World Economy Review - May 2014
The United Nations slightly lowered its forecasts for global economic growth in 2014 and 2015 citing a variety of reasons including the exceptionally cold winter in the United States, the escalating political crisis in Ukraine, and financial turbulence earlier this year. The new forecasts predict economic growth of 2.8 percent in 2014 and 3.2 percent in 2015, down from U.N. forecasts in December of 3 percent growth this year and 3.3 percent growth next year.
Pingfan Hong, the head of the U.N.`s Global Economic Monitoring Unit, told a news conference launching the report that “more than five years after the financial crisis, the world economy has not recovered back to running at full capacity.” Hong said one reason the U.N. lowered its forecasts was because it did not take into account the colder than usual winter in North America, which significantly impeded economic activity in the United States. Nonetheless, the U.S. forecasts remained unchanged - 2.5 percent in 2014 and 3.2 percent in 2015.
The escalating political crisis in Ukraine and Russia`s takeover of Crimea also had an impact on the U.N. forecast because they seriously hurt Ukraine`s economy and sparked “a massive outflow of capital” from Russia, and further weakened business and consumer confidence in the country, the report said. Ukraine`s economy was initially projected to grow by 2.1 percent this year, but the new forecast projects that it will shrink by 2 percent. Russia`s economy, which had been expected to grow by 2.9 percent this year, will also be hard-hit, with the new forecast projecting just 1 percent economic growth.
Hong said the U.N. had also largely discounted the impact of the U.S. Federal Reserve`s decision to taper its bond-buying stimulus program, which had injected more than $2 trillion into financial markets since late 2008 and kept borrowing costs down. The impact on the growth of a few emerging economies “was larger than we anticipated,” he said.
Hong said one of the key risks for continued global growth and financial stability is the possible shock to the world economy when the Federal Reserve phases out the program, which the U.N. expects in late 2014, and then starts increasing interest rates, which the U.N. expects to start in mid-2015.
The report cites other risks including vulnerabilities in emerging economies, fragilities in European countries using the euro currency, geopolitical tensions in many parts of the world, extreme climates, and environmental disasters. According to the report, for the first time since 2011, the developed economies of North America, Europe and Asia are all expected to grow in the next two years, with overall growth projected at 2 percent in 2014 and 2.4 percent in 2015.
Economy of The United States
New data shows the U.S. economy contracted in the first quarter of this year, keeping pace with shifting expectations but down sharply from the prior - already disappointing - estimate. The Bureau of Economic Analysis` second estimate of real gross domestic product showed output produced in the U.S. declined at an annual rate of 1% in the first quarter of 2014. This is relative to fourth quarter 2013, when real GDP increased 2.6%.
The revision, BEA explained in a release, was largely due to a greater than previously estimated decline in private inventories. The 1% decrease in real GDP reflected the negative contribution from private inventory investment as well as declining exports, declines in both residential and nonresidential fixed investment and lower local government spending. The rate was also negatively impacted by an increase in imports but partially offset by an increase in federal government spending (the first in a year and a half).
The price index for gross domestic purchases - which measures prices paid by U.S. residents - increased 1.3% versus the 1.4% advance estimate and 1.5% growth in the fourth quarter. Real personal consumption expenditures increased by 3.1%, compared to the 3% advance estimate and an increase of 3.3% in the fourth quarter.
The Fed said industrial production fell by 0.6 percent in April following an upwardly revised 0.9 percent increase in March. Economists had expected production to come in unchanged compared to the 0.7 percent increase originally reported for the previous month. The unexpected pullback by industrial production was partly due to the steep drop in utilities output, which tumbled by 5.3 percent in April after rising by 0.6 percent in March.
Manufacturing output also dipped by 0.4 percent in April following an upwardly revised 0.7 percent increase in the previous month. The drop surprised economists, who had expected manufacturing output to rise by 0.3 percent. On the other hand, the report said mining output surged up by 1.4 percent in April after jumping by 2.0 percent in March. The Fed also said the capacity utilization rate for total industry fell to 78.6 percent in April from a revised 79.3 percent in March.
The U.S. trade deficit jumped to a two-year high in April, as exports declined and imports surged to a record high. The deficit rose to $47.2 billion in April, up 6.9 percent from an upwardly revised March deficit of $44.2 billion, the Commerce Department said. Exports dropped for the fourth month out of the past five, falling 0.2 percent to $195.4 billion. Meanwhile, imports climbed 1.2 percent to an all-time high of $240.6 billion, reflecting record shipment levels of foreign-made cars, food, computers and other goods.
