Unlovable news in brief

Unlovable news in brief

Nowadays it is not easy to find good news about the world economy. However when most of the people are already demoralized, as a slight comfort, it is better to use “unlovable” instead of “bad” to explain overall economic situation, and when a good news comes it’s also better to announce it in an exaggerated way in order to create a little hope for the future.

Let us begin with Europe. It is understood that Greece will miss its 2011 budget deficit target. It was obvious from the beginning that, as imposed, the target was unrealistic. When growth decelerates rapidly, it is impossible to increase tax revenues in order to cut the deficit in desired way. Moreover, new austerity measures announced to realize the 2012 target is also not realistic. The so-called troika of the International Monetary Fund, the European Union and the Central Bank of Europe must be sincere to declare what they plan for Greece instead of discussing endlessly technical matters. Should they let Greece default, partly or full, or do they want to save both Greek and the European (and may be the World) economy?

News from some other European countries facing deficit and debt problems is also not pleasant. Unemployment increased again in Spain in September. The reason might be the end of the holiday season, but all other indicators show that unemployment may still increase further this year. Jobless claims are twice as big in September compared with the last year’s figure. The already unemployment rate is around 21 percent (the average figure of the euro zone is only 10 percent). This may indicate that the Spanish economy could soon slide into recession.

Recently, Moody’s cut Italy’s bond ratings by three notches. The Prime Minister Berlusconi said that was expected but inevitably it created a shock wave not only in Italy but all over Europe. The EU ministers’ decision to support the banking system following the news about problems of some important banks also created unease among business circles.

The interesting news is the rise of inflation in OECD region but decrease in producer prices in the euro zone. The yearly increase rate which is 5.9 percent, however, is still high. The European Central Bank’s concern is a new surge in inflation as consumer prices rose to 3 percent from 2.5 percent lately.

 Now everybody talks about the need for strong leadership in Europe. They mean, of course, in Germany and France. However the leaders of both countries - German chancellor Angela Merkel and the French president Nicolas Sarkozy - have their own problems. Elections next year in France and 2013 in Germany are very critical for both leaders as they are continuously losing their popularity, among people and among their party members. Germans are against an operation to save Ireland and Portugal after the rescue of Greece, even the chancellor insist that if the Euro fails then Europe fails.

It is interesting to observe the complaints of some Asian countries when the Euro began to lose ground. The Japanese exporters complain that fall in the Euro has a very serious negative impact on their business, when still struggling with strong yen/dollar parity. Korean and Malaysian central banks intervened in currency markets silently in order to stop the overvaluation of their national currencies.

Among all this unlovable news, there is only one thing that might be considered good: Some of the recent data indicates that the probability of the second dip in the U.S. economy is receding. Factory activity and construction spending increased in August and jobless claims dropped sharply during the last week of September. This news is encouraging but it is better to be cautious. It must be remembered that during the recent months many times bad news followed the good ones. In addition, simple people on the street cannot comprehend what the statistics say; they prefer to see positive developments in their personal life. This is the reason why anti-Wall Street protests spread nationwide