MacroScope

Tight consensus on China’s growth rate not reflecting real range of opinion

AChina’s economy, even to a non-specialist given a few minutes to stop and think, is clearly extremely difficult to measure.

When your population is 1.4 billion and you are in the midst of an unprecedented government and credit-fuelled expansion in infrastructure on your way to developed economy status, there are plenty of things that may get overlooked.

This is a completely normal set of circumstances in any developing and rapidly-changing economy no matter what methodology is used. Enough to fill tomes has been written on China’s data measurement challenges by commentators, policymakers and academics, not to mention the whole question of whether GDP is a useful way of measuring how any economy is faring.

What is truly striking is the lack of variance of opinion on where growth is headed in a country that has just gone through one of the biggest credit binges in history, with the credit to GDP ratio up by nearly two-thirds over the past five years, since the global financial crisis set in.

The latest GDP growth figure, for Q2, came in at 7.5 percent, just 0.1 percentage point above the consensus. That is the growth rate the Chinese government is aiming for this year. The range of opinion was very narrow, from 7.2 percent to 7.6 percent.

The Fed’s taper and the question of the “tag-along” $5 billion

By Ann Saphir

Federal Reserve policymakers are expected next week to trim their monthly purchases of bonds by another $10 billion, putting them on track to end the massive program by October or December. So – which will it be, October or December? Some Fed officials are pushing for an answer, and soon.

“I am bothered by the fact that I don’t really know what we are going to do on that,” Narayana Kocherlakota, the dovish chief of the Minneapolis Fed, told reporters last month. “It’s another signal that we are not being as clear about our policy choices as we should be.”

If the Fed continues to taper the program by $10 billion at each meeting, monthly bond purchases will be down to $15 billion by the time of the October policy-setting meeting. Richard Fisher, the hawkish head of the Dallas Fed, told Reuters in late May, “I will vote to end it in October.”

Scrambling to flesh out skeleton Fed board

“It’s about time” was the general reaction when on Thursday the Senate Banking Committee scheduled a vote on Barack Obama’s nominees for the Federal Reserve board. Not that Stanley Fischer, Lael Brainard and Jerome Powell (a sitting governor who needs re-confirmation) have been waiting all that long; it was January that the U.S. president nominated them as central bank governors, and only a month ago that the trio testified to the committee. The urgency and even anxiety had more to do with the fact that only four members currently sit on the Fed’s seven-member board and one of those, Jeremy Stein, is retiring in a month. The 100-year old Fed has never had only three governors, and the thought of the policy and administrative headaches that would bring was starting to stress people out. After all, the Fed under freshly-minted chair Janet Yellen is in the midst of its most difficult policy reversal ever.

“Boy it would be more comfortable if there were at least five governors and hopefully more” to help Yellen “think through these very difficult communications challenges,” said Donald Kohn, a former Fed vice chair. Former governor Elizabeth Duke, who stepped down in August, said one of the Fed board’s strengths is its diversity of members’ backgrounds. “With fewer people you don’t have as many different points of view on policy,” she said in an interview.

The Senate committee votes on the three nominees April 29. But they can’t start the job until the full Democratic-controlled Senate also schedules a vote and gives them the green light.

Deconstructing UK job numbers

On the face of it, the good news for the British government keeps on coming. Britain’s economy grew surprisingly fast last year and inflation fell below the Bank of England’s target for the first time in over four years in January. The government this month even got a nod from the International Monetary Fund which only last year criticized its austerity programme.

The latest confidence boost came from jobless figures on Wednesday. Not only did the unemployment rate fall to a five-year low of 6.9 percent but pay growth caught up with  inflation for the first time in nearly four years. That provides Prime Minister David Cameron’s government with another lift ahead of the 2015 elections, after it has come  under fire from the Labour opposition for overseeing a fall in living standards.

But a closer look at the data suggests a more nuanced picture.

Indeed, total pay growth in February reached 1.7 percent – matching the 1.7 percent rise in consumer prices in February and above their 1.6 percent increase in March.

Is it time for the ECB to do more?

From financial forecasters to the International Monetary Fund, calls for the European Central Bank to do more to support the euro zone recovery are growing louder.

With inflation well below the ECB’s 2 percent target ceiling and continuing to fall, 20 of 53 economists in a Reuters Poll conducted last week said the bank was wrong to leave policy unchanged at recent meetings and should do more when it meets on Thursday.

And the pressure on the ECB to do more has mounted after the preliminary inflation estimate for March was published on Monday. The data showed inflation cooling down further to 0.5 percent, its lowest since November 2009.

The much-anticipated “capex” boom? It’s already happening, and stocks don’t care

It’s a familiar narrative: companies will finally start investing the trillions of dollars of cash they’re sitting on, unleashing a capital expenditure boom that will drive the global economy and lift stock markets this year.

The problem is, it looks like an increasingly flawed narrative.

For a start, capital expenditure, or “capex”, has already been rising for years. True, the Great Recession ensured it took three years to regain its 2007 peak. But the notion companies are just sitting idly on their mounting cash piles is misplaced. As Citi’s equity strategists point out:.

“The death of global company capex has been much exaggerated.”

A new report from Citi shows that since 2010, global capex has risen 26% to $2.567 trillion. It’s never been higher:

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.

Firing up Brazil’s economy

A hot, dry spell in southeastern Brazil has pushed up energy prices, stretched government finances and raised the threat of water rationing in its largest city, Sao Paulo, just months before it hosts one of the world’s largest sport events, the soccer World Cup.

It looks like the last thing Brazil needed as it scrambles to woo investors and avoid a credit downgrade.

But if the scattered rains that started to pour down over the past few days bring in continued relief through March, the heat could actually prove to be a much-needed boost for Brazil’s economy, research firm LCA found.

Japan-style deflation in Europe getting harder to dismiss

To most people, the idea of falling prices sounds like a good thing. But it poses serious economic and financial risks – just ask the Japanese, who only now finally have the upper hand in a 20-year battle to drag their economy out of deflation.

That front is shifting westward, to the euro zone.

Deflation tempts consumers to postpone spending and businesses to delay investment because they expect prices to be lower in the future. This slows growth and puts upward pressure on unemployment. It also increases the real debt burden of debtors, from consumers to companies to governments.

In many ways, policymakers fear deflation more than inflation as it’s a more difficult spiral to exit. After all, interest rates can only go as low as zero and if that doesn’t kickstart spending, they’re in trouble. Again, just ask the Japanese.

Another false start for the U.S. economy?

Since the global financial crisis ripped the floor out from underneath developed world economies, the world’s biggest one has had several false starts nailing the floorboards back in.

Stock markets have moved in almost one direction since their trough in March 2009 – up – but economic growth and job creation have bounced around.

There are some disturbing signs another false start is afoot, but it has become almost taboo to even raise the issue that the U.S. economy, for all of its progress in repairing bank and household balance sheets, may still be at risk.