World Economy Review

The World Bank cut its GDP growth forecast for the country in 2012 to 8.2 percent, and urged the government to adjust monetary policies, including easing liquidity, to propel growth. Analysts who made similar predictions said a soft landing of the country`s economy could be achieved, but suggested divergent measures to sustain stable growth.
Slow growth in the eurozone and a sluggish US recovery limited the country`s net exports, and tighter monetary policies aimed at containing inflation also dampened growth in its investment, the World Bank said in a report, cutting down its growth forecast from its previous prediction of 8.4 percent made in January.
"China`s near-term policy challenge is to sustain growth through a soft landing. Reserve requirements could be tweaked further to ease the availability of credit, and ongoing administrative efforts, which had been helpful in cooling the property market, would preferably be phased out," the report said.
Wang Jun, a deputy director of the Consulting Research Department at the China Center for International Economic Exchanges, a government think tank, told the Global Times that in the near term, domestic liquidity is sufficient following the recent reserve requirement ratio cut by the central bank. "Domestic credit demand is relatively weak so far, but releasing more liquidity in the future is necessary," Wang said.
The People`s Bank of China lowered the reserve requirement ratio by 50 basis points on May 18, the third cut since November 2011. After the cut, it was estimated that 500 billion yuan ($79 billion) would be released to pump up bank lending, which would be an important step to stimulate the economy.
Regarding the World Bank`s suggestion of easing restrictions on the property market, Wang cautioned that the cancellation of current administrative efforts could lead to a dramatic rebound in home prices.
There are few signs to show that home prices have seen an obvious decline. In April, 43 out of the 70 major cities tracked by the National Bureau of Statistics witnessed slight property-price drops, but 24 cities still remained unchanged.
Lu Zhengwei, chief economist with the Shanghai-based Industrial Bank, told the Global Times that a slight adjustment to property macro-controls is acceptable, but "a sudden brake may cause serious problems." "In the next 10 years, most East Asian countries, including China, need to prevent a rapid climb in property prices to avoid a bubble," Lu said.
Both analysts predicted China`s economic growth rate would be similar to the World Bank`s figure, mainly attributing it to sluggish exports. Lu said a further depreciation of the yuan would be a possible way to stimulate China`s exports. "The yuan is over-valued currently, which directly leads to a decline in exports," Lu said, citing proof that the imports to the US and Japan from other countries increased recently, but that imports from China had dropped.
Both the experts and the World Bank considered fiscal measures, including targeted tax cuts, social welfare spending and other social expenditures, are necessary to let the country`s economy enter a soft landing. China set its GDP growth target at 7.5 percent this year, down from the 8 percent goal in 2011. "The government lowering its growth target showed its resolution in shifting the focus from economic growth rate to development quality," Wang said. Meanwhile, Indian GDP growth slides to 5.3 per cent a clear sign that the country`s slowdown is deepening and affecting all sectors of the economy. Sharp falls in the manufacturing and agriculture sectors have led Asia`s third-largest economy to grow only 5.3 per cent year on year in the first three months of 2012, compared to 9.2 per cent growth a year earlier.
This is the worst performance of India`s economy in nine years and far worse than the situation in the wake of the global financial crisis and the collapse of Lehman Brothers in late 2008, adding pressure on policy makers to take emergency actions to revive the country`s growth. India`s economic difficulties are widely regarded as self-inflicted. Although Delhi often blames the eurozone sovereign debt crisis for India`s woes, domestic economists argue that greater faults lie with those running the world`s largest democracy.

