GLOBAL ECONOMY
World GDP is estimated to increase by 3.2 per cent in 2005, down from 3.8 in 2004, the slowdown stemming from a deceleration in industrial production and global trade.1 The turnaround was widespread, reaching virtually every economic region and has been precipitated by accelerating oil prices, resource-sector capacity constraints, tightening monetary policy in the US followed by other countries, as well as the maturation of the investment cycle following a year of very fast growth. High oil prices, rising short-term interest rates and an unusually disruptive hurricane season contributed to slowing growth in the US, while the relatively low oil-intensity of European economies, and relaxed macroeconomic policy stance explain why the slowdown in Europe was not more pronounced. In Japan, rising domestic demand and household incomes resulting from tighter labour market conditions and reduced industrial restructuring helped economic growth. The Latin American and emerging Asian economies mostly maintained robust growth. Global business confidence is strong as businesses are optimistic about sales and are adding to investment and hiring, and are also aggressively raising prices.2 The escalation and volatility of oil prices has triggered inflationary pressures globally, remaining the single largest risk to the global economy. Further risks to global growth are evaluated to emanate from persisting macroeconomic imbalances and the resulting abundance of global liquidity, asset bubbles and excessive leveraging in financial markets.
THE US
Industrial production rose 1.3% (mom) and 0.7% in October and November, recovering much of the ground lost in the aftermath of the hurricanes. Recoveries in petrochemical and energy-related industries affected by the hurricanes contributed significantly to the increase in output........................................(full article available from link below)
EURO AREA
Euro area growth, which had stagnated since the second half of 2004, picked up slightly in the third quarter of 2005 as both euro zone and EU25 GDP grew by 0.6% (qoq) following 0.3% and 0.4 growth in the previous quarters..............................
ASIA
From December 2003 to August 2005, world crude oil prices rose by more than 100%; however, domestic petroleum product prices in Asia rose 25% in economies with administered prices. As high oil prices persist, authorities in countries with controlled prices are increasingly reassessing their pass-through policies...............
LATIN AMERICA and OTHER COUNTRIES
Brazil's industry continued to show some weaknesses. A main policy challenge is to improve the quality of fiscal adjustment, which has so far been achieved primarily by hiking taxes and compressing public investment..................
FINANCIAL MARKETS in INDIA
Despite oil price hikes, annual inflation, as measured by point-to-point variations in wholesale price index, receded from 6.0% in April 2005 to 4.54% by end-November, much lower than the 7.3% inflation registered in the corresponding week a year ago........................
MONEY & DEBT MARKETS
The RBI's mid-term review of the credit policy introduced a 25 basis point increase in the reverse repo rate as a measured step towards moderate monetary tightening in tune with the ongoing global rate hike campaign..........................
FOREIGN EXCHANGE MARKETS
It now appears that India's relatively strong current account position is weakening rapidly with a combination of rising oil prices and dramatic increases in non-oil imports resulting in a substantial widening of the merchandise trade deficit..................
CAPITAL MARKETS
The barometer of Indian stock markets, the 30-share BSE Sensex, transcended several milestones in the last half of 2005. The index, which was launched in January 1986, had touched the four-figure mark for the first time in July 1990. In June 2005 the Sensex crossed the 7,000 mark and by September it surpassed the 8,000-mark....................
