Global Economy Reviews

02.07.2010 16:57 World Economy Review - June 2010

The World Bank cut Russia`s 2010 gross domestic product growth forecast to 4.5 percent from a previous 5 percent to 5.5 percent, citing poor first-quarter data and new global risks, and saying recovery is likely to be bumpy.
The new forecast for 2010 still remains more optimistic than that of Russia`s government, which sees the economy expanding 4 percent, and that of the International Monetary Fund, which said that GDP is likely to grow 4.25 percent this year. "After a disappointing first quarter in 2010, a number of leading indicators for April-May show a pickup in economic activity that is likely to be sustained throughout the rest of the year," the bank said in its report. The economy grew 2.9 percent in the first quarter of the year, following its deepest contraction in 15 years in 2009 of 7.9 percent.
At the same time, the bank upgraded its forecast for Russia`s GDP growth in 2011 to 4.8 percent from 3.5 percent in its last quarterly report on Russia in March. The forecast revision was made in assumption of rising households` disposable income, an increase in consumption, lower unemployment rate and a revival of lending activity in Russia, the World Bank`s lead economist for Russia, Zeljko Bogetic, said.
The bank said Russia`s economy is recovering but not as fast as had been predicted earlier, and further forecast revisions are likely in the near future given "lots of uncertainty". "There is always a possibility of a bad surprise," Bogetic said, adding that prudent fiscal policy and a tighter budget deficit are crucial for the economic recovery in Russia.
Retaining a positive outlook for Russia, the bank`s economists warned of external risks, especially from Europe and from Russia`s crucial factor - oil prices. "The possible contagion and the broader debt crisis in Europe could transmit new shocks to Russia through two key channels: oil prices and financial/capital flows," the bank said. "A likely growth slowdown in the EU and an increase in risk premiums could then lower oil prices and, thus, export and budget revenues, exerting downward pressure on the exchange rate and capital flows."
Given stable oil prices, however, there should not be a large move "in either direction" this year in the ruble`s exchange rate, which is currently more flexible than in the past, reflecting market forces and external factors, Bogetic said.
The World Bank also said that given Russia`s current trends in inflation and money supply, the downward outlook for inflation in 2010 remains unchanged in the range of 7 percent to 8 percent, slightly higher from the official forecast of 6 percent to 7 percent. "But risks of higher inflation are related to a possible relaxation in the fiscal stance due to the planned increases in pensions and public wages, and the monetization of the deficit in the future," the bank said.

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04.06.2010 20:16 World Economy Review - May 2010

The Organization for Economic Cooperation and Development said the industrial world`s economy is recovering at a faster-than-expected pace but faces growing danger from woes over sovereign debt as well as the prospect of emerging economies overheating. The Paris-based organization, whose members include the world`s 30 richest nations, said it now expects gross domestic product across member countries to grow by 2.7% this year and by 2.8% in 2011, up from its November projections of 1.9% and 2.5% growth, respectively.
Red-Flag Market Gauges Recall `08 Crisis Levels Rising rates in credit-market gauges like Libor and the "TED spread" are just a few of the signs that corporate-lending conditions may be seizing up the way they did in the crisis of 2008, says Jay Mueller of Wells Capital Management. "Many OECD countries need to reconcile support to a still fragile recovery with the need to move to a more sustainable fiscal path," said OECD Secretary-General Angel Gurria, in a statement. "We also need to take into account the international spillovers of domestic policies. Now more than ever, we need to maintain co-operation at an international level."
The OECD said it now expects inflation-adjusted GDP growth of 1.2% across the 16-nation euro zone in 2010 followed by 1.8% growth in 2011, up from an earlier forecast of 0.9% growth this year. But the organization warned that the region faces huge challenges in resolving sovereign debt question marks.
A "prompt and massive response" by the European Central Bank and euro-zone government has calmed turbulence in financial markets, but the region`s "underlying weaknesses are far from settled," wrote OECD chief economist Pier Carlo Padoan in an introduction to the report. "The sovereign debt crisis has highlighted the need for the euro area to strengthen significantly its institutional and operational architecture to dissipate doubts about the long-term viability of the monetary union," Padoan said. "At a minimum, surveillance of domestic policies needs to be strengthened, taking on board broader competitiveness considerations."
Bolder measures to strengthen and enforce fiscal discipline are needed, ranging from better oversight and the effective use of sanctions for non-compliance with budget rules to external auditing of national budgets and "de facto fiscal union," Padoan said.
The OECD also boosted its outlook for U.S. economic growth in 2010, forecasting GDP expansion at a 3.2% pace compared to an earlier forecast of 2.5%. The OECD expects growth of 3.2% in 2011 as well. The Federal Reserve and the Obama administration "should gradually withdraw policy stimulus as economic growth becomes self sustaining," the OECD said. "Gauging the appropriate timing will not be a simple task, but keeping the stimulus in place risks recreating some of the imbalances in the housing and financial markets that led to the financial crisis."

