World Economy Review

The latest economic forecasts from rating agencies Standard & Poor`s and Fitch show the latter remains more optimistic about U.S. economic growth than its larger rival, especially for next year. Fitch released for the first time its GDP projection for 2014, expecting the U.S. economy to grow at a pace of 3.0%, slightly more than the 2.9% expected by Standard & Poor`s. The gap between the two agencies` GDP projections is slightly wider for this year: 2.2% for Fitch and 2.0% for S&P. But the largest divergence is for 2013, when the U.S. GDP growth rate is expected to reach 2.1% by S&P and 2.6% by Fitch`s estimate.
In its Global Economic Outlook, Fitch revised down it world GDP forecast by 0.1 point for both 2012 and 2013, led by downward revisions in the euro zone but even more so -- for 2012 -- by emerging markets.
The latter are losing steam, the rating agency said, expecting BRICs -- Brazil, Russia, India and China -- to grow at a pace of 6.0% this year and 6.6%, revised down by 0.3 point, and 6.6% in 2013, which was unrevised.
Even as emerging markets growth is still expected to outpace that of major advanced economies by a significant margin over the next two years, "The vulnerabilities of future BRICs growth to domestic and global shocks have increased," Fitch said.
In the eurozone, GDP is expected to decline this year by 0.4% before recovering 0.9% in 2013, both revised down 0.2 point. "Financial tension has resurfaced in the eurozone and the negative impact on GDP growth will be significant," Fitch said. Fitch`s global growth forecast is 2.2% for 2012 and 2.8% in 2013, compared with 2.3% and 2.9% in the previous Global Economic Outlook. In the U.S., noting the recent slowdown in the job market signaling weaker business sentiment, Fitch expects it "to be offset by continued resilience in consumer spending." For 2012 and 2013, Fitch has kept its U.S. growth forecast unchanged at 2.2% and 2.6% respectively, and projects and average growth of 3.0% in 2014.
Turning to monetary policy in major advanced economies, Fitch said record low interest rates are likely to stay in place through mid-2013, warning that "The impact of further monetary stimulus would be doubtful given the already minimal yields of safe haven assets at longer maturity."
Still, "A dovish statement and a downward spin on Fed forecasts are very likely, which takes it one step closer towards another unconventional policy move," the report continued. It added that "with the momentum in the U.S. economy cooling and if market financing dries up after the Greek vote, the Fed may be forced to open its toolbox sooner than it thought."
Standard & Poor`s expects the U.S. GDP to grow at a pace of 2.0% this year, 2.1% in 2013, 2.9% in 2014 and 3.4% in 2015. It does not expect the unemployment rate to fall below 8% before 2014, with the improvement accelerating the following year to 7.1%.
Standard & Poor`s remains the most pessimistic of the Big Three, as Moody`s sees U.S. real GDP rate rising to 2.6% next year from 2.3% this year, slightly more than Fitch`s 2.2% forecast. However, Moody`s forecasts included in its May 15 Credit Opinion refer to fiscal years.

