Persian Gulf countries have been improving their international balance of payments and fiscal balances.

The world economy generally maintains an expansionary trend. In the US, housing investment is shrinking, but private consumption is strong. In addition, corporate capacity investment and exports are developing favorably. It is quite likely that business will somewhat decelerate toward the future and follow a stable growth path.
As reported by Jcif.or.jp, it is important to pay particular attention to negative effects of bad debts of housing loans (sub-prime loans) intended for customers with low creditworthiness.
In the EU, capacity investment, private consumption, and exports progressed favorably throughout 2006. Growth in exports has encouraged companies to take a proactive stance on production and employment, which has brought about spillover effects on capacity investment and household expenditures, creating a virtuous circle. In Japan, exports and capacity investment are developing favorably and private consumption is also progressing strongly.
It is expected that the trend of gradual expansion in the EU economy and in the Japanese economy will continue until 2008.
In China, it is forecasted that high economic growth led by investment and external demand will continue for the time being and future growth rates will fluctuate at around 10 percent.
However, the Chinese economy has the following problems constituting risk factors: excess liquidity; excess investment; and excess production. It is noteworthy whether China can succeed in shifting from the growth-oriented principle in the past to construction of a harmonious society in the future.
It is expected that India’s economy will continue to achieve growth of 7 to 8 percent owing to rapid growth of the IT industry and favorable growth of manufacturing sectors.
Economies in resource-rich countries including Russia, Middle Eastern countries, and Latin America are generally making good progress, supported by continued strong demand for resources.
As described above, the world economy will likely maintain an expansionary trend in the future. However, it is likely that the pace of expansion will somewhat decelerate in reflection of the slowdown of the US economy. Looking into price movements, energy prices and prices of primary products have been fluctuating rather calmly since the middle of 2006.
Meanwhile, a sense of vigilance against inflation is becoming conspicuous in some European and emerging market economies as economic expansion continues.
Central banks in individual countries including the ECB have raised policy interest rates in advance and implemented other countermeasures. In China, the People’s Bank of China carries on a monetary policy operation inclined toward tightening policy.
In reflection of the favorable trend of the world economy, stock prices of individual countries have generally continued to rise since the summer in 2006. However, after February 2007, stock prices dropped two times in chorus and on a global basis. The first drop was occasioned by the steep fall in stock prices in the Chinese stock markets in late February 2007. It was because investors temporarily elevated their sense of vigilance against excessive risk taking.
The second drop in mid March 2007 was triggered by concerns raised about business slowdown accompanying bad debts of sub-prime loans in the US and it is necessary to pay heed to adverse effects of the bad debts on the world economy.
The global imbalance (imbalance of international payments) still follows a growing trend. Structural reforms by the US and China to correct this imbalance remain outstanding as a significant issue.
Political and diplomatic problems constitute major risk factors in the Middle East.
In economic terms, favored by higher oil prices, Saudi Arabia and other oil-producing Persian Gulf countries have been improving their international balance of payments and fiscal balances with their growth rates remaining at high levels. However, in Iran, economic growth sees a tendency to somewhat decelerate due to the oil sector’s sluggish production.
On the premise that political stability will be ensured in this region, the Middle East as a whole will continue to achieve strong economic growth in 2007 and subsequent years.

A Foreign Investment Advisory Council survey has found that 82 percent of existing investors in Russia are moderately or highly satisfied.

Russia, the world’s leading gas exporter and one of the largest oil exporters, has become one of the most attractive emerging markets in the world. But at the same time, there’s a risk of a future serious shortage of workers in Russia with migration barriers in place and male life expectancy being less than the retirement age.
Besides, some surveys and reports paint a grim picture of a lack of competitiveness and difficulty in doing business in the country. Putin’s supporters say economic stability is one of the most important achievements of his presidency.
And it looks like foreign investors tend to agree with that point of view as they keep heading to Russia in increasing numbers, despite the country’s negative image of suppressing businesses and democracy.
Yaroslav Lissovolik, chief economist at Deutsche Bank in Russia, told BBC that around $50 billion will be invested in Russia by international businesses in 2007. It represents almost 5 percent of Russia’s gross domestic product, which is quite a good figure for emerging markets, he says.

