The week began with elections in France and Greece that cast fresh doubts on Europe’s ability to contain its ongoing debt and economic crises. The week drew to a close with a slew of disappointing data in China. In between, the United States sent out mixed signals and South Africa reported a rise in unemployment.

Heightened risk aversion among global investors saw the rand weaken and commodity prices slide in the face of fresh doubts over the prospects for the global economy. Here are the highlights:

United States

On Thursday, a weekly government report showed that the number of workers filing new claims for jobless benefits fell by 1000 to a seasonally adjusted 367 000 last week. The data was largely in line with market expectations.

The four-week moving average for new filings fell to 379 000 from 384 250.  Economists consider this rolling average to be a better indicator of labour market trends than the weekly data itself.

The report is likely to assuage fears – at least temporarily – that America’s labour market is deteriorating. A surge in the number of claims observed during the first three weeks of April, coupled with an employment situation report showing that America added a mere 115 000 jobs last month, had raised concerns.

A separate report on America’s trade situation, also issued on Thursday, was less rosy. Data from the commerce department showed that the country’s trade deficit swelled 14.1% to $51.8-million in March.

A large trade deficit creates a drag on economic growth. During the fourth quarter of 2011, for example, America’s trade gap shaved nearly 0.3% from gross domestic product (GDP). So this week’s report is likely to lead government economists to revise their GDP estimates for the first quarter of 2012 downward.

But although the report may be negative for first quarter GDP figures, the specifics provided some encouraging signs moving forward. Imports and exports both rose to record levels in March.

Imports increased 5.2% to $238.6-billion, led by capital goods, consumer goods and industrial supplies. This suggests that companies may be expecting an uptick in consumer spending and business investment.

Exports rose 2.9% to $186.8-billion, led by capital goods and industrial supplies. This implies that the country’s manufacturing sector may be faring better than some economists have feared.


A presidential election on Sunday saw Nicolas Sarkozy tossed from power, the latest in a string of European politicians to fall victim to the continent’s ongoing debt crisis. Sarzkozy was replaced by François Hollande, the country’s first socialist leader in 17 years.

During his campaign, Hollande attacked Sarkozy’s domestic policies as well as his support for German calls for austerity – tax rises and spending cuts – as Europe’s best strategy for dealing with unsustainable debt levels. Hollande said that excessive austerity was plunging the region deeper into an economic abyss and pledged to shift his administration toward more growth-oriented policies.

Despite nervousness among investors prior to Hollande’s election, markets largely shrugged off the actual event. Many believe that heated campaign rhetoric may yield to cooler policies now that the election is past. Hollande indicated this week that his administration would be willing to support continued austerity, provided it is tempered by more pro-growth policies. Merkel, for her part, has also suggested that she is open to compromise.

Sunday’s other election, in Greece, has generated considerably more uncertainty and concern. Markets watched nervously throughout the week as a succession of party leaders sought, repeatedly and unsuccessfully, to pull together a governing coalition following the election in which no one party garnered a parliamentary majority.

On Friday morning, Greek leaders entered their fifth day of talks centred on forming a coalition government. Evangelos Venizelos – leader of the socialist Pasok party – met with Antonis Samaras – leader of the conservative party. The outcome of the meeting was not known as of Friday morning, but even if the two leaders agree to a deal, they would need the support of additional parties – that are all opposed to additional austerity – to reach the number of seats required for a majority.

If leaders are unable to form a new government, new elections may be held as early as next month. The tumultuous situation has raised fears that Greece may default on its obligations under recent bailout agreements, jeopardising future aid payments. Fears are also mounting that Greece may ultimately leave the eurozone, with potentially devastating consequences for the country itself and the currency union as a whole.


Chinese customs data showed on Thursday that imports grew a mere 0.3% in April, well below market forecasts for an 11% increase. Exports expanded at a 4.9% rate against expectations for 8.5% growth.

A separate release issued Friday morning showed that the country’s industrial output rose 9.3% last month. Economists surveyed by Dow Jones had expected to see a 12.2% rise.  Retail sales expanded 14.1%, also failing to meet consensus forecasts. Economists surveyed by Bloomberg had predicted a 15.1% gain.

Fixed asset investment in urban areas rose 20.2% in the January to April period, just shy of analysts’ expectations for a 20.5% rise.

The data is likely to intensify speculation that China’s government may need to intervene further in the country’s economy to stimulate growth. China’s economy slowed to 8.1% growth, year on year, during the December to March period – its slowest rate in three years.

Inflation data, also released on Friday, suggested that officials may have additional room for stimulus, should they choose to act. China’s April consumer price index (CPI) – a measure of price rises at the consumer level – rose 3.4%, year on year, down from 3.6% in March. The country’s producer price index (PPI) – a measure of price pressures at the factory gate – dropped 0.7%, year on year.

Falling inflation has led many economists and investors to speculate that officials may cut banks’ reserve requirements – the amount of cash banks are required to hold – by as much as 150 basis points in a bid to promote increased lending and economic growth. China last cut the reserve ratio by 50 basis points in February.

South Africa

On Tuesday, Statistics South Africa (Stats SA) reported that an additional 282 000 people joined the ranks of the unemployed in the first quarter, bringing the total number of jobless people to roughly 4.5-million.

In percentage terms, the unemployment rate rose to 25.2% in the three months ended March, up from 23.9% in the fourth quarter of 2011. The expanded unemployment rate – which includes those who have stopped looking for work – rose to 36.6% from 35.4% over the same period.

In a written statement, the South African Chamber of Commerce and Industry said they were “concerned by the increase”. The Congress of South African Trade Unions wrote that they were “profoundly shocked” by the numbers.

More disappointing data followed on Thursday. In separate releases, Stats SA reported that mining and manufacturing production both declined in March.

Mining output fell 9.8%, year on year, following a revised 13.4% decrease in February. For the first quarter as a whole, seasonally adjusted mining production fell by 5.5%, quarter on quarter, and by 9.4%, year on year.

Manufacturing output decreased 2.7% in March, year on year, well below economists’ expectations for a 3.3% rise. For the quarter as whole, production was up 1.0%, year on year.

In an emailed comment on the data, Nedbank’s economic unit wrote, “Together the disappointing outcomes for mining and manufacturing will probably contain [gross domestic product] growth in the first quarter to an annual rate below 2.5% [quarter on quarter], significantly slower than the 3.2% recorded at the end of last year and much weaker than market expectations.”


Matt Quigley

Matt Quigley

Matt spends part of his weekends writing a weekly preview of the global economy for the Mail & Guardian and a detailed preview of Brazil, Russia, India, China and South Africa's outlook for The BRICS...

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