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World Economy Review - September 2012

Fitch Ratings has reduced its global economy growth outlook for 2012, 2013 and 2014, noting there are risks to the economic recovery, despite the multiple monetary recovery plans proposed. The economic statistics and the recent indexes “shed light on the lasting weakness of the growth and risks to the global economic recovery,” the agency says.
In its three-month report the agency announced its new economic forecasts for the current and next two years. According to the agency the global economy will grow 2.1%, 2.6% and 3% in 2012, 2013 and 2014. Earlier Fitch predicted growth of 2.2%, 2.8% and 3.1%.
Fitch Ratings has cut its 2012 growth forecasts for China to 7.8% from 8% and India to 6% from 6.5%. Both regional giants face a deteriorating global growth outlook with diminished willingness or capacity to respond with domestic policy loosening, compared with 2009.
Slower exports are weighing on China`s growth, but Fitch views the slowdown as also reflecting the authorities` efforts to squeeze consumer and house-price inflation out of the system after the strong credit-led stimulus of 2009-2010. Fitch expects slowing construction activity to knock about 0.8 percentage points (pp) off China`s growth in 2012.
The agency expects only marginal policy loosening unless the labour market deteriorates sharply. Fitch does not expect a "hard landing" in China given the authorities` scope for fiscal and monetary policy flexibility if they choose to use it. The resilience of the labour market seen in current data suggests growth of 7.5%-8% may be in line with the economy`s potential rate.
Weak corporate profitability poses downside risk for China`s economy. This could eventually incline firms to shed labour which would in turn affect consumption, currently a resilient part of the outlook. Real estate and construction have been a source of downside risk given the authorities` restrictive policies in the sector following its rapid growth in 2009-2011.
However, the residential real estate market has shown some signs of turning the corner in summer 2012, which leans against a negative outcome. A significant deterioration in financial stability and in the ability of the banks to transmit monetary loosening is another but more remote risk to the outlook. India`s economic outlook remains challenging. Investment rose just 0.7% yoy in Q212, with higher-frequency indicators pointing to another weak outturn in Q3.
Ongoing concerns over government economic and investment policy may be weighing on business confidence. The authorities` ability to respond with looser policy is constrained by India`s high inflation, fiscal deficit and public debt. Fitch projects India`s general government deficit at 8.5% of GDP in fiscal 2012, leaving little room for fiscal easing.
A number of quarters of weak investment, in turn, may be starting to affect the economy`s supply capacity, pointing to a weaker growth outlook. The authorities have announced a range of reforms in September 2012 including liberalization of FDI in multi-brand retail which may help to restore confidence and lift investment, although the volatile political environment points to implementation risk.
The growth outlook is holding up better elsewhere in emerging Asia in part because of the growing importance of domestic demand in many regional economies. The 0.3pp reduction in Korea`s forecast for 2012 to 2.5% is modest and underpins the open, trade-driven economy`s resilience, a key factor behind Fitch`s upgrade of the Korean sovereign to `AA-` in September. Growth in Malaysia and Thailand will benefit in the short run from public-sector-led investment.
Indonesia`s growth forecast is unchanged at 6%, reflecting the increasing importance of domestic demand as a driver of that country`s growth, notwithstanding the importance of commodity exports. Fitch has cut its forecast for growth in the major advanced economies by 0.2pp in 2012 (to 1%) and 0.3pp in 2013 (to 1.4%).
The agency has revised down its expectations in the euro area to a 0.5% contraction in 2012 and just 0.3% growth in 2013, while the US forecast remains unchanged at +2.2%/+2.3%. Russia, however, is set to outperform, with its GDP adding 3.5% in 2013 and 2014.

