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World Economy Review - December 2012

Fitch Ratings says that the contraction of the eurozone and Japanese economy as well as weaker than expected growth in large emerging countries such as Brazil and India in Q312 highlight the underlying weakness and downside risks facing the global economy. In its latest quarterly Global Economic Outlook (GEO) Fitch forecasts global growth of 2.0% in 2012, 2.4% in 2013 and 2.9% in 2014 (based on market exchange rates), down from 2.1%, 2.6% and 3.0% respectively in the previous GEO.
The agency forecasts growth of just 0.9% for major advanced economies (MAE) in2012, followed by only a modest and gradual acceleration to 1.2% in 2013 and 1.9% in 2014. "Global growth outturns are continuing to undershoot expectations and risk remain skewed to the downside. Although forceful ECB intervention has eased tail risks in the eurozone, it has so far failed to arrest economic stagnation, the looming `fiscal cliff` could tip the US economy into recession, and China faces a challenging transition towards a more balanced growth model," says Gergely Kiss, Director in Fitch`s Sovereign team.
The growth of the US economy accelerated in Q312, but the near-term outlook is complicated by the effect of Hurricane Sandy and the looming `fiscal cliff`. Fitch`s baseline assumption is that the `fiscal cliff` will be avoided, but a fiscal tightening of 1.5% of GDP will materialize. Fitch has maintained its 2013 and 2014 US GDP growth forecasts at 2.3% and 2.8%, respectively, as balance sheet adjustment is progressing in the private sector and accommodative financial conditions can counterbalance current headwinds.
The eurozone entered a recession in Q312, which will likely deepen in the coming quarters. Fitch forecasts GDP to contract by 0.5% in 2012, stagnation (-0.1%) in 2013 before a modest recovery of 1.2% growth in 2014. With economic and financial rebalancing proving longer and harder than anticipated the agency lowered its 2013-14 forecast compared to September`s GEO by 0.4% and 0.2% respectively. Private sector confidence remains weak, unemployment in the region as a whole is already at record high and heading towards 12%, while financing conditions are persistently tight in the periphery and core countries` growth momentum is slowing.
Emerging markets face growing challenges. The combination of weak import demand of MAEs and domestic vulnerabilities has led to a soft patch in Brazil and India this year. In China, Fitch`s base case is that a modest monetary and public-investment stimulus will raise growth in Q412 and support output expansion of about 8% in 2013 and 7.5% in 2014, though risks surrounding the medium-term transition towards a more balanced growth model are substantial.
In this edition of the GEO Fitch has analyzed the global repercussions of a hypothetical hard landing of the Chinese economy in which GDP growth slows to 5% in 2013 and 6.5% in 2014. As China`s role in the global economy has grown rapidly over the past decade, such a shock would slow global growth significantly, to 1.7% and 2.1% in 2013 and 2014, respectively. The largest hit would be in South-East Asia owing to close trade links, while commodity exporters would also suffer from a steep fall in oil and other commodity prices. MAEs would face a more persistent impact from the shock as their domestic policies are heavily constrained in responding to any adverse exogenous shocks. Fitch emphasizes a hard landing is a scenario and not its base case for China`s economy.
Ultra-loose monetary conditions are set to endure in MAEs. Fitch expects major central banks to maintain record low interest rates throughout 2013 and, in line with the Fed`s guidance, beyond 2014 in the US. The ECB`s possible rate cut and lagged effects of previous non-standard measures are unlikely to offset negative economic trends sufficiently to improve the near-term growth outlook.

