ECONOMIC ENVIRONMENT
Tuesday, August 21, 2012 (Week 34)
World economy gives signs that will remain weak in 2013 as European, US
and Asian economies are trying to defeat their annual slow growth and reach
their deficit targets.
Eurozone is in a recession with gross domestic product in the euro area
falling 0.2% in the three months to June, according to European Union’s
Statistic Office, from the struggling economies of Greece, Italy, Spain,
Portugal and Finland. The Italian economy contracted 0.7 percent in the second
quarter, extending a recession that started last year, while Spanish GDP fell
0.4 percent. Portugal’s recession deepened, with GDP dropping 1.2 percent for
its seventh straight decline. The European Commission forecasts a 0.3% contraction
for the 17-nation euro economy this year.
Germany and France seems to have defied debt crisis in the first half of
the year. In Germany, gross domestic product rose 0.3 percent from the first
quarter, when it gained 0.5 percent, as per data from the Federal Statistics
Office. Fitch Ratings said that there is no immediate risk of Germany loosing
its top credit rating, although rating pressure could mount if bailout costs
increase for other eurozone countries, or should evidence of a deeper recession
emerge in the single-currency area. The rating firm kept Germany’s rating at
triple-A with stable outlook, due to country’s strong economic growth during
the last two years.
French GDP remain unchanged for third consecutive quarter, preventing a
highly anticipated contraction due to a mild increase in investment and
exports, according to the national statistics office Insee in Paris. Pierre
Moscovici, France’s finance minister,welcomed the news that the eurozone’s
second-largest economyhad avoided recession, despite warnings last week from
the Bank of France that it would contract. But he said three successive
quarters of zero growth was “not excellent ... it’s zero growth so therefore it’s
too weak”. He also acknowledged that the 2013 growth target of 1.2 per cent
would require a huge effort to fix the economy and restart growth.
“For Germany, the outlook remains pretty robust,” said Christian Schulz,
an economist at Berenberg Bank in London. “For France, the outlook is less rosy
as a number of the components that have prevented it from contracting will be
hit by austerity measures, plus the country is losing competitiveness.”
The Dutch economy, the fifth largest in the euro-zone, also outperformed
expanding at an annualized 0.2 per cent in the second quarter, when economists
had forecast a contraction of 0.3 per cent.
In Greece, economy shrank 6.2 per cent on an annualized basis in the
second quarter, according to preliminary estimates from the Hellenic
Statistical Authority. The annual decrease was slower than the 6.5% fall seen a
quarter ago and a 7% drop forecast by economists. Meanwhile, Athens is seeking
for a two year extension of its efforts to reduce its deficit without extra
financing. The extension is being justified by the country’s deep recession
with predictions for the economy shrinking by 7% this year. The timing seen as
appropriate as Greece struggles to find another EUR11,5bn of spending cuts,
equivalent to about 5% of national output, to be implemented in 2013 and 2014,
under the current bailout deal with the European Union and the International
Monetary Fund.
Furthermore, Cyprus economy fell deeper into recession in the second
quarter with Gross Domestic Product declining by 0.8 percent, marking the
fourth consecutive fall as per data released by the Statistical Service.
In the U.S., growth slowed to a 1.5 percent annualized pace in the
second quarter from 2 percent in the first quarter, while US economy added a
better than expected 163,000 jobs in July in a sign that the recent slowdown in
the world’s largest economy may have stabilized. If the improvement is
sustained into August then it will complicate the US Federal Reserve’s decision
about whether to easy monetary policy further...
In Japan, GDP grew at an annualized 1.4 percent in the three months
through June, down from 5.5 percent in the previous quarter and against
expectations of a 2.3 per cent rise. Analysts said the world’s third largest
economy had struggled to adjust to the effects of a strengthening yean and
faltering growth in key export partners such as China and EU.
In India, inflation fell below 7 per cent in July, for the first time since
November 2009, but the easing is unlikely to persuade the country’s central bank
to cut interest rates next month despite the country’s economic slowdown. Trade
data released provide further evidence of the economic gloom in India as the
trade deficit expanded from $10.3bn in June to $15.5bn in July. Exports fell 14.8
per cent, to $22.4bn from contracting demand in Europe and USA, while imports
fell 7.61 per cent, to $37.9bn, according to the provisional data.
In Brazil, President Dilma Rousseff has launched a R$133bn ($65.6bn)
stimulus package to spur investment in the country’s infrastructure and
stimulate investors’ confidence in the world’s second-largest emerging market
economy. Brazil’s economy growth has slowed over the past 12 months as
inadequate infrastructure including roads and ports and a shortage of skilled labor
raised costs and stifled industry. The economy expanded 7.5 per cent in 2010,
the fastest pace in more than two decades, but last year slowed to 2.7 per cent
and this year is expected to grow 2 per cent or less. Of the total investment,
R$79.5bn would be spent within five years and the remainder over 25 years.
Funding would be largely at favorable terms from the state development bank, BNDES.
