MacroScope

UK recovery? What UK recovery?

A second look at fourth-quarter economic growth figures for Britain confirmed that recovery is under way. The quarter-on-quarter rate was  0.7 percent, unchanged from a preliminary estimate. Year-on-year was knocked down slightly.

But no matter the improvement over the past few quarters, Britain’s recent renaissance is pretty slow and still a long way off actual recovery. Consider the graphs below. The top one illustrates how large the dip has been since 2008 versus recession from  1955. The second illustrates how the current 28 and counting quarters of economic slide and crawl back  compare with, say, 12 after 1973 or 11 after 1990.

UK economic recoveries since 1955

ECB to take the QE plunge this year…finally

Better late than never, right?

Despite the myriad political, legal and financial obstacles, the European Central Bank will this year take the plunge and start printing money, several years after its counterparts in the United States, Britain and Japan.

That’s the view of economists at BNP Paribas, one of the first major financial institutions to predict the ECB will use the printing press, the central bank weapon of last resort, to slay the dragon of deflation and steer the fragile economy away from recession once and for all:

Asset purchases are increasingly necessary in order for the ECB to meet its primary objective of maintaining price stability. Inflation in the euro area has persistently surprised to the downside, eroding the safety margin against deflation. „ Additional conventional policy easing will not deliver sufficient monetary accommodation for the price stability mandate to be met. Thus, the ECB will reluctantly have to follow other central banks into balance sheet expansion via asset purchases.

Money for Ukraine?

Russia’s next move remains the great unanswered question for Ukraine but there are glimmers that things might be starting to move elsewhere.

IMF chief Christine Lagarde said last night she would send a technical support team to Ukraine soon if Kiev makes a request. It can’t do so until an interim government is formed, probably tomorrow. That would be step one, but only step one, down the road to an international aid package.

The European Union’s foreign policy chief promised Ukraine’s new leaders strong international support but offered up no specifics and there will be no meaningful bailout until after elections slated for late May although EU budget commissioner Janusz Lewandowski said bridging aid of 1 billion euros might be available.

Fundraising for Kiev

If the hastily drawn up timetable is adhered to an interim Ukrainian government will be formed today. Whatever the line-up, it is likely to repeat its urgent call for aid.

The West, led by the EU, is trying to drum up support – Brussels has already talked with Japan, China, Canada, Turkey and the United States on possible help — but the signals are that big money will only flow after May 25 elections when a permanent government is in place. Can it wait that long? The IMF adds that conditions it imposed on a previous loan offer would still apply, strings that it would be tough for any government in Kiev to meet.

Russia’s next step is the great unknown question but it seems safe to presume that the $12 billion outstanding from its $15 billion bailout of Ukraine will not be forthcoming, at least for now. There is also the prospect of the cut-price charged for its gas zooming back up.

Breakneck speed of events in Ukraine

 

An extraordinary weekend. Ukraine’s President Yanukovich is gone and is probably at large somewhere in the pro-Russian heartlands of the east.

There’s no prospect of his return given how fast events have moved and after his people saw the shameless opulence stored within his country retreat.

Ukraine’s parliament named its new speaker as acting head of state on Sunday and is working to form an interim government by Tuesday, ahead of May 25 elections.

A glimmer of hope in Kiev

A glimmer of hope in Ukraine?

Let’s not count our chickens after 75 people were killed over the past two days but President Viktor Yanukovich’s people are saying an agreement on resolving the crisis has been reached at all-night talks involving the president, opposition leaders and three visiting European Union ministers.
A deal is due to be signed at 1000 GMT apparently although no details are as yet forthcoming. There has been no word from the EU ministers or the opposition so far.

Even if the violence subsides and some sort of political agreement is reached (a huge if), there is potential financial chaos to deal with despite Russia’s only partially delivered pledge of $15 billion to bail its neighbour out.

Standard & Poor’s has cut Ukraine’s sovereign rating for the second time in three weeks, saying the political situation has deteriorated substantially, posing an increased risk of default. The rating is now deep in junk territory at ‘CCC’ and with a negative outlook, meaning further cuts are likely.

Why UK rates are well below “normal” in one labour market chart

Much ink has been spilled over the past several months over when the Bank of England will eventually raise interest rates from a record low of 0.5 percent, and if they’ll do it before the Federal Reserve does. The pound is trading near a five-year high against a basket of currencies as a result.

BoE Governor Mark Carney and other Monetary Policy Committee members have tried to remind the public and businesses at every chance they are given that a rate rise is still a way off – likely at least a year – and that when it’s time for the central bank to lift rates, it will do so gradually.

Much of the focus until the BoE’s February Inflation Report, published last week, was on the jobless rate and how quickly it has fallen. The latest data show a slight rise to 7.2 percent, so a bit above the 7 percent rate the BoE said it would have to fall below to trigger discussions on rate rises.

Ukrainian tipping point

Violence in Ukraine has escalated to a whole new level. The health ministry says 25 people have been killed in fighting between anti-government protesters and police who tried to clear a central square in  Kiev. The crackdown, it seems, has been launched.

President Viktor Yanukovich met opposition leaders for talks last night but his opponents, Vitaly Klitschko and Arseny Yatsenyuk, quit the talks without reaching any agreement on how to end the violence and said they would not return while blood is being shed.

The opposition are pressing for changes to the constitution which would curb the powers of Yanukovich and allow for the appointment of a technical government. Yanukovich is yet to name a new prime minister. If he names a hardliner, that could prove incendiary.

Renzi’s moment

Italy’s president will meet centre-left leader Matteo Renzi today and is likely to ask him to form a government following the ousting of Enrico Letta as prime minister.

Renzi will need to reach an agreement with the small New Centre Right party to continue the current coalition and there is common ground. The 39-year-old has already said he backs lower taxes affecting employment, but they differ on issues such as immigration and laws allowing gay and lesbian civil partnerships.

A lot is at stake. Italy needs a strong government that can push through much-needed economic reforms but needs to pass a new electoral law first to allow for more durable administrations in future.

Oh là là, quelle surprise for the French economy

French economic growth unexpectedly picked up to 0.3 percent in the final three months of last year, welcome news and a rare positive shock for some particularly gloomy forecasters who were looking for shrinkage or no growth at all.

But the unexpected bounce may be partly for the wrong reason: government spending.

The Markit PMIs, which are generally accepted as a good gauge of the private sector economy, suggested economic deterioration throughout the quarter, leading Markit’s chief economist Chris Williamson to predict a 0.1 percent contraction.