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World Economy Review - November 2014

The World Bank has revised its growth projections for Russia from 0.5 per cent up to 0.7 per cent in 2014 and from 0.3 per cent down to zero per cent in 2015, as part of its quarterly forecast review, the bank announced on December 2.

The numbers are an update to the projections released in the Russia Economic Report 32 of September 2014.

The main reason for the 2014 revision is stronger than expected net exports, with imports decreasing at a faster rate than anticipated due to the sharp depreciation of the rouble in recent months.

Higher prices for imports reduced demand by households and firms. Some temporary import substitution potential created by the weaker Ruble accelerated manufacturing activities, but is unlikely to be sustained next year given frail domestic demand.

Growth is projected to stall in 2015 at zero per cent as the sanctions would continue to negatively impact investments and would lead to a further slide in consumption growth, Birgit Hansl, World Bank Lead Economist for the Russian Federation, said on December 2.

If geopolitical tensions subside and the overall external environment of Russia improves, in 2016 the positive effects would allow for growth of 0.5 per cent, Hansl said.

The main driver for the lower 2015 growth projection is the assumption of a lower average oil price for 2015 of US$85 per barrel (compared to US$99.5 per barrel in the Bank`s September 2014 estimates), while the negative impact of sanctions and policy uncertainty on investment and consumption activities is expected to take hold more noticeably.

Consumption growth is projected to come to a standstill. Investment growth is expected to remain negative due to restricted access to external capital and higher borrowing costs.

The World Bank`s revised 2015 forecast assumes that net exports will become the main contributor to growth, replacing consumption growth as the key growth driver of previous years.

We expect that until mid-2016 net exports will support growth most. Only in 2016 do we project the possibility that investment and consumption growth starts its gradual recovery and begins to contribute positively to growth again, Hansl said.

On balance, the revised World Bank outlook remains subject to significant downside risks, which could stem from continued high volatility of the international oil market and international financial markets in line with an uneven and subdued global recovery.

Economy of the United States

U.S. economic growth was far stronger than initially thought in the third quarter, pointing to strengthening fundamentals that should support the economy for the rest of the year. The Commerce Department raised its estimate of gross domestic product to a 3.9 percent annual pace from the 3.5 percent rate reported last month, reflecting upward revisions to business and consumer spending.

Economists polled by Reuters had expected growth would be cut to a 3.3 percent pace. Growth had increased at a 4.6 percent rate in the second quarter. The economy has now experienced the two strongest back-to-back quarters of growth since 2003.

U.S. industrial production slipped in October, a sign domestic economic growth could slow further in the final months of 2014. Industrial production, which measures the output of U.S. manufacturers, utilities and mines, fell a seasonally adjusted 0.1% in October from the prior month, the Federal Reserve said. It followed a downwardly revised gain of 0.8% in September, which had initially been reported as a 1% increase.

Capacity utilization, a measure of slack in the industrial sector, decreased to 78.9% in October from September`s revised reading of 79.2%. Economists surveyed by The Wall Street Journal had forecast industrial production to rise 0.2% and a utilization rate of 79.3%.

The U.S. trade deficit slipped 0.4% in October, as higher exports of commercial aircraft and other industrial equipment offset a smaller rise in imports that was restrained by falling oil prices. The trade gap declined to a seasonally adjusted $43.4 billion from a slightly revised $43.6 billion, the Commerce Department said. Economists polled by MarketWatch had forecast a deficit of $41 billion. Exports rose 1.2% to $197.5 billion, led by commercial aircraft. Imports increased 0.9%, though the increase would have been larger if not for plunging oil prices.

U.S. consumer prices were flat in October as plunging gasoline costs offset increases in housing, medical and airline fares, the government said. Economists polled by MarketWatch had forecast a 0.1% decline in the consumer price index. Energy prices dropped a seasonally adjusted 1.9% - the fourth straight decline - led by a 3% reduction in gasoline. Food prices rose 0.1%, the smallest gain in fourth months.

