by Edward Hugh: Barcelona

The global manufacturing recession continued in April, with rates of contraction for output, new orders and employment all showing what are effectively sharp contractions by historical standards. The rates of contraction however moderated almost universally, and this is now the fourth month where this moderation has been evident. Thus, while the contraction is far from over, it is reasonable to say the it has stabilised, and the big issue is at what rate it will hold in the months to come. The initial shock has now been absorbed, but that is a far cry from saying that we already have the worst behind us. The general deterioration in employment conditions raises the concern that as the impact of the government stimulus “shocks” in their turn wane, and as national banking systems come under the impact of the additional loan defaults the growing unemployment and falling property values will cause, then we may see a series of second round effects, not as severe as the initial “hit” last October, but certainly not to something to be taken lightly or “factored out of the picture” at this point.

Sharp Rise In the Headline Global PMI

The JPMorgan Global Manufacturing Purchasing Managers' Index (PMI) - which is based on surveys covering over 7,500 purchasing executives in 26 countries which between them account for an estimated 83% of global manufacturing output - posted a reading of 41.8 in April, thus coming in well below the critical 50 neutral mark separating expansion from contraction for the 11th successive month. In rising from the 37.3 level shown in March, the PMI managed to post its largest month-on-month improvement in the series history attaining in the process a seven-month high. The sharpest point in the contraction was last December, when the indicator hit the all time series low of 33.7.

The sub-indexes which track output, new orders, new export orders and employment all posted the strongest upward movements in their respective series histories, but still all remained firmly below the neutral 50.0 mark. The rates of contraction for output and new export orders eased to seven-month lows, and total new orders dropped at the weakest pace since August 2008.

The picture was a mixed one, and emerging economies generally fared rather better than developed countries. This was especially the case in China and India, the only two countries covered by the survey to actually to report increases either for output or new orders. Rates of contraction in output eased to a seven-month low in the United States and to the weakest since last October in the euro area. Output and new orders in Spain and Japan continued to fall significantly faster than the global average, but even in these cases the contraction rate improved markedly over earlier rock bottom lows.

Substantial manufacturing job losses continued in April, even if the rate of decline eased to a five-month low. Germany, Switzerland, Australia and South Africa posted series record reductions in employment. China was the only nation to report an increase in staffing levels, and India only reported slight reductions. The rate of job cutting in the U.S. slowed to its weakest since last September, but the reduction in the Eurozone was only slightly better than the series record set in March.

The Global Manufacturing Input Prices Index continued to show significant price decreases, although the reading of 35.5 was a five-month high. Still this again was a historically low reading, and, according to JPMorgan, apart from India and South Africa all of the countries for which data were available reported lower purchasing costs, with rates of decline faster than the global average in the both the U.S. and the Eurozone, giving an indication of just how extensive deflationary pressure is at this point.

Europe

Sweden

Sweden’s seasonally adjusted PMI rose to 38.8 in April from 36.7 in March, according to the latest survey from Swedbank and Silf, more or less in line with economists expectations.

The PMI was thus well below the threshold 50 reading for the tenth consecutive month, although April was the fourth consecutive month when the rate of contraction eased. Of particular interest is the fact that the employment index worsened to 28.3 from 31.1, indicating that Swedish manufacturing was shedding jobs at a faster and certainly preoccupying rate. New orders were the single biggest contributor to the rise the overall index, and the sub-index for export orders alone rose to 45.3 points in April from 39.7 March, a feature which was doubtless a by-product of the 15% decline we have seen in the value of the Krona vis a vis the euro since last summer. Sweden’s export-dependent economy is facing its worst recession since the 1940s with the global downturn hitting demand for products of key manufacturers like Volvo and SKF. The contraction is easing, but still we are far from having an end in sight, nor will we see one till demand resurfaces in some of the customer economies.

Eurozone

The pace of the slowdown in Eurozone manufacturing activity generally slowed in April, and the PMI rose to a six-month high of 36.8 from 33.9 in March.

Spain

The rate of decline in Spanish manufacturing slowed again in April (for the fourth consecutive month), and April’s PMI rose to 34.6 from 32.9 in March. This is now significantly up from December’s record low of 28.5, but the contraction remained very strong, and this was still one of the lowest readings globally.

