World Economy Review - June 2021
The OECD raised its 2021 global GDP growth forecast but warned that “too many headwinds persist” as not enough COVID vaccines are reaching emerging economies, making the world vulnerable to variants. The world economy will expand by 5.8 percent this year, up from a previous estimate of 5.6 percent, the Paris-based Organization for Economic Co-operation and Development said in a report.
This follows a massive global recession last year that was caused by lockdowns and travel curbs imposed by governments to slow the spread of COVID-19. “It is with some relief that we can see the economic outlook brightening, but with some discomfort that it is doing so in a very uneven way,” OECD chief Laurence Boone said in the report.
The recovery is uneven so far, with the US and China returning to pre-pandemic levels and forecast to have much stronger growth than other major economies such as Japan and Germany. The 38-nation organization, whose members account for 60 percent of the global gross domestic product, applauded the rapid reaction of governments to prop up the economy.
“Never in a crisis has policy support - be it health, with the record speed of vaccine development, monetary, fiscal or financial - been so swift and effective,” Boone said. “Yet, too many headwinds persist,” she warned. Boone said it was “very disturbing” that not enough vaccines were reaching emerging and low-income economies. “This is exposing these economies to a fundamental threat because they have less policy capacity to support activity than advanced economies,” she said.
The warning comes as the emergence of more contagious coronavirus variants has raised concerns around the world, with India battling a strain that has caused a surge in cases and deaths. “As long as the vast majority of the global population is not vaccinated, all of us remain vulnerable to the emergence of new variants,” Boone said.
New lockdowns would hurt confidence while companies, which are saddled with more debt than before the pandemic, could go bankrupt, she said. Another risk to the global GDP is how financial markets could react to concerns about inflation, the OECD said. Analysts have voiced concerns that rising inflation will prompt central banks to withdraw their easy-money policies to prevent the economy from overheating.
The OECD said the price increases are only temporary and linked to the economic recovery. “What is of most concern, in our view, is the risk that financial markets fail to look through temporary price increases and relative price adjustments, pushing market interest rates and volatility higher,” Boone said. “Vigilance is needed.”
Economy of the United States
The U.S. economy grew at a solid 6.4% rate in the first three months of the year, setting the stage for what economists believe may be the strongest year for the economy in about seven decades. Growth in the gross domestic product, the country`s total output of goods and services, was unchanged from two previous estimates, the Commerce Department said, an acceleration from the 4.3% pace of the fourth quarter. Boussour forecast that GDP growth in the current April-June quarter will surge to an annual rate of 12% and growth for the entire year will come in at 7.5%. That would be the best annual performance since 1951.
Consumer spending, which accounts for more than two-thirds of economic activity, grew at a sizzling annual rate of 11.4% in first three months of the year. Business investment grew at a strong 11.7% rate, better than the previous estimate of 10.8% growth, while government spending increased at a 5.7% rate, slightly below last month`s estimate of a 5.8% gain. The trade deficit grew in the first quarter, subtracting 1.5 percentage points from growth, as a recovering U.S. economy attracted rising imports while U.S. exporters struggled with weaker overseas demand.
Industrial production rebounded 0.8% in May due to a strong gain in auto production, the Federal Reserve reported. The gain was above Wall Street expectations of a 0.5% gain, according to a survey by the Wall Street Journal. Output in April was revised down to a 0.1% gain from the prior estimate of 0.5%. Production of motor vehicles and parts jumped 6.7% in May after a 5.7% drop in the prior month.
Production at factories increased 0.9% in May, up from a revised 0.1% drop in the prior month. Excluding autos, manufacturing rose 0.5%. Overall vehicle assemblies jumped about 1 million units to 9.9 million units on an annual rate, but they remained more than 1 million units below their average level in the second half of 2020. Utilities output rose 0.2% in May after a 1.9% gain in the prior month. Mining output, which includes oil and natural gas, rose 1.2% after a 0.4% drop in April.
Capacity utilization rose to 75.2% in May, the highest rate since the pandemic struck last year. The capacity utilization rate reflects the limits to operating the nation`s factories, mines and utilities.
The U.S. international trade deficit narrowed 8.2% to $68.9 billion in April from a record revised $75 billion in the prior month, the Commerce Department said. Economists polled by The Wall Street Journal had forecast the deficit to narrow to $69 billion. What happened: Exports expanded 1.1% to $205 billion in April, while imports fell 1.4% to $273.9 billion. The drop in imports was led by petroleum and consumer goods. Exports increased led by capital goods and Boeing aircraft. Auto exports declined.
