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China export growth slows - Global Economics Weekly Brief

China's Export Growth Slows

Global Economics Weekly Brief

Despite a slight switch in the make-up of the Bank of England’s Monetary Policy Committee, the decision remained the same. Rates stayed on hold. The European Central Bank also held firm, but indicated a further hike is coming for the Eurozone. UK and US trade figures were encouraging, with both countries showing a slowdown in imports and rising exports. In contrast, China’s export growth slowed and imports rose. China’s export growth remains very strong though, suggesting talk of a sharp slump in global demand may be a touch premature. Watch the summer months very closely!

UK interest rates were left at 0.5% for the 27th consecutive month. The personnel changed on the Monetary Policy Committee, but that was all. Ben Broadbent joined, while the most hawkish of the group, Andrew Sentence, left. It wasn't a surprise that the Bank Rate stayed put. Economic conditions haven't improved since last month and the IMF's endorsement of the Government's austerity regime suggests policy needs to remain supportive for now. Inflation expectations fell in May, providing some comfort for the MPC. But it’s still a question of when, not if, rates will rise. What is requested are more skilled/experienced hawkish `business` people making the decisions.

The UK trade deficit has shrunk by a third in the last year. The UK’s trade deficit in goods and services stayed at £2.8bn in April, but this is a great improvement on the £4.1bn deficit at the same time last year. Exports increased by 11%y/y in value terms, outpacing a 6%y/y increase in imports. Although the balances of trade in both goods and services improved, services have been the driving force in shrinking the deficit over the past year.

UK house prices increased a little in May in a few areas and rents are rapidly rising too. Halifax reported a small increase in UK house prices in May (in a few areas), but also the biggest annual fall in prices since October 2009. House prices increased by 0.1%m/m but were 4.2% lower than this time last year. There are no signs of rising demand either. The RICS Lettings Survey showed further rising demand for rented property and rent prices in the three months to April, particularly in London and the South East. Where are the buyers? Nowhere to be seen!

Eurozone rates were held at 1.25% for the second time, but are set to rise in July. European Central Bank President, Jean-Claude Trichet, once again spoke of "strong vigilance", code that rates are highly likely to rise in July. With inflation above target and Eurozone growth at an annualised rate of 2.5%, the signal is not surprising. But Eurozone growth is two speed. In the fast lane purr the German and French economies, which grew by 1.5%q/q and 1%q/q respectively. The Portuguese economy is in the wrong lane entirely, having contracted by 0.7%q/q in Q1, pushing it back into recession. Will Spain be following very soon? Followed by Italy!

Eurozone retail sales bounce in April. The volume of retail sales rebounded impressively in April, though it remains at a relatively depressed level. A 0.9% m/m increase fully reversed the 0.9% decline in March. The level of trade is 1.1% higher than a year ago, with non-food leading the way, but still down 3% on the pre-recession peak in 2008. There is still a very long way to go for a full recovery!

Factory gate prices point to further inflationary pressure in Europe, while price pressures eased in the UK. The Eurozone producer price index increased by 0.9%m/m in April, due largely to a 2.1%m/m rise in energy costs. Meanwhile growth in UK input and output prices softened. Output prices fell from 1%m/m in April to 0.2% in May, easing inflationary pressure concerns, while input prices declined by 2.0%, the largest fall since April 2009.

The US trade deficit improved in April. The recovery in international trade continues, as US exports in April were 19% higher than a year ago and faster than the 16% climb in imports over the same period. The net effect was to push the trade deficit down to $43.7bn in April. This represents a $3.1bn improvement on the March figure of $46.8bn. The supply chain impact of interruption to Japanese production is evident from the $2.8bn fall in imports of automotive parts. Still watch out for higher unemployment!

The flipside: China's export growth slows. China's exports growth slowed from 29.9%y/y in April to 19.4% in May, following increasing evidence that suggests a slowdown in global growth. Exports to developed markets softened markedly on an annual basis, with shipments to the US rising ‘just’ 7.2%y/y, compared with a 25% gain in April. Chinese imports from the EU and US also grew strongly. Exports to emerging markets held up though. So, in sum, although growth in China’s exports remains strong, there are signs of a global rebalancing of sorts taking place. The rest of the world is suffering, so China will suffer with exports!