The pace of deterioration eased in output, new orders and employment, though stocks of purchases and finished goods hit series lows. Survey responses suggested the rate of decline in the badly hit jobs market had eased slightly from earlier falls, but the reading still remained well below growth levels, and Spain’s economy continues to bleed jobs, adding to levels of employment which the latest labour force survey data suggests has now risen above 4 million (or 17.3% of the economically active population). Staffing levels have declined every month since September 2007, according to survey records.

Italy

Italy’s manufacturing business shrank at its slowest rate for six months in April, with the latest Markit/ADACI survey producing a headline PMI reading of 37.2 - significantly above March’s record low of 34.6 and beating the consensus forecast of 36.5.

In addition other recent data suggest that the lowest point may have been past with business confidence improving in April (following 10 consecutive monthly falls), and consumer morale hitting its highest level in 16 months. However Markit reported that about 40 percent of companies in the survey reported new order levels continued to fall during the month, even though at the slowest rate of decline in seven months. Output fell at its slowest rate since October, with the sub-index jumping to 35.9 in April from 32.8 in March. Overseas orders, even though they fell less sharply in April, still clocked up their 14th successive month of decline, with Markit noting that demand was particularly weak from Eastern Europe and Russia.

And job losses in Italy’s manufacturing sector showed no signs of letting up and were running at the second fastest rate in almost 12 years of data collection following the record low hit by the employment index in March.

However, saying that the “darkest hour” in this contraction may be over is not the same thing as saying that recovery is anywhere in sight. Italy’s manufacturing PMI has now not indicated growth since February 2008 and forecasts generally expect the economy to contract by around four percent this year, making for two straight years of continuous contraction for the first time since World War Two. Indeed, the Organisation for Economic Cooperation and Development has even already pencilled in a potential further contraction for 2010, which if realised will mean Italy’s economy will have been shrinking for an almost unprecedented 3 years continuously.

Germany

German manufacturing contracted for the ninth month running in April, though the pace of the downturn eased to its slowest since last November. The headline manufacturing PMI in Europe’s largest economy registered 35.4, still a very low level, but nonetheless up significantly from March’s reading of 32.4.

“April’s survey provides hope that the German manufacturing downturn has passed its nadir, as the PMI moved further above January’s record low,” according to Tim Moore, economist at Markit Economics. “However, output still fell at a rate unprecedented prior to the fourth quarter of 2008, prompting firms to trim employment and inventories to the greatest extent in the survey history,” he added.

New orders declined for the tenth successive month but at a much slower pace than in March, with the sub-index rising to 37.0 from 28.9 - a series record month-on-month rise. The improvement in the PMI results fits in with other recent sentiment indicator readings in German, with the Ifo institute’s business climate index improving in April to its best level in five months, while the ZEW investor sentiment gauge rose to its highest level in almost two years. However, we are still a far cry from a return to output growth in Germany, with most observers anticipating a GDP contraction of between 5% and 7% for 2009, and given the export dependence we should be looking for an increase in imports in main customer economies before we start thinking about any expansion in German manufacturing output.

France

The pace of decline in French manufacturing activity continued to ease in April, and the Markit/CDAF headline manufacturing PMI rose to 40.1, showing a sharp rebound from March’s final reading of 36.5. The April level was the highest since October 2008.

The new orders sub-index jumped to 41.1 from 34.3 in March, while Markit also reported evidence of higher sales to clients in emerging countries, a factor which helped to slow the pace of decline in new export orders.

Other indicators published recently have shown similar positive signals, adding to the sentiment that the French economic contraction may well have stabilised. Household spending on manufactured goods rose by a stronger-than-expected 1.1 percent in March, after a 1.8 percent fall in February, while April’s consumer confidence index improved for the second successive month. However the latest employment data shows headline unemployment rising by 63,400 to 2,448,200 in March, and April’s PMI survey only added to the bleak news as firms continued to slash jobs over the month. According to Markit , despite easing to its slowest level in 2009, the rate of decline in employment remained close to January’s survey record.

Greece

Greece’s manufacturing sector also rebounded in April, with the headline manufacturing PMI rising to 40.9 from a record low of 38.2 in March. This was the seventh consecutive month of contraction. The European Commission forecasts that Greece will slide into its first recession since 1993 this year. In its spring forecasts, the Commission forecast the Greek economy would shrink by 0.9 percent this year before recovering positive growth at a rate of 0.1 percent in 2010. The largest looming problem is the budget deficit which is seen as reaching 5.1 percent of GDP in 2009 and 5.7 percent in 2010. As a result general government debt is expected to widen to 103.4 percent of GDP in 2009 and 108 percent in 2010, while unemployment is seen by the Commission at 9.1 percent in 2009 and 9.7 percent in 2010.

