When the US sneezes the rest of the world catches a cold, or so they used to say. More recently, the talk is that we have seen de-coupling, that the US is no longer so important. It’s an important point, because if the de-couplers are right, global recession will be avoided, and there is scope for the US and little old UK to export their way out of trouble. If they are wrong, however, then the global economy is about to get a double helping of influenza.
The last 24 hours have seen news break from Germany, Japan and France, and it’s dramatic indeed – and just for once the unfolding drama has a high feel-good factor.
In the first quarter of this year, Japan grew by a very impressive 0.8 per cent – not bad for an economy which is supposed to be in recession. Earlier this year both Goldman Sachs and Morgan Stanley said Japan was either in, or about to hit, recession. As for the government, well, unlike a certain government you and I are familiar with, rather than talk things up, Japan’s official estimates said the economy was at a standstill. They were wrong, and isn’t nice to see the error on the down side?
But Japan’s performance was just for starters, the real meat was supplied by Germany. For in the one of the few developed countries in the world where making things is still considered to be the way forward, quarterly growth was a stunning 1.5 per cent. Let’s reiterate that – 1.5 per cent in just three months. You would have to rewind the clock back 12 years to find the last time it expanded so fast.
Even in France, which itself was supposed to be growing at a pace which was barely above zero, growth came in at 0.6 per cent – impressive by normal standards, although rather tame in comparison to its bigger neighbour.
The Eurozone as a whole managed 0.7 per cent, and there is even talk that Italy – Europe’s basket case, expanded in the quarter – although the official data is not out yet.
As was reported here yesterday, Spain’s growth slowed quite rapidly, and with the country’s housing market on the ropes – if not on the canvas, Spain is set for a tough period.
But let’s not spoil the good news with dark thoughts about Spain. The fact is that the economic performance seen in Germany and France vindicates the European Central Bank’s tough stance on inflation – but at the same times illustrates perfectly the problem with the euro – because Spain desperately needs rate cuts.
A break down for the Eurozone figures is not yet available, but according to the FT both investment and consumer spending in Germany rose significantly.
France and Germany are Britain’s second and third biggest export markets, respectively. Between them they account for 23 per cent of our exports, so a sharp re-bound in these two countries will help offset falls in the US, which makes up 13.1 per cent of our exports Unfortunately, our fourth biggest export market is Ireland, which also is struggling under falling house prices. (As an aside, it’s quite amazing, isn’t it, that in this globalised world, a country like Britain, with its free trade policy, finds its fourth biggest export market is Ireland, with a population of just 4.3 million.)
In Japan, domestic demand added 0.3 percentage points to the quarterly growth – that may not sound much, but for the economy of the Rising Sun that is pretty good. Consumer spending jumped by an impressive 0.8 per cent.
Japan’s growth was also helped by surging exports – which isn’t quite so good for the rest of us. Right now, we need Japan to import more – after all, last year her current account surplus was around $200bn, or around 6 per cent of GDP.
So, is there a grey cloud to this silver lining? What Germany and Japan both have in common is that they are both big exporters. A question mark still remains over whether these two economies can continue to expand as the US consumer pulls back.
Last year, US imports were worth $1.8 trillion, that is to say, US consumers bought $1.8 trillion worth of foreign goods. It will take time for a US slowdown to show up in German and Japanese trade figures.
The latest economic news, then, is very promising, but we need the consumers from these two countries to spend more. We need these people to adopt something of an Anglo-Saxon approach to spending now, and worrying about it later. Whether, however, that is in their interests, is another matter altogether.
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