The International Monetary Fund has cut its global economic growth forecast for 2014 because of weakness in the world`s two biggest economies. The IMF says the global economy will grow by 3.4 per cent this year, down from its April forecast of 3.7 per cent. The IMF expects global growth to accelerate to 4.0% in 2015.
The revision reflects a weak first quarter in the US which makes up almost a quarter of global GDP. The IMF now expects the US economy to grow at 1.7 per cent in 2014, which would be the weakest rate since the country`s recession officially ended five years ago. That is down from its April prediction of 2.8 per cent, mostly because of a severe cold snap in the first quarter. The US economy shrank at an annual rate of 2.9 per cent in the first three months of the year.
IMF chief economist Olivier Blanchard says it is unlikely that weakness will be repeated. "It looks like a one off ... which is due to an unusually harsh weather," he said. "So factors which do not have obvious implications for the future, but just explain why growth was so bad in that quarter."
The IMF`s forecast for China has also been lowered to 7.4 per cent from 7.6 per cent, with problems in the country`s housing market noted. Among the so-called BRICS countries of Brazil, Russia, India, China and South Africa, India was the only one to avoid a downgrade.
Among those developing economies, the biggest reduction was for Russia`s growth, as a result of investors pulling money out of the country because of its involvement in the conflict in Ukraine. Russia`s economy is now expected to grow at a rate of 0.2 per cent from 1.3 estimated previously.
Dr Blanchard says the IMF`s Russia forecasts exclude the effects of recent sanctions the US has imposed on the country. "These sanctions could probably further decrease the growth rate of Russia," he said.
The IMF said there were bright spots in the global economy which included growth pick-ups in Japan, Germany, Spain and the United Kingdom. The organization expects the Euro area to expand 1.1%, and Japan to gain 1.5%.
However, the fund says geopolitical risks from the crises in the Middle East and Ukraine could dent growth further and hinder the global recovery. "Robust demand momentum has not yet emerged despite continued very low interest rates and easing of brakes to the recovery, including from fiscal consolidation or tight financial conditions," the IMF said.
Economy of the United States
The US economy grew at an annual rate of 4% during the April-to-June period, latest figures released by the US Department of Commerce have shown. This is relative to the first quarter when real GDP declined 2.1% (an improvement from a previous estimate which showed a 2.9% decline).
Consumer spending - which makes up over two-thirds of US economy activity - grew by a robust 2.5% during the second quarter. Business spending increased by 14% in the world`s largest economy, as businesses restocked inventories. Imports, which negatively impact GDP, increased. Gains were also partially offset but a 0.8% decrease in federal government spending.
Industrial production, which measures the output of U.S. manufacturers, utilities and mines, rose a seasonally adjusted 0.2% in June from the prior month, the Federal Reserve said. Capacity utilization in June, at 79.1%, was unchanged from May. Economists surveyed by The Wall Street Journal had forecast output to rise 0.3% and a utilization rate of 79.2%. Total industrial production in June was up 4.3% from a year earlier and advanced at an annual rate of 5.5% in the second quarter.
June`s rise in production was the fourth gain in the past five months. May`s initial reading of a 0.6% increase was revised down slightly to a 0.5% gain. Total output rose 0.9% in February and March, a rebound from the harsh winter in January. Output was flat in April.
Manufacturing production, the largest component of industrial output, rose 0.1%, the fifth straight monthly gain. It grew at a 6.7% annualized rate during the second quarter. Motor-vehicle and parts production fell 0.3%, the first decline in activity since January. Mining production increased 0.8% in June, driven by gains in oil and gas extraction, and increased at an 18.8% annual rate during the quarter.
The US trade deficit narrowed to $44.4 billion in May 2014 from a revised $47.0 (was $47.2) billion shortfall in April. Market consensus had been for a slightly larger $45.0 billion deficit in May. Nominal exports rose by 1.0% following a 0.1% dip (was -0.2%) in April while imports dipped by 0.3% in May partially to retrace a 1.1% (was 1.2%) increase in April.
U.S. consumer prices rose in June at a slightly slower pace than in May with two-thirds of the June advance driven by the largest jump in gasoline prices in a year. The Labor Department says prices rose 0.3 percent in June following a 0.4 percent rise in May which had been the biggest one-month gain in more than a year.
