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Positive Ying Yang - Global Economics Weekly

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Global Economics Weekly Brief



As the developed world has continued to grapple with the aftermath of the financial crisis, this briefing in recent years has had plenty of bad news to report. But the news over the past week has been almost uniformly positive.



UK inflation, retail sales, public finances and the labour market all gave good readings. US housing continued to recover slowly while China’s data gave reason to believe its economy has finally bottomed. There were a couple of blots on the copybook. The main one being that EU leaders appeared to confirm that the cost of bank recapitalisations in Ireland and Spain will continue to be incurred by their respective governments and not the eurozone’s rescue fund. Still, weeks with so much good news seem to be a rarity these days. We need a good few more like it.

Eurozone banking union timetable progressed, but a big concern lingers.
European leaders agreed a timetable for one element of the much-needed banking sector union. A ‘common banking supervisor’ will become operational over the course of 2013. But this modest progress was overshadowed by other statements which appeared to affirm that the eurozone’s rescue facility will not be used retroactively to recapitalise banks in Ireland and Spain. The cost of these bailouts will be borne entirely by those governments, making their route back to financial health all the more difficult. Will we see improvements in the future, let us hope so!

Good news in September UK public finance statistics.
Public sector borrowing came in at £12.8bn over the month, a £0.7bn reduction on September last year. Moreover, borrowing over the current tax year has been revised down by a full £6.7bn – the fiscal equivalent of finding a fiver down the back of the couch! Despite this windfall it looks likely that the Government will still miss its fiscal targets. Spending is broadly in line with target, but a weak economic backdrop means that receipts have been disappointing over the current fiscal year. Given this George Osborne will have some tough decisions to make ahead of his Autumn Statement on 5th December. Plus, plc company profit warnings at the highest recorded to date! Less tax revenue coming into the treasury in the future!

UK inflation continues to cool.
Consumer Price Inflation (CPI) fell again in September to 2.2%y/y from 2.5% in August. This is the lowest rate of price growth in almost three years and a significant drop from the 5.2% peak in September 2011. Part of the slowdown in September can be explained by more modest rises in utility bills this year compared to last. Inflation is likely to continue to fall further, but some upward pressure from fuel and commodity prices could slow this process. Fuel and utility bills prices set to rocket over the next six months!

UK unemployment rate fell to 7.9% in three months to August. The UK labour market continues to surprise pleasantly. Fuelling the continuing downward trend in unemployment were the 510,000 jobs (mostly part-time) that the economy has created over the past 12 months, of which 69% were part-time. Some of the unemployment is becoming ever more entrenched, making it ever more difficult to reverse. The share of those unemployed for more than 12 months climbed to 35.5%, a share last seen in mid-1997. Wages are still failing to keep pace with inflation after only rising 1.7%y/y. Foreign workers are pushing wages down rapidly!

Retail sector rounds off Q3 in style. Despite falling household incomes in real terms, UK retailers enjoyed strong trading conditions in September (a large drop in retail prices), with the value of sales increasing 1.1% m/m. Clothing & footwear was the standout performer, though all sub-sectors registered growth (for the first time in six months). In y/y terms, sales were 3.2% higher than in September 2011. That shrinks to 2.5% when we strip out price increases but the bottom line is that demand is holding up relatively well in the retail sector. Are payment protection insurance payments helping to buoy retail sales? Sales on the increase with lower net profits, with competition driving down prices to stay in business short term!

US housing continues to recover and industrial production moves higher. Housing starts in September reached an annualised pace of 872,000 – the highest since July 2008. Meanwhile, building permits – a proxy for future construction – reached a four-year high and a confidence measure of US house builders reached a six-year high. Meanwhile, industrial production improved with growth of 2.8%y/y in September. And although manufacturers are using more of the available capacity, output is still 3% below the pre-crisis peak in 2007. Plus, more unemployment on its way!

China may be bottoming! China GDP rose 7.4%y/y in Q3 after a 7.6% rise in Q2. On the face of it this is a very strong figure but it’s actually the lowest since the depths of the immediate post-crisis period in 2009. However, there are signs that China may at long last have bottomed. GDP rose 2.2%q/q after a 2% rise in Q2. Additionally, the September y/y readings for industrial production, fixed investment and retail sales all rose. Those forecasting a big China crash continue to be disappointed. But those seeking a strong re-acceleration of growth will too. It will likely be a muted recovery. The future will see more industrial unrest with the people protesting more to gain better wages and working conditions!

* The Credit Crunch of AD 33 Repeats itself time and time again!

What with the Bank of England pushing £375+ billion and the USA Federal Reserve $1+ trillion into their countries respective banking systems, readers may be interested to learn of the following from `Banking & Business in the Roman World`;

In AD 33 the lack of cash continued to become increasingly serious (where have we read this before many times?). To remedy the situation, through the intermediary of `ad hoc` financial offices directed by Senators, the Emperor himself offered interest-free loans amounting to an overall sum of 100,000,000* sesterces from his personal fortune for the duration of three years. The borrowers were required to offer security in the form of real estate or buildings. In this way they were not forced to divest themselves of their patrimony in order to pay off their debts. Fides, that is to say confidence, returned, and the situation was retrieved for a short time.

Why do politicians/bankers/lenders ignore history? and yet history repeats itself several times because these people do not read! People need to read `The Rise and Fall of the Roman Empire` and then perhaps they will learn how to avoid repeating history.

We live in a global trading environment of which there are so many players chasing very few opportunities that it is driving down prices globally and still people do not wish to buy!

China Export Growth Collapses as World Recovery Slows

China Export Growth Collapses as World Recovery Slows - click on the connection below for comprehensive information.
http://www.bloomberg.com/news/2012-08-10/china-july-exports-rise-1-vs-economists-estimate-for-8-.html

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