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World Economy Review - November 2013

The Organization for Economic Cooperation and Development said world economic output would expand 2.7% this year and 3.6% in 2014. Those figures are down from the group`s May forecast of 3.1% growth this year and 4% next year. Global "outcomes this year and near-term prospects appear a little weaker than had been expected in May, at the time of the previous Economic Outlook," the OECD said.
The future of monetary stimulus in the United States has become a central risk worldwide, the OECD said, adding to long-standing problems, such as the fragility of eurozone banks and a decade of soaring Japanese public debt. The OECD urged the US Federal Reserve central bank to maintain its ultra-easy monetary policy for some time, and it suggested that the European Central Bank consider extra action to relax monetary conditions if deflationary pressures increased.
The OECD, which is composed of the world`s 34 most advanced economies, said growth in its member countries would be 1.2% this year and 2.3% in 2014, the same as forecast in May. Growth in advanced economies will pick up speed this year and next, but mostly at a slower pace than forecast as new risks loom, especially from emerging economies, the OECD said. Japan and the eurozone will do slightly better than expected in both years as austerity policies retreat, monetary stimulus is maintained and financial conditions improve, the OECD said. But the US economy will grow less quickly than forecast, with the OECD pointing to political dysfunction in Washington and the eventual tapering of monetary stimulus as factors that could hamper recovery.
The latest OECD outlook report said that old worries "have been augmented by new concerns, most notably the possibility of significant financial instability in advanced and, especially, (emerging economies) during the exit from unconventional monetary policies in the United States."
Moreover, the OECD warned, if political battles in Washington were to make a debt ceiling in the United States binding next year, the outcome could have "extreme" effects on the world economy. The forecast for US growth in 2013 was slashed to 1.7 percent from 1.9 percent, but edged up to 2.9 percent for 2014.
The OECD said that efforts to slow fiscal consolidation in the US and the eurozone were appropriate given slightly improving public finances and the uncertain economic outlook.
Japan on the other hand, must implement "strong fiscal tightening" in order to cut its debt. But despite this overhang, Japan`s recent efforts to jumpstart the economy will bear fruit with the OECD now forecasting 1.8-percent growth in 2013 instead of 1.6 percent. In 2014, Japanese growth will slow to 1.5 percent, hobbled by debt.
The OECD said that the eurozone still had the potential to unsettle the world economy and urged the currency bloc to press on with its banking union reform which includes a stringent stress test for banks. The OECD weakened its recession outlook in the currency area this year to contraction of 0.4 percent instead of 0.6 percent, and forecast growth of 1.0 percent in 2014.
The OECD said the UK would grow by 1.4% this year, an upgrade from its forecast in May of 0.8%. UK growth would accelerate to 2.4% in 2014, above economists` expectations of 2.2%, it said. It said signs of improvement were "particularly apparent" in the UK, and monetary policy was likely to remain "appropriate" for some time. The OECD also revised down its global growth forecast for 2014, which it now estimates at 3.6%. In May, it had forecast 4%. In a first estimate for 2015, it predicts growth of 3.9%.
China, less dependent on foreign funds, avoided the brunt of the tapering talk, but the OECD did lower the Chinese growth forecast to 7.7 percent this year, from 7.8 percent, and to 8.2 percent for next year.
In China, the OECD said growth was picking up "aided by a small fiscal stimulus and rapid credit expansion that did not slacken until June 2013" when state leadership changed hands. The OECD said that by past standards, "the recovery is subdued, reflecting a marked slowing in potential growth in the past few years".

