The annual revisions to national income data, just published, show the economy was worse than thought over the past 3 years, primarily because the economy was slowing earlier in 2007 and 2008 than previous data showed. In total as the chart shows, the level of national income is about 0.4 per cent lower now than we thought.

The peak of gross domestic product was lower by 0.3 per cent even if the recession was no deeper than we thought – the economy did not grow as much before the recession struck but still plunged as far as we thought.

The main driver of the downward revision is lower household expenditure. People bought far fewer fridges and other white goods than the statisticians previously thought. The consequence of Read more

Ahead of Friday‘s rate-setting meeting, the International Monetary Fund has sharply revised up its forecast for South Korean growth and urged the central bank to start raising rates. Growth for Asia’s fourth-largest economy this year is now forecast at 5.75 per cent, up from 4.5 per cent, Reuters reports:

“In light of the strong economic recovery, a carefully calibrated exit from supportive macroeconomic policies is appropriate,” IMF said in a statement. Read more

The Bank of Japan is set to increase its growth forecast to above 2 per cent, unnamed sources have told Reuters. The Bank’s forecast is currently 1.8 per cent for the fiscal year, and the next rate setting meeting is July 14-15.

The Bank would be playing catch-up with the government, if it does revise its forecast up. The finance ministry changed its growth forecast from 1.4 to 2.6 per cent last month. Private economists have apparently settled on a figure close to 2.4 per cent. Uncertainty about the economic recovery is likely to temper the Bank’s optimism, which was fuelled yesterday by a better-than-expected manufacturers’ confidence survey. Read more

Better than good news: the removal of bad news. Times two.

Ireland has stopped posting negative growth for the first time in more than two years, and the ECB auction suggests tomorrow’s end to one-year liquidity won’t trigger the meltdown many feared. Read more

Robin Harding

It takes some doing to get four or five economists into a speech on reform of the wireless spectrum but Larry Summers, director of President Barack Obama’s National Economic Council, was up to the task.

Here is part of his speech today explaining the president’s plan to make available an extra 500 Mhz worth of wireless spectrum via auctions over the next ten years.

Mancur Olson famously wrote about the tendency of stable democracies to become sclerotic as the accretion of entrenched interests blocked progress. In a similar vein, the great economic historian Alexander Gerschenkron took as his central theme the ironic advantages of what he termed ‘economic backwardness’. Gerschenkron suggested that countries that were late to industrialise were sometimes able to bypass many of the dead-ends and outdated practices that encumbered the early industrialisers. These countries, he stressed, could start with an open canvas free from what John Stuart Mill once called “the slavery of antecedent circumstances”.

The argument here is that because America’s wireless spectrum is already heavily used, it may lose out to rivals with emptier airwaves, which they can quickly use for innovative technologies.

A couple of points. First, an implication of Mr Summer’s logic is that the president is removing a competitive disadvantage here, not creating a competitive advantage. That would suggest this kind of measure is needed to sustain – rather than increase – the trend growth rate.

Second, the link Read more

James Politi

Finally, there is something to celebrate in US economic data.

Last week brought us a downbeat policy statement from the Federal open market committee, which followed a string of unimpressive, if not discouraging, data on the US recovery. And today in the markets, the 10-year treasury yield fell to 3.04 per cent, its lowest level in more than a year and a clear sign that bond investors believe in very slow economic growth.

But let’s not despair: the commerce department’s monthly gauge of personal spending, income and saving today performed better than expected.

The good news is on two fronts. Personal spending, which was flat in April, moved up 0.2 per cent, as income increased by 0.4 per cent - a sign that albeit modest job creation is beginning to translate into more confident behaviour by American shoppers.

Meanwhile, the personal saving rate, Read more

Ralph Atkins

It is not just financial markets that have become more volatile in recent years. So has the economic mood in Germany. Since the start of the football world cup earlier this month, the apparent upswing in optimism has been extraordinary.