Economy of the United States

U.S. economic growth was much weaker than previously estimated in the second quarter as a drought cut into inventories, setting the platform for an even more sluggish performance in the current quarter against the backdrop of slowing factory activity. Gross domestic product expanded at a 1.3 percent annual rate, the slowest pace since the third quarter of 2011 and down from last month`s 1.7 percent estimate, the Commerce Department said in its final estimate.
Output was also revised down to reflect weaker rates of consumer and business spending than previously estimated. Outlays on residential construction export growth were also not as robust as had been previously estimated. Economists polled by Reuters had expected second-quarter GDP growth would be unrevised at a 1.7 percent pace. The economy grew at a 2.0 percent pace in the January-March period.
The worst drought in half a century, which gripped large parts of the country in the summer, saw farm inventories dropping $5.3 billion in the second quarter after slipping $1 billion in the first three months of the year.
Data in hand for the third-quarter suggest little improvement in the growth pace, even as the housing market digs out of a six-year slump. Manufacturing, the pillar of the recovery from the 2007-09 recession is cooling, hurt by fears of tighter U.S. fiscal policy in January and slower global demand. The GDP report also showed that after-tax corporate profits unexpectedly rose at a 2.2 percent rate instead of the previously reported 1.1 percent increase. After-tax profits fell 8.6 percent in the first quarter.
U.S. industrial production fell in August by the largest amount in more than three years as factories produced fewer cars and other manufactured goods and Hurricane Isaac triggered shutdowns along the Gulf Coast. Industrial production dropped 1.2 percent last month compared to July, the Federal Reserve said. It was the biggest setback since a 1.7 percent decline in March 2009 when the country was in recession.
Manufacturing output, the most important component of industrial production, fell 0.7 percent, led by a 4 percent drop in output at auto plants. Manufacturing helped lift the country out of the Great Recession, but it slowed in the spring as consumers cut back on spending, businesses invested less in machinery and demand for U.S. exports was hurt by a global weakness. Output in mining, which also includes oil and gas production, fell 1.8 percent in August compared to July with much of that weakness attributed to precautionary shutdowns of oil and gas rigs in the Gulf of Mexico in advance of Hurricane Isaac in late August. Output at the nation`s utilities dropped 3.6 percent in August after posting a 1.3 percent increase in July.
The U.S. trade deficit grew to $42 billion in July, widened by fewer exports to Europe, India and Brazil that offset a steep decline in oil imports. The Commerce Department said that the trade deficit increased 0.2 percent from June`s deficit of $41.9 billion. U.S. exports fell 1 percent to $183.3 billion. Sales of autos, telecommunications equipment and heavy machinery all declined. Imports dropped 0.8 percent to $225.3 billion.
Economists note that the deficit would have grown much faster had it not been for a 6.5 percent drop in oil imports, largely reflecting cheaper global prices. Prices have increased since then, while demand for exports has dampened.
The cost of living in the U.S. climbed in August by the most in more than three years, reflecting a surge in fuel costs. The 0.6 increase in the consumer-price index was the biggest since June 2009 and followed no change in the previous month, the Labor Department reported today in Washington. The median forecast of 85 economists surveyed by Bloomberg News called for an advance of 0.6 percent. The core index, which excludes volatile food and fuel costs, climbed a less-than- projected 0.1 percent for a second month.

Economy of the European Union

GDP decreased by 0.2% in the euro area (EA17) and by 0.1% in the EU27 during the second quarter of 2012, compared with the previous quarter, according to second estimates released by Eurostat, the statistical office of the European Union. In the first quarter of 2012, growth rates were 0.0% in both zones. Compared with the second quarter of 2011, seasonally adjusted GDP decreased by 0.5% in the euro area and by 0.3% in the EU27, after 0.0% and +0.1% respectively in the previous quarter. During the second quarter of 2012, household final consumption expenditure decreased by 0.2% in both the euro area and the EU27 (after -0.2% and -0.1% respectively in the previous quarter). Gross fixed capital formation fell by 0.8% in the euro area and by 0.9% in the EU27 (after -1.3% and -0.7%). Exports rose by 1.3% in the euro area and by 1.0% in the EU27 (after +0.7% and +0.5%). Imports increased by 0.9% in both zones (after -0.2% in both zones).
In July 2012 compared with June 2012, seasonally adjusted industrial production grew by 0.6% in the euro area (EA17) and by 1.1% in the EU27. In June production decreased by 0.6% and 0.8% respectively. In July 2012 compared with July 2011, industrial production dropped by 2.3% in the euro area and by 1.5% in the EU27. These estimates are released by Eurostat, the statistical office of the European Union.
In July 2012 compared with June 2012, production of capital goods increased by 2.4% in the euro area and by 2.5% in the EU27. Intermediate goods rose by 0.1% and 0.4% respectively. Durable consumer goods fell by 0.5% in the euro area, but grew by 0.7% in the EU27. Non-durable consumer goods declined by 0.6% in the euro area, but gained 0.2% in the EU27. Production of energy dropped by 1.2% and 0.1% respectively.
Among the Member States for which data are available, industrial production rose in seventeen and fell in five. The highest increases were registered in Lithuania (+4.4%), the United Kingdom (+2.9%), Poland (+2.4%) and Denmark (+2.3%), and the largest decreases in Slovenia (-2.3%), the Netherlands (-0.8%) and Malta (-0.5%).
In July 2012 compared with July 2011, production of durable consumer goods declined by 9.4% in the euro area and by 6.9% in the EU27. Intermediate goods fell by 3.3% and 2.9% respectively. Non-durable consumer goods decreased by 2.2% in the euro area and by 1.3% in the EU27. Capital goods dropped by 0.9% in the euro area and rose by 0.1% in the EU27. Production of energy increased by 0.3% in the euro area and fell by 0.2% in the EU27.
Among the Member States for which data are available, industrial production fell in ten and rose in twelve. The largest decreases were registered in Estonia and Italy (both -7.3%), Spain (-5.4%) and Greece (-5.3%), and the highest increases in Slovakia (+18.4%), Latvia (+5.3%) and Ireland (+5.1%).
The first estimate for the euro area (EA17) trade in goods balance with the rest of the world in July 2012 gave a 15.6 bn euro surplus, compared with +2.1 bn in July 2011. The June 20122 balance was +13.6 bn, compared with +0.2 bn in June 2011. In July 2012 compared with June 2012, seasonally adjusted exports fell by 2.0% and imports by 1.2%.
The first estimate for the July 2012 extra-EU27 trade in goods balance was a 3.1 bn euro surplus, compared with -10.9 bn in July 2011. In June 2012 trade was in balance, compared with a deficit of 15.3 bn in June 2011. In July 2012 compared with June 2012, seasonally adjusted exports declined by 1.7% and imports by 1.3%.
Euro area annual inflation is expected to be 2.7% in September 2012, up from 2.6% in August. Looking at the main components of euro area inflation, energy (9.2% compared with 8.9% in August) is expected to have the highest annual rate in September, followed by food, alcohol & tobacco (2.9% compared with 3.0%), services (2.0% compared with 1.8%) and non-energy industrial goods (0.8% compared with 1.1%).
The euro area (EA17) seasonally-adjusted unemployment rate was 11.4% in August 2012, stable compared with July. The EU27 unemployment rate was 10.5% in August 2012, also stable compared with July. In both zones, rates have risen compared with August 2011, when they were 10.2% and 9.7% respectively.
Eurostat estimates that 25.466 million men and women in the EU27, of whom 18.196 million were in the euro area, were unemployed in August 2012. Compared with July 2012, the number of persons unemployed increased by 49 000 in the EU27 and by 34 000 in the euro area. Compared with August 2011, unemployment rose by 2.170 million in the EU27 and by 2.144 million in the euro area.
Among the Member States, the lowest unemployment rates were recorded in Austria (4.5%), Luxembourg (5.2%), the Netherlands (5.3%) and Germany (5.5%), and the highest in Spain (25.1%) and Greece (24.4% in June 2012).

