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World Economy Review - July 2015

The International Monetary Fund trimmed the forecast for global economic growth this year to 3.3 percent, mainly due to unexpected output contraction in North America.

In the update to its World Economic Outlook, the IMF expected the global economy to expand at a slower rate than it did in April, dropping from 3.5 percent to 3.3 percent.

One of the unexpected factors is lower growth rate of the U.S. economy in the first quarter due to bad weather, a strong dollar and slowdown at West Coast ports.

"It was an accident," Olivier Blanchard, the IMF`s chief economist, said in a press conference. "In short, the fundamentals of the U.S. economy are very strong and the recovery is very much in trend."

Drivers for acceleration in consumption and investment in the United States -- Wage growth, labor market conditions, easy financial conditions, lower fuel prices and a strengthening housing market -- "remain intact," the IMF said in the report.

Despite Greece`s debt crisis and recent volatility of the Chinese stock market, the IMF`s expected 3.8 percent growth for 2016 remains unchanged.

"Greece`s economy only represents less than 2 percent of the Eurozone GDP," Blanchard said. "Of course we continue to hope and we are working on an agreement, which would allow Greece to stay in the Eurozone."

"There is little question that Greece is suffering and may suffer even more under the scenario of a disorderly exit from the Eurozone. But the effects on the rest of the world economy are likely to be limited," Blanchard said.

According to the IMF`s update, positive and negative dynamics outside North America were roughly offsetting. Growth in emerging market and developing economies weakened as expected, while advanced economies are expected to expand 2.1 percent in 2015. The eurozone in particular is doing better, according to Blanchard.

The stock market in China played a smaller role, Blanchard said. "It might have some small impacts on consumption spending, but we don`t see it as a macroeconomic issue."

Economy of the United States

The U.S. economy bounced back in the second quarter on stronger consumer spending, exports and home construction, and its performance in the first quarter wasn`t as feeble as initially believed. Gross domestic product - the value of goods and services produced in the U.S. - expanded at a seasonally adjusted annual rate of 2.3% in the April-June period, the Commerce Department said. Economists surveyed by Bloomberg expected 2.5% growth.

The government also revised up its estimate for the first quarter, turning a 0.2% contraction into 0.6% growth, mostly because of stronger business investment and federal government spending. The still-weak showing has been largely blamed on temporary factors such as rough weather and a West Coast ports slowdown. Many expect the economy to grow by a solid 3% at an annual rate in the second half of the year.

But the government lowered estimates for 2011 to 2014, revealing that growth in that period was somewhat weaker. The economy expanded by an average annual rate of 2%, below previous estimates of 2.3%. The economy`s modest performance the past several years was partly attributed to softer consumer spending than previously believed. The economy grew 1.6% in 2011, down from the 2.3% first estimated; 2.2% in 2012, versus the 1.5% initial reading; 1.5% in 2013, down from 1.7%; and 2.4% in 2014, down from 2.7%.

US industrial production rose in June, a sign that the improving economy is helping the sector break out of a slump. Industrial production, a measure of output in the manufacturing, utilities and mining sectors, rose a seasonally adjusted 0.3 per cent from May, the Federal Reserve said. May`s reading was unrevised from the previously estimated 0.2 per cent drop. For the second quarter, industrial output dropped at an annual rate of 1.4 per cent, the Fed said.

Capacity utilization, which measures industrial slack, rose 0.2 percentage points to 78.4 per cent. Capacity utilization has risen 2.6 percentage points over the past year but still stands 1.7 percentage points below its average since 1972. Economists surveyed by The Wall Street Journal had expected a 0.2 per cent increase in industrial production and a capacity utilization rate of 78.1 per cent.

Manufacturing output, which accounts for almost three-quarters of overall industrial production was unchanged in June, the Fed said. Auto and auto parts manufacturing dropped 3.7 per cent but output elsewhere in the sector rose 0.3 per cent, the Fed said. The mining sector saw a 1 per cent increase in output in June, suggesting the industry may be putting a slump caused by low oil prices behind it. In May, mining production dropped 2.1 per cent. Output in the utilities sector rose 1.5 per cent in June, following a 1.2 per cent increase the previous month. Over the past 12 months, production in utilities has grown 4.3 per cent, the Fed said.

The nation`s trade gap increased slightly in May on a drop in exports as U.S. firms struggle to sell their products in foreign markets. The trade deficit widened 2.9 percent to $41.9 billion, up from April`s $40.7 billion, the Commerce Department reported. Exports declined 0.8 percent to $188.6 billion, on a slowdown in demand for commercial aircraft and machinery. May imports fell 0.1 percent to $230.5 billion.