Consumer prices for May accelerated at their fastest pace in nearly 13 years as inflation pressures continued to build in the U.S. economy, the Labor Department reported. The consumer price index, which represents a basket including food, energy, groceries, housing costs and sales across a spectrum of goods, rose 5% from a year earlier. Economists surveyed by Dow Jones had been expecting a gain of 4.7%. The reading represented the biggest CPI gain since the 5.3% increase in August 2008, just before the financial crisis sent the U.S. spiraling into the worst recession since the Great Depression.
Used cars and truck prices continued their climb higher, rising 7.3% on the month and 29.7% for the past 12 months. The new vehicles index increased 1.6%, its biggest-single month gain since October 2009 and was up 3.3% for the 12-month period, the highest move since November 2011. However, the energy index was about flat for the month despite the huge run up in gasoline prices this year, while the food index repeated its April rise of 0.4%. The gasoline index is up 56.2% over the past year, part of an overall 28.5% increase in energy during the period. Food prices have remained comparatively tame, up 2.2% for the 12-month period.
A separate gauge that excludes volatile food and energy prices increased 3.8%, vs the Dow Jones estimate of 3.5% for so-called core inflation. That was the fastest pace since May 1992. On a monthly basis, the headline CPI rose 0.8% while the core was up 0.7%. The estimate was 0.5% for both readings.
The unemployment rate fell to 5.8% in May from 6.1% in April. The drop was in part due to 53,000 people leaving the labor force. The jobless rate has been understated by people misclassifying themselves as being "employed but absent from work." Without this problem, the unemployment rate would have been 6.1% and about 8.5% accounting for those outside the labor force. The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one, fell to 61.6% from 61.7% in April. Men dropped out of the labor force last month, while 204,000 women returned.
Economy of the European Union
In the first quarter of 2021, seasonally adjusted GDP decreased by 0.3% in the euro area and by 0.1% in the EU compared with the previous quarter, according to an estimate published by Eurostat, the statistical office of the European Union. These declines follow falls in the fourth quarter of 2020 (-0.6% in the euro area and -0.4% in the EU) after a strong rebound in the third quarter of 2020 (+12.6% in the euro area and +11.7% in the EU). Before, the sharpest decreases since the time series started in 1995 were observed in the second quarter of 2020 (-11.5% in the euro area and -11.1% in the EU).
Compared with the same quarter of the previous year, seasonally adjusted GDP decreased by 1.3% in the euro area and by 1.2% in the EU in the first quarter of 2021, after -4.7% and -4.4% respectively in the previous quarter.
In April 2021, the seasonally adjusted industrial production grew by 0.8% in the euro area and by 0.5% in the EU, compared with March 2021, according to estimates from Eurostat. In March 2021, industrial production rose by 0.4% in the euro area and by 0.8% in the EU. In April 2021 compared with April 2020, industrial production increased by 39.3% in the euro area and by 38.7% in the EU.
In the euro area in April 2021, compared with March 2021, production of durable consumer goods rose by 3.4%, energy by 3.2%, capital goods by 1.4% and intermediate goods by 0.8%, while the production of non-durable consumer goods fell by 0.3%. In the EU, production of durable consumer goods and energy rose by 2.9%, capital goods by 0.8%, intermediate goods by 0.5%, while the production of non-durable consumer goods fell by 0.7%. Among Member States for which data are available, the highest increases were registered in Belgium (+7.4%), Malta (+5.6%) and Estonia (+4.4%). The largest decreases were observed in Denmark (-3.8%), Hungary (-3.2%) and Lithuania (-2.4%).
In the euro area in April 2021, compared with April 2020, production of durable consumer goods rose by 117.3%, capital goods by 65.4%, intermediate goods by 38.7%, non-durable consumer goods by 15.4% and energy by 14.4%. In the EU, production of durable consumer goods rose by 110.4%, capital goods by 67.5%, intermediate goods by 36.9%, non-durable consumer goods by 14.0% and energy by 13.8%. Industrial production increased in all Member States for which data are available, with the largest increases in Italy (+79.5%), Slovakia (+69.1%) and Romania (+64.5%).
The first estimate for euro area exports of goods to the rest of the world in April 2021 was ˆ193.8 billion, an increase of 43.2% compared with April 2020 (ˆ135.3 bn), which had been heavily affected by the COVID-19 containment measures widely introduced by the Member States. Imports from the rest of the world stood at ˆ182.8 bn, a rise of 37.4% compared with April 2020 (ˆ133.0 bn). As a result, the euro area recorded a ˆ10.9 bn surplus in trade in goods with the rest of the world in April 2021, compared with +ˆ2.3 bn in April 2020. Intra-euro area trade rose to ˆ178.9 bn in April 2021, up by 61.9% compared with April 2020.
The first estimate for extra-EU exports of goods in April 2021 was ˆ179.0 billion, up by 43.4% compared with April 2020 (ˆ124.8 bn). Imports from the rest of the world stood at ˆ166.0 bn, up by 32.8% compared with April 2020 (ˆ125.0 bn). As a result, the EU recorded a ˆ13.0 bn surplus in trade in goods with the rest of the world in April 2021, compared with a deficit of ˆ0.1 bn in April 2020. Intra-EU trade rose to ˆ274.9 bn in April 2021, +58.9% compared with April 2020.
