[Graeme]

Top of the world: UK economy winning global growth race

The UK's economy has performed better than that of any other G7 state in the year running to the end of June.

Official estimates of growth were revised up on Friday to show that ouput was 3.2pc higher in the quarter to the end of June, compared with the same period a year earlier.

The UK's performance contrasts starkly with its developed world peers.


The services sector was yet again left to do the heavy lifting, contributing 0.79 percentage points of total second quarter growth of 0.83pc.

Yet the headline services number obscured "some big divergences", said John Hawksworth, chief economist at PwC.

Output in finance and insurance fell by 1.3pc over the past year, an area "which is still scaling back in the aftermath of the crisis", said Mr Hawksworth.

Over the same period, wholesaling and retailing saw growth of 5pc, while output from professional, scientific, administrative and support services jumped by an "astonishing" 9.3pc.

Mr Hawksworth said that those sectors "are the powerhouses of the UK recovery" as they now account for nearly a quarter of total output.

telegraph

[Graeme]

Soaring shipping measure signals improving health of global economy

A measure of global trade has soared over the past fortnight, signalling a possible return to health of the world economy.

The Baltic Dry daily index of shipping costs has jumped by more than 40% in a month, soaring to 1,042 since it hit a post crash low of 732 in July.

The jump in prices for sending freight goods around the world indicates that shipping firms are seeing a sharp rise in demand for their services.

Figures from Lloyds List show the index performed badly throughout 2013 and the first half of 2014, when many shipping companies reported losing money on each container ship, many of which sailed half empty. A gentle rise in prices charged by shippers since early July has accelerated in the last two weeks, taking many analysts by surprise.

Jim Leaviss, head of fixed interest at M&G Investments, said: "Although it's a pretty volatile indicator there is a strong relationship between the cost of shipping bulk cargo – generally intermediate goods like metals – and the strength of the global economy. So the recent 40% rise in the Baltic Dry Index might well be telling us that the global recovery is back on track after a pretty patchy first half of 2014."

theguardian

Two charts that show the world's economy is thriving

The world’s policymakers will have a lot to discuss when they gather this weekend for the Jackson Hole Conference. The Theme is “Re-evaluating Labour Market Dynamics”, and while that sounds extremely exciting, I think one of the key discussions they should be having instead, is why none of them seems to be able to read economic data!

US Federal Reserve vice-chairman Stanley Fischer gave a good insight into what will no doubt be the tone of the meeting. He bemoaned the weak and fragile state of the global economy and stated that the challenge for policymakers was to “restore growth, if that is possible”. “If”.

Now this all sounds very ominous but it’s not even close to being right. Take a look at the chart below.

businessspectator

[Graeme]

IMF Identifies Trends and Ticks Shaping Global Economy

financial crisis in the rearview mirror, the IMF has shortlisted five trends and uncertainties that it believes could shape the global economy of the future.

The IMF highlighted: demographics, diffusion of power, resource and environmental sustainability, interconnectedness, and income inequality as particularly relevant for the Fund and its membership - owing to "their potential large impact on the sustainability and stability of economic growth".

The IMF said its effort was initiated "to better tailor the fund's near-term focus on managing transition from the crisis to long-term perspectives," according to the latest issue of its quarterly publication, Finance & Development.

Global power is shifting from advanced to emerging market and developing economies, noted the fund's strategists. That said, emerging markets will have to contend with demographic pressures, such as an ageing workforce, in a bid to attain developed-nation status.

China, the IMF noted, could get old before it gets rich owing to a declining population.

Elsewhere, economies in South Asia and sub-Saharan Africa will have to figure out ways to create more jobs for an emerging workforce.

A growing global population will pressurise natural resources such as water and the environment. Resource scarcity and environmental degradation will probably have a disproportionate impact on developing economies, the IMF said.

ibtimes

[Graeme]

The rise of the mega-city will change the global economy forever

In 1800, just 5pc of the world’s population lived in cities; the rest resided in small towns and villages. This year, 55pc of the world’s population will live in cities. The transformation has been dramatic; urbanisation and the rise of cities is one of the most important changes that humanity has undergone as it has become richer. The trend is set to continue, posing huge challenges in some areas but creating vast opportunities for those willing and able to seize them.

