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The World Bank cut its forecasts for this year, citing a deeper than expected recession in Europe and a slowdown in China and India. Renewing fears about growth, it said the global economy was likely to grow by 2.2% this year, a downgrade from its January forecast of 2.4%.
The downbeat forecasts helped to drive a wave of selling in Japan, where the Nikkei index tumbled 6.35% amid fears that central bank stimulus measures – led by the US – might be withdrawn. The World Bank also cut its forecast for growth in 2014 to 3.1% from 3%, but maintained its prediction that global GDP would increase by 3.3% in 2015.
"While there are markers of hope in the financial sector, the slowdown in the real economy is turning out to be unusually protracted," said Kaushik Basu, senior vice-president and chief economist at the bank. "This is reflected in the stubbornly high unemployment in industrialized nations, with unemployment in the eurozone actually rising, and in the slowing growth in emerging economies."
Michael Hewson, senior market analyst at CMC Markets UK, a financial spread-betting company, said: "European markets have plunged on the open in the wake of the 6.35% decline in the Nikkei overnight as investors continue to worry about the longevity of central bank stimulus measures, while another global growth downgrade from a global organization, this time the World Bank, has prompted investors to question current stock market valuations."
The bank is now predicting the eurozone economy will shrink by 0.6% this year, compared with an earlier forecast of a 0.1% decline in GDP. The currency bloc`s economy is then expected to grow by 0.9% in 2014 and 1.5% in 2015.
The World Bank highlighted slowing growth in China, as authorities there seek to rebalance the economy, and said India`s annual growth had dropped below 6% for the first time in 10 years. It said there was concern that the US might begin to ease its support of the world`s largest economy by withdrawing quantitative easing, or the use of central bank cash to buy up sovereign debt in the hope that financial institutions will reinvest the windfall in the wider economy.
The bank added that austerity programs, high unemployment, and weak consumer and business confidence would continue to impede growth in higher-income countries.
It downgraded its forecasts for developing countries` GDP to 5.1% this year from an earlier forecast of 5.5%. Growth in 2014 and 2015 is expected to be 5.6% and 5.7% respectively.

Economy of the United States

U.S. economic growth was more tepid than previously estimated in the first quarter, held back by a moderate pace of consumer spending, weak business investment and declining exports. Gross domestic product expanded at a 1.8 percent annual rate, the Commerce Department said in its final estimate. Output was previously reported to have risen at a 2.4 percent pace after a 0.4 percent stall speed in the fourth quarter. Economists polled by Reuters had expected first-quarter GDP growth would be left unrevised at 2.4 percent. When measured from the income side, the economy grew at a 2.5 percent rate, slower than the fourth-quarter`s brisk 5.5 percent pace.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a 2.6 percent pace rather than 3.4 percent. The revision largely reflected weak outlays on health care services. Consumer spending grew at a 1.8 percent rate in the fourth quarter of last year. Exports, previously reported to have grown, actually contracted at a 1.1 percent pace in the first quarter, cutting 0.15 percentage point from GDP growth. That likely reflects a slowdown in the global economy. The pace of inventory accumulation was revised marginally down, adding more than half a percentage point to GDP growth. Excluding inventories, GDP grew at a 1.2 percent rate, the slowest in two years.
Industrial production was flat in May after contracting a revised-up 0.4% in April. Economists were looking for a 0.2% rise. Manufacturing production posted a 0.1% rise in May, in line with expectations, after declining 0.4% the month before. Capacity utilization fell to 77.6% from 77.7% last month. Economists predicted 77.8%.
The U.S. trade deficit widened in April, as demand for foreign cars, cell phones and other imported goods outpaced growth in U.S. exports. The Commerce Department said that the trade gap rose 8.5% in April from March to $40.3 billion. Exports increased 1.2% to $187.4 billion, the second-highest level on record. Companies sold more telecommunications equipment, industrial machinery and airplane parts, while U.S.-made autos and auto parts also rose to an all-time high of $12.8 billion. But imports grew an even faster 2.4% to $227.7 billion. Sales of foreign cars increased to $25.5 billion. Americans also bought more consumer goods, led by big gain in foreign-made cell phones.
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in May on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.4 percent before seasonal adjustment.
The shelter index rose 0.3 percent and accounted for more than half of the seasonally adjusted all items increase in May. The energy index rose modestly, with the gasoline index flat but increases in the electricity and natural gas indexes accounting for the rise. The food index, however, turned down in May, with the food at home index falling 0.3 percent.
The index for all items less food and energy increased 0.2 percent in May. Besides the shelter increase, advances in the indexes for airline fares, recreation, and apparel also contributed to the rise. In contrast, the indexes for medical care and used cars and trucks declined in May.
The all items index increased 1.4 percent over the last 12 months, an increase from last month`s 1.1 percent figure. The 12-month change in the index for all items less food and energy remained at 1.7 percent. The food index has risen modestly over the last 12 months, advancing 1.4 percent, while the index for energy has declined, falling 1.0 percent.

