Federal Reserve minutes reveal pessimism
Ah, Easter. We're not going to try and kid anyone; as far as we're concerned, Easter is a chance for a long weekend spent stuffing our faces with chocolate. Were we of a more religious bent, we'd be focussing on the weekend as a time for resurrection and rebirth.
But, frankly, that would seem almost inappropriate, since there's little sign of any resurrection in the US economy. In fact, notes from the last meeting of US Federal Reserve policy makers show just how downbeat they had become on the state of the US economy. It was this pessimism that led them to agree to spend more than $1 trillion to revive its fortunes. The minutes also revealed that the US economy had deteriorated more than policymakers had expected since the turn of the year. However, despite the depth of the recession, the committee said that it expected recovery to begin in 2009.
Which is all very well, but there are no signs of a recovery just yet. According to figures from the Department of Labor, the number of people employed in the US fell by 663,000 in March. The jobless rate rose to 8.5% from February's figure of 8.1%, meaning it is still at its highest since 1983. It means that since the recession began in December 2007, 5.1 million jobs have been lost, 3.3 million of them in the past five months.
Things are bleaker still in the eurozone. Data from European Union statistics agency Eurostat has shown that eurozone industrial producer prices posted their biggest drop in annual terms for almost 10 years in February. The report heaps pressure on the European Central Bank to lower interest rates further in the months ahead, with factory gate prices dropping 0.5% on the month, leaving them 1.8% weaker than in February last year. The drop is the seventh consecutive monthly decline in prices.
Italian industrial production, adjusted seasonally and for the number of working days, has fallen 3.5% in February from the month earlier - a greater amount than expected - as investment goods slid, Istat said today. On the year, February's industrial production plummeted 20.7%, more than expected and compared with a downwardly revised 17.6% drop in January. The annual decline in February was the steepest since the index began in 1990.
The Netherlands' annual inflation rate was flat on the month at 2% in March, according to the Dutch Central Bureau for Statistics. A rise in the price of clothing was balanced by falls in the prices of fresh vegetables, diesel and energy. According to the European Harmonised Index of Consumer Prices, or HICP, Dutch inflation came in at 1.8% in March, the bureau said, compared with a eurozone average of 0.6%.
But it's Ireland and Spain that are battling to claim the unwanted prize of ropiest economy at the moment. The Irish Republic has unveiled its second budget in six months to deal with its rapidly contracting economy. The emergency budget includes a large rise in taxes and a cut in spending, to deal with Ireland's budget deficit. Finance Minister Brian Lenihan also said an independent agency would take over banks' bad assets to try and restore lending. His forecast for 2009 was also revised down sharply. He expects it to contract by 8% this year, down from 3% in 2008. Dublin is being forced to deal with a deepening recession while being forced to correct the worst deficit in Europe.
Meanwhile, The Bank of Spain has predicted that the country's rate of unemployment will reach 17.1% in 2009 and 19.4% in 2010. Spain currently has the highest unemployment rate in the European Union, with a rate of 15.5% in February, nearly double the EU average.
Back in the UK, the Bank of England has kept interest rates at their historical low of 0.5%. The news came as little surprise; the BoE having cut rates six times since October last year, when they stood at 5%.
The UK global goods deficit narrowed sharply and by more than expected to GBP7.3 billion in February, as exports to countries outside the European Union rose rapidly, the Office for National Statistics has said. Analysts had predicted a deficit of GBP7.6 billion. Exports to non-EU countries rose by 13% in the month, with economists pointing to a weaker pound as the reason for the increase in exports.
According to the Office for National Statistics, UK factory gate prices posted their weakest annual increase since 2007 in March following a record drop in petroleum product prices. Output producer prices increased 0.1% on the month and 2.0% on the year, the weakest rise in annual terms since July 2007. Economists were expecting output prices to increase 0.1% on the month and 2.1% on the year.
The pound has inched up against its major counterparts this week and is currently trading at an interbank rate of between 1.0906-1.1106 against the euro, 1.4641-1.4841 against the US dollar (a two-month high) and 146.84-146.86 against the Japanese yen.
The best news, however, comes from the Czech Republic, where the koruna has risen to a 2-week high against the US dollar after a report showed that the Czech trade surplus increased more than expected in February.
Whether it's a weekend of religious significance for you or just a chance to kick back for four days with a belly full of chocolate, have a great time!