World Too Reliant on Asian Demand

December 8, 2009

When global financial markets first misfired in the second half of 2007, the hope was that the strength of Asia’s economy would mitigate the slowdown of global economic growth.  That hopefulness was misplaced.  With Asia now rebounding more rapidly than expected at mid-2009, the region is again being counted upon to lift other areas.  Car sales in China and India were 98% and 61% higher in November than a year ago.  Still, it’s a lot to ask of one part of the global economy.  This week has already served up considerable sobering evidence to suggest continuing care in taking on new risk exposure.

  • Germany’s recovery may be losing some momentum.   Industrial orders and production fell in October by 2.1% and 1.8% following strong advances in the third quarter.  Domestic capital goods orders, a good leading indicator of business investment, dropped 1.2%, and production of capital goods slumped by 6.6%.  The strongest growth within Europe is now found in France, the bloc’s second largest economy.  But as important as France is in the pecking order, the euro area as a whole has correlated best with Germany’s performance.  Germany’s composite PMI improved sharply in August to 54.0 but was lower three months later at 53.6 in November.


  • British industrial production was 1.4% lower in August-October than in May-July.  That represents a sharper rate of decline than the quarterly decreases of 0.9% in 3Q09 and 0.6% in 2Q09.  The Confederation of British Industry released a monthly survey today that revealed a surprise deterioration in export demand to a very weak reading of minus 41 from minus 37 in November.


  • Speaking yesterday before the Economic Club of Washington, Chairman Bernanke accentuated persistent negative factors that will depress the pace of growth and expressed uncertainty about whether self-sustaining recovery has begun.  In that same vain, today’s statement from the Bank of Canada claimed that “significant fragilities remain” and noted that growth last quarter had not been as strong as assumed.  Following Black Friday, U.S. shopping at chain stores was not lively in the first full week of the holiday season, and such fell below target.   Likewise, the IBD/TIPP optimism index slid to a five-month low of 46.8 this month from 47.9 in November and 48.7 in October.


  • One doesn’t have to examine data to observe the renewal of panic in Japan.  Just look at what’s happening on policy.  While other central banks discuss the reversal of unconventional measures, the Bank of Japan took new steps to provide extra market liquidity, and the government today unveiled the fourth fiscal stimulus in 15 months.  The package failed to excite investors.  With debt at 200% of GDP, the government should already have played its last trick.  Higher readings on the October indices of leading and coincident Japanese economic indicators were outweighed today by dismal results from money and credit data and the Economy Watchers Index.  Bank lending slowed to 0.2% in the year to November from 1.4% in October, 1.8% in 3Q, and 2.8% in 2Q09.  The economy watchers survey, which gets the views of workers in areas with close contact to consumers, slumped by a surprising 7 points to 33.9 in November.  Such had averaged 41.8 in the third quarter.  November’s reading was even lower than the second-quarter mean of 37.7.  The street consensus forecast for this indicator had been 40.  Japan is expected to relinquish its number two ranking within the coming year to China on the nation-state global leader board of economic size.

Copyright Larry Greenberg 2009.  All rights reserved.  No secondary distribution without express permission.


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