World Economic Outlook. It sees growth of 4.1 percent in 2013, up from 4.0 percent. It raised its forecasts for the U.S. to gains of 2.1 percent this year and 2.4 percent in 2013.
“Improved activity in the United States during the second half of 2011 and better policies in the euro area in response to its deepening economic crisis have reduced the threat of a sharp global slowdown,” the IMF said in a summary of the report. “Weak recovery will likely resume in the major advanced economies, and activity is expected to remain relatively solid in most emerging and developing economies. However, the recent improvements are very fragile.”
The report reflects the IMF`s view that the euro area, while still facing an economic downturn and the “hard to quantify” potential risk of a country`s default, has stabilized since last year. The euro area economy is projected to decline by 0.3 percent in 2012, an improvement from the 0.5 percent in the IMF`s previous forecast.
“The most immediate concern is still that further escalation of the euro-area crisis will trigger a much more generalized flight from risk,” the IMF said. “Geopolitical uncertainty could trigger a sharp increase in oil prices.” A 50 percent increase in the cost of oil would reduce global output by 1.25 percent, according to the report.
Japan is projected to grow 2.0 percent this year. Advanced economies, which include the U.S., the euro area, Japan, the U.K. and Canada, will grow 1.4 percent this year and 2 percent in 2013, the IMF said. Those are up from 1.2 percent and 1.9 percent in the January forecasts. So-called emerging and developing economies will expand by 5.7 percent in 2012 and 6 percent next year, up from earlier projections of 5.5 percent and 5.9 percent.
The IMF forecast a 1.8 percent economic contraction in Spain, worse than the 1.6 decline the lender projected in January, according to the report. Spanish Prime Minister Mariano Rajoy said yesterday that the country must slash its budget deficit to maintain access to financing, as bond yields rose to the highest level since his government came to power four months ago. Italy, where Prime Minister Mario Monti is trying to revamp labor markets to make the economy more competitive, is forecast to contract 1.9 percent this year, better than the 2.1 percent slump the IMF had projected in January, the IMF said.
On China, the IMF said growth in the world`s second-largest economy had “moderated” since mid-2011, “and there is so far little sign of a sharp correction in the potentially overheated real estate sector and most related activities, despite widespread concerns about a hard landing.” After 8.2 percent growth for China this year, the IMF forecasts an 8.8 percent expansion in 2013.
“The potential consequences of a disorderly default and exit by a euro area member are unpredictable and thus not possible to map into a specific scenario,” the IMF said. “If such an event occurs, it is possible that other euro area economies perceived to have similar risk characteristics would come under severe pressure as well, with a full-blown panic in financial markets and depositor flight from several banking systems.”
On consumer prices, the IMF projects a 1.9 percent increase this year in advanced economies and 1.7 percent in 2013. Those are higher than the 1.6 percent and 1.3 percent the lender forecast in January. In emerging and developing countries, inflation will be 6.2 percent this year and 5.6 percent in 2013.