Economy of the United States

US first-quarter 2012 annualized GDP growth was revised downward by 0.3 percentage points to 1.9% in the second estimate from 2.2% in the advance estimate. The downward revision matched market expectations. The second estimate of annualized US first-quarter 2012 GDP growth was below the 2.2% advance estimate and marked a slightly larger moderation in the pace of growth from the solid 3.0% gain in the fourth quarter of 2011.
The downward revision was more than accounted for by a smaller addition to growth from inventories that itself subtracted 0.4 percentage points relative to the advance estimate of overall GDP growth. Along with a larger drop in government spending (-3.9% in the second estimate compared to -3.0% in the first) and a modest downward revision to consumer spending growth to 2.7% from 2.9%, this more than offset an upwardly revised 1.9% gain in business investment that was notably stronger than the 2.1% decline reported in the first estimate. Residential investment growth remained solid at 19.3% in the second estimate, which was effectively unchanged from the 19.0% advance reading, while an upward revision to imports only modestly outpaced stronger exports to leave the contribution to growth from net trade at -0.1 percentage points, which was down marginally from the flat reading previously.
Industrial production in the U.S. climbed more than forecast in April, propelled by gains in auto manufacturing and utility use. Output at factories, mines and utilities increased 1.1 percent last month, the most since December 2010, after a 0.6 percent decline in March that was revised from no change, the Federal Reserve reported. Economists forecast a 0.6 percent gain, according to the Bloomberg News survey median. Manufacturing, which makes up about 75 percent of total production, rose 0.6 percent. Utility output climbed the most in two years.
Motor vehicles sales in the first quarter that were the strongest in four years have buoyed manufacturing, helping make up for a slowdown in corporate equipment purchases. While U.S. exports accelerated during the first three months of 2012, weaker economies in Europe and parts of Asia remain a hurdle for American factories.
Utility production climbed 4.5 percent last month, the biggest gain since May 2010, after a 0.7 percent gain in March. Mining output rose 1.6 percent following a 1.7 percent decline. The report also showed that capacity utilization, which measures what portion of a plant is producing, increased to 79.2 percent, the highest since April 2008, from 78.4 percent in March.
The U.S. trade deficit widened more than expected in March as imports surged to a record high, in another sign the government may have to scale back its estimate of first-quarter economic growth. The trade gap grew 14.1 percent to $51.8 billion, the biggest jump in nearly a year, even though exports also hit a record high, a Commerce Department report showed. Economists polled by Reuters had expected the trade gap to widen to about $50.0 billion.
The bigger-than-expected rise follows government data that showed wholesale inventories grew less than expected in March, leaving analysts to conclude the government would likely lower its first-quarter estimate of gross domestic product from the 2.2 percent rate it reported last month.
U.S. imports grew 5.2 percent in March, the biggest gain since January 2011, to $238.6 billion. Record highs were set in both goods and services, with imports of automotive products and capital goods also setting record highs. Meanwhile, U.S. exports had another good month, rising 2.9 percent to a record $186.8 billion. Exports of goods and two subcategories - industrial supplies and capital goods - also hit record highs in good news for the U.S. manufacturing sector.
The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in April on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported. Over the last 12 months, the all items index increased 2.3 percent before seasonal adjustment. The energy index, which had risen in each of the three previous months, declined in April on a seasonally adjusted basis and offset increases in the other major indexes. The gasoline index fell 2.6 percent in April and accounted for most of the decline in energy, though the indexes for natural gas and fuel oil decreased as well. The food index rose in April as five of the six major grocery store food group indexes increased.
The index for all items less food and energy rose 0.2 percent in April, the same increase as in March. Increases in the indexes for shelter, used cars and trucks, medical care, airline fares, new vehicles, and apparel all contributed significantly to the April increase. The 12-month change in the index for all items was 2.3 percent in April, the lowest figure since February 2011. The index for all items less food and energy also increased 2.3 percent over the last 12 months. This is the first time since October 2009 that the 12-month all items change has not exceeded the 12-month change for all items less food and energy. The food index has risen 3.1 percent over the last 12 months, and the energy index has risen 0.9 percent.
Nonfarm payroll employment changed little in May (+69,000), and the unemployment rate was essentially unchanged at 8.2 percent, the U.S. Bureau of Labor Statistics reported. Employment increased in health care, transportation and warehousing, and wholesale trade but declined in construction. Employment was little changed in most other major industries.
Among the major worker groups, the unemployment rates for adult men (7.8 percent) and Hispanics (11.0 percent) edged up in May, while the rates for adult women (7.4 percent), teenagers (24.6 percent), whites (7.4 percent), and blacks (13.6 percent) showed little or no change. The jobless rate for Asians was 5.2 percent in May (not seasonally adjusted), down from 7.0 percent a year earlier.

