World economies

The Pak Banker. Lahore: Mar 29, 2011.

Abstract (Summary)

Analysts believe that the quake's impact on bilateral trade will include
petrochemical, electrical production, automobile, and agricultural
industries. Payments from the fuel and energy sector in the form of customs
duties and taxes accounted for nearly half of the federal budget's
revenues.

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Karachi, March 27 -- World economies

China

NOW that China has surpassed Japan to become the world's second-largest
economy, economists predict it's on track to replace the US as the world's
biggest by 2025. China has achieved impressive growth over the past decade.
The country has averaged about 10% growth over the past several years.
However, with GDP per capita at $4,300 in 2010, China is still just below
much smaller economies such as Tunisia, Albania and Jordan. The population
is still poor relative to most developed countries. There is little doubt
that China's economy will eventually surpass the US, mostly because of its
sheer size - its population is 1.3 billion, versus just 300 million in the
US.

Starting in 2000, China's economy began its aggressive climb through the
top ten economies, surpassing many of the world's most advanced economies.
In 2000, it bumped Italy to become the sixth-biggest economy in the world.
Five years later, China unseated France, rising its way to be the fifth-
largest economy. Then in 2006, it trumped the United Kingdom, then Germany
the next year. It stayed in third place for the next three years until
2010. It was the year when Japan's economy - hampered by weak demand and a
rapidly aging population - contracted by 0.3 per cent during the fourth
quarter, marking the first time in five quarters that its economy has ever
contracted.

China's economy accelerated at the end of 2010, but kept inflation in

check, showing the world's second largest economy is still outpacing its
Western trading partners by leaps and bounds. China's GDP grew at an annual
rate of 9.8 per cent during the fourth quarter of 2010, up from 9.6 per
cent growth in the prior quarter, according to the National Bureau of
Statistics. That rate is considered very rapid compared to sluggish growth
in Western economies. While China's rapid growth has sparked fears that its
economy may overheat, a rate around 10 per cent is not unusual in the
country's history over the last 30 years.

Japan's massive earthquake and tsunami have sent shockwaves through China's
economy even though the total loss cannot be estimated yet. Analysts say
trade between the two countries will definitely be affected in the long
run. In 2010, Japan accounted for about eight percent of China's total
exports, while China sourced 13 per cent of its imports from Japan, which
became its most important trade partner. Analysts believe that the quake's
impact on bilateral trade will include petrochemical, electrical
production, automobile, and agricultural industries.

The Chinese government has taken measures to curb inflation. The consumer
price index, a gauge of inflation, hit 5.1 per cent last November, despite
government pledges to rein it in at just 3 percent. Now hovering around
five per cent,, CPI may seem manageable, but its food component is around
10%, with certain items soaring even faster. Prices have been rising
continuously in the past several years. However, the current five per cent
inflation rate is far below the 20 per cent in May 1989. China's GDP grew
10.3 in 2010, above 2009's 9.2 per cent expansion. The draft of China's
12th Five-Year Plan (2011-2015) envisages GDP to grow by seven per cent
annually on average while prices to be kept generally stable.

Russia

SINCE the collapse of Communism and the Soviet Union in the early 1990s,
Russia has attempted to make the transition from a centrally planned
economy to a market-based economy with mixed results. Russia GDP is worth
$1231 billion or 1.99 per cent of the world economy. The Russian economy is
commodity-driven. Payments from the fuel and energy sector in the form of
customs duties and taxes accounted for nearly half of the federal budget's
revenues. However, during the past decade, poverty and unemployment
declined steadily and the middle class continued to expand.

Japan might reasonably be expected to cope with last week's earthquakes

relatively calmly. But it remains unclear how damaging the quake will be
for Japan's economy - and how the knock-on effects will be felt among the
Pacific economies, including Russia's. Russia is the world's largest oil
producer, pumping out almost 9.93 million barrels a day, and is the main
alternative to the Middle East, which has been thrown into turmoil by the
Arab revolutions. In the longer term Russia does stand to benefit from the
weaker role of the Middle East and North Africa region as the source of
energy supplies to Europe.

Economists estimate that every extra dollar on the oil price adds about $2
billion to the annual budget, helping Russia to tackle its burgeoning
budget deficit. The hole in the country's finances ran to 4.1 per cent of
GDP last year. The deficit had forced the government to look at expansion
into other sectors. Record high oil prices could also see a return of fears
of a double dip recession. Capital flight from Russia reached $13 billion
in January and may hit a total of $20 billion for the first two months of
2011.

