World Economy Review
MOSCOW. KAZINFORM The global economic recovery remains "weak and precarious", the International Monetary Fund has warned. In its latest World Economic Outlook, the IMF predicts "subpar" growth this year of 3.1%, rising slightly in 2017. "Taken as a whole, the world economy has moved sideways," said IMF chief economist Maurice Obstfeld.
The IMF also warned that the Brexit decision will hit the UK economy as it halved its 2017 growth forecast to just 1.1%. The Fund raised its 2016 forecast slightly as UK retail spending has held up better than expected after the June vote to leave the European Union.
A fall in US growth this year to 1.6%, down from the previous 2.2% forecast, will be offset by increases in countries including Japan, Germany and Russia and India. The indifferent economic recovery after the global financial crisis has been a persistent theme in the Fund's regular World Economic Outlook reports.
The latest report warns of the danger of a pattern of underperformance becoming entrenched. Weak growth can lead to lower investment, slower productivity growth and the erosion of what the IMF calls "human capital" - which means skills and expertise.
The UK referendum result highlights wider trends in developed economies, the IMF says. "The Brexit vote and the ongoing US presidential election campaign have highlighted a fraying consensus about the benefits of cross-border economic integration," the report says.
The US reference is about the hostility to international trade agreements such as NAFTA, which involves the US, Canada and Mexico,) voiced in the election campaign. The Republican candidate Donald Trump has been the most vocal, though not the only voice expressing such views.
It is a political trend that has the IMF worried. It argues that an environment hostile to trade would make it harder for commodity exporters and poorer countries to develop new lines of exports. Such a trend would also undermine productivity growth and the spread of knowledge and technology.
Mr Obstfeld says: "It is vitally important to defend the prospects for increasing trade integration. Turning back the clock on trade can only deepen and prolong the world economy's current doldrums."
In one important area - China - the IMF's concerns have eased somewhat in the short term. Growth has been stable, allaying fears that China's widely reported economic slowdown would be much more abrupt than it has been. However, there is a warning about the country's longer-term prospects and the debt burden faced by many businesses.
"A still-rising credit-to-GDP ratio and lack of decisive progress in addressing corporate debt and governance concerns in state-owned enterprises raise the risk of a disruptive adjustment," the IMF says. That could have important international implications especially for commodity and machinery exporters, for which China is a vital market.
On the UK's vote to leave the European Union, the IMF says the financial market reaction was "reassuringly orderly" and it has therefore edged up its forecast for growth in the UK this year. But it says the ultimate impact remains very unclear and the IMF predicts a marked slowdown in growth next year for Britain - but not a contraction.
Economy of the United States
The U.S. economy grew at a modestly faster pace in the second quarter than previously estimated, but the latest data confirms the expansion decelerated in the first half of the year.
Gross domestic product, a broad measure of goods and services produced across the economy, expanded at an inflation-adjusted 1.4% seasonally adjusted annual rate in the second quarter, the Commerce Department said. That is up from last month's estimate of a 1.1% growth rate during the spring. Economists surveyed by The Wall Street Journal expected revised GDP growth at a 1.3% pace for the April to June period.
Second-quarter growth accelerated from the first quarter's 0.8% pace, but was slower than the roughly 2% annual rate averaged since the recession ended in mid-2009. The current expansion's pace is the weakest of any since 1949.
U.S. industrial production fell more than expected in August, hurt in part by a sharp decline in utilities output, the Federal Reserve said. Industrial output fell 0.4 percent last month after a downwardly revised 0.6 percent increase in July. Last month, manufacturing output also declined 0.4 percent. Economists polled by Reuters had forecast industrial production declining 0.3 percent last month.
Last month, there were some positive signs for the hard-hit energy sector, with mining output rising 1.0 percent, it's fourth consecutive monthly increase. However, the index for utilities fell 1.4 percent. With overall output decreasing, the percentage of industrial capacity in use fell 0.4 percentage points in August to 75.5 percent, from an unrevised 75.9 percent in July.
The U.S. trade deficit rose more than expected in August as a rise in imports offset higher exports. The Commerce Department said the trade gap widened 3 percent to $40.73 billion. Imports hit their highest level since September 2015 while exports were the highest since July of last year. The July trade deficit was revised to $39.55 billion from a previous $39.47 billion.
Economists polled by Reuters had forecast the trade gap decreasing to $39.3 billion in August. When adjusted for inflation, the deficit fell to $57.48 billion from a revised $58.23 billion in July.
