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Loosing Momentum into the 4th Quarter?

2005-09-13T065756Z_01_NOOTR_RTRIDSP_2_OFRBS-FRANCE-PRIX-DETAIL-BS-20050913.jpgObviously the bets are still out but we need to look at this in the big picture I think. Consequently, growth in the Eurozone in 2006 is clearly going to beat all records but on a whole growth has been slowing down since the 2nd quarter and now we perhaps have the first signs that growth is going to grow more slowly going out of 2007. Generally, there is no need to spin this as a catastrophic report but clearly the ECB's hawkish stance and an appreciating Euro are beginning to take a dent.

(From Bloomberg)

European manufacturing growth unexpectedly slowed in December after interest rates rose and the stronger euro clouded the outlook for exports.

Royal Bank of Scotland Group Plc said today its manufacturing index fell to 56.5, the lowest in nine months, from 56.6 in November. A reading above 50 indicates growth. Economists expected the gauge, compiled by NTC Economics Ltd. from a survey of 3,000 purchasing managers, to rise to 56.8, the median of 25 forecasts in a Bloomberg News survey showed.

Economic growth in the euro region, now 13 nations after Slovenia adopted the common currency yesterday, may slow after recording the fastest pace in six years in 2006. Investors expect the European Central Bank to continue raising interest rates to control inflation, while the euro's appreciation threatens to erode exports and a sales-tax increase in Germany may damp consumer spending.


The region's economy probably expanded 2.6 percent in 2006, the most since 2000, according to the Organization for Economic Cooperation and Development. The group forecasts expansion of 2.2 percent this year.

``Euro-zone manufacturing is entering the New Year with considerable momentum,'' said Holger Schmieding, chief European economist at Bank of America in London. Although the purchasing managers' index slipped, ``it remains far above the boom/bust line of 50. The stability in the manufacturing PMI bodes well for the growth outlook for early 2007.''

Stronger worldwide demand for European products in 2006 prompted companies such as Continental AG, the world's fourth- largest tire maker, to increase spending and hiring. Such investment may support consumer spending and economic growth in 2007 even as export demand cools.


A gauge of manufacturing in Germany, Europe's largest economy, jumped to 59.4 from 58.3, today's data showed. Growth accelerated in Italy and Spain and slowed in France.

``It is encouraging to see that domestic demand currently appears to be healthy in most euro-zone countries, given that export orders may well come under increasing pressure over the coming months from a strong euro and moderating global growth,'' said Howard Archer, chief European economist at Global Insight in London.

As you can see, this is hardly cataclysmic but still interesting to see how the general expectations point to the fact that consumer spending will take over as the exports cool off due to an appreciating Euro and a slowing US. We need to rememeber that there are plenty of economic dynamics which might also dent consumption; i.e. a raising ECB and a German VAT tax raise. 2006 has indeed been a good year in the Eurozone but this is no reason in my opinion to be complacent and I believe that we might very well be in a situation where the economic dynamics will push down growth rather far in 2007.


Fertility in Japan

Japan.jpgRegular readers of Alpha.Sources will know that my economic analysis of Japan is anchored in the understanding and essentially awareness of how demographics affect the macroeconomic environment. One of the key macroeconomic indicators is the median age and here Japan is extraordinary in the sense that the Japanese people is the oldest population on earth with a median age of 42.6. In an overall sense we can say that the ageing of Japan's population and indeed the ageing of the entire OECD world is driven by two factors; declining fertility and increasing life expectancy. This post is quick pointer to the former parameter in a Japanese context.

Japan's fertility is indeed low and even slightly below the 1.3 mark which signifies lowest-low fertility. This clearly has  implications for the Japanese society and economy but going out of 2006 we should note that fertility actually increased a small bit in 2006.  

The number of births for 2006 has been estimated at 1,086,000, an increase of 23,000 from a year earlier.


The fertility rate - the average number of children a woman bears in her lifetime - was expected to be 1.29 in 2006, compared to the record low of 1.26 in 2005.

However, it is as also noted in the short BBC.News article pretty small beef and the general projections still look dire for Japan.

But the health ministry expects the rate to fall this year and continue a downward trend that may see a 30% drop in the population in the next 50 years.

Japan has the highest number of elderly people and the lowest number of young as a percentage of its population.

Another article from BBC.News from December also note the severity of the general projections.

The report says the current population of about 127m is projected to sink below 90m by 2055. By that date the proportion of the population aged above 65 is set to double to 40.5%. Prime Minister Shinzo Abe pledged to bring in policies that would prevent further falls in birth rates.  Correspondents say the current trend is caused by women marrying later in life and having fewer children.

In 2005 for the first time since World War II the Japanese population declined, the survey by the National Institute of Population and Social Security Research for the ministry of health noted.

For a more detailed description of Japanese fertility I recomment a recent article in the Japanese Journal of Population by Toru Suzuki which tackles the developments in Japanese fertility and policies.

Japan’s TFR in 2004 was 1.29, which is “lowest-low” fertility, i.e. having a TFR of 1.3 or less. It seems to be impossible for cohorts born after 1960 to achieve the complete fertility of their predecessors. The delay in childbearing was accelerated again after 2000.


The Japanese government has been adopting pronatal measures since the early 1990s but has not succeeded in preventing fertility decline Measures applied by the central government include expansion of child allowance, introduction of childcare leave, improvement in childcare services, etc. However, pronatal measures are not as effective as expected. Quantitative analyses show that it is very difficult to elevate the TFR by 0.1 with policy interventions.

Note also this from the introduction ...

Japan is now entering a new demographic phase. After the population growth that tripled the Japanese population during the 20th century, the period of population decline is about to start. Although the official population projection (NIPSSR, 2002) foresees that the period between October 2006 and October 2007 will mark the first population decrease, the vital statistics recorded a natural decrease in the first half of 2005. If the annual number of deaths eventually exceeds that of births and is not compensated for by the net immigration, Japan will become a country with a declining
population this year.

The next step here would then be to think about what this means for the macroeconomic reality in Japan and how our analysis should reflect this.