The Lastest Macroeconomic News
06.06.2014 14:26 Russian Inflation Fastest Since 2011 on Ruble Drop
Russian inflation accelerated last month to the fastest since August 2011, propelled by the ruble`s weakness and food prices. Consumer prices rose 7.6 percent from a year earlier after advancing 7.3 percent in April, the Federal Statistics Service in Moscow said in an e-mailed statement. That matched the median estimate of 21 economists in a Bloomberg survey. Prices rose 0.9 percent on the month. Runaway inflation has forced the hand of policy makers, leading them to raise interest rates twice since March even with the economy on the brink of recession. Sanctions by the U.S. and its allies over the conflict in Ukraine exacerbated capital flight, leading to the ruble`s decline. “We can see the effect of the ruble weakening that started in February,” Olga Sterina, an analyst at UralSib Capital in Moscow, said by phone before the release. “The central bank won`t lower rates until there is a noticeable inflation deceleration even as economic growth remains very slow.” The central bank, which targets 5 percent inflation, predicts it will be able to stabilize price growth in the second half, Chairman Elvira Nabiullina said in April. The Economy Ministry forecasts inflation of 6 percent by year-end and 5 percent by the end of 2015. The May consumer-price index was also driven by the cost of food products rising 9.5 percent. Pork prices rose after Russia banned imports of the meat from the European Union after an outbreak of swine fever in Lithuania and Poland. Non-food prices increased 5.1 percent.
30.05.2014 13:03 U.S. GDP Dropped 1% In The First Quarter 2014, Down From First Estimate
New data shows the U.S. economy contracted in the first quarter of this year, keeping pace with shifting expectations but down sharply from the prior - already disappointing - estimate. On Thursday, the Bureau of Economic Analysis` second estimate of real gross domestic product showed output produced in the U.S. declined at an annual rate of 1% in the first quarter of 2014. This is relative to fourth quarter 2013, when real GDP increased 2.6%. The estimate is down significantly from BEA`s 0.1% advance estimate released last month and makes Q1 the U.S. economy`s worst quarter in three years. However, economists were anticipating a downward revision and the major stock indices remained in the green immediately after the release indicating investors were also prepared for bad news. The revision, BEA explained in a release, was largely due to a greater than previously estimated decline in private inventories. The 1% decrease in real GDP reflected the negative contribution from private inventory investment as well as declining exports, declines in both residential and nonresidential fixed investment and lower local government spending. The rate was also negatively impacted by an increase in imports but partially offset by an increase in federal government spending (the first in a year and a half). The price index for gross domestic purchases - which measures prices paid by U.S. residents - increased 1.3% versus the 1.4% advance estimate and 1.5% growth in the fourth quarter. Real personal consumption expenditures increased by 3.1%, compared to the 3% advance estimate and an increase of 3.3% in the fourth quarter. BEA - a division of the Department of Commerce - will release its third and final Q1 GDP estimate on June 25.
29.05.2014 13:53 Bank of America raises Russia`s GDP growth forecast for 2015 after gas deal with China
Bank of America Corp. (BAC) has raised Russia`s GDP growth forecast for 2015 from 1.5% to 2.1% amid the gas deal with China, according to the company`s analytical report. The GDP growth forecast for the current year has been left at 0.9%. Meanwhile, Russia`s investments growth forecast has been raised from 0.4% to 4.3%. The 30 years gas deal with China worth $400 billion is so huge that it would likely have a substantial economic effect, the research says. According to BAC estimates, the expected capital expenditures at $55 billion will increase investments into the Russian economy for at least $5-6 billion annually, beginning from 2015. The gas deal may also enforce the ruble, if China pays $25 billion in advance, the report says. According to BAC forecast, by the end of 2014, the dollar rate will make 35.5 rubles, and by the end of 2015 - 36 rubles.
28.05.2014 14:05 In need of new oomph or How to make the rich world`s recovery stronger and safer
Economists expected 2014 to be the year in which the global expansion stepped up a gear. Instead, nearly five years into its recovery from a deep recession, the rich world`s economy still looks disappointingly weak. America`s GDP grew at an annualised rate of only 0.1% in the first quarter. Euro-area growth, at 0.8%, was only half the expected pace. Some of the weakness is temporary (bad weather did not help in America), and it is not ubiquitous: in Britain and Germany, for example, growth has accelerated, and Japan has put on a brief spurt. Most forecasters still expect the recovery to gain momentum during the year. But there are reasons to worry. The stagnation in several big European countries, notably Italy and France, is becoming more entrenched. Thanks to a rise in its consumption tax in April, Japan`s growth rate is set to tumble, at least temporarily. America`s housing rebound has stalled. Given that American expansions tend to be about five years long, the United States could find itself going into the next downturn without having had a decent upturn at all. What should be done to forestall that outcome? The standard answer is that central banks need to loosen monetary conditions further and keep them loose for longer. But if loose monetary conditions are a prerequisite for a more vigorous recovery, it is increasingly clear that on their own they are not enough. One way to address this risk is for central bankers to use regulatory tools to counter the build-up of asset-price excesses. Such a strategy would have two elements. One is to boost public investment in infrastructure. A second element ought to be a blitz of supply-side reforms. In addition to the obvious benefits of freer trade, every rich country has plenty of opportunities for reforms at home, from overhauling the regulations that inhibit house-building in Britain to revamping America`s ineffective system of worker training. Progress on these fronts would lead to stronger, stabler growth and would reduce the odds that the next recession begins with interest rates close to zero (making it particularly hard to fight).
