World Economy Review - August 2007

The Organization for Economic Cooperation and Development (OECD) area GDP grew 0.6 pct in the second quarter, the same growth rate as recorded in the first quarter, the OECD said.
US growth accelerated to 0.8 pct in the second quarter from 0.2 pct in the first, but this was offset by slowdowns in the euro zone and Japan. Euro zone growth eased to 0.3 pct from 0.7 pct and Japan`s growth figure slowed to 0.1 pct from 0.8 pct.
OECD area GDP grew 2.5 pct year-on-year in the second quarter, compared with a year-on-year rate of 2.6 pct in the first quarter. The euro zone accounted for 0.7 percentage points of the 2.5 pct OECD area year-on-year growth rate, with the US contributing 0.6 points, Japan 0.3 points and other countries 0.9 points. The World Bank`s chief economist forecast that world economic growth would slow in 2007 but said the possibility of a crisis would diminish if the global economy could weather the next few weeks.
Francois Bourguignon, senior vice president at the multilateral lender, said the deceleration in world economic growth this year should not have a deep impact on developing nations, where the bank focuses its development lending. "We expect some slowdown in world economic growth this year," he said, adding that this would likely trim between 0.3 and 0.4 percentage points from growth in developing nations.
"Last year, developing economies grew by 6.5 percent, so this year we are looking at just over 6 percent," he told Reuters during a visit to West Africa to discuss the World Bank`s ongoing strategic policy review. "Growth is still likely to be strong next year," he said.

Economy of the United States

The US economy expanded at a solid 4.0 percent pace in the second quarter, revised data showed, highlighting strong momentum ahead of the turbulence from housing and credit woes of recent weeks. The Commerce Department marked up its estimate of gross domestic product (GDP) from last month of 3.4 percent growth, based on new data showing stronger US exports and business investment.
It was the strongest growth spurt since the first quarter of 2006, but many economists say the world`s biggest economy is slowing in the third quarter, hurt by a severe housing slump and the recent credit squeeze.
The report suggests the economy had strong momentum in the April-June quarter before being hit by the tightening of credit and rising housing loan defaults. The upward revision was helped by data showing exports grew 7.6 percent instead of 6.4 percent, while imports fell 3.2 percent instead of 2.6 percent. Business investment increased 11.1 percent, revised up from an estimate of 8.1 percent a month earlier.
Consumer spending, which accounts for as much as two-thirds of economic activity, rose a revised 1.4 percent in the second quarter, slightly higher than the 1.3 percent estimated last month. But this was still a slowdown from the 3.7 percent pace in the first three months of the year.
Housing was a bigger drag on the economy than earlier estimated, but still less than the prior quarter. Real residential fixed investment fell 11.6 percent in the second quarter, steeper than the 9.3 percent drop first reported but not as steep as the 16.3 percent drop in the first three months of the year.
US industrial production rose 0.3 pct in July, the Federal Reserve reported, as factory and mining output offset a cool-weather drop at utilities. July`s 0.3 pct increase wasn`t far out of line with analyst expectations of a 0.2 pct increase. June production was revised up a tenth of a point to +0.6 pct. The 81.9 pct capacity use was also in line with the 81.8 pct expectation and followed an 81.8 pct rate in June, also revised up a tenth. Utility output fell 2.1 pct as unusually cool July weather reduced the electricity demand.
The U.S. Commerce Department reported a 2.8 percent increase of new-home sales in July, compared to the previous month, but a 10.2 percent decrease over July 2006. That`s 870,000 units sold across the country. However, the median length of time completed homes were on the market was 6.1 months in July, compared to 5.9 months in May. Inventory of new homes in July dropped to 533,000 units, or a 7.5-month supply. That`s down from June`s supply of 7.7 months. Completed homes represented 33 percent of the inventory and those still under construction represented 51 percent of the inventory. Units for sale, but not yet started, were 16 percent of the inventory. Regionally, the West and the South both saw new home sales on the positive side for the month - 22.4 percent in the West and 0.6 in the South. The Northeast had a decrease of 24.3 percent for the month and the Midwest had a 0.9 percent decline.
Confidence among U.S. consumers fell in August to the lowest in a year, hurt by turmoil in credit markets and a decline in share prices. The Reuters/University of Michigan final index of consumer sentiment fell to 83.4 this month from 90.4 in July. The reading compares with a preliminary figure of 83.3 for August.

