The Macro Sweep

September 6, 2013 2:51 pm

UK, Czech Republic, Malaysia

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Foreign trade is proving to be a dark corner in the rosy picture of the UK economy painted this week. Malaysia is also doing less well on the trade front, though there was a hint in the numbers that the global trade cycle might be picking up.


US: The US added 169,000 jobs in August in a mixed employment report that will complicate the Federal Reserve’s decision this month on whether to reduce its asset purchases from $85bn a month.

Although headline jobs growth was only slightly below expectations, there were big downward revisions to previous months, and the percentage of the population in the labour force fell to its lowest level since August 1978 at 63.2 per cent.


Greece: the final GDP figure showed the contraction in the economy slowed in the second quarter to 3.8 per cent year on year, after it shrank 5.6 per cent in the first quarter. Estimates had been for a much lower rate of 4.6 per cent. It was helped by a 5.3 per cent increase in turnover in the accommodation and food service activities sector.

UK: The visible trade balance dropped in July to £9.9bn from £8.2bn in June. The non-EU deficit widened sharply to £4.5bn from £2.1bn, while trade with the EU remained stable. Exports dropped 9.1 per cent, while imports declined 2 per cent. A slightly lower services surplus in July produced a wider total trade deficit of £3.1bn.

Industrial production remained flat in July, after increasing 1.3 per cent month-on-month in June. Manufacturing increased 0.2 per cent in July, after growing 2 per cent in June. As with overall industrial production, it is down compared with the same period last year. Electricity and gas output fell 2.2 per cent month-on-month, while mining dropped 0.5 per cent.

Analysts at Barclays noted that “notwithstanding a concerted effort by the government to support and encourage exporters, UK firms appear to be having little success in penetrating foreign markets.”

The Halifax house price index rose 0.4 per cent month-on-month in August, continuing 6 months of solid increases in house prices. After accounting for seasonal influences, the number of mortgage approvals was 10 per cent higher in the three months to July than it was in the previous three months.

“Economic improvement and low interest rates, supported by official schemes such as Funding for Lending and Help to Buy, appear to have boosted housing demand in recent months,” said Martin Ellis, a housing economist for Halifax. “Nonetheless, relatively modest economic growth and below inflation rises in earnings are likely to act as a brake on the market.”

Norway: Manufacturing production rose 0.1 per cent month-on-month in July, after a strong 2.9 per cent increase the month before. This has pulled the year-on-year rate down slightly to 5.7 per cent from 6.1 per cent in June. Industrial output grew 3 per cent month-on-month after dropping 5.4 per cent in July after dropping 5.4 per cent the month before.

Czech Republic: Real wages dropped 0.3 per cent year-on-year in the second quarter of this year, after rising 2.2 per cent in the first quarter. Although nominal wages rose 1.2 per cent year-on-year in the second quarter, consumer prices grew 1.5 per cent in the same period. Analysts at 4Cast said: “The pace of wage growth will remain subdued well into late 2013, given that business activity is poor and the majority of the components of GDP are deep in the red.”

Industrial production increased 2.1 per cent year-on-year in July after falling 4.9 per cent the month before. Construction output increase 0.2 per cent, after dropping 11.6 per cent.

Hungary: The growth in industrial output (adjusted for working days) accelerated to 2.5 per cent year-on-year in July, beating expectations after the 1.7 per cent rise seen the month before. The trade balance rose €42m to €421.6m in July. Exports increased 4.4 per cent, while imports rose 4 per cent.

Switzerland: Consumer prices slipped 0.1 per cent month on month in August, though year on year CPI remains at 0 per cent, the highest rate since September 2011. Harmonised consumer prices fell 0.4 per cent on a monthly basis, while the year-on-year rate stands at a May 2011 high of 0.5 per cent.

Core inflation is up from -0.2 per cent year on year in July to 0 per cent in August. “It will still stay well below the 1 per cent price stability threshold over the forecast horizon, justifying the SNB’s extremely loose policy stance and commitment to the 1.20 EUR/CHF minimum target” said analysts at 4Cast.

Industrial production fell 1.1 per cent in the second quarter after increasing 3 per cent in the first quarter. New orders dropped 4.2 per cent, while sales slipped 0.8 per cent.

France: The trade deficit widened in July to €5.1bn from €4.5bn the month before. Insee’s consumer confidence index rose from 82 in July to 84 in August , beating expectations. Household sentiment about future financial situations improved, though the measures of whether August was a suitable time to make big purchases, or an opportune time to save both decreased.

Households felt optimistic about the expected general economic situation, while expectations for future employment reached its lowest mark since June 2012.

Germany: The trade balance slipped to €14.5bn in July from €15.8bn in June. Exports decreased 1 per cent month-on-month while imports grew 0.5 per cent. It remained up 0.9 per cent from July 2012.

The current account balance in July stood at €14.3bn, a little lower than the €14.4bn recorded in the same month the year before.

The EU recorded a current account surplus of €35.9bn in the second quarter of this year, up from the €5.9bn surplus recorded in the second quarter of 2012.

Ukraine: Foreign exchange reserves fell to $21.7bn in August from $22.7bn in July, due to repayments to the IMF of $690m. “We expect the pressure on the government to return to negotiations with the IMF and reconsider a deal with Russia to continue mounting in the coming months,” said analysts at Barclays, adding that “the experience of the last three years indicates that neither of the two options is easily achievable“.

Asia Pacific

Malaysia: Exports rebounded more than expected in July, rising 4.5 per cent year-on-year, after LNG exports grew 67.9 per cent. Goods exported to China and Japan grew 17.5 per cent and 7.1 per cent respectively, though exports to the US fell 11.3 per cent and goods to Singapore dropped 7.1 per cent.

Imports also increased more than expected, rising 6.2 per cent year-on-year, narrowing the trade surplus to MYR2.9bn. “The firm increase in capital goods may signal that industries are ramping up investment in the months ahead, though the narrowing trade surplus may stoke some concerns over the deteriorating current account surplus,” noted analysts at 4Cast. However, they added that “the government’s move to delay building projects with high import content may stymie capital and intermediate good purchases going forward.”

Analysts at ANZ said “the ongoing narrowing in Malaysia’s trade balance is a concern and one that international capital will not view favourably.” However, they did point to the increase in electrical exports to China as “an encouraging sign that the global trade cycle is starting to pick up” and noted that “July has typically been the smallest surplus month of the year”.

Japan: The index of business conditions indicated that conditions are “improving”.

Australia: The performance of the construction index slipped 0.4 points to 43.7 in August. Construction has decreased for 39 consecutive months now. Businesses pointed to “the negative influences of tight credit conditions, slowing mining sector activity and weak investor confidence” as the reason for the decline.

With additional reporting by Robin Harding in Washington

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