Top economist Martin Wolf on 2012

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With the shadow of the 2007/2008 crisis still looming large and growth forecasts downgraded across the board is there anywhere that can provide light on the gloomy outlook? Martin Wolf, FT’s chief economics commentator, gives an evaluation of the global economy in 2012.

Click here or on the image below to watch the video.

Source: Financial Times, January 11, 2012.

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Global PMI Scorecard: A turn for the better led by the U.S. and China

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The acceleration in global economic activity since the lows in October gained traction in December.

The JP Morgan Global Composite Index improved to 53.0 from 52.0 in November after falling to 51.4 in October. While the improvement in the composite PMI could virtually be attributed entirely to a significant improvement in business conditions in the U.S., the improvement in December was more broad based. The U.S. continues to lead the way, though, as my GDP-weighted Composite ISM PMI taking into account the Non-manufacturing Business Activity Index (the basis Markit uses to calculate the composite PMIs) instead of the PMI itself improved further to 55.7 from 55.4 in November. The manufacturing sector experienced accelerated growth increasing to 53.2 from 52.7. The ISM Business Activity Index remained unchanged at a relatively robust 56.2.

China, Brazil and India contributed significantly to the acceleration in global economic activity. China reversed the unseasonal slump in November in both the manufacturing and non-manufacturing sectors while Indian industries accelerated to near robust levels.

The contraction in the Eurozone’s private sector eased markedly for the second consecutive month. My calculated GDP-weighted PMI for the Eurozone rose to 48.3 from 47.2 in November and 46.6 in October. After stagnating in November, growth in Germany’s services sector is accelerating again while the services sector in France has stopped contracting. Elsewhere in the Eurozone the situation is dire to say the least, with the services sector in Ireland joining the contraction in the other debt-ridden Eurozone countries. However, the contraction in the Eurozone’s manufacturing sector, including France and Germany, continues. The acceleration in growth in the U.K.’s services sector from near stagnation in November is noteworthy.

The situation in Australia’ manufacturing and services sectors has stabilized while Japan is showing signs of acceleration in growth. The contraction in Hong Kong and Taiwan eased somewhat but the contraction in South Korea’s manufacturing sector deepened. In the Middle East, Saudi Arabia’s economy remains robust but growth in the Emirate states is faltering.

GDP-weighted/ Composite PMIDirection 


Rate of change

U.S. BAI***(note 1) 55.755.4GrowingFaster
Germany*51.349.4GrowingFrom contracting
France*50.048.8StagnatedFrom contracting
Japan*50.148.9StagnatedFrom contracting
Emerging Economies
China**52.649.3GrowingFrom contracting
China S/A**52.449.5GrowingFrom contracting
Hong Kong*49.748.7ContractingSlower
Saudi Arabia*57.758.1GrowingSlower
JP Morgan Global Composite*  








Note: ISM Non-manufacturing Business Activity Index used instead of Non-manufacturing PMI.

Sources: *Markit; **CFLP, Li & Fung, Plexus Asset Management; ***ISM, Plexus Asset Management; ****Markit, Plexus Asset Management.



Services PMI




Rate of Change

U.S. BAI***56.256.2GrowingSteady, robust
France50.349.6GrowingFrom contracting
Ireland48.452.7ContractingFrom growing
Japan50.449.5GrowingFrom contracting
Australia49.0 47.7ContractingSlower
Emerging Economies
China*56.049.7GrowingFrom contracting
China S/A*55.351.4GrowingFaster
JP Morgan Global Services  








Sources: Markit; CFLP*; ISM**; US Business Activity Index***; Plexus Asset Management.


Manufacturing PMI




Rate of Change

Greece*42.040.9ContractingSlightly slower
Italy*44.344.0ContractingSlight slower
Spain*43.743.8ContractingSlightly faster
Ireland*48.648.5ContractingSlightly slower
Japan*50.249.1GrowingFrom contracting
Australia*50.2 47.8 GrowingFrom contracting
Emerging Economies
China**50.349.0GrowingFrom contracting
China S/A50.548.3GrowingFrom contracting
Turkey*52.052.3GrowingSlightly slower
S Korea46.647.1ContractingFaster
Global****50.449.6GrowingFrom contracting

Sources: Markit*; Li & Fung**; Kagiso***; Plexus Asset Management****; ISM*****.

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Economic forces shaping 2012

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By Cees Bruggemans, Chief Economist of First National Bank.

Andrew Roberts wrote “A history of the English-speaking peoples since 1900” (2006) in which his views of geopolitical conflict rule supreme.

According to Roberts, his people were seriously challenged four times since 1900: once by an imperialistic Germanic alliance (WW1), once by a Germanic-Japanese fascist alliance (WW2), once by the Communist bloc (Cold War and its regional client wars) and lately by Islamic radicals (9/11 and similar terror).

In the first three clashes the main adversaries all got transfigured out of recognition, while the outcome of the latest conflict is still to be established.

Yet not all ‘major’ history is only or mostly geopolitical power contests (or local politics).

Technical and social changes may be as fundamental in changing the human condition rather than just the power structures and the rules governing them.

