- There was further confirmation during the month of a broadly-based global economic recovery. However, it was clear that during this early stage of the cycle, growth is still relatively patchy. Central banks issued more positive outlook statements. Nevertheless, they still seemed inclined to keep monetary policy very easy for a while yet to help support the recovery, with little threat of inflation on the horizon.
- In the US, the unemployment rate reached a new high of 10.2%, and employment continued to decline. However, leading indicators, such as temporary employment and unemployment claims, suggested that employment growth would probably turn positive from early next year. The widely watched manufacturing ISM indicator rose to 55.7, its highest level in three-and-a-half years, signalling a decent recovery is underway in that sector. Consumer-related data remained subdued, with still low levels of consumer confidence, weak core (exautos) retail sales data, and a mix of housing related data. The overall message from this data was that a tepid sort of recovery was underway for household related activity from a deeply depressed level.
- GDP data in the euro area showed that the recovery commenced in the September quarter, with GDP up 0.4% quarter-onquarter (qoq), led by a 0.7% expansion in Germany. Business sentiment and new orders data continued to trend higher, with an improved reading for the composite PMI, while Germany's Ifo index rose to a 15 month high. The UK remained one of the weakest economies in the developed world. Revised GDP data showed a modest contraction in the September quarter against the trend of most other nations.
- Asia remained a beacon of strength. China's economy continued to power ahead in October with strong data on retail sales, industrial production and exports. There was talk that officials were trying to clamp down on bank lending to take the heat out of some sectors and that the central bank was getting closer to resuming the revaluation of the Renminbi against the US dollar. Japan's economy expanded by 1.2% qoq in the September quarter, powered by capital spending. Across the region, the momentum of Asian exports and industrial production in the current quarter was strong.
- On monetary policy, central bankers in the US, UK and Europe all reinforced expectations that the recovery will be slow, that inflation is not a problem, and interest rate hikes are still a long way off. The Bank of England raised its bond purchase plan by £25 billion, while the European Central Bank (ECB) signalled that it was ready to start exiting from some of its non-standard policy measures. By contrast, the Reserve Bank of Australia increased its policy rate for the second consecutive month, taking it to 3.5%.
- The global economic recovery is expected to broaden and intensify over the next six months. However, we will need to see a more meaningful pick-up in final demand, otherwise the recovery so far - driven by temporary fiscal stimulus and changes in inventories - will not be sustained.
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