Current Global Economy 1.1 Tentative and fragile global economic recovery “Global business confidence has remained largely unchanged during the past two months through mid-October. Sentiment is consistent with a very tentative and fragile global economic recovery,” according to the results of the latest Survey of Business Confidence of the World by Moody’s Economy.com. “Businesses … are more upbeat about the outlook into next year … South Americans are the most positive, and North Americans generally the most negative.”

1.2 Improved employment prospects in the US, Europe and Asia. “Signs of recovery after a torrid year reverberated around the world on Monday as manufacturers reported rising output and improved employment prospects in the US, Europe and Asia,” reported the Financial Times. The JP Morgan global composite purchasing managers’ index (PMI) rose to 54.4, up from 53 in September, the highest value since July 2004. The recovery in manufacturing was strongest in Asia, where economists said the PMI figures were consistent with pre-crisis growth rates, but also reached multi-year highs in France, the UK and the US.

1.3 Unemployment rate and ‘real’ unemployment rate in US rose in October On the US unemployment rate hitting 10.2% in October, Clusterstock said: “Worse yet, the ‘real’ unemployment rate, which adds in things such as discouraged workers who have dropped out of the labor force, hit 17.5%. Ouch.” “Yet there’s some light at the end of the tunnel. While the unemployment rate and ‘real’ unemployment rate rose in October, the rate of deterioration (year-over-year change) for both measures kept falling, as shown below. Thus we’re still bleeding jobs and it hurts, but the blood loss is slowing rapidly and starting to come under control. Hopefully the patient still has a pulse by the time the blood stops,” said the report.

1.4 Commission raises EU growth forecasts “The European Commission on Tuesday raised its forecast for European economic growth next year, but said the recovery from recession would come at the price of record-high budget deficits and public debt. “In its six-monthly economic outlook, the Commission predicted that the 27-nation European Union would grow by 0.7% next year and 1.6% in 2011, after a slump of 4.1% in gross domestic product this year. “The forecast for 2010 was significantly more positive than the Commission’s estimate in May of a 0.1% fall in GDP. It reflected the impact of multibillion-euro government deficit-spending programmes, emergency support measures for the financial sector and interest rates cut to almost zero. “‘The EU economy is coming out of recession,’ Joaquín Almunia, the monetary affairs commissioner, said.

“‘This owes much to the ambitious measures taken by governments, central banks and the EU that have not only prevented a systemic meltdown but have kick-started the economy.’ “However, government borrowing to combat the financial crisis and recession has been on such a large scale that none of the eurozone’s 16 countries will have a budget deficit below 3% of GDP – the agreed ceiling in normal times – in either 2010 or 2011. “The eurozone’s aggregate budget deficit was projected at 6.4% this year, 6.9% next year and 6.5% in 2011. By far the most seriously affected countries were Ireland, forecast to have a deficit of 14.7% in both 2010 and 2011, and Greece, whose deficit was estimated at 12.2% in 2010 and 12.8% in 2011. “Aggregate public debt in the eurozone is forecast to rise to 84% of GDP next year and 88.2% in 2011 from 78.2% this year. The debt level stood at 66% in 2007. “EU leaders agreed at a summit in Brussels last week that governments should concentrate on putting their public finances in order, but that the economic recovery was too fragile for the effort to start in earnest until 2011.” Source: Tony Barber, Financial Times, November 3, 2009.

1.5 A global view of the housing bubble “Although the current crisis started with the bursting of the US housing bubble, other economies around the world are feeling the effects of their own real-estate booms and busts. From 2000 through 2007, a remarkable run-up in global home prices occurred. But that trend has reversed abruptly. In 2008, the value of US residential real estate fell 10%; the global average fared only somewhat better, declining by almost 4%. We estimate that falling home prices erased more than $3.4 trillion of household wealth in 2008. And because home prices are slow to correct, the current slide may persist for some time, which could depress global consumption.” Source: McKinsey Quarterly, October, 2009.

1.6 Gold soars to new highs “The price of gold has broken out to another new high this morning [Tuesday] following news that India’s Central Bank purchased 200 tons of the metal from the IMF. Previously, the IMF had announced that it would sell around 400 tons, raising speculation that the planned sale would cause a glut of gold in the market. Based on India’s $6.7 billion 200-ton purchase, the market may have an easier time digesting the increased supply than previously thought. The average price per ounce for the Indian Central Bank’s purchase works out to around $1,045. With gold now trading at $1,079, they have already made $218 million (3.25%). Not bad for a few days work!” Source: Bespoke, November 3, 2009.

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