The interest rate cycle has clearly turned. From Bloomberg today:
New Zealand's central bank cut its benchmark interest rate by a half point to 7.5 percent, more than expected by most economists, saying the economy is in a recession and inflation will slow.
"With medium-term inflation pressures expected to ease, it is appropriate to move toward a less restrictive stance," Reserve Bank Governor Alan Bollard said in a statement in Wellington today. New Zealand's dollar dropped to a 22-year low after the statement. Bond yields fell and stocks gained.
New Zealand's economy contracted in the first quarter and Bollard, 57, today joined the Treasury Department and economists in forecasting it also shrank in the three months to June 30, putting the nation in its first recession since 1998. Bollard said inflation will return below the 3 percent limit of his target range by the first quarter of 2010.
Yesterday's economic reports had also provided plenty of fodder for central banks to cut rates.
The UK economy is estimated to have fallen in the last three months. Bloomberg reports:
Gross domestic product dropped 0.2 percent in the period between June and August and fell 0.1 percent in the three months through July, the National Institute for Economic and Social Research said in an e-mailed statement. The European Commission, the European Union's executive arm, predicted that the U.K. economy will shrink in the third and fourth quarters.
The euro area isn't much better off. Bloomberg reports the rest of the European Commission's forecasts.
The European Commission cut its growth outlook for the euro area for the rest of this year and predicted a recession for Germany, the region's largest economy.
The 15-nation euro region's economy will probably stagnate this quarter after shrinking in the previous three months for the first time since the euro was introduced in 1999, the Brussels-based commission said today. The commission lowered its full-year growth forecast to 1.3 percent, from 1.7 percent earlier, and signaled the 2009 outlook may also be cut...
The EU forecast the euro-area economy will expand 0.1 percent in the final three months of 2008 after an estimate of no growth this quarter...
While the commission raised its inflation forecast for 2008 to 3.6 percent from 3.1 percent, it said consumer-price growth "may be at a turning point" after oil prices fell from a record and as past increases in food and energy costs "gradually fade in the coming months."...
Japan's leading and coincident indices did rise in July, although they did not stop the Cabinet Office from retaining its assessment of the economy as "worsening".
Meanwhile, expectations for inflation to moderate appear to be bearing out in China as the economy shows further signs of slowing. Again from Bloomberg:
China's inflation weakened to the slowest pace since June 2007 and export growth cooled, stoking speculation the government will cut taxes and ease loan restrictions to spur the world's fourth-largest economy.
Consumer prices rose 4.9 percent in August from a year earlier, less than economists estimated, after gaining 6.3 percent in July, the National Bureau of Statistics said today. Exports rose 21.1 percent in August, down from July's 26.9 percent gain, the Customs Bureau said.