U.S. economic growth accelerated in the second quarter as a pick-up in consumer spending offset the drag from soft business spending on equipment, suggesting a steady momentum that could bring the Federal Reserve closer to hiking interest rates this year.

Gross domestic product expanded at a 2.3% annual rate, the Commerce Department said recently. First-quarter GDP, previously reported to have shrunk at a 0.2% pace, was revised up to show it rising at a 0.6% rate.

The revision to first-quarter growth reflected steps taken by the government to refine the seasonal adjustment for some components of GDP, which economists said left residual seasonality in the data, as well as new source data.

The Fed has described the economy as expanding "moderately" while upgrading its view of the labor market and saying housing had shown "additional" improvement. The Fed's assessment left the door open for a possible hike in interest rates in September, which would be the first rise since 2006.

While second-quarter GDP growth was a bit below economists' expectations for a 2.6% rate, the growth composition pointed to firming fundamentals.

A measure of private domestic demand, which excludes trade, inventories and government expenditures, increased at a 2.5% rate after rising at a 2.0% pace at the start of the year.

Growth in the second quarter was boosted by consumer spending as households used some of the windfall from cheaper gasoline in late 2014 and early this year to go shopping. The strengthening labor market also encouraged consumers to loosen their purse strings.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, grew at a 2.9% rate from a downwardly revised 1.8% pace in the first quarter. Consumer spending was previously reported to have increased at a 2.1% rate at the start of the year.

The saving rate fell to 4.8% from 5.2%.

A firming housing market also supported the economy in the second quarter, as did exports, and state and local government spending.

However, the energy sector continued to weigh on growth as it struggles with the lingering effects of deep spending cuts by oil-field companies like Schlumberger and Halliburton in the aftermath of a more than 60% plunge in crude oil prices last year.

Business spending on structures fell at a 1.6% rate after stumbling 7.4% at the start of the year. Equipment spending fell at a 4.1% rate.

Spending on mining exploration, wells and shafts plunged at a 68.2% rate, the largest decline since the second quarter of 1986. This category dropped at a 44.5% pace in the first quarter.

But there are signs that the energy spending rout might be nearing an end. Data showed U.S. energy firms added 21 oil rigs last week, marking the third increase over the past 33 weeks.

Schlumberger said it believed the North American rig count may be bottoming and that a slow rise in both land drilling and completion activity could occur in the second half of the year.

Exports rebounded in the second quarter, despite a strong dollar, while imports rose moderately. That left a smaller trade deficit that added 0.13 percentage point to GDP growth.

Inventory investment slowed after the first quarter's brisk pace. Businesses accumulated $110.0 billion worth of merchandise, down from $112.8 billion in the first quarter. While inventories did not add to second-quarter GDP growth, that is good news for the remainder of the year.

With oil prices having risen during the second quarter and consumer spending having picked up, inflation pressures accelerated sharply.

The personal consumption expenditures price index rebounded at a 2.2% rate, the fastest since the first quarter of 2012, after falling at a 1.9% rate at the start of the year. Excluding food and energy, prices increased at a 1.8% pace.

Canada

Canada’s economy sank further into contraction in May, shrinking for a fifth straight month as the oil shock takes its toll on the energy producing nation.

The five-month decline marks the longest slump since the 2008-2009 recession, and virtually guarantees output shrank for a second straight quarter. The reading vindicates Bank of Canada Governor Stephen Poloz’s July 15 decision to cut borrowing costs for a second time this year.

“This was a very disappointing print and opens up the downside risk to the Bank of Canada’s forecast,” said David Tulk, chief macro strategist at Toronto-Dominion Bank, adding the slump is looking even deeper than a technical recession, defined by economists as two consecutive quarterly declines in output. “The breadth of declines are starting to increase.”

Gross domestic product fell 0.2% during the month, bringing the reduction since the start of the year to 0.8%. Economists surveyed by Bloomberg News projected no change in May output.

To avoid a second-quarter contraction, the economy would have had to expand at least 1% in June, something that hasn’t happened in more than a decade, the agency said.

“There is no sugar-coating this one,” Doug Porter, chief economist at Bank of Montreal, said in a note to investors. “While we believe the five-month string of declines is likely to end in the next monthly report, that’s cold comfort following a run of disappointment.”

