Global Economy Reviews

04.06.2013 22:01 World Economy Review - May 2013

In its twice-yearly Economic Outlook, the Organization for Economic Cooperation and Development forecast the world economy would grow 3.1 percent this year before accelerating to 4 percent in 2014. The estimates marked a slightly more pessimistic view after in November the Paris-based think tank forecast global growth of 3.4 percent this year and 4.2 percent next year.
The United States was seen driving global growth with the world`s biggest economy projected to expand 1.9 percent this year and then accelerating to 2.8 percent in 2014, which would be the country`s best rate since 2005.
In contrast, the euro zone was estimated to remain in recession for a second year. The OECD sees its economy contracting 0.6 percent in 2013 and then returning to growth next year with a rate of 1.1 percent. However, the outlook diverged widely within the 17-nation bloc with regional powerhouse Germany seen achieving growth of 0.4 percent and rebounding to a rate of 1.9 percent in 2014.
After years of debt crisis testing the euro zone`s capacity to hold together, OECD chief economist Pier Paolo Padoan said that risks to the economic outlook have finally begun to recede. However, he warned that the easing in the euro zone`s debt crisis may lead to reform fatigue. "As far as Europe is considered, we are concerned that complacency could set in," Padoan told Reuters. "That is a new risk that is coming up in Europe."
Unlike the United States in the 2008-09 financial crisis, the euro zone still needed to tackle problems in its financial sector holding back the flow of credit, he said.
Lifting its estimate for Japan, the OECD said that the central bank`s pledge to ramp up its monetary stimulus aggressively would help its economy grow 1.6 percent this year. The OECD took a more pessimistic view on China, forecasting that its economy would grow 7.8 percent this year, down from a previous estimate of 8.5 percent.
With economies in most countries still in recovery mode, the OECD said central banks should keep monetary policies easy while the European Central Bank should even dramatically step up its efforts to get credit flowing to the economy.
The OECD called on the ECB to make banks pay for holding deposits with it and urged it to buy assets such as securitized loans from credit-starved small and medium-sized firms, two options ECB policymakers say they are currently considering. In the case of the U.S. Federal Reserve, the OECD said it may soon be justified to begin curbing its purchases of government bonds and mortgage-backed securities. However, it warned that a slower pace of purchases would have to be carefully flagged to markets in order to avoid an abrupt sell-off by other investors that might cause yields to spike dangerously higher.
The OECD not only gave its blessing to the Bank of Japan`s dramatic increase in monetary surplus but said further moves could be used to boost the economy. It noted improvement in Britain`s pace of fiscal consolidation in both 2013 and 2014, but repeated the concern mentioned by the International Monetary Fund last week that a Help to Buy program might end up pushing house prices up.

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30.04.2013 19:22 World Economy Review - April 2013

The International Monetary Fund warned that an “uneven recovery is also a dangerous one” for the global economy as it again downgraded its growth forecasts for 2013, while holding out the prospect of relief late in the year.
In its twice-yearly World Economic Outlook, the fund outlined high medium-term risks stemming from doubts about the eurozone`s ability to claw its way out of its crisis, and the ability of the US and Japan to cut public sector deficits and debt.
But the IMF recognized that short-term perils had abated as financial markets approved of the eurozone`s crisis management last year and the US authorities` willingness to come to arrangements to limit automatic and rapid fiscal tightening under sequestration. The IMF believes the world economy is running at three speeds, with emerging market and developing economies still strong, but the US doing much better than the eurozone among advanced economies.
Reflecting this nuanced view of the global economy, the IMF revised down its 2013 global growth forecast 0.2 percentage points to 3.3 per cent and kept the 2014 forecast constant at 4 per cent. The downward revision was shared among emerging and advanced economies, with the exception of Japan, where the IMF became markedly more optimistic following the strenuous efforts of Tokyo to defeat deflation through its revolution on monetary policy.
The IMF expects the US to grow 1.9 per cent this year and 3 per cent next, while the eurozone will contract 0.3 per cent in 2013 and grow only 1.1 per cent in 2014.
The downgrades to 2013 growth, however, were almost entirely the result of bad figures for the end of last year and the fund was optimistic that a stronger recovery was now in train. While it said the recovery would be bumpy, the IMF said “global economic prospects have improved again”, adding “activity is expected to gradually accelerate starting in the second half of 2013”.
Leading the global recovery are emerging economies, the IMF said. Even though the annual rate of Chinese economic growth slowed to 7.7 per cent in the first quarter of 2013, the fund expects the world`s second-largest economy to achieve 8 per cent growth in 2013 and 8.2 per cent in 2014, both better than 2012, although significantly slower than what China achieved for much of the past decade.
And in many of the poorest developing countries, the prospects were better than they had been in China and the large emerging economies when they had similarly low levels of development. “The prospects of many of today`s dynamic low-income countries appear stronger than those of their peers during the 1960s and 1970s,” the WEO said.
Hampered by divergences in growth rates around the world, the fund was pleased that it saw global trade imbalances continuing to moderate, not solely because demand in countries with high rates of imports were weak.
This improvement in global imbalances was reflected in a softening of its concern about currencies. It said the US dollar and the euro were “moderately overvalued and the renminbi moderately undervalued”. It had no concerns about Japanese monetary policy pushing the yen down too far, saying that “complaints about competitive exchange rate depreciations appear overblown”. Mr. Blanchard added that regarding Japanese monetary policy, “there was a need for a dramatic change … and Japan`s doing this”.
While it said there was “no silver bullet” that could simultaneously solve problems of deficient demand and high public debt in any country, it recommended the US and Japan work harder to sort out their medium-term budget deficits. In the eurozone, it urged countries with “fiscal space”, code for Germany, to ease further and it called on Britain to “consider” less austerity.