Economy of the European Union

GDP fell by 0.2% in the euro area (EA17) and by 0.1% in the EU27 during the first quarter of 2013, compared with the previous quarter, according to second estimates published by Eurostat, the statistical office of the European Union. In the fourth quarter of 2012, growth rates were -0.6% and -0.5% respectively. Compared with the same quarter of the previous year, GDP fell by 1.1% in the euro area and by 0.7% in the EU27 in the first quarter of 2013, after -1.0% and -0.7% respectively in the previous quarter.
In April 2013 compared with March 2013, seasonally adjusted industrial production grew by 0.4% in the euro area (EA17) and by 0.3% in the EU27, according to estimates released by Eurostat, the statistical office of the European Union. In March production rose by 0.9% in both zones. In April 2013 compared with April 2012, industrial production fell by 0.6% in the euro area and by 0.8% in the EU27.
In April 2013 compared with March 2013, production of capital goods grew by 2.7% in the euro area and by 2.5% in the EU27. Non-durable consumer goods increased by 0.7% in both zones. Intermediate goods remained stable in the euro area and fell by 0.1% in the EU27. Energy decreased by 1.5% in both zones. Durable consumer goods dropped by 2.7% in the euro area and by 1.4% in the EU27.
Among the Member States for which data are available, industrial production rose in ten and fell in eleven. The highest increases were registered in Ireland (+3.0%), France (+2.3%) and Romania (+1.9%), and the largest decreases in Finland (-5.1%), the Netherlands (-4.3%) and Portugal (-3.6%).
In April 2013 compared with April 2012, production of durable consumer goods dropped by 6.2% in the euro area and by 4.3% in the EU27. Intermediate goods decreased by 2.8% and 2.9% respectively. Energy fell by 1.7% in the euro area and by 2.8% in the EU27. Capital goods rose by 1.6% and by 1.9% respectively. Non-durable consumer goods increased by 1.6% in the euro area and 2.1% in the EU27.
Among the Member States for which data are available, industrial production fell in thirteen and rose in eight. The largest decreases were registered in Finland (-10.2%), Italy (-4.6%) and the Czech Republic (-3.4%), and the highest increases in Romania (+12.6%), Lithuania (+5.0%) and Estonia (+2.7%).
The first estimate for the euro area (EA17) trade in goods balance with the rest of the world in April 2013 gave a 14.9 billion euro surplus, compared with +3.3 bn in April 2012. The March 2013 balance was +22.5 bn, compared with +6.9 bn in March 2012. In April 2013 compared with March 2013, seasonally adjusted exports fell by 0.8% while imports rose by 0.5%. These data are released by Eurostat, the statistical office of the European Union.
The first estimate for the April 2013 extra-EU27 trade balance was a 9.2 bn euro surplus, compared with -13.4 bn in April 2012. In March 2013 the balance was +15.9 bn, compared with -8.2 bn in March 2012. In April 2013 compared with March 2013, seasonally adjusted exports fell by 0.2% while imports remained stable.
Euro area annual inflation is expected to be 1.6% in June 2013, up from 1.4% in May, according to a flash estimate from Eurostat, the statistical office of the European Union. Looking at the main components of euro area inflation, food, alcohol & tobacco is expected to have the highest annual rate in June (3.2%, stable compared with May), followed by energy (1.6% compared with -0.2% in May), services (1.4% compared with 1.5% in May) and non-energy industrial goods (0.7% compared with 0.8% in May).
The euro area (EA17) seasonally-adjusted unemployment rate was 12.2% in May 2013, up from 12.1% in April. The EU27 unemployment rate was 11.0%, stable compared with the previous month. In both zones, rates have risen markedly compared with May 2012, when they were 11.3% and 10.4% respectively. These figures are published by Eurostat, the statistical office of the European Union.
Eurostat estimates that 26.522 million men and women in the EU27, of whom 19.340 million were in the euro area, were unemployed in May 2013. Compared with April 2013, the number of persons unemployed increased by 15 000 in the EU27 and by 67 000 in the euro area. Compared with May 2012, unemployment rose by 1.438 million in the EU27 and by 1.459 million in the euro area.