Economy of the European Union

GDP remained stable in both the euro area (EA17) and the EU27 during the first quarter of 2012, compared with the previous quarter, according to flash estimates published by Eurostat, the statistical office of the European Union. In the fourth quarter of 2011, growth rates were -0.3% in both zones. Compared with the same quarter of the previous year, seasonally adjusted GDP remained stable in the euro area and increased by 0.1% in the EU27 in the first quarter of 2012, after +0.7% and +0.8% respectively in the previous quarter. In March 2012 compared with February 2012, seasonally adjusted industrial production fell by 0.3% in the euro area (EA17) and by 0.4% in the EU27. In February production rose by 0.8% and 0.4% respectively. In March 2012 compared with March 2011, industrial production dropped by 2.2% in the euro area and by 1.9% in the EU27.
In March 2012 compared with February 2012, seasonally adjusted industrial production fell by 0.3% in the euro area (EA17) and by 0.4% in the EU27. In February production rose by 0.8% and 0.4% respectively. In March 2012 compared with March 2011, industrial production dropped by 2.2% in the euro area and by 1.9% in the EU27. These estimates are released by Eurostat, the statistical office of the European Union.
In March 2012 compared with February 2012, production of energy fell by 8.5% in the euro area and by 6.8% in the EU27. In both zones durable consumer goods decreased by 0.2%, while non-durable consumer goods rose by 0.8% and intermediate goods by 1.0%. Capital goods increased by 1.1% in the euro-area and by 0.9% in the EU27.
Among the Member States for which data are available, industrial production fell in eleven and rose in twelve. The largest decreases were registered in the Netherlands (-9.0%), Estonia (-3.4%), Denmark (-2.8%) and Ireland (-2.7%), and the highest increases in Slovakia (+3.5%), Slovenia (+3.4%) and Lithuania (+3.1%).
In March 2012 compared with March 2011, production of energy dropped by 7.3% in the euro area and by 6.3% in the EU27. Durable consumer goods fell by 6.7% and 5.5% respectively. Non-durable consumer goods decreased by 3.8% in the euro area and by 2.4% in the EU27. Intermediate goods declined by 3.0% and 2.3% respectively. Capital goods grew by 2.3% in the euro area and by 2.0% in the EU27.
Among the Member States for which data are available, industrial production fell in fifteen and rose in eight. The largest decreases were registered in Luxembourg (-11.3%), Greece (-8.5%), Spain (-7.5%), Estonia and Finland (both -6.1%) and Italy (-5.8%), and the highest increases in Slovakia (+12.1%), Latvia (+8.5%) and Lithuania (+5.9%).
The first estimate for the euro area (EA17) trade in goods balance with the rest of the world in March 2012 gave a 8.6 bn euro surplus, compared with +1.0 bn in March 2011. The February 2012 balance was +2.3 bn, compared with -2.9 bn in February 2011. In March 2012 compared with February 2012, seasonally adjusted exports fell by 0.9% and imports by 1.1%.
The first estimate for the March 2012 extra-EU27 trade balance was a 6.7 bn euro deficit, compared with -11.8 bn in March 2011. In February 20122 the balance was -12.0 bn, compared with -10.6 bn in February 2011. In March 2012 compared with February 2012, seasonally adjusted exports fell by 0.2% and imports by 0.9%.
Euro area annual inflation is expected to be 2.4% in May 2012 according to a flash estimate issued by Eurostat, the statistical office of the European Union. Euro area annual inflation was 2.6% in April 2012, down from 2.7% in March. A year earlier the rate was 2.8%. Monthly inflation was 0.5% in April 2012. EU annual inflation was 2.7% in April 2012, down from 2.9% in March. A year earlier the rate was 3.3%. Monthly inflation was 0.5% in April 2012.
The euro area (EA17) seasonally-adjusted unemployment rate was 11.0% in April 2012, stable compared with March. It was 9.9% in April 2011. The EU27 unemployment rate was 10.3% in April 2012, compared with 10.2% in March4. It was 9.5% in April 2011.
Eurostat estimates that 24.667 million men and women in the EU27, of whom 17.405 million were in the euro area, were unemployed in April 2012. Compared with March 2012, the number of persons unemployed increased by 102 000 in the EU27 and by 110 000 in the euro area. Compared with April 2011, unemployment rose by 1.932 million in the EU27 and by 1.797 million in the euro area.

