World Economy Review

The International Monetary Fund cut its forecast for global economic growth and warned that the outlook could dim further if policymakers in the euro zone do not act with enough force and speed to quell their region`s debt crisis. In a mid-year health check of the world economy, the IMF said emerging market nations, long a global bright spot, were being dragged down by the economic turmoil in Europe. It said a drop in exports in these countries would combine with earlier policies meant to prevent overheating and slow growth more sharply than hoped. The IMF shaved its 2013 forecast for global growth to 3.9 percent from the 4.1 percent it projected in April, trimming projections for most advanced and emerging economies. It left its 2012 forecast unchanged at 3.5 percent. "Downside risks to this weaker global outlook continue to loom large," the IMF said. "The most immediate risk is still that delayed or insufficient policy action will further escalate the euro area crisis."
The global lender said advanced economies would grow only 1.4 percent this year and 1.9 percent in 2013. It also trimmed its forecast for emerging economies, projecting they will expand 5.9 percent in 2013 and 5.6 percent in 2012. Both figures are 0.1 of a percentage point lower than in April. The IMF cut its 2013 growth forecast for the crisis-hit euro zone to 0.7 percent, while maintaining its projection of a 0.3 percent contraction this year. It said it now believes Spain`s economy will shrink both this year and next. The IMF sharply revised down its growth projections for the United Kingdom to 0.2 percent this year and to 1.4 percent in 2013. In April, the fund said the UK economy would expand 0.8 percent in 2012 and 2.0 percent next year.
The IMF said the European Central Bank had room to ease policy further and said officials in emerging economies should stand ready to cope with a drop in trade and increased volatility in capital flows. The IMF cut its 2012 growth forecast for China to 8.0 percent from 8.2 percent, and said it now expects growth of 8.5 percent next year, down from 8.8 percent.
It revised its growth projections for India to 6.1 percent this year from 6.9 percent, and chopped its 2013 forecast to 6.5 percent from 7.3 percent. Meanwhile, Africa`s growth is still seen at a robust 5.4 percent this year and 5.3 percent in 2013, as the region remains relatively insulated from external financial shocks. The IMF said growth in the Middle East will be stronger this year as key oil-producing countries boost production and Libya`s economy rebounds from conflict in 2011, but it held its forecast for next year at 3.7 percent.