U.S. consumer prices posted the biggest increase in April since last summer as the cost of housing, medical care, new cars, beef, gasoline and many other staples rose, the government reported Thursday. The consumer price index jumped a seasonally adjusted 0.3% last month to mark the largest gain since June, the Labor Department said. Energy prices rose 0.3% and food prices climbed 0.4%. Excluding the volatile food and energy categories, core consumer prices increased 0.2%. Economists surveyed by MarketWatch had expected the CPI to increase by 0.3%. Consumer prices have risen an unadjusted 2.0% over the past 12 months, up from 1.5% in March. The core rate has risen 1.8% in the same span and remains below what the Federal Reserve considers acceptable.
The headline unemployment rate was 6.3%, according to figures released by the Labor Department. That rate is the same as in April, when 288,000 jobs were created, far more than had been expected. Economists had predicted an addition of 218,000 jobs in May and that the unemployment rate would tick higher to 6.4%. The monthly average for jobs created during the past year now stands at 197,000, just below the 200,000 figure many economists have said would make a significant dent in the unemployment rate. In May, average hourly earnings for all non-farm employees rose by 5 cents to $24.38. Over the past 12 months, average hourly earnings have risen by 2.1%, slightly higher than the Fed`s target inflation rate.
Economy of The European Union
Seasonally adjusted GDP rose by 0.2% in the euro area (EA18) and by 0.3% in the EU28 during the first quarter of 2014, compared with the previous quarter, according to second estimates published by Eurostat, the statistical office of the European Union. In the fourth quarter of 2013, GDP grew by 0.3% in the euro area and by 0.4% in the EU28. Compared with the same quarter of the previous year, seasonally adjusted GDP rose by 0.9% in the euro area and by 1.4% in the EU28 in the first quarter of 2014, after +0.5% and +1.0% respectively in the previous quarter.
In March 2014 compared with February 2014, seasonally adjusted industrial production fell by 0.3% in the euro area (EA18) and by 0.2% in the EU28, according to estimates from Eurostat. In February 2014 industrial production rose by 0.2% and 0.3% respectively. In March 2014 compared with March 2013, industrial production dropped by 0.1% in the euro area and increased by 0.5% in the EU28.
The first estimate for the euro area (EA18) trade in goods balance with the rest of the world in March 2014 gave a 17.1 billion euro surplus, compared with +21.9 bn in March 2013. The February 2014 balance was +14.2 bn, compared with +9.8 bn in February 2013. In March 2014 compared with February 2014, seasonally adjusted exports fell by 0.5% and imports by 0.6%. The first estimate for the March 2014 extra-EU28 trade balance was a 3.9 bn euro surplus, compared with +14.7 bn in March 2013. In February 2014 the balance was +4.7 bn, compared with +1.2 bn in February 2013. In March 2014 compared with February 2014, seasonally adjusted exports fell by 1.2% while imports remained stable.
The euro area (EA18) seasonally-adjusted unemployment rate was 11.7% in April 2014, down from 11.8% in March 2014, and from 12.0% in April 2013. The EU28 unemployment rate was 10.4% in April 2014, down from 10.5% in March 2014, and from 10.9% in April 2013. These figures are published by Eurostat. Eurostat estimates that 25.471 million men and women in the EU28, of whom 18.751 million were in the euro area, were unemployed in April 2014. Compared with March 2014, the number of persons unemployed decreased by 151 000 in the EU28 and by 76 000 in the euro area. Compared with April 2013, unemployment fell by 1.167 million in the EU28 and by 487 000 in the euro area.
Euro area annual inflation is expected to be 0.5% in May 2014, down from 0.7% in April, according to a flash estimate from Eurostat. Looking at the main components of euro area inflation, services is expected to have the highest annual rate in May (1.1%, compared with 1.6% in April), followed by food, alcohol & tobacco (0.1%, compared with 0.7% in April), non-energy industrial goods (0.0%, compared with 0.1% in April) and energy (0.0%, compared with -1.2% in April).
Economy of Japan
Gross domestic product increased at an annualized rate of 6.7% in the January to March period from the previous quarter, the Cabinet Office said, revising its initial estimate of a 5.9% expansion. The result, adjusted for price changes, marked the sixth straight quarterly expansion. Economists polled by The Wall Street Journal and the Nikkei had forecast a downward revision to a 5.5% rise. Economists expect the economy will contract around 4% in the April to June quarter.
