Monthly Archives: May 2011

The disappointing economic data on US activity in recent months has brought a key policy debate back into focus. Is there a chronic shortage of growth in the developed world, and if so what should be done about it? Read more

The growth rate of the global economy has seen a significant and somewhat unexpected downward shift in recent months, and real GDP growth in the current quarter has probably dropped to slightly below trend. Although some of the recent data have had an ominous tone, especially in the US, Japan and China, the financial markets have remained confident that this is nothing more than a mid course correction which will soon be over. This confidence is based largely on memories of what happened last year, when a similar springtime dip in global growth proved to be shortlived. But can we confident that the same will happen this time? Read more

How much government debt is too much government debt? That question is pertinent in most economies today, but is especially pertinent in the US, where Congress is debating whether to raise the government debt ceiling, and if so on what terms. Unless economists can give sensible advice on the appropriate maximum level for public debt, much of the debate on budgetary policy is based on little more than political bias or, even worse, gut feeling dressed up as expert opinion. Read more

Although the US equity market has now fallen slightly for three successive weeks, there has been no real sign yet of any major crack in market sentiment. This is noteworthy, since there is no longer any doubt that the growth rate of the global manufacturing sector has slowed markedly during the current quarter. Part of this is due to the Japanese earthquake, but the rest is probably due to the more permanent impact of higher oil prices on consumer demand. Read more

Gillian Tett’s perceptive article on financial repression has got a lot of people in the markets very worried. The term has an ominous ring to it. Like the term “inflation tax”, it sounds like the kind of underhand policy option which might appeal to governments because it enables them to reduce debt without the victims actually noticing any pain, at least for a while. And that is exactly what it is. But however tempting it might be to go down this path, governments might find it a difficult option to pursue in present circumstances. Read more

Commodities have been the best performing asset class since the Fed announced QE2 last August. Even after the fall of 10 per cent seen this month, commodity prices are still 29 per cent higher than they were when Mr Bernanke spoke at Jackson Hole on QE2. But this has started to slow the growth rate of the world economy, raising doubts about the sustainability of the rally in all risk assets. So where are commodity prices headed next? Read more

The Bank of England’s latest Inflation Report was certainly a downbeat document. Mervyn King, Bank governor, said there are “difficult times ahead”, because the economy is still undergoing a slow adjustment to the impact of the financial crisis. By reducing its GDP growth forecasts while simultaneously increasing its inflation projections, the Bank has signalled that it believes the UK is now facing a series of supply side problems – and those are always the most difficult for any central bank to handle. Read more

The data on global economic activity published last week have raised doubts about the strength of the world recovery at the beginning of the second quarter, and there have been some moderate downward revisions to GDP growth forecasts in recent days.  Read more

The US employment figures will, as usual, be the centre of financial market attention when they are published on Friday. But whatever this month’s figures show, they will not alter the fact that something has gone badly wrong in the American labour market in recent years. Read more

The past week has seen the publication of disappointing Q1 GDP data for both the US and the UK. On the surface, this seems worrying, since these two economies have always been the most vulnerable to double dip recessions, because of their exposure to housing and their bloated financial sectors. In both economies, the slowing GDP figures have led to calls for further fiscal or monetary stimulus. However, the official GDP statistics are probably exaggerating the extent to which the economies have in fact slowed down since the beginning of 2011. Read more