MacroScope

Britons have a reputation for endless talk about the weather, and the UK’s Office for National Statistics is no different.

We’ve already noted how the ONS cited the effect of the royal wedding and surrounding bank holidays as one reason why the economy only managed growth of 0.2 percent quarter-on-quarter between March and June.

While that’s taken up most of the talk, the ONS also pointed to the “record warm weather in April” as another “special event” that dented economic growth.

Back in the fourth quarter of last year, when the economy unexpectedly shrank 0.5 percent, the ONS said growth was “clearly affected by the extremely bad weather”.

Does the ONS have a particular temperature in mind that is conducive to economic growth? To paraphrase a British fairy tale: Something not too hot, not too cold, but just right?

This time it was the royal wedding. When the economy shrank unexpectedly late last year, it was the bad weather. If Britain’s economy again struggles to generate growth in the current quarter, perhaps it will be blamed on the new series of ‘The Apprentice’.

"Thanks for nothing!"

Britain’s economy grew 0.2 percent quarter-on-quarter between March and June, exactly in-line with the Reuters poll consensus. Perhaps the most interesting part of the GDP release statement was the Office for National Statistics’ claim that without special factors, including the royal wedding, growth could have hit 0.7 percent.

That would have taken the GDP index at market prices back above 100 points – its 2006 base level – for the first time since the recession, but as it happened, it fell just short, at 99.8.

Could British economic growth figures for the second quarter mark another shocker for bank economists?

After the 0.5 percent contraction in the fourth quarter of last year that no-one foresaw, we remarked that economists seemed loath to spoil the party by predicting a negative figure.

Although some economic data did hint that a slight downturn was on the cards, no-one then was willing to stick their neck out and predict a contraction. In the end, the 0.5 percent quarter-on-quarter decline was a whole percentage point off the consensus for a 0.5 percent expansion.

Excluding the monthly employment report, gross domestic product is the Big Kahuna of economic indicators. For better or worse — and to the chagrin of its creator Simon Kuznets — GDP has become  the scorecard of a country’s economic performance.

Yet for financial markets seeking to anticipate the future, GDP always comes a little too late. Case in point: we only get the first estimate of second quarter GDP next week, almost a full month into the third quarter.

The number still has a big psychological impact. It sets the tone for forecast revisions, and the report’s composition, particularly the mix of consumer spending and business investment, offers clues about upcoming trends. GDP is projected to have risen just 1.8 percent in the second quarter, even more paltry than the first quarter’s 1.9 percent clip. The range of forecasts is pretty wide: from 0.9 percent at the low end all the way to 2.9 percent at the top.

Anyone involved in financial markets on a day-to-day basis will be familiar with bits of jargon like “breaking the psychological barrier”, “passing key resistance levels,” and even “magic numbers”.

While academics might argue if such things exist, market players put a lot of weight (and money) on the way certain financial instruments, indexes and currencies seem to behave near a certain number – usually a round figure.

Economists, looking months and years into the future to predict the path of entire economies, could well declare themselves immune to the superstitions of daily market movements.

Ireland’s fall from grace has been rapid and far worse than that of its counterparts, even Greece. But life in the euro zone has still been one of profound growth, as it has for most of the other peripheral economies.

Take a look first at the progress of  PIGS (Portugal, Ireland, Greece and Spain) GDP since 2007 when the global financial crisis took hold. In straight comparisons (ie, rebased to the  same point) Ireland is far and away the biggest loser. Portugal is basically where it was.

But now take the rebasing back to roughly the time that the euro zone came together.  First, it shows that Ireland’s fall is from a very high place. The decade has still been one of profound improvement in cumulative GDP even with the last few years’ misery. But it is front loaded.

Germany’s growth rate slowed in the third quarter but as the accompanying graphic shows, it remained well above its long-term average.

Coming in at 0.7 percent,  the July-September number look very poor compared with the 2.3 percent growth rate racked up in the second quarter. But that huge number was the largest quarterly growth by far since at least the first year after reunification.