Economy of the United States

The U.S. economy grew 1.9% in the first quarter, unchanged from the government`s prior estimate, the Commerce Department said. In the third and final release of first-quarter GDP, the biggest changes took place in corporate profits, exports and imports. Corporate profits actually fell $6.8 billion - the biggest drop since late 2008 - instead of rising $11.4 billion as previously estimated. Exports, meanwhile, rose a slower 4.2% in the first three months of 2012, down from the prior estimate of 7.2%. And imports climbed a smaller 2.7% vs. the earlier reading of 6.1%. Also, personal consumption expenditures rose 2.5% instead of 2.7% as previously reported. Disposable income climbed a faster 0.7% vs. 0.4%.
Industrial production unexpectedly fell and consumer confidence slid, adding to evidence of U.S. economic weakness days before Federal Reserve policy makers meet to decide whether more stimulus is needed. Output at factories, mines and utilities decreased 0.1 percent last month after a revised 1 percent gain in April, the Fed reported. Economists forecast a 0.1 percent advance in U.S. production in May, according to a Bloomberg News survey median.
Manufacturing, which makes up about 75 percent of total production in the U.S., dropped 0.4 percent last month. Less factory production represents a pause in the industry that helped the world`s largest economy emerge from recession three years ago. Utility production climbed 0.8 percent last month after a 5.3 percent jump in April. Mining output increased 0.9 percent following a 0.6 percent decrease.
Motor vehicle and parts production dropped 1.5 percent in May after a 4 percent surge the month before, the Fed said. Autos in May sold at a 13.73 million annual rate, down from 14.38 million in April and the slowest this year, according to data from Ward`s Automotive Group. Factory output excluding vehicles and parts fell 0.3 percent in May after a 0.5 percent gain. Output of business equipment increased 0.3 percent after a 1.5 percent jump in April. Consumer goods decreased 0.2 percent after a 1.4 percent gain.
Capacity utilization also declined, easing to 79.0 percent from 79.2 percent the previous month. Operating rates remain a bit below the 1972-2011 average of just above 80 percent. Economists surveyed by Dow Jones expected a 0.1 percent rise in output and capacity utilization of 79.2 percent.
The U.S. trade deficit shrank in April, but only because a big drop in imports offset the first decline in U.S. exports in five months. The Commerce Department said that the trade deficit narrowed 4.9 percent in April to $50.1 billion. U.S. exports, which had hit a record the previous month, fell 0.8 percent to $182.9 billion. Sales of everything from commercial jetliners to industrial machinery declined. Imports, which also set a record in March, dropped an even faster 1.7 percent to $233 billion.
The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.3 percent in May on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.7 percent before seasonal adjustment.
The gasoline index declined 6.8 percent in May, leading to a sharp decrease in the energy index and the decline in the all items index. The indexes for natural gas and fuel oil declined as well, though the electricity index increased. The food index was unchanged, with a slight decline in the index for food at home offsetting an increase in the food away from home index.
The index for all items less food and energy rose 0.2 percent in May, the third consecutive such increase. The indexes contributing to the increase were largely the same ones as in April: shelter, medical care, used cars and trucks, apparel, airline fares, and new vehicles. The indexes for household furnishings and operations and for tobacco declined.
The 12-month change in the index for all items was 1.7 percent in May; this figure has been declining steadily since its 3.9 percent recent peak in September 2011. The decline has been driven mostly by the energy index, which decreased 3.9 percent over the last 12 months. This was its first 12-month decline since October 2009. The 12-month change in the food index, which was 4.7 percent as recently as December, fell to 2.8 percent in May. The 12-month change in the index for all items less food and energy was 2.3 percent in May, the same figure as in April and March.
Nonfarm payroll employment changed little in May (+69,000), and the unemployment rate was essentially unchanged at 8.2 percent, the U.S. Bureau of Labor Statistics reported. Employment increased in health care, transportation and warehousing, and wholesale trade but declined in construction. Employment was little changed in most other major industries.

