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By HaleStewart November 26, 2017 7:31 am
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International Economic Week in Review: Global Growth Continues

            Good news continues.  The ECB’s latest analysis of the EU economy shows a region with an accelerating expansion.  Australia is growing as well.  Although the latest GDP revision pointed toward a solid expansion, the Treasury department issued a sharp downgrade for future growth. 

            The ECB released their latest meeting minutes, where they argued for continued EU expansion.  They gave three reasons to support their conclusion.  First, consumer and business sentiment is strong:

The top chart shows consumer confidence while the bottom graph shows business sentiment.  Both have consistently risen since 2016.  Second, capacity utilization is compressing, which means that demand is up and business will have to increase capital expenditures to keep pace with rising demand.  Third, exports are rising with global demand.  This is a key metric for the EU; due to the German export machine, the region has consistently had a trade surplus.  As for inflation, EU HCPI is still weak.  But this gives the ECB policy room to maintain low rates longer, feeding future growth.  Other EU news was positive: the composite reading reported a 79-month high of 57.5. 

The Markit Manufacturing PMI hit a 211-month high of 60 while the services index rose 1.2 points to 56.2.  New orders rose at the strongest pace since early 2011.  Backlogs were up and a declining capacity utilization rate supported increased hiring. 

            The RBA also released their latest meeting minutes, which began with a discussion of inflation.  Like other developed economies, Australia has experienced lower than projection price pressures, which the Bank argues are caused by an expensive currency, higher retail competition, and weaker prices from volatile items.  The following charts place this commentary into context:


The top chart shows overall CPI, which hit 3% in 2014 but has trended lower since.  Core inflation (bottom chart) has also trended lower, but it is low slightly below 2%.  Other statistics are improving.  A recent revision to GDP data restated non-mining business investment higher and survey data pointed to increased investment in the next 12 months.  And employment is improving: the unemployment rate is trending lower while the labor force participation rate and employment/population ratio are edging higher.  Overall, the data from down under points to a strengthening trend.

            The ONS released the second estimate of UK GDP for the third quarter, which was an unrevised .4% increase.  The business sector breakdown had services rising .4% (3 of 4 sectors rising), production advancing 1.1% (all 4 sectors increasing) and construction contracting .9%.  Using the more traditional breakdown, household expenditures rose .4% while investment increased .5%.  However, all is not “peaches and cream.”  The UK Treasury has lowered its growth estimate for the UK from 2% to 1.5% -- a fairly significant decline.  More importantly, this indicates that economic models continue showing a negative Brexit impact.

            There was a smattering of other news.  Canadian retail sales were up .1%.  But without gas sales, these declined .2%.  It also appears that on an inflation-adjusted basis, Canadian retail activity is now in a modest decline:

Japanese LEIs and CEIs declined, but the overall trend for both remains 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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