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World Economy Review - January 2010

The global economy is poised to grow 2.7 percent this year after shrinking in 2009, the World Bank said Wednesday in a report highlighting risks to a "fragile" recovery. The World Bank said the nascent recovery from the worst crisis since the Great Depression was "expected to slow later this year as the impact of fiscal stimulus wanes."
"Overall, these are challenging times," said Justin Lin, World Bank chief economist. "The depth of the recession means that even though growth has returned, countries and individuals will continue to feel the pain of the crisis for years to come," he said.
Key impediments to growth are troubled financial markets and sluggish private sector demand amid high unemployment, the Washington-based development lender said in its "Global Economic Prospects 2010" report.
Overall, global gross domestic product (GDP) -- a broad measure of the output of goods and services that fell by 2.2 percent last year -- is expected to expand 2.7 percent in 2010 and 3.2 percent in 2011.
Growth would be led by developing countries, whose economies would have "relatively robust" growth of 5.2 percent this year and 5.8 percent in 2011, after managing to buck the global downturn with 1.2 percent growth last year.
China`s massive economy would continue to be the primary engine, with growth at 9.0 percent this year and the next. South Asia would post a 6.9 percent expansion in 2010, including a 7.5 percent rise in India. Growth would be more moderate this year in Sub-Saharan Africa (3.8 percent), in Latin America (3.1 percent) and in eastern and central Europe and Central Asia (2.7 percent).
Rich countries, impacted the most by the global financial crisis, would not recover so quickly. Developed economies, which experienced a 3.3 percent plunge in GDP last year, were projected to grow 1.8 percent in 2010 and 2.3 percent in 2011.
The United States, the world`s biggest economy and the epicenter of the financial crisis that triggered the downturn, would see 2.5 percent growth in 2010 and 2.7 percent in 2011. Hans Timmer, an author of the report, said data indicates that unemployment will only get worse. "Actually growth this year is not even strong enough to generate the jobs for the new people that are coming on the global jobs market, let alone that you need to create employment for the people who have lost their jobs in 2009," Timmer said at a news briefing.
The projected modest global expansion this year should mean a rebound in world trade volumes that plummeted 14.4 percent in 2009. Trade volumes were projected to expand by 4.3 percent this year, and accelerate to 6.2 percent in 2011. Oil prices were forecast to hold around 76 dollars a barrel in 2010 and 2011.

Economy of The United States

The U.S. economy grew in the fourth quarter of 2009 at the fastest pace in six years, but many economists and business owners remained unconvinced that a full-scale recovery was underway or that substantial job growth would soon follow.
The nation`s total production of goods and services expanded at a heady 5.7% annual rate in the final three months of last year, the Commerce Department said Friday in its first estimate of the quarter`s gross domestic product.
That`s more than double the 2.2% growth rate in the third quarter and a dramatic turnaround from the first three months of last year, when the economy was mired in deep recession and the GDP shrank at a 6.4% annual rate.
Even so, economists believe that most of the fourth-quarter growth was driven by temporary factors -- cyclical inventory changes and government stimulus -- that are likely to fade in the middle of this year. And it remains to be seen whether private investments, exports and particularly consumer spending, which alone accounts for about 70% of U.S. economic activity, can pick up enough of the slack to sustain a solid recovery.
The recovery in the U.S. industrial sector continued in December, as output at the nation`s factories, mines and utilities rose 0.6% -- the sixth straight monthly output gain, the U.S. Federal Reserve announced. The December gain was boosted by a large increase in output by electric and natural gas utilities, which were producing power at a high pace due to the bitterly cold start to the winter. Also, industrial production increased at a 7.0% annualized rate in the fourth quarter.
Meanwhile, the factory utilization rate, also known as capacity utilization, rose to 72.0% in December from a revised 71.5% in November and a revised 71.0% in October. However, for 2009, the capacity-utilization rate remained 8.9 percentage points below its average for 1972-2008, the Fed said.
Economists surveyed by Bloomberg News had expected industrial production to increase 0.6% and capacity utilization to rise to 71.9% in December; industrial production rose a revised 0.6% in November and rose a revised 0.2% in October.
The U.S. trade deficit shot up nearly 10% to $36.4 billion in November, hitting a 10-month high, the Department of Commerce said today.
Demand for imports is growing, as the nation`s economy slowly gets back on its feet. Imports totaled $174.6 billion, a 2.6% jump. But exports also rose for the seventh straight month with the help of the feeble dollar, increasing 0.9% to $138.2 billion. The deficit soared 9.7% from October`s $33.2 billion, said the U.S. Census Bureau and the U.S. Bureau of Economic Analysis through the Department of Commerce.
The rate of U.S. consumer inflation decelerated in December, the Labor Department said Friday. The consumer price index increased 0.1%, after a 0.4% rise in November. This is the slowest pace since July. Energy prices rose 0.2% after a 4.1% spike in November. Food prices rose 0.2% after a 0.1% gain in the prior month. The core CPI, excluding food and energy costs, was up 0.1% in December after remaining flat in November. Economists were expecting the CPI to rise 0.2% and the core rate to rise 0.1%.
In December, both the number of unemployed persons, at 15.3 million, and the unemployment rate, at 10.0 percent, were unchanged. At the start of the recession in December 2007, the number of unemployed persons was 7.7 million, and the unemployment rate was 5.0 percent.

