Summary

  • The recent combined growth performance of the United States, the euro zone and Japan, on a weighted basis, has been at its weakest level since the fourth quarter of 2004.

  • Consumption, the Japanese economy’s primary pillar in 2005, is now losing steam. Bad news is also hitting Europe’s economy, which grew at a slower rate during the third quarter, than during the first two.

  • The argument that other large industrialized economies will compensate for U.S. weakness thus does not appear to hold water.

  • The U.S., the euro zone and Japan account for 87% of industrialized nations’ GDP. Industrialized nations in turn generate close to half of the world’s output.

  • This sluggishness in all three of the world’s largest industrialized economies means bad news for the entire global outlook.


Weekly indicators

United States – The leading indicator gained 0.2% in October, as expected by analysts. The rise is due to jump in the M2 monetary aggregate. The leading indicator’s trend however continues to point towards modest U.S. economic growth. The greenback lost ground against the euro this week to close just above the 1.30 USD/EUR mark.

Canada – Retail sales fell by 1.2% in September, the largest pullback in one year. However the drop is entirely due to a record fall in service station sales (-12.5%). Excluding this sector, retail sales rose by 0.2%. In volume terms retail sales rose by 0.2% in September, the third consecutive monthly gain. Consumption should continue to contribute positively to economic growth during the coming months, due to the strong creation of full time jobs. Nevertheless the next GDP data are unlikely to be very strong (third quarter). The most likely result is for GDP growth to come in at about 1.6% during the third quarter, below the Bank of Canada’s 2% forecast. Total CPI fell by 0.2% in October, the second consecutive monthly drop. Once again, the drop in total inflation is due to falling gas prices. On an annualized basis, core inflation, the Bank of Canada’s reference index, rose slightly in October to 2.3%, its highest level since May 2003. Despite this, the details of the inflation report are generally more timid than what we saw last month, with three of the eight categories showing deflation (37% of the global index).