It is not just that we are now much more likely to live in cities – more and more of us live in extremely large urban conurbations. At the start of the 19th century, just one city had a population that was greater than 1m – Beijing. Today, there are more than 450, accounting for 22.7pc of the world’s total population.

The rise of the mega-city, defined as areas of continuous urban development, is even more striking: 40 years ago, just Tokyo and New York fell into that category, joined by Mexico City in 1975. Today, 29 mega-cities boast 10m or more people, accounting for 7.2pc of humanity. The largest, at 37.6m, is Tokyo, followed by Jakarta (30m), Dehli (24.1m), Seoul (23m) and Manila (22.7m). Some of the mega-cities are shockingly little-known in the West, at least among the general public, including Guangzhou-Foshan (which counts 18.3m inhabitants) or Nagoya (10.2m). There will be another 10 or so mega-cities in a decade’s time, with an extra six or so in two decades’ time, according to forecasts.

All of these facts and many more are drawn from The Problem with Mega-Cities, by Joel Kotkin and colleagues and published by Chapman University’s Centre for Demographics and Policy. While I tend to disagree with many of the book’s conclusions, and am more upbeat about cities than its authors are, it is chock-a-block with fascinating insights and statistics.

telegraph

[Graeme]

A global economy divided into the good, the bad and the ugly

The global economy is divided at the moment into the good, the bad and the ugly. Two of the most populous nations can claim to be good. The US is growing and since business investment has taken off – an important factor delayed by Washington infighting over the Sequester and budget deficit – the economy looks like it is rebalancing nicely. And India saw its manufacturing output chalk up the 10th straight month of expansion in August.

China ranks among the bad after its vast factory sector almost contracted in August. Firms blamed slackening foreign and domestic demand, though the beginnings of a crisis triggered by debt-fuelled consumer and business spending should also be considered.

But chief among the uglies are the eurozone countries and Japan. Tokyo has suffered a slump since an increase in VAT to 8% earlier this year sparked a consumer spending strike. Output slumped more than 5% in the second quarter under the admittedly volatile annualised GDP measure.

theguardian

[Graeme]

World Economic Forum: UK moves up global economic list

The UK has edged up the global rankings in a major annual economic survey by the World Economic Forum (WEF).

Its Global Competitiveness Report sees the UK rise one spot to ninth on the list, while Switzerland and Singapore retain first and second place.

The US improved its competitiveness position for the second consecutive year, climbing two places to third.

But the WEF warns that the global economy's health is at risk, despite years of monetary stimulus and reforms.

Each year, the WEF, best known for its annual Davos economic meeting, benchmarks countries against 12 factors, including infrastructure, education and training, labour market efficiency, technological readiness and innovation.

The aim is to produce a comparative picture of what is driving competitiveness, productivity, and prosperity in 144 countries.

The UK wins plaudits for adopting technology to enhance productivity, and for its general business environment.

Finland (4th) and Germany (5th) both drop one place.

Among emerging market economies, Saudi Arabia (24th), Turkey (45th), South Africa (56th), Brazil (57th), and India (71st) all fell in the rankings. But China (28th) rose one position.

The report said that that top-ranked countries had common factors driving competitiveness.

"The leading economies in the index all possess a track record in developing, accessing and utilising available talent, as well as in making investments that boost innovation.

"These smart and targeted investments have been possible thanks to a co-ordinated approach based on strong collaboration between the public and private sectors," the report said.

Risks

bbc

[Graeme]

How to fix a broken system

The Shifts and the Shocks: What We’ve Learned—and Have Still to Learn—from the Financial Crisis. By Martin Wolf. Penguin Press; 466 pages; $35. Allen Lane; £25. Buy from Amazon.com, Amazon.co.uk

MARTIN WOLF is an influential commentator. His weekly column in the Financial Times is required reading for the international financial elite. Paul Krugman of the New York Times may be the darling of the left and the Wall Street Journal editorial page the bible of many on the right, but inside finance ministries few are cited as often as Mr Wolf. He likes to admonish policymakers. As a centrist who favours free trade and free markets, though, he does so from within the mainstream.

That makes his latest book striking. “The Shifts and the Shocks” is a fierce indictment of the global economy and a call for radical reform. Mr Wolf is reasonably impressed by the immediate response to the 2008 crash, when bold action from central banks, in particular, stopped a descent into depression. But he is scathing about virtually everything those in charge have done (or not done) since.

