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April 2010

Russian Central Bank Hikes Rates to Spur Lending

April 30, 2010 by Econ Grapher   Comments (0)

The Russian central bank, Bank Rossii, dropped the refi (refinancing rate) 25bps to 8% in order to encourage loan growth and further stimulate the economy; trading off potential increases in inflation with sustaining the recovery. The move marks the 13th reduction in the rate during the recession; down a total 500bps since the high of 13% in early 2009; but could be the last reduction. The following quotation is from the trusty (or somewhat rusty) Google translate of the announcement (which is only released in Russian):


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Brazil Raises Selic Rate 75bps to 9.5%

April 29, 2010 by Econ Grapher   Comments (0)

Brazil stepped up its policy stimulus exit today, increasing the selic rate 75bps to 9.5%, the decision was unanimous. The move was only expected by half of economists surveyed, and most of those expecting an increase were looking for 50bps. In its announcement the BCB noted that the move marks a continuation of the policy adjustment process (having previously raised the reserve requirements in February):


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Economic Calendar: 26 April 2010

April 25, 2010 by Econ Grapher   Comments (0)

Here's the Economic Calendar for the week commencing 26 April 2010. This week there's monetary policy decisions from the US Fed, Reserve Bank of New Zealand, Bank of Japan; and sticking with monetary policy; inflation stats are due out for Australia, Germany, Japan, and the EU. Then of course there's the main event: Q1 GDP growth rate for the US, likewise, Canada will put out its February GDP figures. There's also an update on house prices in the US and UK, and the manufacturing PMI from China which is due for release on Friday.


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OECD Economies: GDP Status Update

April 24, 2010 by Econ Grapher   Comments (0)

Where are the OECD economies at in the recovery? In this article we take a unique approach to analyzing the patterns of GDP growth across the OECD economies over the past 12 years. Why? Well for starters it's nearing GDP season (Q1 results will be out soon for a few countries; the UK has already announced its Q1 2010 results). Second, it's useful to occasionally challenge your perceptions about which countries are growing and which aren't. Third, it's a timely status check in terms of the overall recovery across the OECD economies.

The first table shows quarterly GDP growth for the OECD economies that report total GDP (Gross Domestic Product) on a quarterly basis. The economies are ranked by size, and the rules for the heat map are: Green = >0.2% Yellow = >-0.2%<0.2% Orange = <-0.2%. In other words the yellows are where economic growth was pretty much flat, while green indicates growth and orange indicates contraction. The pattern in recent years is unsurprising, but it shows a few standouts that got off lightly during the recession e.g. Poland, Australia, and to a lesser extent Korea. It's also informative to assess the patterns across time.

The second table shows GDP growth on a year over year basis, again with economies ranked by size (this time the rules are similar but with -1%/1% instead of 0.2%) . It's interesting to note that Australia, Poland, and Korea are countries which have left recession on an annual basis, with others like New Zealand, and Luxembourg showing promising signs. Again, eyeballing the history you can see which economies have tended to consistently grow and those that have had more patchy history. You can also see the early 2000 recession, and how it compares to the global financial crisis.


It is useful and interesting to look at the data from different angles from time to time, because it helps you check your assumptions and beliefs, and it allows you to generate new insights. Some of the questions you can answer by glancing at the tables are: Which economies are growing? Which economies have experienced the most consistent growth? Which economies showed the most strength throughout the crisis? And therefore, which economies might produce the most compelling investment opportunities? The final question can't be fully answered here, but by reviewing the data in a new way, it can begin to be answered.

Econ Grapher Analytics

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Top 5 Graphs: Inflation risks on the rise

April 23, 2010 by Econ Grapher   Comments (0)

Are upside inflation risks rising in developed economies? That's one question we look at in this week's edition. First up is a synopsis of the UK GDP figures, then a look at rising British inflation, the Bank of Canada decision and inflation rate, the surge in US producer prices, and a look at New Zealand inflation. Overall the theme is that there are indeed signs of increasing inflation risks for these developed economies, and even though some of the short term drivers may be temporary there is the risk that they have a lasting impact.

1. UK economy muddles along...
The first G7 economy to report growth, the UK saw its economy growing at 0.2% q/q in Q1 2010, against expectations for a repeat of Q4 2009 of 0.4%. On a year over year basis it is still just in negative territory. The recent two quarters provide tentative evidence that the deepest recession on record for the UK could be coming to an end. But the usual line for economic commentary these days is that significant risks remain. The UK is currently faced with an official unemployment rate of 8%, and its once burgeoning financial sector will take some time to recover from the GFC, and significant risks remain around government finances and inflation.