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08.05.2010 16:04 World Economy Review - April 2010

The International Monetary Fund raised its forecast for global growth this year led by China and cautioned that a failure of nations to contain soaring public debt might have severe consequences for the world economy.
The IMF said the global economy will expand 4.2 percent in 2010, the fastest pace since 2007, compared with a January forecast of 3.9 percent. Emerging nations including China and India are leading the world out of its worst recession since World War II, with Europe and Japan trailing the U.S. among advanced economies, the fund said in its World Economic Outlook.
After governments spent trillions of dollars to revive growth, the IMF said the challenge facing policy makers gathering in Washington this week is debt near postwar records. The richest nations face growing pressure from investors to draft plans to reduce budget deficits, while emerging economies try to fuel domestic demand and avoid asset bubbles amid a surge of foreign investment.
The global recovery has evolved better than expected, but in many economies the strength of the rebound has been moderate given the severity of the recession, the IMF said. Activity remains dependent on highly accommodative macroeconomic policies and is subject to downside risks, as fiscal fragilities have come to the fore.
Finance ministers from the Group of Seven industrial nations meet later today in the U.S. capital. Tomorrow, finance ministers and central bankers from the Group of 20 developed and emerging economies meet to debate how and when to remove fiscal and monetary stimulus as the global expansion strengthens.
This year, advanced economies including the U.S., Germany and Japan will grow 2.3 percent, more than the 2.1 percent forecast in January, with unemployment forecast to stay close to 9 percent through 2011. The expansion in advanced nations will reach 2.4 percent next year, the fund said.
Emerging and developing economies including Brazil and Russia will grow 6.3 percent this year, a 0.3 percentage point increase from the previous forecast. Next year they will expand 6.5 percent, the fund said. Economies that are off to a strong start are likely to remain in the lead, as growth in others is held back by lasting damages to financial sectors and household balance sheets, the IMF said.
U.S. GDP will expand 3.1 percent this year before slowing to 2.6 percent in 2011, the IMF said. In January the fund expected growth of 2.7 percent for 2010 in the world`s largest economy. The euro area is likely to expand 1 percent this year, unchanged from the January projection, and 1.5 percent in 2011, according to the report. The IMF forecast U.K. growth of 1.3 percent this year and 2.5 percent in 2011.
The outlook for Japan`s economy this year was raised to a 1.9 percent expansion, up from 1.7 percent predicted four months ago. The Canadian economy was forecast to increase 3.1 percent this year, from a 2.6 percent growth outlook in January, the IMF said.
China`s growth is forecast to accelerate to 10 percent this year, unchanged from the January projection, after 8.7 percent growth last year. India`s economy will expand by 8.8 percent in 2010, 1.1 points higher than the IMF`s forecast in January.

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01.04.2010 21:55 World Economy Review - March 2010

