Drug-dealers and their customers in the UK may be breaking the law, but at least they are making us richer. Illegal activities such as prostitution and drug dealing will add £10bn to the UK economy, the Office of National Statistics said today, as part of an overhaul of how we calculate national gross domestic productRead more

By Roman Olearchyk and Lindsay Whipp

Ukraine’s economy and Kiev’s financial position were deteriorating rapidly even before the political crisis gripped the country last year. But as the interim government grapples with Russia’s annexation of Crimea, spreading separatist unrest in the east and gas bills that will almost double, Kiev is slipping closer towards financial breaking point. The government is awaiting a multibillion dollar loan International Monetary Fund and on Monday night the central bank raised key interest rates as it embarks on reform of the way it conducts its monetary policy. Read more

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.

 

 

 

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By Robin Wigglesworth

A slew of economic news and data has come out over the past 24 hours, some good, some bad, and some outright ugly. But if one thing is clear, the economic recovery of advanced economies is far from assured. Here are five highlights, and things to keep in mind.

1: Markets believe the Fed will keep stimulating the economy

Janet Yellen, the nominee for the Federal Reserve chairmanship, will highlight now the US economy is performing “far short” of its potential at her Senate testimony on Thursday, according to prepared remarks released on Wednesday evening. Deutsche Bank’s Jim Reid points out that while the “tones are certainly dovish, it’s impossible to infer precise policy thoughts from her remarks”. That hasn’t stopped financial markets from rallying on the hope that the presumptive new Fed chairwoman will keep pumping money into the global economy for longer than previously expected. Read more

By Eswar Prasad, Karim Foda, and Arnav Sahu

The latest update of the Brookings-FT Tiger index shows that the global economic recovery is back on track, although it remains slow and unsteady. The recovery is being borne along by surging business and consumer confidence in advanced economies, and stabilisation in the growth of emerging markets. However, it may be premature for policymakers to declare victory as the recovery is still tenuous and just a shock or two away from turning into another slump.

Advanced economies seem to have put the worst behind them. The US economy continues to push forward at a modest pace and the UK is experiencing surprisingly good growth, while the core eurozone economies and Japan are also turning in positive growth. Across the board, private sector confidence has improved in these economies and inflation remains subdued. However, labour market performance continues to be weak and financial conditions are still mixed. The postponement of the US Federal Reserve’s tapering of its quantitative easing policies sparked a rally in equity markets but credit growth has not picked up in most advanced economies, still acting as a drag on the recovery. Read more

Sandra Pianalto, who has served as president of the Federal Reserve Bank of Cleveland, announced she will be retiring early next year after being in the job for a decade.

Ms Pianalto’s departure may not mean too much for monetary policy. She is known for being a centrist, predictable official on the Federal Open Market Committee, backing the chairman’s view without offering positions that are either too dovish or too hawkish. Read more

By James Politi in Washington

Richard Fisher, president of the Federal Reserve Bank of Dallas, is about as outspoken as it gets when it comes to officials at the US central bank. And in Portland, Oregon on Monday — as he spoke to a conference of state retirement administrators — he waded into the heated battle to succeed Ben Bernanke as the next Fed chairman.

His main message seemed to be that the Fed did not need a “prima donna” at its helm – which naturally led to speculation about whether he was referring to Larry Summers, the former treasury secretary, or Janet Yellen, the current vice-chair, who are the two leading candidates for the post. Read more

By James Politi in Washington

Capping a week flooded with US economic data, July’s job figures are out. So, what did we learn this time around?

 


1) A mixed bag but the jobs report could favour a later taper

Federal Reserve officials hoping that the July jobs report would provide a decisive answer to their dilemma over when to start tapering the asset purchases are likely to have been sorely disappointed.
The data were a classic mixed bag – with the unemployment rate dropping 0.2 percentage points from 7.6 per cent to 7.4 per cent but payroll growth slowed, running below expectations.
But on the margins, the data are likely to offer proponents of a later taper just a bit more ammunition than supporters of an early taper. The Fed is likely to give more weight to the weaker payrolls “establishment” survey than the stronger but more volatile household survey, which measures joblessness.
The question for fans of slowing down asset purchases at the FOMC’s next meeting on September 17-18 is whether a slight slowing in job creation is sufficient to deter them, and it may not be. And luckily for FOMC members, they still have more than six weeks of data – including another jobs report – to make up their minds. Read more

By Eswar Prasad and Mengjie Ding

As the fifth anniversary of the collapse of Lehman Brothers draws near and the debate about fiscal austerity continues to rage, it is time to take stock of the trajectory of debt levels in the key advanced and emerging market economies (AEs and EMs). The overall picture of government debt around the world is not a pretty one (interactive data here).

Data from the IMF’s latest Fiscal Monitor show that the level of aggregate net government debt in the world is expected to rise from $26tn in 2008 to $42tn in 2013. The ratio of world net debt to world GDP, a more relevant indicator of sustainable debt levels, shows a corresponding increase from 46 per cent in 2008 to 61 per cent in 2013.

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The UK economy is at a standstill and opinions on how to get it going are divided. Should we rely on an aggressive monetary policy or is it time to borrow more and invest? Martin Wolf, chief economics commentator, and Chris Giles, economics editor, put forward their opposing views on what George Osborne’s Budget needs to deliver. Who do you think is right?

