Data show that the synchronised global slowdown is accelerating

The latest economic data suggest that the slowdown in growth continues to build across many different economies globally.

In the UK, revised data from Q4 2011 show that Britain;s recession has been deeper than was previously believed. Moreover, the Bank of England expects the situation to get worse in light of the euro zone crisis. In terms of coincident economic data, the UK’s retail data have been the most robust due mainly to the Queen’s Diamond Jubilee. A Guardian article on this suggests that underneath, the data are weak for this time of year. As to other coincident data, Nationwide has reported that UK house prices registered their largest year-on-year decline in nearly three years. This is alarming given the weakness of UK banks and the knock-on effect house price declines has on indebted consumers’ ability to spend. All of this is weighing on tax receipts, making the UK budget worse. All in all, the data from the UK are poor.

In Germany, the data have been as robust as anywhere in Europe. part of this has to be attributed to the credit-growth enabling combination of low interest rates and rising house prices. When interest rates are low and the debt to asset ratio is stable or falling because asset values are rising, credit growth is more robust. Nevertheless, Germany is showing signs of cracking as the jobs data show unemployment to have risen. I expect German data to weaken in the second half of 2012. Also, newsworthy, Egan-Jones has downgraded Germany’s credit rating.

In Spain, debt deflation is taking hold. Like their English counterparts, the Bank of Spain expects the economic data to worsen. Moreover, this is happening in a backdrop in which Spain’s full year fiscal target will miss wildly. Deficits are already 3.41% when the full year target is 3.5% and GDP is now declining at an accelerating rate. Add the increased sovereign yields, the falling house prices, the bank bailouts and the high rates of unemployment and it is clear that Spain is hitting a Greek-like debt deflation right now. I expect the situation to get considerably worse, putting sizable holes in bank balance sheets. The likelihood of a sovereign bailout and a second bank bailout is a lock under present circumstances.

Elsewhere in the Eurozone, I caught a blurb in the Portuguese Paper Jornal de Noticias that Slovenia could need a bailout if the budget deadlock there doesn’t get resolved. My read of the article is that this is not a certainty but a possibility for 2013 more than 2012. So while this should be on the radar screen, it is not an urgent situation.

Outside of Europe, the other pieces of data I have seen show rising house prices in the US. That is coupled with greater home sales to suggest that housing has rebounded and will continue to do so until the next recession hits. I am not convinced the rebound is a full cyclical rebound rather than just a seasonal one due to the typical summer pricing surge. Nevertheless, the data are good enough to think that it is. However, be under no illusion this is a secular uptick given the weakness in US growth. In Brazil, Moody’s has downgraded 11 banks in keeping with its bank downgrades elsewhere. Credit growth in Brazil is really coming off the boil and that spells economic weakness. My understanding is that the government there is trying stimulus to counteract the private demand falloff. But unless, they can get credit growth turned around, GDP growth will continue to ebb.

Bottom line: Weakness pervades all areas of the global economy and the deceleration in growth is, if anything, faster. I am looking at this as a parallel to the growth slowdown in 2008, with the weakness in commodity prices being another good sign that demand was falling. In my view, falling growth in so many parts of the world will make it hard to avoid a global recession.


That’s it. Here are the links.

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Italy Approves Labor Law Overhaul –

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Banks face billions of dollars of claims after Barclays settles – Telegraph

"The Impotence of the Federal Reserve" by Martin Feldstein | Project Syndicate

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Italy offers state aid to world’s oldest bank | Reuters

FT Alphaville » LIBOR manipulation? Done for you, Big Boy

Italy’s bailed-out BMPS bank to reduce workforce by 4,600 – The Economic Times

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Mark Cuban: High-Frequency Traders Are the Ultimate Hackers – MarketBeat – WSJ

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Spain cannot finance itself for long, says PM Mariano Rajoy – Telegraph

BBC News – Californian city of Stockton faces bankruptcy

Apple Wins Injunction Against Samsung Galaxy Tab – John Paczkowski – News – AllThingsD

El Estado tuvo hasta mayo un déficit de 36.364 millones, el 3,41% del PIB –

Pensioners worst hit by inflation – Telegraph

Congress Said to Consider Delaying Automatic Budget Cuts – Bloomberg

Italy gives world’s oldest bank €2bn lifeline | World news | The Guardian

Can the Fed Really Do More? « naked capitalism

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