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World Economy Review - November 2007

The world economy has been growing more slowly after global unemployment jumped to 6.3 percent last year, the highest in a decade, the United Nations reported in November. Because it is the world`s largest economy, the United States and its weakening housing market are "the major drag for this global slowdown," said the U.N. report.
It puts the expected growth of 2007 world gross product at 3.2 percent, down from an average 3.8 percent a year during the previous decade. "We see a number of worrisome trends," said Sha Zukang, the U.N.`s undersecretary-general for economic and social affairs. "Globally, despite robust rates of economic growth, employment creation is lagging behind growth of the working-age population".
Some 195 million people were unemployed in 2006, an increase that despite continued growth in global economic output is "giving rise to the phenomenon of jobless growth," the report said. The U.N. economists said that for the first time in history, the service industry, accounting for 40 percent of all jobs, overtook agriculture as the biggest employer. "The world is rapidly becoming an economic system with employment dominated by the service sector, in which many jobs are low-paying and precarious and are not covered by formal mechanisms of social protection," the report said.
It said the unemployment rate was highest, at 12.2 percent, in the Middle East and North Africa, followed by 9.8 percent in sub-Saharan Africa, 8 percent in Latin America and the Caribbean, 6.6 percent in Southeast Asia and the Pacific, and 6.2 percent among developed nations` economies.
The International Monetary Fund said Thursday it would likely revise lower its 2008 estimate of world economic growth due to financial market turmoil and surging oil prices. "Global growth in 2008 will likely be lower than we anticipated in the World Economic Outlook," IMF spokesman Masood Ahmed said at a news conference.

Economy of the United States

The US economy surged at a 4.9 percent pace in the third quarter ahead of the impact of credit and housing ills, the government said Thursday in a revised estimate of gross domestic product (GDP). The expansion was the fastest pace in four years and was fueled by strong export growth helped by a weak dollar, and by increased business inventories. The figure was in line with most analyst forecasts. The Commerce Department estimate was revised up from an initial figure a month ago of a 3.9 percent annualized pace. Still, economists have said the significance of the July-September growth figure is minimized because activity is slowing in the face of tight credit and a depressed housing market.
Exports increased 18.9 percent in the new estimate, up from 16.2 percent, including a 25.8 percent increase in goods exports as the dollar`s decline made US products more attractive to businesses and consumers abroad. Import growth was revised lower than the earlier estimate, rising 4.3 percent instead of the 5.2 percent. But consumer spending, which represents the lion`s share of economic activity, was revised down to show a 2.7 percent rise from a first estimate of a 3.0 percent gain. An increase in inventory building by businesses also contributed to faster growth. The revised number was 27.1 billion dollars, nearly three times the 9.9 billion first estimated.
The Federal Reserve reported that US industrial production fell 0.5 pct in October due to across-the-board declines in production of autos, home electronics, appliances, furniture and other goods. The report also put October`s plant capacity utilization rate at 81.7 pct, down from 82.2 the prior month. Analysts were expecting a 0.1 pct rise in production and an operating rate of about 82.0 pct. September production was revised upwardly to a 0.2 pct rise from 0.1 pct, and September`s capacity use was adjusted up by a tenth of a percentage point to 82.2 pct.
Utility output fell the hardest of all major industry groups, down 1.6 pct after falling just 0.1 pct in September and rising 5.2 pct in August. Manufacturing fell 0.4 pct, led by a 0.8 pct decline in machinery, 1.2 pct decline in electrical equipment and appliances, and 1.0 pct decline in autos and auto parts. Mining output fell 0.6 pct after rising 0.6 pct in September. October personal consumption rose 0.2 pct, the Commerce Department reported, but after adjusting for inflation, consumers spent no more than they did in September. The unchanged real consumption number was the smallest change since a 0.2 pct decline in March of this year.
Personal income also rose 0.2 pct in October but real disposable income - after adjusting for inflation and taxes - fell 0.1 pct, the first decline since April. Nominal disposable income rose 0.1 pct.
US construction spending fell 0.8 pct in October as business construction began to fall and the decline in homebuilding continued. Private construction was down 1.4 pct, the Commerce Department reported today. A 0.8 pct jump in government projects provided a partial offset to the private building contraction. Residential construction was down 2.0 pct last month, worse than the 1.1 pct drop in September and matching the 2.0 pct decline in July. It was the 20th consecutive monthly decline in homebuilding.
US economy will probably expand at a 1.8 percent pace in the current quarter, according to a forecast of economists surveyed in October. "I don`t expect we`re going to see GDP at all like this in the fourth quarter, but coming from where we`ve been in mid-2007, it won`t be bad," said Richard DeKaser, chief economist at National City Corp. in Cleveland.