Industrial output in Japan dipped 2.5 percent on month in April, the Ministry of Economy, Trade and Industry said. That missed forecasts for a decline of 2.0 percent following the 0.7 percent increase in March. On a yearly basis, industrial production added 4.1 percent - also missing expectations for 4.5 percent and down fro, 7.4 percent in the previous month.
Industries that mainly contributed to the decrease included transport equipment, electronic parts and chemicals. Commodities that mainly contributed to the decrease were large passenger cars, solar battery cells and planography printing. According to the survey of production forecast in manufacturing, production is expected to increase 1.7 percent in May and decrease 2.0 percent in June.
Japan`s trade deficit narrowed again in April, as a sales tax hike weighed on imports - denting demand for foreign fruit, lobsters and crude oil - while shipments of goods to overseas markets picked up pace. The finance ministry data showed the trade deficit shrank 7.8 per cent on-year in April, with Japan logging a shortfall of 808.9 billion yen ($8.0 billion) against the year-before deficit of 877.4 billion yen. Exports climbed 5.1 per cent to 6.07 trillion yen on robust shipments of automobiles and memory chips. Imports rose 3.4 per cent to 6.88 trillion yen, a much slower rate than high-paced rises seen over more than a year.
Japan`s core consumer price index (CPI) jumped 3.2 percent in April from a year earlier, the fastest pace since February 1991, chiefly due to a sales tax hike, the government said. The increase of core CPI, which excludes volatile fresh foods, gained for the 11th straight month, according to the Ministry of Internal Affairs and Communications. The 3.2 percent rise followed a 1.3 percent expansion in March. The gain was largely attributed to the sales tax, which lifted prices of a broad range of items, according to the ministry. The Bank of Japan (BOJ) estimates the tax hike boosted overall inflation for April by 1.7 percent.
The unemployment rate in Japan came in at a seasonally adjusted 3.6 percent in April, the Ministry of Internal Affairs and Communications said - unchanged from the previous month and in line with expectations. The job-to-applicant ratio was 1.08, beating expectations for 1.07 - which would have been unchanged from the previous month. The participation rate was 59.5 percent, up from 59.1 percent a month earlier. The number of employed persons in April was 63.38 million, an increase of 260,000 or 0.4 percent on year. The number of unemployed persons in April was 2.54 million, a decrease of 370,000 or 12.7 percent on year.
Economy of Russia
Russia`s first-quarter economic growth slowed to the weakest in a year as the standoff against the U.S. and its allies over Ukraine shrivels up investment. Gross domestic product advanced 0.9 percent in January-March from a year earlier after a 2 percent gain in the previous quarter, the Moscow-based Federal Statistics Service said in an e-mailed statement, providing its first estimate of first-quarter GDP. That was above the 0.7 percent median estimate of 19 economists in a Bloomberg survey. The Economy Ministry had projected that output expanded 0.8 percent.
Russia`s annual industrial production growth accelerated in April but contracted in monthly terms, data from the Federal Statistics Service showed. After expanding 1.4% on the year in March, industrial production grew 2.4% in April. Monthly data, however, showed that industrial production contracted 2.7% in April after growing 9.7% in March. In the first four months of 2014, industrial production grew 1.4% on the year after contracting 0.6% in the same period a year ago, the data showed. The economy ministry expects industrial output to increase 1.3% this year after it showed no growth in 2013.
Russia`s consumer inflation accelerated in May and exceeded the central bank`s key interest rate, making it less likely there will be a relaxation of the country`s tight monetary policy to help boost flagging economic growth soon. Consumer prices rose by 7.6% on the year in May, picking up speed from 7.3% increase in April, according to the release of data from Russia`s Federal Statistics Service. Monthly inflation has risen above the Bank of Russia benchmark rate of 7.5%, while the bank itself has set a target of limiting inflation for the full year to no more than 6.5%.
Consumer prices went up by 4.2% in the first five months of the year compared with 3.1% in the same period a year ago. So far this year the rising cost of food has pushed consumer inflation higher with the recent declines in the value of the ruble weakening contributing to growing expectations of higher consumer prices in the future. The cost of an average food basket rose by 13.1% in January-May compared with a year ago, the data showed.
Russia economy ministry expects consumer price inflation to hit 8% on the year in June, driven by an earlier weakening of the ruble. In its economic report for the week to June 2 the ministry said: "June consumer prices inflation is expected to be between 0.7% and 0.8% for the month, or between 7.9% and 8.0% from the same months of 2013." The government had previously said that annual inflation in 2014 would be no more than 6.5%.
10.06.2014 14:53:07