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World Economy Review - June 2008

The World Bank cut its 2008 global growth forecast to 2.7%, citing rising food and oil prices. In January 2008, the bank predicted that global growth would total 3.3% for the year. The global economy grew 3.7% in 2007. Further, the bank now sees 2008 emerging market GDP growth totaling 6.5%, down from its earlier 7.8% forecast. The bank called high energy and food prices "a major worry" and added that they "are the dominant force behind increased inflation across developing countries".
Also, the World Bank expects the U.S. economy to grow 1.1% in 2008, a downward revision from the bank`s earlier 1.9% forecast. Meanwhile, the bank expects Europe`s 15-nation euro zone to grow 1.7%, down from the earlier estimate of 2.8%. Japan`s economy is expected to grow 1.4%, down from the earlier estimate of 2%.
Further, the World Bank also sees a considerable slowdown in China`s economy in 2008, but GDP growth is still expected to remain very strong. The bank now sees China`s GDP increasing 9.4%, down from the earlier 11.9% estimate. The World Bank`s revised GDP growth forecasts for 2008 and 2009 by region are: Euro zone, 1.7% and 1.5%; Europe and Central Asia, 5.8% and 5.4%; South Asia, 6.6% and 7.2%; Latin America, 4.5% and 4.3%; Middle East and North Africa, 5.5% and 5.3%; and Sub-Saharan Africa, 6.3% and 5.6%.
Meanwhile, The global economy would collapse if oil hit $200 a barrel, said the top energy analyst at Germany`s largest bank. "Two-hundred dollar oil would break the back of the global economy", Deutsche Bank AG`s Chief Energy Economist Adam Sieminski said in an interview today in Tokyo. "Next step after $200 would be global recession and bad news for everybody".
Sieminski`s comments come after Goldman Sachs Group Inc. forecast oil may rise to between $150 and $200 within two years as supply growth, especially from producers outside the Organization of Petroleum Exporting Countries, fails to keep pace with demand.

Economy of The United States

U.S. real gross domestic product for the first quarter was revised to 1.0% annualized from the earlier estimate of 0.9%, the Commerce Department said Thursday. Economists surveyed by MarketWatch expected first quarter growth to be revised up to 1.1%. A key measure of inflation was revised higher. Core prices increased 2.3% up from 2.1% reported earlier. This is the fastest pace of core inflation since the third quarter of 2006. Corporate profits were revised to show a drop of 0.3% quarter-to-quarter, compared with the previous estimate of a 0.3% gain. Corporate profits have now dropped over the past three quarters.
U.S. industrial production continued to fall in May, dragged down by weather that cut utility output, while capacity use at factories, mines and utilities fell to its lowest rate in almost three years. The Federal Reserve reported a 0.2% drop in May industrial output following and unrevised 0.7% decline in April.
Capacity utilization fell to 79.4%, its lowest level since September 2005 right after Hurricane Katrina. That followed a downwardly revised 79.6% rate in April. Economists polled by Thomson Reuters IFR Markets expected a 0.1% drop in production and a 79.7% capacity rate, which would have been unchanged from the first report for April.
US consumer spending doubled in May as personal income jumped in part because of billions dollars of government checks from the economic stimulus package were mailed last month, the Commerce Department said. Personal consumption expenditures rose 0.8% in May after rising an upwardly 0.4% in the prior month. That`s the largest gain since September 2005. Economists polled by Thomson Reuters IFR Markets expected consumption to rise 0.7%.
The increase in spending came as personal income rose 1.9%, more than quadruple the 0.4% gain economists polled by Thomson Reuters IFR Markets had expected. After adjusting for inflation, real consumer spending rose 0.4% following a 0.2% gain in both March and April.
Consumer sentiment fell for the fifth consecutive month to its lowest level in almost three decades, an influential survey said. The Reuters/University of Michigan index of consumer sentiment fell to 56.4 in late June from a reading of 56.7 in early June. That is the lowest level since May 1980.
Economists polled by Thomson`s IFR Markets had expected sentiment to rise a touch to 56.9 in late June. Expectations for short-term inflation remained at 5.1 pct in late June from 5.1 pct in early June. Five-year inflation expectations remained at 3.4 pct, the highest level in more than a dozen years.
The slowdown in the US economy is not as strong as previously estimated, the International Monetary Fund said, lifting its growth estimates slightly for 2008 and 2009. The IMF forecast annual growth of roughly one percent in 2008 and 0.8 percent in 2009, compared with a prior estimate of 0.5 percent and 0.6 percent, respectively. "The slowdown in activity in the United States has been less than feared, and recovery should begin next year as important headwinds are overcome," the IMF said in its annual review of the world`s largest economy. In April, the Fund`s economists had predicted the U.S. economy would contract slightly and warned the U.S. credit crisis was threatening to cause a global recession. The IMF praised the Federal Reserve`s handling of the financial crisis and urged the U.S. central bank to keep interest rates low. However, the IMF also said the Federal Reserve may need to act quickly and raise interest rates to counter the threat of inflation. An IMF official, First Deputy Managing Director John Lipsky, also said the U.S. may face further fallout from rising fuel and commodity prices.