Americans paid more for rent, groceries and gasoline in June, pushing a broad measure of annual consumer inflation into positive territory for the first time in 2015. The consumer-price index, which reflects what Americans pay for everything from clothes to computers, rose a seasonally adjusted 0.3% in June from a month earlier, the Labor Department said. Prices rose 0.1% compared with a year earlier. Consumer costs were unchanged in May and had fallen 0.2% in April, when compared to a year earlier. The last annual increase came in December.

When excluding volatile energy and food categories, core prices were up 0.2% in June and 1.8% from a year earlier. Food prices, up 0.3% in June, were particularly hard to swallow for breakfast lovers. The widespread outbreak of avian influenza caused egg prices to jump 18.3% in June, the biggest increase since August 1973. And bacon prices rose 1.5% last month, the largest increase in a year. Prices for shelter, which account for a third of the overall index, rose 0.3% in June and are up 3% from a year earlier.

U.S. unemployment fell to a seven-year low of 5.3 percent and employers hired at a solid pace in June, but other gauges of the job market drew a bleaker picture: A wave of people stopped looking for work, and paychecks failed to budge. The figures capture the persistently uneven nature of the recovery from the Great Recession.

The economy gained 223,000 jobs in June, and unemployment edged down from 5.5 percent in May, the Labor Department reported. That is the lowest jobless rate since April 2008, when it was 5 percent. It eventually soared to 10 percent in late 2009 after the recession had done its worst.

Economy of the European Union

In May 2015 compared with April 2015, seasonally adjusted industrial production fell by 0.4% in the euro area (EA19) and by 0.3% in the EU28, according to estimates from Eurostat, the statistical office of the European Union. In April 2015 industrial production remained stable in both zones. In May 2015 compared with May 2014, industrial production increased by 1.6% in the euro area and by 2.0% in the EU28.

The decrease of 0.4% in industrial production in the euro area in May 2015, compared with April 2015, is due to production of energy falling by 3.2% and non-durable consumer goods by 1.4%, while intermediate goods increased by 0.1%, durable consumer goods by 0.4% and capital goods by 1.0%. In the EU28, the decrease of 0.3% is due to production of energy falling by 1.2%, non-durable consumer goods by 0.6% and intermediate goods by 0.2%, while durable consumer goods were stable. Capital goods rose by 0.6%. The largest decreases in industrial production were registered in Ireland (-6.9%), the Netherlands (-5.7%) and Greece (-5.1%), and the highest increases in Croatia (+2.6%), Lithuania (+1.7%) and Portugal (+1.0%).

The increase of 1.6% in industrial production in the euro area in May 2015, compared with May 2014, is due to production of durable consumer goods rising by 4.8%, capital goods by 4.1% and intermediate goods by 2.2%, while non-durable consumer goods fell by 0.5% and energy by 4.2%. In the EU28, the increase of 2.0% is due to production of capital goods rising by 4.2%, durable consumer goods by 4.1% and intermediate goods by 2.2%, while non-durable consumer goods fell by 0.4% and energy by 0.9%. The highest increases in industrial production were registered in Malta (+9.5%), Latvia (+6.5%) and Hungary (+6.2%), and the largest decreases in the Netherlands (-7.4%), Finland (-5.1%) and Ireland (-5.0%).

The first estimate for euro area (EA19) exports of goods to the rest of the world in May 2015 was 164.4 billion, an increase of 3% compared with May 2014 (160.2 bn). Imports from the rest of the world stood at 145.6 bn, nearly stable compared with May 2014 (145.5 bn). As a result, the euro area recorded a 18.8 bn surplus in trade in goods with the rest of the world in May 2015, compared with +14.7 in May 2014. Intra-euro area trade rose to 137.3 bn in May 2015, up by 1% compared with May 2014. These data are released by Eurostat.

Euro area annual inflation is expected to be 0.2% in July 2015, stable compared with June 2015, according to a flash estimate from Eurostat. Looking at the main components of euro area inflation, services is expected to have the highest annual rate in July (1.2%, compared with 1.1% in June), followed by food, alcohol & tobacco (0.9%, compared with 1.1% in June), non-energy industrial goods (0.5%, compared with 0.3% in June) and energy (-5.6%, compared with -5.1% in June).

The euro area (EA19) seasonally-adjusted unemployment rate was 11.1% in June 2015, stable compared with May 2015, and down from 11.6% in June 2014. The EU28 unemployment rate was 9.6% in June 2015, also stable compared with May 2015 and down from 10.2% in June 2014. These figures are published by Eurostat.

