UN: Global Economy at Risk

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The note stressed that most of the stricken nations, particularly those in Europe, are trapped in a vicious cycle of high unemployment, financial sector fragility, heightened sovereign risks, fiscal austerity and low growth.
Several European economies as well as the eurozone as a whole are already in recession, with unemployment in the single currency bloc hitting a record high of almost 12 percent this year.
Besides, the US economy also slowed significantly during 2012 and growth is expected to remain meager at 1.7 percent in 2013. In addition, deflationary conditions continue to prevail in Japan, the report noted.
The report also warned that economic woes in Europe, Japan and the US were spilling over to developing countries through weaker demand for their exports and heightened volatility in capital flows and commodity prices.
A worsening of the eurozone crisis, the “fiscal cliff” in the United States and a hard landing in China could cause a new global recession. Each of these risks could cause global output losses of between 1 and 3 percent, Rob Vos, director of DESA’s Development Policy and Analysis Division and team leader for the report, was quoted as saying in the news release.
Noting that present policies fall short of what is needed to address the situation, the report called for changing course in fiscal policy and a shift in focus from short-term consolidation to robust economic growth with medium- to long-term fiscal sustainability.
The document also proposes avoiding premature fiscal austerity, noting that the reorientation of fiscal policies should be coordinated globally and aligned with structural policies that support direct job creation and green growth.
It was also recommended that monetary policies be better coordinated globally and regulatory reforms of financial sectors be accelerated to stem exchange rate and capital flow volatility, which pose risks to the economic prospects of developing countries.
World Trade
The UN has reported a sharp slowdown of world trade, attributing the decelerating global trade growth to a declining import demand in Europe and anemic aggregate demand in the US and Japan.
Growth of world trade decelerated sharply during 2012, mainly owing to declining import demand in Europe, as the region entered into its second recession in three years, and anemic demand in the US and Japan, IANS reported.
The report said that after plunging by more than 10 percent in the recession of 2009, world trade rebounded strongly in 2010. Since 2011, the recovery of the volume of world exports has lost momentum.
Developing countries and economies in transition have seen demand for their exports weaken as a result.
The monthly trade data of the different regions and countries showed a clear sequence of the weakening demand that originated in the eurozone transmitting to the rest of the world, it said.
Import demand in Greece, Italy, Portugal and Spain started to decline in late 2011 and fell further during 2012, but the weakness in trade activity has spread further to the rest of Europe as well, including France and Germany, the report said.
In tandem, imports of the United States and Japan also slowed significantly in the second half of 2012.
East Asian economies that trade significantly with the major developed countries have experienced commensurate declines in export.
Further down the global value chain, energy and other primary- exporting economies have seen demand for their exports weaken as well.
Brazil and the Russian Federation, for instance, all registered export declines in varying degrees in the second half of 2012.
Lower export earnings, compounded by domestic demand constraints have also pushed down GDP growth in many developing countries and economies in transition during 2012. This has led to flagging import demand from these economies, further slowing trade of developing countries.

New Energy Architecture for 105 Countries

The World Economic Forum (WEF) recently partnered with Accenture to present a report examining the factors for effective global transition to new energy architecture for 105 countries.
The demands of each country’s energy architecture, including economic growth and development, environmental sustainability and energy access and security, formed the crux of the index, RBTH.ru wrote.
Norway, Sweden, France, Switzerland, New Zealand, Colombia, Latvia, Denmark, Spain, and the United Kingdom topped the rankings, while Ethiopia, Tanzania, Lebanon, Mozambique, Nepal, Mongolia and Bahrain fared the worst.
Russia ranked 27th, above most other BRICS countries (except Brazil, which ranked 21st): South Africa (59th), India (62nd), and China (74th). The United States (55th) also ranked below Russia, with most OPEC countries ranking closer to the bottom of the list: for instance, Saudi Arabia (82nd).
Russia was able to score better than other economies that heavily export natural resources, thanks to its high electrification rate, independence from energy imports, high-value fuel exports, and a developed nuclear energy industry, the WEF report said.
Weaknesses include low energy efficiency of GDP and poor emission regulations. Russia’s energy mix also has a low share of coal and fuel oil, Nomos Bank analyst Denis Borisov added.
Fast-growing, industrial countries, as well as resource-rich ones, find it harder to perform well on sustainability and security indicators and generally rely on subsidized fuels to meet demand, the report said.
Energy subsidies rose 30 percent to $523 billion in 2011, according to the International Energy Agency (IEA). Subsidies distort pricing, the WEF added.
Saudi Arabia’s domestic oil price, for example, is just $10.
Worldwide renewable energy investment totaled $88 billion in 2011, versus $523 billion in subsidies spent on fossil fuels, the IEA noted.
Russia’s domestic natural gas prices are capped by tariffs, just as their oil prices are capped by export duties, explained Borisov.
Energy contributes 30 percent to the economy in Nigeria, 35 percent in Venezuela and 57 percent in Kuwait, versus 4 percent in the United States.
According to Rosstat, extraction of all mineral resources accounted for 9 percent of Russia’s GDP in 2011.
The IEA predicts that the share of energy in the GDP will change: The United States will become the biggest oil producer by 2020; China promises to reduce its share of energy consumption in the GDP by 16 percent by 2015; the EU plans to reduce demand for energy by 20 percent by 2020; and Japan is looking to cut electricity consumption by 10 percent by 2030.
The core objectives of energy architecture are to generate economic growth and development in an environmentally sustainable way, while providing energy access and security for all, the report said in its executive summary, adding that managing the tradeoffs and complementarities of the energy triangle is critical.

