Wednesday, 16 November 2011

The only way is up...unless you drill down...

This post is a copy and paste from a brief summary of the state-of-the-nation I had to produce today, giving a summary of the global economic climate at the moment.

As 2011 draws to a close, three years after the start of the current financial crisis, there is no indication of the situation improving. The OECD says all economies it monitors suffered a downturn in September with the U.S., Japan and Russia returning to their long-term trend (with the U.S. achieving 2.5% growth) but the UK, France, Germany, Italy, Canada, Brazil, China, India and the Euro area falling below.  It predicted the G7 countries would grow by just 0.2% while Germany, the world’s second largest exporter, falling by 1.4% in the Q4.
Within the Eurozone, the Greek economy contracted by 5.2% in Q3, an improvement on 8.3% in Q1 but still painful. Portugal, the previous danger area for bailouts, shrank by just 1.7%, Ireland and Italy were stagnant and Spain rose by 0.8%, compared with the UK’s 0.5%  growth.  Lithuania and Estonia, by contrast, rose by 7.8% and 7.9% respectively.

After days of speculation about Italy and Spain needing a bailout with Italian bond yields exceeding the 7% threshold beyond which it is believed they could not pay back the loans, and Spanish bond yields rising, both countries have seen the bonds bounce back after the European Central Bank has agreed to buy the country’s debts.  However, confidence in Italy’s economy is still shaky as yields rose once again shortly afterwards.  The focus on Italy remains high as it accounts for 16.8% of Eurozone GDP compared to Greece’s 2.3%.

The domestic problems in those two countries, however, have forced the resignation of Greece’s Prime Minister Papandreou and Italy’s Prime Minister Berlusconi have led to a new era of technocrats with academic economists Lucas Papademos, a former VP of the ECB in Frankfurt, and Mario Monti, a former European Commissioner, taking the reins respectively, providing a warning to politicians in charge of all failing economies that their successors could be civil servants, not fellow politicians.

UK inflation has fallen slightly to 5% from a ten-year high of 5.2% thanks mainly to current supermarket price wars, whilst clothing, electricity and gas prices continue to rise.  By comparison, prices in the Eurozone held steady at 3%, whilst the US rate of inflation fell slightly to 3.5%.

Finally, Britain has helped the love-hate relationship between Angela Merkel and Nicolas Sarkozy by giving it something to join together and fight against: David Cameron and a proposed Tobin Tax on financial transactions which the Tory leader is adamantly opposing.

All this, of course, is good news.  Whilst the present outlook is bleak, it means that things can only get better. 

A brief look at today's FTSE 100 index, showing the past 10 years, shows how things go up, and then they go down. Sometimes they go very down, but they tend to go up over time.

FTSE 100 Index

So here is hoping that the global economy is going to follow that just to cross those fingers and toes...

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