World Economy Review - January 2013

With GDP growth forecast at 3.5% for 2013, up from 2.7% last year, Latin America`s contribution to global growth will rise to 9% this year from the 8.4% average in 2009-11, Deutsche Bank said in a report. The investment bank is forecasting the region to show strong and stable growth generally this year thanks to supportive demographics and balanced fiscal policies.
But while Chile, Colombia and Peru will continue to deliver stable growth, Brazil`s growth will remain disappointing unless more effective steps to boost investment and competitiveness are taken. As for Argentina and Venezuela, Deutsche Bank is forecasting more of the same in 2013: high inflation, loose policies, political risk and social unrest. The investment bank is also projecting the region`s GDP growth to accelerate to 3.9% in 2014.
Even though the share of global GDP in developed markets (DMs) and emerging markets (EMs) is broadly balanced (52% compared to 48%), the latter will remain the engine for growth in 2013, Deutsche Bank said. At 5.4%, over 80% of global growth in 2013 will come from EMs, with 62% from EM Asia alone (39% from China and 5% from India).
In turn, the CEEMEA region (Central Eastern Europe, the Middle East and Africa), will expand 3.5% this year, thus accounting for 12% of global growth. In DMs, only the US will make a significant contribution. Deutsche Bank is forecasting DMs and US growth at 1% and 2%, respectively, in 2013.
The investment bank is forecasting global growth of 3.2% for this year compared to 2.9% in 2012. "2013 will likely mark the dawn of the post-crisis era," the report reads.
"While structural long-term issues such as high debts across the developed world and unbalanced growth models in emerging economies remain unsettled, 2013 could be a year of stabilization after years of crisis-fighting. Supporting this view is the fact that global growth appears to be bottoming out and looks set to begin a slow ascent back to trend levels in the second half of 2013."
And while a return to stronger growth in US and Europe will increase DMs` contribution, EMs will still account for around 75% of growth in 2014, according to Deutsche Bank.
Deutsche Bank (DB) also cut its forecast for U.S. crude by 10% to $90 a barrel for the first quarter of 2013, citing increasing supply from the U.S. and lower expectations for global growth. For 2013, the bank expects U.S. crude to average $96.25 a barrel, 8.1% lower than the previous forecast in October, and Brent crude to average $112.50 a barrel, 0.9% lower than the previous forecast. Brent will average the first quarter at $108 a barrel, the note said.
"Given expectations for robust U.S. oil supply growth, the global oil balance implies that if OPEC doesn`t curb production significantly, implied inventory builds in first-half 2013 could be sizable," said Deutsche Bank.
OPEC`s next meeting is May 31, but the bank could act unofficially to change the production ceiling before that. Still, Deutsche Bank said it expects a rebound in growth over the coming six months, of which energy, industrial metals and bulk commodity sectors will be the major beneficiaries. This growth in global economy should be positive for oil demand, with the U.S. expected as a modest growth engine this year and China forecast to return to potential growth rates by the second half of 2013.