Economy of the United States

U.S. economy expanded at an even faster pace than previously estimated in the third quarter, but the gains could be an outlier for the year as fiscal cliff worries and superstorm Sandy will likely slow growth in the final months of 2012. The nation`s gross domestic product--the broadest measure of goods and services produced in the U.S.--expanded at an annual rate of 3.1% from July through September, the Commerce Department said. The figure was revised up from last month`s estimate of 2.7% growth. Economists surveyed by Dow Jones Newswires had forecast a 2.8% growth rate.
Consumer spending is now showing a modest pick up and imports a downturn. New data shows consumer spending advanced at a 1.6% rate during the quarter compared with the prior estimate of 1.4%, largely due increased healthcare outlays. Likewise, imports, which subtract from GDP gains, are now seen as falling 0.6% during the third quarter, compared with last month`s 0.1% gain. Lower oil prices contributed to the change. The latest data show that economic growth accelerated from the second quarter`s 1.3% rate. Still, the biggest boost to third-quarter expansion came from factors that may be short-lived--significant upturns in private inventory investment and federal government spending. The change in private inventories contributed 0.73 of a percentage point to growth, but the boost could be an impediment in the fourth quarter because excess stockpiles may cause businesses to slow production. Real final sales--GDP less changes in private inventories--increased a more modest 2.4% in the third quarter. Federal government spending, which jumped 9.5% in the third quarter after contracting each of the prior four periods, is unlikely to continue to grow at that pace as Washington prepares for deep spending cuts next year.
Industrial production in the U.S. increased by much more than anticipated in the month of November, according to a report released by the Federal Reserve, with the increase reflecting a recovery in production for industries that were negatively affected by Hurricane Sandy.
The report said industrial production surged up by 1.1 percent in November after falling by a downwardly revised 0.7 percent in October. Economists had expected production to increase by 0.3 percent compared to the 0.4 percent drop originally reported for the previous month.
The bigger than expected increase in production was partly due to a notable rebound by manufacturing output, which jumped 1.1 percent in November after tumbling 1.0 percent in October. Along with the storm-related rebound, the Fed said the manufacturing sector benefited from a sizable rise in the production of motor vehicles and parts. Utilities output also rose by 1.0 percent in November after coming in unchanged in October, while mining output climbed 0.8 percent after edging up by 0.3 percent in the previous month.
Additionally, the report showed that the rate of capacity utilization climbed to 78.4 percent in November from a revised 77.7 percent in October. The capacity utilization rate had been expected to inch up to 78.0 percent in November from 77.8 percent originally reported for the previous month. Capacity utilization in the manufacturing sector rose to 76.6 percent from 75.9 percent, while capacity utilization in the utilities and mining sectors climbed to 75.3 percent and 91.1 percent, respectively.
The U.S. trade deficit increased 4.9% in October to $42.2 billion, as imports of crude oil rose and American exports of manufactured goods fell to the lowest level in nearly a year. Imports of foreign goods into the U.S. declined by 2.1% to $222.8 billion in October, but exports fell by 3.6% to $180.5 billion to account for the wider trade gap, the Commerce Department reported. Economists surveyed by MarketWatch forecast the trade deficit to increase to a seasonally adjusted $42.5 billion in October. The deficit in September was revised down to $40.3 billion from $41.5 billion.
The Consumer Price Index for All Urban Consumers (CPI-U) declined 0.3 percent in November on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported. Over the last 12 months, the all items index increased 1.8 percent before seasonal adjustment.
The gasoline index fell 7.4 percent in November; this decrease more than offset increases in other indexes, resulting in the decline in the seasonally adjusted all items index. The energy index fell 4.1 percent in November despite increases in the indexes for natural gas and electricity. The food index rose 0.2 percent with the food at home index increasing 0.3 percent, the same increases as in October. The index for all items less food and energy increased 0.1 percent in November after a 0.2 percent increase in October. The indexes for shelter, household furnishings and operations, airline fares, recreation, new vehicles, and medical care all increased in November, while the indexes for apparel and used cars and trucks declined.
The all items index increased 1.8 percent over the last 12 months, a decline from the 2.2 percent figure in October. The index for all items less food and energy rose 1.9 percent over the last 12 months, slightly lower than the October figure of 2.0 percent. The food index has risen 1.8 percent over the last 12 months, and the energy index has risen 0.3 percent.
The unemployment rate edged down to 7.7 percent in November. The number of unemployed persons, at 12.0 million, changed little. Among the major worker groups, the unemployment rates for adult men (7.2 percent), adult women (7.0 percent), teenagers (23.5 percent), whites (6.8 percent), and Hispanics (10.0 percent) showed little or no change in November. The unemployment rate for blacks (13.2 percent) declined over the month. The jobless rate for Asians was 6.4 percent (not seasonally adjusted), little changed from a year earlier.
The number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 4.8 million in November. These individuals accounted for 40.1 percent of the unemployed. The civilian labor force participation rate declined by 0.2 percentage point to 63.6 percent in November, offsetting an increase of the same amount in October. Total employment was about unchanged in November, following a combined increase of 1.3 million over the prior 2 months. The employment-population ratio, at 58.7 percent, changed little in November.

