Sunday, October 11, 2009

Blogging Intermission

I just wanted to update you all on some changes that have occurred in my life that prevent me from blogging regularly over the near term. Recently, my career path shifted from economic research and forecasting to emerging market fixed income asset management; and as such, I am spending a lot of time learning and a lot less time blogging.

As I derive quite a bit of utility from blogging, I will not be away for too long. Please give me a month or so to sort out the bond markets before I commit myself once again to the "Daily analysis of global economic and financial conditions with a focus on the U.S. TBA."

By the way, I am open to sharing this website with another blogger or two. Eventually, my thoughts are certainly going to shift toward countries other than those of the G7, so an economics focus on the G7 (or any one country) would be perfect.

If you are interested, send me an email with a short proposal (just a paragraph or two) and a link to your work. I am open to new ideas.

Best and thank you for your patience, Rebecca

Saturday, October 3, 2009

G7 vs. G5 in charts

These are interesting times in global economics, especially from the policy perspective. And although there was a sense of global urgency across the G7 (Canada, France, Germany, Japan, Italy, UK, and US) and the G5 (Brazil, People's Republic of China, India, Mexico, and South Africa) late in 2008 and early in 2009, policy makers now face very different economic circumstances. The global downturn was (mostly) ubiquitous, but the upswing will not be. The G5 are likely to initiate explicit exit strategies before the G7, as growth, domestic demand, and inflation rebound first.

The downturn in the developed world was very severe, as illustrated by the sharp contraction of GDP of the G7 countries. And across the G5, some countries experienced similar declines, however given the nose-dive that was global trade, the economic resilience via expansionary policy in India and China has been rather remarkable.

Domestic demand, underpinned by robust fiscal and monetary policy pushed auto sales forward in the G5 and simply offset some of the decline in retail sales in the G7 (see charts below). I used auto sales in the G5 as a proxy for retail sales, as I could not access a retail sales in India (not even sure they offer the statistic). Impressively, though, retail sales remained strong in the UK. Auto sales in China, Brazil, and India have been hot - the real question here is: what is the underlying demand for goods and services in these countries, especially in China.

Monetary policy - driving down interest rates in order to stimulate consumption via the credit markets - was very successful in the G5, but much less so in the ailing G7.

And finally, inflation has been quite resilient in some countries, notably in the UK and India. As such, the Bank of England has a real trade-off with which to contend: inflation (as measured by the CPI), 1.6% over the year, remains sticky and remarkably close to target, 2.0%. The Reserve Bank of India is seeing food prices drive inflation steadily upward. Some expect India to be one of the first emerging markets to start tightening (The Bank of Israel was the first).

There are a lot of question marks right now - the biggest is when central banks and fiscal authorities start to pull back. Especially in the G7, too early and one risks the feared W, but too late, and inflation becomes an issue.

Across the G7, rate hikes are unlikely to occur until well-into 2010, and maybe even 2011 for some. Across the G5, however, late 2010 is more likely an upper limit, however, some countries like Mexico are seriously struggling and policy will remain loose for some time. (See RGE Monitor Nouriel Roubini's latest, "Thoughts on Where We Are" - unfortunately, a subscription is required.)

Rebecca Wilder