Economy of European Union

The eurozone economy slowed down in the second quarter of this year, compared to the first quarter, the European Union`s statistics bureau Eurostat estimated on Tuesday. During the second quarter, the gross domestic product (GDP) grew by 0.3 percent quarter on quarter in the 13-nation bloc sharing the same currency euro, slowing down from 0.7 percent in the first quarter. GDP growth dropped more sharply than expected in Germany and France, the two largest economies in the euro zone, with both slowing down from 0.5 percent to 0.3 percent.
Compared to a year ago, seasonally adjusted GDP grew by 2.5 percent in the euro zone, after 3.1 percent in the previous quarter. Economists said the economic slowdown may persuade the European Central Bank to have a second thought on its plan to raise the eurozone benchmark interest rate in September, while others expected the eurozone economy to gather strength in the second half of this year. In the 27-nation EU, GDP growth also slowed to 0.5 percent quarter on quarter in the second quarter from 0.7 percent in the first quarter.
Inflation in the 13 countries that use the euro should remain a steady 1.8 percent in August, the European Union`s statistical agency said in a first estimate.
The euro area`s unemployment rate for July was also unchanged from the previous month, at 6.9 percent - the lowest level since record-keeping started in 1993 - as the European economy`s recent growth spurt added jobs.
Morale among Eurozone investors deteriorated for a second straight month in August, amid concern problems in the US markets could unleash a global credit squeeze, the Sentix research group said. The group`s latest monthly sentiment indicator, based on a survey of more than 2,600 European investors between August 2 and 4, fell to 26.3, the lowest since November, from 34.7 in July.
A Sentix gauge of investor sentiment about current economic conditions fell to 55.0, from July`s 61.75, while a measure of expectations for the next six months dropped to 0.5 from 10.5. "The problems on the US credit markets are no longer being seen in isolation and shrugged off as an issue that only affects a single sector or country," Sentix said. "The latest survey results mean that a clear slowdown in activity must be expected," it added.

Economy of Asia

Japan`s Industrial production for July decreased 0.4 percent from June, the first decrease reported in two months. The Japanese Ministry of Economy, Trade and Industry reported the rate was 3.2 percent higher than the previous year. The results showed a better industrial performance than analysts` predictions of 0.5 percent.
The Ministry identified the industry sectors mainly responsible for the decline as transport equipment, chemicals (excluding drugs) and fabricated metals. Commodities mainly contributing to the decrease included large passenger cars, small passenger cars and midget passenger cars. The Ministry also projected an increase of 6.8 percent in August and a decrease of 2.5 percent for September. Japan`s unemployment rate dropped to 3.6 percent in July from 3.7 percent in June. Core consumer prices, which exclude fresh food, fell 0.1 percent from a year earlier, the statistics bureau said.

Economy of Russia

According to the Russian Economy Ministry, in the first seven months of 2007, GDP grew 7.9 percent year-on-year, compared with a 6.1 percent growth a year earlier, the ministry`s survey of Russia`s current economic situation revealed. Monthly GDP growth is reported to have remained stable at 0.7-0.8 percent on average between January and July, net of seasonal factors. In July alone, GDP increased 8 percent compared with July 2006. The survey connects the high economic development rates to improvements in investment demand, construction, and manufacturing, as well as a high consumer demand, to which imports are catering an increasing share, amid a slowdown in exports growth.
Russia`s Finance Minister Alexei Kudrin said earlier that he expected Russia`s GDP to reach 7.1 percent in 2007, while Economy Minister German Gref stated that the ministry was planning to revise its GDP forecast up from 6.5 to 7 percent. In the first half of 2007, GDP grew 7.8 percent.
Russia generated trading surplus of $70.7 billion in the first half of this year, 15.4 percent down on year, the Federal Custom Service of Russian Federation (FCS) reported. The January-June exports of Russia surged 8.6 percent on year to $155.3 billion, while the imports stepped up 48.7 percent to $84.6 billion. So, the foreign turnover amounted to $239.9 billion, according to the FCS.
But Russia`s Economic Development and Trade Ministry reported a bit different figures not long ago. According to the ministry, the H1 exports stood at $160.5 billion, having stepped up 11.6 percent on year. The growth was 31.1 percent in the first half of 2006. The ministry blamed some slowdown on lower prices for crude oil exports and some decline in exported quantity of vital goods. Under the ministry`s calculation, H1 imports of Russia amounted to $96.7 billion, 38.5 percent up on year (vs. the acceleration of 26.6 percent generated from January to June of 2006). The growth in rates, the ministry explained, could be attributed to more aggressive demand of the population coupled with improved investment activity.
Russia`s manufacturing sector expanded further in July, backed by faster growth of output and incoming new orders, according to London-based VTB Bank Europe`s survey of the Russian manufacturing sector released Wednesday. The seasonally adjusted headline Manufacturing Purchasing Managers` Index (PMI) rose to 53.4 in July from 53 in June, VTB Bank Europe said. Readings above 50.0 signal an increase on the previous month while readings below 50.0 signal a contraction.