The report is a setback for Prime Minister Stephen Harper, who is poised to formally kick off an election campaign and is running on his economic stewardship.

ASIA

China

The latest growth numbers show that China's economy is trundling along, expanding at a pace that is slightly faster than analysts expected.

Gross domestic product expanded by 7% in the second quarter, compared to the same period last year, according to data released by China's National Bureau of Statistics.

While the growth rate is slightly faster than the 6.9% figure expected by economists, it matches the 7% GDP growth rate from the first quarter, as well as Beijing's growth target for the full year.

Markets dropped in China after the numbers came out -- stocks lost 3% in Shanghai and 4.2% in Shenzhen.

There's no question about it: After years of breakneck growth, China's economy, the world's second-largest, is now slumping. Economists expect to see 6.95% annual GDP growth this year, and even slower expansion at 6.5% in 2016, according to a CNNMoney survey.

"We do anticipate that Beijing will stay on the accommodative track for monetary and fiscal policies, despite improved growth prospects," wrote Credit Suisse's Dong Tao in a research note.

China's central government has already cut interest rates three times this year -- most recently, just two weeks ago. Experts say the rate cut came earlier than expected, likely as a defense against a worrying stock market plunge over recent weeks.

Another rate cut is expected in the second half of the year, along with a reduction in the amount of cash that banks are required to keep on reserve.

"With the drag from the structural slowdown in property and heavy industry now easing, we think that growth is on track to slow only gradually over the course of the next few years," wrote Julian Evans-Pritchard at Capital Economics.

India

Maintaining a bullish stance on the Indian economy, Japanese brokerage Nomura projected an 8% GDP growth for the current fiscal year while retaining its Sensex target at 33,500 by December.

"We are of the view that India is in the initial stages of business cycle recovery," Nomura India Chief Economist Sonal Varma told reporters here.

"We are expecting growth at around 8% in FY16 versus 7.3% in FY15," she added.

Expecting the business cycle to pick up in the coming two quarters, Varma noted that a number of factors such as policy efforts from both the RBI and government support the projections for higher growth.

Government forecast GDP to grow at 7.8% in FY16, while RBI pegs it at 7.6 %.

Falling cost of capital, cyclical and structural improvement in growth, a positive terms-of-trade shock are some of the reasons identified for positive outlook towards the capital markets, she added.

Indonesia

Indonesia's gross domestic product (GDP) grew 4.67% in the second quarter of 2015, lower than 2014's second quarter figure of 5.03% and 4.72% growth in the first quarter of 2015, the country's statistics bureau said.

The Q2 GDP growth is its slowest since 2009 and Indonesia's economy grew 4.7% during the first half of 2015.

Head of the Indonesia's statistics bureau, Suryamin, said that household spending slowed year-on-year, growing 4.97% compared to 5.1% on the second quarter of 2014. "The economic slowdown is not only happening in Indonesia, but also in US, China and Singapore," he said.

Indonesia's annual economic growth has been slowing in recent years, with GDP growth of around 5.7% in 2013 and 5.02% in 2014. The government has targeted a 5.7% GDP growth for 2015.

Malaysia

Standard Chartered Bank expects Malaysia’s economy to grow 4.2% year-on-year (y-o-y) for the second quarter of 2015 (2Q15), lower than the gross domestic product (GDP) growth of 5.6% in 1Q15, due to the impact of the goods and services tax that was implemented in April.

In a note, the bank said consumer and business sentiment had probably weakened in 2Q15 compared with the preceding quarter, but manufacturing and mining production were likely stronger in 2Q15 due to positive net external demand.

“Malaysia registered an average trade surplus of RM6 billion, versus RM7.1 billion in 1Q15, likely making a positive net export contribution to growth and supporting the current account surplus in 2Q15,” said Standard Chartered.

Going forward, the bank expects a modest rebound in GDP growth in the latter two quarters of 2015, but said if growth slows significantly below 4%, Bank Negara Malaysia is expected to loosen monetary policy to boost growth.

On the industrial production (IP) figures for June, the bank forecasts a 4.7% y-o-y expansion, slightly higher than the 4.5% increase seen in May.