24.05.2014 13:30 World Cup won`t lift Brazil`s economy
Hosting the World Cup might provide a small boost to Brazil, but it won`t be enough to snap the country`s economy out of its current funk. Once tipped as one of the brightest emerging economies, Brazil has seen growth fall off a cliff in recent quarters as long-term problems bubbled to the surface. Its workers are unproductive, infrastructure spending lags and protectionism remains in vogue. Elevated inflation has forced the central bank to hike rates several times, and the country`s credit rating was cut by Standard & Poor`s to one notch above junk in March. Brazil`s Bovespa stock market index has dropped more than 7% in the past year, falling faster than emerging market benchmarks. Enter the World Cup, the world`s biggest sporting event complete with millions of tourists and mega corporate sponsors. To capitalize on the spotlight, Brazil is spending an estimated $11.5 billion on new stadiums, transportation and airports. Seeking to justify the extravagance, politicians promised that the event would bring huge economic benefits and improved infrastructure. Many Brazilians are skeptical about these claims. Thousands took part in street protests and riots during last year`s Confederations Cup, the top soccer tournament in the Americas. Some said they were upset with lavish spending on sports events at the expense of the social safety net in a country beset with gross inequality. Brazilians are right to doubt the economic benefits of hosting the World Cup, according to a report by Moody`s Investors Service. The credit rating agency argues that new infrastructure spending associated with the event is small for the $2 trillion economy, and benefits to businesses will be fleeting. "We see little impact on Brazil considering the limited duration of the World Cup and the size of the country`s economy," Moody`s said.
23.05.2014 14:44 Russia`s industrial output rose by 2.4 percent in April
Russia`s industrial output rose by 2.4 percent in April, nearly triple the expected rate, surprising analysts after signs that Western sanctions imposed over the annexation of Crimea were weighing on the economy. The rise was spurred mainly by production of goods usually targeted at the domestic market, such as foodstuffs and textiles. Output of Russia`s main exports, such as oil and gas, was weaker, with oil production rising 1.3 percent and natural gas production falling 6.7 percent, compared to a year ago, data released by the State Statistics Service showed. Overall extraction of natural resources rose 1.1 percent, however, improving from 0.6 percent growth in March. Manufacturing output was up 3.9 percent and utilities down 1.9 percent. Production of some foods, such as butter, rose by nearly a third, while output of jackets was up by nearly two-thirds. Steel manufacturing rose modestly, with iron production up 1.5 percent in annual terms. But the auto industry saw mainly declines, with passenger car production falling 0.2 percent and down 28.2 percent for buses. The overall industrial output figure for April far outstripped the 0.9 percent growth expected by analysts polled by Reuters and a manufacturing poll done by HSBC, which saw manufacturing activity shrinking for the sixth month in a row.
22.05.2014 13:33 Gazprom goes to China, Russia`s economy rejoices
Russian President Vladimir Putin has been visiting China. The result? The two countries are reported to have struck a $400 billion deal in which the Russian gas company Gazprom will supply energy-hungry China. Gazprom is a company. It has a CEO, Alexei Miller, and you can buy its stock. But ownership is a combination of private and public, and Keith Crane, director of the Rand Corporation`s environment, energy and economic development program, says a little over half the shares are owned by the state and the state calls the shots. “Gazprom`s key asset is the fact that if you`re a gas producer in Russia, there`s only one company you can sell your gas to, and that`s Gazprom.” The company, says Crane, has something of a reputation. "It`s highly corrupt, and a lot of money leaks out of the country into the hands of various officials and individuals so I would not invest in it,” he says. That`s one reason why, he notes, this deal with China is so important. Then, there`s the European problem. With the tension between Russia and Ukraine, through which most Russian gas moves, European countries are looking for alternative sources. Andy Kuchins, director of the Russia and Eurasia program at the Center for Strategeic and International Studies, says the European market for Russian gas is growing a lot more slowly. “China is the largest growth engine, it`s the fastest growing consumer, and importer of hydrocarbons, oil and gas,” he says. And, Kuchin notes, while oil makes up a large part of Russia`s revenue, keeping natural gas prices low, for production and heating costs, is critical for the country`s domestic economy. "A good way to think about it is that for the Russians, they`ll say, `That`s oil, that`s dengi, that`s money. But for gas, `That`s khleb, that`s our bread,`" he says. Kuchins says Gazprom probably has rights to over 15 percent of the gas reserves in the world. And since it shares a border with China, this deal for gas should be a win for both countries.