Turnaround
In his first term in office President Putin declared a task of doubling Russia’s GDP in 10 years. Despite the fact that is highly unlikely to happen, the Russia’s economic performance looks impressive. It grew by 6.3 percent in 2006 and is expected to expand more than by 7 percent this year.
Consumer prices increased by less than 10 percent last year, for the first time in post-Soviet times, though this year inflation is expected to be back in double digits mostly because of food prices jumping.
The value of exports climbed to $302 billion in 2006 from $78.2 billion in 1995 with imports expanding to $137.5 billion from $46.7 billion in the same period.
Russia’s international reserves have more than doubled since the beginning of the year, exceeding $450 billion. The developments have allowed the World Bank to declare that the Russian economy had achieved “unprecedented macroeconomic stability“.

Oil Revenues
There are those, though, who question the sustainability of Russia’s economic expansion as, they argue, it is based mostly on rising oil prices and strong global demand for fuel.
Russia’s exports are clearly dominated by mineral resources and fuels. Critics warn that oil revenues have prevented the Russian government from implementing painful but necessary reforms to diversify the economy.
But Deutsche Bank’s Lissovolik says the economic expansion has been driven largely by non-fuel sectors as the huge oil revenues have been locked in a so called “stabilization fund“. Telecoms, banking, insurance, foods and some other sectors have been expanding fast as consumer and investment spending has become a significant factor in Russia’s economic growth.

Uncertainty
Some experts think that while foreign investments keep growing rapidly, the situation with domestic investments isn’t too bright.
A World Bank report put Russia in 106th place in the world for ease of doing business, while the country was ranked 58th in the recent Global Competitiveness Report published by the World Economic Forum. But at the same time, a Foreign Investment Advisory Council survey found that 82 percent of existing investors in Russia were moderately or highly satisfied.
With state control over the Russian economy having increased significantly, it looks like the recipe for sustained economic growth in Russia is a trust-based relationship between the state and private sectors.

China ran a record trade surplus of $187.6 billion with the US in the first nine months of this year and seems set to surpass last year's surplus of 232.5 billion dollars.

China has agreed to scrap some trade subsidies, handing US officials a rare chance to claim success in international affairs.
Industry reaction has been upbeat, but workers remain unimpressed as the impact remains to be seen.
According to Ipsnews.net, Beijing said Thursday, November 29, it had signed a memorandum of understanding rescinding a raft of tax breaks and subsidies that Washington had challenged earlier this year as unfair and in violation of World Trade Organisation (WTO) rules.
The concessions come in the run up to high-level trade talks scheduled for next month and aimed at reducing Sino-US economic tensions. A similar deal was reached with Mexico, which had joined the US complaint at the WTO, China’s mission to the Geneva-based institution announced.
Beijing thus headed off a formal WTO ruling under which it might have been found guilty of stacking the deck against US and Mexican competitors with measures that encouraged Chinese firms to export more than they otherwise would and rewarded them for using domestic, rather than imported, goods.
The top US trade envoy quickly claimed the laurels.
“This outcome represents a victory for US manufacturers, producers, and their workers,“ Trade Representative Susan Schwab said. The offending Chinese tax incentives and subsidies would be abolished by January 1, she said.
Industry quickly chimed in. “The settlement of this case is great news,“ the National Association of Manufacturers, the largest US industrial exporters’ lobby, said in a statement.
“China is to be commended for recognising that these subsidies were illegal and for acting responsibly to eliminate them without going through prolonged litigation. We hope this is a harbinger of things to come,“ it added.
The AFL-CIO, a federation of some 54 unions claiming a combined membership of some 10 million US and Canadian workers, demanded stronger action to reduce the US trade deficit with China.
“This is an important accomplishment,“ John Sweeney, the AFL-CIO president, said of the Chinese decision. “However, we hope that USTR and the Bush administration will show equal diligence in addressing worker rights violations, import safety and currency manipulation, all of which contribute to the enormously lopsided trade imbalance between the United States and China,“ he said, referring to the US trade representative’s office.
China ran a record trade surplus of $187.6 billion with the United States in the first nine months of this year and seems set to surpass last year’s surplus of $232.5 billion . Workers and politicians have been baying for an end to the haemorrhage.
Democrats in Congress are advancing measures that would make it easier to impose tariffs on imports and thus protect US firms against China’s subsidies and weak currency.
Schwab said the Bush administration remained opposed to such punitive measures. The administration succeeded in bringing Beijing around because it shunned a punitive approach in favor of negotiation, eventually buttressed with litigation at the WTO--an appropriate route since both countries are members.

