Global economy looking weak in third quarter

The third quarter ended last week. Economic reports over the week showed that global economic growth is likely to have been weak in the quarter.

Last week, the United States Commerce Department revised its estimate of the second quarter gross domestic product for the US economy to show an annualised growth rate of 1.3 percent from 1.0 percent. The revised growth rate is still weak, however, and more up-to-date data last week indicated that growth probably remained weak in the third quarter.

On Friday, another Commerce Department report showed that consumer spending was flat in August after accounting for inflation. This followed an increase of 0.4 percent in July, so consumer spending in the third quarter still looks likely to see growth when compared to the second quarter.

A report earlier last week from the Chicago Federal Reserve showed that its National Activity Index decreased to minus 0.43 in August from 0.02 in July, with the three-month average edging down to minus 0.28 from minus 0.27. According to the Chicago Fed, this suggests that growth in national economic activity was below its historical trend.

In the euro area, the European Commission reported last week that its Economic Sentiment Indicator declined 3.4 points in September to 95.0. Since hitting its peak in February, this indicator has declined for seven consecutive months. According to the EC, the decrease for September reflects broad-based cross-sector deterioration in sentiment, with particularly strong losses in confidence in industry and services.

In Japan, the Ministry of Economy, Trade and Industry reported last week that industrial production rose 0.8 percent in August. This was the fifth consecutive month of increase after it had plunged in March following the earthquake and tsunami. A survey of production forecasts by the ministry showed that production was expected to fall 2.5 per cent in September before rebounding 3.8 per cent in October. That should still leave overall third quarter production significantly above that in the second quarter.

The expected fall in industrial production in September shows that Japan's recovery remains fragile though. In line with that forecast, the Markit/JMMA manufacturing purchasing managers index fell back below the 50 mark to 49.3 in September from 51.9 in August.