The core CPI, which excludes volatile food and energy costs, rose by 0.2% last month. Americans are paying more for housing, especially rent, while costs also increased last month for household furnishings, airline tickets and medical care, including prescription drugs. Consumer prices have risen an unadjusted 1.7% over the past 12 months, slightly below the annual average over the past decade.

The US economy added 214,000 jobs in October, while the unemployment rate has fallen to 5.8%, official Labor Department figures show. The number of jobs created is slightly below forecasts of about 230,000 new posts, but still indicates a healthy US jobs market. The figures are a significant gauge of the health of the economy. US employers have added at least 200,000 jobs for nine months in a row, the longest growth period since 1995. Jobs figures for August and September were also revised higher. The burst of hiring lowered the unemployment rate to 5.8% from 5.9%. That is the lowest rate since July 2008.

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 third quarter of 2014, compared with the previous quarter, according to a second estimate published by Eurostat, the statistical office of the European Union. In the second quarter of 2014, GDP grew by 0.1% in the euro area and by 0.2% in the EU28.

Compared with the same quarter of the previous year, seasonally adjusted GDP rose by 0.8% in the euro area and by 1.3% in the EU28 in the third quarter of 2014, after +0.8% and +1.3% respectively in the previous quarter.

In September 2014 compared with August 2014, seasonally adjusted industrial production rose by 0.6% in both the euro area and the EU28, according to estimates from Eurostat. In August 2014, industrial production fell by 1.4% and 1.2% respectively. In September 2014 compared with September 2013, industrial production increased by 0.6% in both the euro area and the EU28.

The first estimate for the euro area trade in goods balance with the rest of the world in September 2014 gave a 18.5 billion surplus, compared with +10.8 bn in September 2013. The August 2014 balance was +8.6 bn, compared with +7.2 bn in August 2013. In September 2014 compared with August 2014, seasonally adjusted exports rose by 4.2% and imports by 3.0%. These data are released by Eurostat.

The first estimate for the September 2014 extra-EU28 trade balance was a 2.6 bn surplus, compared with -0.7 bn in September 2013. In August 2014 the balance was -8.8 bn, compared with -2.3 bn in August 2013. In September 2014 compared with August 2014, seasonally adjusted exports rose by 5.8% and imports by 3.2%.

Euro area annual inflation is expected to be 0.3% in November 2014, down from 0.4% in October, 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 November (1.1%, compared with 1.2% in October), followed by food, alcohol & tobacco (0.5%, stable compared with October), non-energy industrial goods (0.0%, compared with -0.1% in October) and energy (-2.5%, compared with -2.0% in October).

The euro area seasonally-adjusted unemployment rate was 11.5% in October 2014, stable compared with September 2014, but down from 11.9% in October 2013. The EU28 unemployment rate was 10.0% in October 2014, also stable compared with September 2014 and down from 10.7% in October 2013. These figures are published by Eurostat.

Eurostat estimates that 24.413 million men and women in the EU28, of whom 18.395 million were in the euro area, were unemployed in October 2014. Compared with September 2014, the number of persons unemployed increased by 42 000 in the EU28 and by 60 000 in the euro area. Compared with October 2013, unemployment fell by 1.549 million in the EU28 and by 547 000 in the euro area.

Economy of Japan

Japan`s gross domestic product shrank an annualized 1.6 percent in the third quart of 2014, according to government data released. The data also said that real GDP of Japan in the reporting quarter was down 0.4 percent from the previous quarter. The Japanese economy contracted an annualized 7.1 percent in the second quarter following the first round of tax increase on April 1 from 5 percent to 8 percent.

Preliminary estimates released by Japan`s Ministry of Economy, Trade and Industry showed that industrial production in Japan unexpectedly rose in October. Industrial production rose a seasonally adjusted 0.2% month-over-month, belying expectations for a 0.6% drop. However, this represented a marked slowdown from the 2.9% growth in September.