Eurostat estimates that 23.296 million men and women in the EU28, of whom 17.756 million in the euro area, were unemployed in June 2015. Compared with May 2015, the number of persons unemployed decreased by 32 000 in the EU28 and increased by 31 000 in the euro area. Compared with June 2014, unemployment fell by 1.448 million in the EU28 and by 811 000 in the euro area.

Economy of Japan

The Japanese economy likely contracted last quarter, dragged down by weak consumer spending and a slump in exports, according to a top forecaster. The world`s third-biggest economy may have shrank as much as an annualized 2.5 percent, said Yoshiki Shinke, at Dai-ichi Life Research Institute. The median estimate of 25 economists surveyed July 9-22 by Bloomberg is for 0.8 percent growth after the 3.9 percent expansion in the first quarter.

Japan`s industrial production increased more than forecast in June, aiding an economy that struggled last quarter with weakness in retail sales and exports. Output rose 0.8 percent from May, when it fell 2.1 percent, the trade ministry said. Production was stronger than the median forecast for a 0.3 percent gain. The ministry, which noted gains in output of chemicals and transport equipment, forecast the pace of production gains to have slowed to 0.5 percent this month before rising to 2.7 percent in August.

Japan`s trade deficit narrowed sharply last month as exports of automobiles and electronic parts picked up while a sky-high energy import bill continued to fall, finance ministry data showed. The country`s trade deficit came in at ¥69.0bn ($556mn) in June, plunging 91.7% from a ¥834.0bn deficit a year ago, and offering some good news for an economy struggling to gain traction. In June, the value of exports jumped 9.5% while imports were down 2.9%.

Over the six months through June the deficit shrank 77.4% from a year earlier to ¥1.73 trillion ($13.9 billion), due partly to smaller imports on the back of declining crude oil prices, the government said. The smaller deficit, which followed a record-high deficit of ¥7.63 trillion the previous year, is also attributed to increased vehicle exports to the United States and semiconductor parts to Asia as well as overall economic recovery and the yen`s depreciation.

During the first half of 2015, the value of exports increased 7.9 percent from a year earlier to ¥37.81 trillion, while imports dropped 7.4 percent to ¥39.53 trillion, the Finance Ministry said in a preliminary report.

Japan`s consumer prices rose 0.1 percent in June from a year earlier for the 25th straight monthly increase, the government said, with inflation remaining under pressure from declines in crude oil prices. The core consumer price index, which excludes volatile fresh food prices, stood at 103.4 against the 2010 base of 100, the Ministry of Internal Affairs and Communications said.

The rise followed a 0.1 percent increase in May, which is far below the Bank of Japan`s inflation target of 2 percent. Energy prices, which include electricity and gasoline, plunged 7.0 percent in June from a year earlier, with gasoline prices falling 14.2 percent and heating oil prices sinking 21.1 percent. The index excluding food and energy prices rose 0.6 percent from a year earlier.

The unemployment rate in Japan came in at a seasonally adjusted 3.4 percent in June, the Ministry of Internal Affairs and Communications said. That was above forecasts for 3.3 percent, which would have been unchanged from the May reading. The job-to-applicant ratio was 1.20 - in line with expectations and up from 1.19 in the previous month. The participation rate was 60.0, up from 59.8 a month earlier.

Economy of Russia

Russia`s gross domestic product shrank by 4.2 percent in June from a year earlier but the contraction was shallower than May`s revised 4.8 percent fall, adding to signs the economy may have started to stabilize. The Economy Ministry said that GDP fell 0.1 percent in June compared to the previous month in seasonally-adjusted terms, less than a decline of 0.4 percent in May and 0.5 percent in April.

Industrial production in Russia rose less-than-expected last month, official data showed. In a report, Russian Federation State Committee on Statistics said that Russian Industrial Production rose to a seasonally adjusted annual rate of -4.8%, from -5.5% in the preceding month. Analysts had expected Russian Industrial Production to rise to -4.2% in June.

Russia`s consumer price inflation slowed further in June as food prices fell at the beginning of summer, data from the federal statistics service showed. Compared with a year earlier, consumer prices were 15.3% higher in June. In monthly terms, inflation slowed to 0.2% in June. In May, consumer prices rose 15.8% from a year earlier and 0.4% from the previous month.

Russian Economy Minister Alexei Ulyukayev said he expected inflation to rise to around 15.5 percent in July due to tariff increases.

03.08.2015 12:41

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