The economic week in review: More troubling signs

Europe’s woes continued to weigh heavily on global markets this week. A summit of European leaders on Wednesday failed to reassure economists and investors that politicians can contain the growing risks of Greek exit from the euro and continental banking crisis.

Here at home, data showed that the rate of price rises facing consumers rose slightly last month and the Reserve Bank left the repo rate on hold at a more than 30-year low. Elsewhere in the world, data was largely negative, central banks expressed concern over the mounting threats to the global economy and China’s economy sent out more troubling signals. Here is your roundup.

North America
The United States – the world’s largest economy – released some relatively upbeat housing numbers this week. On Tuesday, the National Association of Realtors reported that existing home sales increased 3.4% in April to an annualised rate of 4.62-million units, the highest level of sales since May 2010.

More positive news followed on Wednesday when the US commerce department released statistics showing that sales of new homes increased 3.3% last month to a seasonally adjusted annualised rate of 343 000 units.

Thursday’s economic data was more downbeat. Government figures showed that durable goods orders – a gauge of factory activity – edged up slightly in April, but a measure of business investment spending fell for the second straight month.

Overall durable goods orders increased 0.2% last month, after declining 3.7% in March, but core capital goods orders – considered a proxy for business investment plans – fell 1.9%, following a 2.2% decline in March.

Also on Thursday, a report from the US labour department showed that the number of Americans filing first-time claims for unemployment benefits fell by 2000 last week to 370 000. The four-week moving average for new filings – considered a more reliable indicator of labour market trends – also fell.

Europe
Europe – the world economy’s sick man – had another terrible week. Leaders representing the European Union’s 27 member states wrapped up their latest summit on Thursday without much to show for it, fuelling fears among economists and investors that the continent’s long-running crisis may spiral out of control. And a series of data releases showed that Europe’s economic malaise is deepening.

Data released this week showed that the Eurozone’s composite purchasing managers’ index (PMI) – a forward looking indicator of economic activity – fell to 45.9 in May from 46.7 in April, its lowest reading since June 2009 and ninth straight month below the 50.0 mark separating expansion from contraction.

Germany’s PMI fell to 49.6 and France’s reading slid to 44.7, a three-year low. Signs of trouble in Germany and France – the continent’s two largest economies – were particularly worrying for economists. The two countries’ economic performance is deemed critical to offset recessions in Spain, Italy and Greece.

Meanwhile, Britain released revised gross domestic product (GDP) figures showing that the country’s economy shrank more than previously estimated in the first quarter of 2012. Data from the Office for National Statistics showed that GDP shrank 0.3% during the first three months of 2012.

Asia
On Wednesday, Japan’s ministry of finance reported that the world’s third largest economy recorded a ¥520.3-billion trade deficit last month – the largest trade gap ever recorded for the month of April.

Separately, as expected, policymakers from the Bank of Japan announced that they were leaving rates unchanged near zero percent and keeping a ¥40.0-trillion asset purchase programme running to stimulate growth.

Japan’s economy rebounded in the first quarter, but faces threats from a slowdown in China and Europe moving forward.

More troubling news for the region followed on Thursday when a key manufacturing gauge pointed to a sharper than expected slowdown in China, the world’s second largest economy.

HSBC’s flash purchasing managers’ index (PMI) fell from a reading of 49.3 in April to 48.7 in May, marking the seventh straight month in which the index remained below the 50.0 mark separating expansion from contraction.

Thursday’s data follows a slew of negative economic indicators – including below forecast industrial production, trade, fixed-asset investment and property statistics – covering the country’s performance in April.

Analysts expect that China’s economy may bottom-out in the second quarter before resuming stronger growth later in the year as existing and widely anticipated future stimulus measures take effect.

South America
The government of Brazil – the world’s sixth largest economy – announced additional stimulus measures this week designed to counter mounting threats to the country’s stalling economy.

On Monday, a survey from the country’s central bank showed that economists have lowered their GDP growth estimates to 3.09% for 2012, down from a forecast of 3.20% in the previous week’s responses. Finance Minister Guido Mantega lowered the government’s official growth forecast this week as well.

In a bid to combat the slowdown, Mantega announced on Monday that officials will cut interest rates for companies buying capital goods, temporarily reduce taxes on some vehicle sales and take steps to make car financing easier for consumers. Brazil’s automotive sector accounts for roughly 20% of the country’s industrial gross domestic product (GDP).

Previous efforts to target specific industries with tax and credit incentives have proved largely ineffective. Most economists cite high taxes, labour costs, bureaucracy and corruption as bigger impediments to growth.

Despite tax cuts on textiles and appliances, efforts to weaken the country’s currency, a series of interest rate reductions and other efforts to boost lending, Brazil’s economy has been struggling since almost falling into recession during the second half of last year.

Africa
On Thursday, the South African Reserve Bank’s monetary policy committee (MPC) left the repo rate unchanged at 5.5%, in line with market expectations. The repo rate has remained at a more than 30-year low for nine consecutive meetings.

In a research note, Nedbank’s economic unit wrote, “Given increased risks to the global economic outlook we expect the MPC to keep interest rates on hold for longer, keeping them steady until around March 2013.”

In announcing their decision, the MPC said that their inflation projects have improved and that the consumer price index (CPI) – a measure of price rises at the consumer level – probably peaked in the first quarter of this year.

April’s CPI figures – released by Stats SA on Wednesday – showed that consumer inflation rose to 6.1% last month from 6.0% in March.

Elsewhere on the continent, central bankers in Nigeria – Africa’s second largest economy and top energy producer – left interest rates on hold at 12.0% this week for the fourth meeting in a row.

Nigerian officials are also balancing concerns about inflation – which rose to 12.9%, year on year, in April – against slow growth. Economists expect Nigeria’s economy to expand 6.5% in 2012, down from 7.4% last year.