This isn't the first time I've used this title, and it won't be the last. It gives the best description I can offer of where the Atlantic economies lie. Both currencies have inherent weaknesses, and the battle of the Titans is to see who can go down first. Since we are still governed by the ground rules of Bretton Woods I (with a Chinese subsystem called Bretton Woods II) there seems to be little alternative to this unedifying spectacle.
Alan Greenspan may have helped push the euro down a little yesterday, but I still don't see how he can keep to his promise of a slow and measured rate rise (or how people can believe him). He is trapped between China's strength and Europe's weakness. If he keeps raising slowly, then he will simply push the dollar up (the rates difference with Europe is significant), ballon further the CA deficit, and probably import deflation to boot. If he wants to raise then he would need to do something substantial, something which would so weaken demand in the US that demand for imports would be hit, but this would lead to recession, and maybe debt deflation. So it is probably out. He is therefore reduced to listening to Trichet, and acting accordingly. Even the US economy isn't too big to be driven by global forces, and the Feds room for manoeuvre limited accordingly.
Friday, June 10, 2005
Doubts Grow Over UK Economy
As the BoE holds rates constant, doubts continue to grow over the path of the UK economy. The evidence is piling up that housing prices have started to fall:
"House prices fell in May but the market remains flat, according to figures out today. The Halifax revealed a 0.6% fall in prices over the month, and said that so far in 2005 prices have dropped by 0.1%. Prices are still up on May 2004, but the year-on-year increase of 5.7% is the lowest in four years and well down on last July's figure of 22.1%. And annual price inflation is expected to fall further over the coming months. The house price index shows that the market is operating in a narrow band with prices hardly moving this year. Prices have moved by just 0.1 percentage point since the start of 2005 and in the last six months three price rises have been matched by three price falls.The Halifax reported that the average house price now stands at £162,411, down from £163,458 in April, but still more than five times the average salary."
These figures are broadly in line with data reported by Nationwide Building Society last week, which showed prices rose by 0.3% during May, while annual house price inflation slowed to just 5.5% - the smallest annual increase since August 1996. Meantime the NIESR has published its annual report on the state of the UK economy:
"Consumer spending growth will slow to a below-trend rate of 1.9 per cent a year in 2005 and 2006 as households respond to the downturn in the housing market by saving more. The savings ratio is forecast to rise from 5.6 per cent of disposable income in 2004 to 6.9 per cent in 2006. An improvement in net trade will mitigate the impact of the consumer slowdown on the economy. GDP growth will slow from 3.1 per cent in 2004 to an annual rate of 2.7 per cent – a little above trend – in 2005 and 2006. The main risk to this forecast will arise if market pressures to reduce the US current account deficit lead to an abrupt slowdown in the American economy."
This forecast has, IMHO, significant downside risks, if the housing market continues to move down, consumption will undoubtedly be hit. The UK could in fact prove to be an important 'test pad' which will give some indication of what might happen in the US when the housing market there slows.
Update: I see that Barry the 'Big Picture' has posted something . more or less along the same lines as what I am saying here.
"House prices fell in May but the market remains flat, according to figures out today. The Halifax revealed a 0.6% fall in prices over the month, and said that so far in 2005 prices have dropped by 0.1%. Prices are still up on May 2004, but the year-on-year increase of 5.7% is the lowest in four years and well down on last July's figure of 22.1%. And annual price inflation is expected to fall further over the coming months. The house price index shows that the market is operating in a narrow band with prices hardly moving this year. Prices have moved by just 0.1 percentage point since the start of 2005 and in the last six months three price rises have been matched by three price falls.The Halifax reported that the average house price now stands at £162,411, down from £163,458 in April, but still more than five times the average salary."
These figures are broadly in line with data reported by Nationwide Building Society last week, which showed prices rose by 0.3% during May, while annual house price inflation slowed to just 5.5% - the smallest annual increase since August 1996. Meantime the NIESR has published its annual report on the state of the UK economy:
"Consumer spending growth will slow to a below-trend rate of 1.9 per cent a year in 2005 and 2006 as households respond to the downturn in the housing market by saving more. The savings ratio is forecast to rise from 5.6 per cent of disposable income in 2004 to 6.9 per cent in 2006. An improvement in net trade will mitigate the impact of the consumer slowdown on the economy. GDP growth will slow from 3.1 per cent in 2004 to an annual rate of 2.7 per cent – a little above trend – in 2005 and 2006. The main risk to this forecast will arise if market pressures to reduce the US current account deficit lead to an abrupt slowdown in the American economy."
This forecast has, IMHO, significant downside risks, if the housing market continues to move down, consumption will undoubtedly be hit. The UK could in fact prove to be an important 'test pad' which will give some indication of what might happen in the US when the housing market there slows.
