The past week has seen the publication of generally weak economic data which suggest that the global GDP growth rate in 2012 Q2 will be the lowest recorded since the “recovery” began three years ago. Many of these data were analysed here on Friday. Since then, the US jobs data for June were anaemic at best, indicating that American business spending is now slowing in both capital expenditure and job creation.
Furthermore, the eurozone crisis has moved in the wrong direction in the past week. The ECB cut interest rates on Thursday, but Mario Draghi poured cold water over the idea that the central bank balance sheet could be used to purchase significant quantities of Italian and Spanish debt, or to leverage the inadequate balance sheet of the ESM. Even more worrying, the Wall Street Journal reports that last week’s summit did not, after all, agree that bank capital injections should by-pass the balance sheets of sovereign governments. Instead, governments will reportedly be expected to guarantee these capital injections, which greatly waters down the force of the statement made after the summit.
European activity data stabilised somewhat in June, but the absence of a genuine resolution to the crisis will hang over the region’s economies for many more months. The key near term question for the global economy is whether the serious effects of the eurozone shock can be mitigated by the renewed operation of the oil stabiliser, which has been growing in importance in the last few years. Here lies the silver lining, if there is one. Read more