Developed economies shrink, manufacturing data improves

There was a modest improvement in economic data last week. However, activity indicators remain at extremely weak levels and are still consistent with an economic contraction across the developed world.

A constant in this week's economic data was the marked improvement in manufacturing indices. This was clearly evidenced in the US where the Institute of Supply Management Manufacturing index rose to 44.8 in June from 42.8 in May. Employment figures are an ever-present drag on consumer spending, as the unemployment rate rose to 9.5% in June from 9.4% in May, and is likely to approach 10% soon.

The change in unemployment within the Eurozone was somewhat more drastic as it shot from 9.2% in April to 9.5% in May. However, the rate of deterioration for the Euro-area's unemployment is expected to outpace its American counterpart as Europe's adversities are currently at an earlier stage.

Meanwhile, inflation figures dropped to negative territory for the first time as the Euro-zone's Consumer Price Inflation (CPI) estimate dropped to -0.1% from the figure registered in June. Lack of inflationary pressure was also reiterated by the European Central Bank's (ECB) president during last week's meeting. The ECB opted to leave interest rates unchanged at one per cent, saying the measures taken so far should support the Eurozone economy.

Finally, economic data from the UK showed that the British economy shrank at its fastest pace in more than 50 years in the first three months of 2009. Nevertheless, most forward-looking estimates for the UK economy are picturing a recovering economic scenario for the last quarter of this year.

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