Sound bites: UK economy coming in from the cold in Q2

At long last the UK economy has some welcome news. The economy is coming out of the shadows, with a doubling in its quarterly growth rate from 0.3% in Q1 to 0.6% in Q2. The recovery is not quite on dry land yet, but at least it is a step in the right direction. We need a lot more quarters’ growth like this before the Bank of England’s repair work is done. With so much potential stimulus being drained out of the recovery by the government’s austerity programme, the BOE will need to keep applying its monetary balm for a lot longer. There is no chance of a BOE rate hike before 2015 and the odds of additional tranches of Bank support are still high. The UK economy may be coming in from the cold but there is still a fair degree of warming up to do yet.

Sound bites: Eurozone recovery restrained by negative credit and too slow money supply growth

Eurozone recovery is being severely impeded by negative credit growth. If the ECB wants to release the Eurozone from its recession shackles it must free up a much better supply of credit to the Eurozone economy. The credit crunch is deepening. Bank loans to the Eurozone private sector are contracting at a faster pace, falling by 1.6% in June compared to -1.1% in May. This cannot sustain recovery in any credible shape or form. The detail looks deeply concerning. Bank loans to the corporate sector are contracting at a 3.2% annual pace, while consumer credit is shrinking by 3.6%. It is less a question of getting rates lower or providing extra market liquidity to get the recovery going. The ECB and Eurozone governments need to take a big stick to the banks to get lending going again. It is less a case of draconian bank capital requirements hampering lending, the banks just do not seem to want to lend full stop. The fact that Eurozone money supply has decelerated again to 2.3% in June from 2.9% in May shows the scale of the problem. The reference target rate for M3 money is supposed to be 4.5%, consistent with 2% inflation and 2.5% growth. The ECB is well adrift from that now. It needs to start pump priming very soon or else face disaster for recovery prospects in the beleaguered Eurozone economies

Sound bites: German IFO business climate index building a better head of steam in July

Germany’s IFO index shows that the recovery is gradually getting back into its stride with a little bit more gusto. The economy is starting to build a better head of steam, thanks to the export sector and the fact that consumers seem to be gaining better confidence. If the improvements continue at this rate Germany could see growth upwards of 1% this year and 2% next year. It all still remains conditional on the rest of the Eurozone holding steady and contagion pressures easing. The Eurozone still remains the albatross round the German recovery’s neck. So far so good.