Six years after the crisis, he argues, the world economy is stuck in low gear and set on an unsustainable course. Demand is weak; where spending has picked up, it is too often the result of a dangerous new build-up of private debt. Financial reforms have only preserved the essence of an inherently fragile system. The euro crisis remains unresolved. Emerging economies, resilient after 2008, now face slow growth and debt problems of their own.

Much of this mess is of policymakers’ own making. Mr Wolf’s book is particularly critical of the premature rush to fiscal austerity and the handling of the euro crisis. He puts forward a series of reforms far bolder than governments have contemplated so far. To make finance safer, Mr Wolf suggests replacing a fractional reserve banking system, which takes in deposits and lends most of them out in longer-term loans, with a system of “narrow banking”, where deposits must be backed by government bonds. To sustain demand without relying on dangerous asset bubbles, he proposes permanent “helicopter money”, where governments run deficits that are financed by the central bank. For a man of the mainstream, this is brave stuff.


Mr Wolf’s book has flaws. It is dense and confusingly structured. The hallmarks of his newspaper columns—a tone of absolute certainty, a fondness for numbered lists and copious IMF statistics—become exhausting over hundreds of pages. Mr Wolf is good at analysing what has gone wrong, but he spends too little time explaining his reform proposals. He may be right that narrow banking is safer than today’s system, but the brief description he offers is unlikely to convince the sceptics. “The Shifts and the Shocks” is not the last word on the global economy. But it is an important contribution that anyone involved in economic policy ought to read.

economist

[Graeme]

China Will Have World's Largest Economy By 2024: Report

Explosive growth in Chinese consumer spending over the next decade will allow China to overtake the U.S. as the world’s largest economy by 2024, according to a new report.

While some may consider that a black eye for the U.S., which has held the title as the world’s largest economy for the better part of a century, it will also open up opportunities for U.S. businesses to sell their goods to an increasingly affluent class of Chinese consumers.

Chinese consumer spending is expected to nearly quadruple from more than $3 trillion in 2013 to almost $11 trillion by the end of 2013, according to analysis from IHS Global Insight, an Englewood Colo.,-based financial research firm.

“If you take politics out of the equation, it could be very good for the global economy and very good for the U.S.,” said Cliff Waldman, senior economist for the Manufacturers Alliance for Productivity and Innovation (MAPI), a public policy and economics research organization in Arlington, Va.

Waldman noted that China, with a current population of 1.4 billion, has four times as many people as the U.S. “That’s a strong consumer base,” he said.

foxbusiness

[Graeme]

American Recovery Drives the Dollar Sharply Higher

A strengthening American economy, combined with a gloomy outlook for growth elsewhere, is pushing the U.S. currency sharply higher.

The dollar is up 6.4 percent against a group of major currencies since the start of May and has risen in three of the past four months. The U.S. currency climbed Tuesday to its highest level in six years against the Japanese yen, and it's trading at its highest level in 14 months against the euro.

A continued run-up could mean lower prices for imported cars and crude oil. On the other hand, it could also crimp profits for U.S. companies as their goods become pricier overseas.

A stronger dollar starts with a healthier U.S. economy, and recent news on that front has been mostly good. Construction, manufacturing and autos sales have all posted solid numbers.

Those healthy signs have allowed the Federal Reserve to wind down its economic stimulus. The Fed's next step would be to raise short-term interest rates from their near-zero levels, a move expected next year.

Improving growth and the prospect of higher interest rates make the U.S. a more attractive place to invest, prompting people to buy dollars and push up the currency's value.

abcnews

[Graeme]

Global Economic Growth Picked Up in Second Quarter Says OECD

Global economic growth accelerated slightly in the three months to June, although to a modest rate that suggests 2014 will fail to deliver on hopes for a significant pickup in the pace of recovery.

The Organization for Economic Cooperation and Development on Thursday said the combined economic output of members of the group of 20 largest economies—which account for 90% of global activity—increased by 0.8% in the three months to June, a pickup from the 0.6% rate of growth recorded in the first quarter.

However, that brought growth back up to levels seen throughout 2013, while the year-to-year growth rate slowed to 3.2% from 3.4% in the first quarter.

