There’s a sense of relief among European policymakers that the worst of the euro zone’s crisis appears to have passed. Olli Rehn, the EU’s top economic officials, talked this week of a “turning of the tide in the coming months”. Mario Draghi, the president of the European Central Bank, speaks of “sizeable progress” and “a reassuring picture”.
No wonder most Americans feel like the recession never ended. A new paper from Emmanuel Saez, a Berkeley professor and expert on inequality, shows the overwhelming majority of income gains – 93 percent – accrued in 2010, the first full year of the U.S. recovery, went to the top 1 percent richest Americans. (Thanks to our friends at Counterparties for bringing the paper to our attention.)
Things are looking a bit unsteady in the euro zone’s economy. Just ask Olli Rehn, the EU’s top economic official, who warned this week of “risky imbalances” in 12 of the European Union’s 27 members. And that’s doesn’t include Greece, which is too wobbly for words.
Economists busy revising down their third quarter gross domestic product forecasts had to backpedal a bit on Thursday after Commerce Department data showed a steep shrinking of the U.S. trade deficit — despite an unexpected rise in weekly jobless claims. The trade gap shrank to $44.8 billion in July, Commerce Department data showed, down sharply from June’s $53.1 billion deficit and much lower than forecasts around $51 billion. The 13.1 percent decline was the biggest month-to-month percentage drop in the deficit since February 2009.
In Jackson Hole, where central bankers and leading economists from around the world are gathering for an annual meeting hosted by the Kansas City Fed, the talk is about the economy, what Fed Chairman Ben Bernanke will signal in his highly anticipated speech on Friday and what Warren Buffett’s purchase of a stake in Bank of America might mean for the beleaguered bank.
Could the dreaded R word come back to haunt the developing world? A study by Goldman Sachs shows how differently financial markets and surveys are assessing the possibility of a recession in emerging markets.
One part of the Goldman study comprising survey-based leading indicators saw the probability of recession as very low across central and eastern Europe, Middle East and Africa. These give a picture of where each economy currently stands in the cycle. This model found risks to be highest in Turkey and South Africa, with a 38-40 percent possibility of recession in these countries.
On the other hand, financial markets, which have sold off sharply over the past month, signalled a more pessimistic outcome. Goldman says these indicators forecast a 67 percent probability of recession in the Czech Republic and 58 percent in Israel, followed by Poland and Turkey. Unlike the survey, financial data were more positive on South Africa than the others, seeing a relatively low 32 percent recession risk.
Goldman analysts say the recession probabilities signalled by the survey-based indicator jell with its own forecasts of a soft patch followed by a broad sustained recovery for CEEMEA economies.
“The slowdown signalled by the financial indicators appears to go beyond the ‘soft patch’ that we are currently forecasting,” Goldman says, adding: “The key question now is whether or not the market has gone too far in pricing in a more serious economic downturn.”
Phew. Industrial production rose 0.9% in July, the fastest in seven months. For the moment, that appeared to forestall fears that another U.S. recession might be imminent, even if stocks were down on worries about weak economic growth in Germany. Harm Bandholz at Unicredit saw the figures as a bright spot:
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.