Economy of the European Union

GDP remained stable in both the euro area (EA17) and the EU27 during the first quarter of 2012, compared with the previous quarter, according to second estimates released by Eurostat, the statistical office of the European Union. In the fourth quarter of 2011, growth rates were -0.3% in both zones. Compared with the first quarter of 2011, seasonally adjusted GDP decreased by 0.1% in the euro area and increased by 0.1% in the EU27, after +0.7% and +0.8% respectively in the previous quarter.
During the first quarter of 2012, household2 final consumption expenditure was stable in both the euro area and the EU27 (after -0.5% and -0.2% respectively in the previous quarter). Gross fixed capital formation fell by 1.4% in the euro area and by 0.9% in the EU27 (after -0.4% and -0.3%). Exports increased by 1.0% in the euro area and by 0.6% in the EU27 (after -0.7% and -0.3%). Imports rose by 0.1% in both zones (after -1.7% and -1.3%).
In April 2012 compared with March 2012, seasonally adjusted industrial production fell by 0.8% in the euro area (EA17) and by 0.4% in the EU27. In March production decreased by 0.1% and 0.2% respectively. In April 2012 compared with April 2011, industrial production dropped by 2.3% in the euro area and by 1.7% in the EU27.
In April 2012 compared with March 2012, production of capital goods fell by 2.6% in the euro area and by 1.8% in the EU27. Non-durable consumer goods decreased by 1.6% and 1.5% respectively. Intermediate goods declined by 1.2% in the euro area and by 0.9% in the EU27. Durable consumer goods dropped by 0.9% in the euro-area, but rose by 0.6% in the EU27. Production of energy increased by 6.9% and 5.7% respectively.
Among the Member States for which data are available, industrial production fell in six, rose in sixteen and remained stable in the United Kingdom. The largest decreases were registered in Portugal (-6.5%), Germany (-2.0%) and Italy (-1.9%), and the highest increases in the Netherlands (+2.9%), Poland (+2.3%) and Malta (+1.9%).
In April 2012 compared with April 2011, production of durable consumer goods dropped by 6.2% in the euro area and by 4.5% in the EU27. Intermediate goods fell by 4.5% and 3.5% respectively. Non-durable consumer goods decreased by 3.4% in both zones. Capital goods declined by 0.3% in the euro-area, but rose by 0.4% in the EU27. Production of energy grew by 3.3% and 1.3% respectively.
Among the Member States for which data are available, industrial production fell in eleven and rose in twelve. The largest decreases were registered in Italy (-9.2%), Spain (-8.3%) and Portugal (-7.6%), and the highest increases in Slovakia (+10.9%), Lithuania (+6.9%) and the Netherlands (+4.7%).
The first estimate for the euro area (EA17) trade in goods balance with the rest of the world in April 2012 gave a 5.2 bn euro surplus, compared with -4.5 bn in April 2011. The March 2012 balance was +7.5 bn, compared with +0.9 bn in March 2011. In April 2012 compared with March 2012, seasonally adjusted exports fell by 1.3% and imports by 3.0%.
The first estimate for the April 2012 extra-EU27 trade in goods balance was a 12.0 bn euro deficit, compared with -17.2 bn in April 2011. In March 2012 the balance was -7.3 bn, compared with -13.1 bn in March 2011. In April 2012 compared with March 2012, seasonally adjusted exports fell by 1.8% and imports by 2.2%.
Euro area annual inflation is expected to be 2.4% in June 2012 according to a flash estimate issued by Eurostat, the statistical office of the European Union. Euro area annual inflation was 2.4% in May 2012, down from 2.6% in April. A year earlier the rate was 2.7%. Monthly inflation was -0.1% in May 2012. EU annual inflation was 2.6% in May 2012, down from 2.7% in April. A year earlier the rate was 3.2%. Monthly inflation was 0.0% in May 2012.
The euro area (EA17) seasonally-adjusted unemployment rate was 11.1% in May 2012, compared with 11.0% in April. It was 10.0% in May 2011. The EU27 unemployment rate was 10.3% in May 2012, compared with 10.2% in April. It was 9.5% in May 2011. Eurostat estimates that 24.868 million men and women in the EU27, of whom 17.561 million were in the euro area, were unemployed in May 2012. Compared with April 2012, the number of persons unemployed increased by 151 000 in the EU27 and by 88 000 in the euro area. Compared with May 2011, unemployment rose by 1.952 million in the EU27 and by 1.820 million in the euro area.
Among the Member States, the lowest unemployment rates were recorded in Austria (4.1%), the Netherlands (5.1%), Luxembourg (5.4%) and Germany (5.6%), and the highest in Spain (24.6%) and Greece (21.9% in March 2012).

