Despite all the negative headlines about Ireland, a series of data released last week showed the recovery in the global economy remains on track.
Growth in northern Europe appears healthy, despite problems in the eurozone’s peripheral regions. Last week the German Ifo Business Climate Indicator showed that business confidence had risen to 109.3, a post-reunification high.
According to GaveKal, an economics research firm, this is significant because the Ifo has been a reliable indicator of German GDP growth. (article continues below)
In Britain the Office for National Statistics last week stuck to its original 0.8% estimate for GDP growth in the third quarter of the year.
Meanwhile, November’s CBI Distributive Trades survey suggested consumer demand is rising rapidly. It reported that the sales balance strengthened from plus-36 to plus-43. According to Capital Economics, this may reflect early signs of a spending surge before the increase in the VAT rate on January 1.
Jamie Dannhauser, a senior economist at Lombard Street Research (LSR), says the GDP data confirms its belief that the recovery retains a “fair degree of momentum”. “Our projection of above-trend output growth in Q4 is looking relatively safe as a result,” he adds. LSR’s latest Quarterly Economic Forecast predicts GDP growth of 0.4% in the fourth quarter of the year.
A series of economic data releases on America last week were mostly seen as surprisingly positive.
Among these was a fall of 34,000 in jobless claims to 407,000, the lowest level since July 2008. According to GaveKal this indicates that November’s employment numbers may show a strong improvement.
However, GaveKal also noted some disappointing numbers out of America – for example, in new home sales and prices, indicating that its housing market remains weak.
“Overall, recent data paints a picture of a global economy in a very decent recovery,” says GaveKal in a report, Don’t Miss the Growth Story. “It would seem the only thing standing in the way of another leg-up on risk assets is the very serious situation in Europe.
“Should that be resolved, we expect markets to rip. However, if the Irish situation deteriorates and contagion spreads to Portugal and Spain, then all bets are off.”