Economy of The European Union

Euro zone GDP growth grew 0.8 percent in the first quarter from the fourth quarter of last year, and was up 2.2 percent year-on-year, EU statistics office Eurostat said. The figures show an upward revision to provisional figures reported on May 15. Eurostat provisionally put first quarter growth at 0.7 percent quarter-on-quarter. Its year-on-year estimate was unchanged. Eurostat revised its fourth quarter figures to a quarter-on-quarter rise of 0.3 percent from 0.4 percent and to a year-on-year increase of 2.1 percent from 2.2 percent.
The agency gave a breakdown of first quarter GDP for the first time. It said household consumption rose 0.2 percent quarter-on-quarter and investment rose 1.6 percent. Government spending rose 0.4 percent and inventories increased by 0.2 percent. Meanwhile, exports increased 1.9 percent and imports rose 1.8 percent. Household consumption made a positive contribution of 0.1 percentage points to the quarterly GDP figure, while investment made a positive contribution of 0.4 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 contributed 0.1 points.
European industrial production unexpectedly rose in April, as gains in France and Italy countered weakness in Germany, the region`s largest economy. Industrial output in the 15 nations that share the euro jumped 0.9 percent in April from the previous month, the European Union`s statistics office in Luxembourg said. Economists forecast no change in April production, according to the median of 35 estimates in a Bloomberg News survey. Production may slow in coming months as the euro`s increase against the dollar erodes export competitiveness and global economic growth cools. An index of European manufacturing declined in May, according to figures published June 2. In April, production in France and Italy may have been boosted by the early timing of Easter, which added more working days, according to economists at Lehman Brothers and UniCredit MIB. Industrial production in France jumped 1.4 percent in April from March, the statistics office said today, and production in Italy rose 0.7 percent. In Germany, production fell 0.7 percent.
Production of capital goods increased 2 percent in April from the previous month, rebounding from a 1.6 percent drop in March. Durable consumer goods rose 1.7 percent in the latest month, while energy output fell 1.4 percent. From a year earlier, overall euro-area industrial output rose 3.9 percent. In March, production fell 0.5 percent from the prior month, more than the 0.2 percent drop initially reported.
Euro zone inflation leapt to a record 4.0 percent in June, the European Union statistics office said, cementing expectations that the European Central Bank will raise interest rates when it meets on July 3. "We think a hike this week is a done deal", said Stephane Deo, chief European economist at UBS bank. "It`s a bit of a shocker," said Gilles Moec, an economist at Bank of America (nyse: BAC - news - people ) who like many others had predicted a marginally lower figure of 3.9 percent for the annual inflation rate. The inflation-fighting ECB holds a meeting of its Governing Council on Thursday and is widely expected to raise its key interest rate to 4.25 percent from 4.0 percent, even though the economy appears to be slowing markedly. June`s inflation rate of 4.0 percent year-on-year compared with 3.7 percent in May and marked a further departure from the ECB target of just below 2 percent for medium-term inflation. Euro zone interest rate futures extended falls and short-dated bond yields rose after the data.