India Eyes More Foreign Investment in Banks

The Indian Parliament cleared a path for more foreign investment in the banking sector by approving a bill to increase shareholders’ voting rights, after dropping a controversial clause allowing banks to trade in commodity futures.
Prime Minister Manmohan Singh’s government is racing against the clock to pass reforms economists say are needed to breathe life into Asia’s third-largest economy, which is headed for the worst year of growth in a decade, Reuters reported.
The banking bill is the only piece of major reform legislation to be passed in a parliament session again disrupted by protests and shouting matches. The session ended on Thursday.
Finance Minister P. Chidambaram told parliament the government was abandoning efforts to pass a bill this session to open India’s cash-strapped insurance sector to foreign investment--a move eagerly watched by investors.
Another bill aimed at easing land acquisition for infrastructure and mining projects was also deferred to next year.
The banking bill will increase shareholders’ voting rights to 26 percent from 10 percent in private sector banks, making investment more attractive to foreign players.
The bill was expected to move to the upper house of parliament for voting, where it is also likely to be passed as it is backed by India’s two biggest parties.
The legislation clears the way for more corporate houses to run banks by enabling the Reserve Bank of India (RBI) to issue new bank licenses. That will boost the government’s drive to expand access to financial services in a country where more than half the 1.2 billion population is without a bank account.
The raising of voting cap will have a positive impact in attracting funds as it will help foreign investors to have more say in banks, said Jagannadham Thunguntla, the head of research at brokerage firm SMC Global Securities.
The main opposition party Bharatiya Janata Party (BJP) threw its weight behind the bill after the government dropped a clause allowing banks to trade commodities futures amid fears it could lead to risky, speculative trading.
It will lead to better investor interest in the smaller private sector banks. It is also a sentiment booster and it will pave the way for the Reserve Bank of India to issue new banking licenses, said Sujan Hajra, chief economist at Anand Rathi Securities in Mumbai.
India has struggled for years to reform and liberalize state-dominated sectors such as banking, insurance and pensions due to political opposition, including from within the ruling Congress party.

WB Pledges $900m for Iraq

The World Bank (WB) pledged $900 million to Iraq over the next four years to help it create jobs, build stronger institutions and improve social inclusion, the global development lender said in a statement.
Iraq’s government developed the strategy with the World Bank, the private sector and other stakeholders to focus especially on better management of Iraq’s vast oil wealth and improve its investment climate. The programs will also focus on inclusion of women, Albawaba wrote.
Iraq has the world’s fourth-largest oil reserves and depends on oil wealth to fund 95 percent of its budget.
But nine years since the US-led invasion that toppled dictator Saddam Hussein, Iraq remains a state-centric economy and, beyond oil, private businesses have yet to play a significant role in rebuilding the once thriving Middle East nation.

Qatar’s GDP Growth Down

A slowdown in the hydrocarbon sector sharply reduced Qatar’s real GDP growth after recording one of the highest growth rates in the world over the previous years, according to a key Saudi bank.
In the second quarter of 2012, the oil sector edged up by only around 0.8 percent as maintenance of oiler oilfields in the Persian Gulf country has adversely affected crude output, the Saudi American Bank Group (SAMBA) said in a study.
The study said the slowdown along with slower growth in the gas sector had prompted the bank to revise down its previous forecasts of Qatar’s real GDP growth to around 5 percent from just less than 6 percent, Emirate24/7 wrote.
“Real growth in the oil and gas sector is now likely to be less than we initially expected. Second quarter growth in the sector is reported at just 0.8 percent, and has caused us to revise down our overall real GDP projection for 2012 to 5 percent, with further adjustments to our 2013-14 forecast,” it said.

Nigeria Inflation Hits 4-Month High

Nigeria’s consumer inflation rose to its highest in four months in November as the impact of the country’s worst flooding in 50 years pushed up the cost of food.
Headline inflation quickened to 12.3 percent year-on-year in November, from 11.7 percent in October and the highest since July, the National Bureau of Statistics (NBS) said.
Food inflation, the biggest contributor to the consumer index, rose to 11.6 percent year-on-year in November, from 11.1 percent in October, Fin24 reported.
Higher food prices continue to reflect the impact of recent floods on the production of farm produce, (and the) resulting difficulty of moving food products to markets across the country, the NBS said in a report.

Hungary’s Credit Rating Upgraded

Fitch improved its credit-rating outlook for Hungary on Thursday even though the country’s loan talks with international lenders have collapsed after repeated differences over economic policy.
The rating of Hungary, Central Europe’s most indebted state, was cut to junk by all the three major rating agencies a year ago as economic growth dried up and investors balked at policies, including Europe’s highest bank tax and the effective nationalization of private pension funds, Voice of Russia reported.
While Fitch left the rating just below investment grade at BB+, its decision to upgrade its outlook on the rating to stable from negative was the first positive assessment from a major rating agency of the government’s latest efforts to cut the budget deficit below 3 percent of economic output.

Japan Exports Decline

Japan’s exports have fallen for a sixth straight month, underlining the issues faced by the incoming government set to take charge in the coming days. Shipments fell 4.1 percent in November, from a year earlier.