World Economy Review - August 2018
Britain`s economy will shrink if it leaves the European Union without a Brexit deal and it will suffer some damage whatever terms it agrees, the International Monetary Fund said, challenging the promises of some Brexit supporters.
The Fund predicted Britain`s economy would grow by about 1.5 percent a year in 2018 and 2019 - lagging behind Germany and France - if a broad Brexit agreement was struck.
“I`m a desperate optimist, and I very much hope and pray that there will be a deal between the European Union and the UK,” IMF Managing Director Christine Lagarde said.
But failure to get a deal would lead to a contraction, she said.
“Let me be clear, compared with today`s smooth single market, all the likely Brexit scenarios will have costs for the economy and to a lesser extent as well for the EU,” Lagarde said as the IMF presented its annual report on Britain`s economy.
“The larger the impediments to trade in the new relationship, the costlier it will be. This should be fairly obvious, but it seems that sometimes it is not.”
Britain is due to leave the EU in little more than six months` time but London and Brussels have yet to strike a deal to secure a transition period.
Prime Minister Theresa May has struggled to bridge a deep divide within her Conservative Party about how close a relationship Britain should have with the EU.
She is hoping to make progress toward a deal when she meets fellow EU leaders this week.
British finance minister Philip Hammond, speaking alongside Lagarde, said the government had to heed the “clear warnings” from the IMF of a no-deal Brexit.
Hammond has been criticized by some Conservative Party lawmakers who say he wants to keep Britain too close to the EU.
Many Brexit supporters say Britain must distance itself from Brussels in order to strike its own trade deals with fast-growing economies around the world.
The IMF said those kind of deals would not offset the drag to the economy from leaving the EU.
Ruth Lea, an economist with Arbuthnot Banking Group and a Brexit advocate, accused the IMF of joining a new round of “Project Fear,” a term Brexit supporters use for pre-referendum warnings of the economic consequences of a Leave vote.
“Did they learn nothing from their loss of credibility after Project Fear Mark 1? In other words, stop making bold claims when you really don`t know what will happen,” Lea said on Twitter.
Britain`s economy - the world`s fifth-biggest - slowed after the 2016 referendum decision to leave the EU and it continues to be outpaced by most other rich nations.
However, stronger-than-expected data last week showed the economy had its fastest growth in nearly a year, helped by the World Cup and hot summer weather.
The IMF said there was a “daunting” range of issues still to be dealt with before Brexit.
Lagarde also said the IMF would lower its forecast for global economic growth when it updates its outlook in November.
“But I can say at this point, without disclosing any numbers, is that clouds on the horizon have not become lighter but darker,” she said.
Economy of the United States
U.S. economic growth was a bit stronger than initially thought in the second quarter, notching its best performance in nearly four years and putting the economy on track to hit the Trump administration`s goal of 3 percent annual growth.
Gross domestic product increased at a 4.2 percent annualized rate, the Commerce Department said in its second estimate of GDP growth for the April-June quarter. That was slightly up from the 4.1 percent pace of expansion reported in July and was the fastest rate since the third quarter of 2014.
The economy grew at a 2.2 percent pace in the January-March period. The slight upward revision to growth last quarter reflected more business spending on software than previously estimated and less imported petroleum.
The economy expanded 3.2 percent in the first half of 2018, up from the 3.1 percent estimated last month. Compared to the second quarter of 2017, output increased 2.9 percent instead of the previously reported 2.8 percent. Economists, however, cautioned that the second-quarter growth pace was unsustainable as it was largely driven by one-off factors.
U.S. industrial production rose by a healthy 0.4 percent in August, boosted by gains in the production of autos, oil and natural gas.
The Federal Reserve said that industrial production, which includes output at factories, mines and utilities, has climbed 4.9 percent over the past 12 months. Industrial production appears on track for its strongest annual growth since 2010, when it jumped 5.5 percent as the economy began to recover from the Great Recession.
Factory production increased 0.2 percent last month, lifted by a 4 percent rise in the making of vehicles and parts. Automakers assembled vehicles at their strongest pace since April.
Mining output posted a 0.7 percent monthly gain in August. A sharp increase in the production of oil and natural gas has caused mining output to soar 14.1 percent over the past 12 months. Increased oil and natural gas production can support factories that make pipelines, machinery and other equipment.
Production at utilizes advanced 1.2 percent in August, powered by a surge in electricity usage during the hot month.
