Five quick takeaways from the eurozone GDP numbers
You still need a strong constitution or a taste for gallows humour to read most eurozone economic statistics, as today’s release of the preliminary Q1 gross domestic product growth contraction data shows.
The bloc is now in its longest recession since the birth of the single currency, beating the post-Lehman Brothers slump in duration, though not in the depth of the downturn. Read more
UK supply capacity – an amazing chart
In doing the usual due diligence on the Bank of England’s pictorial forecasts – blowing up the images on screen, getting out a ruler, measuring the YoY growth rates, estimating the skew that represents a risk-adjusted forecast and shoving all the results into a pre-prepared spreasdsheet – you can produced this horrible chart of successive Bank of England growth forecasts.
All it really shows, in the grand scheme of things, is that the Bank’s growth forecasts were pretty good before the crisis and spectacularly awful more recently.
If you strip out a lot of irrelevant information, you get the following, which I think is pretty amazing. Read more
Interest rates are likely to linger for longer at their current record low of 0.5 per cent, following today’s growth figures. With GDP numbers coming in at expectation, market expectations haven’t shifted that much since yesterday, but over the past two months, the change is dramatic (see chart).
Just two months ago, markets forecast three rate rises this year; now the base rate is not expected to reach 0.75 per cent until November. The data also belie an assumption that a rate rise is far likelier in a month following a GDP announcement (notice the jump in expectations for August, November and February). Read more
The German consumer mood
German consumer optimism has brightened further. The GfK research organisation in Nuremberg estimates its “consumer climate” index will rise again in February, reaching a level last seen in the second half of 2007 – before the global financial crisis took its toll. Germans’ “propensity to buy” this month was the highest since December 2006, it reported.
But “propensity to buy” does not mean actually buying. The most recent German retail sales figures have been disappointing. November saw a 2.4 per cent fall compared with October. While economists generally expect 2011 to see a revival in consumers spending, on the back of steep falls in unemployment, rising wages and a general improvement in German confidence, few expect a dramatic surge. Read more
Stagflation: BoE cheers
In recent weeks, the Bank of England’s problem has been inflation. It is too high at 3.7 per cent in December and going higher. Now the Bank has something apparently worse on its hands: stagflation. The Office for National Statistics has just shocked everyone by saying the UK economy contracted by 0.5 per cent in the final quarter of 2010. Expectations had been for a 0.5 per cent increase.
Nothing could cheer the Monetary Policy Committee more. Now it can bat away suggestions it should be raising interest rates with the comment that this would be nuts as the economy is again contracting. High inflation is nothing to worry about if the economy is still in intensive care. Read more
Italy’s economic recovery will remain weak and below the eurozone average over the next two years, the Bank of Italy forecasts in a report that diverges from more upbeat government predictions while underlining the need for structural reforms.
Noting a slowdown in gross domestic product growth in the last quarter of 2010, the central bank predicted on Tuesday that Italian GDP would grow at a similar pace of 0.9 per cent in 2011 and 1.1 per cent in 2012, boosted by rising exports but held back by weak consumer spending and the government’s austerity programme. Modest growth would not be enough to produce a robust recovery in employment, the bank said. Read more
Lower-than-expected growth in Brazil and New Zealand have prompted their central banks to maintain rates; in South Korea, “greatly decreased” inflation motivated the hold decision, in spite of a “continued upward trend” in growth.
Brazil’s monetary policy committee, Copom, kept the Selic rate at 10.75 per cent, hinting that a rate cut might have been on the cards were it not for recent macroprudential policies, whose effects on monetary conditions were yet to be seen. Read more
Latest Fed projections for the US economy are expected to have worsened considerably from last quarter. Robin suggests the 2011 growth forecast, due for release tomorrow, will fall to 3-3.5 per cent for next year. Unemployment might rise above 8 per cent in 2012, with long-term unemployment rising by more than a percentage point to 6 per cent. Below is a summary of recent projections with Robin’s figures added to the November row:
Eurozone growth fails to surprise
You can take a gloomy view of today’s eurozone GDP figures. Third quarter growth, at 0.4 per cent on the previous three months, was weaker than in the US and UK – where the talk is about quantitative easing and further measures to boost the economy - and the underlying trend appears to show a clear deceleration from the first half of the year.
But I suspect the ECB is not going to be too disappointed. Germany still managed an impressive 0.7 per cent expansion, while the French and Italian economies continue to expand, even if at a modest pace. Yves Mersch, Luxembourg’s central bank governor, has just told Bloomberg that the latest data were in line with the ECB’s “baseline scenario”. Certainly, the growth outlook will not stop the ECB from pressing ahead with its “exit strategy” to unwind emergency measures taken to support the financial system. Whether Ireland or the other “peripheral” eurozone countries do is another question… Read more
Instead of falling gradually back to target, inflation in the UK is now expected to rise to about 3.5 per cent by the end of the year, staying above 3 per cent till mid-2011 before falling to about 2 per cent in 2012. The central projection – the dark red centre of the fan chart – now has an upward hump, as you can see to the right.
Rising import prices, rising VAT and companies rebuilding their margins were cited as reasons for the change in the Bank of England’s quarterly inflation report. Risks to the projection are on the upside. Read more
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Chris Giles has been the economics editor of the Financial Times since 2004. Based in London, he writes about international economic trends and the British economy. Before reporting economics for the Financial Times, he wrote editorials for the paper, reported for the BBC, worked as a regulator of the broadcasting industry and undertook research for the Institute for Fiscal Studies. RSS
Michael Steen, Frankfurt bureau chief, covers the ECB and the eurozone's economies. He joined the Financial Times in 2007 as Amsterdam correspondent and later worked as a front page news editor in London. Before joining the FT, he spent nine years as a correspondent at Reuters, mostly in foreign postings that included a previous stint in Frankfurt, as well as Moscow, Kiev and central Asia. He read German and Russian at Cambridge.RSS
Robin Harding is the FT's US economics editor, based in Washington. Prior to this, he was based in Tokyo, covering the Bank of Japan and Japan's technology sector, and in London as an economics leader writer. Robin studied economics at Cambridge and has a masters in economics from Hitotsubashi University, where he was a Monbusho scholar. Before joining the FT, Robin worked in asset management and banking. RSS
Ralph Atkins, capital markets editor, has been writing for the Financial Times for more than 20 years following an economics degree from Cambridge. From 2004 to 2012, Ralph was Frankfurt bureau chief, watching the European Central Bank and eurozone economies. He has also worked in Bonn, Berlin, Jerusalem and Brussels. RSS
Claire Jones is Money Supply economics team writer, based in London. Before joining the Financial Times, she was the editor of the Central Banking journal and CentralBanking.com. Claire studied philosophy and economics at the London School of Economics. RSS
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