Economic data are boring only if you fail to seek out the story behind them.
Thursday produced a bounty of source material. Indicators released in Japan, Europe and the United States show why there is reason to be hopeful about the world economy, why that hope must be kept in perspective and why there still is reason to worry.
Japan’s gross domestic product grew at an annualized rate of 5.9 per cent in the first quarter, the fastest since 2011. Germany also had an unambiguously strong start to 2014. In the United States, the fewest number of people applied for jobless benefits last week than in any week since May, 2007.
The U.S., Japan and Germany are the world’s biggest, third-biggest, and fourth-biggest economies, as measured by gross domestic product at market exchange rates. That’s serious horsepower, and when those horses are pulling in the same direction, the rest of the world will follow. Take Canada. Its factories have struggled to stay busy in these post-crisis years because relatively higher input costs and relatively weak productivity have made it difficult to gain market share. Yet Canada’s manufacturing sales grew 0.4 per cent in February, the sixth monthly gain in the past seven months.
Canadian factory sales now are back at the level they were at before Lehman Brothers Holdings Inc. collapsed more than five years ago, triggering the financial crisis. Every turnaround story has to start somewhere. The global economy could finally be strong enough to move on from the aftershocks from the crisis.
The road ahead could be slow. Prices are creeping higher in the United States, which will test consumers’ resolve to spend. China, the world’s second-biggest economy, still is consuming a lot of the world’s goods and services, but not at the breakneck pace of a couple of years ago. As powerful as they are, the U.S., Germany and Japan can only do so much on their own. The other big European economies struggled in the first quarter. France’s economy stalled and the economies of Italy, the Netherlands and Finland shrank.
The European Central Bank is poised to lower interest rates, which could turn things around in Europe at least enough to reduce the drag. The other major central banks have made clear they foresee keeping borrowing costs low for another couple of years at least. Headwinds should be milder.
As always, there are unpredictable forces at work. The Treasury Department said Russian holdings of U.S. debt plunged 20 per cent in March, a reminder of the geopolitical tension related to the uncertainty over Russia’s intentions toward Ukraine.
If Russian troops remain at bay, the global economy should be fine. If President Vladimir Putin sends them over eastern Ukraine’s borders, the global economy may not be able to handle the uncertainty. It needs more time to get back to full strength.