Update: I see that Barry the 'Big Picture' has posted something . more or less along the same lines as what I am saying here.
The Shape Of Things To Come?
Italy is officially in recession:
Italian first quarter GDP fell 0.5 percent from the previous three months and shrank 0.2 percent year-on-year, the statistics institute ISTAT reported on Friday, confirming its preliminary estimate issued on May 12.
The 0.5 percent quarterly fall was the worst since Q4 1998, whilst the 0.2 percent drop on a yearly basis was the worst since Q1 1997.
As in the previous quarter, the q/q result was hit by weak exports, which declined 4.1 percent. Net exports subtracted 0.5 percentage points from q/q growth and 1.3 percentage points from y/y growth.
Consumer spending rose by 0.1 percent q/q and 0.2 percent y/y, while gross fixed investment fell by 0.1 percent q/q and 0.2 percent y/y.
Meantime industrial production in India continues to grow nicely:
India's industrial output rose 8.8 percent in April compared with a year earlier, helped by robust growth in manufacturing, data from the Central Statistical Organisation showed on Friday. Year-on-year growth in March was revised up to 8.78 percent.
India's industrial output is a key source of growth in Asia's fourth-largest economy and has been rising since a bumper monsoon in 2003 boosted farm output and rural incomes.
Manufacturing production, representing more than 75 percent of industrial output, rose 10.0 percent in April from last year.
Production of consumer goods was 18.6 percent higher in April than a year earlier after a rise of 7.5 percent in March. Production of capital goods was up 24.5 percent in April.
A strong manufacturing sector pushed economic growth to 8.5 percent in the fiscal year ended March 2004, the strongest expansion in nearly 15 years. Growth in 2004/05 is expected to have been 6.9 percent, and the central bank is projecting expansion of 7.0 percent in the current financial year.
I think it would be a mistake to think that this decade's big story is only about China. The other interesting issue is that these differing growth paths are not cyclical, they are secular and structural. One part of the world is in decline, and the other is waking up.
Italian first quarter GDP fell 0.5 percent from the previous three months and shrank 0.2 percent year-on-year, the statistics institute ISTAT reported on Friday, confirming its preliminary estimate issued on May 12.
The 0.5 percent quarterly fall was the worst since Q4 1998, whilst the 0.2 percent drop on a yearly basis was the worst since Q1 1997.
As in the previous quarter, the q/q result was hit by weak exports, which declined 4.1 percent. Net exports subtracted 0.5 percentage points from q/q growth and 1.3 percentage points from y/y growth.
Consumer spending rose by 0.1 percent q/q and 0.2 percent y/y, while gross fixed investment fell by 0.1 percent q/q and 0.2 percent y/y.
Meantime industrial production in India continues to grow nicely:
India's industrial output rose 8.8 percent in April compared with a year earlier, helped by robust growth in manufacturing, data from the Central Statistical Organisation showed on Friday. Year-on-year growth in March was revised up to 8.78 percent.
India's industrial output is a key source of growth in Asia's fourth-largest economy and has been rising since a bumper monsoon in 2003 boosted farm output and rural incomes.
Manufacturing production, representing more than 75 percent of industrial output, rose 10.0 percent in April from last year.
Production of consumer goods was 18.6 percent higher in April than a year earlier after a rise of 7.5 percent in March. Production of capital goods was up 24.5 percent in April.
A strong manufacturing sector pushed economic growth to 8.5 percent in the fiscal year ended March 2004, the strongest expansion in nearly 15 years. Growth in 2004/05 is expected to have been 6.9 percent, and the central bank is projecting expansion of 7.0 percent in the current financial year.
I think it would be a mistake to think that this decade's big story is only about China. The other interesting issue is that these differing growth paths are not cyclical, they are secular and structural. One part of the world is in decline, and the other is waking up.
Wednesday, June 08, 2005
Bolivia In Crisis
I'm obviously enjoying myself with photos these days :)
The situation in Bolivia seems to get more complicated by the day.
Publius Pundit is covering the blogging side. Eduardo Alvarez is giving a good running commentary, Miguel Centellas worries about his mum and other issues from the comparative safety of the United States, and Nick Buxton has photos and good narrative description of the anecdotal details. And a good reflective analysis of what is going on comes from Miguel Buitrago at Mabb.
The situation in Bolivia seems to get more complicated by the day.
Publius Pundit is covering the blogging side. Eduardo Alvarez is giving a good running commentary, Miguel Centellas worries about his mum and other issues from the comparative safety of the United States, and Nick Buxton has photos and good narrative description of the anecdotal details. And a good reflective analysis of what is going on comes from Miguel Buitrago at Mabb.
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