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Greece and the Euro - Global Economics Weekly

Greece Euro!

Global Economics Weekly Brief

For the past two years there have been two questions over Greece's future. A question of "if" it might leave the Euro and a question of when that dramatic event might take place. It seems reasonable to conclude from recent events that we may now be dealing with a single question: when? The best that can be said is that the world has given itself two years to prepare for such an event. While that debate is going on, other developments pale in comparison, but there is some good news out there.

In the UK unemployment fell again and there was an extremely welcome pick up in non-EU exports. The Euro zone avoided recession and its inflation rate fell. Meanwhile in the US, consumers are still spending, albeit a little less quickly and there is a bigger chance that the Fed will inject more funds to speed its recovery. What is the future when all this money has to be paid back? Will it be paid back? Probably not!

May’s Inflation Report made glum reading in the UK
. Each of the Bank of England’s main forecasts moved in the wrong direction this quarter. The Bank revised down its forecast for UK economic growth in 2012 to 0.8% from 1.2%. It also revised up its forecast for inflation as the Governor admitted that inflation would remain above its 2% target for longer than he had thought. That will tighten the screws on the UK economy, particularly on households. Wages are growing, but with inflation outpacing it, real wages have been falling for nearly two years. Sticky inflation means that’s likely to continue. More news to come on unemployment to rise from June 2012!

UK unemployment fell to 8.2% in March and earnings growth stayed low. Wait until they adjust the figures! There was a second consecutive, and unexpected, fall in unemployment in March. This is great news, but it probably will not give the economy that much of a boost because it was entirely due to more part-time workers. Part-timers now account for 27% of workers, up from 25% in Q1 2006. But some job is better than no job, and this is helping to keep a lid on pay growth. Average weekly earnings grew by just 0.6%y/y in the three months to March. The rate of total pay growth has now slowed in every month since August 2011, kept down in particular by lower bonuses.

More good news on UK trade. The UK's trade deficit narrowed a bit in March due to growing surplus on services exports. Weak demand from the Eurozone is a drag and the Governor’s warning that the fallout from the Eurozone problems is ‘the single biggest threat’ to the UK’s recovery isn’t good news for UK exporters either. But a 12.1%m/m rise in goods exports to non-EU countries was great news, particularly as it easily outpaced a 4% rise in imports. Better trade with these countries will provide some welcome cushioning against problems in the Eurozone.

The Eurozone avoids recession – for now! A solid performance from the German economy only kept the Eurozone out of recession in Q1. GDP growth was flat, but better than the 0.2%q/q fall expected. This is good news, but do not hold your breath. Eight out of the 17 Eurozone economies are in recession and a broad based weakness in industrial production, backed up by weak Purchasing Managers’ survey data, suggests that the industrial sector will still drag on the recovery.

Eurozone inflation slowed in April. There was a small, but welcome, fall in Eurozone consumer inflation (CPI) in April, to 2.6% from 2.7% in March. Budget cuts across most of the euro area, rising unemployment, and an intensification of the sovereign debt crisis all pushed prices down. But the European Central Bank expects the inflation rate to remain above its 2% target this year, due to high energy prices and indirect taxes.

US retail sales grow in April - just. Retail sales rose for an eleventh consecutive month in April. But the 0.1%m/m increase was the weakest in that growth streak, which helped pull the y/y rate down to 6.4%. The slowdown probably reflects the unseasonably warm weather and the weaker pace of job creation in March and April.

US inflation steady in April, but a third round of QE looks more likely. A sharp fall in gasoline prices was offset by rises in other items, notably food, which kept the inflation rate at 2.3%y/y in April. But core inflation, which strips out volatile items increased by 0.2% m/m to 2.3% y/y. Inflation is above the desired 2.0% rate, but the Fed’s dual mandate is to secure stable prices and high employment, which means that there is no prospect of tighter monetary policy. Indeed the Fed is edging closer to a third round of quantitative easing, according to the minutes of its April meeting. "Several members indicated that additional monetary accommodation measures could be necessary," if the economy slows or downside risks become too great - i.e. if the euro area deteriorates markedly. In March, only two members voted that way.

China are stagnating!

Plus, the banks globally are still stashing cash at the highest levels ever recorded, why? We all know why, don`t we!

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More Economics and Business Inspiration:
`Accelerate with Impact` -
by Colin Thompson ISBN: 978-1-84549-289-2

Accreditation: UK Registered Learning Provider:10025755

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.

Greece and the Euro
- Global Economics Weekly

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