ABOUT CONTACTS RUSSIAN
MAIN NEWS REVIEWS STATISTICS ARTICLES LINKS

World Economy Review - June 2014

The World Bank cut its global growth forecast amid weaker outlooks for the US, Russia and China, while calling on emerging markets to strengthen their economies before the Federal Reserve raises interest rates.

The Washington-based lender predicts the world economy will expand 2.8% this year, compared with a January projection of 3.2%. The US forecast was reduced to 2.1% from 2.8%, while outlooks for Brazil, Russia and China were also lowered. The setbacks may be temporary: the 2015 estimate for world economic growth was unchanged at 3.4%.

The global economy got off to a bumpy start this year buffeted by poor weather in the US, financial market turbulence and the conflict in Ukraine, the World Bank said in its Global Economic Prospects report. Despite the early weakness, growth is expected to pick up speed as the year progresses.

Developed economies, where domestic demand is improving as fiscal pressure eases and labour markets recover, are providing the global expansion with momentum just as their developing counterparts fail to accelerate. The bank is projecting growth in China and Brazil will slow this year from 2013.

In the report, the World Bank warned emerging markets that the next bout of financial unrest may catch them off guard, recommending smaller budget deficits, higher interest rates and measures to boost productivity.

In the US, Fed policy makers have indicated that they expect the benchmark interest rate, which has been near zero since December 2008, will remain low at least until next year. Over the past year, emerging-market assets have recovered from two sell-off periods, including one after the Fed first indicated in May 2013 plans to trim US monetary stimulus. The extra yield investors demand to hold dollar-denominated debt in developing nations over US. Treasuries has since decreased to the lowest since January 2013.

That recovery is giving countries a respite to strengthen their economies before the inevitable increase in borrowing costs that will follow the Fed`s interest-rate increase, said World Bank economist Andrew Burns, the lead author of the report.

“Our advice to these countries is `listen, you`ve got a window here of a year, let`s see what we can do to reduce those vulnerabilities between now and then so that when it does come, you don`t get caught up in the overall problem,” he said in an interview.

The bank cut its 2014 forecast for Russia`s growth to 0.5% from a January prediction of 2.2%. It sees Ukraine contracting 5%. A sharp escalation of tensions in Ukraine poses acute risks to the global economy, according to the report. These could operate through a number of channels, including through commodity and financial linkages.

The bank maintained its forecast this year for the euro-area, which is still recovering from its debt crisis, at 1.1%. The forecast for Japan was trimmed to 1.3% from 1.4%. For 2015, the bank raised its predictions for the US, the euro area and Japan, which the bank said could underpin growth in emerging markets.

Still, many developing countries are already growing at a pace close to their potential and face capacity constraints, while others will be hurt by lower commodity prices, according to the bank. As a group, they are projected to grow 4.8% this year, compared with 5.3% forecast in January, the bank said.

The development-aid institution also cut its outlook for Brazil`s expansion to 1.5% from 2.4%. China`s expansion was lowered to 7.6% growth from 7.7%, the bank`s report showed. The bank lowered India`s GDP growth forecast for 2014 to 5.5% compared with 6.2% estimated in January.

“Growth rates in the developing world remain far too modest to create the kind of jobs we need to improve the lives of the poorest 40%,” World Bank President Jim Yong Kim said in a press release. Clearly, countries need to move faster and invest more in domestic structural reforms to get broad-based economic growth to levels needed to end extreme poverty in our generation.

Economy of the United States

The US economy suffered its worst performance for five years in the first quarter of 2014, latest figures show. The economy shrank at an annualised rate of 2.9% in the first three months of the year, the third estimate from the US Commerce Department showed. This was worse than the previous estimate of a 1% contraction, and also worse than economists` expectations. However, the economy is expected to have recorded a sharp recovery during the second quarter of the year.

The latest revision came as a result of a weaker pace of healthcare spending than previously assumed, which caused a downgrading of the consumer spending estimate. Consumer spending - which is responsible for more than two-thirds of US economic growth - increased by 1% in the quarter, rather than the 3.1% rate as first estimated. Trade was also a bigger drag on the economy than previously thought, with exports falling by 8.9% rather than a previously estimated 6%.

