World Economy Review

Global rating agency Fitch has revised the GDP forecast and lowered it for a number of countries and regions, stressing that it was a more moderate pace of growth rather than a sharp slowdown in a report, entitled Global Economic Outlook (GEO).
Global economic recovery continues, experts from Fitch Ratings reported. According to them, the current weakening of global economic growth is related to temporary factors, including the negative impact of high oil prices and the consequences of an earthquake in Japan that took place in March. Emerging economies remain to be the engine of global growth. However, outlook downgrade was common for them, as well as a result of tighter monetary policy within the context of high inflation. Despite the fact that the debt crisis in the Eurozone remains the most discussed topic, the region`s economic growth rates in the first quarter of 2011 surpassed Fitch`s expectations. Germany`s economic rebound was one of the key factors in this respect.
Fitch has revised only a notch downwards its global growth forecast to 3.1 percent in 2011, from 3.2 percent in its previous global economic outlook report. The latest report also projects that global economic output will rise to 3.4 percent in 2012 and 2013 (up from 3 percent projected earlier) as it expects the major advanced economies to grow by 2.3 percent for 2012 and 2013.
Fitch has said that current soft patch in global economic growth is temporary and the recovery is on track, though at an uneven pace, even as it has revised growth forecast for the BRIC economies downward to 6.9 from 7.1 percent for 2011.
Stating that the current weak trends are primarily a fallout of higher oil prices and the Japanese disaster of March 11, Fitch Ratings , in its latest global economic outlook, says the emerging- market dynamism is still the main driver of the global recovery, though the overall growth numbers will see a minor dip.
"The emerging market dynamism is still the main driver of the global recovery. However, evidence of deceleration from 2010 is emerging as monetary policy tightening takes hold in the context of rising inflation," says the report.
Fitch`s sovereign team director Maria Malas-Mroueh says, "The fragility of the global recovery is highlighted by the weak Q1 numbers in several major economies, slowing global production indicators, and concerns about the impact of monetary policy tightening in key emerging markets. "This growth moderation, combined with increased inflationary pressures, raises a policy dilemma for the central banks, particularly in the major advanced economies," she adds.

Economy of the United States

US real gross domestic product (GDP) increased at an annual rate of 1.9 percent in the first quarter of 2011, official data showed. The Department of Commerce indicated that in the fourth quarter of 2010, real GDP increased 3.1 percent. The GDP estimate released today is based on more complete source data than were available for the “second” estimate issued last month. In the second estimate, the increase in real GDP was 1.8 percent.
The increase in real GDP in the first quarter primarily reflected “positive contributions” from personal consumption expenditures (PCE), private inventory investment, exports, and non-residential fixed investment that were partly offset by “negative contributions” from federal government spending and state and local government spending, the Department showed. It added that imports, which are a subtraction in the calculation of GDP, also increased.
According to the data, the price index for gross domestic purchases, which measures prices paid by US residents, increased 3.9 percent in the first quarter, compared to an increase of 2.1 percent in the fourth quarter of last year.
Excluding food and energy prices, the price index for gross domestic purchases increased 2.3 percent in the first quarter, compared with an increase of 1.1 percent in the fourth quarter of 2010. Also, real personal consumption expenditures increased 2.2 percent in the first quarter, compared with an increase of 4.0 percent in the fourth quarter.
With increases in manufacturing and mining output largely offset by a sharp drop in utilities output, the Federal Reserve released a report showing only a modest increase in U.S. industrial production in the month of May. The report showed that industrial production edged up by 0.1 percent in May after coming in unchanged in April. Economists had been expecting slightly stronger growth of about 0.2 percent.
The increase in production in May was held back by a 2.8 percent drop in utilities output, which rose by 2.4 percent in April. The steep drop in utilities output came as unseasonably cool weather led to reduced air conditioner use. At the same time, manufacturing output rose by 0.4 percent in May after falling by 0.5 percent in the previous month. Excluding the production of motor vehicles and parts, manufacturing output rose by a slightly stronger 0.6 percent.
The report also showed that mining output increased for the third straight month, rising by 0.5 percent in May following a 0.8 percent increase in April. Additionally, the Fed said that capacity utilization came in at 76.7 percent in May, unchanged from the revised reading for the previous month. The capacity utilization rate had been expected to rise to 77.0 percent from the 76.9 percent originally reported for April.
Capacity utilization in the manufacturing and mining sectors rose to 74.5 percent and 88.6 percent, respectively, while capacity utilization in the utilities industry fell to 79.0 percent. Fewer oil imports and strong demand for American goods and services drove the U.S. trade deficit down nearly 7 percent in April, providing a break from a recent string of economic news that had called into question the pace of the nation`s fragile economic recovery.
The $43.7 billion shortfall is down from $46.8 billion in March, according to figures released by the Department of Commerce. Imports stood at $219.2 billion while exports totalled $175.6 billion, according to the data. Many economists had forecast the deficit to widen, with one consensus forecast pinning the April deficit at $48.8 billion.
Exports have grown nearly 18 percent since Obama launched the program in March 2010. But weaker imports also helped narrow the trade deficit. Crude oil imports tumbled 8.6 percent from March to April, and automobile import dropped 2.9 percent. Economists blamed the latter on the March earthquake in Japan, which disrupted auto manufacturing and other industries.
Consumer Price Index rose 0.2% in May, the Labor Department said. That`s down from April`s 0.4% increase. Food costs rose 0.4%. But energy costs fell 1%. So-called "core" prices, which exclude volatile food and energy, rose 0.3%, the most in nearly three years.
Consumer prices rose 3.6% from April 2010 through May 2011, the biggest one-year gain since October 2008. Excluding the volatile food and energy categories, which account for about 20% of the index, so-called "core" prices rose only 1.5% in that same period. That`s below the Federal Reserve`s informal inflation target of about 2%.
The unemployment rate in the United States increased to 9.2 percent in June, the highest level this year. The report from the Labor Department showed that American employers added only 18,000 jobs in June, the smallest increase in nine months and another indication that the U.S. economy is still struggling to recover from a deep recession.
The June unemployment rate was one-tenth of a percentage point higher than the previous month and the highest since December of 2010.