Economy of European Union

Euro zone GDP grew 0.7 pct in the third quarter from the second quarter, and was up a revised 2.7 pct year-on-year, EU statistics office Eurostat said. The quarter-on-quarter figure is unchanged from Eurostat`s provisional estimate, but the year-on-year rise is revised from an earlier 2.6 pct. In the second quarter, GDP was up 0.3 pct from the first quarter and was up 2.5 pct year-on-year.
It said household consumption rose 0.5 pct quarter-on-quarter, while investment was up 0.9 pct and government spending was up 0.6 pct. Meanwhile, exports increased 2.5 pct and imports rose 2.7 pct.
Household consumption made a positive contribution of 0.3 percentage points to the quarterly GDP figure, while investment made a positive contribution of 0.2 points. Changes in inventories made a positive contribution of 0.2 points and government spending accounted for 0.1 percentage points of the GDP increase. Net exports made a negative contribution of 0.1 points.
In September 2007 compared with August 2007, seasonally adjusted industrial production1 fell by 0.7% in the euro area (EA13) and by 0.5% in the EU27. In August production grew by 1.2% in the euro area and by 0.9% in the EU27.
In September 2007 compared with September 2006, industrial production rose by 3.5% in the euro area and by 3.1% in the EU27. These estimates are released by Eurostat, the Statistical Office of the European Communities.
In September 2007 compared with August 2007, production of energy increased by 0.6% in the euro area and by 0.1% in the EU27. Capital goods fell by 1.0% and 0.6% respectively. Non-durable consumer goods decreased by 1.2% in the euro area and by 0.8% in the EU27. Intermediate goods declined by 1.3% and 1.2% respectively. Durable consumer goods dropped by 3.4% in the euro area and by 2.6% in the EU27.
In September 2007 compared with September 2006, capital goods increased by 5.5% in the euro area and by 5.7% in the EU27. Production of energy grew by 3.6% and 1.9% respectively. Intermediate goods rose by 2.8% in the euro area and by 2.5% in the EU27. Non-durable consumer goods gained 2.3% and 1.5% respectively. Durable consumer goods grew by 1.3% in the euro area and by 3.1% in the EU27.
Eurozone CPI is estimated to increase by 3.0% in November in yearly basis following the 2.6% rise posted in October, according to the latest information by Eurostat.
Market expectations were a slightly lower increase by 2.7% in November. The office of statistics of the European Comission doesn`t offer details about the preliminary estimation in his official report, but increasing food and energy prices should have pushed inflation in November. In the last two years the preliminary estimation exactly predicted the inflation rate in 17 times, while on 7 times it differed by 0.1%.
UK GDP growth during the third quarter has been revised down due to lower than expected expansion in the service sector, adding to the case for a December rate cut, official figures showed. In its first revision for the third quarter, the office for National Statistics said the economy grew by 0.7 pct in the third quarter, below the previous estimate of 0.8 pct. Analysts polled by Thomson Financial News had not expected any change.
This is the first period since the third quarter of 2006 that quarterly growth has been below 0.8 pct, although the UK economy has still been expanding by more than its trend rate, considered by most economists to be 0.6-0.7 pct, for seven consecutive quarters.
Meanwhile the annual rate of GDP growth during the third quarter was also revised down to 3.2 pct from the previous estimate of 3.3 pct, though this is still marginally higher than the 3.1 pct seen in the second quarter. Analysts had expected no change.
Industrial output, which makes up about a fifth of GDP was unchanged in the third quarter compared to the second - revised down from a 0.2 pct rise previously - for an annual increase of 0.4 pct. Manufacturing output growth was also revised down to show no change from the second quarter, from the earlier estimate of a 0.2 pct rise. The year-on-year increase was 0.4 pct.
The services sector which makes up nearly three quarters of GDP increased by 0.9 pct - revised down from 1.0 pct - and by 3.9 pct year-on-year. The construction sector growth was unrevised at 0.8 pct quarter-on-quarter, for an annual rise of 3.4 pct.

