22 september 2011
Is growth in danger?

A crop of statistics released over the summer pointed to a sharp slowdown in growth in developed countries and less buoyant growth in the emerging zone. Looking beyond any temporary factors that came into play in the second quarter and the fact that statistics are inevitably irregular, we have to ask ourselves if the downturn in the cycle is a lasting phenomenon and one which might radically undermine assumptions commonly held in the spring of 2011.  

THE SITUATION  

After performing well since last autumn, economic data from the last quarter revealed a worrying downturn. The first indication in the US came when first quarter growth was revised down from 0.4% to 0.1% compared to the previous quarter and a weak performance in the second quarter (0.2%). In Europe, growth in the euro zone slowed from 0.8% in the previous quarter to 0.2%. And Germany stood out by posting growth of only 0.1% compared to 1.3% in the first quarter. The question is whether these figures reflect a genuine break in the trend or simply a return to normal after an exceptional first quarter that saw the building sector catching up.  

As in the summer of 2010, investors began to worry about a possible double dip. The picture in the US is somewhat contrasted with many advanced indicators like ISM indices down on levels seen in the spring.  

Even so, most advanced indicators are still above the critical 50 watershed - the ISM composite is at 53- and the real, manufacturing economy continued to advance in July.