WRFest 17May08(Int'l Econ): Recoupling to Global Slowdown
We're gonna jump the gun a little on the "weekend" economic readfests...partly because enough has been accumulated to make moving faster worthwhile, partly because there are a couple of key thoughts we want to plant. But mostly because some stories/reports/etc. have come out that perfectly summarize and reflect our opinion.
In general, for those of you paying attention, the meme is back to "dude, where's my recession ?". Something we've tried to disabuse (here and here) with a look at the real data and which we were going to take another pass at (btw real retail sales was negative this weak and industrial production had its' biggest drop on a YoY basis in a year...sorry, couldn't resist). The answer is watch the wave, dude. See that mother offshore building up ? It's all about rhythm, timing and pattern. Or business cycle structure, timing lags and lack of grasp.
Below are some excerpts from a variety of sources on the world economy from Germany to Japan to China, et.al. As it happens the last quarter in the developed world was pretty darn good while China continues to wrestle with it's standard problems of rapid growth vs inflation vs and so on. But speaking of leads, lags and links it turns out a) the world is still linked, i.e. re-coupled (as we've been harping on for a long time now) and b) it lags the US by the usual, if not a little longer (headsd up all you Brazil enthusiasts....now may not be the time to go in). We pause to make those points because the UN economic group, which is in fact pretty competent and respected, just came out with it's latest world outlook revision. Bear in mind that the reporting below is backward looking while the UN report is forward-looking....beyond that let's let them speak for themselves..
UN: World economy to grow by 1.8 percent in 2008 The world economy is "teetering on the brink" of a severe downturn and is expected to grow only 1.8 percent in 2008, the United Nations said in its mid-year economic projections Thursday. That's down from a global growth rate of 3.8 percent in 2007, and the downturn is expected to continue with only a slightly higher growth of 2.1 percent in 2009, the U.N. report said. The mid-year update of the U.N. World Economic Situation and Prospects 2008 blamed the downturn on further deterioration in the U.S. housing and financial sectors in the first quarter, which is expected to "continue to be a major drag for the world economy extending into 2009." But the U.N. said developing countries will suffer as badly: They should grow by 5 percent this year and 4.8 percent next year, compared to a robust 7.3 percent in 2007, the report said. The U.N. economists said the deepening credit crisis in major market economies triggered by the U.S.-led slump in housing prices, the declining value of the U.S. dollar, persistent global imbalances and soaring oil and commodity prices pose considerable risks to economic growth in both developed and developing countries. However, it said the final figure will largely depend on developments in the United States.
Global growth this year could fall to 0.8 percent if the U.S. sub-prime mortgage market turmoil has a more serious impact on developing countries and countries in transition, the U.N. report said. But if the monetary and fiscal measures the U.S. government has taken to stimulate the economy -- including tax refunds and lower interest rates -- boost consumer spending and restore confidence in the business and banking sector, the world economy could only slow to 2.8 percent growth this year and 2.9 percent in 2009, it said. The report, prepared by the U.N. Department of Economic and Social Affairs, forecast that U.S. economic growth will decline from 2.2 percent in 2007 to -0.2 percent this year, with only slight recovery in 2009 to 0.2 percent growth. As for other developed countries, the U.N. forecast that Japan's economic growth will decline from 2.1 percent in 2007 to 0.9 percent in 2008 and that Western Europe's growth rate will drop from 2.6 percent last year to 1.1 percent this year. Despite the slowdown in global economic growth in 2008, the U.N. said global inflation is expected to accelerate this year to 3.7 percent.
Global Economic Outlook Improved in May Amid Signs Credit Crisis Is Easing Confidence in the global economy improved for the second consecutive month in May on signs the worst of the credit squeeze may be over, a survey of Bloomberg users on five continents showed. The Bloomberg Professional Global Confidence Index rose to 22.7 from April's 14.5, with respondents becoming less pessimistic in every region. A reading below 50 indicates negative sentiment. The measure fell to as low as 13.1 in March. ``Conditions are not quite as jittery in markets as they were, so we may be through the worst,'' said Ross Walker, an economist at Royal Bank of Scotland Group Plc in London, who took part in the survey. Participants in the U.S. and Europe reversed their predictions of a dollar decline after the Federal Reserve indicated it's ready to pause cutting interest rates. Wall Street chief executive officers including Jamie Dimon of JPMorgan Chase & Co. said in the past month that the credit crunch is easing.
- EU Ministers Say Consumers `Suffering' as Food, Oil Erode Purchasing Power
- Bank of England Says Inflation Will Accelerate, Overshoot Government Limit
- China's Industrial Production Growth Cools; Yuan Falls on Export Concerns
- China Factory, Property Spending Rises 25.7%, Adds to Overheating Concern
European Economic Growth Accelerates More Than Estimated, Led by Germany European economic growth accelerated more than economists forecast in the first three months of 2008 as stronger expansions in Germany and France masked slowdowns in Spain and Italy. Gross domestic product in the euro area increased 0.7 percent from the previous three months, when it rose 0.4 percent, the European Union's statistics office in Luxembourg said today. The pace exceeded the 0.5 percent median of 32 estimates in a Bloomberg News survey and the 0.1 percent growth rate in the U.S. Growth quickened to the fastest pace in 12 years in Germany and was higher than analysts expected in France, providing strength at the core of the euro-area economy as Spain suffered its weakest expansion in almost eight years. That justifies the decision of the European Central Bank to hold off cutting interest rates for now as it tries to conquer inflation.
Slower Growth Exposes Risk on Europe Fringe Emerging markets along Europe's fringes are getting deeper into financial hot water as the global economy slows, raising the risk of market turmoil to come. Among the most vulnerable are economies with free-floating currencies and deep deficits in their external accounts, making them reliant on foreign investment to finance trade and overseas debt. A raft of weak economic data from the region signals that Europe's slowdown won't be kind to emerging-market economies or their financial markets. Romania, Turkey, South Africa and Iceland have regularly reacted the most to bouts of risk aversion coursing through global markets. But each also has ample homegrown economic threats for investors to worry about. Romania on Friday reported another widening in its trade deficit in the first quarter. Industrial production grew at an annual pace of only 2.9% in March, while the output of durable goods actually contracted.