Economy of Japan

Japan`s economy grew a revised 0.2 percent in April-June from the previous quarter, government data showed, slower than initially estimated, partly as companies kept a lid on capital spending amid worries about Europe`s debt crisis and a global slowdown.
The rise in gross domestic product compared with a preliminary reading of a 0.3 percent increase, the Cabinet Office data showed. Economists polled by Reuters had also expected 0.3 percent growth. The revised figure translates into annualised growth of 0.7 percent in real, price-adjusted terms, versus 1.0 percent seen by economists and a preliminary reading of 1.4 percent. Capital spending, a key driver of the economy, grew a revised 1.4 percent from the previous quarter, less than an initially estimated rise of 1.5 percent and compared with economists` median forecast for a 0.9 percent increase.
Industrial output in Japan declined a seasonally adjusted 1.3 percent on month in August, the Ministry of Economy, Trade and Industry said in preliminary reading. That missed forecasts for a fall of 0.5 percent after shedding 1.0 percent in July. On a yearly basis, industrial production fell 4.3 percent - again shy of expectations for a decline of 3.4 percent following the 0.8 percent contraction in the previous month.
Industries that contributed to the decrease in August included electronic parts, communications equipment and chemicals. Commodities that contributed to the decline include metal oxide semiconductor ICs, passenger cars and LCDs.
According to the survey of production forecast in manufacturing, production is expected to decrease 2.9 percent in September and be flat in October.
Industries that contribute to the fall in September include transport equipment, communications equipment and iron and steel. Industries that mark the increase in October include electronic parts and transport, while weakness from the general machinery and electronics equipment offset those gains.
Shipments were up 0.4 percent on month in August, rising for the first time in four months. They were also down 3.1 percent on year, thanks to electronic parts, communications equipment and general machinery.
Inventories were down 1.6 percent on month, reversing the gains in July. They were also up 5.9 percent on year thanks to electronics parts, communication electronics equipment and petroleum products. The inventory ratio was down 2.9 percent on month in August, falling for the first time in three months. It was also up 8.1 percent on year.
According to the Ministry of Finance, Japan`s trade balance registered a deficit totaling Y 754.1 bln (Y-809 cons.) in August from a deficit of -517.4 in July. Exports were also reported better than expected at -5.8% (-7.3% cons.), and imports beat forecasts by coming in at 5.4% (-6.1% cons).
Japan`s consumer prices fell 0.3 percent in August from a year earlier, matching the steepest decline in 16 months as the central bank remains distant from a 1 percent inflation target. The decline in prices excluding fresh food, reported by the statistics bureau in Tokyo today, was the same as the median estimate in a Bloomberg News survey of 26 economists. Japan`s jobless rate decreased to 4.2 percent last month from 4.3 percent in July, according to a separate report.
Entrenched deflation may increase pressure on the central bank to ease further after unexpectedly expanding its asset- purchase fund last week. The decline reported today compares with a Bank of Japan forecast for a 0.2 percent increase in prices in the fiscal year that started in April and a 0.7 percent gain in the following 12 months.
Japan`s unemployment rate fell to 4.2 percent last month from 4.3 percent in July for the first improvement in two months, the government said, although it denied the result would immediately allow optimism about the economy.
The seasonally adjusted data was almost in line with market forecasts that ranged from around 4.2 percent to 4.4 percent. Analysts doubted the momentum of the improvement will be sustained because of signs of economic slowdown, particularly weaker exports and production.
The decline of the jobless rate, said the Ministry of Internal Affairs and Communications, was due mainly to those who stopped looking for jobs for the time being amid the deteriorating economic environment. The improvement “was not caused by increasing employment, but by people who left the job market, and we need to closely watch future developments,” a ministry official said.
Backing the assessment, the number of people employed fell 60,000, or 0.1 percent, to 62.63 million for the second straight month of decline, while the number of those designated as unemployed was down 100,000, or 3.5 percent, to 2.72 million, the first decrease in two months.