The pickup during the second quarter was largely due to the U.S. economy's return to growth after its weather-affected contraction in the three months to March.

The OECD noted that the performance of G-20 members was uneven during the quarter, with four large economies experiencing contractions: Brazil, Germany, Italy and Japan. In addition, growth slowed in India, Australia and South Korea.

The Paris-based research body on Monday released its gauge of future economic activity, which suggested growth in the most developed economies would remain around current rates, with large developing economies making a smaller contribution to global economic growth than they did in the years that followed the onset of the financial crisis of 2008. As a result of that combination, global growth is unlikely to pick up significantly this year.

wsj

[dolanbaker]

Global flatlining, Blame the Eurozone!

http://www.bbc.com/news/business-29202677
A slow recovery among nations using the euro is holding back the global economy, the Organisation for Economic Co-operation and Development has said.

The market economy group downgraded its growth forecast for most big economies.

Conflicts in Ukraine and the Middle East and the referendum on an independent Scotland are areas of risk and uncertainty, it said.

Its 2014 estimate is a 0.8% increase in the eurozone economy for 2014, compared with a forecast of 1.2% made in May.

The UK's forecast was cut by 0.1 percentage points to 3.1%.

[Graeme]

Outlook darkens on global economy, OECD says

Fears of disruption following a Scottish vote for independence and intensifying conflicts in the Middle East and Ukraine have damaged prospects for the world economy, the Organisation for Economic Co-operation and Development said on Monday.

In an update to economic forecasts published in May, it said the outlook had darkened for 2014 and 2015 for almost all the world’s large economies, partly as a result of one-off hits to growth early this year and partly stemming from geopolitical risks.

The OECD revised down its forecasts for 2014 growth for all large economies except India. It expects growth of 2.1 per cent in the US, 0.8 per cent in the eurozone and 0.9 per cent for Japan, downward revisions in each economy between 0.3 and 0.5 percentage points.

China’s forecast is constant at 7.4 per cent growth, with the UK the fastest growing advanced economy at 3.1 per cent. Brazil is bottom of the league with only 0.3 per cent growth expected this year, much lower than the 1.8 per cent expected in May.

For 2015, the OECD still hopes growth rates will pick up, although it has again trimmed most of its forecasts. The US is forecast to grow 3.1 per cent, down from 3.5 per cent in May, while the eurozone is expected to manage only 1.1 per cent, significantly less than the 1.7 per cent expected four months ago. Japan is also expected to grow only 1.1 per cent.

While prospects for different economies were diverging, the OECD said that recent world growth of just over 3 per cent a year was “well below the pre-crisis pace” and the expansion of world trade ”sub-par”

FT

[Graeme]

Climate Change Is 'Single Biggest Risk' to Global Economy

Addressing climate change is not only crucial for preserving the environment, it also makes good economic sense, some politicians and business leaders say.

Governments must set policies to curb carbon emissions, and companies should develop "green" technology and sustainable business practices, a panel of experts said here yesterday (Sept. 22) at the annual meeting of the Clinton Global Initiative (CGI). Former president Bill Clinton founded CGI in 2005 to bring together global leaders to find and implement solutions to some of the world's most pressing problems.

"Climate change poses not just a massive risk to the environment, it's the single biggest risk to the global economy today," said Henry Paulson Jr., former U.S. Treasury secretary and the current chairman of The Paulson Institute at the University of Chicago. Paulson was one of the featured panelists. [6 Unexpected Effects of Climate Change]

space

[Graeme]

Economic Conditions Snapshot, September 2014: McKinsey Global Survey results

After identifying geopolitical instability as a top risk to global growth for three successive surveys, executives now also cite it most often as a threat to both near- and long-term growth in their own economies. In fact, since we first asked about geopolitical risk, the threat it poses to economic growth has hit record levels in McKinsey’s newest survey on economic conditions.1 This increase also reflects respondents’ growing concern about volatility in the Middle East and North Africa. While they have been mostly bullish about the global economy since December 2013, executives are far less optimistic now. Only 39 percent expect global economic conditions will improve in the next six months, compared with 59 percent in our June survey.