The German team’s success – so far – in South Africa is part of the story (even if it has relied on a disallowed England goal). The mood is bearing an increasing resemblance to 2006, when Germany surprised the world with the relaxed efficiency with which it organised the last football world cup.  Then the atmosphere was summed up in the feature length documentary “Deutschland. Ein Sommermärchen” (Germany: a summer’s tale), which became a cinema hit.

But Germans also believe their economy is back on a roll. This morning, Handelsblatt, the German business daily, led its front page with a story on “the new German economic miracle,” which drew together the latest news on booming exports, rising corporate profits and improving labour markets. The contrast with the mood even a few months ago, when Greece’s debts were about to bring down the whole of the eurozone, could hardly be greater. Read more

Ralph Atkins

The eurozone’s economic growth spurt is showing fresh signs of losing momentum with a closely-watched survey flashing warnings of a slowdown ahead. June’s purchasing managers’ indices for the 16-country region indicated that the brisk pace of export-led economic expansion seen in the second quarter of this year marked a peak in the upswing.

The latest readings could heighten worries of a lacklustre eurozone economy being hit increasingly by recessionary conditions in southern Europe, as well as fiscal austerity measures and weaknesses in banking systems across the continent. Read more

By Jude Webber

Official data showing that the Chilean economy grew at its fastest monthly rate in a decade must be music to the ears of Sebastián Piñera, the new president. His election pledge to boost annual growth to 6 per cent always sounded ambitious, and looked especially so after the country’s devastating earthquake at the end of February.

But what the April data revealed was a speedier-than-expected business rebound. Bloomberg puts this in context:

The economy expanded 8.2 percent in April from March, the biggest increase since 1996, and 4.6 percent from a year earlier, the central bank said today on its website. It was the quickest annual growth since September 2008 and double the median forecast of 10 economists surveyed by Bloomberg.

April’s expansion comes after the economy shrank the most since 1996 in March following an 8.8-magnitude earthquake on Feb. 27 that caused almost $30 billion in damage. The faster- than-forecast expansion added to speculation that the central bank will raise its benchmark interest rate June 15 for the first time since September 2008.

The data raise two questions. Read more

Policy makers perform U-turns only at times of no alternative. Though there was a lot of talk about growth here in Busan, South Korea, the big news was that the global community now thinks fiscal stimulus is yesterday’s idea.

All in all, it is pretty sobering stuff. Fiscal stimulus has been ditched, not because the G20 thinks the private sector is surging ahead in Europe, but because there is no other option.

As recently as April, the G20 communique concluded:

“In economies where growth is still highly dependent on policy support and consistent with sustainable public finances, it should be maintained until the recovery is firmly driven by the private sector and becomes more entrenched.”

But today, all talk of continued policy support until recovery is entrenched has disappeared and the tone is very different:

“The recent events highlight the importance of sustainable public finances and the need for our countries to put in place credible, growth-friendly measures, to deliver fiscal sustainability, differentiated for and tailored to national circumstances. Those countries with serious fiscal challenges need to accelerate the pace of consolidation. We welcome the recent announcements by some countries to reduce their deficits in 2010 and strengthen their fiscal frameworks and institutions”.

Although Britain, in particular, claimed credit for the change of tone and some deficit hawks such as Jean Claude Trichet, president of the European Central Bank, seemed genuinely pleased, many other ministers and officials worried that  Read more

By James Lamont in New Delhi

A possible emergency interest rate hike in India is back on the cards.

Data showing India had recorded 8.6 per cent economic growth in the quarter to the end of March has reignited expectations that the Reserve Bank of India might not wait for the July quarterly policy review to tighten monetary policy.

Comments by Pranab Mukherjee, the finance minister, on his arrival in South Korea for G20 talks will have only emboldened the hawks. India, after only Australia, has tightened monetary policy most aggressively in the G20. More is to come soon.

Mr Mukherjee said India would continue to raise interest rates in spite of uncertainty surrounding the wider effects of the eurozone’s debt woes to the global economy. In his view, India’s largely domestically-driven economy has very little exposure to Greece.

