Tag Archives: Economics

Youth Unemployment in the UK

Posted on by

The FT today has an article about how long-term youth unemployment is now back at 1998 levels despite a 5 billion pound benefits-to-jobs programme . Now if you go to this url, and have a look at the population pyramids for the UK you might begin to see part of the explanation for why this is happening. The cohorts now entering the UK labour market are slightly thicker than the previous ones. Coincidentally I have just put up a post on Afoe which mentions Richard Easterlin’s disadvantaged cohort theory. What is happening in the UK at the present time would, IMHO, be a good example of the Easterlin effect at work.

Long-term youth unemployment has returned to about the level it was when the government’s flagship New Deal was introduced in 1998, casting doubt over the value of the £5bn benefits-to-jobs programme.

The sharp rise in long-term youth unemployment, which has increased by 60 per cent since its low point two and a half years ago, was revealed by figures from the Office for National Statistics yesterday.

German Inflation On the Way Down

Posted on by

The latest inflation eport from the Federal Statistical Office in Germany says this:

The harmonised consumer price index for Germany, which is calculated for European purposes, rose by 2.3% in November 2005 compared with November 2004. Compared with the previous month, the index was down 0.5%. The estimate of 25 November 2005 was thus slightly corrected downwards.

Inflation threat, what inflation threat?

China: 20% Bigger Than We Thought?

Posted on by

The Chinese economy could be 20% bigger than previously estimated. Since almost everything about Chinese data should have ‘best guess’ status, this probably hardly comes as a surprise, and indeed the estimate itself should be treated with the customary caution, but yes, that is the conclusion which is apparently being drawn from the latest national economic census conducted by the National Bureau of Statistics earlier this year.

A spokesman for the National Bureau of Statistics said on Tuesday it will announce the findings of the census and its impact on the calculation on gross domestic product at a press conference next week.

The NBS refused to say by how much it would revise the GDP figures, but it is expected that the new measure will show the economy is larger by about 20 per cent.

Also in the news, China has now become the world’s largest exporter of information and communication technology goods, according to an OECD reported out today

China overtook the United States in 2004 to become the world’s leading exporter of information and communications technology (ICT) goods such as mobile phones, laptop computers and digital cameras, according to OECD data.

China exported USD 180 billion worth of ICT goods in 2004, compared with U.S. exports in the same category valued at USD 149 billion. In 2003, the U.S. led with exports of ICT goods worth USD 137 billion, followed by China with USD 123 billion.

China’s share of total world trade in ICT goods, including both imports and exports, rose to USD 329 billion in 2004, up from USD 234 billion in 2003 and USD 35 billion in 1996. By comparison, the U.S. share of total world trade stood at USD 375 billion in 2004, USD 301 billion in 2003 and USD 230 billion in 1996..

Evidently China is still on the up and up, and rather faster than we anticipated. As well as being the number one exporter of ICT equipment, China is also the world’s number one investor, as Stephen Roach reported a few days back:

Despite its relatively small share in the global economy — only about 5% of world GDP (at market exchange rates) — China now spends more on fixed investment than any country in the world. In dollar terms, China’s fixed asset investment was running at an annual rate of close to $1,100 billion in the first three quarters of 2005 (at market exchange rates) — in excess of annualized 2005 investment totals in the US ($987 billion), Japan ($733 billion), and the Euro-zone ($651 billion). If China’s investment boom remains unchecked and its currency continues to appreciate, its dominance in shaping the global investment cycle will only grow.

The Uncertainty Which Surrounds ‘Uncertainty’

Posted on by

We live, as they say, in an uncertain world. But recently, if you have been noticing, in the economic sphere references to the high levels of uncertainty attached to any forecast have been coming fast and furious. And this warning needs to be taken seriously. The data is very ‘volatile’. Only today there is news that the Japanese recovery may well not be as strong as anticpated. And now we find that:

French industrial production fell by the most in more than six years in October as car sales slumped, suggesting a pickup in Europe’s third-largest economy may lose momentum.

Nothing especially surprising here, and nothing to read to much into, except that we should not be too confident that the eurozone has all the momentum it is claimed to have. Dave Altig at MacroBlog posted yesterday about how some ECB governing council members still think more interest rate rises are a good thing., and the FT states today that “fresh signs of eurozone economic activity picking up emerged on Thursday”. Well that was Thursday, and this is Friday, and it would be a brave man (which I am not) who said that there were fresh signs of economic activity slowing down today. But do remember this: oil is sticking around 60$ a barrell, interest rates are rising (slightly), and Germany’s economy is export and not domestic driven.