Economy of the United States

The U.S. economy grew at a slower pace than expected in the first quarter, prompting fresh fears about the recovery`s sustainability. American gross domestic product, the value of all goods and services, rose 2.2% in the March period, down from 3% a quarter earlier, the Commerce Department said this morning. Economists had expected GDP growth of 2.5%. Meanwhile, consumer spending rose the most in more than a year.
“While the economy continued to grow in the first quarter, the expansion remains modest in pace and subpar from a historical perspective,” says Jim Baird, chief investment strategist at Plante Moran Financial Advisors. “The economy is still on an uncertain footing and a window of risk exists, given the global slowdown that is unquestionably underway and the recessionary environment now enveloping multiple developed economies.”
While the drop in GDP growth appears worrisome, economists say the first quarter`s growth was, in some ways, healthier than the greater expansion in the prior period. Consumer demand underpinned first-quarter GDP growth. But, in the fourth quarter, inventory building fueled expansion, as companies rushed to take advantage of an expiring tax credit.
Industrial production was unchanged in March for a second month but rose at an annual rate of 5.4 percent in the first quarter of 2012. Manufacturing output declined 0.2 percent in March but jumped 10.4 percent at an annual rate in the first quarter. The gain in manufacturing output in the first quarter was broadly based: Even excluding motor vehicles and parts, which jumped at an annual rate of nearly 40 percent, manufacturing output moved up at an annual rate of 8.3 percent and output for all but a few major industries increased 5 percent or more. In March, production at mines rose 0.2 percent and the output of utilities gained 1.5 percent. For the quarter, however, the output of utilities dropped at an annual rate of 13.8 percent, largely as a result of unseasonably warm temperatures over the past several months, while the output of mining fell 5.4 percent. At 96.6 percent of its 2007 average, total industrial production for March was 3.8 percent above its year-earlier level. The rate of capacity utilization for total industry edged down to 78.6 percent, a rate 2.1 percentage points above its level from a year earlier but 1.7 percentage points below its long-run (1972-2011) average.
The U.S. trade deficit narrowed in February for the largest percentage drop since May 2009, according to a government report that led analysts to raise estimates for first-quarter economic growth. The deficit measuring the difference between the nation`s imports and exports hit $46 billion in February, compared with $52.5 billion in January - a 12.4% drop, according to the Commerce Department.
Exports and imports are an important component of U.S. gross domestic product, and deficits subtract from growth. Following the report, economists polled by MarketWatch upwardly revised their estimates for first-quarter GDP growth to an annual rate of 2.3% from a prior consensus forecast of 2%. The Commerce Department reported that overall exports rose 0.1% in February to $181.2 billion, while imports fell 2.7% to $227.2 billion.
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent in March on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported. Over the last 12 months, the all items index increased 2.7 percent before seasonal adjustment. The indexes for food, energy, and all items less food and energy all increased in March. The gasoline index continued to rise, more than offsetting a decline in the household energy index and leading to a 0.9 percent increase in the energy index. The food index rose 0.2 percent as the index for meats, poultry, fish, and eggs increased notably.
The index for all items less food and energy rose 0.2 percent in March after increasing 0.1 percent in February. Most of the major components increased in March, with the indexes for shelter and used cars and trucks accounting for about half the total increase for all items less food and energy. The indexes for medical care, apparel, recreation, new vehicles, and airline fares increased as well, while the indexes for tobacco and household furnishings and operations were among the few to decline in March. The all items index has risen 2.7 percent over the last 12 months, a decline from last month`s 2.9 percent figure. The energy index has risen 4.6 percent and the food index has increased 3.3 percent; both increases are smaller than last month. In contrast, the 12-month change in the index for all items less food and energy, which was 2.2 percent last month, edged up to 2.3 percent in March.

