At the World Economic Forum in Davos, Mark Carney got to speak briefly at the main debate on the global economy. Asked about the news on forward guidance he talked about it coming to the end of its “first phase”. He said:
In terms of exit, I am not signalling an exit on UK monetary policy, just to be clear. Our first phase of forward guidance with a 7 per cent threshold of unemployment rate is approaching – we don’t know exactly when – the achievement of that threshold. We will assess the overall conditions in the labour market; more broadly the supply capacity of the economy, just as we’ve said all along that we would do at that point and set policy appropriately.
By Hugh Carnegy in Paris
Update: Since we published this post, Chris Williamson, chief economist at Markit, has been in touch to say there is no significant divergence with Insee. There has been a lot of comment on this among economists in recent months so his take is important. Thanks to him for the contribution added at the bottom of the post.
Trying to work out exactly what is going on in France’s economy? Recently there has been a marked divergence between indicators from Markit and those from Insee, France’s statistics institute, with the former a good deal more gloomy than the latter.
This continues to be the case – but at least this month there is a bit of convergence, with Insee indicators level-pegging compared with December, while Markit’s figures show a three-month high.
Headlines are headlines. British unemployment plummeted from 7.4 per cent between August and October to 7.1 per cent between September and November. This puts it 0.1 percentage points away from the point the Bank of England said it would start considering raising interest rates. It is a big story but there has to be a question whether the unemployment rate is a false friend to the BoE. Could it be suggesting strength in the labour market and a drop in slack that other labour market measures do not show.
Luckily, when the BoE introduced guidance, it published a pentagon diagram of other labour market indicators. It is inserted below and each point shows the same degree of slack, pretty much, (1 standard deviation from normal levels). I call it the BoE’s presumptive pentagon. It was presumptive because it was suspiciously regular (rarely things show such a consistent message in economic data) and it presumed unemployment would behave similarly to other indicators. The time has come to find out. Read more
So, China’s gross domestic product grew by 7.7 per cent in 2013. Much media comment has focused on how this performance, by Chinese standards, is relatively lacklustre. It is, together with last year’s 7.7 per cent expansion, the lowest growth rate since 1999.
However, there is another perspective. A quick look at the International Monetary Fund’s list of countries’ GDP numbers shows that China grew last year by an amount somewhat smaller than the size of the entire Indonesian economy but larger than Turkey. Read more
How will sovereign bonds will be handled in the euro area’s forthcoming banking health checks? This is a vexed question and markets seize ravenously upon any clues.
Mario Draghi, the European Central Bank’s president, offered a flicker of information on Tuesday in a letter to Sharon Bowles, the chair of the European Parliament’s Economic and Monetary Affairs committee. Sovereign exposures will indeed bit included in the stress test, he said – confirming previous declarations from the ECB.
However, it is “not foreseen” that bonds in the held-to-maturity category of banks’ books will be adjusted to reflect market valuations – otherwise known as marked to market. That will come as a relief to banks that are holding portfolios that have slumped in value, but analysts caution that it is far too soon for lenders to relax. Read more
ECB president Mario Draghi started his monthly press conference shortly after 1.30 GMT. Earlier, as expected, the ECB left rates on hold. Follow the questions and reaction live here with capital markets editor Ralph Atkins and Emily Cadman