This week the International Monetary Fund (IMF) issued an update via their blog on projections for world economic growth. In short, they have raised their forecast for the Euro Area, China and Japan but cut expectations for both the UK and the United States.
Some highlights from their update include:
- Near-term U.S. fiscal policy looks less likely to be expansionary than we believed in April
- The ultimate impact of Brexit on the United Kingdom remains unclear
- Recent data point to the broadest synchronized upswing the world economy has experienced in the last decade
- Possibility of even stronger growth in continental Europe, as political risks have diminished
The caveats to the IMF’s optimism for world growth rests on the usual triggers – chiefly Donald Trump and Brexit. They continue to promote ‘the threat of protectionist actions‘, and how this remains a near / medium term threat. They also state how personal incomes have stagnated, and directly associate this with the risk of ‘exacerbating social tensions that have already pushed some electorates in the direction of more inward-looking economic policies‘.
Most interestingly, they pick up on the actions of central banks seeking to tighten monetary policy. They advise them to ‘proceed cautiously based on incoming economic data, reducing the risk of a premature tightening in financial conditions.’ Finally, they encourage policymakers to implement ‘growth friendly fiscal policies, provided there is room in the government budget‘. As with the Bank for International Settlements, they recommend that investment is geared towards education and skills.
The basic narrative here is that whilst world economic growth rebounds, the risk of protectionist policies based ‘narrowly on national advantage‘ could throw the ‘recovery‘ off course. The IMF appear to be positioning themselves for the economic ructions that are being groomed as a consequence of the UK and the U.S. voting against the established order (even if Trump and Brexit were the desired outcomes of globalists from the outset).
- A sharp rise in personal loans could pose a danger to the UK economy, a Bank of England official has warned.
- Outstanding car loans, credit card balance transfers and personal loans have increased by 10% over the past year, the Bank’s financial stability director Alex Brazier said.
- In contrast household incomes have risen by just 1.5%, he said.
- “Lending standards can go from responsible to reckless very quickly. The sorry fact is that as lenders think the risks they face are falling, the risks they – and the wider economy face – are actually growing,” Mr Brazier added.
- Mr Brazier hinted that the Bank of England could force banks to take further safeguards against the risk of bad debts if it was deemed necessary.
- A slowdown in euro zone business growth at the start of the second half of 2017, alongside declining inflation pressures in a key business survey, could put paid to expectations of a stimulus clawback by the European Central Bank later this year.
- Years of ultra-easy policy have bolstered still-solid growth, but inflation is nowhere near the European Central Bank’s 2 percent target ceiling and even shallower price rises this month will provide disappointing reading for policymakers.
- IHS Markit’s Euro Zone Flash Composite Purchasing Managers’ Index for July, seen as a good guide to economic growth, fell to 55.8 from June’s 56.3, still comfortably above the 50 level that separates growth from contraction.
- The perilous condition of the student loan sector can be seen by looking at a few ominous pieces of data:
- The US has around $1.3 trillion in non-dischargeable loans to students
- Over 120 billion in student loans are already in default
- 27% of students are a month behind on their payments*
- As economic conditions deteriorate and there are even less meaningful jobs for college graduates than there are now, these numbers will only get worse.
- Growth in the supply of US dollars fell again in May, this time to a 105-month low of 5.4 percent. The last time the money supply grew at a smaller rate was during September 2008 — at a rate of 5.2 percent.
- The money-supply metric used here — an “Austrian money supply” measure — is the metric developed by Murray Rothbard and Joseph Salerno, and is designed to provide a better measure than M2. The Mises Institute now offers regular updates on this metric and its growth.
- The “Austrian” measure of the money supply differs from M2 in that it includes treasury deposits at the Fed (and excludes short time deposits, traveler’s checks, and retail money funds).
- Mario Draghi said policy makers are still waiting for inflation to catch up with the economic recovery as they put off discussions on winding back stimulus until after the summer.
- “We are finally experiencing a robust recovery where we only have to wait for wages and prices to follow course,” the European Central Bank president told reporters at a news conference in Frankfurt on Thursday. “We need to be persistent and patient and prudent, because we’re not there yet.”
- Bank of England Governor Mark Carney said the “big picture” for inflation remained the same, despite a weaker-than-expected reading for June earlier on Tuesday, and the main driver was still the fall in sterling since last year’s Brexit vote.
- “That’s what’s pushing inflation up, and inflation will be above target for a period of time and today’s figures are consistent with that,” he told Sky News.
- Central bankers can, at least for now, fake-out investors with a simple word or phrase released in a strategic manner.
- An example of this occurred last week as Fed Chair Janet Yellen threw investors and algo-trading computers a bone with an admission (finally) that inflation (as the Fed measures it) may not be as strong as the Fed had hoped. Investors cheered. Their assumption now is that the Fed will not continue with its steady interest rate increases. But, if one examines the central bank’s past behavior this is a foolish assumption…
- The ECB’s balance sheet now stands at €4.23 trillion, making it the largest central bank holding in the World. As Deutsche Bank notes, this is the same as the GDP of Japan (€4.3 trillion) – the 3rd biggest economy in the world and a decent distance ahead of Germany (€3.02tn) – the fourth largest.