By: Mike Campbell
With all eyes on the Greek drama, it is easy to forget that other key decisions are being taken elsewhere which will have an impact of the recovery, such as it is, around the world. It seems that the world’s central banks are largely of a mind (the exception being Australia) that interest rates need to stay low to enhance liquidity within the markets through the provision of cheap money (unless you are the Greek government, of co urse) and foster economic recovery. The Bank of Japan recently decided to maintain its interest rate at just 0.1%. The world’s second largest economy (just) managed to post modest growth figures of 0.9% in Q4 2009 and continues to battle with deflationary pressure in the domestic economy and near record unemployment levels. The relative strength of the Yen makes Japanese exports more costly than those of its major competitors. Since Japan relies on exports for its financial strength, the high value of the Yen is an impediment to recovery and strong growth.
Across the Pacific Ocean, the Federal Reserve also decided to maintain its stance on interest rates when it met recently, again suggesting that the policy would continue for the foreseeable future. American growth in Q1 was 3.2% on an annualised basis and Q4 2009 returned a figure of 5.6% to provide a comparison with Japan. The relative downturn in the US economy between the two quarters has been attributed to reduced government spending and a fall-off in America’s exports. The year-on-year figures showed that the Q1 exports had increased by 5.8% this year, but this pails in comparison with the same data for Q4 2009 which saw a 22.8% growth. However, personal consumption figures for last quarter showed an improvement over the previous quarter; 5.6 compared to 1.4% respectively.