The euro area annual inflation rate was 2.0% in May 2021, up from 1.6% in April. A year earlier, the rate was 0.1%. European Union annual inflation was 2.3% in May 2021, up from 2.0% in April. A year earlier, the rate was 0.6%. These figures are published by Eurostat.
The lowest annual rates were registered in Greece (-1.2%), Malta (0.2%) and Portugal (0.5%). The highest annual rates were recorded in Hungary (5.3%), Poland (4.6%) and Luxembourg (4.0%). Compared with April, annual inflation fell in four Member States, remained stable in one and rose in twenty-two.
In May, the highest contribution to the annual euro area inflation rate came from energy (+1.19 percentage points, pp), followed by services (+0.45 pp), non-energy industrial goods (+0.19 pp) and food, alcohol & tobacco (+0.15 pp).
In April 2021, the euro area seasonally-adjusted unemployment rate was 8.0%, down from 8.1% in March 2021 and up from 7.3% in April 2020. The EU unemployment rate was 7.3% in April 2021, stable compared with March 2021 and up from 6.7% in April 2020. These figures are published by Eurostat.
Eurostat estimates that 15.380 million men and women in the EU, of whom 13.030 million in the euro area, were unemployed in April 2021. Compared with March 2021, the number of persons unemployed decreased by 165 000 in the EU and by 134 000 in the euro area. Compared with April 2020, unemployment rose by 1.406 million in the EU and by 1.275 million in the euro area.
Economy of Japan
Japan`s economy shrank less than first reported last quarter, easing concerns over the risk of a double-dip recession as the country struggles through yet another round of restrictions to contain the coronavirus. Gross domestic product for the January-March period contracted an annualized 3.9% from the final quarter of 2020, the Cabinet Office reported in figures that beat analyst forecasts and showed that the world`s third-largest economy weathered a winter wave of the virus better than the government earlier estimated.
On a nonannualized basis, GDP lost 1% from the previous quarter, compared with the 1.2% fall forecast by analysts. Nominal GDP contracted 1.3%. Economists had expected a 1.6% drop. Private consumption dropped 1.5% from the prior quarter, compared with a 1.4% fall forecast by economists. Business investment fell 1.2%, matching the forecast from analysts. Inventories added 0.4 percentage point to GDP, compared with a 0.3 percentage point contribution expected by economists.
Net exports of goods and services subtracted 0.2 percentage point from GDP growth, matching the forecast. A separate report showed labor cash earnings rose 1.6% in April compared with the prior year, double the gain forecast by analysts.
Japan`s real gross domestic product contracted 0.3% in April from the previous month, according to data released by the Japan Center for Economic Research. The decline was driven by external factors: while the country`s exports increased only 2.1%, imports grew 7.1%, creating a downward pressure on the monthly economic growth rate. The robust growth in imports reflected relatively healthier domestic components of the economy. Companies` capital investment jumped by 3.4%, housing investment grew 2.5% and household consumption increased 0.3%.
Japan`s industrial output grew 2.9% month-on-month in April, the revised report for indices of industrial production released by Japan`s Ministry of Economy, Trade and Industry showed. The figure marked the second straight monthly rise, following a downwardly revised 1.7 percent increase in March. A ministry official said firm demand for capital investment abroad led to robust output in sectors related to machinery and information technology.
Japan`s exports in May soared 49.6 percent from a year ago, the sharpest monthly rise in 41 years, owing to robust demand for automobiles and related parts, the government said in a report. According to the Finance Ministry, exports of goods in the reporting period hit 6.26 trillion yen (56.85 billion U.S. dollars), logging the fastest pace of increase since April 1980 when exports jumped 51.4 percent.
The ministry said exports expanded for a third successive month in May, due in part to a more than 28-percent year-on-year decline booked in May 2020 in the wake of the early downside effects after the outbreak of the pandemic, including supply chain problems and an overall drop in global demand.
The Finance Ministry`s preliminary data also showed that imports leapt in the reporting month, jumping 27.9 percent to 6.45 trillion yen (58.58 billion U.S. dollars) and marking the fourth consecutive month of increase. Japan`s goods trade balance with the rest of the world stood at a deficit for the first time in four months of 187.15 billion yen (1.69 billion U.S. dollars), the ministry`s data showed.
Japan`s core consumer prices rose 0.1 percent in May from a year earlier, increasing for the first time in 14 months on climbing energy prices, government data showed. Nationwide core consumer prices, excluding volatile fresh food items, were boosted by sharper rises in gasoline and kerosene prices on the back of higher crude oil prices, according to the Ministry of Internal Affairs and Communications. The core consumer price index was down 0.1 percent in April.
