World Economy Review EUROPE – VICTIM OF GLOBALIZATION

FROM THE REDACTION

Comparative decreasing of oil prices in February as well as abating of stir around Iranian nuclear dossier and increasing of home consumption have had a positive effect on the European economy and its growth rate reached its climax in the last 19 months.

A considerable growth of export has also contributed to it. However, the EU countries have faced serious problems since the rate of unemployment has grown considerably. The main reason for that is the fact that with the purpose of reduction of expenses, in order to be sustain competition with a cheap Asian market, each producer tries to close down production in Europe and transfer it to Asia. This problem has become so serious that the Chairman of the European Commission Duran Barrosu came up with a proposal to set up a new 500 million Euro fund for overcoming unemployment. It becomes still harder to do business in Europe and compete with Asian production. Besides, Russia also complicates the situation on the energy market and increases the gas price from day to day, and 245 USD per 1000m3 has become a yesterday’s limit.
According to the forecast of the European Council, this year European economy will be developing at rates. The economy of the EU’s 25 countries will increase by 22% in total. These suppositions are based on a number of factors – the amount of private investments and profitable transactions has increased.
Among the EU countries, Spain holds the first place from the viewpoint of economic growth. According to forecasts, its economy will increase by 3.1%. Then comes the UK (2.4%), France (1.9%), Germany (1.5%) and Italy (1.3%).
However, the EU and Financial Relations councils believe that high oil price is a threat to European economic growth.
In case of moderate growth of oil prices the expected inflation rate in the EU will make up 22% and the exchange of the currency will be retained.
It is possible that growth of import, in spite of increasing of export, will jeopardize the US economy and may cause a 1 trillion USD trade deficit.
Last year the deficit of national trade broke a record for the ninth time over the past 10 years. The comment of the international economist Jay Brisson is as follows: “It is only China and oil, we consume more than produce, which is the reason for everything.”
In December the US import exceeded export by 65.7 billion dollars. In spite of everything, this difference did not cause an economic crisis since foreign investors went on purchasing the US assets. Brisson has apprehensions that sooner or later foreigners will stop financing the deficit. In his opinion, of trade barriers are created, because of which the Americans will import less, productivity in the country will increase. But the main thing will be that expenditures will be cut in case of price rising.
Professor of Maryland University Peter Moric points out that the difference between import and export inflicts losses to American workers. “In case of halving of the trade deficit, the GDP will increase by approximately 300 billion USD, that is each employed American will have a 2000 USD more income”, – the professor believes.
Inn case of increasing of the difference between import and export, in 2006-2007 America’s trade deficit will reach 1 trillion USD.
An opposite situation can be observed in the US economy in which the economic growth indicator in the 4th quarter of last year was higher than expected – 1.6 instead of 1.1%. But, in spite of it, the exchange rate of USD was decreasing and consumers expenditures were reducing. Last month the export rose by 5.7%, the import – 12.8% instead of 2.4 and 9.1 respectively. The most significant phenomenon – decreasing of demand on the real estate market. In January the volume of new flats’ sales dropped by 2.8%. The turnover of the secondary market decreased by 6.65 million houses, that is why investors switched to the securities market, at which profitability of 2 years’ bonds decreased to 4.78%, and of 10 years’ ones – to 4.545%.
The indicators of basic stock indices were also decreasing. At the end of the month Dow Jones made up 10992 and NASDAQ -2281.3. The price of oil imported by the US has doubled from summer 2003 to summer 2005.

Gold has broken the 25 year long record.
At the end of February its price reached 555,1-564,1/Oz. The price of April futures makes up 563.9 USD, which will remain at the same level in the short-range outlook, and will become 538-575 in the medium-range one. Silver has also risen in price at New York Commodity Exchange – 9,650-9,845 USD/Oz. It is expected that it will rise up to 9,650-9,780 in the short-range outlook, in the medium-range outlook – 9,450-9,860. Copper and platinum have also rose in price – 1033,9-1056,0 USD/Oz. In the short-range outlook – 1020,0-1059,0 and in the medium-range one – 1000 -1070.
According to experts, such rising in price of precious metals was caused by the problems of the American economy and the situation related to oil prices.
In 2005 the US economy grew by 3.5%, and in 2004 – 4.75%.According to experts, it will stop at this point till 2007, the exchange rate of USD will decrease and the inflationary process will become aggravated.
During this period of time consumers expenditure and businessmen’s investments are retained, GDP is increasing and the unemployment rate decreases to 4.9%. Rising in price of oil is expected again, since the demand for it is increasing in China and other Asian countries, and drop in production will lead to increasing of prices. The year 2003 justified the expectations of the US since the country avoided the changes in fiscal and monetary policy, which could have been caused by rising in price of oil. However, if the oil prices will rise again, it will not be lucky again.