Economy of Japan

Japan`s economy grew a revised 1.2 percent in January-March from the previous quarter, government data showed, more than initially reported last month, in a sign the recovery was on track due to firm domestic demand. The rise in gross domestic product was slightly bigger than economists` median forecast for a 1.1 percent expansion, and compared with a preliminary reading of 1.0 percent growth, the Cabinet Office data showed. The revised figure translates into annualised growth of 4.7 percent in real, price-adjusted terms, against 4.4 percent projected by economists and a preliminary reading of 4.1 percent.
Japan`s industrial production declined in May from the previous month, according to data released by the Trade Ministry. The data reported that industrial output fell 3.1 percent in May, raising concerns about the country`s faltering economic growth momentum. A decrease of 0.2 percent was reported in April. The continuing crisis in Europe, the weakness in the U.S. market and the strengthening of the Japanese yen have hampered the growth of Japan`s export-focused companies. The debt crisis in the euro zone has revived with the rising borrowing cost of Spain and Italy, consequently affecting Japan`s market sentiments adversely.
Japan logged a bigger-than-expected trade deficit of $11.5 billion in May, hit by soaring energy costs and weakening demand from struggling Europe, official data showed. The figures, which showed a 907.3-billion-yen shortfall in May from a year earlier, revealed that Japan had its first monthly trade deficit with the European Union since records started in 1979. Demand from the continent, a major market for Japanese products, continues to suffer with Tokyo repeatedly warning that the euro zone debt crisis was the biggest risk for Japan`s economy, the world`s third largest.
Tokyo`s trade deficit with the EU came to 11.1 billion yen in May, reversing a year-earlier surplus of 25.6 billion as exports of microchips and other electronic parts tumbled. There was, however, contrasting news in the form of exports overall rising 10 per cent to 5.23 trillion yen as shipments of automobiles and auto parts soared, mainly driven by demand in the United States.
Japan`s overall May trade deficit was a record for the month and 5.4 per cent higher than the 860.7-billion-yen deficit in May 2011. It was also well above the 520-billion-yen deficit expected by economists. Overall, imports jumped 9.3 per cent to 6.14-trillion yen from a year earlier, largely due to rising purchases of foreign oil and gas.
Japan`s core consumer prices fell 0.1 percent in May from a year earlier, marking the first drop in four months in a sign the central bank`s 1 percent inflation goal remains elusive. The decline in the core consumer price index, which includes oil products but excludes volatile prices of fresh fruit, vegetables and seafood, compared with a median market forecast for a flat reading.
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 0.6 percent in May from a year earlier, data by the Internal Affairs ministry showed. Core consumer prices in Tokyo, available a month before the nationwide data, fell 0.6 percent in June from a year earlier, roughly in line with a market forecast for a 0.7 percent decline.
Japan`s unemployment rate fell to 4.4 per cent in May, edging down from 4.6 per cent the previous month, the internal affairs ministry said Friday, while household spending jumped from a year ago. The official jobless figure was lower than a market forecast for a rate of 4.5 per cent, according to Dow Jones Newswires.

Economy of Russia

Russia`s gross domestic product grew at an annual rate of 4 percent in the first quarter of 2012, down from of the 4.9 percent estimate reported by the Federal Statistics Service Rosstat, according to data on the government`s website. “In the first quarter of 2012, GDP amounted to 12.869 trillion rubles [$402 billion] and expanded by 4 percent from the same period last year,” the data said. In mid-May, Rosstat reported Russia`s GDP had expanded 4.9 percent on an annual basis in January-March 2012, exceeding the 4 percent initial estimate of Russia`s Economic Development Ministry. According to Rosstat data, Russia`s GDP grew 4.3 percent last year, with a first quarter rise of four percent year-on-year.
Russia`s industrial production grew 3.4 percent year-on-year from January to May 2012, the Federal Statistics Service (Rosstat) reported. Russia`s industrial output growth accelerated to 1 percent in May from 0.1 percent in April, excluding seasonal factors, Rosstat said. Output in the mining sector increased by 2.2 percent in May 2012 after a 5 percent fall in April. Production in the manufacturing industries grew by 6 percent in May compared to the previous month after a 2.5 percent decrease from March to April. Russia`s gross domestic product grew at an annual rate of 4 percent in the first quarter of 2012, matching its growth in the same period last year.