Well here's another data point for the 'now just hang on a minute' dossier:
Europe's Services Expand at Slowest Pace in 7 Months
European service industries from banking to telecommunications, the biggest part of the economy, expanded at the slowest pace in seven months in August after oil and interest rates rose.
Royal Bank of Scotland Group Plc said today its index based on a survey of 2,000 purchasing managers in the dozen euro nations fell to 57.1 from 57.9 in July, its second straight drop. Economists expected a reading of 57.5, the median of 37 estimates in a Bloomberg survey. A level above 50 indicates growth. Services account for about one third of the economy.
Expansion in the euro region may have peaked in the first half after registering the fastest pace since 2000. Since then, surveys across the $10 trillion economy have indicated dimming consumer and business confidence and a manufacturing slowdown as the European Central Bank signaled it will probably raise borrowing costs further to contain inflation.
So based on a rudimentary headcount that makes the US, Japan and the eurozone to be slowing, leaving the global economy train to be pulled by China, India, Brazil etc, all of whome to greater or lesser degress need to export to those who are slowing. Anyone have a dictionary definition of 'sustainable' to hand?
Tuesday, September 05, 2006
Fiscal Tightening On The Horizon
The over-enthusiastic tone of a lot of earlier eurozone and Japan forecasts is now having to come to terms with some evident economic realities, in particular both Germany and Japan are headed for some pretty substantial fiscal tightening in 2007 and this eventuality is not going un-noticed in some quarters:
The taxman is about to pay a visit to consumers and businesses in Europe that will inflict pain around the world.
German Chancellor Angela Merkel and Italian Prime Minister Romano Prodi plan to raise taxes to reduce their budget deficits, increasing pressure on the European economy only months after it recorded its best growth since 2000. Confidence in Europe's expansion is already waning amid rising interest rates, declining foreign demand and record fuel bills.
A slowdown in the dozen euro nations would deal a blow to global growth at a time when the U.S., the world's largest economy, is decelerating with the end of a housing boom.
``It's a delicate time,'' says Harvard University professor Ken Rogoff, a former chief economist at the International Monetary Fund. `It would help a lot if Europe grew more strongly, and raising taxes doesn't make sense.
``If Europe's day in the sun is over and Japan is unable to grow much faster, we could see all of the industrial economies growing more slowly next year,'' says Michael Mussa, senior fellow at the Institute for International Economics in Washington and another former IMF chief economist.
For all the admirable sentiment from Ken Rogoff that strong growth in the eurozone would help power the growth needs of the international economy the tax raising exercise unfortunately makes perfect sense since unsustainable fiscal deficit profiles have been maintained in some key economies (Germany, Italy, Japan) throughout the entire course of the upswing in the latest global cycle, and this of course has to come to an end at some point. Clearly it would have been much more judicious to have economised during the (comparatively) good times in order to have had more leeway during the downturn, but I guess we already knew that.
The taxman is about to pay a visit to consumers and businesses in Europe that will inflict pain around the world.
German Chancellor Angela Merkel and Italian Prime Minister Romano Prodi plan to raise taxes to reduce their budget deficits, increasing pressure on the European economy only months after it recorded its best growth since 2000. Confidence in Europe's expansion is already waning amid rising interest rates, declining foreign demand and record fuel bills.
A slowdown in the dozen euro nations would deal a blow to global growth at a time when the U.S., the world's largest economy, is decelerating with the end of a housing boom.
``It's a delicate time,'' says Harvard University professor Ken Rogoff, a former chief economist at the International Monetary Fund. `It would help a lot if Europe grew more strongly, and raising taxes doesn't make sense.
``If Europe's day in the sun is over and Japan is unable to grow much faster, we could see all of the industrial economies growing more slowly next year,'' says Michael Mussa, senior fellow at the Institute for International Economics in Washington and another former IMF chief economist.
