Indicators Underline Weakness of Recovery

A raft of indicators have been published recently which provide further confirmation, if any were necessary, that the global recovery remains fragile.

The latest unemployment statistics for the Eurozone reveal a fresh record level of unemployment in the bloc at 12.2% for April; representing a further 0.1% over the previous months figure (the figures are seasonally adjusted). Currently, nearly 19.4 million people are without work in the bloc, however, the pattern is very varied. Austria has the lowest rate of unemployment in the Eurozone at 4.9%; less than a fifth of the levels seen in Greece (27%) and Spain (26.8%). Unemployment levels will only fall significantly once a true recovery sets in.

Consumer sentiment in the USA has weakened with spending declining by 0.2% in April. Analysts had anticipated that it would pick up by 0.1% and the reversal is the first in almost a year. Consumer spending is vital to US economic fortunes since domestic consumption contributes approximately 70% of the GDP. In addition, the first quarter growth estimate was trimmed back by 0.1% to 2.4% as more data became available.

In the world’s third largest economy, Japan, consumer prices (inflation) have fallen by 0.4% in April, marking six months of decline. Whilst falling prices is normally welcomed by the consumer, deflation has a negative effect on an economy, suppressing demand as consumers delay expenditures as long as possible in the knowledge that costs will be lower in the future. The government of Prime Minister Abe has made tackling deflation a priority. The bank of Japan has set a target for inflation to rise to 2% and the government has made it clear that it will take action to stimulate the economy with this in mind. The strategy has led to a weakening Yen over the past six months, but concerns for the strength of the global economy and worries that US Federal Reserve stimulus measures may be curtailed have led to a recent rally.