In a press conference following today’s FOMC statement, Federal Reserve Chairman Ben Bernanke said it appears that US economic growth will be less than previously forecast. Bernanke said that for the current year, he expected growth to be between 3.1 percent and 3.3 percent compared to 3.4 to 3.9 percent as noted earlier. Bernanke also hinted that the Fed would not conduct further quantitative easing once the current round of stimulus spending wraps up in June.
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The Organization of Economic Co-operation and Development (OECD) said Tuesday that it expects Canada will lead all G7 countries in economic growth for the first half of 2011. According to the OECD, the Canadian economy will expand by about 5.2 percent for the first quarter ended March 31st, and suggests further growth of 3.8 percent for the second quarter.
The OECD also upgraded its forecast for Germany putting it second behind Canada with predicted growth of 3.7 percent for the first quarter, followed by France at 3.4 percent, and the United States at 3.1 percent. The OECD declined to provide a prediction for Japan given the recent events, but overall, the OECD says the G7 economies are performing better than earlier expected.
As a leading exporter of resources, Canada continues to benefit from stronger commodity prices especially crude oil prices which are at a two-year high. In January and February alone, Canada added over 84,000 new jobs and if the employment report scheduled for release this Friday comes in as expected, Canada could add another 30,000 new positions. As a result, the unemployment rate is expected to fall to 7.7 percent from 7.8 percent as of the end of February.
In addition to an improving job market outlook, the Canadian dollar is also benefitting from a growing tolerance for investment risk. The dollar – known as “the loonie” because of the waterfowl image on the reverse of the dollar coin – traded at 96.70 U.S. cents on Tuesday to match the highest price for the loonie against its American counterpart since November 2007.
The downside of the currency appreciation of course is that it makes Canadian exports more expensive for buyers who must exchange weaker currencies into Canadian dollars. The Bank of Canada – which is scheduled to announce its next interest rate announcement on April 12th – noted the “considerable challenges” exporters face from a strengthening loonie in a policy statement released on March 1st.
Most analysts believe the Bank of Canada’s April statement will leave interest rates unchanged at one percent, but there is a growing recognition that the Bank will be forced to hike rates later in the year to contain inflation.
Two years have passed since the worst financial crisis since the 1930s dealt a body blow to the world economy. Working with policymakers at home and abroad, the Federal Reserve responded with strong and creative measures to help stabilize the financial system and the economy. Among the Fed’s responses was a dramatic easing of monetary policy – reducing short-term interest rates nearly to zero. The Fed also purchased more than a trillion dollars’ worth of Treasury securities and U.S.-backed mortgage-related securities, which helped reduce longer-term interest rates, such as those for mortgages and corporate bonds. These steps helped end the economic free fall and set the stage for a resumption of economic growth in mid-2009.
Washington Post Op-Ed
The U.K. trade deficit narrowed more than economists forecast in June as exports rose to a two-year high.
The goods-trade gap shrank to 7.4 billion pounds ($11.7 billion) from 8 billion pounds in May, the Office for National Statistics said today in London. The median of 17 forecasts in a Bloomberg News survey was for a 7.8 billion-pound deficit. Exports jumped 4.3 percent to the highest since June 2008, and imports rose 1 percent.
The pound has fallen about a quarter on a trade-weighted basis since the start of 2007, making exports more competitive. While economic growth accelerated in the second quarter, Bank of England Governor Mervyn King said there are risks from a possible euro-area slowdown. Policy makers may lower their growth forecasts tomorrow after last week maintaining emergency stimulus, according to economists in a Bloomberg News survey.
“At the margin this is a small improvement, but the data are volatile,” said Ross Walker, an economist at Royal Bank of Scotland Group Plc in London. “There are questions over how sustainable the recovery is in export markets. There’s a sense there’s been a loss of momentum.”
The pound rose as much as 0.1 percent against the dollar after the report, and was trading at $1.5820 as of 9:44 a.m.