Economy of the United States

The U.S. economy grew at a 3.6 percent rate in the third quarter, the Commerce Department said, revising up its initial estimate of a 2.8 percent increase in the nation`s economic performance. The result, boosted by the biggest increase in inventories since early 1998, is better than analysts` expectation of a 3 percent gain and raises the possibility that the Federal Reserve could cut the stimulus it provides to the economy as early as this month.
Consumer spending, which accounts for 70 percent of the U.S. economy, was trimmed from 1.5 percent to 1.4 percent, the smallest gain since the fourth quarter of 2009. The growth rate of inventories was revised up to $116.5 billion from a preliminary estimate of $86 million. Stockpiles added 1.68 percentage points to GDP last quarter, double the initial estimate and the biggest contribution since the end of 2011.
The fourth quarter, however, could see a sharp pullback in growth if companies stockpile goods at a slower rate as expected.
U.S. industrial production unexpectedly fell in October as output at power plants and mines declined, but a third straight month of gains in manufacturing suggested the economy remained on a moderate growth path. Industrial output slipped 0.1 percent last month after advancing 0.7 percent in September, the Federal Reserve said. The drop in October was the first since July. Economists polled by Reuters had expected industrial production to gain 0.2 percent.
Manufacturing output increased 0.3 percent even as automobile assembly fell for the first time since July. Manufacturing output, which had edged up 0.1 percent in September, was supported by gains in the production of primary metals, furniture and computer and electronic products among others. The sector is regaining some momentum after hitting a soft patch early in the year.
Utilities output fell 1.1 percent last month after surging 4.5 percent in September. Mining production contracted 1.6 percent in October, the first drop in seven months. The Fed attributed the fall to temporary shutdowns of oil and gas rigs in the Gulf of Mexico as Tropical Storm Karen approached. Last month, the amount of industrial capacity in use fell 0.2 percentage point to 78.1 percent.
The U.S. trade deficit narrowed in October as exports hit a record high, pointing to a pick-up in global demand that should help to support domestic growth in the fourth quarter. The Commerce Department said the trade gap fell 5.4 percent to $40.6 billion. September`s shortfall on the trade balance was revised to $43.0 billion from the previously reported $41.8 billion. Economists polled by Reuters had expected the trade deficit to narrow to $40.0 billion in October.
An improving global economy is boosting demand for U.S. exports. In October, exports increased 1.8 percent to $192.7 billion. That was the highest on record and snapped three straight months of declines in exports. Petroleum exports were the highest on record in October. Exports to China hit a record high as did imports from that country. Still, the trade deficit with China narrowed in October.
Overall imports rose a modest 0.4 percent to $233.3 billion in October, the highest in 1-1/2 years. With consumer spending slowing significantly in the third quarter and stocks piling up in warehouses, businesses are probably wary of bringing in too many goods from overseas. The slowdown in import growth could limit the drag on the economy from an anticipated inventory drawdown in the fourth quarter.
The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.1 percent in October on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported. The index for all items less food and energy rose 0.1 percent in October.
The all items index increased 1.0 percent over the last 12 months; this was the smallest 12-month increase since October 2009. The energy index has declined 4.8 percent over the last 12 months, its largest 12-month decline since July 2012. The index for all items less food and energy has risen 1.7 percent over the last year, while the food index has risen 1.3 percent.
Total nonfarm payroll employment rose by 204,000 in October, and the unemployment rate was little changed at 7.3 percent, the U.S. Bureau of Labor Statistics reported. Employment increased in leisure and hospitality, retail trade, professional and technical services, manufacturing, and health care.
Among the major worker groups, the unemployment rates for adult men (7.0 percent), adult women (6.4 percent), teenagers (22.2 percent), whites (6.3 percent), blacks (13.1 percent), and Hispanics (9.1 percent) showed little or no change in October. The jobless rate for Asians was 5.2 percent (not seasonally adjusted), little changed from a year earlier.

Economy of the European Union

GDP rose by 0.1% in the euro area (EA17) and by 0.2% in the EU28 during the third quarter of 2013, compared with the previous quarter, according to second estimates published by Eurostat, the statistical office of the European Union. In the second quarter of 2013, growth rates were +0.3% and +0.4% respectively.
Compared with the same quarter of the previous year, seasonally adjusted GDP fell by 0.4% in the euro area and rose by 0.1% in the EU28 in the third quarter of 2013, after -0.6% and -0.1% respectively in the previous quarter.
In September 2013 compared with August 2013, seasonally adjusted industrial production fell by 0.5% in the euro area (EA17) and by 0.2% in the EU28, according to estimates from Eurostat. In August industrial production increased by 1.0% and 0.6% respectively. In September 2013 compared with September 2012, industrial production rose by 1.1% in the euro area and by 1.2% in the EU28.
The first estimate for the euro area (EA17) trade in goods balance with the rest of the world in September 2013 gave a 13.1 billion euro surplus, compared with +8.6 bn in September 2012. The August 2013 balance was +6.9 bn, compared with +5.1 bn in August 2012. In September 2013 compared with August 2013, seasonally adjusted exports rose by 1.0% while imports fell by 0.3%. These data are released by Eurostat.
The first estimate for the September 2013 extra-EU28 trade balance was a 0.6 bn euro surplus, compared with -14.5 bn in September 2012. In August 2013 the balance was -2.4 bn, compared with -14.5 bn in August 2012. In September 2013 compared with August 2013, seasonally adjusted exports rose by 0.2% while imports fell by 0.2%.
Euro area annual inflation is expected to be 0.9% in November 2013, up from 0.7% in October, according to a flash estimate from Eurostat. Looking at the main components of euro area inflation, food, alcohol & tobacco is expected to have the highest annual rate in November (1.6%, compared with 1.9% in October), followed by services (1.5%, compared with 1.2% in October), non-energy industrial goods (0.3%, stable compared with October) and energy (-1.1%, compared with -1.7% in October).
The euro area (EA17) seasonally-adjusted unemployment rate was 12.1% in October 2013, down from 12.2% in September. The EU28 unemployment rate was 10.9%, stable compared with September. In both zones, rates have risen compared with October 2012, when they were 11.7% and 10.7% respectively. These figures are published by Eurostat.
In October 2013, 26.654 million men and women were unemployed in the EU28, of whom 19.298 million were in the euro area. Compared with September 2013, the number of persons unemployed decreased by 75 000 in the EU28 and by 61 000 in the euro area. Compared with October 2012, unemployment rose by 512 000 in the EU28 and by 615 000 in the euro area. Among the Member States, the lowest unemployment rates were recorded in Austria (4.8%), Germany (5.2%) and Luxembourg (5.9%), and the highest in Greece (27.3% in August 2013) and Spain (26.7%). Compared with a year ago, the unemployment rate increased in half of the Member States and fell in half. The highest increases were registered in Cyprus (13.2% to 17.0%), Greece (25.5% to 27.3% between August 2012 and August 2013) and the Netherlands (5.5% to 7.0%). The largest decreases were observed in Latvia (14.0% to 11.9% between the third quarters of 2012 and 2013), Ireland (14.5% to 12.6%) and Lithuania (13.0% to 11.1%).

