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Red Warning Light Economy

Red Warning Light Economy

Global Economics Weekly Brief

If the global economy was a car, then its dashboard would be strewn with `red warning lights`.

We’ve become used to the theme of emerging nations providing better growth prospects than the current crop of rich countries. But as highlighted by Fitch’s downgrade, even in hotspots like China there are signs that this growth is not sustainable. Global growth - is there any? * The Global Economy Report - see below.

UK production expands but trade struggles. Production and manufacturing output rose in February, which should help the UK avoid a triple dip recession, we all hope!. The expansion was broad based. But even this good news means that production is only just back where it was six months ago. Meanwhile the trade deficit continued its terrible start to 2013. The gap between imports and exports rose to £3.6bn in February and will be a struggle to turn around. The World Trade Organisation expects global trade to grow by 3.3% this year, up from 2% last, but well below the 5.3% average over the last 20 years. Do we believe the forecast by the World Trade Organisation based on past statistics?

UK Housing market stays very flat. Surveyors say that new supply and demand are relatively balanced at the moment, indicating that prices aren’t expected to move much at a national level. But the Royal Institute of Chartered Surveyors’ survey stresses that regional differences remain, with higher sales relative to stocks in London making agents there the most optimistic. By contrast, weak sales in Wales and the North East lead those regions to be pessimistic about future prices. Very few new house buyers - and present stock of built houses for sale at a low. People are not willing the sell their homes at knock down prices!

Some long awaited good news for Europe. Encouragingly, industrial production in the Eurozone rose 0.4%m/m in February, on the back of higher demand for durable and capital goods. It wasn’t great news everywhere though: Greece, Italy and Spain all showed very deep declines. Weak demand has squeezed companies’ pricing power, leading to lower inflation. In March euro-area inflation slowed to 1.7%y/y. French inflation is particularly low at just 1.1%y/y, even Germany reported only 1.4%y/y and prices in Greece are now actually falling. With the inflation rate falling further below its 2% target the chances of a rate cut by the European Central Bank are rising. The Eurozone countries have no money to spend! Very high debts, very high unemployment and continuously decline!

European Commission urges Spain and Slovenia to do more. Part of Europe's response to the debt crisis has been a new macroeconomic monitoring regime. The idea is that countries get assessed and those with "excessive imbalances" are told to correct them or face sanctions. This time around Spain and Slovenia were in the firing line. Both were identified for their high debt levels, with Slovenia's financial sector a cause for concern. Right now this amounts to little more than a slap on the wrist, but to avoid further censure both will have to draw-up credible plans by the end of May. Watch out for Italy news soon, no money in the pot, very high unemployment, very high debts and very explosive people who demand action!

China displays warning signs of a different kind. China's credit growth continues to astound with lending up over 66% on a year ago. Remarkably, this is actually a slowdown from late last year and not as strong as the credit binge of 2008/09 that was unleashed to battle the global crisis. But it's still unsustainably high and prompts new worries of property bubbles and debt problems at local governments, something that the rating agency We believe thinks they will require central government resources to fix. Policymakers are likely to intervene again soon, but taming this sort of growth is rarely pain-free. China are heading for a massive problem in many areas!

US Fed rate-setters dream of life after the crisis but economy deteriorates. It’s hard to find anyone who thinks the US economy is in worse shape than the UK or the Eurozone. And yet the Fed has been more active than the others in its quantitative easing programme this year. That looks set to change over the next six months. Minutes from the Federal Reserve's March meeting showed that most participants was in favour of scaling bank asset purchases in the second half of this year. But the policy shift will not be dramatic. Recent US data was disappointing with the labour market doing worse than expected. Now we find out that retail sales in March fell too. Even the US can look very fragile! Debt mountain over $16 trillion and growing rapidly daily!

IMF urges central banks to do more. In the 70s, 80s and 90s there seemed to be a pretty clear trade-off between inflation and unemployment. When the economy went into recession, unemployment rose and inflation fell. But in the years since 2008 unemployment rose by an average of 4% across the G7 group of nations, whilst inflation barely budged. The IMF puts this change down to independent central banks and their inflation-targeting mandates. Why does this matter? If inflation expectations are still relatively low then monetary policy can work harder to stimulate the economy, without the fear of inflation taking off. That's the IMF's way of telling central banks to be bolder!

* THE GLOBAL ECONOMY - Institute for Fiscal Studies -
World Economic Forum Annual Meeting 2013 Report
Global economic outlook for 2013 revealed - United Nations ...

China Export Growth Collapses as World Recovery Slows - click on the connection below for comprehensive information.

10-Step Double-Dip Recession Survival Guide for Entrepreneurs - click on the connection below for comprehensive information.

Global Economic Crisis

Colin Thompson
DDL: + 44 (0) 121 244 0306

Mobile: 07831 588310

Main T: + 44 (0) 121 244 1802

email: colin@cavendish-mr.org.uk

Skype: colin.thompson384



Red Warning Light Economy

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