Nordi-Flexi-Curity

Posted on by

New Economist has been indulging himself (actually, truth be known he wants us to indulge him) with three posts on the Nordic Model (here, here and here).

Two things strike me. Firstly the fact that the UK presidency has been an absolute non-event (except for getting the Turkey negotiations started) since we were promised an ambitious programme of debate about precisely the topic of the EU social and economic model.

Secondly, as the last paper cited by New Economist makes clear:

The analysis also provides strong support for so-called absolute β-convergence among the Nordic countries. Thus, initial differences between the countries, in terms of real output per employee, real output per hour, and real wage per employee, slowly fade away over time. This finding tells us that the Nordic countries are not that different when it comes to saving rates, levels of the technology, and government policies.

Which means, of course, that these countries would have been ideal candidates for forming a currency union. Oh well, things that might have been! (Also it is perhaps worth making a mental note to check out more about that Nordic recession in the early 90s and what happened next).

Not Good News On European R&D

Posted on by

This is not very encouraging:

European spending on re-search and development is falling further behind target, widening the innovation gap between the EU and competitors such as the US and Japan, two studies show.

North American and Asian companies are outpacing European businesses in R&D investment and spending more in high-technology sectors, according to data to be released on Friday by the European Commission’s research directorate.

It is doubly not very encouraging due to a point made in a paper which Brad Setser points us to. The paper is the U.S. and Global Imbalances: Can Dark Matter Prevent a Big Bang? by Ricardo Hausmann and Fredrico Sturzenegger. Basically they argue that the net US financial position is not as dire as it seems due to the existance of ‘dark matter’ (or in more converntional terms, due to the part of the iceberg which isn’t visible and measured). US assets they argue are conventionally undervalued due to the presence of ‘hard to measure’ components. Central to their argument is this point:

We would say that EuroDisney in reality is not worth 100 million (what BEA would value it) but four times that (the capitalized value at our 5% rate of the 20 million per year that it earns). BEA is missing this and therefore grossly understates net assets. Why can EuroDisney earn such a return? Because the investment comes with a substantial amount of know-how, brand recognition, expertise, research and development and also with our good friends Mickey and Donald. This know-how is a source of dark matter. It explains why the US can earn more on its assets than it pays on its liabilities and why foreigners cannot do the same.

I would say the argument that ‘foreigners’ are unable to leverage “know-how, brand recognition, expertise, research and development” is a ridiculously simplistic one, and it almost stretches the bounds of credulity that someone might believe this, but that having been said, if here in Europe we continually fail to maintain our R&D pace it will not be such a silly argument at some stage in the foreseeable future.

It’s The Yield Curve Stupid!

Posted on by

Steve Johnson has been hard at it, writing away in the Financial Times:

“The chief problem for the yen is that the flattening of the US yield curve has made it uneconomical for Japanese investors to hedge their ongoing purchases of US Treasuries, but a falling yen encourages overseas investors to hedge their purchases of Japanese equities – negating the value of these latter flows in currency terms.”

More A Whimper Than A Cry

Posted on by

Well the G7 meeting has come and gone, but I’m not sure how much the world is going to notice the fact. If I had been a fly, perhaps I would now be glad I hadn’t wasted my efforts. Basically there is a ‘shift’ from focusing on the oil issue to the inflation one, but given that in the two countries which are now driving global growth – the US and China – inflation is coming slowly but surely under control, I would have thought that this was to start to fall behind the curve instead of getting out in front of it. Put another way, since I am sure the Fed will push on through with the measured pace till the last drop of inflation oil is squeezed out of the US economy, I sure as hell don’t imagine that inflation is going to be tomorrow’s issue, and I guess this is the bit that the markets are really interested in.

“Finance ministers and central bank governors from the world’s leading economies have warned of increasing inflationary pressures, adding to concerns over rising protectionist sentiment and global trade imbalances….The warning on inflation came as the US Federal Reserve continues to tighten monetary policy and follows the European Central Bank’s quarter point rate increase last week – the first in five years. The Bank of Japan has also started to prepare the ground for an eventual curtailing of its exceptionally loose monetary policy.”

