By: Mike Campbell
The Dow Jones closed 2% higher yesterday on the strength of business productivity data. US productivity is determined as the output per hour of work. The rate rose by 9.5% in Q3. Some analysts suggest that this increased productivity was due to the job cuts forced on many companies by the global recession. The logic goes that the increased output levels will lead to these companies re-hiring staff because those on board cannot sustain such rapid growth in productivity – time will tell. Any boost in US employment figures would be very welcome. Unemployment in the US is at a 26 year record level of 9.8%.
In Europe, the European Central Bank (ECB) and the Bank of England both left their respective interest rates unchanged at 1.0 and 0.5% respectively, as had been widely expected. Data from Euro zone countries showed that retail sales had fallen by 0.7% in September within the currency zone, underlining how weak the recovery is. EU unemployment levels are at their highest since 1999 with 9.7% of the workforce currently without a job. Despite this, ECB president, Jean-Claude Trichet, has predicted that the EU economies will gradually recover over the course of 2010, but he admitted that there was still a high degree of uncertainty.
Iceland’s economy was nearly choked to death by the global recession. Icelandic debt, unemployment levels and pressure on the currency the Krona, produced a near collapse in the financial system. The problems were so bad that the country had to ask the International Monetary Fund for a $10bn aid package. The crisis led to interest levels as high as 18% (March 2009) in a move to support the currency. The move was successful and the Krona has now stabilised, allowing the bank to reduce interest rates. The latest reduction has seen the rate reduced from 12 to 11%. The weak Krona has made Icelandic exports much more affordable and has returned GDP to the positive side of the balance sheet.