Economy of Russia

Russia`s GDP rose 2.8 per cent year-on-year in August after growing 3.0 per cent in the preceding month, Economy Ministry said on its web site. The ministry has revised July reading from 2.6 per cent. In the first eight months of the year the economy grew by 4.0 percent, year-on-year, the ministry said.
Russia`s industrial production declined by a seasonally adjusted 0.4 percent in August compared to July 2012, according to Economic Development Ministry data published. The Federal State Statistics Service Rosstat had previously reported industrial output declined 0.7 percent in August compared to July. "Industrial output slowed to 2.1 pecent compared to August last year (down from 3.4 percent in July)," the ministry said in its monitoring report. The decline "indicates the worsening situation in industry amid an overall slowing of investor and customer demand, as well as a lack of stability on foreign markets," it said. A 0.5 percent decrease in manufacturing activity was a major factor in the decline. The Economic Development Ministry said industrial output in the first eight months of 2012 rose 3.1 percent year-on-year, the same figure as Rosstat reported.
Russia`s trade surplus reached 128. 8 billion U.S. dollars in the first seven months of 2012, up 7.6 percent year-on-year, the Federal Customs Service said. In trade with former Soviet republics, Russia gained 20.8 billion dollars, an increase of 1.7 billion over the same period last year, the agency said in its regular report. The country`s trade surplus with other parts of the world grew by 7.3 billion dollars to 108.0 billion, it added.
According to the agency, Russia`s exports during the period amounted to 302.1 billion dollars, a 5.6-percent hike year on year, while import also increased 5 percent to 173.3 billion dollars. Fuel and energy products remained the pillars of Russian exports.
Russia had 0.1 percent inflation in August, compared with 1.2 percent in July, the Federal State Statistics Service (Rosstat) said. Consumer prices had risen 0.9 percent in June, 0.5 percent in May, 0.3 percent in April, 0.6 percent in March, 0.4 percent in February and 0.5 percent in January.
The August inflation was below the 0.3 percent that analysts forecast in a consensus forecast for Interfax. Russia had 0.2 percent deflation in August last year, so inflation in annual terms accelerated to 5.9 percent in August this year, from 5.6 percent in July, 4.3 percent in June, 3.6 percent in May and April, 3.7 percent in March and February, 4.2 percent in January and 6.1 percent in December. Inflation for the period January-August was 4.6 percent, or just a shade below the 4.7 percent seen in the same period of last year.
In August of this year, overall unemployment in Russia dropped 15.3 percent, as compared to August 2011. By early September 2012, just under 4 million people (5.2 percent of the labor force) were looking for work, according to analysts at Rosstat. These findings were based on opinion polls taken by the International Labor Organization.
Russia`s economy will expand 3.5 percent this year, exceeding a prior forecast of 3.4 percent, while consumer prices will advance 7 percent, Deputy Economy Minister Andrei Klepach said. The ministry raised the inflation forecast for this year from 5 percent to 6 percent, which is still the central bank`s estimate. Consumer prices will rise 5 percent to 6 percent in 2013, a range half a point higher than the ministry`s earlier forecast and Bank Rossii`s goal. Russia`s industrial output is expected to grow 3.6 percent in annual terms in 2012, up from 3.1 earlier forecast, Klepach said. Capital flight from Russia could reach $50-60 billion in 2012, he said, reiterating an earlier estimate maintaining that outflow could exceed $50 billion.

www.ereport.ru - 02.10.2012 14:27