The Russian Central Bank reported the net capital flight in January
amounted to up to $9 billion, as Russia received some $4 billion capital
inflow. However by the end of 2011, the balance between capital outflow and
inflow in the Russian economy would be equal to zero. In 2010, Russia's net
capital flight stood at $38.3 billion, with $22.7 billion leaving the
Russian economy in the fourth quarter alone. The speeding up of capital
flight occurred despite oil price hikes, a ruble appreciation against the
dollar and high inflow of short-term foreign investments in recent months.

The Russian economy is thought to have grown by almost four per cent in
2010, after contracting by 7.9 during the recession in 2009. Consumer
prices have also been growing rapidly, pushing the annual inflation rate to
almost nine per cent. For 2011, the government expects prices to grow by
6.5 and the economy to expand by about 4.2 per cent. The economic situation
in 2011 will be similar to 2010 or maybe a little bit worse. A lot will
again depend on how high - or low - global oil and gas prices are, as the
Russian economy remains heavily dependent on energy exports.

Japan

JAPAN, the world's third-largest economy after the US and China, has been
struggling to emerge from a downturn. The severity of the economic damage
caused by last week devastations will depend on how long it takes to
restore normal power, a prerequisite for rebuilding that should provide the
country with some economic lift. Experts are cautiously optimistic that the
still-brittle global economy can absorb the shock of Japan's triple
disaster, but major risks still loom as the crisis unfolds. The United
States is confident that Japan will be able to handle economic challenges
in the wake of the earthquake and tsunami.

Economists appeared confident that the Japanese economy will bounce back
and damage to the global economy will be limited. As the crisis rumbles on,
there are increasing warnings about how spillovers could be felt by
consumers and economies across the globe, even without a catastrophic
nuclear meltdown. The most immediate problems are being felt in the
manufacturing sector. Japan has long ceased to be the world's factory -
surpassed by China, Indonesia and a host of other emerging countries - but
it is still a crucial part of the global supply chain for everything from
cars and computer parts.

As Japan has been ravaged by an earthquake, tsunami and nuclear emergency,

most major companies have shut down all domestic production. Some high
profile Japanese manufacturers, such as Sony Corp, Toyota Motor Co and
Panasonic have shuttered production lines, with restart efforts hampered by
quake aftershocks. Electric power shortages are a huge problem. The
country's eight Northern prefectures are now subject to three hour daily
black outs and power rationing, including Tokyo. That has closed all
manufacturing activity in the most economically vital part of the country.

According to various reports, Japan's devastating earthquake and deepening

nuclear crisis could result in losses of up to $200 billion for the world's
third largest economy but the global impact remains hard to gauge week
after a massive tsunami battered the northeast coast. The disaster is
expected to hit Japanese output sharply over the coming months, but
economists warned it could result in a deeper slowdown if power shortages
prove significant and prolonged. Most analysts believe that the direct
economic losses could result in a contraction in second quarter GDP but a
sharp rebound is expected in the latter half of 2011 as reconstruction
investment boosts growth.

As Japan reels in the aftermath of the most powerful earthquake in its

history and worries grow about a nuclear reactor meltdown, some economists
wonder whether the disaster will push the country closer to a sovereign
debt crisis, too. Japan's public debt will be more than twice its GDP this
year, according to the OECD estimates. Japan's public debt is twice the
size of its $5.3 trillion economy, the highest ratio of any large developed
country in the world. But unlike other high debt countries like Greece,
only five percent of Japan's debt is held by foreign investors so the risks
of a funding crisis are limited.

Japan's already weak economy faces deeper damage than initially thought
from the triple blow of a devastating earthquake, tsunami and nuclear
disaster, and risks prolonging its sluggish recovery. At worst, forecasts
from some economists suggest the world's third largest economy is in danger
of slipping back into recession. GDP growth rate appears to instantly dive
from +2% to -3%. As the world's third largest economy, the country accounts
for around six per cent of global GDP that translates as about 0.2 per cent
of world output. Any fall in Japanese GDP will have a knock-on effect
globally

Published by HT Syndication with permission from Daily Pak Banker.

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