Geopolitical risks and shocks to the global economy

We first began asking executives about geopolitical instability and the global economy in our June 2012 survey. For the past two quarters, they cited it most often as a risk to growth, and a record percentage of executives now do so (Exhibit 1). What’s more, 80 percent of respondents now believe geopolitical instability in the Middle East and North Africa is very likely or extremely likely to shock the global economy in the coming year, the largest share since 74 percent said the same in September 2013.2

mckinsey

Losing momentum

IT HAS been a consistent theme of this blog in recent months that global growth has been slowing, a fact some investors may have missed in the good news about American GDP. The latest confirmation came from the World Trade Organisation, which cut its forecast for trade growth this year from 4.6% to 3.1% and for 2015 from 5.3% to 4%. The WTO doesn't forecast economic growth directly; it takes its lead from other international organisations (Rabo Bank reckons the IMF is set to reduce its growth forecast in the next few weeks).

What is interesting from the WTO announcement is that even the revised forecast relies on a bit of optimism. Actual trade growth in the first half of the year was just 1.8%; the organisation is relying on a rebound in the second half. The first half regional numbers were revealing; Asia increased its exports by 4.2% but its imports by just 2.1%. In effect, it has been gaining market share. North America was more balanced, increasing exports by 3.3% and imports by 3%. Europe was predictably sluggish, increasing exports by 1.2% and imports by 1.9%. The real weakness came in South America which suffered a 0.8% fall in exports and a 3.4% decline in imports.

All told, developed economies provided the biggest share of demand; their imports rose 2.6% while those of developing economies increased by just 0.5%. In export terms, the developed economies continued to lose market share; their exports grew 1.6%, while those of developing economies grew 2.1%.

economist

[Graeme]

Oil Prices Fall, and the Global Economy Wins

Oil is in the midst of one of its steepest selloffs since the financial crisis, with prices falling 16 percent since mid-June. This has the Saudis contemplating even deeper cuts in oil production to keep prices from declining any further. The world’s biggest crude exporter told OPEC recently that in August it reduced output by more than 400,000 barrels a day.

It’s not yet clear how well that’s working. The Saudi cuts were offset in part by more oil from Iran, Iraq, and Nigeria—not to mention the continued record increase in U.S. oil production thanks to the shale boom. While prices are expected to rise slightly for international blends of crude over the next six months, domestic prices in the U.S. are forecast to be cheaper by next spring. That’s not necessarily great news for oil producers, but it could be good news for consumers and the global economy.

There are two schools of thought to explain the recent crash in oil prices: too little demand and too much supply. The question is which one is having the bigger influence. While the results are the same (lower oil prices), the reason for them is equally if not more important to the global economy. Demand certainly could be stronger. A stagnant economy in Europe, slower growth in China, and flat gasoline consumption in the U.S. are all tamping down prices. According to the International Energy Agency, the growth in the world’s demand for oil will be the slowest this year since 2011.

businessweek

[Graeme]

The Challenge Facing the Global Economy: New Momentum to Overcome a New Mediocre

1. State of the Global Economy—A New Mediocre?

First, a quick health check on the global economy. We will be releasing our updated forecasts next week, so today I will touch only upon the broad trends.

Overall, the global economy is weaker than we had envisaged even six months ago. Only a modest pickup is foreseen for 2015, as the outlook for potential growth has been pared down.

Prospects differ, of course, across countries and regions. In fact, this is one of the most striking characteristics of the current economic conjuncture: it is very country-specific.

Among advanced economies, the rebound is expected to be strongest in the United States and the United Kingdom; modest in Japan; and weakest in the Euro Area, within which there are disparities.

Emerging market and developing economies have been doing much of the heavy lifting during this crisis—accounting for more than 80 percent of world growth since 2008. Led by Asia, and China in particular, we expect that they will continue to help drive global activity. For them too, however, it is likely to be at a slower pace than before.

For the low-income developing countries, including Sub-Saharan Africa, economic prospects are rising—with growth projected broadly to accelerate beyond the 6 percent recorded last year. But as debt builds up in some countries, they need to be watching as well.

Finally, in the Middle East, the outlook is clouded by difficult economic transitions and by intense social and political strife.

The bottom line? Six years after the financial crisis began, we see continued weakness in the global economy. Countries are still dealing with the legacies of the crisis, including high debt burdens and unemployment. In addition, there are some serious clouds on the horizon:

imf

[Graeme]

Jobs data show US beating global economy

The dollar surged on Friday as a strong jobs report showed the US is running ahead of a struggling global economy and raised the chances of an early rate hike by the US Federal Reserve.