Annually, production was down 1%, not as worse as the 1.7% drop expected by economists. Shipments were up 0.4% month-over-month but declined 0.6% annually. The Ministry`s forecast based on a survey of manufacturers pitches industrial production growth at 2.3% in November and at 0.4% in December.

The drop in oil prices helped trim Japan`s trade deficit in October, as exports of cars, ships and steel picked up pace. The overall trade deficit fell 36 percent from a year earlier to 710 billion yen ($6 billion). It was the 28th straight month of deficit, but much lower than economists had forecasted. Exports rose 9.6 percent from a year earlier to 6.69 trillion yen ($56.7 billion) while imports rose 2.7 percent to 7.4 trillion yen ($62.7 billion).

Consumer prices in Japan was up 2.9 percent in October from a year earlier for the 17th consecutive month of increase, the Japanese Internal Ministry said. The core consumer price index, which excludes volatile fresh food prices, logged at 103.6 against the 2010 base of 100, the ministry said. Japan`s inflation rate has raised about 2 percent points due to the April`s sales tax hike, according to the Bank of Japan. The central bank aims to lift the rate to 2 percent excluding the effect of the tax hike by the end of fiscal 2015.

Japan`s unemployment rate improved to 3.5 percent in October from 3.6 percent the previous month, with some companies eager to hire women due to labor shortages, government data showed. The number of unemployed people fell a seasonally adjusted 1.3 percent from the previous month to 2.34 million, the Ministry of Internal Affairs and Communications said, adding the number of people holding jobs slid 0.2 percent to 63.55 million.

Economy of Russia

Russia`s gross domestic product rose by 0.7 percent in the third quarter, year-on-year, down from a growth rate of 0.8 percent in the preceding quarter, preliminary data from the Federal Statistics Office showed. Russia`s economy has been weakened by several rounds of Western sanctions over the Ukraine crisis which have spurred capital flight and deterred foreign investment. Economists polled by Reuters at the end of October saw Russia`s full-year 2014 GDP growth at 0.3 percent, year-on-year.

Russia`s industrial output growth picked up further in October, data from the federal statistics service showed. The data showed industrial production grew 2.9% on the year in October after expanding by 2.8% in September. In monthly terms, industrial output rose by 5.1% in October after growing 2.7% in the preceding month.

The headline figure was boosted by the utilities sector which staged a 29% growth in monthly terms in October, the month when Russia boosts production of heat and electricity. On the year the utility sector grew by 2.8%. Russia`s manufacturing sector also showed sound growth of 3.6% on the year and 3.3% on the month. For the second month Russia`s manufacturing benefited from Moscow`s decision to ban food imports from states that sanctioned Russia. While the ban imposed in August may provide temporary support for manufacturing, it also fuels inflation, which is on track to reach a four-year high.

Russia`s trade surplus narrowed in September to the lowest in seven months as falling oil prices cut export revenue. The surplus fell 20 percent from a year earlier to $13 billion, the central bank in Moscow said. The median estimate of 14 economists surveyed by Bloomberg was $15.7 billion. Imports decreased 10 percent to $25.8 billion and exports fell 13 percent to $38.8 billion.

Inflation in Russia grew to 1.3% in November from 0.8% in October. The year-on-November inflation reached 8.5%, Russia`s state statistics authority (Rosstat) said. The year-on-year inflation in November was 9.1% Consumer prices in January-November 2014 went up by 7.5% on January-November 2013.

Prices for goods increased in November by 1.3% /including on food products by two percent, on foods minus vegetables and fruits - by 1.3%, on non-food products - by 0.6%/, prices on services went up by 1.2%. The biggest rise in the category of non-food products was for prices on motor gas and diesel fuels (up by four percent and 1.9%, respectively).

Russia`s unemployment rate rose from previous 4.9% to 5.1% in October.

08.12.2014 15:18:36

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