Output from U.S. factories, mines and utilities rose in May, the latest sign that growth has resumed in the critical industrial sector of the economy following a harsh winter and mid-spring dip. Industrial production rose a seasonally adjusted 0.6% from April, the Federal Reserve said. Capacity utilization, a closely watched gauge of slack in the economy, ticked up 0.2 percentage point to 79.1% in May. Economists surveyed by The Wall Street Journal had expected industrial production would rise 0.5% in May and capacity utilization would rise to 78.9%.

Last month`s production increase reversed a drop of 0.3% in April from the prior month, a shallower dip than the initially estimated decline of 0.6%. May`s rise reflected a 0.6% increase in production by manufacturers and a 1.3% jump in mining output, offset in part by a 0.8% decline in utility output. Total industrial production in May was up 4.3% from a year earlier.

The U.S. trade deficit fell in May as U.S. exports hit an all-time high, helped by a jump in exports of petroleum products. Imports dipped slightly. The trade deficit narrowed 5.6 percent in May to $44.4 billion after hitting a two-year high of $47 billion in April, the Commerce Department reported. Exports of goods and services rose 1 percent to a record $195.5 billion in May while imports fell a slight 0.3 percent to $239.8 billion.

U.S. consumer prices recorded their largest increase in more than a year in May as costs for a range of goods and services rose, likely easing the Federal Reserve`s concerns that inflation was running too low. The Labor Department said its Consumer Price Index increased 0.4 percent last month, with food prices posting their biggest rise since August 2011. Economists, who had expected consumer prices to rise only 0.2 percent, said the increase suggested a separate inflation gauge watched by the Fed also pushed higher in May, although it would still fall short of the central bank`s 2 percent target.

May`s rise in consumer prices built on a 0.3 percent advance in April. With tensions escalating in Iraq, a major world oil producer, inflation is likely to push higher in the coming months. In the 12 months through May, consumer prices increased 2.1 percent, the biggest gain since October 2012. That followed a 2.0 percent rise in the period through April, marking the first back-to-back months in which the year-on-year CPI had risen at least 2 percent since early 2012.

Stripping out food and energy prices, the so-called core CPI rose 0.3 percent, the largest increase since August 2011. In the 12 months through May, the core CPI increased 2.0 percent, up from 1.8 percent in April and the biggest gain since February of last year.

U.S. employers accelerated their hiring last month, adding a robust 288,000 jobs and helping drive the unemployment rate to 6.1 percent, the lowest since September 2008. It was the fifth straight monthly job gain above 200,000 - the best such stretch since the late 1990s tech boom. Over the past 12 months, the economy has added nearly 2.5 million jobs - 208,000 a month, the fastest year-over-year pace since May 2006.

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 April 2014 compared with March 2014, seasonally adjusted industrial production rose by 0.8% in the euro area (EA18) and by 0.7% in the EU28, according to estimates from Eurostat. In March 2014 industrial production fell by 0.4% and 0.3% respectively. In April 2014 compared with April 2013, industrial production grew by 1.4% in the euro area and by 2.1% in the EU28.

The first estimate for the euro area (EA18) trade in goods balance with the rest of the world in April 2014 gave a 15.7 billion euro surplus, compared with +14.0 bn in April 2013. The March 2014 balance was +16.7 bn, compared with +21.8 bn in March 2013. In April 2014 compared with March 2014, seasonally adjusted exports fell by 0.2% and imports by 0.5%. These data are released by Eurostat.

The first estimate for the April 2014 extra-EU28 trade balance was a 1.3 bn euro surplus, compared with +8.5 bn in April 2013. In March 2014 the balance was +4.1 bn, compared with +14.7 bn in March 2013. In April 2014 compared with March 2014, seasonally adjusted exports fell by 1.0% and imports by 0.9%.

Euro area annual inflation is expected to be 0.5% in June 2014, stable compared with May, 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 June (1.3%, compared with 1.1% in May), followed by energy (0.1%, compared with 0.0% in May), non-energy industrial goods (0.0%, stable compared with May) and food, alcohol & tobacco (-0.2%, compared with 0.1% in May).

The euro area (EA18) seasonally-adjusted unemployment rate was 11.6% in May 2014, stable compared with April 2014, but down from 12.0% in May 2013. The EU28 unemployment rate was 10.3% in May 2014, down from 10.4% in April 2014, and from 10.9% in May 2013. These figures are published by Eurostat.

Eurostat estimates that 25.184 million men and women in the EU28, of whom 18.552 million were in the euro area, were unemployed in May 2014. Compared with April 2014, the number of persons unemployed decreased by 63 000 in the EU28 and by 28 000 in the euro area. Compared with May 2013, unemployment fell by 1.361 million in the EU28 and by 636 000 in the euro area.

