Posts Tagged ‘global economy’

The world had de-coupled, we were told. Time was, that when the US consumer sneezed, the rest of the world got a cold.

Then in 2008, the US consumer was sent to bed, with a thermometer in his/her mouth, and the rest of the world was in agony.

Then something odd happened. After a few months, in which everyone suffered, the emerging world did okay. China did more than okay, it boomed.  The BRICs, or if you want to include South Africa in that illustrious group, the BRICS, took the baton of growth from the US.

Sure there was talk of currency wars, sure the UK limped along like a cripple on broken crutches, but the global economy did well. It had de-coupled we were told.

Or did it? There are time lags in these things.

Now things seem to have gone into reverse. Sure China is still growing, but it is struggling to change from export to consumer led growth. India is picking up, Brazil looks dire, Russia looks worse, and if you want to make the small ‘s’ at the end of BRICS into a big “S” South Africa  is struggling.

There are signs Japan may be recovering, more of that in another article, the Eurozone is well and truly stuck in a very low gear, or even reverse, but the UK and US are the new stars.

The UK economy slowed a bit in Q3, with quarterly growth down to 0.7 per cent, from 0.9 per cent the quarter before. But then the UK’s main trading partner is the Eurozone. At least investment is rising at a very brisk pace, and that gives good reason for cheer.

But there is even more reason to cheer the US.

The year got off to an awful start, with a cold winter and unfortunate timing of the inventory cycle hitting  the economy hard. Was the Q1 contraction a one-off?   Or was it a sign of something more serious?

Well the data on the US economy has been unremittingly good, ever since.  Take for example the latest US consumer Confidence Index from the Conference Board. It hit a new seven year high in October. If you like your numbers, then you may be interested to know the index hit 94.5. The last time it was so high was in October 2007.

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Yet, the global economy still struggles. If it has de-coupled, then right now this is negative thing.

But there is one other issue here.

As the US recovers, the Fed makes noises about upping rates. This is spooking markets, and hitting emerging economies hard.

It is not that the US economy is no longer the lynchpin of the global economy. It still is. It is just that the actions of the Fed seem to count for more than the well-being of the US consumer.

But can the US consumer yet save the day? Only time will tell, but it is surely the case that if US Consumer Confidence continues to grow, then the rest of the world will grow with it – eventually.

p.s. I have been away for a while to complete my new book, called ‘iDisrupted‘ which is available to purchase via Amazon. If you are interested in my thoughts about how the incredible changes in technology are likely to change our world forever then you are invited to buy the book and let me know whether you agree or disagree with my predictions. Further details about the book can be found on www.idisrupted.com

Michael Baxter, The Money Spy

The FTSE 100 finished Monday 11 March at 6503. That was a five year high, just 217 points off a decade high (set 31 October 2007), and 426 points off an all-time high (set 30 December 1999).

As an aside, it is quite interesting to note that the FTSE 100 decade high occurred after the run on Northern Rock. I find it hard to imagine  what madness possessed the markets to show such exuberance when the signs of problems ahead had been writ large on the wall.

The question is: are the markets mad this time, too?

The news from the UK is not very good. But then there is this thing called the global economy, and perhaps what really counts is how the rest of the world is doing. Besides the FTSE 100 is not really a bellwether of the UK at all; after all, many of the companies listed on this index do most of their trading abroad.

The news from our two biggest trading partners is okay. In the US, annualised GDP was a tiny 0.1 per cent in the final quarter of last year, but there are reasons for believing this was a one off, and the poor performance was mainly explained by falling inventories and cuts in defence spending. Other data is far more promising.

The latest US Consumer Confidence Index from the Conference Board was 69.6. Okay that was down from the heady heights of 73.1 seen in October when the index hit a near five year high, but not a lot down. More to the point, the index rose sharply on the month before.

US Consumer Confidence

The latest Purchasing Managers’ Indices (PMIs) are promising too. The index tracking non-manufacturing hit a 12 month high, and the index for non-manufacturing rose to a two year high.

Finally, the news on US jobs is promising, with February seeing an increase of 236,000 non-farm jobs. In fact, the US unemployment rate fell to 7.7 per cent, which is the lowest level since George Dubya and Dick ruled the roost at Capitol Hill.

All in all then the data coming out of the US, is not bad. Sure you can be cynical, and say it won’t last or the US is built on a bubble, but the US does at least provide a rationale for surging stock markets.

The news out of our second largest trading partner is not quite so good, but it is still all right. The Germany economy contracted in the final quarter of last year, but the various surveys including PMIs (the Germany composite was 53.3 in February), Zew index and German IFO all point to a much better performance in Q1.

Next on the list of main exports markets is the Netherlands. The Dutch economy contracted by 0.2 per cent in Q4 last year after contracting 1 per cent in the quarter before.

But it is when we look a little further down that things are looking worrying. Our fourth largest export market is France. The French economy contracted by 0.3 per cent in Q4, a smaller contraction than Germany. But, unlike Germany, the latest Purchasing Managers’ Index was bad; at 43.1 it pointed to the contraction continuing, and the latest data on French industrial production showed a 1.2 per cent contraction.

More worrying still, our seventh largest export market is China, and things have turned for the worse. UK exports to the economy on the other side of the Great Wall have risen eight times since 2000. Earlier this year it appeared as though China was over the worst and on the mend. Not so says the latest data: growth in both industrial production and retail sales in the year to January  and February was down on the year to December. Investment into bubble areas, such as property and infrastructure is still surging, but investment into other areas, which can create sustainable growth, is not.

Markets may be riding a tide of euphoria.

But the tide may yet go into reverse.

©2012 Investment and Business News.

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