Economy of Japan

Japan`s gross domestic product expanded 1.0 percent in the first quarter of 2012 compared to the previous three months, the Cabinet Office in a preliminary report - beating forecasts for a 0.9 percent gain following the upwardly revised flat reading in the fourth quarter of 2012. On a yearly basis, GDP was up 4.1 percent - also topping forecasts for a 3.5 percent increase following the upwardly revised 0.1 percent gain in Q4. GDP has risen annually now in three straight quarters. Nominal GDP was up 1.0 percent on quarter, matching forecasts following the upwardly revised 0.3 percent decline in the previous three months.
The deflator contracted 1.2 percent on year, beating forecasts for a fall of 1.5 percent following the upwardly revised 1.9 percent decline in Q4. The deflator also rose 0.02 percent on quarter, rising for the first time in 13 quarters.
Among the individual components, personal consumption contributed 0.7 percentage points to GDP after adding just 0.4 points in the prior three months. Capital investment jumped a quarterly 5.4 percent, rising for the first time in three quarters and adding 0.3 percentage points. Private sector inventories contributed 0.4 percentage points, while net exports added 0.1 percentage points. Limiting the upside, capex was down a quarterly 3.9 percent and 14.8 percent on year, cutting GDP by 0.5 percentage points. In addition, housing investment was down 1.6 percent on quarter and 6.1 percent on year.
Japan says its industrial production inched up 0.2 percent in April from March for a second monthly gain amid a fragile recovery in manufacturing following last year`s devastating earthquake and tsunami. The Ministry of Economy, Trade and Industry reported that output was lifted by higher production of cars, auto parts and chemicals. But the gain narrowed from the 1.3 percent increase in March amid declining production of electronic parts for cell phones and other communication equipment. Manufacturers surveyed by METI projected output would slide 3.2 percent in May but bounce back 2.4 percent in June.
According to the Ministry of Finance Japan report, the country acquired a trade balance of 520.27 billion yen in April, compared with 470.8 billion yen in the previous year. Exports increased 7.9 percent from a year earlier which was below the expected 11.8 increase economists had hoped for. Imports, on the other hand, saw a 8.0 percent increase to 6.087 trillion yen.
Japan`s consumer prices stuck to an inflationary path in April, with the Finance Ministry reporting that the core consumer price index rose 0.2% from a year earlier, identical to its gain for March. Separate Dow Jones Newswires and Reuters surveys had found expectations for the core CPI, which excludes volatile fresh-food prices, to rise 0.1%. On a monthly basis, core CPI was also 0.2% higher, led by a 2.1% rise in clothing and footwear. The overall CPI, meanwhile, rose 0.1% in April, for a 0.4% year-on-year gain.
Japan is seeking to end a long, sporadic spell of deflation, and Credit Suisse said earlier this month that it expects victory on this front next year, when it sees consumer inflation potentially averaging 1%. On a more downbeat note, however, core consumer prices fell 0.2% in metro Tokyo so far in May. The preliminary results for the Tokyo CPI are seen as a leading indicator of national price trends.
Japan`s unemployment rate unexpectedly rose in April to 4.6% from 4.5% in the previous month, the Statistics Bureau reported. The market expected the April rate to remain steady at 4.5%. "The jobs-to-applicants ratio rose to 0.79 in April from 0.76 in the previous month, marking the highest level since October 2008," with the median expectation for a rise to 0.77, Reuters reported. "The number of new job offers rose 3.6 percent in April from the previous month and jumped 14.2 percent from a year earlier.".

Economy of Russia

Russia`s economy grew last quarter at the fastest pace since the three months ended September 2011, suggesting the world`s biggest energy exporter is more resilient to Europe`s debt crisis than economists estimated. Gross domestic product expanded 4.9 percent from the same period last year after rising 4.8 percent in the fourth quarter, the Federal Statistics Service in Moscow said in an e-mailed statement. The median estimate in a Bloomberg survey of 14 economists was 4.1 percent. The Economy Ministry projected growth at 4 percent.
Russia`s economy grew at an average annual rate of 7 percent during Putin`s presidency from 2000 to 2008 before plunging 7.8 percent in 2009. The government reduced its projection for economic growth this year to 3.4 percent, from 3.7 percent, because investment will be weaker than initially estimated.
Russia`s economy may expand faster than the government estimates this year as the euro-region debt crisis proves to be “manageable” for the country, said central bank First Deputy Chairman Alexei Ulyukayev. Economic growth will probably be “closer to” 4 percent in 2012, faster than the official prediction for a 3.4 percent increase, Ulyukayev said at a conference in London today. Bank Rossii will hold inflation to its target range of between 5 percent and 6 percent this year, he said.
The economy of the world`s biggest energy exporter grew 4.9 percent in the first quarter from a year earlier, the fastest pace since the three months ended September 2011. President Vladimir Putin, who was inaugurated for his third term in the Kremlin on May 7, has said Russia`s growth must exceed the global pace of expansion over the next decade by gaining at least 6 percent annually to turn the economy into one of the world`s five largest by purchasing power by 2015.
Russia needs to undertake consolidation of public finance even as its fiscal position is relatively better compared with western European countries, Ulyukayev said. The country is likely to see net capital outflows this year, he said, adding that outflows have totaled about $42 billion so far in 2012. These are mainly caused by companies failing to convert export earnings into rubles, and instead investing them in short-term assets in foreign currency, he said.