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07.04.2013 18:51 World Economy Review - March 2013

The International Monetary Fund (IMF) is planning to cut its U.S. growth forecast for this year due to higher taxes and spending cuts, Italian news agency ANSA said, citing a draft of the IMF`s next World Economic Outlook report. The U.S. economy, the world`s biggest, will expand 1.7 percent this year, down from the 2.0 percent predicted in January, ANSA reported. The next round of IMF forecasts is scheduled to be published in mid-April.
Higher tax rates for wealthy Americans and $85 billion in government spending cuts known as the "sequester" are slowing growth this year, but the U.S. economy will still expand 3 percent in 2014 as previously forecast, the draft report said, according to ANSA.
The world economy will expand 3.4 percent in 2013, down from a previous forecast of 3.5 percent, and Japan will grow 1.5 percent, up from 1.2 percent previously, the report said. In 2014, Japan will expand 1.1 percent compared with 0.7 percent previously, and the UK will grow by 1.8 percent, down from 1.9 percent in the last forecast, it added.
Forecasts for the main euro zone countries and for the euro zone as a whole were unchanged from January, according to the report, which cited Italian political uncertainty and tighter fiscal policy in the United States as risks to growth. Italian elections held a month ago gave no single group a working majority in parliament, leaving the euro zone`s third-largest economy in limbo as the bank crisis in Cyprus renews fears of an outbreak of market turmoil in the currency bloc.
The global economy is facing "new risks and old perils persist," the IMF draft report said, according to ANSA, adding: "in the short term key risks are related to developments in the euro zone, including the uncertainty tied to the results of the Italian elections, and to budget policy in the U.S."
Despite the fiscal head winds of higher payroll taxes and government spending cuts, the U.S. economy is set to grow 3.5% in the first quarter of 2013, according to a new forecast that was published by the Organization for Economic Cooperation and Development, a group of mainly advanced economies.
The latest OECD forecast sees U.S. GDP growth in the second quarter slipping back to 2% as fiscal spending cuts weigh on the economy. Still, the near-term outlook for the U.S., as well as some other major economies, has brightened in recent weeks.
The OECD predicted that Japan`s economy, the world`s third largest, would expand 3.2% in the first quarter, thanks to fiscal and monetary stimulus. Germany, the fourth-biggest economy, is expected to rebound as well, with its GDP advancing 2.3% in the first quarter, even as several other major Eurozone countries remain stuck in the mud. China, the world`s second-largest economy behind the U.S., is likely to grow well above 8% in the first half of this year, the OECD said.

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02.03.2013 18:11 World Economy Review - February 2013

The International Monetary Fund (IMF) slightly lowered its forecast for global economic growth in 2013 to 3.5% (versus 3.6% forecast in October), and in 2014 to 4.1% (vs. 4.2% in October). The growth rate in 2012 stood at approximately 3.2%. In reference to the expected moderate growth in the next year, said the chief economist of the IMF: “It`s clear that financial markets are ahead of the real economy. The question is whether they are too much ahead or not… What we know is that it always takes some time for financial markets` optimism to feed to the real economy and at this stage there are still obstacles to it”.
The IMF economists estimate that the Eurozone`s economy will contract in 2013 by 0.2%, compared to the previous forecast (October) of a 0.2% growth. The IMF warned that the Eurozone still poses a major risk to global economy. Nonetheless, they predict that the economic situation will improve and that in 2014 the Eurozone`s economy will grow by 1%.
The IMF economists slightly cut their forecast for the U.S. economic growth in 2013 to 2% (vs. 2.1% forecast in October), but, at the same time also raised their economic growth forecast for 2014 to 3% (vs. 2.9% forecast in October). The fund said: “U.S. politicians have to insure that the country gets through the debates regarding raising the debt ceiling without severe fiscal restraints. Politicians must agree on a credible medium-term fiscal consolidation plan, focused on entitlement and tax reform.
The IMF did not change their estimates regarding the Chinese economy – a growth of 8.2% this year and 8.5% in 2014. The fund`s chief economist said that “It`s not the rates that we saw before the crisis, but these rates are long gone”, but added that things are generally fine.
To summarize the global economic situation we note the phrase that the IMF managing director, Christine Lagarde, has coined: “We stopped the collapse, we should avoid the relapse, and it`s not time to relax”.

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03.02.2013 19:07 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.

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