Economy of the European Union

In February 2012 compared with January 2012, seasonally adjusted industrial production grew by 0.5% in the euro area (EA17) and by 0.2% in the EU27. In January production remained stable in both zones. In February 2012 compared with February 2011, industrial production dropped by 1.8% in both the euro area and the EU27. These estimates are released by Eurostat, the statistical office of the European Union.
In February 2012 compared with January 2012, production of energy grew by 7.7% in the euro area and by 6.6% in the EU27. Capital goods rose by 0.7% and 0.1% respectively. Intermediate goods decreased by 1.4% in the euro area and by 1.5% in the EU27. Non-durable consumer goods fell by 1.6% and 2.0% respectively. Production of durable consumer goods dropped by 2.0% in the euro area and by 2.4% in the EU27. Among the Member States for which data are available, industrial production rose in nine and fell in thirteen. The highest increases were registered in the Netherlands (+13.0%), Slovakia (+2.8%) and Finland (+2.1%), and the largest decreases in Malta (-4.6%), Sweden (-3.6%) and Ireland (-3.2%).
In February 2012 compared with February 2011, production of energy rose by 3.6% in the euro area and by 1.4% in the EU27. Capital goods grew by 0.8% and 0.7% respectively. Intermediate goods decreased by 4.5% in the euro area and by 4.0% in the EU27. Non-durable consumer goods fell by 5.3% and 4.4% respectively. Durable consumer goods dropped by 6.4% in the euro area and by 5.2% in the EU27. Among the Member States for which data are available, industrial production rose in seven and fell in fifteen. The highest increases were registered in Slovakia (+8.4%), Latvia (+7.3%) and the Netherlands (+6.7%), and the largest decreases in Luxembourg (-14.4%), Malta (-11.4%) and Greece (-8.5%).
The first estimate for the euro area (EA17) trade in goods balance with the rest of the world in February 2012 gave a 2.8 bn euro surplus, compared with -2.8 bn in February 2011. The January 2012 balance was -7.9 bn, compared with -16.1 bn in January 2011. In February 2012 compared with January 2012, seasonally adjusted exports rose by 2.4% and imports by 3.5%. The first estimate for the February 2012 extra-EU27 trade balance was a 9.4 bn euro deficit, compared with -10.5 bn in February 2011. In January 2012 the balance was -23.5 bn, compared with -31.3 bn in January 2011. In February 2012 compared with January 2012, seasonally adjusted exports rose by 1.3% and imports by 3.2%.
Euro area annual inflation is expected to be 2.6% in April 2012 according to a flash estimate issued by Eurostat, the statistical office of the European Union. Euro area annual inflation was 2.7% in March 2012, unchanged compared with February. A year earlier the rate was 2.7%. Monthly inflation was 1.3% in March 2012. EU3 annual inflation was 2.9% in March 2012, unchanged compared with February. A year earlier the rate was 3.1%. Monthly inflation was 1.1% in March 2012.
The euro area (EA17) seasonally-adjusted unemployment rate was 10.9% in March 2012, compared with 10.8% in February. It was 9.9% in March 2011. The EU27 unemployment rate was 10.2% in March 2012, stable compared with February. It was 9.4% in March 2011. Eurostat estimates that 24.772 million men and women in the EU27, of whom 17.365 million were in the euro area, were unemployed in March 2012. Compared with February 2012, the number of persons unemployed increased by 193 000 in the EU27 and by 169 000 in the euro area. Compared with March 2011, unemployment rose by 2.123 million in the EU27 and by 1.732 million in the euro area.

Economy of Japan

Japan`s industrial production rose 1.0 percent in March from February, led by output of automobiles, notebook computers and communications equipment amid a tentative upswing in the world`s third-largest economy. Aiming to support a recovery, the Bank of Japan expanded its asset buying program. Japan`s key manufacturing sector has been struggling with tepid export demand and a strong yen, which erodes overseas earnings. The outlook for coming months is still rocky. Manufacturers project factory output to increase another 1 percent in April, but then drop 4.1 percent in May.
Japan logged a record Ґ4.41 trillion trade deficit in fiscal 2011 as the March 11 disasters, the strong yen, reliance on foreign energy and Europe`s debt crisis all rattled the economy throughout the year, the Finance Ministry said. The quadruple threat forced exports down 3.7 percent from the previous year to Ґ65.28 trillion. Imports grew 11.6 percent to Ґ69.69 trillion.
It`s the first time the trade balance has fallen into the red since 2008, when the collapse of Lehman Brothers triggered a global financial crisis and resulted in a Ґ764 billion deficit. The 2011 deficit also eclipsed the record Ґ3.12 trillion recorded in fiscal 1979 amid the oil crisis. Japan ran a trade surplus of Ґ5.33 trillion in fiscal 2010.
Japan`s core consumer prices rose 0.2 percent in March from a year earlier due to higher energy costs, but analysts say the country`s escape from deflation is years away. The rise in the core consumer price index, which includes oil products but excludes volatile prices of fresh fruit, vegetables and seafood, beat a median market forecast for a 0.1 percent gain and followed a 0.1 percent rise in February, data by the Internal Affairs ministry showed.
The so-called core-core inflation index, which excludes food and energy prices and is similar to the core index used in the United States, fell 0.5 percent in March from a year earlier. Core consumer prices in Tokyo, available a month before the nationwide data, fell 0.5 percent in April from a year earlier, after a 0.3 percent drop in March and bigger than a market forecast for a 0.4 percent decline. Japan`s unemployment rate in March was unchanged at 4.5 percent from the previous month, while job availability improved for the 10th straight month as job offers related to post-quake reconstruction increased, government data showed. The seasonally adjusted jobless rate did not deteriorate amid signs of a pickup in the country`s economy, an official of the internal affairs ministry said, but acknowledged that such overall economic conditions are slow to benefit the job environment. "The jobless rate is continuing to seesaw," the official said. In February, the data showed an improvement.
The number of people employed decreased 170,000, or 0.3 percent, to 62.71 million in March, and the number of unemployed was down by 10,000, or 0.3 percent, to 2.97 million, the Ministry of Internal Affairs and Communications said in a preliminary report. The official also said that the decrease in the number of employed people did not result in a rise in the jobless rate because many, especially the younger generation, appeared to have temporarily given up searching for jobs and became part of the non-workforce population.
The number of people who are "not in the labor force" stood at 45.34 million, up 210,000, or 0.5 percent. The jobless rate for men in the reporting month rose to 4.9 percent from 4.7 percent, while that for women dropped to 4.1 percent from 4.2 percent.

