Tuesday, 24 May 2005

Optimism on US economy, less so for Europe and Asia

Economists surveyed by the National Association for Business Economics (NABE) appear relatively optimistic about the economic outlook for the US.

"After a mild slip during the early spring, our panel expects the expansion to regain its footing," said Carl Tannenbaum, Chair of the NABE Outlook Survey committee and Chief Economist at LaSalle Bank in Chicago. Tannenbaum added, "The NABE panel also sees higher inflation that will prompt more restraint from the Federal Reserve, which is expected to raise the funds rate to 4% by early next year."

But Japan again seems to be flattering to deceive.

Japan's services industry shrank more than expected in March as shoppers spent less at department stores, raising concern that a revival in consumer spending in the world's second-largest economy may falter. The tertiary index, a gauge of demand for services, fell 1 percent from a month earlier, seasonally adjusted, the Ministry of Economy, Trade and Industry said today in Tokyo.

And outlook for the German economy is also not very good.

The Conference Board announced today that the leading index for Germany decreased 0.4 percent...in March...the leading index now stands at 102.6. Based on revised data, this index declined 0.1 percent in February and was unchanged in January. During the six-month span through March, the leading index declined 0.8 percent, with four of the eight components increasing.

Morgan Stanley thinks that China is headed for a slowdown too. Andy Xie wrote:

China's investment cycle is likely to turn down soon. The leading indicators for investment-corporate profits and property prices are already turning down. The current data are still very strong because the projects that began or were planned last year will have to continue on account of the large costs that have been sunk in. Weakening business profits and property prices should slow investment planning this year and physical investment in 2006. The lack-of-growth situation is likely to get worse regardless of when the Fed decides to stop raising interest rates.

And Stephen Roach thinks a China slowdown would impact other Asian economies badly:

Chinese import growth has become an engine of pan-Asian exports over the past six years... Reflecting this increasingly tight linkage, the recent slowdown in Chinese import growth is already having important ripple effects elsewhere in Asia... All in all, a slowing of Chinese export growth could have a major impact on both Chinese and pan-Asian GDP growth over the course of 2005.

Which, bearing in mind the ongoing hikes in interest rates by the Federal Reserve, raises the question of whether a revaluation of the renminbi later this year would come a little too late in the cycle to be constructive.

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