Fed 2015 / ECB 2011 comparison flawed

Paul Krugman recently drew a parallel between the Federal Reserve’s plans to raise interest rates in 2015 and the ECB’s ill-fated 2011 policy tightening, which was swiftly followed by a recession. The monetary context is different, however, casting serious doubt … Read More

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Eurozone surveys firming on schedule

Eurozone business surveys are starting to confirm the improved economic outlook signalled by monetary trends and leading indicators – see previous post. The Eurozone manufacturing purchasing managers’ new orders index rose back above the breakeven 50 level in December after … Read More

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Japanese money trends signalling economic rebound

Japan’s economic outlook continues to improve, judging from further strong gains in monetary aggregates in November. The six-month rate of change of M1, M2 and M3 peaked in late 2013 and fell sharply through July 2014. The real-terms change turned … Read More

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UK fiscal projections flattered by suspect output gap assumption

Last week’s fiscal forecasts from the Office for Budget Responsibility (OBR) assume that the “output gap” – i.e. the deviation of GDP from its “potential” level – was -0.8% in the third quarter of 2014. This assumption, however, looks optimistic … Read More

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Eurozone deflation fears misguided

The ECB must launch full-scale QE, say its supporters, because the recent oil price fall will push the economy into “deflation”, defined as a year-on-year fall in headline consumer prices. When this happens, consumers and businesses will stop spending, believing … Read More

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UK autumn statement: fantasy forecasting

In June 2010, the Office for Budget Responsibility (OBR) judged that the new coalition government was on track to meet its “fiscal mandate”, defined as a balanced cyclically-adjusted current budget in five years’ time, i.e. in 2015-16. This forecast was … Read More

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UK money trends still expansionary

UK monetary growth remains broadly stable, suggesting continued solid economic expansion and rising domestic inflation. The broad and narrow monetary aggregates judged here to be most informative for forecasting purposes are M4 and M1 excluding financial sector deposits*. Annual growth … Read More

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Money data / lead indicators confirm better Eurozone outlook

Eurozone monetary trends and leading indicators continue to strengthen, suggesting a significant pick-up in economic growth in the first half of 2015, barring external shocks. Both narrow and broad money have surged since the ECB imposed a negative interest rate … Read More

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Eurozone cycle probably turning up despite soft PMI

ECB President Mario Draghi last week expressed pessimism about near-term Eurozone economic prospects, citing a weak November “flash” purchasing managers’ survey. The survey, he said, “suggests a stronger recovery is unlikely in the coming months, with new orders falling for … Read More

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Chinese rate cut: quick comment

Weak Chinese October monetary data signalled that additional policy stimulus would be required to sustain economic growth at its recent pace – see previous post. The People’s Bank announced a modest easing step today, lowering the benchmark one-year bank lending … Read More

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