Economy of The European Union

Euro area (EA16) GDP increased by 0.4% and EU27 GDP by 0.3% during the third quarter of 2009, compared with the previous quarter, according to second estimates from Eurostat, the statistical office of the European Union. In the second quarter of 2009, growth rates were -0.1% in the euro area and -0.3% in the EU27.
In comparison with the same quarter of the previous year, seasonally adjusted GDP declined in the third quarter of 2009 by 4.0% in the euro area and by 4.3% in the EU27, after -4.8% and -5.0% respectively in the previous quarter.
In the third quarter of 2009, among Member States for which seasonally adjusted GDP data are available, Lithuania (6.1%) recorded the highest growth rate compared with the previous quarter, followed by Luxembourg (4.2%) and Slovakia (1.6%).
In November 2009 compared with October 2009, seasonally adjusted industrial production grew by 1.0% in the euro area (EA16) and by 0.9% in the EU272. In October production fell by 0.3% and 0.7% respectively. In November 2009 compared with November 2008, industrial production declined by 7.1% in the euro area and by 6.4% in the EU27. These estimates are released by Eurostat, the statistical office of the European Union.
The first estimate for the euro area (EA16) trade balance with the rest of the world in November 2009 gave a 4.8 bn euro surplus, compared with -7.0 bn in November 2008. The October 2009 balance was +6.6 bn, compared with -1.2 bn in October 2008. In November 2009 compared with October 2009, seasonally adjusted exports fell by 0.4%, while imports rose by 0.3%.
The first estimate for the November 2009 extra-EU27 trade balance was a 5.8 bn euro deficit, compared with -24.4 bn in November 2008. In October 20092 the balance was -4.8 bn, compared with -18.3 bn in October 2008. In November 2009 compared with October 2009, seasonally adjusted exports rose by 1.9% and imports by 1.5%.
Euro area annual inflation is expected to be 1.0% in January 2010 according to a flash estimate issued by Eurostat, the statistical office of the European Union. It was 0.9% in December 2009. The euro area (EA16) seasonally-adjusted unemployment rate was 10.0% in December 2009, compared with 9.9% in November. It was 8.2% in December 2008. The EU27 unemployment rate was 9.6% in December 2009, compared with 9.5% in November. It was 7.6% in December 2008. For the euro area this is the highest rate since August 1998 and for the EU27 since the start of the series in January 2000.
Eurostat estimates that 23.012 million men and women in the EU27, of whom 15.763 million were in the euro area, were unemployed in December 2009. Compared with November, the number of persons unemployed increased by 163 000 in the EU27 and by 87 000 in the euro area. Compared with December 2008, unemployment went up by 4.628 million in the EU27 and by 2.787 million in the euro area.