Economy of the European Union

GDP fell by 0.1% in the euro area (EA17) and increased by 0.1% in the EU27 during the third quarter of 2012, compared with the previous quarter, according to second estimates published by Eurostat, the statistical office of the European Union. In the second quarter of 2012, growth rates were -0.2% in both zones. Compared with the same quarter of the previous year, seasonally adjusted GDP fell by 0.6% in the euro area and by 0.4% in the EU27 in the third quarter of 2012, after -0.5% and -0.3% respectively in the previous quarter.
During the third quarter of 2012, household final consumption expenditure remained stable in the euro area and increased by 0.1% in the EU27 (after -0.4% and -0.3% respectively in the previous quarter). Gross fixed capital formation fell by 0.7% in the euro area and by 0.6% in the EU27 (after -1.8% and -1.7%). Exports rose by 0.9% in both zones (after +1.6% and +1.2%), while imports increased by 0.2% in the euro area and by 0.1% in the EU27 (after +0.6% and +0.7%).
In October 2012 compared with September 2012, seasonally adjusted industrial production fell by 1.4% in the euro area (EA17) and by 1.0% in the EU27, according to estimates released by Eurostat, the statistical office of the European Union. In September production decreased by 2.3% and 2.1% respectively. In October 2012 compared with October 2011, industrial production dropped by 3.6% in the euro area and by 3.1% in the EU27.
In October 2012 compared with September 2012, production of durable consumer goods fell by 3.8% in the euro area and by 1.5% in the EU27. Capital goods decreased by 3.0% and 2.3% respectively. Production of energy declined by 1.5% in the euro area and by 1.0% in the EU27. Intermediate goods dropped by 1.2% and 1.0% respectively, while non-durable consumer goods rose by 1.2% in the euro area and by 0.6% in the EU27.
Among the Member States for which data are available, industrial production fell in fourteen, rose in eight and remained stable in Romania. The largest decreases were registered in Estonia (-5.3%), the Netherlands (-4.7%), Slovakia (-3.9%) and Germany (-2.4%), and the highest increases in Portugal (+4.8%), Ireland (+2.7%) and Poland (+1.9%).
In October 2012 compared with October 2011, production of durable consumer goods fell by 6.0% in the euro area and by 4.0% in the EU27. Intermediate goods dropped by 4.6% and 4.1% respectively. Capital goods declined by 4.3% in the euro area and by 3.4% in the EU27. Non-durable consumer goods decreased by 2.2% and 1.9% respectively. Production of energy grew by 0.4% in the euro-area, but fell by 0.9% in the EU27.
Among the Member States for which data are available, industrial production fell in thirteen and rose in ten. The largest decreases were registered in Ireland (-16.2%), Italy (-6.2%), Bulgaria (-4.2%), the Netherlands and Portugal (both -3.9%) and Germany (-3.8%), and the highest increases in Lithuania (+10.3%), Slovakia (+8.1%) and Malta (+4.5%).
The first estimate for the euro area (EA17) trade in goods balance with the rest of the world in October 2012 gave a 10.2 bn euro surplus, compared with -0.7 bn in October 2011. The September 2012 balance was +9.5 bn, compared with +0.8 bn in September 2011. In October 2012 compared with September 2012, seasonally adjusted exports fell by 1.4% while imports increased by 0.6%. These data are released by Eurostat, the statistical office of the European Union.
The first estimate for the October 2012 extra-EU27 trade in goods balance was a 9.4 bn euro deficit, compared with -11.3 bn in October 2011. The September 2012 balance was -12.5 bn, compared with -11.4 bn in September 2011. In October 2012 compared with September 2012, seasonally adjusted exports decreased by 1.7% while imports rose by 0.3%.
Euro area annual inflation was 2.2% in November 2012, down from 2.5% in October. A year earlier the rate was 3.0%. Monthly inflation was -0.2% in November 2012. EU annual inflation was 2.4% in November 2012, down from 2.6% in October. A year earlier the rate was 3.3%. Monthly inflation was -0.1% in November 2012. These figures come from Eurostat, the statistical office of the European Union.
In November 2012, the lowest annual rates were observed in Greece (0.4%), Sweden (0.8%) and Cyprus (1.4%), and the highest in Hungary (5.3%), Romania (4.4%) and Estonia (3.8%). Compared with October 2012, annual inflation fell in twenty-four Member States, remained stable in one and rose in one. The lowest 12-month averages up to November 2012 were registered in Sweden (0.9%), Greece (1.2%) and Ireland (1.9%), and the highest in Hungary (5.6%), Estonia (4.3%) and Poland (3.9%).
The European Central Bank slashed its forecasts for the euro zone economy, showing a contraction next year was very likely before a return to growth in 2014. The ECB cut its estimate of gross domestic product (GDP) for next year to between a fall of 0.9 per cent and growth of just 0.3 per cent. The bank also cut its forecast marginally for 2012, giving a midpoint of -0.5 per cent compared to -0.4 per cent three months ago. It had previously forecast -0.4 per cent to 1.4 per cent for 2013, suggesting the economy was more likely to grow than contract.

