A flood of figures and announcements from governments on Friday tell very different stories about where some of the world’s major economies are a month into 2010.
In short, many are still sluggish, or facing overheating, or in Australia’s case, slowly emerging with some strength, with interest rates rising.
American is growing, but unconvincingly; India is growing too quickly, like China, and Japan is gripped by intensifying price deflation that is crippling the country. And Spain, which remains stuck in recession, revealed an ambitious plan to cut spending to stave off market attacks on its credibility.
US markets rose Friday night on the apparently strong GDP figures, then fell as the details became clearer and some investors fretted that the developing sell down in all markets (oil, copper, gold were down 8% or thereabouts in January), could accelerate. Markets then fell, to finish the day, week and month with losses.
Growth was the fastest for six years; suspiciously high private investment and foreign trade were other major influences in the quarter.
But it was positive growth for the US for a second quarter. Its economy grew at 2.2% annual in the third quarter, after a first estimate put that at 3.5%.
That’s why many analysts see the 5.7% first estimate being wound back in the next two revisions.
With 3.4% of that rise coming from a sharp slowdown in the liquidation of excess and unsold stocks, and consumer spending falling in the quarter, economists concluded that the bottom line was that the US economy continues to expand too slowly to put a dent in unemployment. But encouragingly, estimates for wages and income rose in the quarter.
But the US has lost 7.2 million jobs since the start of the recession in December 2007. The jobless rate remained at 10% in December and will be updated this Friday night, our time. It’s the big issue right now, as President Barack Obama acknowledged with his switch of emphasis in last week’s State of The Union address.
But the sobering statistics for the US were released late Friday night: six more US banks failed, taking to 15 the number of collapses in January, more than 10% of 2009’s 130 failures and more than half the 25 in 2008. The credit crunch goes on.
In India the Reserve Bank’s decision to leave rates unchanged led to markets punting on a rate rise in either February or March.
Australia expected to raise rates for a fourth month tomorrow, Norway later this week, perhaps, China expected to move after the lunar new year, and Vietnam having lifted rates, the trend across the rapidly growing region is to tighten monetary policy. Malaysia and the Philippines are expected to lift rates in the next month or so. The European Central Bank and the Bank of England also meet this week and won’t do anything to hurt their still fragile economies.
Inflation is the big concern in India and with the Congress-led government insisting on an easy monetary policy, price are soaring, especially for food where near record prices for sugar lead the way.
So it’s no wonder the central bank has lifted its inflation forecast to 8.5% by March 31 from 6.5%. It’s already already running at 5.2%, up from 1.6% last October. Industrial production is growing by more than 11% a year at the moment.
In Japan, meanwhile, despite the best attempts of some commentaries to ignore it, the biggest news from Friday’s release of economic data for December was the continuing deflationary spiral.
They chose to highlight a fall in unemployment and another rise in industrial output, but the real story was the record fall in Japan’s underlying consumer prices in December.
While year-on-year fall in core prices eased to a fall of 1.3% in December from November drop of 1.7%, so-called “core-core” consumer price index, (excluding fresh food and energy prices) fell 1.2% in December from December 2008, the biggest fall since records started in 1971.
No wonder the Bank of Japan last week left interest rates unchanged and warned that deflation would continue into the March 31, 2011 financial year, although at a less dramatic pace.
But the size of the falls in November and December have been well above all forecasts, so there’s a sign that no one knows what is happening in the Japanese economy, or how to break the spiral.
Friday, unemployment also eased to 5.1% in December from 5.2% the month before, while household spending was up a better-than-expected 2.1% from the same month in 2008.
Industrial production was up 2.2% in December from November, but business is forecasting a slowing trend for January and February.
And Spain revealed its toughest austerity plan so far as it attempts to shake off the impression that it’s being as indolent as Greece in cutting spending and right-sizing the economy.
The government released measures to narrow its budget deficit by €50 billion over four years. It is also raising the national retirement age from 2013 to protect the social security system, which is still in surplus.
The government said that spending cuts, tax rises and a return to economic growth would cut the deficit from a higher-than-predicted 11.4% of GDP last year 3% in 2013, in line with Spain’s promises to meet EU budget rules.
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