Economy of Japan

Japan`s economy grew at an annualized rate of 2.6 percent in the July-September quarter on strong exports, the government said Tuesday, but the outlook for exports was clouded by sluggish economic signs in the United States. Gross domestic product grew a price-adjusted 0.6 percent from the previous quarter, according to preliminary data released by the Cabinet Office. On an annualized basis, the July-September GDP increased by 2.6 percent. The figures beat the annualized 1.8 percent gain forecast by economists surveyed by Dow Jones Newswires. In the April-June quarter, Japan`s GDP declined 1.2 percent on an annual basis, marking the first contraction in growth for three quarters. Although the latest results suggest Japan`s economy is still recovering, there are also worrying signs. Exports, which accounted for much of the third-quarter growth, are at a risk of decelerating because of a slowdown in the U.S. economy.
Another sign is that housing investment, though its contribution is small, is declining. Private residential investment plunged 7.8 percent - the largest drop since a 11.1 percent tumble in the April-June 1997 quarter - likely hurt by tighter building regulations that came into force in late June.
Japan`s industrial production rose in October from September, signalling firm corporate activity and steady exports, but the data did little to alter views that the Bank of Japan will not raise interest rates until next year.
Output rose 1.6 percent in October from September, government data showed on Thursday, just short of a consensus market forecast of a 1.7 percent increase. The rise in output was mainly due to a recovery in cars and semiconductor production equipment in response to firm domestic and overseas demand, an official at the Ministry of Economy, Trade and Industry said.
Japan`s core consumer price index rose 0.1 percent in October from a year earlier, the first outright rise in 10 months, pushed up by higher gasoline and household goods prices, government data released show. The consensus forecast was for a flat reading.
The core CPI, which excludes volatile prices of fresh food but includes energy prices, fell between February and September. It was flat in January. Overall CPI was up 0.3 percent in October, the first outright increase in four months. It declined 0.2 percent in September.

Economy of Russia

Russia`s GDP grew 7.4 percent in January-October 2007 compared to 6.6 percent in the first ten months in 2006, Russian Economy Ministry reported. The country`s GDP went up 7.5 percent in October 2007 against 6.7 percent in the third quarter 2007. Russia`s industrial output grew 6.5% year-on-year in the first ten month of 2007.
Russia`s industrial output grew 6.5% year-on-year in the first ten month of 2007, the Federal State Statistics Service (Rosstat) said. Industrial growth in October increased 6.1% year-on-year, exceeding previous expectations. The official forecast for industrial growth in 2007 is 5.2%, but the economics ministry earlier said it could be raised. The country posted the highest industrial growth of 10.9% in June. The manufacturing sector was the biggest contributor to industrial production growth during the first ten months of 2007, rising 9.8 percent from January-October 2006. Output increased 2.1 percent in the primary sector, while declining 1.9 percent in electricity, gas and water distribution. In January-October 2007, Russia increased coal production by 1.1% and oil production - by 2.4% year-on-year, but decreased gas output by 1.3% during the same period, the statistics service said.
Inflation in Russia in October 2007 was 1.6%, in January-October - 9.3%.
Russian Economy Ministry forecasts GDP will grow 7.3-7.4% this year, inflation will be 11.0-11.5%. Inflation in Russia in 2007 could exceed 11%, the director of the Economic Development and Trade Ministry`s macroeconomic forecasting department said.
The ministry official also said the Russian government could restrict grain exports in 2008 to curb inflation. "We may impose a direct ban or introduce an export duty," he said adding that measures will depend on the market situation. He said grain exports were 3 million metric tons in October and if this trend continues, the government will consider additional measures to restrict exports. - 30.11.2007 23:47