Economy of Asia

Japan`s economy grew at a much slower rate than previously thought in the third quarter, fresh data showed, as the country struggles to emerge from a crushing recession weighed by a soaring yen. The world`s number two economy expanded at an annualized rate of 1.3 percent in the July-September quarter, sharply down from the original estimate of 4.8 percent, the Cabinet Office said. It meant the economy -- which early this year emerged from its worst post-war recession -- expanded just 0.3 percent in the three months, compared with the initial estimate of 1.2 percent. The revision came as capital investment, the amount companies spend, was revised down to reveal a contraction of 2.8 percent from an original estimate of 1.6 percent growth, the Cabinet Office said.
Japan`s industrial output rose 2.2 percent in December, as manufacturers continued to benefit from a strong economic recovery in Asia. The rise in production in December was smaller than a 2.5 percent rise expected by economists, according to the median estimate in a Reuters survey. Manufacturers surveyed by the Ministry of Economy, Trade and Industry expect output to rise 1.3 percent in January and increase 0.3 percent in February, data showed.
Japan`s trade surplus stood at Y545.32 billion in December, improving sharply from a deficit a year earlier, as exports posted their first year-on-year rise in 15 months while imports continued falling, Ministry of Finance data Wednesday showed. Japan posted a trade surplus for the 11th consecutive month in December following a downwardly revised surplus of Y371.26 bin in November (preliminary +Y373.93 bln).
The surplus in December was the widest since +803.88 bln in October 2009, which was the largest since +Y1.096 trillion posted in March 2008. The December figure came in slightly lower than the consensus call of a surplus of Y588.4 bln and compared with a deficit of Y322.23 bln marked in December 2008. The latest data showed that Japanese exports rose 12.1% in December 2009 from a year earlier to Y5.41 trln, the first year-on-year rise in 15 months.
The December rise reversed from a 6.3% fall in November, -23.2% in October and the record 49.4% slump marked in February 2009. Shipments of semiconductors, motor vehicle parts and plastic materials showed double-digit percentage rises in December from a year earlier. Imports dipped 5.5% on the year to Y4.87 trln, down for the 14th straight month. But the December decline was smaller than the 16.8% drop in the previous month and the record 43.0% drop in February 2009.
For the whole of 2009, Japan`s trade surplus grew 36.1% from 2008 to Y2.81 trillion, showing the first rise in two years. But last year exports posted their first drop in two years, down 33.1%, and imports marked their first fall in seven years, down 34.9%.
Japanese consumer prices fell at a record pace in December, according to the latest official figures. Prices fell by 1.2% in the month, the biggest drop since the current consumer price index began in 1970. Japan`s finance minister has urged the Bank of Japan to move in step with the government to fight the problem of deflation. But the governor of the Bank of Japan, Masaaki Shirakawa, said his current strategy was appropriate for now. The price falls are measured by the so-called "core-core" consumer price index, which strips out the effect of volatile food and energy costs. Separately, data showed that the unemployment rate in Japan fell from 5.2% to 5.1%.
China`s economy grew by 8.7 percent in 2009, according to the National Bureau of Statistics. China`s fourth quarter growth alone surged to 10.7 percent on an annualized basis. China`s economy has been picking up pace the first three quarters of the year, growing at 6.2 percent the first quarter and 7.9 percent the second quarter and 9.1 percent in the third quarter. The gross domestic product total was $4.9 trillion in 2009. The annual growth was spurred by a $586 billion stimulus package to bolster its economy. The government had set a growth target rate of 8 percent last year, which the government sees as a benchmark to maintain employment rates in the nation of 1.3 billion.
Retail sales rose 16.9 percent in 2009, as China encourage domestic spending to make up for lost export business during the recession. But concerns are rising of a growing property bubble in China, fueled by lending which has seen property prices grow 50 percent or more in some cities. The numbers released on Jan 28th showed, foreign trade dropped 13.9 percent. China still holds a significant trade surplus -- $196 billion -- though the surplus slipped more than 34 percent. Monthly import-export numbers for December 2009, however, were up.

Economy of Russia

Russia`s gross domestic product declined 7.9% in 2009 compared with the projected figure of 8.5%, improving the Russian economy`s chances to exit the recession, the country`s top statistics body said on Feb 01th. "Russia`s GDP totaled an estimated 39.016 trillion rubles [$1.3 trillion] in current prices. Its volume declined 7.9% in real terms compared with 2008," the Federal Statistics Service (Rosstat) said. In 2008, Russia`s economy grew 5.6%.
The global financial and economic crisis forced Russia, which receives a large share of its revenue from oil exports, to gradually devalue the ruble amid capital flight and a fall in global oil prices, which declined from their peak of $147 per barrel in July 2008 to around $40 per barrel in early 2009.
Prices have sprouted back to above $70 per barrel since then. Russia`s Economic Development Ministry expects GDP to grow 3.1% in 2010, if global oil prices stay at $65 per barrel. This estimate almost matches the World Bank`s forecast of 3.2% GDP growth this year, although at an oil price estimate of $76 per barrel.
The Russian government expects the national economy to expand 3.4% in 2011 and 4.2% in 2012, if global oil prices stay at the level of $70 and $71 per barrel, respectively.

www.ereport.ru - 01.02.2010 22:43:12