Adam Posen’s attack on the management and culture of the Bank of England may be the strongest yet, but it is by no means the first – and won’t be the last – criticism of a persistent and dismaying lack of robust governance at the UK central bank.

What is astonishing is that despite countless warnings – three independent reviews, several newspaper editorials and sundry MPs’ warnings – the central charge that the governor is over-mighty and under-governed still stands.

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Getty Images

If a close confidant had asked Sir Mervyn King, governor of the Bank of England, a year ago which City institutions he would like to take down a peg or two, the answer might well have been: Goldman Sachs and Barclays.

It has happened more by accident and opportunism than by express design, but during the past six months, the governor has duly hit those banks where it hurts. Read more

By Gillian Tett

Four years ago, Zoltan Pozsar helped change how policy makers visualise the financial world when he worked with colleagues at the New York Federal Reserve to create a gigantic wall map of shadow banking. Astonishingly, it was the first time anyone had laid out these financial flows in detailed, graphic form. And by doing that, the NY Fed researchers showed why the sector mattered – and why policy makers needed to rethink how the financial ecosystem did (or did not) work.

Now Pozsar has left the NY Fed and teamed up with Paul McCulley, the former investment luminary of Pimco (and the man who coined that phrase “shadow banking”) to tackle another issue. But this time, it is not securitisation they want to “map” – but “helicopter money”, or quantitative easing.

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By Gavyn Davies

The macroeconomic debate is now buzzing about “political dominance” over the central banks, under which elected politicians force central bankers to take actions they would not choose to take, if left to their own devices [1]. This is clearly what is happening in Japan, where the incoming Shinzo Abe government is not only imposing a new inflation target on the Bank of Japan (which is legitimate), but is changing the leadership of the central bank to ensure that the BoJ adopts policies compliant with the fiscal regime. This is not just political dominance, it is fiscal dominance, where monetary policy is subordinated to the decisions of those who set budgetary policy.

There have also been some early signs of political or fiscal dominance emerging elsewhere, notably in the use of the ECB balance sheet to finance cross-border financial support operations in the eurozone, and the “coupon raid” conducted by the UK Treasury on the Bank of England. Many investors have concluded that there is now an inevitable trend in place that will overthrow central bank independence throughout the developed world, allowing politicians to expand fiscal policy, while simultaneously inflating away the burden of public debt.

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Bank of England. Getty Images

Last October, the UK passed the 20th anniversary of inflation targeting. There have been a couple of slight adjustments to the target – in 1997 and 2004, but since 1992 the UK has benefited from a remarkable degree of consistency in its monetary policy framework.

We have to go back to before the first world war – under the Gold Standard – to find such a long period of stability in UK monetary policy. Since then, the only other period that comes close was 1949-67, when the value of the pound was pegged at $2.80 against the dollar.

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Almost a year ago to the day, the European Central Bank averted financial disaster in the eurozone by offering banks an unlimited injection of cheap three-year cash. Hundreds of banks participated in the ECB’s loan programme and by March about €1tn had been pumped into the banking system via two tranches of the ECB’s longer-term refinancing operations.

The LTRO sugar hit was deemed a success, avoiding a liquidity squeeze, temporarily lifting markets and encouraging a flurry of bond issuance in January and February. But as eurozone worries resurfaced, it was Mario Draghi’s pledge in July to do “whatever it takes” to save the euro followed by the ECB’s September offer to buy up the debt of ailing governments via so-called outright monetary transactions that changed the tone of markets.

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Riad Salameh, Lebanon’s central bank governor, talks to the FT’s capital markets correspondent Robin Wigglesworth about how the unrest in Syria has affected the investor and the consumer in Lebanon.

Ingram Pinn

To understand Ben Bernanke, it helps to set aside the ubiquitous pictures of today’s 59-year-old: the controlled beard, the pristine shirts, the worn-down weary look. Instead, search for a snap of the freshly minted graduate who gazes from the pages of the 1975 Harvard yearbook. Unlike the other young men pictured alongside him, Mr Bernanke sports no tie and no blazer. He has a loud checked shirt, long hair and a tremendous, rebellious handlebar moustache.

The moustache may be gone, but the US Federal Reserve chairman remains a rebel – and the world is better off for it. The Financial Times has already crowned its man of the year: Mario Draghi, the European Central Bank president. But my pick for silver medal is Mr Bernanke. The fact that he is sometimes pilloried only underlines his fortitude. Read more

Is the eurozone set to be the most dynamic economy? Getty Images

Where would you find the soon-to-be most dynamic economy in the western world?

The counterintuitive answer from Mario Draghi, European Central Bank president, is none other than the emotionally battered and low-on-festive-cheer currency bloc whose name has become synonymous with crisis, recession and gloom.

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The three independent reviews of the Bank of England’s performance before and during the financial crisis must have been sobering for the court, its governing body. In polite but pointed language the reviews, published on November 2, confirmed that the BoE was ill prepared to recognise or deal with the crisis in its early days. The BoE’s forecasting was also found to be subject to groupthink.

The reviews provided many detailed recommendations but also made it clear that a full-scale cultural change is needed to address the root causes of the problems. This will be a high priority for the next governor.

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