2. While UK inflation picks up
The UK saw its inflation rate pick up again to 3.4% on an annual basis from 3% in February, and is currently sitting well above the official 2% target. Granted, much of the increase is related to the reversal of the drop in the value added (sales) tax which was dropped as the financial crisis set in to help stimulate the economy. The commodity price rebound has also assisted the resurgence of inflation. But even though these are temporary or artificial drivers of inflation, there is the risk that inflation expectations could be impacted and that wage and price negotiations factor in a higher rate, which will require the Bank of England to move on its record monetary policy stimulus measures.

3. Canada holds rates again, inflation remains stable
The bank of Canada held off again on increasing interest rates from the record low 0.25%. Meanwhile inflation came in at 1.4% year on year for March, down on Feb; core inflation grew 1.7% in March, against expectations for a 1.9% rise. The Bank of Canada also noted its conditional commitment to hold rate low at least until Q2 2010 had expired, and that "the need for such extraordinary policy is now passing", and thus will likely start paring back its policy stimulus as conditions dictate in keeping with the 2% inflation target. The Bank of Canada also lifted its growth projections for the Canadian economy to 3.7% in 2010 slowing to 3.1% in 2011 and 1.9% in 2012.

4. US producer prices continue to increase
US PPI jumped unexpectedly in March, rising 0.7% against forecast 0.4% and February's -0.6%. On an annual basis it rose 6% in March. Meanwhile core PPI rose 0.1% month on month and 0.8% year on year. Thus much of the increase in prices is related to food prices and energy prices i.e. the great commodity price rebound. But as noted in the UK situation, there is a real risk that this temporary inflationary surge translates into a more generalized pick up in inflation and inflation expectations. This could have the impact of rising wage and salary costs even as unemployment remains extremely high (and as noted by the IMF, could be higher than indicated). Thus the risks for US inflation remain to the upside.

5. New Zealand inflation moves sideways for now
New Zealand inflation moved sideways in the March quarter (as noted in my previous article), but looming factors will make this a temporary situation. The headline inflation figure was 2% y/y, on a quarterly basis it was up 0.4% since December 2009, below consensus estimates for a 0.6% increase. As noted factors like the emissions trading scheme, and increases in ACC insurance premiums, and possibly an increase in the GST (sales tax) rate, will have an artificial but significant impact on price levels in New Zealand. While the RBNZ wont be panicing about this, it may start to raise rates back to neutral as the risk of more generalized inflation picks up as the New Zealand economy continues to recover.


So we looked the UK economy, and saw significant risks to the recovery as the UK emerges from one of its deepest ever recessions. At the same time we saw inflation picking up in the UK, even though the short term drivers may be temporary. Looking at Canada, we saw the Bank of Canada moving ever closer to an increase in interest rates as inflation moved sideways, but the Bank of Canada lifted its outlook for the Canadian economy, and noted the cessation of its low interest rate commitment.

On to the US, we saw producer prices showing a marked rise, and even though much of the drivers were temporary e.g. commodity price rebound, price normalisation etc. There remains the risk that it gets passed through and factored into inflation expectations. Likewise in New Zealand the outlook for inflation is definitely upwards based on artificial and temporary factors, but the risk is there that these factors pass through into higher real inflation.

Thus the evidence is broadly showing that inflation is currently trending either sideways or upwards in these developed economies, certainly the short term risks remain to the upside as temporary and artificial factors play through. But there is a real risk that these short term factors have a lasting impact. So who will be first to raise interest rates?

1. UK National Statistics Office
2. UK National Statistics Office
3. Bank of Canada & Trading Economics
4. US Bureau of Labor Statistics
5. Statistics New Zealand

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IMF: Recovery Is Stronger Than Expected, But Speed Varies

April 21, 2010 by Econ Grapher   Comments (0)

The IMF just released its April 2010 World Economic Outlook; upgrading world output growth projections for 2010 to 4.2% and 4.3% for 2011 (up by about 1% since the 2009 report). The split shows emerging markets very much as the drivers of global growth with forecasts for 6.3% in 2010 and 6.5% in 2011; while the comparable figures for Advanced economies are 2.3% and 2.4% respectively:


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Economic Calendar: IMF Takes the Spotlight

April 18, 2010 by Econ Grapher   Comments (0)

Here's the Economic Calendar for the week commencing 19 April 2010. The key data out this week is UK GDP, New Zealand CPI, Bank of Canada Monetary Policy decision, EU consumer confidence, and US home sales data and durable goods orders. But also on the radar this week is the April 2010 IMF World Economic Outlook (and the IMF Global Financial Stability report, due out the day before) which is always a tremendous resource for global economic analysis (the 3rd and 4th analytical chapters are already up here and look at unemployment dynamics during recessions and recoveries, and transitioning out of sustained current account surpluses). Also in the IMF sphere are the G20 and IMF/World Bank meetings on Friday and Saturday this week.