20.05.2014 13:09 The Global Economy: A World Of Acronyms
The world of finance gave birth in 2001 to a new buzzword: BRIC. The word is an acronym for Brazil, Russia, India and China. Jim O`Neill, an economist with Goldman Sachs who`s been credited with coining the term, saw those four countries as turbo-charged engines among emerging markets, ones that would give Western economies a run for their money. O`Neill says when he dreamed up the acronym 13 years ago, people didn`t really focus on the potential importance of some of these countries. "It sort of transformed ... the way, I think, many people thought about the world," he says now. For a stretch, the fast-growing BRIC economies lived up to the hype. The four countries formed their own economic and political alliance. In 2010, South Africa joined the group. But O`Neill considered it an interloper, saying South Africa isn`t at the same level as the others. The four original BRIC countries were his babies, but like many children, they can disappoint. "China is the only one of the four that`s growing by more than I ever assumed; the other three so far this decade have been disappointing," says O`Neill, particularly Brazil and Russia. "I have joked that if I had to dream the acronym up again today, I`d just call it `C,` " he says. While the BRIC engines may be misfiring, other economies have been gaining speed. O`Neill has now come up with a new group of promising emerging markets. He`s coined them M-I-N-T. "It stands for Mexico, Indonesia, Nigeria and Turkey," he says.
19.05.2014 14:05 German industry steps up drive to prevent Russia sanctions
German industry is ramping up efforts to dissuade Chancellor Angela Merkel from imposing tough new economic sanctions on Russia over Ukraine, warning of lasting damage to domestic firms and the broader economy if Moscow is hit hard. Although German companies have toned down their public criticism of sanctions since the CEO of Siemens (SIEGn.DE) was vilified in the press for meeting Russian President Vladimir Putin in late March, a behind-the-scenes lobby effort remains in full force. A confidential paper from the German-Russian chamber of foreign trade, which was sent to the government last week, shows the extent of the concern in German business circles as a May 25th presidential election in Ukraine nears. Merkel has said she will press for more punitive measures against Russia if the election is disrupted. The two-page position paper, dated May 7th, says the Ukraine crisis is already having a "massive impact" on German business in Russia and warns of dire consequences if Europe follows through on threats of economic sanctions. "Deeper economic sanctions would lead to a situation where contracts would increasingly be given to domestic firms, projects would be suspended or delayed by the Russian side, and Russian industry and politicians would turn to Asia, in particular China," the paper says. The resulting loss of market share for German and European firms would be "long-term and sustainable", causing "irreparable damage" to Germany`s competitive position, according to the paper, provided to Reuters by an official in Berlin. Moreover, sanctions would lead to job losses in Germany and expose companies to "massive compensation" claims if they were forced to break contracts with their Russian counterparts, it says.
18.05.2014 13:54 West`s Sanctions Sting Russian Consumers as Ruble Weakens
As Russia`s central bank struggles to shield the ruble from the standoff over Ukraine, Vasily Isaev it may already be too little, too late to save his plans for a vacation in Italy. “If you get your salary in rubles, a trip to the beach in Europe is going to be difficult this year,” said the 37-year- old sales manager, looking up from his English homework in the park near Tverskoy Boulevard in central Moscow. “We`re going to Bulgaria instead of Italy this year and we`re renting an apartment a little further away from the sea.” Consumers like Isaev, spending more than a few months ago to fill a shopping cart with everyday items, may be squeezed most by the currency`s decline as inflation quickens. Wobbling consumption threatens to knock out another pillar of the economy reeling from sanctions that stoked capital flight. Unruffled by the central bank`s emergency measures, the ruble has declined as an expanding list of U.S. and European Union sanctions in response to President Vladimir Putin`s actions in Ukraine sparked a selloff of Russian assets. The ruble has weakened 8 percent this year, the second-worst performance after the Argentine peso among 24 emerging-market currencies tracked by Bloomberg. The central bank has been trying to halt the decline by raising its benchmark interest rate twice in the last two months by a total of 2 percentage points. The ruble`s weakening is increasing the cost of living by making imported goods more expensive.