Economy of Japan

The Japanese economy grew at a faster pace than previously estimated in the first quarter due to an increase in corporate capital spending, government data showed. Gross domestic product rose 1.0 percent, in real terms, in the three months to March from the fourth quarter of 2007, or an annualised rate of 4.0 percent, according to revised data from the Cabinet Office. It was the fastest pace of growth since January-March 2007 when the economy expanded 1.1 percent on quarter and at an annualised rate of 4.5 percent, the Cabinet Office said.
The government reported last month that GDP grew 0.8 percent during the quarter and at annualised 3.3 percent. Economists had expected annualised growth to come in between 3.7 percent and 4.0 percent. But many are saying the momentum may fizzle in coming quarters and could even contract in the current quarter amid a slowing global economy and high commodity prices. The biggest contributor to the upward revision in GDP was non-residential investment, which accounts for about 15 percent of the world`s second-largest economy. Non-residential investment, which is equivalent to corporate capital spending, rose 0.2 percent, a reversal from the initial estimate of a 0.9 percent fall. Still, that was far slower than the 1.2 percent increase in the last quarter of 2007 as Japanese companies cut back on spending due to higher material costs and sluggish demand at home and abroad.
Private consumption, which makes up nearly 55 percent of GDP, rose 0.8 percent in the first quarter, in line with the preliminary reading, thanks to increased spending on heating charges amid the cold weather condition as well as the relatively high growth in wages. Elsewhere, net exports - or the difference between exports and imports - pushed up GDP by 0.5 percentage point, thanks to strong exports to Europe and Asia which more than offset falling shipments to the United States. Housing investment rose 4.6 percent, the first positive reading in five quarters. It followed a 9.2 percent fall in the fourth quarter, which was the biggest decline since April-June 1997 as the sector reeled from tighter building regulations implemented since last June.
The GDP deflator, the broadest gauge of deflation, was down by 1.5 percent in the first quarter from a year earlier, compared to the preliminary estimate of a 1.4 percent drop.
Japan`s economy is at a difficult stage as soaring oil prices bite and growth in exports slows somewhat, former Bank of Japan Deputy Governor Kazumasa Iwata said. Iwata also said at his first news conference as head of the Cabinet Office`s Economic and Social Research Institute that the government`s research body would continue its efforts to brush up its method to better calculate gross domestic product (GDP) data amid criticism that GDP figures fluctuate too much after revisions. Iwata, who retired from the central bank in March when his five-year term as one of the two deputy governors expired, declined to comment on the BOJ`s monetary policy.
Japan`s industrial production and capital spending are flat and growth in corporate profits is slowing, though at high levels, Iwata said, noting that prices of oil and food prices kept rising. "Exports have been firm but recently their growth has somewhat slowed," Iwata said. "The economy is at a difficult stage".
Iwata said Japan`s economy was gradually overcoming a decade of deflation, although it was too early to say deflation was completely over. Japan`s economic growth is expected to slow to 1.7 percent this year and to 1.5 percent in 2009, compared with 2.1 percent last year, the OECD predicted. Economists forecast Japan`s GDP will grow 0.3 percent in the second quarter.

Economy of Russia

Russia`s GDP growth stood at 7.7% in May and was 8.4% for the first five months of 2008, a deputy economics minister said. "There was a certain slowdown (in May), but we will only be able to speak about a trend after the first half of the year," Andrei Klepach said.
Russia`s GDP grew 8.1% in 2007 and is expected to expand 7.6% in 2008, according to a government forecast. Inflation is expected to be 1.0-1.1% in June, Klepach said, adding that a trend towards slower consumer price growth was being observed in the country.
As Russia continues to reap the benefits of high world oil prices, consumer price growth has proved to be a major problem for the Russian authorities, who plan to keep inflation within the projected 10.5% in 2008. Last year inflation in Russia stood at 11.9%, up from 9% the previous year.
Klepach said the economics ministry had submitted a package of anti-inflationary measures to the government.

www.ereport.ru - 01.07.2008 20:31:54