Monthly Archives: January 2011

A month in global macro – emerging markets underperform

January 30, 2011 11:58 am by Gavyn Davies

In this regular series of weekend blogs on the major events in the world of global macro, the last blog of the month will reflect on the main themes of the whole month, not just the latest week. In January, rising inflation risks in the emerging markets dominated market behaviour and worries about unrest in the Middle East, and the wider impact of higher agricultural prices, replaced the European sovereign debt crisis as the main concern for global markets. Global equities and bonds were little changed during the month, but developed markets out-performed the emerging world. Global and US activity indicators remained encouraging, but the Fed showed no signs of an imminent change in its policy stance. Next week will see the publication of the US ISM and employment data, and the markets will doubtless stay focused on events in Egypt.

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Posted in Macroeconomics |

UK GDP data make the political and market weather

January 27, 2011 1:38 pm by Gavyn Davies

The UK GDP data for 2010 Q4 were so bad, and they are potentially so important as a signal for other countries which are about to embark on fiscal tightening, that they are worth another look. In this earlier blog, I commented that the figures were “too bad to be true”, because they did not tally with the behaviour of private sector business surveys published during the quarter, and also because there were several special factors depressing the growth rate, including bad weather and a large drop in public construction. Consequently, I conjectured that the underlying growth rate of real GDP might have been around 2 per cent (quarter-on-quarter annualised) rather than the -2 per cent reported in the official data. But all this is highly uncertain.

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Posted in Macroeconomics, UK |

UK GDP figures too bad to be true

January 25, 2011 1:44 pm by Gavyn Davies

The UK GDP figures for Q4 2010 have been eagerly awaited far beyond Britain’s shores, because the country is currently being seen as a laboratory experiment in what might happen when the rest of the world tightens fiscal policy. The statistics were expected to show a significant slowdown in output growth, but nothing like the drop of 0.5% in real GDP (-2 per cent quarter-on-quarter annualised) which was actually announced this morning.

Given that this has occurred just when the fiscal tightening has started to take effect, it is likely to lead to much talk about a double-dip recession. But these figures seem much too bad to be true, and not just because of the weather. The underlying growth rate of private sector GDP probably remains at around +2 per cent on an annualised basis, and it would not be at all surprising to see a sharp rebound in recorded growth in the current quarter. Nevertheless, the recovery in the UK economy, while still intact, continues to run at a less impressive pace than we are seeing elsewhere in the developed world.

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Posted in Global economy, Macroeconomics, Recession, UK |

A week in global macro – rising concerns about emerging market inflation

January 23, 2011 10:01 am by Gavyn Davies

In a fairly quiet week in global macro, inflation fears remained at the centre of investors’ concerns as data suggested that the UK and China are both struggling to contain price pressures. Rising inflation in the emerging world is fast becoming a headache for the global economy. The eurozone seemed to make some progress on the sovereign debt crisis. And global activity data remained encouraging. Next week, the Fed meets, and US real GDP figures for 2010 Q4 should look pretty good.

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Posted in Global economy, Macroeconomics |

China has exceeded its speed limit

January 20, 2011 3:05 pm by Gavyn Davies

China’s economic data for December, released on Thursday, clearly suggest that the authorities have not yet succeeded in slowing the economy enough to bring inflation pressures under control. The economy has been overheating for a while now, and more monetary tightening is certainly on the way.  However, much of the immediate reaction to the figures seems to me to have exaggerated the severity of the over-heating pressures which now confront China. The government can probably bring this problem under control before the end of 2011.

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Posted in China, Global economy, Macroeconomics |

Low UK interest rates are a key part of Plan A

January 18, 2011 4:14 pm by Gavyn Davies

The UK consumer price figures for December have certainly thrown the cat among the pidgeons. Repeating a pattern which has now been seen for many months, the figures were not just bad, they were also worse than the markets or the Bank of England expected. In a reversal of the normal order of things, there are suggestions that the government might now see a political case for higher interest rates, while the monetary policy committee still prefers to keep rates at close to zero. Whichever way you look at it, this is a tricky moment for the Bank, but it is probably doing the right thing.