Eastern Europe

Poland

Business confidence in Poland’s industrial sector was lower than expected in April as new orders kept falling and job shedding continued. The ABN AMRO headline manufacturing PMI dropped marginally to 42.1 in April from 42.2 in March. This meant Poland was one of the few countries which showed a (slight) deterioration in manufacturing conditions in April. New business indicators were mixed in April, with the new orders index falling to 40.9, from 41.4 in March, while new export orders increased to 40.7, from 39.1. The total manufacturing output index fell to 42.0, as industrial companies continued shedding jobs, although at a pace slower than that seen in the first quarter. The April employment index rose to 40.2, from 39.9 in Mrch.

Output prices charged by manufacturers fell in April, while input prices fell for the first time in three months as firms reported lower prices of raw materials.

Czech Republic

The manufacturing decline slowed in the Czech Republic in April, and the headline PMI rose to 38.6 from 34.0 in March. This was the 10th straight month of contraction in Czech manufacturing, with the substantial drop in export orders being the main culprit. April did however see the third consecutive rise in the index reading. Markit said seasonally adjusted new orders remained on an upward trajectory and registered the slowest rate of decrease since last September. Czech manufacturers did, however, continue to make substantial cuts in their workforces in April, and while the employment index rose from March’s record low, it still indicated a rapid rate of decline.

Hungary

Activity in Hungary’s manufacturing sector continued to contract in April, although the pace of contraction is now down slightly from January’s all-time low. The weakness of the rebound however does underline the depth of the recession the country is now in.

The headline manufacturing PMI stood at a seasonally adjusted 40.4 in April, up slightly from the 39.5 registered in March, according to the release from the Hungarian association of logistics. This was the seventh consecutive month of contraction, following the all-time low of 38.5 hit in January. The Hungarian government currently forecasts that GDP will contract by as much as 6% this year as the German economy, Hungary’s chief export market, also faces a similar decline in GDP. Hungarian manufacturing output contracted even more in April than in March, to 37.1 from 37.6. The export index showed a further decline to 35.6 from 36.5 in March. The only positive development came from the new orders index which showed a marginal increase to 37.5 from a reading of 35.0 in March.

Russia

The latest VTB Capital headline manufacturing PMI signalled that the sector remained in a strong downturn in April, although as elsewhere the rate of decline slowed again (for the fourth straight month) hitting the almost respectable level of 43.4 (in comparison with what is being seen elsewhere). This was the highest level in six months, although (in terms of historical comparisons) the latest results provide further evidence that the sector is experiencing a longer and more pronounced contraction than that seen during the financial crisis of 1998. At that time the PMI spent seven successive months in negative territory. In comparison the current run already extends to nine months - and we are still far from the end of the process - and in addition the rate of contraction has been much more pronounced.

According to VTB the largest component of the headline PMI – new orders – showed a weaker rate of decline in April. The rate of contraction in new business has now moderated continuously since hitting a survey record in December. However, new export business declined at a faster rate in April compared to March, suggesting that while the Russian administration’s stimulus plan may be having some impact, the devaluation of the ruble is yet to make any real impact, possibly due to the hefty rate of continuing internal price inflation and also due to the sorry state of international trade.

Worthy of note is the fact that a number of survey respondents linked lower output levels to payment problems at clients as credit conditions remain challenging.

Average input costs continued to increase in April, although at a weaker rate than that seen in the previous two months. Energy prices and exchange rate fluctuations were reported by firms to have increased costs, but this was partly offset by pressure on suppliers to discount rates as underlying demand remained weak. VTB reported that competitive pressure in the manufacturing sector was evident in April as firms cut output prices for the fifth time in six months. Manufacturers also continued to cut back their workforces in April, and employment in the manufacturing sector has now fallen continuously since May 2008, and the rate of job shedding remained marked despite easing for the third month running.

Asia

Japan

Japanese manufacturing activity contracted at a slower pace for the third consecutive month in April, and the Nomura/JMMA Japan Manufacturing PMI rose to a seasonally adjusted 41.4 from 33.8 in March, the largest gain since data were first compiled in October 2001. However, the index remained below the 50 threshold that separates contraction from expansion for the 14th straight month.

