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By HaleStewart January 14, 2018 7:56 am
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International Economic Week in Review: 2018 Is Starting Off Well

            Earlier this week, the OECD released their latest general assessment of world economy.  The report noted that this was the best year for global growth since the Great Recession with the expansion synchronizing across countries.  But while more countries are now growing (left chart), the pace of per capita growth is still far below previous expansions:

 

And global trade is still weak:

The report also highlights several potential growth headwinds in the upcoming years: high levels of debt in China, lack of reforms in emerging economies and easy central bank policies leading to asset bubbles. 

            EU news continues in a very bullish vein.  Business and consumer sentiment is near post-recession highs and unemployment once again ticked .1% lower to 8.7%.  Three of the big four economies saw their unemployment rate move lower; only Spain’s remained unchanged.  And industrial production continues to increase: it rose 1% M/M and 3.2% Y/Y:

            Australian news pointed towards continued growth.  Building permits – a key leading indicator – rose for the 10th consecutive month, approaching levels from the 2014-2016 peak.  Housing permits have been stable; apartment permits have been a recent area of weakness.  Retail sales also rose, this time by a very healthy 1.2%.  But this data series has contracted in 4 of the last 12 months:

            News from the UK was mixed.  The only economic release was a positive number for production and manufacturing levels.  The ONS releases these numbers on a rolling three-month basis.  The most recent production numbers were up 1.2% Q/Q and 3.3% Y/Y; manufacturing also increased by 1.4% (Q/Q) and 3.9% (Y/Y).  Here are the charts from the report:

However, there are fairly serious political issues.  Teresa May tried to reshuffle her cabinet (see here and here) but ran into fairly serious trouble.  This was followed by news that the EU has communicated with several large UK companies about the negative impact of a hard Brexit.  Finally, a report from Bloomberg economics reached the unsurprising conclusion that a hard-Brexit would lead to lower UK growth:

The U.K. economy will be paying the price for years to come if Prime Minister Theresa May fails to secure a Brexit agreement with European Union leaders.

Leaving the bloc in March 2019 with no deal in place could result in a 6.5 percent hit to GDP by 2030, according to research published by Bloomberg Economics analysts Dan Hanson and Jamie Murray. That’s compared with projections for growth if the U.K. voted to stay in the EU, though an agreement that helps trade would soften the blow.

https://www.bloomberg.com/news/articles/2018-01-10/-bad-brexit-would-hurt-the-u-k-economy-for-more-than-a-decade

This is hardly a one-off conclusion: when an economy loses cheap access to its largest trading partner, exports decline. 

            Canadian news was also mixed.  Building permits were off 7.7%, with both residential and non-residential sectors contracting.  Taking the longer view, residential activity has been stable since 2016; non-residential has increased modestly.  Housing starts dropped 14%.  But looking at the chart, it appears this data series has simply returned to levels seen in the last 4-5 months:

Finally, the Bank of Canada released their latest Business Outlook Survey, which contained a large amount of bullish data.  Businesses saw sales increases over the last few months and are also projecting higher sales this year.  Thanks to capacity constraints and higher employment trends, they expect to increase capital investment.  Credit policy is loose.  The overall impression was an economy that should have a good 2018.

            While Japanese consumer confidence decreased .4, it’s still in a strong uptrend and is currently approaching 2015 highs.  Both the LEIs and CEIs were up; the broader trend for each is higher:

In 2009, F. Hale Stewart, JD. LL.M. graduated magna cum laude from Thomas Jefferson School of Law’s LLM Program.  He is the author of three books: U.S. Captive Insurance LawCaptive Insurance in Plain English and The Lifetime Income Security Solution.  He also provides commentary to the Tax Analysts News Service, as well as economic analysis to TLRAnalytics and the Bonddad Blog.  He is also an investment adviser with Thompson Creek Wealth Advisors. 

 

 

 

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