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International Economic Update

The Federal Reserve Bank of Dallas has just published an International Economic Update by Patrick Roy. This examines the dramatic turnaround in growth in the second quarter in a number of emerging economies. Although the substantial growth in some Asian countries could be put down to strong trade ties with China and India, Roy points out that most of these countries saw growth in private and government spending that outpaced growth in net exports.


Roy outlines the differences in growth amongst advanced economies saying: “A look at the contributions to GDP helps explain the disparity among advanced economies. The euro area and Japan both saw increases in domestic consumption, albeit a very small increase in the euro area. Net exports in both economies, which had been hard hit over the preceding four quarters, also showed a dramatic turnaround in second quarter 2009. The increases in net exports are due in large part to the strength of the emerging Asian economies relative to their own domestic markets. Investment in fixed capital remains a drag on all the advanced economies, while the drawdown in inventories in the euro area and Japan is a positive sign for those countries.”

This sectoral analysis of GDP growth can be seen in the chart below.

Source: P.Roy, Federal Reserve Bank of Dallas

Source: P.Roy, Federal Reserve Bank of Dallas

The article also examines the reasons behind stagnant credit growth in Europe, decline in employment and inflation uncertainty, concluding that: “Second-quarter GDP growth was better than expected in most cases. Many countries grew, while the remainder saw their pace of decline slow. However, it may be too early to say if we are in the midst of a global recovery. Investment in the advanced economies remains weak, employment is still declining and credit is not growing in Europe. The International Monetary Fund (IMF) expects that any recovery will be slow, given experiences from past financial crises. While productivity takes awhile to rebound, the IMF reports that there usually is not a permanent loss to output growth in the medium term. Overall, the international economic data give reason for cautious optimism.”

The article contains 7 very useful charts and tables and can be viewed here.

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Posted in Consumer Expenditure, economic growth, Employment, Inflation, International Monetary Fund, Lending

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