In the past couple of months the GDP data for Q3 has come through for most of the main economies. The overall theme is that on a quarterly basis the advanced economies are starting to record growth again, things are stabilising and starting to turn the corner. But then you need to be careful because a lot of the positive results are still basically artificial at this point. If you think of the 3 forces that drive economic growth as being stimulus, inventory cycle, and demand; we have a lot of support from stimulus, a temporary boost from inventory cycle, but are for the most part, still waiting for end demand to come through for a real, sustainable recovery.
1. US GDP
The United States of America recorded its first positive quarter of GDP growth in a year for Q3. The first estimate was revised down a bit, but the components stayed the same. On a component basis the drivers of the positive figure were: consumption (stimulus), residential investment (stimulus), and government (stimulus!). So in case you haven't connected the dots yet, this is a stimulus pushed recovery, rather than a demand lead recovery at this point. You also have the short term impulse of inventory adjustments, but overall still waiting for end demand to come through - this will be the key test for the US economy in 2010.
2. EU GDP
The Eurozone also recorded a positive figure in Q3, showing a visible business cycle-like recession/recovery. The big economies there, France and Germany, recorded their 2nd quarter of q/q growth. Things have certainly started to bottom out, if not recover, in some parts of the EU. The thing is that it is a very diverse area, and while some economies are starting to recover, there are others with deep structural problems. The trajectory from here is a slight bounce back in 2010, but within the number, a wide divergence between member states.
3. Japan GDP
Japan recorded its second quarter of growth in Q3, helped by stimulus and a recovery in trade - helped in large part by stimulus overflow from China. The severity of the crisis in Japan illustrates its dependence on exports to drive growth - as the peak of the global crisis saw global trade fall right off, you saw nations like Japan, Singapore, Taiwan, etc record huge drop-offs as trade volumes froze up. Japan is still dealing with deflation, and has recently announced further stimulus measures, both on the monetary and fiscal policy fronts. That said, if global trade continues to recover, there may be a decent bounce back for Japan in 2010, but be mindful of the stimulus and the demographic challenges.
4. BRIC GDP
This diverse bunch showed the makings of a recovery in Q3. This is good as emerging markets are increasingly becoming the drivers of global growth. Drilling down, as these are very diverse nations in terms of political structure, culture, language, so too are they on an economic make-up basis. China and India took a hit from the crisis, but are getting back to their usual 7-9% GDP growth rates. Brazil took a fairly decent hit, falling into the negatives, but has a lot of promise to lead amongst developing South America and will probably get back to its normal 4-5% GDP growth in the next year or two. Russia - the commodity economy of the 4, showed a strong connect with oil prices, with the crash in crude sending the economy into a deep recession, the key challenge is that the commodity crash doesn't spillover and create longer term damage to other sectors of that economy - but as commodity prices recover, it is likely that this economy will also continue to recover.
5. Australian GDP
The land down under barely saw a recession at all. It only had one quarter of negative GDP growth, and holds the enviable position of being one of the only developed economies that has had to start adjusting monetary policy rates already (with 3 x 25 basis points increases in the last few months). The Australian economy has been assisted in part by some stimulus measures, but probably owes a lot of its resilience to trade with China - as the nation has large mineral resource endowments. Even on an employment front it has recorded consecutive positive job growth in the past 3 months, and has shown a pretty clear topping out of the unemployment rate. Aside from the spiders, snakes, and crocodiles - this seems like a pretty good place to be!
So as you can tell by looking at each of the examples here, economic growth has tentatively restarted. However the drivers of this are largely stimulus lead, with some help from inventory adjustments, and of note - increasingly influenced by emerging markets; particularly China. The signs generally point to a reasonable bounce back in 2010 - but the question remains whether end demand will pull through to make the recovery sustainable and genuine.
1., 2., 3., OECD Statistics Database
4. Trading Economics
5. Australian Bureau of Statistics
Article Source: http://econgrapher.site1.net.nz/top5graphs20dec.html
Is the correction over?
5 hours ago