FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.

posted on 30 December 2015

International Economic Update: Deflation Remains Concern, Stock Markets Mostly Improve

from the Dallas Fed

-- this post authored by Kelvin Virdi

Global output growth has been weak so far in the second half but is expected to moderately accelerate in 2016, especially for emerging-market countries. Deflationary pressures have decreased but inflation remains low in the euro area. The European Central Bank (ECB) has committed to continuing its quantitative easing program to help fight deflation, but its announced measures were short of market expectations. The turmoil recently experienced by emerging markets has largely subsided as stock prices and exchange rates level out and begin to improve.

World GDP Growth Unchanged

Year-over-year gross domestic product (GDP) growth in third quarter 2015 was 1.5 percent for advanced countries (excluding the U.S.) and 4.0 percent for emerging countries (Chart 1).[1] The growth rate for advanced countries fell 0.1 percentage points from the second quarter, while emerging countries' growth was flat. Overall, world growth (excluding the U.S.) was unchanged.

Although, Germany's year-over-year growth increased from 0.22 percent in the second quarter to 0.31 percent in the third, it remains disappointing. Decreased export demand from emerging markets - China in particular - may be partly to blame.

Preliminary data from Japan had shown GDP declined for a second consecutive quarter, which would have indicated a technical recession. However, the GDP data were revised upward from -0.19 percent to 0.39 percent in the third quarter, with Japan narrowly escaping a recession. Japan's preliminary GDP figures have been prone to significant revisions and, in this case, changes to Japanese investment data were responsible for the increase in quarter-over-quarter output growth.

Among emerging markets, third-quarter year-over-year GDP growth was 3.19 percent for Brazil, 0.94 percent for Russia, 5.60 percent for India and 6.02 percent for China. China's growth came in better than expected due to an atypical contribution from its financial services sector. China's stock market experienced a bubble starting in fourth quarter 2014, which may have attracted more investment than usual and could account for the higher output from the financial services sector. This effect is expected to decrease as trading returns to normal levels.

Inflation Pressures Ease

Low global inflation since mid-2014 has mainly been due to low energy prices. The price per barrel of West Texas Intermediate crude oil fell from a high of $103.75 in July 2014 to $36.50 in early December 2015. The deflationary pressure from this price decrease has eased over time, but consumer price index (CPI) inflation is still low (Chart 2), particularly for euro-area countries.

Year-over-year headline CPI inflation for the euro area was 0.13 percent in November 2015. On Dec. 3, the ECB took steps to dissuade potential deflation by cutting the deposit rate from -0.2 percent to -0.3 percent and extended its quantitative easing program. The ECB said it will continue to purchase $64 billion of mostly government bonds every month until March 2017 and did not hint at an increase in the future. Investors were expecting an expansion of the program and reacted to the news with disappointment, causing the German stock market, the DAX, to dip 3.5 percent that day (Chart 3). Many other central banks kept policies unchanged while awaiting responses from other major central banks.

Emerging Markets Stabilize

Since October, financial conditions in emerging markets have improved. The drop in stock prices and sudden currency depreciations seen in the summer had increased the risk of a financial crisis in emerging-market economies. The risk remained until October, but since then, the stock prices and exchange rates of emerging economies have stabilized or improved slightly. This recent stability implies that the fear of such a crisis has dissipated.

The real stock price index of emerging markets has increased 15 percent from its September low (Chart 4). The Chinese stock market bubble is evident in the spike seen in the emerging-market stock index aggregate in the chart. The exchange rate index increased 1.5 percent in October and remained even in November (Chart 5).

China to Join SDR Basket

On Nov. 30, the executive board of the International Monetary Fund (IMF) decided that the Chinese renminbi (RMB) will be included in the basket of currencies that determine the value of the IMF's special drawing rights (SDR) in October 2016. The SDR is an international reserve asset allocated to IMF member countries to supplement a potential shortfall of preferred foreign exchange reserve assets. The executive board reviews the basket of currencies every five years and has decided that the RMB meets the two necessary criteria.

To be included in the SDR basket, the country must be a major exporter and its currency must be "freely usable." China easily meets the first requirement because it accounted for 12.7 percent of global exports in 2014 and, according to the IMF, it meets the second because the RMB is widely traded in global markets.


  1. Numbers for world and advanced aggregates exclude United States. GDP, CPI and Producer Price Index data for aggregates - world (ex. U.S.), advanced (ex. U.S.) and emerging - come from a representative sample of 40 of the largest economies, ranked by their importance as U.S. trading partners. See "A New Database of Global Economic Indicators," by Valerie Grossman, Adrienne Mack and Enrique Mart'nez-Garc'a, Journal of Economic and Social Measurement, vol. 39, no. 3, 2014, pp. 163 - 97. For the methodology used for dating global cycles, see "A Contribution to the Chronology of Turning Points in Global Economic Activity (1980 - 2012)," also by Grossman, Mack and Mart'nez-Garc'a, forthcoming in the Journal of Macroeconomics. A working paper version of this article appeared as Globalization and Monetary Policy Institute Working Paper no. 169, January 2014.

About the Author

Virdi is a research assistant in the Globalization and Monetary Policy Institute at the Federal Reserve Bank of Dallas.


>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical News Post Listing

Make a Comment

Econintersect wants your comments, data and opinion on the articles posted. You can also comment using Facebook directly using he comment block below.

Econintersect Contributors


Print this page or create a PDF file of this page
Print Friendly and PDF

The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.

Take a look at what is going on inside of
Main Home
Analysis Blog
Slow Economic Growth Will Be Around For A Long Time
The Job Guarantee, Wage-Price Inflation And Alternative Solutions: Part 2
News Blog
March 27, 2017 Weather and Climate Report - Will the MJO Deliver a Nino?
The Most Reputable Companies Worldwide
Gut Bacteria Play A Role In Long-term Weight Gain
What We Read Today 27 March 2017 - Special Public Edition
Is Less More In The Smartphone Market
Average Gasoline Prices for Week Ending 27 March 2017 Statistically Unchanged - Again
What We Read Today 27 March 2017
Why New Jets Could Destroy Airlines
March 2017 Texas Manufacturing Survey Continues to Expand
Wage Growth After The Great Recession
Is OPEC Losing Its Ability To Influence Oil Prices?
Many Worry That The Great Recession And Mounting Student Debt Have Stunted Millennials' Financial Development
Infographic Of The Day: Visualizing The Shifting Income Distribution Of American Jobs
Investing Blog
The Dollar's Coming Impact On Markets
The Real 401k Plan Manager 27 March 2017
Opinion Blog
Macron May Lead But Le Pen Remains The Big Story
Is The 20th Century Still The 'Hayek Century'?
Precious Metals Blog
These Gold Stocks Will Produce Much Bigger Gains Than Gold Itself
Live Markets
27Mar2017 Market Close: US Dollar Falls Into The 98 Range, WTI Crude Slips Into The 47 Handle, Wall Street Generally Sour And Down
Amazon Books & More

.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Middle East / Africa
USA Government



Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day


Asia / Pacific
Middle East / Africa
USA Government

RSS Feeds / Social Media

Combined Econintersect Feed

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution



  Top Economics Site Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2017 Econintersect LLC - all rights reserved