“Mining production likely supported the headline print. It grew 9% y-o-y in May, supported by an 18.8% increase in crude oil production. June IP was likely supported by resilient externally oriented production as China’s growth stabilized in the month,” it said.

For the latter half of the year, Standard Chartered expects muted IP growth, in view of dampened global growth.

Singapore

Singapore's final second-quarter gross domestic product likely contracted 4.6% from the previous quarter on an annualized basis, in line with the government's earlier estimate, a Reuter’s poll showed.

The median forecast in a Reuter’s survey of 11 economists also showed that GDP probably expanded 1.5% in the April-June quarter from a year earlier, less than the 1.7% in the advance estimate.

Expectations for a slight downward revision to second-quarter GDP growth had grown after data last month showed that industrial production in June shrank 4.4w% from a year ago, driven by a slide in marine and offshore engineering output and weakness in electronics and pharmaceuticals production.

Taiwan

Taiwan in the second quarter didn’t come close to reaching the government’s GDP growth forecast issued only in May, underscoring pressure from the easing expansion in mainland China’s economy and inventory build-up in the electronics industry.

Taiwan’s GDP rose by 0.64% in the three months to June, less than a projected increase of 3.05% issued in May, the Cabinet’s statistics office said. A 9.8% drop in exports in the second quarter dragged down GDP and manufacturing, the government said.

Visitors from China, an important source of growth for Taiwan’s tourism industry, fell 2.7% in second quarter from a year ago, the first decline more than three years.

Taiwan’s benchmark stock index eked out a 0.2% rise yesterday, but has fallen 7% in the past month. Shares in Hon Hai Precision, the big supplier to Apple led by billionaire Terry Gou, declined by 0.2%.

The GDP increase was the smallest in three years. The 0.64% gain compared with an increase of 3.87% in the second quarter of last year and 3.37% in the first quarter of 2015 versus a year ago.

Taiwan’s economic prospects are likely to be an issue in the upcoming presidential election in January. Incumbent Ma Ying-jeou from the relatively China-friendly Kuomintang or Nationalist Party isn’t allowed to seek a third term, and opposition leader Tsai Ing-wen currently tops polls. Beijing claims Taiwan as a province, and closer economic ties in the past two decades have eased political differences between the two sides.

EUROPE / AFRICA / MIDDLE EAST

Czech Republic

The Czech National Bank (ČNB) improved its GDP growth estimate for this year to 3.8% from the previous 2.6% and downgraded its estimate for next year to 2.8% from May's 3.2%, according to a presentation ahead of the bank's press conference.

The ČNB expects lower inflation — 1.6% in Q3 next year and 1.8% in the last quarter of 2016, while its previous forecast put the values at 2% and 2.1%, respectively.

The need for significant monetary easing continues, the ČNB said in the presentation.

“From this point of view, the recent firming of the crown is an unfavorable factor tightening monetary conditions and delaying fulfillment of the inflation target,” the ČNB said.

According to the new forecast, meeting the 2% inflation target will be sustainable as of the beginning of 2017.

ČNB governor Miroslav Singer said that the Bank Board had no serious debate about negative interest rates.

Some economists have speculated recently that interest rates below zero could be another step the ČNB would take as part of monetary easing.

“Those expecting a more pronounced statement on the current exchange rate from the ČNB governing board had to be disappointed,” said Akcenta analyst Miroslav Novák.

“Should we use one word to characterize today's meeting, it would be caution,” he added.

The ČNB is not worried about the currency that is currently traded at stronger levels or growing international reserves, he said, adding that the crown's reaction to the outcome of the meeting was minimal.

Singer refused to specify the size of the intervention in July.

The crown is trading near 27 Kč per euro in the past few days.

The ČNB is not answering questions about its possible interventions in the market.

A few days ago, however, it said that it intervened in the market on Friday, July 17, which was its first action since November 2013.

“In fact the intervention regime is automatic,” Singer said. The governing board rather paid attention to the fact how long the bank did not make any currency interventions, he added.

The central bank sees risks to the estimated development as almost balanced.

“Moderate anti-inflation risks may be caused by falling oil prices,” said Singer.