Economy of Eurozone

GDP increased by 0.8% in both the euro area (EA17) and the EU27 during the first quarter of 2011, compared with the previous quarter, according to second estimates released by Eurostat, the statistical office of the European Union. In the fourth quarter of 2010, growth rates were +0.3% in the euro area and +0.2% in the EU27. Compared with the first quarter of 2010, seasonally adjusted GDP increased by 2.5 % in both the euro area and the EU27, after +1.9% and +2.1% respectively in the previous quarter.
In April 2011 compared with March 2011, seasonally adjusted industrial production grew by 0.2% in the euro area (EA17) and by 0.1% in the EU27. In March production remained stable in the euro area and fell by 0.2% in the EU27. In April 2011 compared with April 2010, industrial production increased by 5.2% in the euro area and by 4.7% in the EU27.
The first estimate for the euro area (EA17) trade balance with the rest of the world in April 2011 gave a 4.1 bn euro deficit, compared with -0.7 bn in April 2010. The March 2011 balance was +1.6 bn, compared with +2.7 bn in March 2010. In April 2011 compared with March 2011, seasonally adjusted exports rose by 0.6% and imports by 1.1%. The first estimate for the April 2011 extra-EU27 trade balance was a 15.9 bn euro deficit, compared with -12.0 bn in April 2010. In March 2011 the balance was -10.6 bn, compared with -8.9 bn in March 2010. In April 2011 compared with March 2011, seasonally adjusted exports fell by 0.8% and imports by 0.1%.
Euro area annual inflation is expected to be 2.7% in June 2011 according to a flash estimate issued by Eurostat, the statistical office of the European Union. Euro area annual inflation was 2.7% in May 2011, down from 2.8% in April. A year earlier the rate was 1.7%. Monthly inflation was 0.0% in May 2011. EU3 annual inflation was 3.2% in May 2011, down from 3.3% in April. A year earlier the rate was 2.1%. Monthly inflation was 0.1% in May 2011.
The euro area (EA17) seasonally-adjusted unemployment rate was 9.9% in May 2011, unchanged compared with April. It was 10.2% in May 2010. The EU27 unemployment rate was 9.3% in May 2011, unchanged compared with April. It was 9.7% in May 2010. Eurostat estimates that 22.378 million men and women in the EU27, of whom 15.510 million were in the euro area, were unemployed in May 2011. Compared with April 2011, the number of persons unemployed fell by 5 000 in the EU27 and increased by 16 000 in the euro area. Compared with May 2010, unemployment decreased by 904 000 in the EU27 and by 551 000 in the euro area.

