- Data at odds with sentiment
- ECB expected to cut rates again
The global economy slowed in the first half of 2011, with annual growth estimated at 3.8% in the second quarter from 4.4% in Q1 and over 5% in 2010. The limited data available for the third quarter implies a similar pace to Q2, although investor sentiment reflects a concern that the pace of expansion has slowed more sharply. Moreover, the rhetoric and actions of the major central banks also reveals fear that next year could see a much sharper slowdown, according to Bank of Ireland’s latest Bulletin which was published today, 4 November 2011.
Author of the Bulletin, Dr. Dan McLaughlin, Group Chief Economist, Bank of Ireland said: “In the UK, for example, the Bank of England has announced further asset purchases – in effect more printing of money – in an attempt to counteract what it sees as substantial downside risks to growth, in part stemming from the turbulence engulfing the euro area. The Bank of Canada recently revised down its projections for global and Canadian growth and forecast a mild euro zone recession. In the US the Fed has also revised down growth projections and announced its intention to buy longer dated government bonds in an attempt to keep longer interest rates low. Elsewhere, the Australian central bank has reversed course and cut interest rates, while speculation mounts that the authorities in China may well abandon monetary tightening and embrace monetary easing.
“Annual growth in China did slow in the third quarter, to 9.1% from 9.5%, but the quarterly increase was still a strong 2.3%. In the US, the economy picked up in the third quarter, expanding at an annualised 2.5% from 1.3% in Q2, and that pattern was repeated in the UK, with growth there of 0.5% from 0.1% in the second quarter. These figures are at odds with sentiment readings such as consumer confidence, which are generally weak and declining, suggesting a divergence between the hard economic data and sentiment indicators.
“There is one major central bank which had not sought to change monetary policy – the ECB. It was curious that other central banks were easing policy in part on fears of a euro area recession, while the euro area’s central bank resisted such a move. In cutting rates by a quarter point the ECB is now addressing the clear downside risks to euro growth, and we still expect the repo rate to end the year at 1% “, concluded Dr. Dan McLaughlin.
4 November 2011
Dr. Dan McLaughlin Anne Mathews
Group Chief Economist Media Relations Manager
Bank of Ireland Global Markets Group Communications
Tel: 01 609 3221 Bank of Ireland
Tel: 076 623 4771 / 087 246 0358