Global economic data better than sentiment – BoI report
Investor and consumer sentiment are at odds with the facts regarding global economic growth, according to Bank of Ireland’s latest analysis of the Irish and international markets.
Author of the monthly Bulletin, Bank of Ireland chief executive Dr Dan McLaughlin, noted that the global economy slowed in the first half of 2011, with annual growth estimated at 3.8pc in the second quarter from 4.4pc in Q1 and over 5pc in 2010. He said the limited data available for the third quarter implies a similar pace to Q2, but that investor sentiment reflects a concern that the pace of expansion has slowed more sharply.
McLaughlin said the rhetoric and actions of the major central banks reveal fear that next year could see a much sharper slowdown.
“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,” he said.
“The Bank of Canada recently revised down its projections for global and Canadian growth and forecast a mild euro zone recession,” he continued. “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.
He noted that annual growth in China slowed in the third quarter, to 9.1pc from 9.5pc, but said the quarterly increase was still a strong 2.3pc.
“In the US, the economy picked up in the third quarter, expanding at an annualised 2.5pc from 1.3pc in Q2, and that pattern was repeated in the UK, with growth there of 0.5pc from 0.1pc 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.”
McLaughlin said just one major central bank that had not sought to change monetary policy was 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 1pc.”