The global economy: Glimmers of hope?
Each quarter, Senior DuPont Economist Robert Fry compiles the DuPont Economic Outlook, a highly informed analysis of current economic conditions worldwide, with implications for industry and DuPont’s many customers. Following is a summary of highlights from the 2nd quarter 2009 report, and his May 21, 2009, review Current Business Developments.
If you would like to read the full Quarterly Economic Outlook, please read here
The global economy is in the midst of the worst recession since the 1930s. Real GDP is contracting in all major developed countries and in many developing countries as well. Global GDP is expected to shrink by 2.7% in 2009, the first annual decline since the Great Depression. While many leading indicators — stock prices, interest rates, monetary aggregates, and housing — have started to point to an upturn in coming months, measures of current economic activity continue to deteriorate in most countries, albeit at a slower rate. Nevertheless, growth has already resumed in some countries, notably China and Korea. Leading indicators suggest that the US economy is nearing a business-cycle trough which would mark the end of the current recession. Money supply growth turned up sharply last October and stock prices bottomed on March 9. Economic activity continues to decline in Europe, but some leading indicators have started to signal an upturn.
USA: Real GDP declined at a 6.1% annual rate in the 1st quarter after declining at a 6.3% annual rate in the 4th quarter of 2008. This marked the largest two-quarter decline in GDP since 1957-58.
Annual GDP is expected to decline by 2.6% in 2009 after growing just 1.1% in 2008. Retail sales, which rose in January and February, fell in March and April. Light vehicles sold at a 9.3 million seasonally adjusted annual rate in April, down from 9.8 million in March.
Housing starts fell back in March and April as multi-family starts collapsed. Single-family housing starts continue to rise from January's cyclical low.
The Institute for Supply Management's headline Manufacturing Index (the PMI) jumped from 36.3 in March to 40.1 in April, indicating that the manufacturing sector is still in decline but that the rate of decline has slowed. The new orders index, which hit bottom at 23.1 in December, jumped from 41.2 in March to 47.2 in April. Another increase of this magnitude would signal that an upturn in industrial production was likely to occur within a couple of months.
US payroll employment plunged by another 539,000 in April, but this was the smallest job loss in six months. The civilian unemployment rate jumped from 8.5% to 8.9%, the highest since 1983.
Europe: The European economy suffered its worst contraction since World War II in the 1st quarter of 2009 — real GDP for the 27 European Union countries fell 2.5% quarter-to-quarter (-9.6% annualized rate), and the year-over-year growth rate slipped to -4.4%. EU industrial production fell 8.3%, down 18.9% from year-earlier levels, as businesses drew down inventories into line with sales and to cut costs. Retail sales were down 2.6% year-over-year in March.
In recent weeks some leading indicators have started to point to recovery later in 2009, although expected to be later and slower than the rest of the world because the European Central Bank has cut interest rates more slowly than other central banks (although its policy rate was cut to a record low of 1% in May), and fiscal stimulus packages have been smaller than the US and China.
Economic activity in Central and Eastern Europe has dropped sharply but is showing signs of stabilizing. Industrial production is down by over 10% year-over-year in Poland and Russia, and down nearly 20% in Hungary and the Czech Republic.
Housing bubbles have burst in France, Ireland, Spain and the UK. Data for the Euro Zone show building permits down 44.9% from their December 2005 peak.
Motor vehicle production in the EU fell 39.4% from February 2008 to February 2009, before edging up slightly in March. Auto sales have soared in Germany in response to a “cash for clunkers” program to boost new car sales, and seem to have bottomed in France and UK.
South America: Industrial production in Brazil has edged up for three months after plummeting in 4th quarter 2008, but the increases are very small. Industrial production in Argentina has also stabilized although down 11.7% from year-earlier levels in March. Industrial production in Mexico was down 16.1% year-over-year in February.
Asia: Industrial production in China was 8.3% above year-earlier levels in March versus just 3.8% in January/February. The bounce in year-over-year growth rates and PMI readings indicate that growth has resumed in China.
Industrial production in Korea rose 5.1% in March after rising 7.8% in February and 1.6% in January. The three monthly increases have erased nearly half of last year's decline, but production was still 11.2% below year-earlier levels in March. Industrial production in manufacturing has also turned up in Taiwan, but was still down 26.8% year-over-year in March.
Industrial production in Japan rose in March after falling 36.9% over the prior 12 months, but was still down 35% year-over-year.
There is an unprecedented amount of monetary and fiscal stimulus worldwide. Central banks have cut short-term interest rates to record lows. The European Central Bank cut short-term interest rates sharply, and the Bank of England cut its policy rate to a record low 0.5%. Money supplies have surged. Large fiscal stimulus plans have been enacted, especially in China and the US. However there is uncertainty about the effectiveness of such measures. If the stimulus is effective, the recovery could come sooner and be stronger than most forecasters anticipate.
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