Write-downs of $45 billion, and billions more to come. A collapse in share prices that has destroyed even more value. The blood of two Wall Street chieftains and many more underlings on the carpet.
The fallout from the credit crunch has been so intense that some feel a pain barrier may have been breached. On November 27th and 28th the S&P 500 posted its first consecutive daily gains since October, partly on hopes of a cut in American interest rates and on some rare good news about Citigroup.
Abu Dhabi Investment Authority paid $7.5 billion for a 4.9 percent stake, boosting the bank’s faltering capital ratio. But four months after they first seized up, the credit markets remain in a state of paralysis. The banks still have a long, hard slog ahead.
According to Economist.com, short-term interbank rates at which banks lend to each other, and which are a good gauge of concern, have risen steadily since mid-November. On Wednesday November 28th the two-month London Interbank-Offered Rate hit its highest level in euros since May 2001. Rates in euros and dollars tower obdurately above central-bank targets, despite announcements from both the European Central Bank and America’s Federal Reserve that they will inject extra funds into the money markets.
As in the summer, banks are hoarding cash because there is still great uncertainty about their own and counterparties’ exposure to losses and off-balance-sheet vehicles. Groups of banks that know each other well, such as the Spanish and Scandinavian banks, are rumored to have agreed on informal lending arrangements. Elsewhere, caution prevails: what interbank lending there is tends to happen in the afternoon, after all the bad news has had time to come out.
Nerves have frayed in even the sleepiest corners. Europe’s covered-bond specialists emerged blinking into the light after a spike in spreads and the postponement of several new issues led to the temporary suspension of the market in late November. By most measures, covered bonds are the safest of bets.
The assets that back them are required to meet stringent quality standards. If things do go wrong, investors have recourse both to the assets that back them and to issuers’ balance sheets. Yet even these belts and braces did not reassure investors.
Liquidity problems are compounded by impending calendar and fiscal year-ends. Banks are keen to hold cash when markets are closed or trading is thin. Many are also cleaning up their books for accounting purposes. Some of the central-bank interventions are geared to getting banks over the year-end squeeze: the Fed has extended $8 billion in short-term loans until early 2008.
Off-balance-sheet assets are another source of worry. On November 26 HSBC, Europe’s biggest bank, announced that it would consolidate $45 billion-worth of assets held in two structured investment vehicles (SIVs) onto its balance sheet. That puts pressure on other banks with exposure to SIVs, troubled Citigroup chief among them, to follow suit. It also shows that HSBC does not believe funding conditions for SIVs will soon ease.
A prolonged period of tight liquidity is arguably more threatening to banks than one-off write-downs, particularly for those that rely on wholesale funding. Expect to see slower loan growth, more asset sales and a fight for deposits, as banks try to diversify their sources of funding.
Vasco Moreno of Keefe, Bruyette & Woods, an investment bank, thinks it will take a year of banks reporting decent numbers before an end can be called to the credit crunch. Roll on 2009.