Economy of Russia

Russia`s gross domestic product (GDP) rose by 4% Y-Y in Q-1 of Y 2012, Economic Development Minister Elvira Nabiullina said. In March 2012 alone, the GDP grew by 3.2% Y-Y, Ms. Nabiullina said in a meeting with Prime Minister and President-elect Vladimir Putin. She also mentioned that her ministry has lowered its forecast for GDP growth in Y 2012 from 3.7 to 3.4%. “The correction has mostly been linked to re-assessment of the base and the additional growth in the last year, which was higher than our previous estimations,” Ms. Nabiullina said, adding that the Russian GDP is expected to reach US$2-B by the end of Y 2012. “That keeps us in the 6th place in the World by the size of the economy calculated through purchasing power parity,” the minister said. However, she warned that the government`s spending should not outrace the GDP growth.
According to Rosstat`s latest press release the level of industrial production, not accounting for seasonal factors, was “4% greater than the level in the 1st quarter of 2011, 2% greater than the level of March 2011, and 7% higher than February of 2012.”
As you can see from the graph below, in which the green line represents the overall volume of activity, the blue line represents the seasonally-adjusted total, and the red line represents the overall trend, Russia`s seasonal variation in economic activity is extreme.
However, the overall trend in industrial is decidedly, if modestly, positive. To explain the graph a bit more clearly, the X axis is months and years, while the Y axis is the volume of industrial activity as a percentage of the average monthly output of 2009 (which, it should be noted, was depressed as a result of the global financial crisis).
In terms of winners and losers, a quick scan of the data shows that several industrial sectors recorded an outright decline over 1st quarter 2011 levels, this group of poor performers including “fish and fish products,” “bakery products of non-durable storage,” “cotton sewing thread,” shoes, and a number of other textile-related fields. More starkly, there were sharp declines in the production of steel pipes (15.5%), gas turbines (36.8%), excavators (13.7%), and electric motors. On the positive side of the ledger there was strong year-over-year growth in personal desktop computers (32.8%), automobiles (18.6%), and buses (57.3%).
As always with Russia, the picture is a very mixed one and there are coherent cases that can be made for decidedly optimistic (growth has been steady since the sharp 2008-09 downturn) and pessimistic (growth has both been too slow and too focused on natural resources) interpretations. I lean towards a more optimistic view of the situation in which Russia`s economy continues to grow steadily, albeit at a slower pace than characterized its dramatic rebound from the chaotic 1998-99 debt default. Indeed, the fact that Russia has continued to grow at all while its major foreign trading partner, the European Union, has been wracked by a crippling debt crisis is a surprise on the upside.
A wait and see attitude is always advisable for a country like Russia, but we can see that, at least in the first few months of 2012, its economy has held up surprisingly well amid some increasingly turbulent international waters. If the overall global economic situation continues to deteriorate Russia will not be immune, any idea of the country as a “safe haven” was put to rest during 2009`s sharp economic downturn, but it has hardly been some sort of uniquely poor performer.