Economy of the United States

US GDP decreased at an annual rate of 0.1 percent in the fourth quarter of 2012 (that is, from the third quarter to the fourth quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 3.1 percent.
The decrease in real GDP in the fourth quarter primarily reflected negative contributions from private inventory investment, federal government spending, and exports that were partly offset by positive contributions from personal consumption expenditures (PCE), nonresidential fixed investment, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, decreased.
The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 1.3 percent in the fourth quarter, compared with an increase of 1.4 percent in the third. Excluding food and energy prices, the price index for gross domestic purchases increased 1.1 percent in the fourth quarter, compared with an increase of 1.2 percent in the third.
Real personal consumption expenditures increased 2.2 percent in the fourth quarter, compared with an increase of 1.6 percent in the third. Durable goods increased 13.9 percent, compared with an increase of 8.9 percent. Nondurable goods increased 0.4 percent, compared with an increase of 1.2 percent. Services increased 0.9 percent, compared with an increase of 0.6 percent.
Industrial production increased 0.3 percent in December after having risen 1.0 percent in November when production rebounded in the industries that had been negatively affected by Hurricane Sandy in late October. For the fourth quarter as a whole, total industrial production moved up at an annual rate of 1.0 percent.
Manufacturing output advanced 0.8 percent in December following a gain of 1.3 percent in November; production edged up at an annual rate of 0.2 percent in the fourth quarter. The output at mines rose 0.6 percent in December, and the output of utilities fell 4.8 percent as unseasonably warm weather held down the demand for heating. At 98.1 percent of its 2007 average, total industrial production in December was 2.2 percent above its year-earlier level. Capacity utilization for total industry moved up 0.1 percentage point to 78.8 percent, a rate 1.5 percentage points below its long-run (1972--2011) average.
The U.S. Census Bureau and the U.S. Bureau of Economic Analysis said that total November exports of $182.6 billion and imports of $231.3 billion resulted in a goods and services deficit of $48.7 billion, up from $42.1 billion in October, revised. November exports were $1.7 billion more than October exports of $180.8 billion. November imports were $8.4 billion more than October imports of $222.9 billion.
In November, the goods deficit increased $6.6 billion from October to $65.7 billion, and the services surplus was virtually unchanged from October at $17.0 billion. Exports of goods increased $1.6 billion to $129.3 billion, and imports of goods increased $8.2 billion to $195.0 billion. Exports of services increased $0.1 billion to $53.2 billion, and imports of services increased $0.2 billion to $36.3 billion.
The goods and services deficit decreased $0.1 billion from November 2011 to November 2012. Exports were up $5.8 billion, or 3.3 percent, and imports were up $5.7 billion, or 2.5 percent.
The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in December on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported. Over the last 12 months, the all items index increased 1.7 percent before seasonal adjustment.
The gasoline index declined again in December, but other indexes, notably food and shelter, increased, resulting in the seasonally adjusted all items index being unchanged. Gasoline was the only major energy index to decline; the indexes for natural gas and electricity both increased. Within the food category, five of the six major grocery store food groups increased as the food at home index rose for the third consecutive month.
The index for all items less food and energy increased 0.1 percent in December, the same increase as in November. Besides shelter, the indexes for airline fares, tobacco, and medical care also increased. The indexes for recreation, household furnishings and operations, and used cars and trucks all declined in December.
The all items index increased 1.7 percent over the last 12 months, compared to a 1.8 percent figure in November. The index for all items less food and energy rose 1.9 percent over the last 12 months, the same figure as last month. The food index has risen 1.8 percent over the last 12 months, and the energy index has risen 0.5 percent.
Total nonfarm payroll employment increased by 157,000 in January, and the unemployment rate was essentially unchanged at 7.9 percent, the U.S. Bureau of Labor Statistics reported. Retail trade, construction, health care, and wholesale trade added jobs over the month.
Among the major worker groups, the unemployment rates for adult men (7.3 percent), adult women (7.3 percent), teenagers (23.4 percent), whites (7.0 percent), blacks (13.8 percent), and Hispanics (9.7 percent) showed little or no change in January. The jobless rate for Asians was 6.5 percent (not seasonally adjusted), little changed from a year earlier.
In January, the number of long-term unemployed (those jobless for 27 weeks or more) was about unchanged at 4.7 million and accounted for 38.1 percent of the unemployed. Both the employment-population ratio (58.6 percent) and the civilian labor force participation rate (63.6 percent) were unchanged in January.