Economy of Japan

The Japanese government on Monday raised its economic growth reading for the first quarter, saying that capital spending was sharply higher than initially thought. 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. The government said this was the strongest growth since the October to December quarter in 2011. Economists expect the economy will contract around 4% in the April to June quarter.

Japan`s industrial output snapped back in May from a slump in April, data showed, though the bounce wasn`t quite as bouncy as economists had expected. Industrial production rose 0.5% last month, with the notoriously volatile data set swinging from a 2.8% drop the previous month. Economists surveyed by The Wall Street Journal had expected a 0.9% gain.

Transport equipment (including cars) led the gain, followed by textiles and electronics. Perhaps just as important was a rebound in expectations among Japan`s top manufacturers. In a survey included with each month`s data, the executives tipped June`s industrial output to show a 0.7% pullback, much better than the expected 2% June drop the survey showed last month. For July, the survey predicts a return to growth, to the tune of 1.5%.

The finance ministry said Japan`s May trade deficit narrowed 8.3 percent from a year ago to 909 billion yen ($8.9 billion), marking the 23rd consecutive monthly shortfall. Imports were down 3.6 percent to 6.5 trillion yen, the first on-year drop in 19 months as crude oil shipments fell by nearly 20 percent in volume terms. Domestic demand for gasoline and other products jumped in the months ahead of the consumption tax rising to 8.0 percent from 5.0 percent, as millions of shoppers dashed to stores before prices went up. May exports fell 2.7 percent to 5.6 trillion yen, the first downturn in over a year as demand for refined fuel and vehicles fell overseas.

Japanese consumer inflation rose at the fastest pace in decades in May as a sales tax hike introduced to help reverse years of falling prices started to bite, official data showed. Japan`s core consumer prices, stripping out volatile fresh food prices, rose 3.4 percent year-on-year in May, the internal affairs ministry said. It was higher than a 3.2 percent increase in April and matched market expectations.

The May rise was the fastest increase since April 1982, according to official data, but the rise stemmed largely from a sales tax hike. Japan raised its consumption tax rate to 8.0 percent from 5.0 percent on April 1 in the nation`s first sales levy hike in 17 years. Excluding the effect of the higher tax on prices, Japan`s core consumer prices rose 1.4 percent in May, just below a 1.5-percent increase the previous month, but within the range expected by Bank of Japan. The central bank has targeted 2.0 percent inflation excluding the tax hike effect.

Japan`s unemployment rate declined to 3.5 per cent in May amid signs of economic recovery, the government said. But unstable forms of employment remained one of the nation`s most pressing issues, analysts said. The number of temporary and part-time workers jumped by 300,000 from a year earlier to 19.21 million, while that of regular employees grew by only 10,000 to 33.24 million, the Ministry of Internal Affairs and Communications said. The proportion of such non-regular employees in the labour force hit a record high of 36.7 per cent in 2013 for the fifth straight year of rise, compared with 26 per cent in 2000, a government report showed. The jobless rate was 3.6 percent in April.

Economy of Russia

Russia`s gross domestic product rose by 1.1 percent in the first five months of 2014, and growth for the whole year may be on a similar level, Economy Minister Alexei Ulyukayev said. Russia officially forecasts economic growth of 0.5 percent in 2014 but Ulyukayev has said that the figure may be revised upwards.

Industrial Production in Russia increased 2.8% percent in May of 2014 over the same month in the previous year. 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.

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 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. The cost of an average food basket rose by 13.1% in January-May compared with a year ago, the data showed.

Russia`s rate of inflation could reach 6.5 percent by the end of 2014, the central bank`s head of monetary policy Ksenia Yudaeva said, although the bank was not yet changing its official forecast.

Russia`s jobless rate fell to a record in May as businesses raised salaries faster than economists predicted, helping stem a three-month slowdown in real-wage growth. Unemployment slid to 4.9 percent in May from 5.3 percent a month earlier, the Federal Statistics Service in Moscow said in an e-mailed statement. The median estimate of 16 economists surveyed by Bloomberg was 5.2 percent. Wages adjusted for inflation grew 5 percent after a revised 3.2 percent gain in April, topping the median forecast for a 1.5 percent increase in a separate poll.

07.07.2014 16:55:06

Economic Articles

Economic Indicators