The U.S. trade deficit increased to a five-month high in July as exports of soybeans and civilian aircraft declined and imports hit a record high, suggesting that trade could be a drag on economic growth in the third quarter. The increase was the biggest monthly widening since 2015.
The Commerce Department said the trade gap jumped 9.5 percent to $50.1 billion, widening for a second straight month. Data for June was revised to show the trade deficit rising to $45.7 billion, instead of the previously reported $46.3 billion. The politically sensitive goods trade deficit with China surged 10 percent to a record $36.8 billion. Economists polled by Reuters had forecast the overall trade deficit swelling to $50.3 billion in July.
In July, exports of goods and services fell 1.0 percent to $211.1 billion. Soybean exports dropped $0.7 billion and shipments of civilian aircraft decreased $1.6 billion. Petroleum exports, however, were the highest on record. Imports of goods and services increased 0.9 percent to a record $261.2 billion in July.
U.S. consumer prices rose less than expected in August as increases in gasoline and rents were offset by declines in healthcare and apparel costs, and underlying inflation pressures also appeared to be slowing.
The Labor Department said its Consumer Price Index increased 0.2 percent last month after a similar gain in July. In the 12 months through August, the CPI increased 2.7 percent, slowing from July`s 2.9 percent rise.
Excluding the volatile food and energy components, the CPI edged up 0.1 percent. The so-called core CPI had increased by 0.2 percent for three straight months. In the 12 months through August, the core CPI increased 2.2 percent after rising 2.4 percent in July.
Economists polled by Reuters had forecast the CPI climbing 0.3 percent and the core CPI gaining 0.2 percent in August.
The U.S. added 201,000 new jobs in August, a sign the economy was still expanding strongly toward the end of summer. The increase matched the 200,000 MarketWatch estimate. The unemployment rate was unchanged at 3.9%. The biggest news was higher worker pay. The average wage paid to American workers rose by 10 cents, or 0.4%, to $27.16 an hour. The yearly rate of pay increases climbed to 2.9% from 2.7%, marking the highest level since the end of the Great Recession in June 2009.
Employment gains for July and June, meanwhile, were revised down by a combined 50,000, the Labor Department said. The government said 147,000 new jobs were created in July instead of 157,000. June`s increase was cut to 208,000 from 248,000.
Economy of the European Union
Seasonally adjusted GDP rose by 0.4% in both the euro area (EA19) and the EU28 during the second quarter of 2018, compared with the previous quarter, according to an estimate published by Eurostat, the statistical office of the European Union. In the first quarter of 2018, GDP had also grown by 0.4% in both areas.
Compared with the same quarter of the previous year, seasonally adjusted GDP rose by 2.1% in both the euro area and the EU28 in the second quarter of 2018, after +2.4% and +2.3% respectively in the previous quarter.
In July 2018 compared with June 2018, seasonally adjusted industrial production fell by 0.8% in the euro area (EA19) and by 0.7% in the EU28, according to estimates from Eurostat. In June 2018, industrial production fell by 0.8% in the euro area and by 0.5% in the EU28.
In July 2018 compared with July 2017, industrial production decreased by 0.1% in the euro area and increased by 0.8% in the EU28.
The first estimate for euro area (EA19) exports of goods to the rest of the world in July 2018 was ˆ194.6 billion, an increase of 9.4% compared with July 2017 (ˆ177.8 bn). Imports from the rest of the world stood at ˆ177.1 bn, a rise of 13.4% compared with July 2017 (ˆ156.2 bn). As a result, the euro area recorded a ˆ17.6 bn surplus in trade in goods with the rest of the world in July 2018, compared with +ˆ21.6 bn in July 2017. Intra-euro area trade rose to ˆ162.3 bn in July 2018, up by 9.3% compared with July 2017.
The first estimate for extra-EU28 exports of goods in July 2018 was ˆ170.4 billion, up by 9.6% compared with July 2017 (ˆ155.5 bn). Imports from the rest of the world stood at ˆ170.4 bn, up by 15.4% compared with July 2017 (ˆ147.7 bn). As a result, the EU28 recorded a ˆ0.1 bn surplus in trade in goods with the rest of the world in July 2018, compared with +ˆ7.8 bn in July 2017. Intra-EU28 trade rose to ˆ288.0 bn in July 2018, +8.7% compared with July 2017.
Euro area annual inflation is expected to be 2.0% in August 2018, down from 2.1% in July 2018, according to a flash estimate from Eurostat. Looking at the main components of euro area inflation, energy is expected to have the highest annual rate in August (9.2%, compared with 9.5% in July), followed by food, alcohol & tobacco (2.5%, stable compared with July), services (1.3%, compared with 1.4% in July) and non-energy industrial goods (0.3%, compared with 0.5% in July).