Economy of the European Union

In November 2012 compared with October 2012, seasonally adjusted industrial production fell by 0.3% in both the euro area (EA17) and the EU272, according to estimates released by Eurostat, the statistical office of the European Union. In October production decreased by 1.0% and 0.8% respectively. In November 2012 compared with November 2011, industrial production dropped by 3.7% in the euro area and by 3.3% in the EU27.
In November 2012 compared with October 2012, production of energy fell by 1.6% in the euro area and by 0.7% in the EU27. Non-durable consumer goods decreased by 1.2% in both zones. Production of durable consumer goods declined by 1.1% in the euro area and by 1.4% in the EU27. Intermediate goods dropped by 0.3% and 0.4% respectively. Capital goods grew by 0.7% in the euro area and by 0.5% in the EU27.
Among the Member States for which data are available, industrial production fell in fourteen and rose in seven. The largest decreases were registered in Slovenia (-4.0%), Portugal (-3.4%) and Spain (-2.5%), and the highest increases in Estonia (+4.7%), Latvia and the Netherlands (both +1.0%).
In November 2012 compared with November 2011, production of durable consumer goods fell by 7.7% in the euro area and by 6.8% in the EU27. Intermediate goods dropped by 4.8% and 4.3% respectively. Capital goods decreased by 4.4% in the euro area and by 3.7% in the EU27. Non-durable consumer goods declined by 3.0% and 2.7% respectively. Production of energy increased by 0.5% in the euro area, but fell by 0.6% in the EU27.
Among the Member States for which data are available, industrial production fell in sixteen and rose in five. The largest decreases were registered in Italy (-7.6%), Spain (-7.2%) and Ireland (-6.6%), and the highest increases in Lithuania (+8.9%), Estonia (+6.5%) and Malta (+6.1%).
The first estimate for the euro area (EA17) trade in goods balance with the rest of the world in November 2012 gave a 13.7 bn euro surplus, compared with +4.9 bn in November 2011. The October 2012 balance was +9.3 bn, compared with -0.7 bn in October 2011. In November 2012 compared with October 2012, seasonally adjusted exports increased by 0.8% while imports fell by 1.5%. These data are released by Eurostat, the statistical office of the European Union.
The first estimate for the November 2012 extra-EU27 trade in goods balance was a 1.7 bn euro deficit, compared with -9.3 bn in November 2011. The October 20122 balance was -9.8 bn, compared with -11.3 bn in October 2011. In November 2012 compared with October 2012, seasonally adjusted exports rose by 1.1% while imports decreased by 3.0%.
The euro area (EA17) seasonally-adjusted unemployment rate was 11.7% in December 2012, stable compared with November. The EU27 unemployment rate was 10.7%, also stable compared with November. In both zones, rates have risen markedly compared with December 2011, when they were 10.7% and 10.0% respectively. These figures are published by Eurostat, the statistical office of the European Union.
Eurostat estimates that 25.926 million men and women in the EU27, of whom 18.715 million were in the euro area, were unemployed in December 2012. Compared with November 2012, the number of persons unemployed was nearly stable in both the EU27 and the euro area. Compared with December 2011, unemployment rose by 1.763 million in the EU27 and by 1.796 million in the euro area.
Among the Member States, the lowest unemployment rates were recorded in Austria (4.3%), Germany and Luxembourg (both 5.3%) and the Netherlands (5.8%), and the highest in Greece (26.8% in October 2012) and Spain (26.1%).
Euro area annual inflation is expected to be 2.0% in January 2013, down from 2.2% in December 20123, according to a flash estimate from Eurostat, the statistical office of the European Union. Looking at the main components of euro area inflation, energy (3.9% compared with 5.2% in December) is expected to have the highest annual rate in January, followed by food, alcohol & tobacco (3.2%, stable compared with December), services (1.7% compared with 1.8% in December) and non-energy industrial goods (0.8% compared with 1.0% in December).