Top 5 Graphs: US Sees Positive Signs - But How Positive?

April 16, 2010 by Econ Grapher   Comments (0)

This week we look at the US trade balance trending back to normal, US CPI/inflation figures tending sideways, a pick up in US retail sales, further improvement in US industrial production, and a slight tapering off of US consumer sentiment. So the focus is completely on the US this week which is fitting given our update on the Chinese economy a few days ago following their big economic data release. So this week you've got the top 5 graphs for the 2 biggest economies.

1. US Trade Balance - trending back to normal
The US trade balance figure came in at -$39.7 billion for February, slightly worse than consensus of -$39 billion, and worse than January's -$37.3 billion; and much worse than -$27 billion in Feb 2009. However, as bad as it is to have these imbalances, and as much as the US needs to really turn this around for a more sustainable recovery, this is actually somewhat of a positive figure. Though much of the increase was related to oil imports, there was also increase the non-oil aspects, so that reflects an improvement in demand (though likely still related to inventory cycle). This one will be interesting to watch if the Chinese change the yuan policy - will it get worse? or will spending react? The answer to both is probably yes - but with different timing.

2. US Consumer Price Index - inflation taking a breather
The CPI index grew 2.3% y/y, sending headline inflation basically sideways; while core inflation fell further to 1.1%. How to read this part of the cycle is that things are basically taking a breather. My take is that this is a short period of consolidation before an eventual picking up in inflationary forces. There are a few leading indicators pointing to an increase in inflation, and stimulatory conditions from monetary and fiscal policy - compared with potentially redundant capacity will eventually see this picking up again. The yuan policy again will be a wild card for this - a significant increase might even see price inflation driven up by higher import costs.

3. US Retail Sales - growing good, but...
US retail sales grew 1.6% month on month in March; greater than the expected 1.2% and previous 0.5% growth; placing it up 7.1% year over year. Stripping out Autos it was up 0.6% vs expected 0.5% and previous 0.8%. The key message is that there is some strength going on in US consumer spending at the moment. And though on absolute terms retail sales are still below trend, they are making some progress towards a return to trend. What this says in some sense is that there seems to be evidence of a cyclical recovery coming through - it's not necessarily a good thing to see US consumer spending picking up; because the US consumer on average doesn't save enough. If this trend continues then it will just be a back to normal recovery; leaving the same vulnerabilities in place.

4. US Industrial Production - manufacturing expands
Unsurprisingly US industrial production further expanded in March. On a month over month basis it crept up only 0.1% (consensus was for 0.8%), vs Feb 0.1%. However year over year it picked up to 4% (-12.5% in 2009) from 2.2% in Feb. So there is some comparison bias in the yearly figures, but the strengthening does line up with other things, for example in the chart below ISM manufacturing PMI is overlayed and both indicators are consistent with expansion in US manufacturing (what's left of it). Much of this will be related to inventory building, but some may be related to increased consumer spending and export demand (e.g. China).

5. Reuters/University of Michigan US Consumer Sentiment - tapering off
Consumer sentiment came in at 69.5 well off consensus 75 and previous 73.6, but unremarkably up from 63 in April last year. Granted this is only the mid-month update, it does send some warning signs; especially for those who may be expecting a big rise in April payrolls (maybe unlikely given indications from this). The biggest drop was from expectations (62.3 vs Mar 67.9), but current conditions also fell (80.7 vs 82.4). Even eyeballing the chart below shows a trend of tapering off after a period of recovery. The main message is that the recovery is there, but it's not strong and there are risks, and of course - as we see now in consumer sentiment; it may be quite stop-start in nature.

So where does this leave us? Let's re-cap: there's a worsening trade balance which is mostly due to oil but reflects a little increase in demand; there's inflation basically going sideways or consolidating but with risks to the upside; there's consumer spending showing a marked pick-up but how strong remains to be seen; industrial production is improving but probably still mostly due to inventory building but maybe some iota of fundamental strength; and consumer sentiment is tapering off a bit showing people are still perhaps a little confused about where things are going.

These messages are all pretty much consistent with a fragile and artificially stimulated recovery that most agree is underway. There is a pretty high probability that the recovery wont be structural, rather it will be cyclical (back to normal). Inflation will eventually pick up again, and consumers will go back to their old habits. So in the end, as noted, there are positive signs, but are they really all that positive?