The ČNB forecasts stable interest rates that will be maintained at the current very low levels. It will continue using the exchange rate as a monetary policy tool until the end of 2016.

The bank board said it will not end the forex intervention regime earlier than in the second half of 2016.

“The crown's rate will be Kc27 per euro or it will stay weaker at least until mid-2016,” Singer said.

The economy will slow down next year as one-off factors seen this year will fade away. The recent currency gains will be another reason behind the slowdown, said Singer.

The economy will expand by 2.8% in 2017, the ČNB said.

In a new macroeconomic forecast, the Finance Ministry improved significantly its estimate of GDP growth this year - to 3.9%. A surprising 4% annual GDP growth in the first quarter was behind the improvement.

The good Q1 result has made also other institutions improve their estimates. They predict economic growth of over 3% this year.

Russia

Sanctions linked to the Ukraine crisis could end up costing Russia 9% of its gross domestic product, the International Monetary Fund said recently. Russia's economy is showing signs of stabilization after slumping under pressure from Western financial sanctions and Russian counter-measures.

Low international prices for its oil exports have added to pressure on the ruble and government finances.

"The effects of sanctions in terms of external access to financial markets and new investment technology will linger," the Fund said, summing up the findings of a mission in May.

Last year Western countries imposed restrictions that limit international financing for major Russian banks and energy companies, and also high-tech exports to the energy sector. Russia retaliated by banning imports of most Western food products.

The Fund estimated the immediate effect of sanctions and counter-sanctions had been to wipe between 1 and 1.5% off GDP, rising to 9% over the next few years. These model-driven results were subject to significant uncertainty, it cautioned.

The IMF also forecast "weak" economic growth of around 1.5% annually in the medium term. Russia's economy was growing around 7% a year before the 2008 global financial crisis.

"Slow-moving structural reforms, sluggish investment and adverse population dynamics are all part of the picture," it said, reiterating its long-standing advice for Russia to reduce the role of the state in the economy, protect property rights and boost competition.

Russia would nevertheless return to economic growth next year as a weaker ruble boosted competitiveness, external demand increased and domestic financial conditions normalized, the IMF said.

It predicted 0.2% growth next year following a 3.4% contraction this year, in line with its previous forecasts.

Inflation was seen slowing to around 12% by the end of this year and 8% by the end of next year - more pessimistic than the central bank's forecast of 7% by mid-2016.

The IMF said the central bank's policy of gradually reducing its main interest rate in line with underlying inflation was appropriate, but the pace of reductions needed to be "prudent".

It supported limited fiscal stimulus this year, but added: "An ambitious and credible medium-term fiscal consolidation program is necessary to adjust to lower oil prices."

The IMF recommended revising Russia's fiscal rule, which links government spending to the historical oil price, so that the recent oil price fall could be more quickly reflected.

The Fund also said such fiscal adjustment would be hard to achieve if Russia indexes pensions next year at a cost of 1.1% of GDP. Russia typically indexes pensions but has yet to decide whether to do so next year.

"Detailed fiscal measures will also be critical for the credibility of the consolidation program," the IMF said.

United Kingdom

The British economy grew by 0.7% over the past three months, according to figures released by the National Institute of Economic and Social Research (NIESR).

Figures from the London-based economic think-tank showed that growth in Britain's GDP in the three months ending in July was 0.7%, the same as in the three months ending in June.

Compared to the same three month period in 2014, this implies a year-on-year growth rate of 2.7%, which is consistent with NIESR's released quarterly forecast of 2.5% growth in GDP in 2015.

NIESR's economic forecast came on the same day as the central bank, the Bank of England, released its quarterly inflation report, which predicted growth of 2.8% for 2015.

Jack Meaning, research fellow at NIESR and co-author of the forecast, told Xinhua, "This shows that growth will remain reasonably strong."

"It's also indicative that the Bank's (BOE) assessment is probably on the right lines. They are expecting growth in the second half of the year to keep up and that is why our estimate for the year as a whole is staying at 2.5%," said Meaning.

The BOE's rate-setting Monetary Policy Committee revealed that it would continue to hold the Bank Rate at 0.5%, and Meaning said he continued to expect the first interest rate increase to come in February, 2016.

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