Global economy

China’s GDP growth made news this week because, on the official figures, China overtook Japan to become the second largest economy in the world in 2010. But actually, on a different way of calculating the data, this was very old news. Using purchasing power parity, China not only overtook Japan way back in 2001, but it is also quite close to overtaking the US as the biggest economy in the world – if, indeed, it has not done so already.

GDP statistics measure the amount of value added or income in the economy, measured in domestic currencies, over a given period of time. But it is more difficult to compare the GDP in one economy (China) with that in another economy (Japan), because we need to use an exchange rate which translates yuan into yen or vice versa. This is not as straightforward as it may seem. Read more

This week, the dramatic events in Egypt failed to unsettle the global financial markets. Not only do investors believe that Egypt itself is not critical for global oil prices, they also seem to believe that there will be relatively little contagion to the more important oil producing states elsewhere in the Middle East. Read more

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.  Read more

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. Read more

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. Read more

From the standpoint of a global macro economist, this is my nomination for the most important graph of the year. (See the end of this blog if you wish to suggest alternatives.) It explains why the world’s largest economy, the US, has defied the pessimists by mounting a decent recovery in 2010. Read more

The Fed statement just released indicates that the central bank intends to purchase a net total of $600bn of longer term Treasury securities between now and the end of 2011 Q2, at a pace of around $75bn per month. This was almost exactly in line with what the market had been led to expect, so there was no surprise in the extent and timing of QE2. However, there was no further softening in the Fed’s statement that interest rates are likely to remain exceptionally low for an “extended period”, which may have disappointed some observers who were looking for this language to shift in a dovish direction. Overall, the markets initial reaction was a shrug of acceptance that the Fed has done just about what it told us it would do, but certainly no more. Read more

The financial markets have been acting very serenely in the face of continuing evidence that the US economy is slowing markedly during the third quarter. Read more