Thursday, 26 July 2007

Global expansion continues despite drag from US housing

The International Monetary Fund has raised its forecast for global economic growth this year.

The strong global expansion is continuing, and projections for global growth in both 2007 and 2008 have been revised up to 5.2 percent from 4.9 percent at the time of the April 2007 World Economic Outlook. Risks to this favorable outlook remain modestly tilted to the downside.

The projection for the US, though, was lowered by 0.2 percentage point to 2.0 percent.

In the meantime, the US economy appears to be maintaining a moderate pace of expansion, at least according to the Federal Reserve's Beige Book released yesterday. Reuters reports:

The Fed's Beige Book of anecdotal economic conditions had seven of the Fed's twelve districts reporting moderate or modest growth, while nearly all reported declines in housing construction and residential real estate activity.

Other data released yesterday support the reported weakness in housing.

Existing-homes sales hit a lower-than-expected 5.75 million unit annual rate while prices and inventories remained flat, the National Association of Realtors said in a report on Wednesday...

Existing-home sales were off 3.8 percent in June and hit their lowest level since November 2002 when sales posted a 5.73 million unit annual pace...

The inventory of homes for sale fell 4.2 percent to 4.196 million units at the end of June, which represents an 8.8 months' supply and matched the May supply.

The median home price in June edged up 0.3 percent to $230,100 from year-ago levels and was the first such increase in 11 months...

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications last week fell 3.6 percent to 609.0, its lowest since the week ended February 16 when it stood at 606.6.

Meanwhile, much of the rest of the world is still experiencing strong growth, for example, in South Korea, as reported by AFP/CNA:

South Korea's economy grew faster in the second quarter compared to three months earlier due mainly to robust exports and strong manufacturing output, the central bank said Wednesday.

Gross domestic product rose 1.7 percent quarter-on-quarter compared with a 0.9 percent gain in January-March, according to an advance estimate by the Bank of Korea.

And Japan's trade surplus soared in June. Again from AFP/CNA:

Japan's trade surplus surged 53.4 percent from a year earlier to 1.227 trillion yen (US$10.2 billion) in June, surpassing forecasts, the government said Wednesday...

June exports rose 16.2 percent to 7.283 trillion yen while imports increased 10.7 percent to 6.056 trillion yen, the ministry said.

In its report, the IMF suggested that "central banks will need to further tighten monetary policy". Well, one central bank may have just finished its tightening for this cycle. From Bloomberg today:

New Zealand's central bank raised its benchmark interest rate to a record 8.25 percent and said borrowing costs may be high enough to contain inflation, triggering a decline in the nation's currency.

"New Zealanders have been showing early signs of moderating their borrowing," Reserve Bank Governor Alan Bollard said in a statement released in Wellington today. If that continues "we think the four successive rate increases we have delivered will be sufficient to contain inflation."

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