Gloom Prevails in the US and Germany While Britain Bucks Trend

23 October 2001

Three new surveys, respectively covering the US, German and UK economies, were published Monday.


The Conference Board's index, regarded as a significant bellwether of the US economy, registered the biggest one-month fall since January 1996. The index, which predicts economic conditions over the next three to six months, fell by 0.5 per cent in September to 109.2 after a revised 0.1 per cent drop in August.

The indices of consumer expectations, average weekly manufacturing hours, building permits and manufacturers' new orders for (non-defence) capital goods also reflected declines.

The New York-based research group said it had expected the sharp drop as the economy had been weakening even prior to the events of September 11. Six of the index’s ten leading indicators declined in September, triggered by the slide in stock prices and a steep increase in weekly claims for unemployment benefits in the wake of the attacks.

The indices provided little enlightenment about future prospects, said Morgan Stanley economist David Greenlaw: “The data are very noisy but when you put it all together, the index is just a repackaging of stuff you already know. There's still a lot of downside risk.”

His counterpart at Credit Suisse First Boston, Jay Feldman, was equally downbeat: “The near-term outlook remains uncertain. The index earlier in the year signalled industrial production was going to bottom prior to the attack. Now the data are telling you not to expect that.”


The autumn report jointly prepared by six leading economic institutes told a similar tale of woe, concluding that the nation is teetering on the edge of recession.

The events of September 11, the sextet opines, accelerated an economic downward trend that started in Germany prior to the end of 2000. Production is deemed unlikely to recover before the end of this year, resulting in full-year growth in gross domestic product stagnating at 0.7%.

Uncertainty as to further developments is considerable, conclude the six. Only in 2002, they predict, will expansive forces begin to reassert themselves with export demand recovering as the year progresses. Domestic demand is also expected to become more animated at around the same time with GDP growth at the end of 2002 almost doubling to 1.3%.


In a nation noted for its cloudy conditions, the economic cumulus at least has a silver lining, according to the Ernst & Young Item Club quarterly report.

Using the UK Treasury's model for growth, this predicts growth of 2.2% this year, easing back to 2% in 2002, before accelerating to 2.9% in 2003. The report credited Britain’s consumers for the relative strength of the economy, while cautioning that spending will begin to slow following the recent wave of job cuts.

Says Professor Peter Spencer, economic adviser to the club: “UK plc clearly has much to thank consumers for. [They are] starting to look like the proverbial cat with nine lives - despite worries about the international situation and job prospects.”

Prime minister Tony Blair was credited by Professor Spencer for much of the UK's economic resilience, thanks to his “strong leadership” since the terror attacks on the US. Nevertheless, the professor predicts that the UK economy will grow by less this year than the Treasury forecast of 2.25% to 2.75%.

“Consumers simply are not in a position - as [UK chancellor] Gordon Brown seems to think - to step into the breach and take the edge off the impact of a precarious US economy and slowing world trade,” the report concluded.

News sources: Financial Times; Handelsblatt (Germany); BBC Online Business News (UK)