In 2008 the world narrowly avoided a second Great Depression, largely through the herculean efforts of governments and central banks to restore confidence and economic growth. In 2011, with global growth slowing and investor confidence weakening, World Bank president Robert Zoellick said the world economy was entering a “new danger zone”. In the week ahead, the question on everyone’s mind is what policymakers can — and will — do about it.
United States
US President Barack Obama will outline his administration’s newest proposals to address the unemployment situation on Thursday. This speech is the most eagerly anticipated economic event of the week.
Last Friday, monthly figures showed that the US’s unemployment rate held steady at 9.1 % in August. Although a single-digit unemployment rate may seem enviable to most South Africans, the country’s current jobless rate is extremely high by US historical standards. The current percentage of working-age Americans who are employed — 58.2% — is at its lowest level since 1983.
Further discouraging policymakers and investors alike, the report showed that the world’s largest economy added no new jobs in August for the first time in 11 months. Making matters worse, average weekly working hours, average weekly earnings, and aggregate weekly payroll numbers all swung negative. This is a signal that, at best, the country’s job engine has stalled.
As a result, Obama is under extreme pressure to act. Many on the country’s political left are urging large-scale government intervention into labour markets, such as the “New Deal” programmes pursued by president Roosevelt during the Great Depression. Last week, for example, a group of 68 left-leaning organisations wrote to Obama urging him to move beyond “half-measures designed to appeal to a narrow ideological minority who have repeatedly shown their unwillingness to negotiate”.
The US’s political right, in control of the US House of Representatives, believed that this is precisely the wrong way to go. Republicans oppose further government stimulus spending, believing the weak job numbers to be, in the words of House Speaker John Boehner, the result of “the triple threat of higher taxes, more failed ‘stimulus’ spending, and excessive federal regulations”.
Market reaction to the speech and analysis over the prospects for compromise, versus those for the sort of acrimonious paralysis characterising the country’s recent debate over raising the debt ceiling, will likely drive news coverage on Friday.
Europe
A German court ruling, a central banker’s press conference and other developments in Europe’s ongoing sovereign debt crisis will dominate the economic news from Europe in the week ahead.
On Wednesday, Germany’s constitutional court will rule on the legality of the government’s participation in the European Union’s bailout mechanism, the European Financial Stability Facility. Most analysts expect the court to rule in favour of the government’s position that German participation was legal but if the court rules otherwise, market confidence in the eurozone will collapse.
On Thursday, attention will shift from the court in Karlsruhe to the European Central Bank (ECB) in Frankfurt where policymakers are gathering to consider interest rates. With no change in rates expected, reports will focus on ECB president Jean-Claude Trichet’s post-meeting news conference. Comments pertaining to Greece and Italy will be scrutinised particularly.
Disagreements over Greece’s ability to meet deficit reduction goals led to the suspension of talks between the ECB, International Monetary Fund and Greek leaders last week. This unexpected break in negotiations, coupled with Greek Finance Minister Evangelos Venizelos’s comments that Greece is likely to face a deeper recession than previously forecast, has led to further doubts among investors that the country will continue to meet its debt obligations.
Italy is a likely focus of concern because Italian Prime Minister Silvio Berlusconi’s government has continued to water down the €45.5-billion austerity package he announced last month. Investors are concerned the programme is no longer sufficient to address the nation’s high deficits and debt. In an interview published on Friday, Trichet said it was crucial for Italy to fully implement the fiscal reforms it previously announced to restore market confidence.
Asia
Policymakers are likely to drive the economic news out of Asia this week as well, as central bankers in Australia and South Korea meet to consider interest rates. Data releases in China are also likely garner attention later in the week.
The Reserve Bank of Australia will meet on Tuesday amid mounting concerns over global business conditions. Australia’s economy is heavily focused on commodities and is dependent on high levels of global demand for growth. Last week, central bankers in Brazil, a country with a similarly commodities-focused economy, cut interest rates in the face of deteriorating economic conditions. Some economists believe that Australia may follow suit.
Global markets will shift their focus to South Korea’s central bank on Thursday. Consumer prices in South Korea rose 5.3% last month from the year before, the largest monthly jump since 2008. The majority of economists surveyed by Reuters expect policymakers to leave rates unchanged, but with the spectre of inflation rising, some investors consider a rate hike possible.
Also on Thursday, China will release a slew of economic information, including industrial production data, consumer price index (CPI) and producer price index (PPI) figures and retail sales numbers. News reports will likely focus on the two inflation measure, CPI and PPI. China’s inflation rate hit a three year high of 6.5% in July. Economists will be watching to see if inflation eased in August, as most expect, or continued to rise.
South Africa
South Africa’s economic fortunes are closely linked to those of the massive economies of the US and Europe. With uncertainty reigning in the north, events beyond South Africa’s borders will likely continue to dominate the economic news in South Africa this week.
“The clouds of instability in European banks, the sovereign debt crisis and the weakening [global] prospects cast a long shadow across the globe”, Finance Minister Pravin Gordhan said on Thursday last week, “and this includes a shadow over the South African economy”.
Nevertheless, several important data releases are scheduled in the week ahead. On Monday, both Absa and Standard Bank are scheduled to release housing price data for the month of August. On Tuesday, the Bureau for Economic Research will release business confidence data for the third quarter. Finally, on Thursday, Stats SA will release mining and manufacturing data for July.
With recent figures showing that South Africa’s economic growth slowed sharply in the April to June quarter to 1.3% from 4.5% in the January to March quarter, analysts will be watching these releases closely for signs of further economic deterioration.
Matt Quigley writes the weekly economic preview for the Mail & Guardian. He is a former divisional director at the US Treasury’s office of the comptroller of the currency and fiscal policy analyst at the Federal Reserve Bank of Boston.