Still, the rules of the road are centrally important.

In the long-run, the ‘health’ of society or civilisation determines as much the pace of its technical innovation as the flexibility of its power structures and the fairness of its income, wealth and opportunity distributions.

Although geopolitical reality is expected to continue changing rapidly, with further major adjustments likely in years to come, the main forces shaping 2012 still appear to be mostly financial and economic, as they have been much of this past decade, mainly the consequence of recent system failures and the repair and recuperation thereof.

All pervasive are the technical tinkering and social adaptations steadily changing our capabilities and the choices we exercise.

So, what’s more important in affecting our 2012 outcome?

Everything will feature in some way or other. There will be micro changes (technical capabilities, social fashions), cosmetic stuff (governments changing here and there), big battalions growling (US, China, EU/Iran), the lingering detritus of past financial accidents and rescue missions mounted (fiscal/monetary), with markets pricing every conceivable risk (hysterical and otherwise).

So though one takes cognizance of the Arab Spring (the Fourth Arab Revolt, really, according to the WSJ), and the manner in which this is democratically allowing more conservative religious-based dispensations to take shape in many North African and Middle Eastern countries formerly led by failing nationalist modernisers, and of nuclear-bound Iran and its implication for the greater region, the full geopolitical meaning of these changes will probably only play out in coming years and decades (and not necessarily only or mainly in 2012).

Similarly, the economic rise of China, India, Turkey, Brazil and other former EM countries will increasingly create multi-polar realities, regionally and globally, requiring major changes in relationships which only time will show us, even if the building strains will be noticeable in 2012 (as in 2011).

Despite these building strains, the main reality will probably remain the one prevalent since 2007, namely of rich countries waylaid by financial and economic excesses and in need of reinvention probably taking several years (if not decades).

One consequence might be that the relative economic catch-up of former EM regions with the old rich regions will happen much faster than hitherto assumed, and their relations subjected to change on an earlier timetable.

Thus the building strains may show earlier, perhaps offering earlier discontinuities than hitherto assumed.

But the main shaping forces will be the crisis legacies and their very gradual unwinding, potentially taking many years, shaping global performance at least partially and having an impact on even the most distant bystanders.


The US addressed its financial system losses three years ago (with an estimated $1 trill in asset losses at banks, hedge funds, insurers and pension funds) and a multiple thereof at households due to reduced property values.

The direct outcome was a credit-restrained banking system due to new regulatory rules, higher bank capital ratios, new risk awareness and ongoing banking and household debt deleveraging as excesses are being worked off.

Also, building and construction sectors reduced to half or less output as housing excesses are being worked off.

This indigestion is one micro aspect slowly being eroded away. There are secondary indigestions, especially in the pervasive unemployment and underemployment (with people losing skill and market value), with the inability to relocate because of the depressed housing market, limited demand, oversupply and $700bn negative housing capital preventing faster labour matching and re-absorption.

There are other micro distortions, embedding greater inequality, as many of the modern technologies need fewer human inputs to power up to global scale, with more of the economic surplus generated concentrating in fewer hands (Larry Summers, Financial Times).

Also, immigration quotas restraining a bigger inflow of global talent, offering protection to well-off middle class offspring, steadily embedding inequality in America ever deeper (Alan Greenspan, Financial Times).

Besides these micro distortions there are the macro ones.

A massive fiscal gearing up to accommodate private de-leveraging has run into political disagreement about budget deficits, government indebtedness and tax and spending priorities. Fiscal cutbacks are being enforced even with the US economy suffering from extensive resource slack and credit/housing headwinds.

The political gridlock of the past year, reflecting a bifurcating body politic (Greenspan), will probably intensify in election year 2012. The US economy will have to absorb uncoordinated fiscal cutbacks in addition to the restrained credit and housing sectors.

That nonetheless can be accommodated, given the healthy corporate balance sheets and strong earnings growth, as many businesses continue with new innovation, cost cutting and productivity to boost income and output.

But it likely will keep things slow overall for many years still. Although the unemployment rate has fallen these past two years, the US participation rate (employment/population) has been stuck in low territory.

The other major pillar is the Fed, maintaining zero interest rates, and shrinking safe haven asset pools through bond purchases, maintaining generous liquidity and encouraging portfolio allocations to overcome inbuilt risk averseness (with leakages overseas at times assuring a weaker Dollar and improved external trade gains).

Its latest attempt is to tweak its communication strategy yet more by providing interest rate forecasts (guidance) for a number of years into the future. Markets are discounting interest rates to remain zero beyond mid-2013 and below 1% beyond December 2014, indicative that the Fed is determined to keep rates as low for as long as possible until resource slack has been acceptably reduced in the presence of low (2%) inflation.

Thus the US economy is being carried in 2012, as in 2010-2011, as much by a still expanding world economy as an accommodative Fed, an assertive corporate sector and a still willing household sector despite headwinds from credit, building/construction and fiscal restraint.

And so the US continues to slowly repair and recuperate, re-inventing as it goes, eventually like a new incoming tide erasing the worst of the crisis damage of 2007-2017.


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