You might ask: what double dip?
UK gross domestic product rose by 1.2 per cent Q-o-Q in volume terms, revised up from the 1.1 per cent estimate published in July. Compared with Q209, the UK economy expanded by 1.7 per cent, up from an estimate of 1.6 per cent.
Construction and agriculture showed the greatest growth rates, as the chart below shows. (Agriculture contributed nothing to overall GDP growth, however: see table at bottom.) Transport, storage & communications began to contract this quarter, probably because of energy prices. Utilities also began to contract.
The ONS provides Read more
Beware governments sporting 90 per cent public debt-to-GDP ratios: that’s the conclusion of a new research paper from the ECB.
Up to 90-100 per cent, increasing public debt increases GDP growth, finds the research. Beyond this magic range, increasing debt is associated with ever lower growth rates (see chart, right).
More than this, debt-fuelled increases in the growth rate start to slow when public debt reaches 70-80 per cent of GDP. Austerians will be pleased. A handy map from the Economist, left, shows us which countries are likely to feel the heat first. But even German debt may classify.
The paper, by Cristina Checherita and Philipp Rother, looked at the average impact for 12 eurozone countries since 1970:
It finds a non-linear impact of debt on growth with a turning point—beyond which the government debt-to-GDP ratio has a deleterious impact on long-term growth—at about 90-100% of GDP.
With Europe’s performance hanging largely on the fate of Germany, it is hardly surprising that any fresh news from the continent’s largest economy. But some indicators are more useful than others.
The ZEW “economic sentiment” indicator published by the Mannheim-based ZEW institute has the advantage of early publication: August’s was released on Tuesday. But since the global financial crisis erupted in mid-2007, it has been unclear exactly how it should be interpreted.
During the early 2009, for instance, when German GDP was collapsing, the ZEW was rising steadily. But for much of the second half of last year – when a recovery was underway – it was broadly flat and then falling.
Now, I have realised what we have all be doing wrong. We have been looking at the chart upside down. Read more
When Wolfgang Schäuble, Germany’s finance minister, next meets his European counterparts, will he be heaped with praise – or brickbats? Germany’s economy is on a roll. It grew by 2.2 per cent in the three months to June, its best quarterly performance since reunification in 1990. But that has not necessarily gone down well with colleagues in other European capitals.
Unnoticed beyond his tiny country’s borders, Jean-Claude Juncker, Luxembourg’s prime minister, earlier this month launched an extraordinary attack on German economic policy, according to the Luxemburger Wort. Germany’s success was based on “wage and social dumping,” Mr Juncker is reported as having said. “The way Germany went about improving its competitiveness, I would not like to see in our country.” Since the launch of the euro in 1999, German workers had seen a meagre 12 per cent rise in wages, whereas his countrymen saw a 41 per cent rise, he went on. Read more
Japan’s economy grew by just 0.1 per cent in the second quarter, a sharp slowdown on the 1.2 per cent growth in Q1. Hurt by a strengthening yen, annualised, seasonally-adjusted Q2 growth is now 0.4 per cent, against last quarter’s (revised) 4.4 per cent.
The slowdown means China’s economy was larger than Japan’s during the second quarter. From the paper: Read more
The Bank of England has reduced its growth forecast – but views the dip as a temporary blip and not a turning point.
Spot the difference in the fan charts: see the little dip 2010-11 in the upper (August) chart compared to the lower (May) chart. Growth will dip thanks to “persistent tight credit and faster fiscal consolidation” – but the latter has also reduced the downside risks. Risks to growth fall on the downside.
Further, inflation is likely to remain above target till the end of 2011 – a full year longer than projected in May. Mervyn King has just said at the press conference that after 2011 – once the base effects are removed – he expects a period of below-target inflation. Risks to the projection fall mostly on the upside.
Understandably, given this, the governor is concerned about the effects on inflation expectations: Read more
There were some very good presentations at the Monetary Policy Forum, organised by Fathom Consulting this morning, all of which highlighted what a difficult job the Bank of England’s Monetary Policy Committee has at the moment. Cogent arguments can be made both for loosening and tightening monetary policy.
Charles Goodhart, former Bank chief economist, MPC member and general guru, said that were he on the MPC now, he would wish he could do a Rip Van Winkle, go to sleep until 2012, and wake up once some of the uncertainty over the recovery is removed. Why? “Because the next year and a bit will be fairly horrific”.
The reason things look so difficult for monetary policy is that the outlook for the inflation-growth trade-off has worsened. When Fathom plug the latest data through their replica of the Bank of England’s main economic model they first find that the Bank seems to be seriously over-optimistic on growth as their chart shows.
Now, neither Fathom nor anyone else can accurately replicate the MPC forecasts because the published versions rest on judgments by the Committee members as much as the model’s outputs. But the argument put forward Read more
The second quarter GDP figures for the US were published last Friday. The financial markets do not usually get very agitated about these figures, because the official quarterly data lag the many sources of more timely information on the economy. But this is an unusually sensitive time for the US economy. Many observers are beginning to fear the onset of a double dip recession, and even a slide towards chronic deflation. Since this is by far the biggest risk facing the global economy at present, I feel I should start this new blog on global macro-economics with a comment on what I learned from these figures. Three points stand out, all of them worrying.
First, the annualised growth in GDP in Q2 was only 2.4 per cent, a disturbing figure because it indicates decelerating momentum, compared with growth rates of 5.0 per cent and 3.7 per cent in Q4 and Q1 respectively. A growth rate of 2.4 per cent is no better than trend, and is not sufficient to bring unemployment down. The US labour market is currently trapped in its worst recession since the 1930s, with many troublesome signs which remind me of the dysfunctional European labour market in the 1980s. It cannot afford a period of sub trend GDP growth.
Second, the economy remains far too dependent on the upswing in the inventory cycle. This is an inherently temporary force which is now overdue to fade away. As the graph below shows, the swing in inventories has explained much of the recovery in the economy in the past year, but it is now well past its peak. Read more
Canada was the first G7 country to start raising rates, and has enjoyed consistent growth for nine months, bar a static April. Latest data show slight growth in May of 0.1 per cent.
However, data show non-farm payrolls fell in May by 0.2 per cent, or 25,000 people. To add to the mixed picture, the central bank reduced growth forecasts 10 days ago, even as it raised rates, and three days later, inflation fell to just 1 per cent. It seems Ben Bernanke’s oft-quoted description of unusual uncertainty, would apply equally well north of the border.
G20 nations must implement policies agreed at the latest summit, otherwise “large imbalances may re-emerge, with the attendant risk of disorderly adjustment.”
This from the Bank of Canada’s latest Monetary Policy Report, which finds Canadian growth “proceeding largely as anticipated” and risks to Canada’s economy roughly balanced. Read more