Continue reading: “Low UK interest rates are a key part of Plan A”

Posted in Macroeconomics, Monetary policy, UK |

A week in global macro – inflation concerns are back

January 16, 2011 12:08 pm by Gavyn Davies

This is the second in a series of weekend comments on what I have learned in the past 7 days about the global economy and financial markets.  This week, there has been a notable rise in inflation concerns as higher food and energy prices start to impact consumer prices. There have been signs that European governments are discussing a more comprehensive package to address the sovereign debt crisis. And China has continued down the path of gradual monetary tightening. Next week, Mr Hu visits Washington, Ecofin meets to discuss sovereign debt, and China publishes its macro data for December.

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Posted in China, Eurozone, Macroeconomics |

Is Europe ready for fiscal federalism?

January 14, 2011 3:14 pm by Gavyn Davies

There have been definite signs of progress this week on European sovereign debt. The ECB is pressing governments to get “ahead of the markets” and come up with a comprehensive solution to the crisis in the next few weeks. Meanwhile, there is talk that Germany may have at last decided that its own narrow national interest would be best served by agreeing to a larger and more generous package of European support for the troubled nations.

Although the optimists may be over-stating the degree to which German thinking has actually changed, something is clearly afoot. For the first time since the crisis started last May, there is a chance that the EU could surprise the markets with a coherent response to the problem.

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Posted in Eurozone, Germany, Macroeconomics, Sovereign debt |

Is US financial optimism misplaced?

January 12, 2011 3:31 pm by Gavyn Davies

In recent blogs in this series, I have described the immediate outlook for US GDP growth as “surprisingly strong”.  By coincidence, Jim O’Neill, my ex-colleague at Goldman Sachs, wrote a piece for the FT on Tuesday in which he argued that the strength of the recovery in the US economy would be one of the surprises of the year. These assessments have been seen by some as far too optimistic. Clearly, the US economy remains plagued by excessive debt and a chronically under-employed labour market. Furthermore, in a longer term context, the present recovery has not been sufficient to reverse the slow growth rate in the US economy in the past decade. So I have been re-assessing the case for “optimism” on the US.

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Posted in Macroeconomics, US |

A week in global macro – strong growth, notably in the US

January 9, 2011 11:47 am by Gavyn Davies

This is the first of a series of (usually) weekend comments on what I have learned this week about the global economy and financial markets. It will not attempt to be comprehensive. It will simply give my interpretation of the news which strikes me as particularly important for global macro, both in the recent past and the near future. This week, there was a great deal of new evidence suggesting that the global upswing is gathering powerful momentum as the year begins, especially in the US. But the problems of the eurozone periphery show no sign of ending. Rising food prices are becoming a severe headache. And the Aussies have lost interest in cricket.

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Posted in Macroeconomics |
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Gavyn Davies

on macroeconomics

About this blog About Gavyn Blog guide
A blog on macroeconomics, economic policymaking and the financial markets. Gavyn usually writes about a key topic of the week on Sunday.

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Gavyn Davies is a macroeconomist who is now chairman of Fulcrum Asset Management and co-founder of Prisma Capital Partners. He was the head of the global economics department at Goldman Sachs from 1987-2001, and was chairman of the BBC from 2001-2004.

He has also served as an economic policy adviser in No 10 Downing Street, an external adviser to the British Treasury, and as a visiting professor at the London School of Economics.

Gavyn Davies is an active investor and may have financial interests and holdings in any of the topics about which he writes. The views expressed are solely those of Mr Davies and in no way reflect the views of Prisma Capital Partners LP, Fulcrum Asset Management LLP, their respective affiliates or representatives. This material is not intended to provide, and should not be relied upon for, investment advice or recommendations. Readers are urged to seek professional advice before making any investments.

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