UK Edges Out of Recession in Q4 with 0.1% q/q Growth

The UK emerged from recession in Q4 2009 with a GDP growth reading of 0.1%, following a reading of -0.2% in Q3, the sixth quarter of decline. This puts 2009 annual growth at -4.8%. The consensus expectation was for a reading of 0.4-0.3%. Output was concentrated in the mining and manufacturing sectors, the Office for National Statistics reported. (01/25/09) RGE forecasts 2010 growth at 1.1% due to subdued domestic demand as highly inebted households rebuild their balance sheets and businesses face overcapacities. Net exports are expected to contribute positively as are inventories, but the fiscal consolidation is likely to start earlier than expected, thus removing one important growth driver.

How Strong Will Global Growth Be in 2010?

In January 2010, the IMF sharply revised up its forecasts for global growth. The IMF now forecasts global growth of almost 4% in 2010 and acceleration to 4.3% in 2011, noting that recovery, though unsynchronized, has been faster and stronger than expected. The forecast of 3.9% by purchasing power parity is almost one percentage point higher than its October 2009 forecast, reflecting upward revisions in most economies, especially the U.S., EU and emerging market economies. As a group, advanced economies will underperform, remaining sluggish, but emerging and developing economies will be „relatively vigorous, largely driven by buoyant internal demand.“ However, much of the boost has been policy-induced, and in advanced economies there are few signs of non-stimulus-related private demand. The IMF projects 2010 growth of 2.7% for the U.S., 1% for the eurozone, 1.7% for Japan, 10% for China, 7.7% for India and 4.7% for Brazil. (01/26/10)

An Insider’s View of the Real Estate Train Wreck

By David Galland, The Casey ReportThe first time I spoke with real estate entrepreneur Andy Miller was in late 2007, when I asked him to serve on the faculty of a Casey Research Summit. As John Mauldin, a former faculty member himself, knows, we’re very selective with our speakers. And there was no one in the nation I wanted more than Andy to address the critical topic of real estate. My interest in Andy was due to the fact that he has been singularly successful in pretty much all aspects of the real estate market, including financing and developing large projects – such as shopping centers, apartment communities, office buildings, and warehouses – from one end of the country to the other. His expertise has also allowed him to build an impressive business providing assistance to large financial institutions that need help in dealing with problem commercial real estate loans. As you might suspect, business is booming. Back in 2007, however, what most intrigued me about Andy was that he had been almost alone among his peer group in foreseeing the coming end of the real estate bubble, and in liquidating essentially all of his considerable portfolio of projects near the top. There are people that think they know what’s going on, and those who actually know – Andy very much belongs in the latter category.

Greek Banks: Troubles at Home and Abroad

The exposure of Greece’s four largest banks—National Bank of Greece (NBG), EFG Eurobank Ergasias, Alpha Bank and Piraeus Bank—to the deteriorating economies of South East Europe (SEE) raises worries about nonperforming loans (NPLs) and a possible erosion of their capital base. Half of the claims in the SEE are denominated in foreign currencies, leaving unhedged borrowers vulnerable to currency swings. Stress tests conducted jointly by the Bank of Greece and the IMF suggest that the banking sector has enough buffers to weather the expected slowdown. However, in the event of substantial economic deterioration in the region, bank portfolios could come under increasing pressure. Moreover, bank shares came under particular pressure in Q4 2009 on fears the Greek government was not doing enough to reign in the spiraling budget deficit and news that the Central Bank of Greece had asked lenders to scale back their reliance on cheap funding from the ECB.

U.S. Equity Rally Is Losing Steam: Time For Correction?

Stocks moved into positive territory on Monday following last week’s three-day decline, as investors find comfort in the news of officials’ reiterated support for the reconfirmation of Fed Chairman Ben Bernanke. Despite the return to positive sentiment, many investors remain cautious, arguing that the market is in the early stages of a correction. Others contend that, on the condition that stocks rebound this week, investors can dismiss last week’s plunge as an anomaly.

Hungary Monetary Policy: Central Bank Cuts Key Rate to 6.0% in January

In January, Hungary’s central bank (MNB) cut the two-week repo rate by 25 basis points (bp) to 6.0%, the lowest level since May 2006. In addition to an improved inflation outlook, the ongoing deep recession is an important factor influencing the determination of the monetary policy. Policymakers have cut 325 bp since July, but some analysts believe the easing cycle is nearing its end.

This Time is Different

„But highly leveraged economies, particularly those in which continual rollover of short-term debt is sustained only by confidence in relatively illiquid underlying assets, seldom survive forever, particularly if leverage continues to grow unchecked.“ – Carmen M. Reinhart and Kenneth Rogoff from their new book, This Time is Different.

I am reading (on my new Kindle as I travel through Europe) a very important book, which I will be referring to a lot in the future. Reinhart and Rogoff have catalogued over 250 financial crises in 66 countries over 800 years and then analyzed them for differences and similarities. This is a VERY sobering book. It does not augur well for the developed world to blithely exit from our woes. The book gives evidence to my adamant statement that we have a lot of pain to experience because of the bad choices we have made. This is the entire developed world, and the emerging world will suffer, too, as we go through it. It is not a matter of pain or no pain. There is no way to avoid it. It is simply a matter of when and over how long a period.

Chinese Growth Climbs to 10.7%

• Chinese real GDP climbed 10.7% y/y in Q4 and 8.7% for all of 2009 but cooled slightly on a m/m basis. Government stimulus helped the economy exceed its 8% growth target. Consumer prices climbed further in December, rising 1.9% y/y, up from a 0.6% climb in November. Producer prices also turned positive for the first time in a year, reflecting the increase in commodity prices. Some of the momentum in fixed asset investment, industrial production and retail sales growth has ebbed slightly, growing 30.5%, 18.5% and 17.5% respectively (adjusting for inflation showed an even greater deceleration of retail sales). For the whole year, sales of consumer goods continued to climb at around a 16% rate, investment grew by 30%, especially in infrastructure  (National Bureau of Statistics, 01/21/10)

German Investor Confidence Declines in January: Is the Recovery Slowing Down?

On January 19, 2009, the economic expectations survey conducted by the ZEW Center for Economic Research in Mannheim in January registered its fourth consecutive decline. The index, which is based on the views of 288 analysts and institutional investors, reached a three-year high in September 2009. The index’s weak performance in recent months raises concerns about the sustainability and strength of the German economic recovery.

Will the Chinese Property Bubble Burst in 2010?

Urban property prices increased 7.8% y/y and 1.5% m/m in December 2009, up from 5.7% y/y and 1.2% m/m in November. This marked the highest y/y growth rate since June 2008, and the third-fastest m/m growth on record. Prices rose y/y in all 70 cities in the main index except Tangshan. In 2009, sales increased 42.1% y/y by floor space or 75.5% y/y by value, which implies a slowdown in December, as sales were up 53% by floor space and 86% by value for the year through November. Real-estate investment increased 16.1% for the year, which also implies a slowdown from the 17.8% y/y pace through November. [The December y/y figures released by the National Bureau of Statistics suggest that the 2008 data was revised upward, which may explain the apparent slowdown.] (01/19/10)