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G7 expansion? Not even close. Canada’s in a league of its own

by Rebecca Wilder

Disclaimer: I’m in Germany, and the keyboard takes some getting used to. Therefore, some of my posts in the coming week will be short and sweet (so that I don’t include characters lik ö, which is sure to turn some heads). Furthermore, blogger spellcheck doesn’t work in English here.

The Q2 real GDP data across the G7 are now in, except for Canada who is always the last to release their statistics. We now know that the G7 expansion has been nothing short of pathetic. Why? Because among the G7, ONLY Canada – the G7 consists of the US, UK, Germany, France, Canada, Italy, and Japan – has fully regained its GDP lost during the recession (it had by Q3 2010 no less). Canada’s in an expansion league of its own.

Hence, the G7 ex Canada remain in “recovery” mode through Q2 2011 and roughly 3.5 years since the previous cyclical peak (see table in reference of post).

(Note: I differentiate “recovery”, or regaining output lost, from “expansion”, or growing beyond the previous cyclical peak, in this post.)

The chart above illustrates real GDP (just “GDP” from here on out) across the G7 around the peak of each country’s GDP during the last cyle, point 0. Only Canada has fully recovered its real GDP lost, having expanded to a level that is near 2% over its previous peak through Q1 2011.

A full business cycle can be measured as the bottom of a recession to the bottom of the next recession, or the trough to trough measure. In the US, the latest cycle lasted 91 months from the trough of the 2001 recession to the trough of the 2007-2009 recession. And here we are, 14 quarters since the peak in Q4 2007, of which GDP is 0,42% below. For comparison, GDP fully retraced the peaks previous to the 1981-82 and 1990-91 recessions in 7 and 6 quarters, respectively (by my quick count).

Even Germany, the wunderkind of euro area growth had not regained its GDP lost as of Q2 2011. And don’t even get me started on Japan.

The ECB is tightening; US Congressional leaders are recklessly endangering the economy; and some euro area governments are pushing through even further fiscal spending cuts to calm market angst. This stinks of policy mistakes – and here in the US, we’re patting ourselves on the back because the economic data do not scream recession yet?

Unbelievable.

Rebecca Wilder

Reference: Business cycle peak dates for chart above

Also posted at Newsneconomics

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Global slowdown underway – it’s more than the Japanese supply chain disruptions

by Rebecca Wilder

Global slowdown underway – it’s more than the Japanese supply chain disruptions

The global economic rebound is slowing markedly. With a tightening bias in emerging markets and a US recovery that continues to disappoint, external demand for any country that ‘needs it’ – those countries mired in fiscal austerity without monetary autonomy, i.e. euro area countries – is decelerating precipitously.

Exhibit 1: import demand for manufactured goods from 22.5% of the world (see chart at the end of this post) is slowing quickly, even contracting.



The chart illustrates the growth of import demand for manufactured goods from the US (12.8% of world import demand in 2011) and China (9.7% of world import demand in 2011) on a 3-month over 3-month annualized and seasonally adjusted basis. Spanning April through June 2011 compared to January through March 2011, US imports for manufactured goods slowed to a 4.9% annualized clip, while Chinese manufacturing imports contracted at a 22.9% annualized pace. US import demand growth peaked at 36.9% in March 2011 (again, on the same 3M/3M SAAR basis), while Chinese import demand growth peaked a bit earlier at 108.2% in January 2011.



One may argue that the sharp slowdown (US) and deceleration (China) of manufacturing imports is a product of supply chain disruptions stemming from the Japanese earthquake and ensuing tsunami. Let’s take a look.

Exhibit 2: Japanese distortions started to ease in April and May, leading global imports by roughly 1 month.



The chart above illustrates the dynamics of the Japanese industrial sector before and after the earthquake. Industrial production started to recover in April 2011 and hit a month/month peak of +6.2% growth in May. The sector has all but recovered, and should have been reflected in the US and Chinese import data as positive momentum by June- it hasn’t. In June, the seasonally adjusted import demand decelerated to a 0.6% pace in the US, while that in China contracted 4.3%.

In contrast, we saw the easing of supply chain disruptions in the US domestic industrial production stats. In the US (not shown, but you can get the IP data here), production of motor vehicles and parts fell 6.6% in April, which has improved sequentially through June (-2% M/M). This should be reflected in import demand (first chart), but the opposite’s occurred. In fact, import demand has worsened, while the supply chain disruptions improved. Better put: there’s weakness in global demand that is unrelated to Japanese supply chain disruptions.

Global growth is slowing – according to import demand of manufactured goods by the US and China, it’s slowing rather quickly. Where will this be felt? In Europe, of course. Germany derives near 50% of GDP from export demand, and imports roughly 45% of its goods and services from within the euro area (data here). The PIIGS countries – Portugal, Ireland, Italy, Greece, and Spain – necessitate strong external demand from the core countries (Germany and France) and from outside the euro area in order to successfully deleverage amid sharp fiscal retrenchment. Unless the German consumer really starts spending, the global industrial sector is unlikely to drive demand sufficiently enough in Europe.

Rebecca Wilder

Reference: dynamics of US and Chinese shares of world import demand

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Crossposted at Newsneconomics

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