Economy, & Related Issues

Global Financial Crisis
Following a period of economic boom, a financial bubble—global in scope—has now burst. The extent of this problem has been so severe that some of the world’s largest financial institutions have collapsed. Others have been bought out by their competition at low prices and in other cases, the governments of the wealthiest nations in the world have resorted to extensive bail-out and rescue packages for the remaining large banks and financial institutions.

Some of the bail-outs have also led to charges of hypocrisy due to the apparent socializing of the costs while privatizing the profits. Furthermore, the institutions being rescued are typically the ones got the world into this trouble in the first place. For smaller businesses and poorer people, such options for bail out and rescue are rarely available when they find themselves in crisis. There is the argument that when the larger banks show signs of crisis, it is not just the wealthy that will suffer, but potentially everyone because of the ripple effect that problems at the top could have throughout the entire economy.

Plummeting stock markets have wiped out 33% of the value of companies, $14.5 trillion. Taxpayers will be bailing out their banks and financial institutions with large amounts of money. US taxpayers alone will spend some $9.7 trillion in bailout packages and plans. The UK and other European countries have also spent some $2 trillion on rescues and bailout packages. More is expected. Much more.

Such numbers, made quickly available, are enough to wipe many individual’s mortgages, or clear out third world debt many times over. Even the high military spending figures are dwarfed by the bailout plans to date.

This problem could have been averted (in theory) as people had been pointing to these issues for decades. However, during boom, very few want to hear such pessimism. Does this crisis spell an end to the careless forms of banking and finance and will it herald a better economic age, or are we just doomed to keep forgetting history and repeat these mistakes in the future? Signs are not encouraging as rich nations are resisting meaningful reform…

Poverty Facts and Stats
Most of humanity lives on just a few dollars a day. Whether you live in the wealthiest nations in the world or the poorest, you will see high levels of inequality.

The poorest people will also have less access to health, education and other services. Problems of hunger, malnutrition and disease afflict the poorest in society. The poorest are also typically marginalized from society and have little representation or voice in public and political debates, making it even harder to escape poverty.

By contrast, the wealthier you are, the more likely you are to benefit from economic or political policies. The amount the world spends on military, financial bailouts and other areas that benefit the wealthy, compared to the amount spent to address the daily crisis of poverty and related problems are often staggering.

Poverty Around The World
Around the world, in rich or poor nations, poverty has always been present.

In most nations today, inequality—the gap between the rich and the poor—is quite high and often widening.

The causes are numerous, including a lack of individual responsibility, bad government policy, exploitation by people and businesses with power and influence, or some combination of these and other factors.

Many feel that high levels of inequality will affect social cohesion and lead to problems such as increasing crime and violence.

Inequality is often a measure of relative poverty. Absolute poverty, however, is also a concern. World Bank figures for world poverty reveals a higher number of people live in poverty than previously thought.

For example, the new poverty line is defined as living on the equivalent of $1.25 a day. With that measure based on latest data available (2005), 1.4 billion people live on or below that line.

Furthermore, almost half the world—over three billion people—live on less than $2.50 a day and at least 80% of humanity lives on less than $10 a day:

Over 22,000 children die every day around the world.

That is equivalent to:

* 1 child dying every 4 seconds
* 15 children dying every minute
* A 2010 Haiti earthquake occurring almost every 10 days
* A 2004 Asian Tsunami occurring almost every 10 days
* An Iraq-scale death toll every 18–43 days
* Just under 8.1 million children dying every year
* Some 88 million children dying between 2000 and 2009

The silent killers are poverty, easily preventable diseases and illnesses, and other related causes. Despite the scale of this daily/ongoing catastrophe, it rarely manages to achieve, much less sustain, prime-time, headline coverage.

We often hear leaders from rich countries telling poor countries that aid and loans will only be given when they show they are stamping out corruption. While that definitely needs to happen, the rich countries themselves are often active in the largest forms of corruption in those poor countries, and many economic policies they prescribe have exacerbated the problem. Corruption in developing countries definitely must be high on the priority lists, but so too must it be on the priority lists of rich countries.

Tax Havens; Undermining Democracy
Through corporate crime, tax havens, transfer pricing and many other policies — both legal and illegal — billions of dollars are prevented from being taxed. The much-needed money would helped developing (and developed) countries provide important social services for their populations. Usually, these crimes, which often have far worse effects than individual crimes, go unaccounted.

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