Economy of the United States

The United States economy slowed in the second quarter amid weak consumer spending, government cuts and a rise in imports from foreign countries. Gross domestic product, the broadest measure of the nation`s economic health, grew at an annual rate of 1.5% from April to June, the Commerce Department said. That`s down significantly from a 2% rate in the first three months of the year. The Commerce Department also released revisions going back to the start of 2009. While the revisions showed that growth in 2010 was weaker than previously thought, 2009 and 2011 were slightly stronger.
The second-quarter slowdown was not entirely surprising given consumer spending has been weak recently, the government has been cutting its spending and hiring has been tepid. Economists surveyed by CNNMoney were expecting to see 1.4% growth. The economy needs to grow around 3% a year to bring the unemployment rate down significantly, and since consumer spending accounts for roughly two-thirds of the economy, it too needs to grow around 3%. But spending slowed to 1.5%, down from 2.4% in the first quarter, showing that households are continuing to deleverage three years after the recession. Shoppers cut back on buying big-ticket items like automobiles, as well as smaller items like clothing and groceries. As usual, the U.S. also imported more goods and services from foreign countries than it exported, which subtracts from economic growth. Government cuts, especially at the state and local level, also weighed on growth. Spending by businesses remained a small strength. Businesses increased their purchases of equipment and software to a 7.2% annual rate.
U.S. industrial production rose in June as factories made more cars, machines and business equipment, the Federal Reserve said. Factory output recovered to levels reached earlier this spring but appears to be leveling off. Analysts say the U.S. manufacturing sector is struggling to mount a sustained recovery after three months of slow growth.
Factory output rose 0.7 percent last month, after falling by the same amount in May, the Fed said. Factories produced more machines and vehicles used by businesses. Production of consumer goods edged higher. Auto production rebounded after its first decline of the year. Overall industrial production, which includes mining and utilities, rose 0.4 percent in June. Mining activity increased 0.7 percent, while utility output fell 1.9 percent. June`s strong results follow a period of shaky growth for the factory sector, which is a crucial contributor to economic expansion. Factory output fell in two of the past four months.
U.S. industry was operating at 78.9 percent of its total capacity, the same level as April. It dipped to 78.7 percent in May. Factory output has increased 15.5 percent since its recession-era low, reached in June 2009. It remains 2.9 percent below its pre-recession peak, reached in June 2007.
The U.S. trade deficit narrowed in May from April, helped by cheaper oil that lowered imports and an increase in American exports to Europe and China. But economists cautioned that the global economy has weakened since then. And they noted that the decline in the deficit wasn`t enough to alter their growth forecasts for the April-June quarter.
The Commerce Department said that the trade deficit fell 3.8 percent to $48.7 billion in May, down from $50.6 billion in April. Exports rose 0.2 percent to $183.1 billion. The increase reflected stronger sales of telecommunications equipment and heavy machinery. Exports to the 27-nation European Union rose 2.6 percent in May from April. Imports dropped 0.7 percent to $231.8 billion. The amount the U.S. spent on imported oil fell to the lowest level in 15 months. A narrower trade gap acts as less of a drag on growth. It means the U.S. is spending less on foreign-made products, while taking in more from sales of American-made goods.
The cost of living in the U.S. was little changed in June, a sign inflation may stay subdued as Federal Reserve officials have predicted. No change in the consumer-price index followed a 0.3 percent drop in May, a Labor Department report showed. The measure matched the median forecast of economists in a Bloomberg News survey. The so-called core measure that excludes volatile food and fuel costs rose 0.2 percent for a fourth month.
The CPI was restrained by a third month of declines in energy prices. Airfares fell, used car prices were unchanged and the cost of shelter posted its smallest gain since September. The forecast for consumer prices was based on the median of 81 economists in a Bloomberg survey. Economists` estimates ranged from a gain of 0.2 percent to a decline of 0.6 percent.
Overall consumer prices increased 1.7 percent in the 12 months ended in June, matching the year-over-year gain in May. The core CPI climbed 2.2 percent from June 2011, in line with the median forecast and following a 2.3 percent gain in the 12 months to May. Energy costs decreased 1.4 percent from a month earlier, reflecting drops in gasoline, fuel oil and electricity. Food costs climbed 0.2 percent, driven by gains in meats, fruits and vegetables. The report showed prices of new vehicles rose 0.2 percent for a second month, while the cost of used cars was unchanged.

