With the global economy in such a fragile state, one would think that politicians would be working together to find solutions. In the US, it seems that the politicians have been more concerned about getting one over on each other than ensuring the world’s largest economy avoids defaulting on its debt obligations.
By the time you read this, it is assumed that the US Senate has reached agreement in raising the debt limit; it’s taken a while and had quite an impact on the markets.
The FTSE 100 ended the month at 5,815, from a starting point of 5,946. July saw the banks as being hardest hit, on the back of their financial exposure to sovereign debt across the eurozone.
GDP growth for the second quarter of 2011 was 0.2%, a fall from the 0.5% increase over the first three months of the year.
House prices are ‘stabilising’ according to the latest report from Nationwide. The consensus among commentators is that there’s a long way to go before the housing market can be referred to as anything more positive than ‘stable’. Indeed, the Nationwide report states that completed sales are at half the level of activity seen prior to the credit crisis.
Preliminary estimates from Eurostat show that inflation has slowed across the eurozone to 2.5%. This may lessen speculation of an interest rate rise; the European Central Bank (ECB) has been maintaining interest rates at 1.5%.
We’ve previously highlighted Italy as ‘one to watch’. Over the past few weeks, the Italian government has seen an increase in its borrowing costs, a direct consequence of investors sensing that lending to Italy carries increasingly greater risk.
As if the US didn’t have enough to worry about managing it’s debt problems, they have been vilified across the globe for letting politics get in the way of sorting out their domestic finances. The Chinese media was particularly critical of their inability to agree a financial plan in a timely manner.
The world’s largest economy is still struggling to build any momentum. The US Commerce Department provided annualised growth figures of 1.3% at the end of the second quarter, below the forecast 1.8%. They have now also revised downward their forecast for the next twelve months.
Rising prices, particularly fuel and food, continue to slow growth across the Asian economies. China remains the growth engine although manufacturing continues to slow and the Chinese property market looks over-inflated.
Better news from Japan, where the recovery from the economic impact of the Earthquake and Tsunami looks set to continue. Manufacturing output continues to improve and forecasts are positive.
The ‘dual paced’ global economy continues with western economies struggling whilst the emerging markets, including China, continue to deliver growth. There may be some slowing across Asia but overall the tiger economies remain resilient.
Outcomes are difficult to predict and western economies will remain challenged in finding a way out of the financial crisis. Let’s just hope political differences can occasionally be put to one side for the sake of delivering a return to more certain times.
Nationwide Housing Report July 2011.Office of National Statistics.