No real improvement in the UK after GDP figures

The UK GDP growth was at +0.4% during the second quarter (1.5% at annual rate). The carry over growth for 2018 at the end of the second quarter is 1%.
I have updated my graph on the deviation from the pre-referendum trend. There is no catch up while Eurozone countries are still above the trend. The impoverishment of the United Kingdom after the referendum continues. Not sure it was a good idea for the Bank o England to increase its main rate this month. The increased uncertainty on the Brexit negotiation will not allow a rapid reversal as uncertainty is the main enemy of long term investments, those which improve productivity.

Greece, a long and very expensive adjustment

This simple graph from the Wall Street Journal is just a measure of the constraints that have been imposed to Greece since the beginning of their adjustment. The US depression is just small potatoes  compared to Greece.
How many years will be needed for the Greek people to come back to their pre-crisis level? At a 2% growth rate per year it would take about 15 years. In other words, the time for adjustment is around 25 years. This is a generation. Continue reading

Robust Growth in the Euro Area

Strong growth during the second quarter

GDP growth was marginally stronger during the second quarter in the Euro Area. It was at 0.56% (2.26% at annual rate) after 0.51% (2.04% AR) during the first three months of this year. The growth profile has been slightly modified with this publication. Formerly, GDP growth for the first quarter was at 0.58%.
Carry over growth for 2017 at the end of the second quarter is 1.7%, close to 2016 average growth. We see on the graph that during the last three quarters growth is stable and close to 2% (at annual rate).
When we look at corporates’ surveys (see below), we can infer that GDP growth could be close to 0.5% (2% at annual rate) during the last two quarters of 2017. In that case the average growth for 2017 could be at 2.1%. Continue reading

USA – The Rebound that will not come

The first quarter growth was weak in the USA. The first estimate was a mere 0.2% at annual rate. The question now is about a possible rebound in Q2. Many observers have calculated that usually, in the recent past, the first quarter had a low growth number but was followed by a rapid rebound that corrects the GDP trajectory. Last year there was also a weak period during the first three months due to climate hazard. But the second and third quarters have shown a strong rebound in economic activity.
Last week, we have had April figures for retail sales and industrial production. The temptation is to compare the current momentum to 2014.

The graph below presents the 3 month change for the two indicators. I have drawn an ellipse on the two April episodes, in 2014 and 2015. We see that profiles do not look the same. There was a strong acceleration in 2014, not in 2015 during which industrial production has collapsed. This means that the probability of a recovery is low if 2014 is taken as a model.

USA-2015-April-IPI-Sales-3MMoreover, last year during the climate hazard, inventories were dramatically reduced, having a strong negative contribution to the first quarter GDP growth. In the second quarter, they were up, contributing to 1/3 of the strong 4.6% growth.

This year, inventories were up in the first GDP estimate. As demand is weak, an inventory building if it exists will be mild. It will be another source of GDP weakness for the second quarter.

In its latest forecast, the Fed of Atlanta has reduced its GDP 2nd quarter estimate to only 0.7% at annual rate. If it is the case, for the whole 2015, GDP growth could be close to 2%.
The question then, is to know, if this new environment will reduce, or not, incentives for the Fed to lift-off its rates? Janet Yellen has mentioned that the dollar has recently hurt exports momentum and US companies’ results have been constrained by the strength of the greenback.
Higher Fed’s interest rates could push the dollar higher with a risk on the US growth momentum.

To avoid a supplementary weakness of the US economy, it could be better to postpone the lift-off. We know that almost all voting members support such a move but current economic conditions do not.