Economy of the European Union

In May 2012 compared with April 2012, seasonally adjusted industrial production grew by 0.6% in the euro area (EA17) and by 0.5% in the EU272. In April3 production decreased by 1.1% and 0.7% respectively. In May 2012 compared with May 2011, industrial production dropped by 2.8% in the euro area and by 2.3% in the EU27. These estimates are released by Eurostat, the statistical office of the European Union.
In May 2012 compared with April 2012, production of non-durable consumer goods increased by 1.7% in the euro area and by 2.2% in the EU27. Capital goods rose by 0.9% in both zones. Durable consumer goods grew by 0.5% in the euro area and by 0.8% in the EU27. Intermediate goods gained 0.3% in both zones. Production of energy dropped by 2.3% in the euro area and by 1.7% in the EU27. Among the Member States for which data are available, industrial production rose in thirteen and fell in eight. The highest increases were registered in Portugal (+4.1%), Sweden (+2.0%), Latvia (+1.9%) and Germany (+1.5%), and the largest decreases in Lithuania (-16.3%), Slovenia (-3.2%), France (-2.1%) and the Netherlands (-1.6%).
In May 2012 compared with May 2011, production of durable consumer goods dropped by 6.4% in the euro area and by 4.4% in the EU27. Intermediate goods fell by 3.9% and 3.3% respectively. Non-durable consumer goods decreased by 2.1% in the euro area and by 1.3% in the EU27. Capital goods declined by 1.9% and 1.4% respectively. Production of energy dropped by 1.6% in the euro area and by 2.5% in the EU27. Among the Member States for which data are available, industrial production fell in fifteen, rose in five and remained stable in the Czech Republic. The largest decreases were registered in Lithuania (-14.8%), Denmark (-9.2%), Italy (-6.9%), Portugal (-6.7%) and Spain (-6.1%), and the highest increases in Latvia (+6.0%) and Ireland (+4.4%).
The first estimate for the euro area (EA17) trade in goods balance with the rest of the world in May 2012 gave a 6.9 bn euro surplus, compared with -1.2 bn in May 2011. The April 20122 balance was +3.7 bn, compared with -4.5 bn in April 2011. In May 2012 compared with April 2012, seasonally adjusted exports rose by 0.3% while imports fell by 0.9%.
The first estimate for the May 2012 extra-EU27 trade in goods balance was a 3.8 bn euro deficit, compared with -14.5 bn in May 2011. In April 2012 the balance was -12.6 bn, compared with -17.1 bn in April 2011. In May 2012 compared with April 2012, seasonally adjusted exports rose by 1.7% while imports fell by 1.7%.
Euro area annual inflation is expected to be 2.4% in July 2012 according to a flash estimate issued by Eurostat, the statistical office of the European Union. Euro area annual inflation was 2.4% in June 2012, unchanged compared with May. A year earlier the rate was 2.7%. Monthly inflation was -0.1% in June 2012. EU annual inflation was 2.6% in June 2012, up from 2.5% in May. A year earlier the rate was 3.1%. Monthly inflation was 0.0% in June 2012.
The euro area (EA17) seasonally-adjusted unemployment rate was 11.2% in June 2012, stable compared with May4. It was 10.0% in June 2011. The EU27 unemployment rate was 10.4% in June 2012, also stable compared with May4. It was 9.5% in June 2011. Eurostat estimates that 25.112 million men and women in the EU27, of whom 17.801 million were in the euro area, were unemployed in June 2012. Compared with May 2012, the number of persons unemployed increased by 127 000 in the EU27 and by 123 000 in the euro area. Compared with June 2011, unemployment rose by 2.165 million in the EU27 and by 2.024 million in the euro area.

Economy of Japan

Industrial production in Japan unexpectedly fell for the third straight month, prompting renewed fears the economy is losing steam. Factory output dipped 0.1% in June, compared to the previous month. It follows a 3.4% decline in May. The data indicates weak overseas demand for Japanese products. The fall was mainly due to decreased output in the machinery, iron and steel sectors, data showed.
The cross was practically skeptical to June trade surplus in the Japanese economy. Exports have contracted 2.3% and imports have followed suit, -2.2%, posting a Ґ61.7 billion surplus, above expectations and far bettering the previous deficit.
According to Nomura researchers, “…we expect Japan to continue its trade deficit in the near future, but lower oil prices should lead to a milder deficit, strengthening our conviction that a current account deficit is unlikely anytime soon…”. The experts also believe that trade deficit flows should point to higher USD/JPY, however they wouldn`t justify selling pressure on JPY on such estimates.
The nation`s core consumer price index fell 0.2 percent in June from a year before, down for the second straight month, due chiefly to falls in gasoline prices, the Internal Affairs and Communications Ministry said. The drop, larger than the 0.1 percent in the previous month, comes as gas prices declined for the first time in more than 2! years due to lower crude oil prices. The median forecast among 25 economic research institutes polled by Jiji called for no change in the core CPI.
The core CPI, which excludes fresh food prices, remained at 99.6 against 100 for the base year of 2010. Compared with May, the index was down 0.3 percent. In June, prices of home appliances also fell. Prices of television sets dropped after the year-before increase that reflected a spike in demand before the shift to digital terrestrial broadcasting. The overall CPI, including fresh food prices, fell 0.2 percent from a year before to 99.6. After food and energy prices are excluded, the CPI was down 0.6 percent.
Japan`s unemployment rate fell slightly in June, declining for the second straight month, but overall the economy continues to struggle after last year`s disaster and as demand from debt-laden Europe weakens. The Ministry of Internal Affairs and Communications said that the jobless rate in June fell 0.1 percentage point from 4.4 percent in May. Japan`s population continued to decrease but the number of unemployed fell at a greater rate than those with jobs.

