MacroScope

Mixed evidence from Germany

German trade data, already out, showed both exports and imports rose more than expected in April – up a sharp 2.3 and 1.9 percent respectively. That suggests that its fabled industrial base is in reasonable shape but also that domestic demand is holding up, possibly helped by some above-inflation pay deals. The figures represent a significant bounce from the first quarter when Europe’s largest economy just managed to eke out some growth.

Let’s not get carried away, though. Germany’s PMI survey earlier this week showed a slight decline in export orders in May and the Bundesbank has just released its latest set of economic forecasts, cutting its 2013 growth forecast to 0.3 percent, adding that risks are largely skewed to the downside. It expects a healthy bounce in growth in the second quarter then a marked throttling back.

Trade figures from France, Britain and Portugal give an opportunity to see if there is any “rebalancing” going on within Europe – the argument being that the euro zone in particular can only thrive if Germany’s massive surpluses shrink a little just as the high debt countries try to pare their deficits. That requires Europe’s largest economy to buy a little more from its currency area peers. The German data showed imports from states in the single currency bloc up 5.4 percent year-on-year in April so maybe there are glimmers of movement.

German industrial output, due later this morning, will be another important snapshot after industry orders dropped sharply in April. Elsewhere, Spanish industry output data, which showed the slowest fall in 19 months in March, will indicate whether a deep recession is close to hitting bottom. Spain has enacted painful cuts and reforms but the resultant easing of its labour laws has helped its export base, and inward investment, pick up.

In summary, we clearly need a German trunk pulling together all the various strands and it may well be we could take a look at euro zone imbalances via the trade data too, maybe centred on Paris.

China bear Pettis says world coming around to his view

Few mainstream economists have been quite as downbeat on China as Peking University professor and noted China watcher Michael Pettis. Pettis has long held that the world’s No. 2 economy will grow at a maximum of 3.5 percent a year for the rest of the decade, well below a consensus call that appears to have settled into the 5-7 percent range. “And honestly, I think if I’m wrong, it will be to the downside rather than the upside,” he told Reuters.

Lately, though, Pettis says that many people inside China and in some of the countries whose fortunes are tightly tied to its economy are starting to come around to his point of view. At a recent lunch with visiting European Union officials, Pettis said the mood among the attending Chinese economists, academics, think-tankers and policy advisors was universally gloomy. “I’m used to being the most pessimistic guy in the room, but in this case, they were much worse than I.”

Pettis says that’s because the Chinese understand, far better than the average Western investor or economist, just how tough it’s going to be to rebalance from investment to consumption and shift wealth from the state to Chinese households.

Instant View Video: Rebalancing global trade

Reuters correspondent Sumeet Desai talks about the G20 draft communique and what it means for rebalancing the world’s economy.

Rebalance or else, IMF says

The International Monetary Fund has been warning for years about the risk of global imbalances — namely huge U.S. current account deficits and surpluses in China. Today its chief economist offered a grim view of how the economy might suffer if the rebalancing act fails.

Olivier Blanchard says unless the United States can refocus its economy more toward exports and China more toward imports, the U.S. recovery will probably be anemic because American consumers aren’t going to quickly revert back to their pre-crisis free-spending ways.

And if the recovery is anemic, there will no doubt be intense political pressure for more stimulus, particular in 2010 when most members of Congress face re-election.