Economy of Japan

Japan`s economy grew 0.5 percent in July-September 2013, a slowdown from the previous quarter as gains in consumer spending moderated and exports weakened. The increase was slightly more than the median estimate for a 0.4 percent rise and followed a 0.9 percent expansion in April-June, data released by the Cabinet Office showed. The third-quarter gross domestic product figure translated into an annualised increase of 1.9 percent, a little more than the median forecast of a 1.7 percent annualised increase.
Japanese industrial production rose 0.5% in October from the previous month, the government said, marking the second straight month of expansion. The reading, adjusted for seasonal variations, was smaller than a median forecast for a 2.0% increase by economists surveyed by the Nikkei and The Wall Street Journal. The Ministry of Economy, Trade and Industry also said manufacturers it polled expect their output to rise 0.9% in November and then increase 2.1% in December. Manufacturing accounts for almost all of Japan`s industrial output.
Japan`s October trade deficit nearly doubled from a year ago, official data showed, as soaring post-Fukushima energy bills eclipsed an improving export picture. Government figures showed that Japan logged a bigger-than-expected 1.09 trillion yen ($10.9 billion) trade deficit last month. The latest figure, a record for October, was nearly double a 556.2 billion yen shortfall a year earlier and marked the 16th straight month of deficit, the longest stretch in over three decades.
Japan`s trade imbalance was largely due to the rising cost -- and volume -- of crude oil and liquefied natural gas shipments as well as surging purchases of electronic parts. Overall, imports jumped 26.1 percent to 7.2 trillion yen from a year ago, rising at their fastest pace in over three years. Exports were also up again, rising 18.6 percent to 6.1 trillion yen, according to the government.
Japan`s core consumer price index rose 0.9% in October from a year earlier, government data showed, an acceleration in the pace of price growth from the previous month and a sign that Japan is on its way to shaking off 15 years of deflation. The rise matched a 0.9% rise expected by economists surveyed by The Wall Street Journal and the Nikkei. It marked the fifth straight month of increase, and came after a 0.7% rise in September. The 0.9% rise was the fastest pace of growth in the index since November 2008.
The government of Prime Minister Shinzo Abe and the Bank of Japan have pledged to haul the nation out of its long-standing deflationary malaise. The central bank said in April that it will try to achieve its goal of a 2% annual rise in prices in two years. Many economists say recent rises in core CPI are largely due to increased costs of energy and other imported goods on the back of the yen`s depreciation rather than growing demand for products amid the push to reinvigorate the economy under Mr. Abe`s pro-growth policies dubbed "Abenomics".
Japan`s unemployment rate remained unchanged 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 remained unchanged at a seasonally adjusted 4.0%, from 4.0% in the preceding month. Analysts had expected the rate of unemployment to fall to 3.9% last month.
Job availability rose for the first time in two months, separate data showed. The ratio of employment offers to seekers climbed to 0.98 in October, compared with 0.95 in September, which means 98 positions were available for every 100 job seekers.

Economy of Russia

Russian gross domestic product (GDP) increased by 1.4 percent in the first ten months of 2013 year-on-year, Economy Minister Alexei Ulyukayev said, adding that he expects annual growth of 1.5 percent. "October did not bring any positive changes," Ulyukayev said.
The January-October figure is slightly lower than an estimate of 1.5 percent that Ulyukayev gave earlier this week. He said that he had been misinterpreted and that that estimate had been for the full year.
Growth at 1.5 percent in 2013 would be below an official forecast of 1.8 percent, which had already been revised down. Russian capital investments and industrial output fell in October, marking a disappointing start to the final quarter for an economy growing at its slowest pace in four years.
Russian industrial production unexpectedly fell in October as manufacturing output declined, suggesting the economy remains in poor shape after the government slashed its long-term growth forecasts. The data underscored the structural weakness of the Russian economy, which the government now expects to lag global growth over the next two decades.
Industrial output slipped 0.1 percent last month after advancing 0.3 percent in September, the Federal Statistics Service said. Economists had expected industrial production to gain 0.5 percent. The drop in October was the first since July. "It is not a temporary slowdown Е the Russian economy is not likely to grow above 2 or 3 percent for a long time," said Liza Ermolenko, an economist at Capital Economics in London. - 05.12.2013 19:27