Economy of China

China`s economy expanded 7.6 percent year-on-year in the second quarter of 2012, slowing from 8.1 percent in the first quarter, the National Bureau of Statistics said. The figure, which marked the sixth consecutive quarter of decline, revealed the slowest growth pace since the first quarter of 2009 and was within market expectation of below 8 percent. On a quarterly basis, the country`s economy grew 1.8 percent in the second quarter, NBS spokesman Sheng Laiyun said at a press conference. According to preliminary statistics, the country`s GDP grew 7.8 percent year-on-year to reach 22.71 trillion yuan ($3.6 trillion) during the first half, Sheng said. Although the economic growth rate continued to slow in the second quarter, it was "rather good" compared with developed nations and other emerging economies, Sheng noted.
Retail sales increased 14.4 percent from one year earlier in the first half, slower than the 14.8-percent growth registered in the first quarter. Fixed-asset investment, one of the principal drivers of China`s economy, grew 20.4 percent year-on-year to 15.07 trillion yuan. The growth rate moderated by 0.5 percentage point compared to that in the first quarter, and was down 5.2 percentage points from the same period last year. Official data showed that investment in the property sector, which directly accounts for about 13 percent of gross domestic product, rose 16.6 percent year-on-year in the first half, down from 32.9 percent last year. The country`s inflation eased to a 29-month low of 2.2 percent in June, leaving the government ample room to introduce more pro-growth measures to boost the slowing economy.
Given the sluggish external market and global economic woes, China lowered its full-year growth target for 2012 to 7.5 percent in early March, after its economy grew 9.2 percent in 2011 from the previous year.

Economy of Russia

Russia`s gross domestic product grew by up to 4% in the second quarter, showing resilience amid a drop in oil prices, slowing growth in China and an ongoing sovereign-debt crisis in Europe. The upbeat data come on the heels of better-than-expected results for the first quarter, when the economy grew by 4.9%. It also comes amid serious setbacks for some of Russia`s peers in the so-called BRIC group of countries: China`s economy grew at its slowest pace in three years in the second quarter, Brazil cut its key interest rate to an all-time low to fire up its sluggish growth, while on the same day India`s 2012 economic growth forecast was cut by the Asian Development Bank to 6.5% from 7%. Russia`s growth, by comparison, has been slower, but steady.
Russia`s economy may expand at a faster pace than expected this year, after growth in the first half topped the government`s forecast, the country`s economic development minister Andrei Belousov said. "There are a number of signs that the economy is really growing somewhat faster than we had planned -- the rapid growth of investment and decent figures for the manufacturing industry," Mr. Belousov said. Preliminary data show that gross domestic product increased 3.9% in the second quarter, and 4.4% overall in the first half. Growth slowed somewhat in the second quarter from the 4.9% pace seen in the first. Still, growth over the first six months is above the Moscow`s forecast of 3.4% in all of 2012. "By year end, we expect slightly better growth than predicted, but I don`t want to give an exact estimate at the moment," he added. In June, Mr. Belousov said growth may reach 3.7% or 4% for the year. Mr. Belousov also said that figures released by the Russian Federal Statistics Service that showed industrial production stagnated in June, were simply a seasonal anomaly.