Noted for June 19, 2013
43 minutes ago
Regarding risks to the economic outlook, there remains a high degree of uncertainty about the global economy, including the prospects for the European debt problem, the momentum toward recovery for the U.S. economy, and the likelihood of emerging and commodity-exporting economies simultaneously achieving price stability and economic growth. Regarding risks to the price outlook, careful attention should be paid to future developments in international commodity prices and in medium- to long-term inflation expectations.Put another way, there are no areas of the world economy that are demonstrating a pure growth environment; everybody is dealing with a fairly serious negative environment. Let's break the world down into geographic blocks:
As the reality of the partial dissolution of the eurozone sinks in, the financial meltdown spreads from Europe to the United States and Asia.So the recipe is:
In terms of the future growth path, the fall in international oil
prices will act as an upside risk, but the downside risks have
increased due to uncertainties resulting from the euro area fiscal
The downside risks to consumer prices, including those posed by
the declines in international commodity prices, are judged to be
generally in balance with their upside risks such as those due to
elevated inflation expectations and steeper than anticipated public
utility rate hikes.
At its meeting today, the Board decided to lower the cash rate by 25 basis points to 3.50 per cent, effective 6 June 2012.
Growth in the world economy picked up in the early months of 2012, having slowed in the second half of 2011. But more recent indicators suggest further
weakening in Europe and some further moderation in growth in China.
Conditions in other parts of Asia have largely recovered from the effects of last year's natural disasters, but the ongoing trend is unclear and could be dampened by slower Chinese growth. The United States continues to grow at a moderate pace. Commodity prices have declined lately, though they are mostly still high. Australia's terms of trade similarly peaked about six months ago, though they remain historically high.
Financial market sentiment has deteriorated over the past month. The Board has noted previously that Europe would remain a potential source of adverse shocks. Europe's economic and financial prospects have again been clouded by weakening growth, heightened political uncertainty and concerns about fiscal sustainability and the strength of some banks. Capital markets remain open to corporations and well-rated banks, but spreads have increased. Long-term interest rates faced by highly rated sovereigns, including Australia, have fallen to exceptionally low levels. Share markets have declined.
In Australia, available indicators suggest modest growth continued in the first part of 2012, with significant variation across sectors. Overall labour market conditions firmed a little, notwithstanding job shedding in some industries, and the rate of unemployment remains low. Nonetheless, both households and businesses continue to exhibit a degree of precautionary behaviour, which may continue in the near term.
Forget about the implied 5.5% NGDP growth forecast. Australia has a 2-3% inflation target and faster trend RGDP growth than the US. That sort of nominal growth would be beyond my wildest dreams for the US. Rather think about how proactive they are. Unemployment is low and inflation is in the sweet spot. But they are easing monetary policy because they see the global slowdown, which for some reason the much more sophisticated Fed and ECB don’t quite comprehend. They aren’t cutting rates because 5.5% NGDP growth is too low, they are cutting rates to make sure that 5.5% NGDP growth happens.
The PBC has decided to cut RMB benchmark deposit and loan interest rates for financial institutions as of June 8, 2012. The one-year RMB benchmark deposit and loan interest rates will be lowered both by 0.25 percentage points. Adjustments are made correspondingly to benchmark interest rates on deposits and loans of other maturities and to deposit and loan interest rates on personal housing provident fund.
The Bank of England’s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5%. The Committee also voted to maintain the stock of asset purchases financed by the issuance of central bank reserves at £325 billion.I highlighted the UK economy in this post; basically, it's a wreck.
One thing we can say for sure, however, is that the kind of drastic fiscal austerity that proved feasible in Latvia would not be possible in many other countries. Rimševičs and others stress that Latvian policy was successful because they took it on the chin and implemented the fiscal measures with speed and determination. Perhaps. But it is also true that they got away with vastly underestimating the costs of their measures. Latvian policy makers had expected a 10% fall in GDP in 2009; instead they got one that was nearly twice as large. The real secret of their success is that they did not have a revolution on their hands.Several economic contractions create civil unrest. And not just a few hundred people in the street, but massive outpourings of people who have the propensity to get violent.