Queen
Pity the poor elderly. Even the British
Queen Elizabeth II cannot celebrate her 60 years of ribbon-cutting,
crowd-weaving, and banqueting, without having bad conscience that the
celebrations will “push the UK economy back into recession”. The press has
eagerly sunk their teeth into the story.
The warning words come from another elder,
Sir Merwyn King of BoE. His point is simple. By giving the entire country a(n
extra) day off, UK will miss one day of economic output in Q2. One day out of
65 working days is about 1.5%. So if the UK lose 1.5% of output in Q2, for sure
it would turn out a negative quarter, given the sluggishness of the UK economy.
My advice to the worried central banker is to invite UK consumers to buy as
many flags, mugs, hats, memorial medallions and what not to give the retail
trade a boost.
UK growth
GDP growth for Q4 in the UK came out
negative and we have a hard time being really surprised. UK consumers have been
among the most leveraged in Europe, the housing bubble have been among the
biggest, and the impacts on the public finances of the faltering banking sector
among the largest in Europe.
Looking at the underlying data, it is
clear that the UK consumers continue to consolidate. In combination with
continued spending reactions in the public sector, it will take a long time to
get the growth going again. For some food for thought,
about house prices, look at this little study by a couple of economists from
the Swiss National Bank.
EU M3
I continue to be worried about the growth
of the Eurozone money stock (M3). The headline number came out positive (+2.8%
yoy), but dig a little, and you will find out that banks’ lending is still
slowing and grew only by 0.3% in February. Bank lending to the public sector
grew by 0.6%.
Does this prove that the huge amount of
3-year loans given to the banks “does not work” as in particular the UK
financial press have been trumpeting?
No, The LTRO loans were not even intended
for that. Their purpose was a) to avoid a major liquidity squeeze in the
European inter-bank market, and b) to allow the banks to receive a colossal
subsidy by using the money to buy government bonds. In that respect the LTRO
loans work just fine.
But it does prove that when banks are
reluctant to lend and borrowers are reluctant to borrow, the limits of monetary
policy have simply been reached.
US Jobs
There is no doubt, the US economy has
created more jobs than expected due to “unseasonably warm weather” – the methods
used for seasonal adjustment of the employment data all but guarantee this
result.
But is this enough that we should call off
the optimism about the recovery in the US labour market. I think not. In fact,
if one sums up all the micro data, it is surprising that the unemployment rate
is not falling any faster than is the case. We may see a sharp drop in the
months leading up to the presidential elections.
Given that the Republicans seem bent on
choosing an unelectable candidate, falling unemployment would all but guarantee
Obama’s re-election. My pious hope is that he would use a second mandate more
constructive than the first.
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