Exports have begun to slowly shake off the lingering effects of the dollar's strength for much of the past two years against the currencies of the United States' major trading partners. Imports of goods and services increased 1.2 percent to $228.58 billion in August.
U.S. consumer prices increased more than expected in August as rising rents and healthcare costs offset a drop in gasoline prices, pointing to a steady build-up of inflation that could allow the Federal Reserve to raise interest rates this year. The Labor Department said its Consumer Price Index rose 0.2 percent last month after being unchanged in July. In the 12 months through August, the CPI increased 1.1 percent after advancing 0.8 percent in July.
The so-called core CPI, which strips out food and energy costs, rose 0.3 percent last month, the biggest increase since February, after gaining 0.1 percent in July. Economists had forecast the CPI nudging up 0.1 percent last month and the core CPI gaining 0.2 percent. The core CPI increased 2.3 percent in the 12 months through August after rising 2.2 percent in the year through July.
Economy of the European Union
Seasonally adjusted GDP rose by 0.3% in the euro area (EA19) and by 0.4% in the EU28 during the second quarter of 2016, compared with the previous quarter, according to an estimate published by Eurostat, the statistical office of the European Union. In the first quarter of 2016, GDP grew by 0.5% in both zones.
Compared with the same quarter of the previous year, seasonally adjusted GDP rose by 1.6% in the euro area and by 1.8% in the EU28 in the second quarter of 2016, after +1.7% and +1.9% respectively in the previous quarter.
In July 2016 compared with June 2016, seasonally adjusted industrial production fell by 1.1% in the euro area (EA19) and by 1.0% in the EU28, according to estimates from Eurostat. In June 2016 industrial production rose by 0.8% in the euro area and by 0.7% in the EU28. In July 2016 compared with July 2015, industrial production decreased by 0.5% in the euro area and by 0.1% in the EU28.
The first estimate for euro area (EA19) exports of goods to the rest of the world in July 2016 was €167.2 billion, a decrease of 10% compared with July 2015 (€185.4 bn). Imports from the rest of the world stood at €142.0 bn, a fall of 8% compared with July 2015 (€154.4 bn). As a result, the euro area recorded a €25.3 bn surplus in trade in goods with the rest of the world in July 2016, compared with +€31.1 bn in July 2015. Intra-euro area trade fell to €137.3 bn in July 2016, down by 7% compared with July 2015. These data are released by Eurostat.
The first estimate for extra-EU28 exports of goods in July 2016 was €142.0 billion, down by 13% compared with July 2015 (€162.3 bn). Imports from the rest of the world stood at €138.2 bn, down by 8% compared with July 2015 (€149.6 bn). As a result, the EU28 recorded a €3.8 bn surplus in trade in goods with the rest of the world in July 2016, compared with +€12.7 bn in July 2015. Intra-EU28 trade fell to €245.8 bn in July 2016, -7% compared with July 2015.
The euro area (EA19) seasonally-adjusted unemployment rate was 10.1% in August 2016, stable compared to July 2016 and down from 10.7% in August 2015. This remains the lowest rate recorded in the euro area since July 2011. The EU28 unemployment rate was 8.6% in August 2016, stable compared to July 2016 and down from 9.3% in August 2015. This remains the lowest rate recorded in the EU28 since March 2009. These figures are published by Eurostat.
Eurostat estimates that 20.973 million men and women in the EU28, of whom 16.326 million were in the euro area, were unemployed in August 2016. Compared with July 2016, the number of persons unemployed decreased by 40 000 in the EU28, while it increased by 8 000 in the euro area. Compared with August 2015, unemployment fell by 1.587 million in the EU28 and by 875 000 in the euro area.
Euro area annual inflation is expected to be 0.4% in September 2016, up from 0.2% in August 2016, 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 September (1.2%, compared with 1.1% in August), followed by food, alcohol & tobacco (0.7%, compared with 1.3% in August), non-energy industrial goods (0.3%, stable compared with August) and energy (-3.0%, compared with -5.6% in August).
Economy of Japan
Japan's economy grew faster over April-June than initially estimated, the Cabinet Office said, with upward revisions to capital expenditure and inventories, but the lack of a strong growth driver is seen undermining momentum for the rest of this year.
The Cabinet Office said the economy grew at a 0.7 percent annualized rate over April-June, an upward revision of the preliminary reading of 0.2 percent growth, in which the strong yen and weak demand were seen hurting exports and capital spending.
