Depression Expected To Continue For Some Time

The latest National Institute of Economic and Social Research (NIESR) estimate of GDP suggests that output fell by 0.1% in the three months to January 2011 following the 0.5% decline in the three months to December 2010. Month on month estimates suggest growth of 0.6% due to recovery from the severe weather conditions at the end of the year. The depression, to use the term the NIESR prefers to recession, is expected to continue for some time. The sector contributing most to the decline was construction with a fall of 12.2% following from a fall of 12.6% in the quarter ending last month over the previous quarter. Industry increased by 3.7%, agriculture by 1.3% and services by 0.3%. Agricultural output remained the same at 89.7 as did contruction at 95.7. Services increased output from 100.8 to 102.1.

OECD Economic Outlook Is Uneven Growth

The May OECD Economic Outlook says growth is gradually increasing in the OECD area but at different rates across different regions, especially in emerging-market economies. Risks in global recovery may even greater now. The upturn is in large part due to keeping markets open, pulling the economy out of recession.

The emerging economies are experiencing a re-opening of imbalances. China, however, is an example of strong domestic demand preventing a large external surplus rising to pre-crisis levels. Appropriate policies are still required to address global inequalities. The G20 is given as being potentially important in identifying and implementing a set of policies for more sustained and balanced growth. International collaboration will also be required for progress in financial market reform.

Even though growth has been taking place, unemployment has increased by over 16 million in the OECD area over the last two years but it is less than expected. Employment growth prospects in some European economies and Japan are weak. A jobs recovery could take place with appropriate cost-effective labour market and social policies that support workers in danger of long-term unemployment.

Instability in sovereign debt markets and overheating in emerging market economies are significant risks that may jeopardise the recovery. Monetary policy should be returned to normal as soon as possible and support removed. Exit strategies must take account of fiscal consolidation so as not to put pressure on interest rates. Much of the turbulence has been calmed by the response of euro-area governments and the European Cenral Bank though underlying weaknesses remain and structural adjustments will have to be made.

Euro area architecture will have to be strengthened considerably to get rid of doubts about the viability of monetary union raised by the sovereign debt crisis. Domestic policies should be strengthened for more competitiveness but fiscal discipline is also important. Spending cuts must preserve the cost-effectiveness of programmes helpful to growth. Consolidation strategies must include structural reforms for growth.

Reforms of labour and product markets should be implemented for an increase in output, innovation and to prevent increases in unemployment.

Growth Could be Faster

IMF say that the recovery is taking place more quickly than expected but it is uneven. With the right co-ordination it could be faster and more even with growth of 2.5% or 30 million jobs globally.

Threats include fiscal debts in some countries, possible asset 'bubbles' in emerging economies and the danger that consolidation in some parts of the world could have effects on others.

World leaders will discuss policy options at the coming world leaders summit in Canada. Ministers have already agreed on a number of reforms following the global crisis - greater transparency, stronger capital and liquidity standards, fair and substantial contribution, supervision of hedge funds and credit rating agencies and a single set of global accounting standards.

OECD Points To An Expansion Slowdown

The Composite Leading Indicators from the OECD for March 2010 suggest that where the economic expansion has been taking place there may be a slowdown in the pace. Most of the signs of expansion and recovery say the OECD have been tentative but in France and Italy the signs are stronger. There is also a possibility that expansion may also be slowing in Brazil and China.

The CLI indicator for the OECD area as a whole was 0.6 points up in March 2010 with the US increasing by 0.8 and Japan by 0.9 points. The euro area increased by 0.5. Brazil and China both decreased by 0.3 points indicating the possible halt to expansion in China and to recovery in Brazil. India and Russia increased slightly by 0.3 and 0.6 points respectively.

Marketers More Optimistic

The latest Bellwether Report from the IPA says that marketing budgets have been revised upwards for the first time in two and a half years. Firms are confident about the future and expect the recovery to continue. The main media budgets are up for the first time since Q3 2007 and Internet budgets were adjusted for the third quarter in a row but the biggest since since Q1 2008. Sales promotion and direct marketing budgets were unchanged. Below the line marketing budgets such as PR and events was the only sector to revise spend downwards.

OECD Economies Continue Expanding

The Composite Leading Indicators (CLI) for January released today (5 March 2010) from the OECD seem to show that the economic recovery and expansion that has been taking place in the OECD economies is continuing. The improvement in economic activity in the G7 is only marginally better than that for December.

The index for the OECD area increased by 0.8 points in January 2010, 11.3 points higher than January last year. The increase was evenly distributed between the 'Triads', the US, 11 points, the Euro area up 12.5 points and Japan 10.7 points. The statistics show that all G7 economies are in an expansion phase but Brazil and India and in a recovery phase, even though the 5 major Asian economies combined are expanding.

Trade Volumes Grow In G7

Exports from G7 countries grew 5% quarter-on-quarter in Q3 2009 and imports were also up by 4.1%. On a year-on-year basis exports were still significantly lower, down 17.5% as were imports, down 14.6% on last year.

The value of goods and services in OECD countries rose in Q3 2009. Exports were up by 7.8%, Q-on-Q and imports by 8.7%. On a Y-on-Y basis growth this year is again still very negative with exports down 22.1% and imports 24.7% but the overall trend suggests a bottoming out and turning point.

Monthly merchandise trade values seem to confirm the recovery. Total merchandise trade values in G7 countries have been increasing since April 2009 but remains below the levels reached during August 2008.

Continued Recovery In The OECD

Indicators from the OECD continue to point to recovery in OECD economies. The composite leading indicators (CLI) for Canada, France, Italy, Germany and the UK all suggest more expansion in the business cycle than last month. In these OECD economies the main drivers of expansion are finance and business confidence. Non-member economies are also doing better with all major non-members in the recovery phase of the business cycle.

The CLI for OECD countries increased 1 point in October 2009 which is 5.7 points higher than the same period last year and the outlook is for recovery. The UK CLI increased by 1.3 points in October which was 8.8 points higher than last year and the outlook is expansion. The Euro area increased by 1.3 points, 8.8 points higher than last year. The US CLI increased 1 point, 3.9 points higher than last year. France was 10.2 points up on last year, Germany 9.2 and Italy 12.5 points up on last year.

Among the non-members China's CLI had increased 0.2 points in October and 5.7 points on last year, India 0.2 and 4 respectively, Russia increased 1.6 points in the month but was 1.1 points lower over the year and Brazil had increased by 0.7 points in October and decreased 4.2 points since October 2008.

The outlook for the OECD economies is one of recovery and for the Euro area expansion. The economies of Canada, France, Germany and Italy are also expected to expand and G7 and Asian economies are expected to be in the recovery phase as are the major non-member economies. It should also be noted that any signs of recovery contained in the data are more concerned with recovery happening rather than any suggestion of the strength of the recovery.

Signs Of Economic Recovery Getting Stronger

OECD statistics for July are pointing to a broad economic recovery across all of the G7 countries. France, Italy and the UK are especially encouraging as the signs are that the main indicators in these economies are higher than this time last year. Most other countries indicators are better also showing signs of recovery but still lower than last year and there are signs of a trough appearing in Brazil. There are also signs of recovery in China, India and Russia. The OECD CLI increased 1.5 points in July, 1.9 points lower than July 2008. The euro area CLI increased by 1.9 points, 1.4 points higher than a year ago.