No medals for growth economies
23 July 2012
No medals for growth economies
"Faster, Higher, Stronger" is the motto of the Olympics opening in London on Friday. "Slower, Lower, Weaker" would be a better description of the economic performance of many of the countries competing in the games.
None of the big names will look worthy of a place on the podium if forecasts for a raft of data due this week from the euro zone, the United States and Britain prove accurate.
Even China, the longstanding growth champion, is huffing and puffing.
And for all the growth hormones injected in the form of cheap central bank money, the global economy is likely to be running on the spot for some time yet given fears that the United States could fall off a fiscal cliff, the softer trend in China and, above all, the debilitating euro zone crisis.
July's advance surveys of purchasing managers in the 17-nation single currency area, due on Tuesday, are expected to produce readings well beneath the boom-bust mark of 50, signaling recession. At best, the reports will show both manufacturing and services are at least stabilizing.
Two other important early glimpses of how the third quarter is shaping up, Germany's IFO business climate and Belgium's leading indicator, are scheduled for Wednesday and are forecast to show a modest deterioration.
"Risks to the economic outlook and to the euro zone sovereign situation are stacked on the downside, and we see a significant probability of a rate cut by the ECB within the next three months," said Riccardo Barbieri, chief European economist at Mizuho in London.
The headwinds blowing in from Europe will help peg second-quarter U.S. gross domestic product growth back to a ho-hum 1.4 percent from 1.9 percent in the first three months of the year, economists believe. The data will be released on Friday.
Britain, which has the euro zone as its main trading partner, is doing much worse. Figures on Wednesday are projected to show that the economy shrank by 0.2 percent in the April-June period. That would be the third straight quarter of contraction.
The International Monetary Fund, in cutting its forecasts last week for the global and euro zone economies, lambasted policymakers for dithering over the crisis gripping the single currency.
In unusually direct language, the fund demanded an "unequivocal commitment" to the euro from member governments and urged the European Central Bank to conduct "sizeable" purchases of sovereign bonds to tackle the region's troubles.
Beijing, its economy growing at the slowest rate in three years, has also been pressing for decisive action. Europe is China's biggest export market.
Tao Wang, an economist for UBS in Hong Kong, said a drop in external demand due to the euro's malaise was one of the two main risks (the other is a further fall in the property market) to her forecast of an investment-led recovery in Chinese growth over the rest of 2012.
To that end, investors will be scrutinizing the export orders component of HSBC's flash survey of Chinese purchasing managers for July, due on Tuesday. ( C) Reuters
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