Economy of Japan

Japan`s government expects the economy to grow 2.5% in real terms in fiscal 2013 while forecasting a slightly higher 2.7% rise in nominal terms, indicating deflationary pressures will ease in coming months, the Cabinet Office said. The government has revised up its forecast from its previous projection for +1.7% for real GDP and +1.9% for nominal GDP released in August 2012, thanks to expected stimulus effects of an economic package and monetary easing by the Bank of Japan.
Japan`s industrial production rose less than economists forecast, suggesting that a recovery in the nation`s manufacturing sector is lagging a weakening yen. Output rose 2.5 percent from November, when it declined 1.4 percent, the Trade Ministry said. The median estimate of 25 economists was for a 4.1 percent gain. Production fell 7.8 percent from the previous year. Manufacturers expect production to rise 2.6 percent in January and 2.3 percent in February.
Japan`s goods trade deficit registered 641.5 billion yen in December, government data showed. Exports fell 5.8 percent from a year earlier to 5,300.3 billion yen while imports expanded 1.9 percent to 5,941.8 billion yen, the Finance Ministry said in a preliminary report. It was the sixth straight month of deficit. For 2012, the balance of trade in goods hit a record deficit of 6,927.3 billion yen, according to the ministry. The figures were calculated on a customs-cleared basis.
Core consumer prices in Japan were down -0.2 percent on year in December, the Ministry of Internal Affairs and Communications said - matching forecasts after easing 0.1 percent in November. Overall CPI was down 0.1 percent on year versus forecasts for -0.2 percent, which would have been unchanged. On month, core CPI was down 0.1 percent and overall inflation was flat.
Core inflation in Tokyo, considered a leading indicator for the nationwide trend, dipped 0.5 percent on year in January - matching forecasts after falling 0.6 percent in December. Overall CPI was down 0.6 percent on year - unchanged and in line with forecasts. On month, Tokyo core CPI fell 0.6 percent and overall inflation eased 0.2 percent.
The unemployment rate in Japan came in at a seasonally adjusted 4.2 percent in December, the Ministry of Internal Affairs and Communications said. The headline figure missed forecasts for 4.1 percent, which would have been unchanged from the November reading. The number of employed persons in December was 62.28 million, a decrease of 380,000 or 0.6 percent on year. The number of unemployed persons in December was 2.59 million, a decrease of 170,000 or 6.2 percent on year. The job-to-applicant ratio was 0.82 in December, beating forecasts for 0.80 - which also would have matched the previous month`s reading. The participation rate was 58.5 percent, down from 58.9 percent a year earlier. Unadjusted, the unemployment rate was 4.0 percent in December.
For all of 2012, the unadjusted unemployment rate was 4.3 percent - down from 4.6 percent in 2011. The total number of employed persons was down 0.3 percent on year, while the total number of unemployed persons dropped an annual 5.6 percent.

Economy of Russia

Russia`s gross domestic product slowed to 3.4% in 2012 from 4.3% the previous year, preliminary data from the Federal Statistics Service showed. The figure is slightly below the preliminary estimate from the economy ministry, whose deputy head said the country`s GDP probably expanded around 3.5% in 2012. The Bank of Russia has estimated 2012 GDP growth at 3.5%-4.0%.
Russia`s economic expansion is slowing after a decade of rapid growth before 2009. Central bank and finance ministry officials have said sluggish growth is the most the country can achieve without bold economic reforms. While President Putin has urged the government to target a 5% economic growth rate, the government expects growth this year to be just a notch higher than in the previous year.
Russian industrial production unexpectedly slowed in December to the weakest pace in eight months, showing the slumping economy failed to pick up momentum last quarter. Output at factories, mines and utilities rose 1.4 percent from a year earlier, the slowest pace since April, compared with 1.9 percent in November, the Federal Statistics Service in Moscow said today in an e-mailed statement. The median estimate of 17 economists in a Bloomberg survey was for a 2 percent advance.
Industrial output in the world`s largest energy exporter is stabilizing at weak levels as the economy cools, the central bank said this month. Stagnating output may support the government`s calls for monetary stimulus and cheaper money to boost growth, which was the weakest in the third quarter on an annual basis since the recovery from a recession began in 2010.
Russia`s consumer price inflation rose to 6.6 percent in December and in 2012 as a whole from 6.5 percent in November and 6.1 percent in 2011, data published by the Federal Statistics Service showed. That was above the central bank`s official 5-6 percent target range for the year. Core inflation, which strips out volatile food and energy prices, rose by 5.7 percent compared with a year earlier - an improvement on November when annual core inflation was 5.8 percent. A poor harvest last summer, coupled with the impact of increases in household utility prices that were delayed from before Presidential elections last March, led inflation to pick up sharply in the second half of last year from a post-Soviet low of 3.6 percent in April.