Global Growth Concerns
Global Economics Weekly Brief
Everyone seems to be getting gloomier these days. In June, three members of the UK Monetary Policy Committee voted to raise rates, in August there were none. Concerns about global growth and Eurozone instability were a major cause of the weaker sentiment, and higher UK unemployment and inflation will not help. The UK isn’t alone in its gloomier outlook. Growth in France and Germany fell sharply in Q2, and this, on top of weaker a US outlook, caused equity markets to fall again. There are some bits of good news around, but these are being outweighed by the bad. For everyone, uncertainty is the biggest problem to solve – and the faster the better. Still more issues to come to impact globally!
Weaker demand at home and abroad dampened sentiment on the UK economy. The minutes of the August meeting of the Monetary Policy Committee (MPC) revealed that it `thinks` that the global slowdown will probably be more prolonged than it had previously thought. The MPC seriously considered loosening policy further, but decided that the case for more asset purchases was not ‘yet’ strong enough. That was before the US downgrade by S&P though, so it’s possible that Adam Posen will have some company in voting for more quantitative easing at future meetings. More QE to come!
UK CPI inflation increased again in July. UK consumer prices rose by 4.4%y/y in July, up from 4.2% in June. The main driver of the increase in the annual rate was transport, followed by food and non-alcoholic drinks. The rate is expected to rise again, to around 5%, as higher utility prices feed through (rises of 18% on energy costs and more to come). The fact that the largest rises in prices are on items for which there is little discretion in expenditure means the squeeze on households will be even tighter.
The UK labour market is still very fragile, with few signs of robust recovery in the near term. UK unemployment rose to 7.9% in the three months to June and the claimant count measure increased by 37,100 in July. The employment rate was steady at 70.7%, again supported by `part-time` workers. These `part -time` workers now account for 27.1% of people in employment, up from 26.2% in Q2 2009. Fewer hours worked means less total pay. This alone adds to the squeeze on households, but combined with low earnings growth, it’s worse. Even though average weekly earnings (including bonuses) increased at their fastest rate since April 2010, taking inflation into account, real earnings fell by 1.8%y/y in the three months to June. More issues to come!
UK retail sales were healthy in July, but only because of higher prices. Retail sales grew by a healthy 2.8%y/y in July, excluding auto fuel. But all of that growth was due to higher prices. If we strip that out sales volume actually fell by 0.2%y/y. Households are getting considerably less bang for their buck, which helps to explain some of the limp performance of the UK economy in recent months. Retail still in decline and more issues to come!
Eurozone economic growth shifts down a gear and inflation eases. Growth in the Eurozone eased to 0.2%q/q in Q2, a clear step down from the 0.8%q/q in Q1.The slowdown was broad based but weak growth in Germany (0.1%q/q) and stagnation in France are of most concern as they have been driving the Eurozone economy up till now. The Eurozone joins the UK, Japan and the US trend of weak (or negative) growth over the quarter. Falling oil prices and easing supply conditions in Japan offer some relief, but probably not enough to outweigh these headwinds. But at least inflation eased. The rate in the 17-nation euro area slowed to 2.5%y/y in July, down from 2.7% the previous month.
US industrial production bucked the global trend in July, but maybe not for long. US industrial output grew by 0.9%m/m and 3.7%y/y in July giving us some good news at last. The auto sector did particularly well. Motor vehicle and parts production shot up 5.2%m/m in July suggesting that the supply interruptions from Japan are coming to an end. But this could be short lived if the extremely weak August regional manufacturing survey (a very good leading indicator) is correct. US housing prices are still falling rapidly and low confidence is evident in lower new building volumes. General prices increased though. Energy and food pushed US CPI inflation up 0.5%m/m in July, though the annual rate stuck at 3.6%.
Japan's GDP declines less than expected in Q2. The Japanese economy shrank by 0.3% in Q2 (1.3%y/y). But these numbers are much better than expected and show the economy has rebounded reasonably well from the disaster. Exports contracted by 4.9%q/q - over 18% on an annualised basis but domestic demand was positive. As supply chains recover and reconstruction continues, growth should move back into positive territory in Q3. Beyond that however, the support of the export sector to the economy may wane on the back of weaker global demand and the strong yen.
Global Economic Outlook 2011
The Conference Board Global Economic Outlook 2011 provides projections of economic growth, measured as changes in Gross Domestic Product, for 2011, 2011-2015, and 2015-2020 for the global economy, the economies of 11 major regions, aggregated advanced economies, and aggregated emerging and developing economies. Taking into account macroeconomic as well as business dynamics such as changes in consumer and labour markets and relative costs, the Outlook is built via a wide range of instruments including The Conference Board Total Economy Database for 100-plus countries, Leading Economic Indexes (LEIs) for 11 countries/regions, the International Monetary Fund's World Economic Outlook Database, and exclusive input about the business environment from executives in The Conference Board member companies.
Click here for an analysis of key results
Click here for an explanation of purchasing power parities
Global Outlook for Growth of Gross Domestic Product, 2000-2011
The Conference Board Global Economic Outlook combines various time frames and related methods to provide projections for the next two quarters, the next three-to-four years, and the next decade. For the 2011 edition:
Short-term (2011) projections are based on The Conference Board U.S. Economic Forecast and The Conference Board Leading Economic Indexes (LEIs) for 11 countries/regions.
Medium-term (2011-2015) projections are based on measures of output gaps, trends in unemployment, and capacity utilization, primarily from the Organization for Economic Cooperation and Development, International Monetary Fund, European Commission and Congressional Budget Office.
Long-term (2011-2020) views are based on projections of working-age population, total factor production, and related trends in capital growth.
All projections are further informed by business outlooks and assessments of political-institutional issues that may impact growth.
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Note: About the Author Colin Thompson
Colin is a former successful Managing Director of Transactional/Print Manufacturing Plants, Print Management/Workflow Solutions companies and other organisations, former Group Chairman of the Academy for Chief Executives and Non-Executive Director, helping companies raise their `bottom-line` and `increase cash flow`. Plus, helping individuals to be successful in business and life in general. Author of several publications, research reports, guides, business and educational models on CD-ROM's/Software and over 400 articles published on business and educational subjects worldwide. International Speaker and Visiting University Professor.
Global Growth Concerns and the coming economic conditions.