The European Central Bank left interest rates unchanged on Thursday, President Mario Draghi saying that the ECB's “non-standard policy measures are providing a substantial contribution to improving the funding situation of the banks, thereby supporting financing conditions and confidence”.
Investors seem to agree. The euro strengthened on Thursday and Spanish and Italian yields fell sharply after successful debt auctions by the governments in both countries.
There were also no new measures from the Bank of England after its monetary policy meeting on Thursday.
Economic data on Thursday point to possible further easing measures from both central banks later though.
In the euro area, industrial production fell 0.1 percent in November, the third month of decline. Inflation in Germany slowed to 2.3 percent in December from 2.8 percent in November. However, inflation in France was unchanged in December from the previous month at 2.7 percent.
In the UK, industrial production fell 0.6 percent in November as oil and gas extraction and electricity production were scaled back sharply. Manufacturing output fell 0.2 percent.
A Thursday report showing a fall in China's inflation to 4.1 percent in December, the slowest rate since September 2010, from 4.2 percent in November means that monetary policy there could also become easier in coming months.
Thursday's economic reports from the US also failed to provide the kind of positive data that we have become used to in recent months. Retail sales increased just 0.1 percent in December after an upwardly-revised 0.4 percent increase in November while initial unemployment claims rose to a six-week high of 399,000 last week.
Data from Japan on Thursday were mixed. The economy watchers survey showed that the current conditions index rose to 47.0 in December from 45.0 in November but the outlook index fell to 44.4 from 44.7. Meanwhile, the current account surplus fell 85.5 percent in November from a year earlier as a fall in exports pushed the trade balance into deficit.
Japanese demographics means that it can no longer consistently produce a trade surplus to drive growth. Other countries may be facing the same prospects as Japan. Alan Wheatley at Reuters says Japan's plight over the past 20 years may turn out to be the template for other mature economies, especially in Europe.
Economists have generally played down the implications of Japan's prolonged stagnation for Western economies that are now wrestling with apparently similar balance sheet recessions. These occur when firms and households are forced to reduce their excess debt by cutting consumption and investment.
But [Ajay Kapur, a strategist for Deutsche Bank in Hong Kong] said it would be a crucial error to dismiss Japan's malaise since 1990 as somehow reflecting specific national 'cultural' traits. Many other countries were displaying similar features.
In the next five years, all of the 18 developed countries for which Deutsche has property market data going back more than half a century will see a decline in their working age population ratios.
Sixty percent of them will show an absolute decline in the number of citizens of working age, something that Kapur said was unprecedented...
Karen Ward, an economist with HSBC in London, agreed that Japan's demographic profile was probably at least as much to blame as aggressive deleveraging for its economic stagnation. Growth in the labor force began falling steadily in the mid-1980s and numbers started falling outright a decade later.
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