World trade is expected to grow 9.5 percent in 2010, after suffering its biggest collapse since World War II in 2009, the head of the World Trade Organization Pascal Lamy said. "Our economists are forecasting a world trade growth for 2010 of 9.5 percent with developing countries` trade growing 11 percent and industrialized countries` trade growing by 7.5 percent," the WTO director-general said. "This means that trade-wise, there is light at the end of the tunnel and it`s certainly a good forecast, good news for the world economy," he added.
World trade plunged 12 percent in 2009 due to a "sharp contraction in global demand" during the economic crisis. Amid last year`s slump, China overtook Germany to become the world`s top exporter with some 1.20 trillion US dollars worth of merchandise exported in 2009, according to WTO data. Germany exported 1.12 trillion US dollars of merchandise, while the world`s biggest importer, the United States, was in third place with 1.06 trillion US dollars worth of exports last year.
The WTO noted that the trade slump last year was particularly magnified by the "product composition of the fall in demand, by the presence of global supply chains, and by the fact that the decline in trade was synchronized across countries and regions." Underlining the scale of the downturn, Patrick Low, chief economist at the WTO, said that the projected growth of 9.5 percent this year would need to be repeated in 2011 in order for the global economy to recover to peak trade levels reached in 2008 before the crisis struck. "If you need to do it in one year, you`ll need 14 percent," he added.
The economist warned that the 2010 forecast could yet prove over-optimistic if currency and commodity prices were to show wild swings, or if the financial markets were to show other adverse developments. On the other hand, "if unemployment were to be reduced faster than is predicted then that would have a good effect on trade growth rates," added Low. But while trade prospects appear healthy this year, prospects on the so-called Doha Round of negotiations for a global trade deal were more gloomy. "The outcome is that we are not where we wanted to be," said Lamy, after a week of meetings of the 153 WTO member states on ways to reach a deal on the long-running negotiations. "Yes, we made some limited progress since (2008) but obviously not enough to enter into the final game which will take some time," Lamy added.
The WTO chief also distanced himself from the 2010 target set by the Group of 20 developed and developing leaders for the conclusion of the Doha talks. "The technical reality is that given what`s on the table, it`s technically feasible, but it wasn`t a technical orientation. It was a political orientation," Lamy said. "I did not declare this political orientation. The answer to your question lies with the leaders, not with me," the WTO director-general said in response to a question on whether an accord was still possible by year-end.
he Doha talks began in 2001 with a focus on dismantling obstacles to trade for poor nations. However, it has been dogged by intractable disagreements. These include how much the United States and the European Union should reduce farm aid and the extent to which developing countries such as India and China should lower tariffs on industrial products. Successive deadlines to conclude the talks have been repeatedly missed.

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06.03.2010 12:24 World Economy Review - February 2010

OECD countries experienced 0.8 per cent growth in the fourth quarter of 2009, up from 0.6 per cent in the previous quarter according to seasonally-adjusted data. The United States and Japan led the growth, with GDP rising by 1.4 and 1.1 per cent respectively. By contrast, GDP growth in the euro area slowed to 0.1 per cent in the fourth quarter compared to 0.4 per cent in the third quarter. GDP growth in France was relatively strong, at 0.6 per cent but German GDP remained unchanged on the previous quarter and in Italy, GDP declined by 0.2 per cent. The United Kingdom recorded positive GDP growth of 0.1 per cent in the fourth quarter after six consecutive quarters of contraction.
Relative to a year earlier, GDP in the OECD contracted by 0.7 per cent, compared to a 3.4 per cent decline in the third quarter of 2009. With the exception of the United States, where GDP was 0.1 per cent higher than a year earlier, GDP contracted in all the Major Seven economies. Most of the year-on-year decline in OECD GDP reflected developments in the euro area (13 countries), which accounted for 0.5 percentage points of the total.
The International Monetary Fund (IMF) admitted a prevailing uncertainty about economic recovery, as the world has been hit by a strong crisis of bleak prospects. The IMF recently revised up its global growth forecast for this year and next and now expects the world economy to expand by 3.9% in 2010, followed by 4.3% in 2011.
The projected expansion is heavily skewed towards the emerging economies, however, notably Asia, and within the advanced economies there is also a pronounced dichotomy, this time between the US and Europe.
The US economy picked up momentum in the latter part of 2009, growing by 1.4% in the final quarter, and the most recent data implies a strong start to 2010, with the result that the consensus GDP forecast for the year as a whole has moved higher and now stands at 3%.
In contrast, the euro economy lost momentum in the final months of last year - Italy contracted and German growth was flat leaving GDP growth in the fourth quarter at just 0.1%. Moreover, the most recent data points to a weak first quarter exacerbated by adverse weather, and the consensus growth forecast for 2010, currently 1.2%, may well be revised down.

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