The Secrets of Ben Shalom Bernanke’s Case
On February 1, 2006 Ben Bernanke was sworn in as the 14 Chairman of the Federal Reserve. He also became Chairman of Open Market Committee. From June 21, 2005 Ben Bernanke is Chairman of the Council of Economic Advisers of the President, and before that he was a member of the management system of the Federal Reserve.
He had gone a long way before making these achievements. Ben Shalom Bernanke was born in on December 13, 1953 in Georgia, finished school in 1971 in North Carolina, in Dilon, where his immigrant grandfather lived and has his own drugstore. Bernanke’s mother is a former teacher, and father – a retired pharmaceutist. Then they moved from Pee Dee to Georgia. In 1975 he graduated from Harvard University. On May 29, 1978 he married Anna Freedman, they have two children – Joel and Alisa Bernanke. The details of Anna Freedman’s life are steel kept secret. In 1979 Bernanke graduated from Massachusetts Technological College. From 1985 he has been a professor of economics in Princeton University. He published a lot of articles on various economic problems, monetary policy including macro economics. He is also the author of many text-books.
Bernanke was a member of the Learned Society and the Academic Council of American Academy of Arts, and also the Director of the National of the Economic Program of National Economic Research Bureau (NBER). He likes baseball. When he was not reading books, he did not avoid any work and helped his family in the drugstore or worked as a waiter. According to his words, there is no bad work, there is initial work. In his youth he liked to play the saxophone.
“Ben Bernanke is the man who will continue building of on the foundation laid by Greenspen”, – President Bush says.
“I have no doubts that as Chairman of the Federal Reserve Ben Bernanke will glorify his nation”, – Alan Greenspen said. However, they say that the former and the current chairmen differ like the sky and the earth.
Ben Shalom Bernanke is a Jew, which once more confirms that the Jews dispose of the American money. There appears opinion that Jews do not give other nations a scope for activity and always try to be on the top.

Does the Chinese Economy have any Problems?
According to the data of the World Bank, in 2006 the Chinese economy grew by 9.2% and will be less dependent on export. In 2005 the country’s trade profit tripled and reached 102 billion USD.
China is accused of improper evaluation of the Chinese national currency – yuan, as a result of which it has an advantageous position in trade.
The World Bank declares that constant growth of internal investments stipulated for leading of import over export. It is noteworthy that constant growth of investments may cause overproduction at some enterprises, which raises the threat of decreasing of prices and profits.
Chinese economists are not worried about it. They believe that 20% overproduction is the indicator that China passes ahead of the plan for two years, since this country’s economy increases by 10% annually.

China is Angry with Europe
A member of the EU Commerce Council Peter Mendelson said that penalty damping sanctions are in store for leather footwear imported from China and Vietnam. The EU declares that the suppliers’ of the both countries abuse the EU market.
From April 7 to September 15 the import of Chinese footwear will increase by 19.4%, and that of Vietnamese – by 16.8%.
The Chinese party considers this accusation as groundless, and believes that the EU activities contradict to free trade principles.
However, Mendelson considers this as a measure against unfair competition and says that they do not fight against the advantage of china and Vietnam.
In March 2005 import of Chinese leather footwear to Europe increased by 320%, and that of Vietnamese – by 700%. China’s relations with the main European partners have become strained of late. The US accused Beijing of unfair trade and intensified monitoring from this point of view. China warns that the US trade sanctions against it will inflict losses to the both countries.

The Growth of India’s Economy will Exceed 8%
The President of India Abdul Kalam said that by the end of the fiscal year – in March – Indian economic growth indicator will exceed 8%. He believes that in spite of rising in price of energy resources on the world market, there is a moderate inflation in the country. India has one of the most rapidly developing economies in the world, though it still behind the Chinese one – in 2005 the Chinese economy grew by 9,9%. The President presented the list of the programs that the ruling coalition worked out in order to raise the living standard of poor population in the country.