What Mr Mukherjee says about monetary policy counts. Read more

Here in Busan, South Korea, a port city which seems to double as the Blackpool of Korea, it is already clear that finance ministers and central bank governors will agree that growth is good for the world economy. Yes, really.

Is this surprising? No. Growth, like education and justice is generally a good thing. Everyone wants it. But no one is sure how best to achieve it when it comes to fiscal policy.

They are still unsure whether the global economy is best served by fiscal stimulus or prudence.

Everyone also agrees that the world economy is fragile and fiscal consolidation should be growth enhancing rather than detracting. But, in briefings before tomorrow’s Group of 20 meeting, few were willing to define exactly what they meant. Read more

Simone Baribeau

Is the growth in global manufacturing running out of steam?

Probably not. But in many countries, it did slow down in May. Read more

Simone Baribeau

The Bank of Japan reiterated this morning that the country’s economy was beginning to “recover moderately, induced by improvement in overseas economic conditions.”

Changes in Japan's real GDP, compared to other recessions. I added in the red line – an approximate update from the GDP figures released last week.

 Read more

Ralph Atkins

Eurozone industry, at least, is doing just nicely. Eurostat, the statistical agency, reports production rose 0.9 per cent in February, a much larger rise than expected. If March’s figures simply hold steady, the first quarter increase would be more than 3 per cent – the biggest quarter-on-quarter jump in the series’ history, according to BNP Paribas. True, after the dramatic slump at the start of last year, we’re only back at levels of production seen in 2001. But the recovery is clearly v-shaped.

Don’t expect first quarter gross domestic product figures to be as flattering, however. The bitter winter is likely to have had a significant dampening effect, particularly on construction, which is not covered in the latest figures. Last week the Organisation for Economic Cooperation and Development warned of a “double-dip” contraction in Germany, the eurozone’s largest economy. Read more

The Singaporean dollar will be allowed gradually to appreciate following a one-off strengthening today that a Bloomberg source estimates at about 0.6 per cent. At the same time, the Trade and Industry ministry raised its forecast for this year’s growth to 7-9 per cent, from 4.5-6.5 per cent.

The local dollar will trade in a new, stronger band, the midpoint of which is roughly the top of the previous band. There will be no change to the width of the band. The dollar is measured against a trade-weighted index of large international currencies, in proprortions held secret by the country’s Monetary Authority. Read more

Robin Harding

Backward-looking surveys of corporate investment are precisely the kind of tree that makes it hard see the wood when looking at economic data. The quarterly Ministry of Finance survey is important in Japan for one reason, however: it is the main source of revisions – sometimes very large revisions – to GDP estimates. The second estimate for Q4 2009 GDP in Japan is due out next week.

Take Q3 last year, for example. The initial estimate on November 16th was growth of 1.2 per cent on the previous quarter; about three weeks later that was revised down to 0.3 per cent. Read more

It may be semantic and definitional. It may be highly significant.

Revisions to estimates of Swedish growth in Q3 and Q4 last year show that the country’s economy contracted in both quarters. Both of the revisions are less than a percentage point, and could be within a margin of error. But that would still confirm the fragility of any putative recovery. Read more

US GDP has also been revised up this month, to 5.9 from 5.7 per cent (annual). As Calculated Risk observes, however, most of the improvement came from inventory change. Stripping those out would have seen a decline in GDP from 2.2 to 1.9 per cent over the same time period.

UK GDP was also revised upwards today, though markets were unimpressed and sterling continued its fall.

Growth in Malaysia looks likely to have outperformed expectations in Q4 and the central bank governor has hinted at a rate rise.

Central bank governor Zeti Akhtar Aziz told Reuters: “We are already clearly on the path of economic recovery. We are no longer in extraordinary circumstances. We have come out of that kind of environment.” She underlined that any adjustment would be a normalisation and not a tightening, saying: “Our policy will continue to be accommodative of economic growth.” Read more