The mood has changed in Japan. Growth momentum was lower than expected in the second quarter and the first quarter was revised down. The GDP growth target of 2% does not seem to be reached.
Why is it important?
The scheme Shinzo Abe has put in place can be read as follows: First let GDP jumps on a strong trajectory. 2% GDP is the trend expected. With this solid trend it is possible to adjust public finances, to stabilize them and at the end to reduce the Public Debt to GDP ratio and makes it sustainable in the long run. Continue reading
During the second quarter of this year, Greek GDP was down for the 20th consecutive quarter. Compared to Q2 2012, Q2 2013 figure was down only by -4.6% after -5.6% during the first three months. The pace is slower as it can be seen on the first chart but GDP is still down.
The most problematic issue is that, due to deflation, nominal GDP is decreasing more rapidly that real GDP. This has a very strong consequence on Public Debt to GDP ratio and on Public Deficit to GDP ratio. Continue reading
Five charts to better understand the Chinese external trade momentum.
The main point is the change in regime after the 2009 crisis. Before it annual growth for both exports and imports was between 20 and 40 %. Currently and since 2011 their growth rate is close to 10 % and sometimes less.
These two figures explain why it is necessary for China to find new sources of impulse for its economic activity. The main sources of economic momentum have to be found in the Chinese economy not outside. Continue reading
After the Federal Reserve, the Bank of England has changed its communication on monetary policy.
As the economy was in stagnation or on a low growth path, central banks had no trouble to convince investors that it would maintain its very accommodative monetary policy for a long time. It made sense and it was also a reduction of uncertainty as the economic and financial environment was very volatile. Central banks’ credibility was sufficient to convince investors that interest rates would remain low even in the case of improvement in activity.
It is on this point that the situation has changed. Continue reading
Germany: Industrial Orders in June
Two charts on German industrial orders allow a more optimistic view on the current economic outlook for developed countries.
The first chart below shows the geographical sources of these orders. The total index in purple is mildly up trending. The decomposition shows that domestic and Euro orders are not too strong and that the main source of orders’ growth comes from outside the Euro Area. The red line has a strong momentum.
Nevertheless in June we see an impressive jump in the Euro Area. Continue reading
In June after its FOMC meeting, the Federal Reserve has published its forecasts for 2013. GDP growth is expected for 2013 to be in the range [2.3 – 2.6%]. The middle of the range is 2.45%.
We then have to compare this number to the result of the first two quarters.
In Q1 GDP growth was 1.1% at annual rate and in Q2 it was 1.7%. This means that the carryover growth at the end of the second quarter is just 1.05%. (carryover growth is the average growth for 2013 if Q3 and Q4 GDP level remains at Q2 level (last known)).
To converge to 2.45% on average for 2013, GDP numbers have to be 7.4% at annual rate both in Q3 and Q4.
Such a sequence has not been seen since the beginning of the 80’s when Ronald Reagan had a very strong program to boost the economy.
The current fiscal policy is conditionned by sequestration and we see that since the beginning of 2010 government expenditures (local and federal) are a drag on GDP growth.
Once again, the Fed’s behavior will be interesting to watch.
Nevertheless as it was mentionned by Tim Duy (@TimDuy), (see here): in the past unemployment rate forecasts were more accurate than GDP forecasts. Even with that in mind the gap will be large and will probably require interpretation by Ben Bernanke.
In July the two ISM indices jumped strongly erasing the weak period seen from February to June 2013. The manufacturing index was at 55.4 in July versus only 50.2 on average for the second quarter and the non manufacturing index was at 56 versus an average of 53 in Q2.
The first chart clearly shows that the main change was seen on the manufacturing sector. This is the most volatile index. We can see that as two months ago the index was below 50 (49 in May and only 50.9 in June). Continue reading