Among petroleum products, which gained 15.6 percent, gasoline surged 19.8 percent and kerosene jumped 19.0 percent, the data showed. Utility bills were down 0.3 percent as there is typically a delay in reflecting crude oil price moves, a ministry official said. Still, electricity bills` decline of 2.9 percent and city gas prices` fall of 3.7 percent were smaller than their year-earlier drops.
Another contributor to the core CPI`s rise were housing prices, up 0.6 percent on year, as insurance fees against fire and earthquakes climbed 16.4 percent as many insurance firms raised them this year reflecting increased natural disasters. Prices of household items such as air conditioners were up as people spent more time at home amid the coronavirus pandemic, with durable goods gaining 2.3 percent. Meanwhile, mobile phone fees slumped 27.9 percent, continuing their downward trend after major carriers cut data usage fees in response to government pressure.
So-called core-core consumer prices, excluding fresh food and energy items, fell 0.2 percent in May from a year earlier for the second straight month of decline.
Japan`s jobless rate increased to 3.0 percent in May, the highest level in five months due to the extended state of emergency over the COVID-19 pandemic, government statistics revealed. The seasonally adjusted jobless index increased from 2.8 percent in April, rising for the second consecutive month, according to the data from the Ministry of Internal Affairs and Communications. The figure had stayed in the upper half of the 2-percent range since marking 3.0 percent in December.
The latest statistics showed that the number of people in employment stood at 66.45 million, down 130,000 compared to the previous month and falling for the third straight month. The number of unemployed increased 100,000 from April to reach 2.04 million. Among them, 810,000 people voluntarily left their jobs, up 70,000, while 630,000 were laid off, up 30,000, and 480,000 were new job seekers, down 10,000.
Separate statistics from the Ministry of Health, Labor and Welfare indicated that the job availability ratio in May stood at 1.09, remaining unchanged compared to a month earlier. It means that there were 109 job openings for every 100 job seekers.
Economy of Russia
Russia revised up its first-quarter gross domestic product (GDP) assessment to a contraction of 0.7% year-on-year from a 1% decline, adding weight to assertions that the economy is close to returning to pre-crisis levels. The COVID-19 pandemic paralyzed business activity and caused the economy to shrink by 3% in 2020, prompting the central bank to slash interest rates to a record low 4.25%, while a drop in global oil prices dented Russia`s revenues. The figures published by the Federal Statistics Service Rosstat showed a marked improvement on the 1.8% year-on-year drop in the final quarter of 2020. The central bank expects the economy to return to its pre-crisis level this quarter.
Russia`s GDP growth amounted to 10.7% in April year-on-year. Russian GDP growth reached 1.8% in January-April in annul terms, according to the data released on the Economic Development Ministry`s website.
Industrial production in Russia jumped 11.8 percent year-on-year in May of 2021, after a revised 7.6 percent gain in the previous month and compared to market expectations of a 10.5 percent increase. It was the biggest gain since December of 2003, as extraction of raw materials production rebounded (12.3 percent vs -1.8 percent in April) while electricity, gas and steam; air conditioning output rose faster (8.7 percent vs 6.0 percent). Meanwhile, production went up at a softer pace for manufacturing (11.4 percent vs 14.9 percent in March) and water supply (23.8 percent vs 30.8 percent). On a monthly basis, industrial production dropped 2.1 percent, after a revised 4.1 percent decline in April.
Russia`s trade surplus widened to USD 10.59 billion in April 2021, from USD 7.39 billion in the corresponding month of the previous year. Exports jumped 47.6 percent from a year earlier to USD 36.86 billion, the highest level since December 2019, boosted by sales to non-CIS (45.9 percent) and CIS countries (58.1 percent). Meanwhile, imports rose 49.4 percent to USD 26.27 billion, the highest since October 2014, on the back of purchases from non-CIS (50.3 percent) and CIS countries (42.0 percent).
Consumer prices in Russia jumped 6.0 percent in May of 2021, following a 5.5 percent increase in the previous month and rose faster than market expectations of a 5.8 percent hike. The latest reading remained well above the central bank`s 4% target and it was the highest inflation rate since October of 2016, mainly driven by prices of food (7.4 percent), non-food products (6.7 percent), and lastly, services (3.3 percent). On a monthly basis, consumer prices went up 0.7 percent, following a 0.6 percent advance in April and compared to forecasts of a 0.6 percent rise.
Russia`s unemployment rate edged down to 5.2 percent in April of 2021, from 5.4 percent in the previous month and below analyst forecasts of 5.4 percent. It was the lowest rate since March last year but still above pre-pandemic levels. The number of unemployed people fell by 159 thousand from a month earlier to 3.898 million.