Bloomberg
U.K. manufacturing increased for a second month in June in the best calendar quarter for factory production in more than a decade as the economic recovery strengthened.
Output climbed 0.3 percent from the previous month, when it rose by the same amount, the Office for National Statistics said today in London. The median forecast of 24 economists in a Bloomberg News survey was for an increase of 0.4 percent. Overall industrial production unexpectedly fell due to earlier- than-usual maintenance of oil and gas fields.
Bank of England policy makers yesterday kept their 200 billion-pound ($318 billion) bond stimulus in place and held the benchmark interest rate at a record low. While economic growth accelerated to the fastest in four years in the second quarter, Governor Mervyn King has downplayed the data and said last week that officials must “keep our foot firmly on the accelerator.”
Bloomberg
Melinda Nagy, a Hungarian special education teacher who knows little about financial markets, has started to lose sleep over exchange rates.
Nagy’s payments on her Swiss-franc denominated mortgage almost doubled after the Hungarian forint dropped 35 percent since 2008 against the Alpine nation’s currency, forcing her to clean houses and work at a chicken ranch to avoid foreclosure.
“I’d rather burn my house down than give it back to the bank,” said Nagy, 43, who lives in the eastern Hungarian city of Hatvan. “What’s the difference if I go to jail or become homeless?”
The amount of franc-denominated mortgages in Hungary surged to 2.2 trillion forint ($10.2 billion) in May from 133.8 billion forint at the start of 2005, according to central bank data. Non-performing loans at local lenders such as OTP Bank Nyrt, Erste Group Bank AG and Foldhitel es Jelzalogbank Nyrt may rise to as much as 10 percent of total loans by the end of the year, said Tamas Erdei, president of the Budapest-based Banking Association.
Bloomberg
The International Monetary Fund (IMF) has revised its global growth outlook for the remainder of the year. Based on its most recent survey, the IMF now predicts that world-wide, economic growth will reach 4.6 percent – an increase of nearly half a percent from its earlier estimate of 4.2 percent.
The US was upgraded to 3.3 percent growth, an increase of 0.2 percent, while China was revised upwards by 0.5 percent to 10.5 percent growth. Growth estimates for the UK on the other hand, were lowered by 0.1 percent to 1.2 percent.
Source:BBC News
German imports have risen at their fastest rate since unification in 1990, outpacing a sharp rise in exports.
Imports rose by 14.8% in May compared with the previous month, while exports grew by 9.2%. Both figures were much higher than analysts had expected.
As a result, Germany’s trade surplus narrowed to 10.6bn euros ($13.4bn; £8.8bn) for the month.
Analysts said the data showed Europe’s biggest economy was growing strongly.
The reason, they said, was strong demand for German goods in Asia. A weakening euro, which makes the goods cheaper overseas, had also helped.
The euro has been hit in recent months by concerns about government debt levels and, more recently, by fears about the liquidity levels of banks.
BBC World News
The International Monetary Fund (IMF) has raised its forecast for global economic growth this year, from 4.2% to 4.6%.
It said the world economy grew strongly in the first part of this year, mainly thanks to robust growth in Asia.
However, the UK was almost unique in having its growth forecast revised down slightly, to 1.2%.
The IMF also warned risks had increased and there had been a setback in progress towards financial stability.
Developed economies have maintained a modest, but steady recovery in the year to date, the supranational agency said.
BBC World News
The ECB left interest rates at a record low as rising market borrowing costs and the sovereign debt crisis threaten to derail the region’s economic recovery.
Policy makers meeting in Frankfurt today kept the benchmark rate at 1 percent. Separately, the Bank of England left its key rate at 0.5 percent.
Trichet is under pressure to do more to shore up investor confidence in the 16-nation euro region as government spending cuts and concerns about the health of the banking sector cloud the outlook for growth. The International Monetary Fund said yesterday the ECB may have to step up its purchases of government bonds, which have already split the bank’s 22-member Governing Council.
Bloomberg
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