The euro area (EA19) seasonally-adjusted unemployment rate was 8.2% in July 2018, stable compared with June 2018 and down from 9.1% in July 2017. This is the lowest rate recorded in the euro area since November 2008. The EU28 unemployment rate was 6.8% in July 2018, down from 6.9% in June 2018 and from 7.6% in July 2017. This is the lowest rate recorded in the EU28 since April 2008. These figures are published by Eurostat.
Eurostat estimates that 16.823 million men and women in the EU28, of whom 13.381 million in the euro area, were unemployed in July 2018. Compared with June 2018, the number of persons unemployed decreased by 82 000 in the EU28 and by 73 000 in the euro area. Compared with July 2017, unemployment fell by 1.949 million in theEU28 and by 1.368 million in the euro area.
Economy of Japan
Japan`s gross domestic product climbed 3.0% on year in the second quarter of 2018, the Cabinet Office said. That beat forecasts for 2.6% and was up from the previous reading of 1.9%. On an annualized seasonally adjusted basis, GDP added 0.7% - unchanged and in line with expectations.
The GDP deflator was up 0.1% on year - also unchanged and matching forecasts. Nominal GDP gained 0.7% on quarter, beating forecasts for 0.6% and up from 0.4%. Private consumption was up 0.7%, in line with forecasts and unchanged from the previous reading. Business spending jumped 3.1% on quarter, topping forecasts for 2.8% and up from 1.3%.
Japan`s industrial production declined more than estimated in July, final data from the Ministry of Economy, Trade and Industry showed. Industrial output fell 0.2 percent on month in July instead of 0.1 percent drop estimated initially.
The decline in exports was revised to 2 percent from 1.9 percent. At the same time, stock dropped 0.2 percent as initially estimated, while the stock rate rose 0.4 percent, in line with preliminary estimate. On a yearly basis, production grew 2.2 percent in July.
Data showed that capacity utilization decreased by adjusted 0.6 percent month-on-month but slower than the 2.2 percent decline posted in June. This was the third consecutive decrease in capacity utilization.
Japan recorded a trade deficit of JPY 231 billion in July of 2018, compared to a JPY 407 billion surplus in the same month a year ago and to market consensus of a JPY 50 billion gap.
Exports increased by 3.9 percent from a year earlier to JPY 6.75 trillion in July, down from a 6.7 percent rise in June and below expectations of a 6.3 percent gain.
Meantime, imports jumped 14.6 percent to JPY 6.98 trillion, up from a 2.6 percent growth in June and slightly above market consensus of a 14.4 percent rise.
A key measure of consumer prices in Japan flat lined in July and came in short of economists` estimates. The core consumer price index, which strips out food prices but leaves in fuel prices, rose 0.8 per cent in July compared to a year prior, according to Japan`s statistics bureau. The reading, which was in line with the previous month, was short of the 0.9 per cent increase forecast by economists in a Reuters poll. Japan`s central bank has an inflation target of 2 per cent.
Headline inflation rose to 0.9 per cent from 0.7 per cent previously, its highest since March. Core-core inflation, which removes both food and energy prices, rose 0.3 per cent, a slight rise from the 0.2 per cent increase in June.
Japan`s unemployment rate rose fractionally in July from a month earlier, the government said. According to the Ministry of Internal Affairs and Communications, the jobless rate in the recording month rose to 2.5 percent from 2.4 percent a month earlier, with the rate close to all-time lows since the 1990s and reflecting the severity of Japan`s labor shortage.
The Ministry of Health, Labor and Welfare said separately that the job availability ratio in July stood at 1.63, up from 1.62 in June, marking a 44-year high. The figure translates to there being 163 available jobs for every 100 people seeking employment.
Economy of Russia
Russia`s gross domestic product grew by 1.9 percent year-on-year in the second quarter of 2018, up from a preliminary estimate of 1.8 percent and following a 1.3 percent expansion reported in the previous three-month period. The stronger growth rate was mainly driven by gains in hotel, transport and restaurant sectors as the soccer World Cup had a positive impact on the economy. In addition, manufacturing and mining output increased at a faster pace.