For all the admirable sentiment from Ken Rogoff that strong growth in the eurozone would help power the growth needs of the international economy the tax raising exercise unfortunately makes perfect sense since unsustainable fiscal deficit profiles have been maintained in some key economies (Germany, Italy, Japan) throughout the entire course of the upswing in the latest global cycle, and this of course has to come to an end at some point. Clearly it would have been much more judicious to have economised during the (comparatively) good times in order to have had more leeway during the downturn, but I guess we already knew that.
Italy's Reform Programme Under Strain
The strains are begining to show in the Prodi coalition, and it is very difficult to see serious reforms being implemented in this environment. Italy's rapidly ageing population presents new and important challenges to the Italian government, but somehow I am sceptical that the nettle is gowing to be grasped.
One of the striking details is the retirement age, which they are only now trying to raise to 60. Clearly Italy's low retirement ages are a product of a much sorter earlier life expectancy and a much thicker population pyramid. The fact that they are still as low as they are is also some kind of reflection on the pace at which Italy is able to reform itself, which evidently falls far short of the challenge.
OTOH pensions for many in Italy, like in Spain, are undoubtedly very low. In this sense the German problem is a bigger one, since the welfare system there is much more extensive and much more expensive, and simply going for the Italian model at this stage won't work in a German cultural environment.
However I still think Italy is the weakest link in the international economic chain, and certainly the one to watch.
Incidentally I have a post today on Demography Matters which looks at how population ageing is affecting one Italian region, Liguria.
One of the striking details is the retirement age, which they are only now trying to raise to 60. Clearly Italy's low retirement ages are a product of a much sorter earlier life expectancy and a much thicker population pyramid. The fact that they are still as low as they are is also some kind of reflection on the pace at which Italy is able to reform itself, which evidently falls far short of the challenge.
OTOH pensions for many in Italy, like in Spain, are undoubtedly very low. In this sense the German problem is a bigger one, since the welfare system there is much more extensive and much more expensive, and simply going for the Italian model at this stage won't work in a German cultural environment.
However I still think Italy is the weakest link in the international economic chain, and certainly the one to watch.
Incidentally I have a post today on Demography Matters which looks at how population ageing is affecting one Italian region, Liguria.
A Chilling Reminder
I'm no scientific expert but these latest East Antarctic core findings certainly don't exactly fill me with reassurance:
Carbon dioxide levels are substantially higher now than at anytime in the last 800,000 years, the latest study of ice drilled out of Antarctica confirms.....
Initial results from the Epica core were published in 2004 and 2005, detailing the events back to 440,000 years and 650,000 years respectively. Scientists have now gone the full way through the column, back another 150,000 years.
The picture is the same: carbon dioxide and temperature rise and fall in step.
"Ice cores reveal the Earth's natural climate rhythm over the last 800,000 years. When carbon dioxide changed there was always an accompanying climate change. Over the last 200 years human activity has increased carbon dioxide to well outside the natural range," explained Dr Wolff.
The "scary thing", he added, was the rate of change now occurring in CO2 concentrations. In the core, the fastest increase seen was of the order of 30 parts per million (ppm) by volume over a period of roughly 1,000 years.
"The last 30 ppm of increase has occurred in just 17 years. We really are in the situation where we don't have an analogue in our records," he said.
Carbon dioxide levels are substantially higher now than at anytime in the last 800,000 years, the latest study of ice drilled out of Antarctica confirms.....
Initial results from the Epica core were published in 2004 and 2005, detailing the events back to 440,000 years and 650,000 years respectively. Scientists have now gone the full way through the column, back another 150,000 years.
The picture is the same: carbon dioxide and temperature rise and fall in step.
"Ice cores reveal the Earth's natural climate rhythm over the last 800,000 years. When carbon dioxide changed there was always an accompanying climate change. Over the last 200 years human activity has increased carbon dioxide to well outside the natural range," explained Dr Wolff.
The "scary thing", he added, was the rate of change now occurring in CO2 concentrations. In the core, the fastest increase seen was of the order of 30 parts per million (ppm) by volume over a period of roughly 1,000 years.
"The last 30 ppm of increase has occurred in just 17 years. We really are in the situation where we don't have an analogue in our records," he said.
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