What follows are the first five paragraphs from the latest Reserve Bank of Australia's minutes (italicized) with some additional commentary from me.
International economic news over the past month was, on balance,
more positive than in recent months, though earlier weak data had led
forecasters to expect further delay in a pick-up in global activity.
For most of this year, the overall story line for the world economy has been remarkably stable: The EU was mired in its debt issues with little chance of a quick recovery, the US was growing slowing and China was trying to re-balance its economy from an export based model to a consumption based model. It's almost as though the world economy is stuck in very deep mud and can't seem to pull free.
pace of growth in China appeared to have stabilised in response to the
earlier fiscal and monetary stimulus, with a pick-up in infrastructure
construction. Timely measures of production and spending were mixed, but
had generally been stronger in recent months.
A story that has gotten remarkably little play over the last year is the change of power in China, which has occurred recently. I think this has kept the Chinese government from making sure the economy did not crash nor allowing it to grow at strong rates, thereby allowing the change of power to occur at at time or relative calm. The economy has slowed down from a 10%+ annual pace to a 7%+ pace, with more emphasis on internal consumption. However, it's still too early to tell if this is a permanent situation or an anomaly lasting a few quarters. I tend to think its the former, as most Australian raw materials companies are now slowing down their capital investment, indicating they think their biggest trading partner is permanently changing course.
Members observed that the US economy continued to expand at a
moderate pace. Growth in GDP and consumption picked up a little in the
September quarter, although business investment had weakened. Employment
growth had improved in the past four months relative to earlier in the
year, and housing prices and commencements continued to rise, albeit
from low levels. While significant uncertainty remained over the extent
and effect of fiscal consolidation from early 2013, members noted that a
positive resolution of this matter could result in better growth
The US economy is about where it's been for the last few years -- growing between 0% and 2%. While PCEs have been fair, we have seen a decrease in investment over the last few quarters with the primary downside pressure coming from state and local government austerity. On the good side, employment is still plodding forward and the housing market appears to to recovering. NDD sees the same thing.
Economic activity in Europe remained weak. The PMIs and
household and business sentiment remained at low levels across the
region, including in France and Germany, which until recently had been
The overall economic situation in the EU is one of a recession which is now continent wide and growing. These is literally no hope for a quick and thoroughly conceived resolution to their issues. At this point, they are slowing moving into the "basket case" category.
The Japanese economy had weakened in the September quarter, with
falls in consumption and exports. Growth in the rest of east Asia was
also relatively subdued in the quarter, partly reflecting weakness in
consumption, especially for the higher-income economies. Exports and
industrial production were soft, though more recent data generally
showed a slight improvement. In response to weaker growth, monetary and
fiscal policies had been eased a little over recent months in some
countries in the region.
Japan's problems continue. They printed another quarter of negative GDP growth recently and have moved to parliamentary elections. The government and the BOJ are feuding over who should do more to help the economy. In short, it's an overall mess. The rest of the region is acting in lock-step with the Chinese slowdown. Growth is slowing, but not to recessionary levels. Various central banks have lowered rates somewhat, but still have sufficient downside room in the event they need to add further stimulus.
The OECD has release their lowered economic projections for 2013 and beyond, which can be read here. Here are some salient points from the press release:
The global economy is expected to make a hesitant and uneven recovery
over the coming two years. Decisive policy action is needed to ensure
that stalemate over fiscal policy in the United States and continuing
euroarea instability do not plunge the world back into recession,
according to the OECD’s latest Economic Outlook.
world economy is far from being out of the woods,” OECD
Secretary-General Angel Gurría said during the Economic Outlook launch
in Paris. “The US ‘fiscal cliff’, if it materialises, could tip an
already weak economy into recession, while failure to solve the euro
area crisis could lead to a major financial shock and global downturn.
Governments must act decisively, using all the tools at their disposal
to turn confidence around and boost growth and jobs, in the United
States, in Europe, and elsewhere,” Mr Gurría said.
GDP growth across the OECD is projected to match this year’s 1.4% in
2013, before gathering momentum to 2.3% for 2014, according to the
In the United States, provided the “fiscal cliff” is
avoided, GDP growth is projected at 2% in 2013 before rising to 2.8% in
2014. In Japan, GDP is expected to expand by 0.7% in 2013 and 0.8% in
2014. The euro area will remain in recession until early 2013, leading
to a mild contraction in GDP of 0.1% next year, before growth picks up
to 1.3% in 2014.
After softer-than-expected activity during 2012, growth has begun
picking up in the emerging-market economies, with increasingly
supportive monetary and fiscal policies offsetting the drag exerted by
weak external demand. China is expected to grow at 8.5% in 2013 and 8.9%
in 2014, while GDP is also expected to gather steam in the coming years
in Brazil, India, Indonesia, Russia and South Africa.
The Liquidationist Urge
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