Economy of Japan

The Japanese economy contracted for a second straight quarter, shrinking largely in line with consensus expectations in Q3 2012 from the previous quarter, falling to -0.9% (cons: -0.8%) vs. 0.1% in Q2, the Cabinet Office reported. The annualized GDP also came in slightly weaker than expected at -3.5% (cons: -3.3%) vs. 0.3%.
Japan`s industrial output fell 1.7% during November, the Ministry of Economy, Trade and Industry said, with the result worse than the 0.5% drop expected in a Dow Jones Newswires survey of economists. Shipments fell 1.1% during the month, while inventories declined 1.2%, the data showed. The ministry`s accompanying survey of companies` production forecasts remained optimistic, indicating production would rise 6.7% in December, though the projection was down from a 7.5% rise tipped in last month`s survey. January industrial production is expected to rise 2.4%.
Japan saw a merchandise trade deficit of 953.4 billion yen in November, the Ministry of Finance said, down 37.9 percent on year. That beat forecasts for a shortfall of 1,035.1 billion yen following the downwardly revised deficit of 551.1 billion in October (originally 549.0 billion yen). Exports were down 4.1 percent on year, also beating forecasts for a 5.5 percent decline following the 6.5 percent contraction in the previous month. Imports added 0.8 percent on year versus expectations for a rise of 0.6 percent after shedding a revised 1.5 percent a month earlier.
Japan`s consumer prices showed a slight decline. The country`s Statistics Bureau released data showing that core CPI in November dropped by 0.4% from the previous month and 0.1% on a year-over-year basis. The most significant declines were recorded in the culture and recreations and transportation/communication segments. The only category showing an increase was clothing and footwear.
Japan`s unemployment rate fell unexpectedly last month, official data showed. In a report, the Statistics Bureau said that the percentage of the total work force that is unemployed and actively seeking employment during the previous month fell to a seasonally adjusted 4.1%, from 4.2% in the preceding month. Analysts had expected the rate of unemployment to remain unchanged at 4.2% last month.

Economy of Russia

Russia`s economy grew at the slowest pace since it began recovering at the start of 2010 last quarter as agricultural output and construction volumes shrank. Gross domestic product expanded 2.9 percent in the third quarter compared with a year earlier, the Federal Statistics Service in Moscow said in an e-mailed statement. That was in line with the initial Nov. 12 estimate, which topped economist forecasts. GDP expanded 4 percent in the second quarter and 4.9 percent in the first three months. The economy was hit by drought and by weaker demand from western Europe and China for metals and energy exports. With consumer spending slowing too, an early rebound is unlikely. The July-September growth rate was significantly lower than the figures recorded for the last two quarters: 4 per cent for April-June and 4.9 per cent for January-March. Economists now expect around 3.8 per cent for 2012 and 3.5 per cent for next year.
Russia`s industrial production increased at a slightly faster rate in November, data released by the Federal Statistics Service showed. Industrial production increased 1.9 percent on an annual basis in November, a tad faster than the 1.8 percent growth seen in October. Growth accelerated for the first time in four months. Production in the mining and quarrying industry gained 0.3 percent annually, while manufacturing production grew by 4 percent. Production and supply of electricity, gas and water were, meanwhile, lower by 2.6 percent from a year earlier.
On a monthly basis, industrial production edged up a seasonally adjusted 0.6 percent in November, reversing the previous month`s 0.7 percent decrease. In the January-November period, production increased 2.7 percent from the corresponding period a year earlier, data showed.
Russia`s trade surplus narrowed to $14.5 billion in October, declining 15.3% from $17.1 billion in the previous month, data from the central bank data showed. Exports rose 4.6% to $46.1 billion in October while imports increased by 17.2% to $27.4, the data showed. According to Russia`s economy ministry forecasts, the country`s trade surplus is set to shrink further next year. Exports are expected to shrink 6.2% in 2013, while imports are expected to rise by nearly 9%.

www.ereport.ru - 30.12.2012 19:38