September’s jobs report showed 248,000 new jobs, compared with expectations of 215,000. The unemployment rate fell by 0.2 percentage points to 5.9 per cent and upward revisions of 69,000 jobs erased the seeming weakness of last month’s report.

The big drop in unemployment highlights the strength of the US economy relative to feeble growth in Europe and a slowing China. It means the Fed cannot rule out an interest rate rise as early as March next year.

The dollar rose by more than 1 per cent against major currencies. It was up 2 cents against the euro at close to $1.25, traded above $1.60 to the pound and was close to Y110 versus the yen.

Yields on two-year Treasury bills rose by five basis points to 0.57 per cent, as investors moved to price in the chance of faster rate rises in 2015 and 2016, and the S&P 500 was up 0.9 per cent at 1,964.

“This morning there is a sigh of relief on both Wall Street and Main Street,” said Sung Won Sohn, a professor at California State University. “The slowdown in August was an aberration and the economy is back on a healthier growth trajectory.

FT

U.S. Exceptionalism Thrives Amid Struggling Global Economy

[Graeme]

The age of diminishing expectations

THE International Monetary Fund has just released the full update to its fall World Economic Outlook, which includes its latest forecast for global growth. The picture is not pretty:

Back in January the IMF thought the world might manage growth of 3.7% this year. That dropped to 3.6% in April, to 3.4% in July, and to 3.3% in the new report. If growth is written down any more then this year's performance will come in below that in 2013, of 3.3%, making 2014 the fourth consecutive year in which global output has slowed relative to the prior year's showing. The steady deterioration in the global economy's performance is remarkable for several reasons, including just how long it has taken the world to catch on to the trend. In a box in the first chapter of the WEO the IMF acknowledges that even though its forecasts have gotten ever gloomier since 2010 they have not gotten gloomy enough, fast enough. From 2011 to 2014, the IMF notes, its year-ahead forecasts were 0.6 percentage points too optimistic on average. That doesn't bode well for the remainder of this year or for next; at the moment the IMF forecasts growth of 3.8% in 2015.

economist

[Graeme]

Weaker than it looks

FOR the American and British economies it has been a long road out of the woods, but the journey is nearing its end. America’s unemployment rate fell below 6% in September. Britain’s economy, where output was up 3.2% in the year to June, is growing faster than any other big rich country’s. Central bankers are counting the days until they can raise interest rates.

Virtually everywhere else, however, the news is grim and getting grimmer. The euro zone, the world’s second-biggest economic area, seems to be falling from a feeble recovery back into outright recession as Germany hits the skids. Shockingly weak industrial production and export figures mean Germany’s GDP is likely to shrink for the second consecutive quarter—a popular definition of recession. Japan, the world’s third-biggest economy, may also be on the edge of a downturn, because April’s rise in the consumption tax is hurting spending more than expected. Russia’s and Brazil’s economies are stagnant, at best. Even in China, still growing at a suspiciously smooth 7.5% a year, there are worries about a property bust, a credit bubble and a fall in productivity (see article).

economist

[Graeme]

10 reasons to be bullish on the global economy

There’s no mistake that this week has been a wild one for financial markets, living up to October’s billing as the cruelest month for equities.

Still, as the week ends, some economists are wondering if things are all that bad for the world economy. To cheer investors up, here are some perhaps under-reported, random and possibly foolhardy positive takes on the outlook for global growth.

1. There’s still a lot of liquidity to support demand and stocks. Even before St. Louis Federal Reserve Bank President James Bullard and Bank of England Chief Economist Andrew Haldane signaled support for easy monetary policy for longer, central banks were set to keep interest rates low and balance sheets high into 2015. The European Central Bank still has quantitative easing in its toolkit and the Bank of Japan can boost its asset purchases.

“To say that policy makers have exhausted the options is plain wrong,” said Julian Jessop, chief international economist at Capital Economics Ltd.

2. The U.S.’s fundamentals are in better shape. Total public and private debt as a share of gross domestic product has declined since 2007. Companies are the healthiest for years with the lowest net debt-to-earnings ratio in at least 24 years and record earnings per share.

financialpost