Economy of Japan

Japan`s gross domestic product contracted a revised 3.5 percent annualized in the first quarter of 2011, the Cabinet Office said - missing forecasts for a decline of 3.0 percent following last month`s preliminary reading for a 3.7 percent fall. On a quarterly basis, GDP was unchanged at -0.9 percent - missing forecasts for a decline of 0.8 percent.
As a result, the country remains in a technical recession, largely the result of the devastating 9.0 magnitude earthquake and tsunami on March 11. The fourth quarter of 2010 saw a downwardly revised fall of 0.8 percent. The GDP deflator was unchanged at -1.9 percent on quarter, while nominal GDP also was steady at -1.3 percent.
Capex was revised downward to -1.3 percent on quarter from the original reading of -0.9 percent - remaining lower for the first time in six quarters. Its contribution to GDP was revised down to -0.2 percentage point from -0.1 point.
Exports were steady at 0.7 percent on quarter compared to -0.8 percent in the fourth quarter of 2010. Imports were downwardly revised from 2.0 percent on quarter to 1.9 percent following the -0.3 percent reading in the previous three months.
Private consumption was down 0.6 percent, unrevised from the initial figure after declining 1.0 percent in Q4 of 2010. Its negative contribution to Q1 GDP was an unrevised -0.3 percentage point.
For the fiscal year ended March 2011, real GDP was up 2.3 percent on year, while nominal GDP added 0.4 percent and the GDP deflator was down 1.9 percent on year - all unchanged from the preliminary reading.
Japan`s industrial output increased for a second straight month in May, as supply-side constraints eased and manufacturers restored production facilities that were damaged by the March earthquake and tsunami. Data from the Ministry of Economy Trade and Industry (METI) showed that industrial production grew 5.7 percent month-on-month in May, stronger than the 1.6 percent growth in April. The outcome was better than the economists` estimate of 5.5 percent growth.
METI said industrial production is on a recovery path after the earthquake and it expects production to increase 5.3 percent in June and 0.5 percent in July. According to reports, the latest gain in production was the second largest on record.
According to the Ministry, higher output of automobiles, transport equipment and chemicals led the gains in May. Compared to a year earlier, production fell 5.9 percent, a decline less steeper than the 6.3 percent expected. Shipments increased 5.3 percent month-on-month in May, recording an increase for the first time in three months. Inventory rose for the second consecutive month, rising 5.1 percent in May.
Japan`s exports fell 10.3 percent in May from a year earlier, with the pace of decline slowing, Ministry of Finance data showed, as companies mend supply chains and resume factory output after the March earthquake and tsunami, but the trade balance logged a deficit for the second straight month due to a jump in imports. The fall in exports compared with a median forecast for an 8.4 percent decline and followed a revised 12.4 percent drop in April, when Japan marked the first trade deficit for the month of April in 31 years.
Imports rose 12.3 percent in the year to May, more than the median forecast for an 11.6 percent rise and an 8.9 percent climb in April, due to higher energy prices and supply shortages in Japan triggered by the March disaster. The trade balance came to a deficit of 853.7 billion yen ($10.7 billion).
Economists project Japan will remain in a trade deficit in coming months as imports of fuel are set to grow to make up for nuclear power losses and for reconstruction of the quake-hit northeast even as exports recover.
Japan`s core consumer price index (CPI) rose 0.6 percent in May from a year earlier, marking the second straight month of increase, due partly to rising energy and commodity costs, the Ministry of Internal Affairs and Communications said.
The CPI reading, which excludes volatile fresh food prices, beat median economists` forecasts for a 0.5 percent rise in the recording period and followed a rise in April that marked the first gain in more than two years.
Japan`s unemployment rate dropped 0.2 percentage point in May from the previous month to 4.5 percent, the Ministry of Internal Affairs and Communications said. Analysts noted that as the decline in unemployment does not factor in the areas worst affected by the March 11 earthquake and tsunami, the figure cannot necessarily be taken as a true indication of the nation`s employment and economic situation. However, the ratio of job offers to job seekers remained the same in May from a month earlier at 0.61 - meaning 61 jobs were available for every 100 people seeking work.

Economy of Russia

Russia`s Gross Domestic Product rose 3.9 percent in January-May on annualized basis compared to year-on-year 4.3 percent growth, the Economic Development Ministry said.
In May, Russia`s economy grew 3.8 percent on annualized basis and 0.4 percent month-on-month due to positive dynamics in industrial production, building and retail trade, the ministry said in a monitoring.
The ministry also said that capital investments returned to growth in April and May, increasing 5.3 percent and 4.3 percent, respectively, after a fall in the first quarter of 2011. In May, investment was up 7.4 percent year-on-year, the ministry said.
The Russian Statistical Service has said capital investments increased in May 7.4 percent on annualized basis and 25.8% month-on-month. Capital investments rose 2.0 percent in the first five months of the year, the service said.
The ministry cut its investment growth forecast for 2011 to 6 percent from 9 percent.