The revised gross domestic product (GDP) data compared with economists' median estimate of an annualized 0.0 percent reading in a Reuters poll. The figure translates into quarter-on-quarter growth of 0.2 percent in real, price-adjusted terms, against an initial reading of 0.0 percent.
Capital expenditure, a key component of GDP, fell 0.1 percent for the quarter, versus the preliminary estimate of a 0.4 percent decline. Inventories contributed 0.1 percentage point to growth, versus the preliminary slightly negative contribution recorded. Private consumption, which accounts for roughly 60 percent of the economy, rose 0.2 percent, unchanged from the preliminary estimate.
Industrial production in Japan advanced 1.5 percent on month in August, the Ministry of Economy, Trade and Industry said. That beat forecasts for an increase of 0.5 percent following the 0.4 percent decline in July. On a yearly basis, output jumped 4.6 percent - also topping forecasts for a gain of 3.4 percent after sliding 4.2 percent in the previous month. Output is projected to gain 2.2 percent in September and 1.2 percent in October.
Japan's trade balance slipped into deficit in August, for the first time in three months, as a stronger yen sapped exports, the Finance Ministry reported. Exports in August totaled ¥5.32 trillion ($52.4 billion), down 9.6 percent from a year earlier, while imports totaled ¥5.34 trillion ($52.5 billion), a 17.3 percent drop.
The deficit of ¥18.7 billion ($184 million) was still smaller than the ¥567.5 billion deficit recorded in August 2015. However, it followed a surplus of ¥514 billion in July, and surprised analysts who had forecast a robust surplus for the month.
Japanese consumer prices fell for the sixth straight month in August, keeping the Bank of Japan under pressure to do more to generate inflation. The core consumer price index declined 0.5% from a year earlier in August, dropping at the same pace as in July, according to data released by the Ministry of Internal Affairs and Communications.
The result for the index, which excludes fresh food prices but includes energy, matched a forecast by economists surveyed by the Nikkei. After excluding energy, prices rose 0.2%, the slowest increase in about three years.
The jobless rate in Japan came in at a seasonally adjusted 3.1 percent in August, the Ministry of Internal Affairs and Communications said. That was above forecasts for 3.0 percent, which would have been unchanged from the previous month. The job-to-applicant ratio was 1.37 - in line with expectations and unchanged from the July reading. The participation rate was 60.3 percent.
Economy of Russia
Russian gross domestic product growth will be roughly flat in the third quarter versus the previous quarter in seasonally adjusted terms, the central bank said, adding that data in August showed an economic recovery was not yet steady.
The bank said it predicted capital investment would shrink by 2.5-3.5 percent in annual terms in the third three months of the year versus a contraction of 4.3 percent in the first half of 2016. It said it was sticking to its forecast for a 2016 GDP contraction of 0.3-0.7 percent.
Industrial production in Russia increased 0.7 percent year-on-year in August of 2016 following 0.3 percent drop in the previous month. Manufacturing production rebounded 0.1 percent (-1.5 percent in July); electricity, gas and water rose at a faster 1.3 percent (+0.8 percent in July) and mining grew at a steady pace (+1.8 percent). Industrial production in Russia increased 0.4% in Jan-Aug 2016 compared with a year earlier. On a monthly basis, industrial output went up 1.2 percent.
Real wages in Russia fell by 8.3% in August compared to a year earlier, according to a report published by the country's Federal Statistics Service. The drop was the largest since December 2008 when it dropped 10.7% on year as the global financial crisis hit Russia.
Russia's trade surplus decreased to $6.5 billion in July 2016, from a $10.6 billion surplus a year earlier while above market expectations of $6.1 billion. It was the lowest trade surplus since April 2009, as exports dropped at a faster 17.5 percent than 4.1 percent fall in imports. Considering the first seven months of the year, the trade surplus shrank 48.7 percent to USD 51.249 billion, as exports fell 27.8 percent and imports declined 8.6 percent.
Consumer prices in Russia increased 6.4 percent year-on-year in September of 2016, following 6.9 percent growth in the previous month and below market expectations of 6.6 percent. It was the lowest inflation rate since February 2014, as food, housing and utilities, clothing and footwear, transport prices rose at a slower pace. On a monthly basis, prices went up 0.2 percent.
The unemployment rate in Russia fell unexpectedly in August, official data showed. In a report, Russian Federation State Committee on Statistics said that Russian Unemployment Rate fell to a seasonally adjusted annual rate of 5.2%, from 5.3% in the preceding month. Analysts had expected Russian Unemployment Rate to rise to 5.4% in August.