Trade Deficit Up, Trade Deficit Down
Global Economics Weekly Brief
The 2012 BAFTA best film, The Artist, was set around the time of the Great Depression. This may chime with a Greek population that fears it will suffer something similar as it strives to deal with its massive debt. But another BAFTA nominee, The Help, seems more relevant right now.
Greek politicians passed the austerity package required to secure the help it needs to avoid default. And it’s not before time. Talks have been going on since July 2011. There will be a sigh of relief at the agreement, but it’s too early to relax just yet. The austerity measures are tough and are already causing severe social unrest with more to come. With elections expected in April 2012, it will take the will of another nominee, The Iron Lady, to achieve the reforms in practice. The risk of a default at some future date remains. But how much more help will be available if that situation arises, is yet to be seen. What will happen when Greece have to pay the future interest, will they default again, probably yes!
UK interest rates stay on hold, but quantitative easing is increased. Even though there was some brighter economic news from business surveys last week, the Monetary Policy Committee didn’t think that this would be enough to keep the economy warm. Chilly economic headwinds, from Europe in particular, were strong enough for it to stoke up the boiler with £50bn more quantitative easing and keep interest rates frozen once again. The action wasn't a surprise, but the question is, will it be enough? Probably not! This extra stimulus brings the total size of the asset purchase scheme to £325bn and when the purchases are complete, the Bank’s holdings will account for almost one third of the market in government bonds. What a state to be in!
Good news from the UK’s manufacturing sector. Manufacturing production in the UK increased by 1%y/y in December, five times more than was expected. On top of last week’s survey data, policymakers will have regained some confidence in the sector. But things are still fragile. Factory output declined by 0.8% in the last quarter of the year and the overall index of production, which includes mines, utilities and oil and gas, dropped by 1.4% between October and December 2011. More growth is needed in manufacturing to win and see the future return!
UK trade deficit falls to its lowest level since April 2003. The UK’s deficit on seasonally adjusted trade in goods and services was £1.1bn in December - narrower than the gap of £2.8 billion in November. Goods imports were still bigger than exports, but the deficit on the seasonally adjusted trade in goods fell to £7.1bn in December, from £8.9bn in November. Trade in services deteriorated a bit, but stayed in surplus at an estimated £6bn, compared with £6.1bn in November. The UK needs to export more and slow down imports to see a return for the future!
UK mortgage arrears and possessions stay remarkably low. UK mortgage arrears and possessions improved in 2011 compared with 2010. 1.4% of mortgages outstanding were in arrears of more than 2.5% of the outstanding balance, while possessions accounted for 0.3%. Both are at their lowest rate since 2007, before the financial crisis and when the housing market and the economy were much more buoyant. This is remarkable given the rise in unemployment and fall in real incomes. Low interest rates and lower unemployment among the home-owning age groups seem the likely explanations. Watch this space!
European Central Bank left rates unchanged. The ECB kept rates at 1% for the second month in a row and there was no discussion of a rate cut at the meeting. The ECB is in “wait and see” mode, and it’s no wonder given all of the changes going on. Some better economic data in January was tempered by disappointing bank lending figures and signs of a credit crunch in parts of the Eurozone. The next offer of unlimited three year loans to banks becomes available in late February. President Draghi is not alone in hoping that this will boost credit to households and businesses. Europe is in serious trouble and more loans is not what they require!
The U.S. trade deficit increased to 2008 levels in 2011. The US trade deficit increased to its highest level in six months in December. At $48.8bn it brought the trade gap for 2011 as a whole up to $558bn. This is up 11.6% from $500bn in 2010 and is the biggest deficit since 2008. Exports of goods and services grew 14.5% to a record $2.1 trillion, but imports also broke a record at $2.7 trillion. The fact that the dollar has appreciated by more than 6% since August (in trade weighted terms), will not make it any easier for the US to redress this balance. More unemployment on its way!
China's inflation rises unexpectedly, but is expected to fall back. China's CPI increased sharply to 4.5%y/y in January from 4.1%y/y in the previous month, against expectations that prices would continue to moderate. A seasonal spike in food prices due to the Chinese New Year was the reason, and there is little evidence that it was more than this. Non-food inflation fell to 1.8%y/y in January, its lowest reading since October 2010. Look at the activities `in` China and it will worry you!
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New Eurozone fears as banks continue to stash more cash at the highest level recorded. The banks know what is probably going to happen!
Banks in the eurozone are hoarding cash at record levels. At present over 500 billion euro`s was on deposit to reach the highest level ever stashed due to fears of the risk of lending to each other and the current state of the global economies. The banks expect `big trouble` in the next few months in the lending/banking arena.
Bank of England to print £50 billion more to bolster economy
The forecast by some analysts to increase ` quantitative easing` to £400 billion - equal to 27% of gross domestic product in the UK.
Entrepreneurs in the UK are making millions of £`s helping jobless!
Training companies in the UK are making many millions of £`s from the UK government to train the jobless - but do the jobless get a job? In many cases, no! Therefore, the only people gaining are these training companies at the tax payers cost!
Plan for the future with the `right` people and the `right` business models for success.
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Trade Deficit in Focu