Friday, 16 August 2013

End of the August curse?

The last couple of years have seen the normally drop dead quiet month of August throw up a number of unexpected economic crises.

Last year the Euro crisis flared up suddenly in Greece and Spain and Europe's  politicians were grumpily recalled from the continents beaches to perform firefighting duties. 

The previous year the US Congress pushed the country to the absolute brink of default, needlessly and for political point scoring.

Thankfully so far this August it has been a lot quieter.

Commodity prices are recovering from their recent historic lows - a reflection of the gradual upturn in global economic growth being led by the United States.

Japan is coming out of its lost 2 decades and the Eurozone is finally leaving recession. There is a chance that China may avoid a hard lending - if the authorities can dealing with the bursting of a property bubble and a banking sector festooned with hidden bad debts.

The real and continued growth story is in the United States. A constant and on-going flow of economic indicators this year has pointed to a real recovery in the worlds largest economy. This is great news.

It also points to a gradual end of QE in the US, with the printing presses being mothballed and interest rates starting to rise. The US dollar is entering a rare period of economic strength. 

Elsewhere commodity economies like Australia, Canada and New Zealand will be praying the Chinese economy ticks up again and growth follows a likely growing US demand for imports. Australia and Canada in particular have large intact property bubbles, the deflation of which will be anything but painless. 

Back in January we published our annual Global Perspectives white paper predicting the 5 key trends in the global economy in 2013 (Available here).

Looking back - having past the midpoint of this year - we did a pretty good job.

The US economic recovery has continued as we expected, China has underpinned it's slowdown with a huge infrastructural expansion, the Germany election next month has completely dominated the year in Europe and prevented any attempt at substantial economic reform, commodities prices are starting to rebound as we expected in the later half of the year and exchange rates have remained volatile - with the Japanese Yen and Australian Dollar in particular gyrating wildly against the dollar.

You can read our economic predictions for 2013 (Available here) and decide for yourself how accurate our predictions were for the year.

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