Econ Grapher Analytics
Trading Economics
US Bureau of Labour Statistics
Reuters/Univesity of Michigan
US Census Department

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Top 5 Graphs - China Grows and Faces Challenges

April 15, 2010 by Econ Grapher   Comments (0)

China just released its quarterly data smorgasboard, showing the nation grew 11.9% year on year in the first quarter of 2010. It also revealed its inflation situation, consumer spending trends, and industrial production activity levels. In this review we analyse each data set in terms of what it means for the outlook for the Chinese economy, we also look at the quarterly figures for Chinese international trade.

1. GDP lifted further by stimulus
The Chinese growth miracle continued into the first quarter of 2010 with 11.9% GDP growth year over year. This compares to an expected 11.7%, and Q4 09 of 10.7%, and much improved compared to Q1 09 6.1%. However the growth is largely artificial - or to be fair most of it is artificial. If you look at the figures coming out in 2007 which were also in the double digits, that growth rate had been gradually built up to. If you look at the chart below you have a significant drop-off and were it not for the massive stimulus you would see growth stagnating and drifting sideways if not downward like most other economies. The trick is, what happens next? what happens when the stimulus is removed - or in other words, how long will it take for the Chinese economy to -really- recover?

2. CPI - China will face heightened inflationary pressure
China's CPI year on year percent change inflation figure came in at 2.4% against 2.7% in Feb, and -1.2% in March 2009. As I've previously pointed out the probable trajectory for Chinese inflation is up. The leading indicator points to a rapid uptick in inflation, and huge lending growth, and huge money supply growth can only support inflationary conditions. What's more the triple effect of markets; commodities, stocks, and most of all real estate have already started pushing up headline inflation. Unless the People's Bank of China adjusts policy soon, or the yuan policy gets changed, it's likely that China will see a marked pick up in average inflation.

3. Retail Sales - Chinese consumers still buying more
Another interesting piece of information in the release was Chinese retail sales - one of the best measures we have of Chinese domestic consumption. Sales in March were 1,132 billion yuan; down 8% from February (likely to be driven primarily by seasonal factors such as Chinese New Year). Year on year the growth rate reduced to 18%. The March 2009 figures were 932 billion yuan (up 14.7% year on year). So what we have overall though is increasing growth in domestic consumption. The overall volume of sales is still growing, but also the rate of growth is returning to pre-crisis levels. But then again; were it not for subsidies e.g. appliance purchases, perhaps volumes would have gone sideways.

4. Industrial Production - Helped by consumption, stimulus, and exports
Chinese industrial production picked up further in March to 18% from February's 13%. Again this is an obvious after effect of massive stimulus spending. But it is also benefiting distinctly from the global inventory cycle and related pick up in international trade. Chinese exports (and imports) have recovered strongly since the bottom, but also - there is the domestic spending aspect to it. As you saw above, Chinese consumers have kept on spending and at increasing rates - so obviously production needs to occur to meet demand. But slicing and dicing it these ways really just shows that it's not all that fundamentally driven yet - so where's the real recovery? (where is the structural recovery?).

5. International Trade - Interesting patterns unfolding
One of the most contentious issues these days is the yuan and China's international trade. The March quarter saw China's lowest surplus in about 4 or 5 years, due to exports recovering slowly, but demand for imports rising (and prices of key imports i.e. commodities, rising). But the long term trajectory of China's trade figures is up, up, up. Where its surplus goes will be determined largely by the global recovery, but also its trade policies and strategies. In the longer term, as a low cost competitor China will eventually lose some market share as production of exports shifts to lower cost developing and emerging markets. So that leaves China with some interesting strategic challenges.

In summary, it's always great to get more data from China. It is after all the world's second largest economy, and most populous nation. The long term growth story for China remains intact, short term issues though they may face; not least of all sustainability (environmentally and otherwise). The trend has been for retail sales to grow, this is good for potential import growth and for those investing in the right consumer products companies. The trend has also been for consistently high economic growth, this is good for the Chinese, and those who trade with them.

In the shorter term, the trend has been for increasing inflation, and massive - massive stimulus spending and policy measures. These aren't necessarily bad things - but they must be kept firmly on the radar. They pose threats and opportunities for the various interest groups and stakeholders (think about this). Also in the short term, trade has taken an interesting - but likely transitory - pattern of reversing into greater import growth than exports. These two issues paired with the Yuan policy make for an interesting mix for this year. Keep watching...

Econ Grapher Analytics
National Statistics Bureau

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