Putting that aside,  the 0.7 percent Q3 number was more that twice the average quarterly growth rate since 1991 and about twice the average third-quarter growth.

The latest International Monetary Fund meeting ended with emerging market powers getting a pledge from the organisation for stronger and “more even-handed” scrutiny of what is going on in large advanced economies.

As Reuters correspondents Lesley Wroughton and Emily Kaiser report here, the decision is a response to long-running frustrations among emerging economies, which reckon the Fund has  not been tough enough on its biggest shareholders, led by the United States.

The move reflects a number of things. First, it shows the growing clout of emerging economies within international institutions. The G-20, for example, is arguably now more influential than the old , richer G7. Secondly, it graphically underlines the current world-turned-upside-down state of the global economy, in which profligate rich economies are struggling to keep above water while supposedly poorer and less-developed ones enjoy solid growth and relatively stable finances. This graph makes the point:

 Did the World Cup stimulate economic growth in Germany?
 
That’s the $3.6 trillion question on the minds of economists after the Ifo institute reported on Friday  that business sentiment in Europe’s largest economy surged by a record margin in July — a month of fun in the sun for tens of millions of enthralled Germans who cheered their team’s improbably strong run to the semi-finals of the World Cup in South Africa.
 
Can a soccer tournament half a world away really have a notable impact on Germany’s 2.5-trillion euro ($3.6 billion) economy? Can a few exciting wins in the international soccer tournament really turn notoriously tight-fisted Germans into free-spending consumers? When I posed those questions at the start of July — just after Germany had thrashed England 4-1 in the round of 16 — I ran into some  scepticism. 
 
But there were also a few contrarian economists out there who also thought the good mood spreading across the country thanks to the lopsided victories in South Africa — and especially the exciting way the young team filled with immigrants to Germany — might lead to slightly higher growth. I’ve lived in Germany for over 20 years and long watched the way so many of them so diligently squirrel away  such significant chunks of their money — as if the next world war or great depression were looming around the corner.

Debt is a four-letter word for many Germans, who it seems would rather save than spend. But every once in a great while, they let loose. And you could feel that happening as the World Cup fever swept the country in June and early July.
 
So after Germany then brushed Argentina aside 4-0 in the quarter-finals with another magnificient display of attacking football that sent the 42 million Germans watching on TV and at giant public viewing venues into fits of euphoria, I cabled in this story “World Cup fever fuels German growth hopes” to the head office in London on July 5: “Germany’s strong run in the World Cup may be the catalyst for a growth spurt by Europe’s largest economy, as consumers riding the ‘feelgood factor’ of national success dip into their savings and start spending again.”
 
I managed to find a few economists who thought GDP could indeed be boosted by one to three percentage points thanks to the World Cup-induced positive sentiment prevailing. Germany lost their next match in the semi-finals to Spain. But it didn’t really matter any more because the party was still roaring back home in Germany.
 
On Friday, the prestigious Ifo economic research institute announced that its business climate index in July rose to 106.2 from 101.8 in June, its highest level in three years and the biggest one-month gain since Germany reunited 20 years ago. It was also the first time since early 1997 — more than 13 years ago — that the Ifo gauge of morale among retailers broke into positive territory.
 
“Germany is in a party mood,” said Ifo President Hans-Werner Sinn.  A report by my colleague Dave Graham (link here) quoted Commerzbank economist Ralph Solveen saying: “These numbers are just insane.”
 

The latest Reuters quarterly economic outlook, based on surveys of more than 600 economists across Asia, Europe and North America smells a bit of danger.

Growth is looking very uneven. Inflation is a worry here but not there. Unemployment looks to remain perilously high.

It also has a whiff of the surveys Reuters conducted a few years ago just before the Great Recession set in, when economists were saying we’d all muddle through with a bit of a slowdown and don’t worry about a thing. How wrong they got that one.