The recession of 2008-09 keeps getting worse, even now. For the second time, the annual benchmark revisions to the GDP data have shown that the recession was deeper than previously thought. The decline in GDP is now put at 5.1 per cent rather than 4.1 per cent.
By the magic of FRED, here it is in levels (green is before the 2010 revisions, blue before the 2011 revisions, red is today): Read more
A familiar consequence of crises is a flight to quality. This crisis is no exception, with gold soaring to nominal highs and the Swiss franc appreciating against pretty much every other currency on the planet.
However, owing to two decades’ worth of financial globalisation, a trend more pronounced during this crisis than any other was that this shift to safe-haven assets was coupled with a flight of capital across borders. As European Central Bank research, out on Wednesday, notes, investors were not only risk averse, but also fearful of uncertainty. And this so-called “uncertainty aversion” fed home bias.
The capital flight threatened financial stability and hindered economic growth. So what to do? For the ECB, there are two things: better analysis and more regulation. Read more
From a monetary policy perspective, what’s interesting about today’s preliminary GDP figure is that both hawks and doves believe it supports their arguments.
GDP coming in at 0.2 per cent for the second quarter means the UK economy has barely grown over the past nine months, which adds weight to doves’ calls for further easing if the economy does not pick up in the three months to September.
This from Gavyn Davies, writing for the FT: Read more
Christine Lagarde. Image by Getty.
The Federal Reserve is too often seen as a panacea for the US’s economic ills. This no doubt owes much to its dual mandate to both maintain price stability and promote employment, despite there being little monetary policy can do to influence structural unemployment.
And so Christine Lagarde’s comments today that there has been a rise in structural unemployment in the US – and that, by implication, fiscal policy should shoulder more of the burden for creating jobs – is to be welcomed. Read more
This from the FT’s Rahul Jacob in New Delhi and James Fontanella-Khan in Mumbai:
India’s central bank has raised interest rates by a higher than expected 50 basis points, signalling its determination to battle persistent high inflation. Read more
Christian Noyer, Banque de France governor, has created confusion after apparently signalling another European Central Bank interest rate rise is in the pipeline. In an interview published on Tuesday, he told Financial Times Deutschland – the German language newspaper - that the ECB was exercising “strong vigilance” - code used in Frankfurt to signal a rise in official borrowing costs is a month away.
Or did he? Mr Noyer may have been a victim of the eurozone’s linguistic diversity. Read more
There are two questions worth asking about Vince Cable’s call for a second round of quantitative easing.
Was it appropriate? And, more to the point, was he right?
The first is easier to answer than the second. It was in no way appropriate for him to make the call. And, as this post on the FT’s Westminster blog notes, it is something of a reverse ferret.
The timing of the comments is cunning. Read more
Coverage of Bank of Japan governor Masaaki Shirakawa’s speech earlier today focused on his warning on the dangers of a strong yen.
This is odd, as currency intervention is likely to come at the behest not of the Bank of Japan but of the finance ministry. Besides, as Mr Shirakawa notes elsewhere in the speech, Japanese manufacturers are hedged against a rising yen owing to their recent spate of acquisitions of overseas firms.
Of more interest is his warning that the impasse over the US debt ceiling and the eurozone debt crisis could trigger a rise in government bond yields the world over. Read more
Events in the eurozone and the US are at the forefront of central bankers’ thoughts, in some cases eclipsing domestic factors in setting policy rates.
So it proved in South Africa today, as the central bank opted to hold rates at a 30-year low of 5.5 per cent, as expected.
The South African Reserve Bank appeared unconcerned about striking fuel workers’ calls for a 13 per cent pay rise, or the recent spike in inflation to 5 per cent from 4.6 per cent in May, arguing that expectations remained well anchored within its 3-6 per cent target range. Instead, its policy statement focused on the global outlook. Read more
I did a piece for today’s paper on what would happen if the debt ceiling was not raised on time. Here are a few extra points arising from the reporting for that piece:
(1) The Treasury becomes constrained by the debt ceiling at the point when its account with the Federal Reserve is forecast to be overdrawn at the end of the day. The August 2nd date cited by the Treasury is the last day that it expects to undertake normal operations and end below the limit. So the constraint would most likely bite, and the chaos start, on the 3rd. Read more
This from the FT’s Joe Leahy and Samantha Pearson in São Paulo:
Brazil’s central bank has raised interest rates for the fifth time this year as the country battles inflation above official target levels. Read more
The European Union today became the first jurisdiction to unveil proposals on how it intends to beef up its banks’ capital and liquidity buffers.
In terms of capital, the measures put European banks in line with Basel III in requiring them to hold common equity tier 1 capital of 4.5 per cent and total tier 1 capital of 6 per cent, up from 2 per cent and 4 per cent under the current regulatory regime.
That means the continent’s banks must raise a whopping €460bn in capital by 2019. Either that or shrink their balance sheets and shed risky assets.
But hold the applause. According to the IMF, this might not be enough. Read more
It is oft remarked that when the US sneezes, the rest of the world catches a cold. Given the slew of poor data in recent months, then, the risk of a double dip in the world’s largest economy is of mounting concern to policymakers around the globe.
Central bankers from Sweden and Japan have both touched on the issue in recent weeks.
This from the Bank of Japan’s minutes for its mid-June policy meeting, released Friday: Read more
Minutes of the Riksbank’s July 4 policy meeting, published today, see deputy governor Lars Nyberg become the latest central banker to lambast the eurozone authorities over their handling of the Greek crisis. From the minutes:
Economically it would have paid off to find a solution to the Greek crisis a long time ago, given the costs in the form of less efficient markets and falling stock markets that the uncertainty has led to. However, Greece is now part of the euro area and this means that the crisis must be resolved politically and at the European level. Mr Nyberg noted that the European mechanisms for resolving crises do not appear to work particularly well.
Financial market investors are wondering, and justifiably so, how a crisis in a larger country could possibly be managed if it is not even possible to reach agreement on how to deal with Greece.
Quite. Because of this, he says, “a relatively minor economic crisis may quickly become a major political crisis”. (Note that this was before events in Italy took a turn for the worse.) Read more