The past week saw important updates on several key economies. First up is US GDP figures, showing an acceleration of the inventory cycle and stimulus led recovery. Then we look at a far slower recovery in the UK (if you can even call it a recovery), then review some much stronger figures from one of the Asian tigers. Then we look at Japan; considering how this week's trade, inflation, and employment data feed into the current picture and outlook for Japan.
The theme to take from the GDP numbers is that the recovery is generally gathering pace, but boosted in large part by the inventory cycle and stimulus measures. Following that, globally, international trade is starting to pick up, and there are signs of self-reinforced growth in activity. However at this point there are still many things that could derail the recovery, the simplest one is whether demand takes over when the inventory cycle runs through, and stimulus measures wear off.
1. US GDP - Accelerating Artificial Recovery
US GDP rose 1.4% q/q in the 4th quarter of 2009(not annualising it, out of principle), versus expectations of 1.1%, and a revised Q3 gain of 0.6%. On a year-on -year basis growth turned positive, just, with 0.1% (versus -2.6% in Q3). The result was mostly driven by what we've already been talking about, i.e. inventory cycle and stimulus. Indeed much of the gain can be explained by inventory buying. Improving net exports also helped, but this is because of falling imports (lower demand, lower prices). Direct government spending contributed far less than in Q3, but you can probably attribute some of the gains in personal consumption and investment to government stimulus programs.
2. UK GDP - Up, But Not Away
UK Q4 GDP grew for the first time in 6 quarters, however at 0.1% q/q, and below consensus for 0.4%; it's far from impressive. Of course on on annual basis it's still deep in the negatives, with -3.2% (improved from -5.1% in Q3). The recovery in the UK is still very fragile, and basically stagflationary (low growth and accelerating inflation). As mentioned before, this is going to put the pressure on the policy makers, especially at the Bank of England, as they are forced to trade-off price stability on the one hand, and potentially killing an already weak recovery on the other. If the numbers continue to be weak for the UK the Bank of England may need to extend its bond buying program (quantitative easing).
3. South Korea GDP - Crouching Tiger
Asia's 4th largest economy reported q/q GDP growth in Q4 2009 of 0.2% (consensus was 0.5%), slowing from a gain of 3.2% in Q3. On a year/year basis, the South Korean economy grew 6.3%, building on a gain of 0.7% in Q3. The figures are likely to raise government pressure on the Korean central bank to hold interest rates, but in any case the recovery is reasonably entrenched. The Korean economy is strongly coupled to the Chinese economy, and has most likely benefited from the recovery and large stimulus spending there. Forecasts are for the Korean economy to grow around 5% in 2010.
4. Japan Exports - Thank You China
A key indicator for Japan's economy, trade, grew on a year on year basis in December for the first time in 14 months. Rising 9% from November, it grew 12% from December 2008 (-7% in November)... mind you this is after falling -35% year on year in December 2008, and virtually halving when compared to the previous year for much of 2009. Thus having experienced such a drop-off in trade, and now a reasonably strong pick-up in exports, this probably bodes well for the Japanese economy. The main driver though, of course is China... in fact exports to China rose 43% (led by autos).
5. Japan: Inflation and Unemployment
Keeping with Japan, two other data points came out this week; inflation (deflation), and the jobless rate. Japan showed further stabilisation of the unemployment rate with 5.1% vs consensus 5.3% and 5.2% in November. Meanwhile Japan also announced it's 11th month of deflation with -1.3%, confirming the government's noting that Japan had re-entered deflation in November. This shows that Japan is still struggling to beat deflation, and it has become a key priority of the government (but at what cost?). Japan, it seems, is increasingly lifting its risk profile as growth still remains relatively lacklustre, and the fiscal situation continues to deteriorate (you might have noticed Japan's AA credit rating has been downgraded to "negative outlook").
Looking at the GDP figures the picture is mixed, the UK is out of recession by the skin of its teeth, the US is seeing its artificial recovery accelerate, and South Korea is benefiting from the fortunes of its close Neighbour, China. Overall what it adds to the global economic outlook is that emerging economies are probably set to outperform developed economies.
On Japan, the positive is that exports are improving on the back of demand from China, and unemployment is stabilizing. The negatives... well, there's deflation first of all, and then there's the questionable fiscal outlook. The risks to Japan's economy are rising.
One point to draw from the case of Japan and South Korea is that you can gain from China's growth and booming economy by getting exposure to countries that are reasonably well-coupled to China. But then it also shows that just because you trade with China doesn't mean you have a strong economy (i.e. Japan vs Korea).
1. US BEA www.bea.gov
2. UK Office for National Statistics www.statistics.gov.uk
3. OECD http://stats.oecd.org/index.aspx
4. Trading Economics www.tradingeconomics.com
5. Trading Economics www.tradingeconomics.com
Article Source: http://econgrapher.site1.net.nz/top5graphs30jan.html
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