MacroScope

An unusual thing happened on Wednesday amidst all the shouting over British finance minister George Osborne’s autumn budget update which, depending on who you asked, outlined an increasingly dire or healthy state of the UK economy.

On the very near-term economic  outlook at least, officialdom actually sounded more pessimistic than most of even its harshest critics.

Britain’s independent Office for Budget Responsibility said it expects the UK economy will contract in the period ending this month by 0.1 percent — a gloomier forecast than the consensus of economists polled by Reuters, for 0.1 percent growth.

That’s strange because since its 2010 inception, the OBR has been wildly overoptimistic about the UK economy. In June 2010, the OBR thought it would be growing 2.8 percent by now.

Only nine out of 32 economists polled by Reuters last month thought the economy would shrink this quarter. That puts the OBR at the pessimistic end of the range of forecasts. And the OBR is now forecasting the economy will grow just 1.2 percent in 2013 — very close to the 1.1 percent consensus in the poll.

The euro zone economy may be doing far worse than most economists want to believe. That’s not good news for a central bank trying to rescue the single currency through a hotly-contested bond purchasing programme that has yet to get started.

The latest flash purchasing managers’ indexes, which cover thousands of euro zone companies, suggest the third quarter will mark the euro zone’s worst economic performance since the dark days of early 2009, according to Markit, which compiles them.

They predict the economy likely shrank by 0.6 percent in the quarter that finishes at the end of this month.

U.S. non-farm payrolls have come in below the Reuters Poll consensus for the past four months, the longest streak since an eight-month period in 2008-09 when the U.S. was in the depths of recession and, at one point, losing more than half a million jobs a month.

Compared with a few years ago when there was a very wild range of forecasts on a given jobs report — the widest spread polled since the financial crisis began was 575,000 for the May 2010 data — economists are now huddling together in a pessimistic pack.

For the July data, due out at 1230 GMT, the range of forecasts in the Reuters Poll (on a consensus of 100,000) has narrowed to a 107,000 spread between highest and lowest, compared with 132,000 for the June data.

It’s already been established that economists’ predictions about the euro zone’s future hinge largely on where their employer is based. Euro zone optimists tend to work for euro zone banks and research houses, and euro zone sceptics for companies based outside the currency union.

It somewhat undermined the idea their analyses are based purely on hard-headed economics, and less on national factors.

There was an echo of that in this week’s of economists and fixed income strategists, who were asked whether they expect euro zone leaders will agree to the issuance of a common euro zone bond, as backed by new French President Francois Hollande.

Despite all their years of experience and complex mathematical models, for economists the question of the euro zone’s survival really has them at the mercy of national bias… at least in terms of where their employer is based.

One of the key points from the latest Reuters poll was that a majority of economists from banks and research houses around the world – 37 out of 59 – expect the euro zone to survive in its current form for the next 12 months.

But behind that headline figure, the answers were skewed heavily by region.

Only 5 out of 24 economists from organisations based inside the euro zone thought it would fail to survive in its present 17-nation form over the next 12 months.

The chances of a second U.S. recession are rising. But just how high a probability is always difficult to gauge. The latest Reuters consensus from private sector economists – most employed by an industry that got us into the mess – is currently one in four. That’s not very high, but it has crept up from one-in-five when we asked the same people two weeks ago.

In the meantime, the U.S. has done what many would never have thought possible – it lost its AAA sovereign debt rating from Standard & Poor’s, thanks to an acrimonious political debate over the debt ceiling and, in S&P’s judgment, inadequate legislation to tackle deficits over the long-term. Global stock markets have plummeted 20 percent since May, racking up staggering losses over the past few days, rattled by that U.S. rating downgrade, worries about a world economic slowdown, and a spiralling euro zone debt crisis that now is lapping at the shores of a G7 country — Italy.

The fact it’s been too long since the Great Recession technically ended to call any new recession a “double-dip” shows just how dire the situation is. Nouriel Roubini, known to most as “Dr Doom” for talking down the U.S. economy through bubble years but getting the call right on the last recession, is one of the few who have already called the next one.

For a central bank that looks certain to bust its 2 percent inflation target for most of the time between now and the London 2012 Olympics, there is still a lot of uncertainty out there.

Bank of England Governor Mervyn King referred to “uncertain” or “uncertainty” about the outlook five times at the May quarterly Inflation Report press conference according to the bank’s transcript, and the latest one didn’t seem much more confident in tone.

“There is great uncertainty about the outlook for both the United States and our most important trading partner, the euro area,” King said in his opening remarks before taking questions from reporters.

The euro zone sovereign debt crisis has not made a near-term collapse of the bloc any more  likely, a survey on hihifrds.com, a website devoted to the Thomson Reuters FX and money markets trading community, suggests.

The survey asked whether all 16 countries currently using the euro would still be doing so by the end of 2012. Fully 88 percent of respondents said they would.

Maybe the 16 euro zone members are tied to the single currency for now but others have more choice. Russian President Dmitry Medvedev and  his Brazilian counterpart Luiz Inacio Lula da Silva have  agreed to consider how to make more use  of their own currencies in bilateral trade, rather than the euro or dollar.

Ken Clarke shouldn’t underestimate how strongly the city economists polled by Reuters last week want to see him serve as Britain’s finance minister next term.

The Conservative shadow business secretary and one time ex-Chancellor gleaned a few laughs from Thursday’s BBC Question Time audience when asked about the poll, saying: “There’s a limit to how much of a glutton for punishment you’re going to be.”

But economists would dearly like to see the 69-year-old’s appetite for punishment return soon. No-one came close in the Reuters poll to touching Clarke for popularity. Some 16 out of 29 economists picked him as their first choice for Chancellor.

An Ipsos/Reuters poll of 23 countries found that cuts in household spending have remained constant during the past six months with entertainment, vacations and luxury items the first to go for nearly three quarters of families, followed by clothing, energy consumption and gasoline/driving.

The 23 countries polled,  including the United States, Canada, Brazil, Germany, Britain, Sweden, China and Japan, make up 75 percent of the world’s gross domestic product.

Where are you cutting back on spending?