The services sector contributed significantly to growth, as sharper rises were reported for: accommodation & food service activities (6.9 percent vs 3.4 percent in Q1); transportation & storage (3.9 percent vs 0.9 percent); financial & insurance activities (8.6 percent vs 5.9 percent); public administration & defence, compulsory social security (2.8 percent vs 2.3 percent); wholesale & retail trade (1.9 percent vs no growth); information & communication (3.3 percent vs 0.3 percent); and administrative & support service activities (1.8 percent from 0.6 percent). Meanwhile, there was a contraction in real estate activities (-1.5 percent vs 3.9 percent).
Within industrial activity, production grew further for both manufacturing (2.8 percent vs 1.9 percent) and mining & quarrying (2.6 percent from 0.7 percent); while electricity, gas & steam, air conditioning output was was unchanged (vs 2.1 percent in Q1), and water supply, water disposal, organization of waste collection & disposal, pollution control activities dropped 2.2 percent (vs 0.2 percent in Q1). In contrast, construction output rebounded firmly (0.8 percent vs -5.1 percent).
In addition, agriculture, forestry & fishing advanced by 0.3 percent, compared to a 0.1 percent fall in the first quarter.
Considering the first half of 2018, the Russian economy grew 1.7 percent, slightly above 1.6 percent in the same period of 2017.
Russia`s industrial production increased by 2.7 percent year-on-year in August 2018, following a 3.9 percent advance in the previous month and beating market expectations of 2.5 percent. Output rose at a softer pace for both manufacturing (2.2 percent vs 4.6 percent in July) and electricity, gas supply (0.1 percent vs 1.8 percent); while an acceleration in growth was recorded for extraction of raw materials (4.5 percent vs 3.2 percent) and distribution of water, sewage (5.5 percent vs 1 percent). Industrial Production in Russia increased 2.70 percent in August of 2018 over the previous month.
Russia`s trade surplus widened sharply to USD 13.40 billion in July 2018 from USD 3.83 billion in the same month a year earlier, but still below market expectations of a USD 14.40 billion surplus.
Exports jumped 39.5 percent to USD 34.43 billion in July from USD 24.68 billion a year ago, as exports to non-CIS countries climbed 42.5 percent to USD 29.83 billion and those to CIS countries went up 22.7 percent to USD 4.60 billion.
Imports went up at a much softer 0.9 percent to USD 21.03 billion from USD 20.85 billion a year earlier. Imports from non-CIS countries increased 0.9 percent to USD 18.85 billion and those from CIS countries advanced 0.3 percent to USD 2.18 billion.
The trade surplus with non-CIS countries grew 385.8 percent to USD 10.99 billion from USD 2.26 billion a year ago; and with CIS countries it widened 53.7 percent to USD 2.42 billion from USD 1.57 billion.
Considering January-July, the trade surplus widened to USD 104.04 billion from USD 63.51 billion in the same period of 2017.
Russia`s annual inflation rate rose to 3.1 percent in August of 2018 from 2.5 percent in the previous month, slightly below market expectations of 3.2 percent. It was the highest inflation rate since August of 2017, mainly due to food prices.
Within the goods component, food cost advanced 1.9 percent in August, up from a 0.5 percent rise in July; and prices of non-food products rose by 3.8 percent, the same as in the previous month. Meanwhile, services inflation eased to 3.7 percent in August from 3.8 percent in July.
Annual core inflation rate picked up to 2.6 percent in July from 2.4 percent in the previous period. It was the highest rate since September last year.
On a monthly basis, consumer prices showed no growth, compared to a 0.3 percent gain in July and missing market expectations of a 0.1 percent increase. Prices advanced faster for non-food products (0.2 percent from 0.1 percent in July) while cost slowed for services (0.3 percent from 1.3 percent). Meanwhile, food prices declined 0.4 percent, following a 0.3 percent drop in July.
Russian unemployment rate stood at an all-time low of 4.7 percent in July 2018, unchanged from the previous month and compared with last year`s 5.1 percent. The number of unemployed increased by 1.7 percent from a month earlier.
The number of unemployed rose by 60 thousand to 3.603 million in July from 3.543 million in the previous month. Compared with the previous year, unemployment fell by 304 thousand from 3.907 million.
Real wages in Russia increased by 8 percent year-on-year in July, following a 7.2 percent advance in the previous month and far above market expectations of a 6.8 percent gain. Average nominal wages surged 10.7 percent to RUB 42,640 while annual inflation rate rose to 2.5 percent in July, close to January`s record low of 2.2 percent. Meanwhile, real disposable personal income in Russia increased by 2 percent in July, following a 0.7 percent gain in the previous month.
19.09.2018 21:55:56