I think, btw, that the G7 are right to stress the importance of higher oil prices in the longer term as a constraint on the consumer, but this is ultimately a terms of trade effect – final consumption in the OECD world is squeezed as petro dollars mount up elsewhere – rather than an inflationary one as long as the monetary authorities keep the lid on ‘second round effects’. If you wanted to be really cynical you could say that the US government deficit was working as a giant paddle to keep the flow of funds moving, converting all those accumulated petro dollars into final consumption, but somehow I doubt Brad Setser would want to see things like this.

More Pressure on the Yield Curve

Posted on by

One of the things about targeting expectations, and factoring-in changes, is that the world moves on at a very rapid clip these days. So the ECB rate rise in now, really, yesterday’s news. The big issue today is the fact that the easing cycle in the eurozone may already be over (we need to see the data going forward before we can be sure about anything here). Anyway, one thing the markets are sure about is that eurozone interest rates aren’t going anywhere very significant in the near future, and one of the consequences of this is the fact that 10 year German bund yields are on their way down again, as is the euro. (On this I continue to maintain my long held view that the situation is asymmetric: good news from the US, and bad news from the eurozone will send the dollar up, while the opposite will simply see exchange rates marking time. All of this has a floor, of course, somewhere, but I think we are still some distance from touching it). Of course all of this implies that the dangers of yield curve inversion in the US are now real and ever-present.

European bonds may gain for a second week, their first back-to-back set of increases in more than three months, on speculation any interest-rate increases from the European Central Bank will be limited.

The ECB raised its benchmark rate to 2.25 percent yesterday, the first time it has lifted borrowing costs in five years. ECB President Jean-Claude Trichet said the increase left rates in line with the bank’s goal of containing inflation, sending bond yields to a one-month low.

“There will be no additional rate hike immediately after this one, and the cycle will end at a relatively low level,” said Kornelius Purps, a fixed-income strategist at HVB Group in Munich. “That should be supportive for the bond market.” Economists at HVB forecast one more rate increase of a quarter percentage point next year.

The dollar rose for a second day against the euro on speculation a government report will show the U.S. economy added the most jobs in four months in November.

The U.S. currency also headed for a third week of gains versus the yen on speculation faster growth in the world’s largest economy will prompt the Federal Reserve to raise interest rates faster central banks than in Japan and Europe.

“There are no signs that the economy is slowing down,” said Niels Christensen, a currency strategist at Societe Generale SA in Paris. “Rate expectations in Europe and Japan are no match for the Fed, and so the dollar will keep rising.”

Locking Swords

Posted on by

I’d simply love to be a fly on the wall in London this weekend. The G7 finance ministers are about to meet the central bankers, and as in by now well known, these two groups haven’t exactly been hitting it off too well lately, at least, and better said, in Germany and Japan they haven’t.

In particular I would like to hear John Snow’s contributions. Snow notoriously is banking on growth in Europe and Japan to ease the US out of its trade imbalance. But being pro-growth in the present context would seem to imply a stance on interest rates. The central bankers are worried about global liquidity and the danger of US yield curve inversion ( and here, for a very interesting discussion of the topic – certainly the best I’ve seen – from the Morgan Stanley GEF team). So one group want to put rates on hold, while the other wants to raise them, Snow is in the middle, but will he come off the fence?

Brad Setser has a post which has some relation to this.

Brad seems to take the view that a big part of the explanation on global imbalances is the US fiscal deficit. I beg to differ. Indeed I think Brad is in danger of putting himself on the wrong side of an old (1930s) argument that probably he wouldn’t want to be on the wrong side of.

Let me explain: the important thing to watch is the global economy (not the local examples, US, Germany, Uk, China etc – Hat-tip to Andy Xie hear although I don’t have the direct link handy). Now what is important is the global equilibrium, in terms of the sustainable global growth rate. Now……. simply applying a restrictive fiscal policy and a tighter monetary one in the US would bring the budget into balance and the external trade deficit down, but what would happen to the level of employment (in the US and globally)? What would be the knock-on consequence for growth in China? Would this be a ‘better’ equilibrium than we have now, would it be more sustainable? Somehow I doubt it. And I think that is why we need to address this issue globally.

Which takes me back to being a fly on the wall in London……