OECD Economies: GDP Status Check

Where are the OECD economies at in the recovery? In this article we take a unique approach to analyzing the patterns of GDP growth across the OECD economies over the past 12 years. Why? Well for starters it's nearing GDP season (Q1 results will be out soon for a few countries; the UK has already announced its Q1 2010 results). Second, it's useful to occasionally challenge your perceptions about which countries are growing and which aren't. Third, it's a timely status check in terms of the overall recovery across the OECD economies.


The first table shows quarterly GDP growth for the OECD economies that report total GDP (Gross Domestic Product) on a quarterly basis. The economies are ranked by size, and the rules for the heat map are: Green = >0.2% Yellow = >-0.2%<0.2% Orange = <-0.2%. In other words the yellows are where economic growth was pretty much flat, while green indicates growth and orange indicates contraction. The pattern in recent years is unsurprising, but it shows a few standouts that got off lightly during the recession e.g. Poland, Australia, and to a lesser extent Korea. It's also informative to assess the patterns across time.


The second table shows GDP growth on a year over year basis, again with economies ranked by size (this time the rules are similar but with -1%/1% instead of 0.2%) . It's interesting to note that Australia, Poland, and Korea are countries which have left recession on an annual basis, with others like New Zealand, and Luxembourg showing promising signs. Again, eyeballing the history you can see which economies have tended to consistently grow and those that have had more patchy history. You can also see the early 2000 recession, and how it compares to the global financial crisis.

Summary

It is useful and interesting to look at the data from different angles from time to time, because it helps you check your assumptions and beliefs, and it allows you to generate new insights. Some of the questions you can answer by glancing at the tables are: Which economies are growing? Which economies have experienced the most consistent growth? Which economies showed the most strength throughout the crisis? And therefore, which economies might produce the most compelling investment opportunities? The final question can't be fully answered here, but by reviewing the data in a new way, it can begin to be answered.

Sources:
Econ Grapher Analytics www.econgrapher.com
OECD www.oecd.org

Article source: http://www.econgrapher.com/24apr-oecdgdp.html

Top 5 Graphs of the week

Econ Grapher's Top 5 Graphs of the Week.

This week the focus is on monetary policy. Last week we saw four central banks hold interest rates steady (UK 0.5%, Canada 0.25%, South Korea 2.00%, New Zealand 2.5%)... pretty much all well below their "neutral" levels. UK also kept its asset purchase plan unchanged at GBP 175 billion. The Chinese also released their key monthly economic metrics, including - in mon pol context - inflation (deflation) and money supply growth. The reason for focusing on monetary policy is two-fold, 1. there were a few interesting releases in this area, and 2. it's worth contemplating the impact of globally unprecedented loose monetary conditions both on the recovery and the bit that comes after the recovery...

1. Central Bank Balance Sheets
I took this chart from the OECD economic outlook update, simply because it stuck out to me. It charts the balance sheets of the central banks of the US, Japan, and Euro Area. It shows a drastic build up in US and EU, which is justified given that the financial markets froze up around that time, and it has gone someway into thawing them out. Questions this raises I think are: what are the next steps? how does it get unwound? what are the unintended consequences or side-effects of these measures?


2. China Money Supply
It's no secret that banks in China are lending like there's no tomorrow, and that monetary conditions are purposefully loose to match the large fiscal stimulus package. So too then can we see a marked up tick in the growth of money supply. I'm interested in the implications of this in terms of asset price speculation and inflationary pressures (which leads to the next chart).

3. China Inflation
Inflation in China has been driven hard by the commodities boom and bust. With both the crash of commodity prices and the global recession China has seen a few months of deflation. The August figure of -1.2% was less than -1.8% in July (dis-deflation?), which paired with hyper-stimulatory conditions could certainly herald a bottoming out of deflation/inflation in China. If pinned down, considering the large fiscal and monetary simulus in China I would pick that this will start ticking up soon - and that the Chinese authorities may be hard pressed to do anything about it given the need to avoid the risk of a down economy (if winding back stimulus).

4. BoE Monetary Policy
The UK's Bank of England kept both it's key rate, 0.5%, and Asset Purchase Plan, GBP 175 bil, unchanged this time after keeping the rate steady last time and increasing the purchase plan last time (when the governor apparently wanted a larger increase to it). The UK probably needs this and more if possible given how hard it has been hit and the structural nature of its recession.

5. RBNZ Monetary Policy
The land of the Kiwis left their interest rate unchanged again at 2.5% after dropping it from around 8%. The statement pointed towards it remaining unchanged until mid 2010, given that the country is still in recession and that its currency is often targeted by carry traders it's probably a good thing for the export reliant island nation. The next move is probably up for this country and probably later rather than sooner (in spite of arguments for a decrease to try pull the currency down - though this argument is flawed as such a move would likely be counter-productive i.e. it would probably trigger greater inflation, which would require higher rates... get the picture).

-Econ Grapher

Sources:
1. OECD Interim Assessment: http://www.oecd.org/dataoecd/10/32/43615812.pdf
2. People's Bank of China
3. National Bureau of Statistics
4. Bank of England
5. Reserve Bank of New Zealand: http://rbnz.govt.nz/keygraphs/index.html