Economy of Japan

The Japanese gross domestic product (GDP) grew by 1 per cent in the first-quarter of 2013, compared to previous quarter, primarily due to the introduction of aggressive financial measures by Prime Minister Shinzo Abe. The improvement in GDP is higher than the initial estimates of 0.9 per cent quarter-over-quarter. The world`s third largest economy grew at an annualised rate of 4.1 per cent, as against the preliminary expectation of 3.5 per cent.
During the quarter, capital investment declined 0.3 per cent; the government had initially estimated a decline of 0.7 per cent. Domestic demand grew by 0.6 per cent against the expectations of 0.5 per cent. The surplus in the present account was at 750bn Japanese yen ($7.70bn), an increase of 100.8 per cent from the same period a year earlier.
Japan`s industrial production advanced 2.0 percent in May from the previous month for the fourth consecutive monthly rise, supported by increased domestic demand for power generation equipment ahead of the summer, the Economy, Trade and Industry Ministry said.
By sector, production by makers of general-purpose, production and business-oriented machinery increased 7.6 percent, helped by firm demand for components of steam turbines and boilers such as from Japanese utilities. Output of electrical machinery makers also rose 6.1 percent amid brisk solar panel production, a METI official said. Transport equipment makers, however, saw production drop 3.4 percent, with shipments of cars for Europe and China decreasing.
But he also noted that manufacturers may not be so confident about the prospects of domestic demand, given that manufacturers polled by the ministry anticipated that output will drop 2.4 percent in June. As for July, however, the manufacturers anticipated a rise of 3.3 percent.
Japan`s trade deficit rose nearly 10 percent in May to 993.9 billion yen (nearly $10.5 billion), highlighting the challenge Prime Minister Shinzo Abe faces in revitalizing manufacturing as industries increasingly shift production offshore. Rising costs for imports due to the cheaper yen matched a 10 percent rebound in exports from a year earlier, the Finance Ministry reported. The May data show Japan`s efforts to boost trade with the rest of Asia are yielding results, with exports rising 11 percent to 3.2 trillion yen ($33.7 billion), as imports climbed nearly 10 percent to 2.98 trillion yen ($31.4 billion).
Japan`s core consumer prices were flat in May compared with a year earlier, marking the first time they have stopped falling in seven months, government data showed. The reading in the core consumer price index, which includes oil products but excludes volatile prices of fresh food, matched a forecast by economists in a Reuters poll. It followed a 0.4 percent year-on-year decline in April. The so-called core-core inflation index, which excludes food and energy prices and is similar to the core index used in the United States, fell 0.4 percent in the year to May.
Core consumer prices in Tokyo, which are available a month before the nationwide data and serve as a leading price indicator, rose 0.2 percent in June from a year earlier. That followed a 0.1 percent rise in May, which was the first increase since March 2009. The Tokyo figure also matched a median forecast by economists.
The unemployment rate in Japan came in at a seasonally adjusted 4.1 percent in May, the Ministry of Internal Affairs and Communications said - unchanged from the April reading but missing forecasts for 4.0 percent. The job-to-applicant ration was 0.90 - matching forecasts and up from 0.89 in the previous month. The participation rate was 59.7 percent, up 0.2 percent on year.
The number of employed persons in May was 63.40 million, an increase of 430,000 or 0.7 percent on year. The number of unemployed persons in May was 2.79 million, a decrease of 180,000 or 6.1 percent on year

Economy of Russia

Russia`s economy grew 1.6% in the first quarter of 2013, compared with the corresponding period a year earlier, the Federal Statistics Service said, confirming its preliminary estimate. The economy ministry`s initial forecast pegged annual growth at 1.1% for the first three months of 2013, compared with a 4.8% growth rate during the first quarter of 2012. Economists have said a substantial economic recovery in Russia is unlikely as government spending has fallen, investment is close to zero, while Russian exports have been stagnating for nearly two years.
Compared with the fourth quarter, gross domestic product growth in the world`s leading oil and gas producer fell 16.4% in the first three months of 2013, the FSS data showed. The government is currently working on ways to revive the economy after the government slashed its 2013 growth forecast to 2.4% from 3.6%, well below President Vladimir Putin`s ambitious target of 5% annual growth.
Russian industrial production unexpectedly shrank for the first time in three months, reflecting a slump in foreign demand and weak domestic spending. Output at factories, mines and utilities declined 1.4 percent in May from a year earlier after a 2.3 percent increase in April, the Federal Statistics Service in Moscow said in an e-mailed statement. The median estimate of 22 economists in a Bloomberg survey was for a 0.6 percent increase.
Russian manufacturing dropped 4.4 percent from a year earlier in May for the biggest monthly decline this year, compared with a 1.2 advance in April, according to the statement. Mining grew 2.3 percent while production at utilities increased 0.5 percent.
Russia`s consumer inflation is expected to slow to an annual rate of 6.8% in June from the year`s peak of 7.4% in May, the economy ministry said. The economy ministry and central bank predict consumer inflation will ease further in the second half of 2013. The central bank expects the annual inflation rate to fall to within its target range of 5% to 6% in the fourth quarter.
The slowdown in price rises will allow the central bank, which is switching to an inflation targeting policy, to cut interest rates in order to prop up waning economy growth through higher lending activity.

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