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POLITICAL ECONOMY
Oil, food prices brake global growth: World Bank
by Staff Writers
Washington (AFP) June 7, 2011

Rising food and fuel prices are taking the wind out of the global economy's recovery this year, the World Bank said Tuesday, cutting its forecast for global growth.

The Bank projected said global growth will only be 3.2 percent in 2011, a tenth point lower than its January estimate and sharply off the 3.8 percent pace of 2010.

The Washington-based development lender expected in its biannual Global Economic Prospects report that the world economy would rebound in 2012.

"But further increases in already high oil and food prices could significantly curb economic growth and hurt the poor," said Justin Lin, the Bank's chief economist.

High-income countries at the nexus of the 2008-2009 global financial crisis were still struggling to recover. Growth would slow from 2.7 percent in 2010 to 2.2 percent in 2011, slower than the previous 2.4 percent estimate.

The rich countries "have the largest amount of restructuring to do," said Andrew Burns, lead author of the report, at a news conference at the Bank's Washington headquarters.

Burns said the United States was in "a growth pause" but a double-dip recession was "not likely" -- echoing US President Barack Obama's statement earlier Tuesday that he was "not concerned about a double-dip recession."

The world's biggest economy was expected to grow a feeble 2.6 percent this year and accelerate to 2.9 percent in 2012, the Bank said.

Japan's March 11 earthquake-tsunami disaster and unrest in the Arab world, while cutting sharply into domestic growth, would make only a modest dent in global growth, the 187-nation institution said.

The disaster interrupted Japan's supplies of key parts and materials to global industries, especially the auto and electronics industries, while political turmoil in the Middle East and North Africa region affected those economies and pushed oil prices higher.

Libyan oil output, which has dwindled to a trickle amid a pro-democracy revolt, accounted for about $15 to $20 of the roughly $30 increase in oil prices from December to their February peak, Burns said.

The recovery in Europe continues to face "substantial headwinds" from uncertainty about debt crises in several eurozone members. The 17-nation eurozone is expected to expand at the 2010 pace of 1.7 percent this year, with growth only edging up to 1.8 percent in 2012.

By contrast, developing countries relatively sailed through the global downturn, providing the impetus for the global recovery.

But at the same time their robust growth was creating the demand for commodities that has spurred prices higher.

"Most developing countries have returned to their pre-crisis levels of production," Lin said at the news conference.

"Now they have to shift their macroeconomic policies from counter-cyclical, inflationary monetary and fiscal policies to a more neutral policy stance."

As developing countries neared full capacity, collective GDP growth was projected to slow from 7.3 percent in 2010 to about a 6.3 percent pace each year from 2011 to 2013.

Many were operating above capacity and were at risk of overheating, especially in Asia and Latin America, the bank warned.

Burns called on developing countries to focus on structural reform in order to use their resources efficiently and to change their "mindset" of pursuing "growth at all costs."

For China, the second-biggest economy and the world's main growth driver, expansion is projected to slow from the 2010 pace of 10.3 percent to 9.3 percent in 2011 and around 8.7 percent in each of 2012 and 2013, "as the effects of government's policy tightening take stronger effect."

Crude oil prices, after averaging about $79 a barrel last year, were now projected to hit $107.20 a barrel in 2011 before easing back slightly.

"Oil prices are expected to remain elevated as long as physical supplies are disrupted and fears persist of larger disruptions from political unrest in oil-producing countries," the bank said in the new report.

Domestic food prices rose 7.9 percent in developing countries since last June.

But local prices may rise further as international price changes slowly pass through into domestic markets, the anti-poverty lender warned.

Burns said that higher oil prices would underpin rising food prices, particularly pressuring the poor who spend a high proportion of their income on food.

Food production is "actually four times more energy-intensive than manufacturing," he said.

"The pass-through will continue in 2012" and the consequences for the poor "will be with us for some time," Burns said.




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Japan Q1 GDP revised to annualised 3.5% contraction
Tokyo (AFP) June 9, 2011 - Japan's economy contracted by slightly less than first estimated in the January-March period, data showed Thursday, after the impact of a devastating earthquake and tsunami pushed it into recession.

Japan revised upward its first-quarter GDP reading to an annualised 3.5 percent contraction from a 3.7 percent shrinkage, but the change was smaller than economist forecasts of minus 3.0 percent.

On a quarterly basis the reading was unchanged. Gross domestic product fell 0.9 percent in the first quarter compared with the previous three months, and marked the second consecutive quarter of contraction, which economists define as a technical recession.

"The overall picture that private consumption and corporate capital spending dropped due to supply disruption and deterioration in consumer sentiment following the quake remains unchanged," a Cabinet office official said.

Japan's economy had contracted by a revised annualised 2.9 percent in the October-December quarter due to falling consumption and exports. Japanese GDP data is subject to constant revision.

Before the disaster, analysts had predicted that the nation's economy would return to growth in the first quarter on rising overseas demand.

Instead, the nation's biggest recorded earthquake and a tsunami left nearly 24,000 dead or missing, and along with a subsequent nuclear crisis forced the economy into its sharpest contraction since a record 18.0 percent tumble in January-March 2009.

In the aftermath of the disaster, industrial output saw its biggest ever fall and spending plunged as consumer and business confidence took a heavy hit.

Private consumption, which accounts for nearly two-thirds of the economy, was down 0.6 percent. Japan adopted a mentality of self-restraint in the aftermath of the disaster, which is slowly easing.

Many of Japan's biggest companies saw profits tumble in the quarter and delayed forecasts due to the scale of the disaster's impact on production and sales.

The likes of Sony and Toyota were forced to halt production. Many component manufacturers are based in the worst-hit regions of Japan, their facilities damaged by the earthquake or inundated by the giant wave that followed.

While fears of an electricity supply-demand imbalance going into the summer months have eased slightly, the situation remains volatile, analysts warn.

On Wednesday the International Monetary Fund said it cut its growth forecast for Japan in 2011 to minus 0.7 percent from the plus 1.4 percent it had predicted in April.

Having gone into recession, analysts and the IMF say the economy should start to grow again in the third quarter as initial earthquake-related disruption is overcome and reconstruction spending starts to boost the official figures.





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POLITICAL ECONOMY
Outside View: Avoiding second recession
College Park, Md. (UPI) Jun 7, 2011
Jobs creation, industrial production and car sales are slipping and consumer confidence and stock prices have turned south. The U.S. economy may be tumbling into a second recession or worse, hitting the mat for good. Solutions are at hand but politicians - and voters - won't embrace what needs doing. The U.S. economy lacks not ideas and enterprise but is short on customers for what Am ... read more


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