Energy prices were up 1.6 percent, nearly double the May gain, reflecting a sharp 3.3 percent rise in gasoline costs. But food costs edged up just 0.1 percent, the smallest gain since January. Core prices, which exclude volatile food and energy, were up just 0.1 percent. Over the past 12 months, core prices are up 1.9 percent, an indication of moderate inflation.
U.S. employers extended this year`s hiring surge into July by adding a solid 209,000 jobs, the Bureau of Labor Statistics reported. It was the sixth straight month of job growth above 200,000, evidence that businesses are shedding the caution that had marked the 5-year-old economic recovery.
The unemployment rate ticked up to 6.2 percent from 6.1 percent as more Americans started looking for work. Not all found jobs, but the increase suggests that they are more optimistic about their prospects. The jobless aren`t counted as unemployed unless they are actively seeking employment.
Average job gains over the past six months reached 244,000 in July, the best such average in eight years. Still, the employment growth may raise alarms for investors, some of whom fear the Federal Reserve might increase short-term interest rates sooner than expected.
Economy of the European Union
In May 2014 compared with April 2014, seasonally adjusted industrial production fell by 1.1% in both the euro area (EA18) and the EU28, according to estimates from Eurostat, the statistical office of the European Union. In April 2014 industrial production rose by 0.7% in both zones. In May 2014 compared with May 2013, industrial production grew by 0.5% in the euro area and by 1.1% in the EU28.
The first estimate for the euro area (EA18) trade in goods balance with the rest of the world in May 2014 gave a €15.4 billion surplus, compared with +€14.6 bn in May 2013. The April 2014 balance was also +€15.4 bn, compared with +€14.2 bn in April 2013. In May 2014 compared with April 2014, seasonally adjusted exports rose by 0.6% and imports by 0.5%. These data are released by Eurostat.
The first estimate for the May 2014 extra-EU28 trade balance was a €0.6 bn surplus, compared with +€15.0 bn in May 2013. In April 2014 the balance was +€1.0 bn, compared with +€8.6 bn in April 2013. In May 2014 compared with April 2014, seasonally adjusted exports rose by 0.5% and imports by 1.4%.
The euro area (EA18) seasonally-adjusted unemployment rate was 11.5% in June 2014, down from 11.6% in May 2014, and from 12.0% in June 2013. This is the lowest rate recorded since September 2012. The EU28 unemployment rate was 10.2% in June 2014, down from 10.3% in May 2014, and from 10.9% in June 2013. This is the lowest rate recorded since March 2012. These figures are published by Eurostat.
Eurostat estimates that 25.005 million men and women in the EU28, of whom 18.412 million were in the euro area, were unemployed in June 2014. Compared with May 2014, the number of persons unemployed decreased by 198 000 in the EU28 and by 152 000 in the euro area. Compared with June 2013, unemployment fell by 1.537 million in the EU28 and by 783 000 in the euro area.
Euro area annual inflation is expected to be 0.4% in July 2014, down from 0.5% in June, 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 July (1.3%, stable compared with June), followed by non-energy industrial goods (0.0%, compared with -0.1% in June), food, alcohol & tobacco (-0.3%, compared with -0.2% in June) and energy (-1.0%, compared with 0.1% in June).
Economy of Japan
Japan`s economy probably shrank for the first time in nearly two years during the April-June quarter, dragged down by weaker-than-expected consumer spending after a sales tax hike and disappointing factory output, a Reuters poll showed. Exports, a main driver in the economy, also remained sluggish due to weak demand from emerging nations.
Gross domestic product data due to be released on Aug 13 is expected to show the economy shrank at an annualised 7.1% in the second quarter, according to the median forecast in a Reuters poll of 25 economists. It would be the first contraction since July-September in 2012.
On a quarter-to-quarter basis, Japan`s economy was forecast to have contracted 1.8% in the second quarter after a 1.6% growth in the first quarter.
Japan`s industrial production fell a seasonally adjusted 3.3 percent in June from the previous month, as companies adjusted their output due to a build-up in inventories following the April 1 sales tax hike, government data showed. The index of output at factories and mines stood at 96.7 against the base of 100 in 2010.
By sector, output by transport equipment makers, including automakers, dropped 3.4 percent from the previous month, while that in the information and communications equipment sector plunged 9.0 percent due to a slower demand on personal computers and mobile phones, the ministry said.
