by Stephen Roberts | Apr 28, 2014 | Economic Weekly, Laminar Economist Stephen Roberts
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Our monthly roundup of global and local economic data and events indicates modest but erratic improvement in global growth. US economic indicators mostly improved, although weaker home buying activity was a notable exception. Growth in China moderated, but not as much as many feared. European economic indicators were mostly stronger than expected. The firmer run of Australian economic indicators continued, although one surprise was lower than expected Q1 inflation which will probably delay the first interest rate hike by the RBA until late in 2014. On monetary policy, the US Federal Reserve (Fed) clarified its position on when the Fed funds rate, currently at zero, is likely to rise in relation to the ending of the Fed’s asset purchase, or QE, program, which should be complete in Q3 2014. US employment needs to be much stronger before the Fed decides to start lifting the funds rate and that looks more likely in 2015, rather than late 2014 implied in earlier comments by Fed Chairman Janet Yellen.
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by Stephen Roberts | Apr 23, 2014 | Laminar Economist Stephen Roberts
The Q1 CPI was lower than the market and I expected at +0.6% qoq, +2.9% yoy. The two main underlying inflation measures were also lower than expected +0.5% qoq and +0.6%, +2.6% yoy and +2.7% yoy respectively. The components contributing most to the undershoot were... Read more...
by Cameron Rae | Apr 22, 2014 | Economic Weekly, Laminar Economist Stephen Roberts
The global and Australian economies are slowly improving and look set to progress at similar pace through the rest of 2014 and probably 2015 as well. While most commentaries recognise that the global economy and local economy are improving, a significant proportion of commentators are also looking for an “x” factor that will stymie progress, possibly even collapse activity driving the global economy into a worse version of the 2008 global financial crisis. Some point to excessive credit growth in China unraveling in a credit crunch severely cutting into growth prospects. Others point to the old bogie of too much government debt and austerity budgets for the foreseeable future. An Australian version of the escalating government debt concern is in vogue currently, ahead of the Abbott Government’s first budget next month. Other concerns include too high household debt, although some also point to the prospect of too cautious households spending not enough. In the Australian context, the sharp decline in resource investment spending also looms large.
In our view all of these risks to growth prospects exist, but it seems much more likely that the factors that are already driving stronger growth will continue to dominate. China, now the world’s second biggest economy, represents perhaps the biggest risk in either direction to global and Australian growth prospects. Rapid credit growth in China over recent years and its links to property speculation and escalation in unorthodox wealth management products invite comparison to the credit crises in the US and Europe in 2008. However, there are important points of difference. The authorities in China have been leaning against the credit build up for more than a year by tightening monetary conditions – something that was absent in the US and Europe in 2007 and 2008. Also, the authorities in China are very well versed in the events leading up to and after the Lehman Brothers collapse in September 2008. In short they are working with a textbook of what happens when a systemically important financial institution is allowed to fail and they are unlikely to risk having a “Lehman event” of their own.
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