Wednesday, April 8, 2009

Economic reports around the world (April 1-7): still scary

This week, economic reports around the world tell the story of an ongoing economic contraction. Overall this week's reports suggest that there is still a lot for global policymakers to worry about.

EXPORT GROWTH IS STILL IN THE RED ZONE

The chart below illustrates monthly exports through March for South Korea and Taiwan, and through February for Malaysia and Indonesia (export numbers are not seasonally factored and listed in $US). Over the year the annual growth rates show ongoing weakness.

INFLATION FALLS - STILL MOSTLY ON ENERGY AND COMMODITIES....

The chart below illustrates annual inflation rates through March for Thailand, South Korea, Switzerland, and Taiwan. Serious weakness in global demand has dragged down energy and commodity prices, taking inflation to deflation in some cases. However, eventually this will pass through to core prices (prices ex energy and food) at a lag, and core inflation (which is still very positive in the US) will fall, too. Switzerland is now negative, -0.4%, and Taiwan and Thailand have experienced deflation for two and three consecutive months, respectively.


UNEMPLOYMENT IS WEAK IN THE EUROZONE AND THE US

The chart below illustrates the annual change in the unemployment rate for the Eurozone through February and the US through March. Both registered 8.5% unemployment rates in each respective month, or a serious deterioration in labor market conditions over the year.

The labor market is generally lagged to overall economic conditions - it takes a while for firms to internalize the economic situation, firing late and hiring late. So these economies may be recovering well-before the unemployment rate starts to decline (jobless recovery).

BUT IT DOES LOOK LIKE THE ECB IS WAY LATE

The chart below illustrates the policy rates for the European Central Bank (ECB) and the Bank of Japan (BoJ). The ECB cut by 25 bps to 1.25%, and the Bank of Japan left its rate unchanged at 0.1%. Given the previous chart, which illustrates the sharp decline in labor market conditions across the Eurozone, it seems that the ECB started to ease too late. Perhaps it is because wages are a little stickier in Europe.


ANOTHER OMINOUS SIGN OF WEAKNESS IN CONSUMER SPENDING

The chart below illustrates annual retail sales growth through February for Germany and Hong Kong. Hong Kong sales are clearly tumbling, falling 13.9% over the year. German retail sales growth, however, are quite volatile; it's 5.3% decline does not show any weakness beyond normal activity since early 2007. Interesting.

THE LANDSLIDE IN UK INDUSTRIAL PRODUCTION CONTINUES

The chart below illustrates UK industrial production in levels and its growth over the year. Nosedive. According to jka online blog, the sector breakdown was:
Consumer non durables, (-5%), textiles (-5.4%) and food and drink (-4%) were relatively lightly hit. Fuel products, the only sector showing growth up by just 1%.


Auf Wiedersehen, Rebecca Wilder

1 comment:

  1. The key difference between Germany, the UK, Japan, and the US, on the one hand, and China and its current trading partners, on the other, is that the former economies are not just fully developed across sectors - but also with respect to the efficient implementation of all currently available technologies within those sectors. Until new technologies are developed, those old economies cannot grow robustly in real terms.

    Attempting to prop up these existing structures with the same forms of CAPEX only adds to the excess of supply and burden of debt. Like bailouts, such forms of stimulus “paradoxically” tend to drive old economies deeper into deflation resulting in a protracted series of dips and anemic economic recoveries.

    Fiscal stimulus should instead be used in precisely the opposite manner: to create incentives for the restructuring of the global labor market and to help finance the attainment of those incentives. The capacity and labor that was associated with the boom in the US ideally needs to either transition to jobs in other countries where those sectors are next in line for development or they need to transition into alternative sectors to rebalance the US economy itself. Conversely, importing the labor and fixed capital associated with US import excesses would simultaneously absorb excess US housing supply, elevate global consumer demand, and restore the global balance of trade.

    Considering the obstacles to the above rebalancing, a period of protectionism may be a more likely outcome.

    When globalization has fully run its course many years from now, debt-deflation is likely to return. In anticipation of that period, fiscal policy should be retooled to encourage liquid savings*, tax the froth off of asset bubbles, and increase spending on R&D in technology and operations research.

    *In tandem with mandatory increases of reserve requirements during periods when the cost of equity financing drops below band.

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