Japan`s trade deficit widened to an unexpectedly large Y822bn ($8.1bn) in June, contributing to a record shortfall for the first half of the year and raising fresh doubts over the government`s Abenomics strategy to revive growth. Japan`s trade deficit surged to a record 7.6 trillion yen ($74.9 billion) in the first half of the year as exports failed to keep pace with surging imports, the Finance Ministry reported.
Japan`s exports unexpectedly fell in June to swell the trade deficit more than forecast, dragging on an economy squeezed by a sales-tax increase in April. Exports shrank 2 percent from a year earlier, the finance ministry said, compared with a median forecast of a 1 percent rise in a Bloomberg News survey of 29 economists. Imports rose 8.4 percent. Imports for the six months jumped 10 percent to 42.6 trillion yen ($420 billion) while exports rose 3.2 percent to 35.1 trillion yen ($346 billion).
Japanese inflation eased in June due to the slowing impact on prices from a sales tax hike and surging imports, official data showed. Japan National Consumer Price Index declined to 3.6% year-on-year in June from previous 3.7%. Japan`s core consumer prices, stripping out volatile fresh food prices, rose 3.3 percent year-on-year in June, slower than the 3.4 percent rise in May. June`s inflation rise was partially due to a nearly 11 percent jump in gasoline prices and higher electricity bills that reflected rising oil costs.
Excluding the impact of the tax increase to 8.0 percent from 5.0 percent, the rise in core inflation came in at 1.3 percent, Dow Jones Newswires said, quoting a formula used by the Bank of Japan. That was slower than a 1.4 percent increase in May and 1.5 percent rise in April.
Japan`s unemployment rate in June rose 0.2 percentage point from the previous month to 3.7 percent, marking the first rise in 10 months, the Japanese Internal Affairs Ministry said. The ministry said in a preliminary report the number of unemployed people in the reporting period rose 110,000, or 4.7 percent, from a month earlier to 2.44 million. But it believed the employment situation is improving, as a major reason behind the higher jobless rate is people who seek employment increased.
Economy of Russia
Russia`s economy grew by 1.2 percent in annual terms in the second quarter and by 1.1 percent in the first half of the year, Economy Minister Alexei Ulyukayev said. The ministry forecasts gross domestic product growth of 0.4 percent this year, although Ulyukayev has said recently that this forecast might be revised upwards in the autumn.
Russia`s industrial output growth slowed remarkably in June, hit by a drop in the mining sector and a lingering decrease in utility production, data from the federal statistics service showed. The data showed that industrial production grew 0.4% on the year in June after expanding 2.8% in May. Monthly data showed that industrial production shrank 0.1% in June after contracting by 0.4% in May.
The biggest drop was recorded in the mining sector where output fell 1.8% on the month in June after growing 3.3% in May. The utility sector contracted 9.5% on the month, bringing the drop in utility output in the first half of 2014 to 28.5%. Broader industrial production was up 1.5% in the first six months compared with the same period a year earlier, when it contracted 0.2%. The economy ministry expects industrial output to increase 1.3% this year after it showed no growth in 2013.
Measured by the balance of payments, Russia`s exports outweighed its imports in May by $18.3 billion, 7.8 percent less than in the previous month, according to Central Bank data. Exports in May fell 6.7 percent, to $44.3 billion from $47.45 billion, while imports declined 5.9 percent, to $26 billion from $27.6 billion, the regulator said.
But the total trade surplus over the first 5 months of 2014 reached $88.8 billion, 14.2 percent more than in the same period of 2013, when Russia racked up a positive balance of payments of $77.8 billion. Russian exports between April and May grew by 2 percent to $214.9 billion, while imports shrank by 5.1 percent to $126.1 billion.
Russia`s consumer inflation rose further in June to its highest mark since August 2011, according to official data, reinforcing calls for the central bank to tighten its monetary policy during its meeting later in July. Consumer prices climbed 7.8 percent last month year-on-year, compared with May`s 7.6 percent rise, according to an emailed statement from the Federal Statistics Service. The figure topped the median estimate of 20 economists polled by Bloomberg News of 7.7 percent.
Consumer prices accelerated 0.6 percent in June month-on-month. In the January to June period in 2014, prices are up 4.8 percent compared to 3.5 percent in the year-earlier period.
Russia Unemployment Rate unchanged at 4.9% in June 2014.