Russia Became Frozen – His Majesty Frost Inflicted Losses to GDP
The Ministry of Economic Development of Russia shifted the blame for the drop in GDP onto severe January frosts because of which the country started to experience economic problems. At the beginning of the year the GDP decreased and some goods rose in price. According to the data of Ministry of Economic Development, in January inflation made up 2.4%, which is only 0.2% less in comparison with the last year, and the rate of economic growth decreased by 1.1% in comparison with last December. Experts admit negative effect of frosts on GDP only. As to inflation, the government’s budgetary policy, aimed at annual increasing of the treasury’s expenditures, is criticized because of it. The government’s pledges still do not coincide with the real indicators. Annual inflation in 2005 made up 10.9%, and presumably – from 7.5% to 8.5%. This year’s first results give rise to doubts that the inflation indicator will again differ from the planned indicators. In accordance with the data of the Ministry of Economic Development, the growth of consumer prices in January of this year will make up 2.4%, which is only 0.2% less than the last year’s indicator. During the first two weeks of February, inflation reached the level of 0.8%. It is expected that during the whole month it will reach 1.5%. In these conditions officials manage to find some justifications; either considerable growth of vegetables prices or strike of oil industry workers that entailed increasing of oil prices. However, this time they shifted the blame onto frosts. February inflation caused increasing of oil prices, for gasoline in particular, which is explained by the growth of fuel because of low temperatures. However, experts believe that the case with fuel has nothing to do with cold weather. An economist of the United Financial Group Yaroslav Lisovolik says that starting from last autumn stability of fuel prices was retained artificially, and as soon as this mechanism was lifted the prices rose again. Lack of prospects of artificial price containment became evident once again. Besides, January inflation was largely stipulated by the increasing of services prices, especially in the housing and communal services. A 14.7% growth of tariffs is observed in this sphere.
Investment, construction, trade and industrial activity has decreased considerably. Investments in the fixed capital decreased by 5%, construction dropped by 8%, retail trade turnover decreased by 5%.
According to the Minister of Economic Development and Trade German Gref, the trend of decreasing of economic indicators will continue in 2006 as well.
According to the comment of senior economist of “Troyka Dialog” Evgeni Gavrilenko, there is nothing strange in the drop of GDP growth. This kind of phenomena are always observed in January. In the first decade of the month the country almost does not work, while December is remarkable for work activity. He is convinced that GDP growth will be restores by March.
The low dynamics of the economy has largely was stipulated by changing of the model of relations between the business and the power. It took more than a year for the business to get accustomed to the new requirements.
If we believe the forecasts of the Ministry of Economic Development and Trade, the GDP level will decrease again. If last year it made up 6.2%, this year it will not exceed 5.8%, and in 2007 – 5.9%. Only by 2008 its growth is expected (6%). With such indicators there cannot be any talk of doubling of the GDP by 2010. Only Prime Minster Fradkov believes in it, who last tear, in spite of all the forecasts, obliged the officials to find the way out, though no one knows how to fulfill the President’s order. According to German Gref, economic growth rates of no less 7.2% annually are necessary for that.

Russia Cancels VAT
The Minister of Economic Development German Gref called the VAT problem the most important one in the Russian tax system: “If in the nearest future we do not find the mechanism of returning VAT, then we should look for non-traditional solutions.” However, non-traditional solutions are already being searched for. The Head of the Expert Department of the President’s Administration Arkady Dvorkovich has said several times that they should give up VAT that may be substituted by the sale. That is what Minister Gref also speaks about. Russian business suffers big losses because of administration of this tax. Tax officers act by the order of their leadership – to compensate VAT to exporters through court only. According to the information of “Opora” business association, in 2004 tax officers inspected small enterprises 5,1 times on average, however in the third of the regions inspectors came more often, for example in Moscow – 7.5 times, Moscow region – 7.7 times, in Tambov region – 16.5 times. According to the Expert Department’s adviser, 80-90% of tax inspections are relating to levying of VAT. “These factors have an impact on competitive ability of goods and services of both Russian and international companies”, – points out P. Medvedev, a partner of “Ernst&Young” company and the head of tax practice in the CIS.