The output component of the PMI index also rose for the third straight month to 39.4 from 25.9 in March. In January the index was at 18.5, the lowest on record. Japan however remains mired in its worst recession since World War Two and after a hefty 3.2 percent GDP drop in the fourth quarter of 2008 is thought to have contracted even more rapidly in the first quarter of this year, despite some early tentative signs of a recovery in exports.

China

China's manufacturing expanded for the first time in either eight or nine months (depending on which index you chose - see below) as the decline in export orders moderated and investment surged on the back of the government's 4 trillion yuan ($586 billion) stimulus package.

The CLSA China Purchasing Managers' Index rose to a seasonally adjusted 50.1 in April from 44.8 in March.

The output index climbed to 51.3 from 44.3, the first expansion in nine months, while the reading for export orders rose to 48.8 from 41.4 in March. The total new-orders index climbed to 50.9 from 43.6 and the employment index rose to 50.9 from 47.1, the first expansions in nine months for both measures.

On the other hand the official (government sponsored) China Federation of Logistics & Purchasing manufacturing index also showed growth, in this case for the second consecutive month, with the headline index rising to 53.5 in April from 52.4 in March.

There are various differences between the two indexes (for a summary of the issues raised see my last month’s post here), but the gist of the matter is that the government-backed measure is weighted more than the CLSA index toward large state-owned enterprises, which have benefited more directly from the government stimulus measures.

India

The April reading for the Indian headline manufacturing PMI is the highest in seven months and the index has now steadily risen after hitting a trough of 44.4 in December. Indeed output at Indian factories grew for the first time in five months in April, with the ABN Amro Bank’s index rising to 53.3 from 49.5 in March.

The new orders index rose to 54.9 from 49.5 in March. The return to growth was primarily driven by an improvement in domestic demand, according to the accompanying report. “Although the rise in new business came principally from the home market, there was also some, albeit slight, improvement in foreign demand for Indian manufactures,” ABN Amro Bank said in the official release.

Indices tracking trends in output and new orders continued to rise, both breaching the neutral threshold of 50 for the first time since last October, it added. It should be noted, however, that growth of both output and new orders was well below their survey averages. Along with the expansion Indian manufacturers noted renewed input price inflationary pressures. A combination of increased prices for some commodities and unfavourable exchange rates led to a moderate rise in input costs during April. This is the first time that input price inflation has been recorded in India’s manufacturing sector since October last year. However continuing competitive pressures meant that manufacturers did not pass on their cost pressures on to customers, and factory gate prices were cut for the sixth straight month. However, the latest drop in average prices was the weakest in the current period of falling output prices.

Employment levels across India's manufacturing economy were little-changed during April with increased production requirements leading to recruitment on the one hand, while cost-cutting pressures produced job losses on the other.

“The April PMI gives a very clear indication that business conditions in the manufacturing sector have improved significantly after a period of sharp contraction and gradual stabilisation. The headline PMI at 53.3 has signaled expansion in activity for the first time since October 2008. Moreover, the April reading is the strongest since October 2008,” according to Gaurav Kapur, Senior Economist, India, with ABN Amro.

“Survey data suggests that production was ramped up during April in order to cater to a pick-up demand and to build inventories. The output index printed at 55.7 for April compared to 49.3 in March, as new incoming business expanded during the month. The domestic orientation of the improvement in demand is clearly visible from the new orders index rising well above 50, even though external demand also improved modestly. New orders index printed at 54.9 as against 49.5 in March. This is critical as it suggests that domestic demand conditions are now strong and supportive for growth in the sector,” he said.

“While activity levels improved, the manufacturing sector witnessed some margin pressure, as inflation resurfaced on the input side but output prices contracted. For the first time since October 2008, input prices rose over the month of April. However, as demand conditions are improving, manufacturers could gradually be in a position to raise output prices too. It therefore appears that inflationary conditions in the economy, which remain benign currently, could see some upside pressures going forward,” Kapur added.

Americas

United States of America

Economic activity in the United States manufacturing sector contracted again in April for the 15th consecutive month, and the overall economy contracted for the seventh consecutive month according to the US Institute for Supply Management’s latest Manufacturing ISM Report On Business. According to Norbert J. Ore, chair of the Institute for Supply Management Manufacturing Business Survey Committee, “The decline in the manufacturing sector continues to moderate…..After six consecutive months below the 40-percent mark, the PMI, driven by the New Orders Index at 47.2 percent, shows a significant improvement. While this is a big step forward, there is still a large gap that must be closed before manufacturing begins to grow once again. The Customers’ Inventories Index indicates that channels are paring inventories to acceptable levels after reporting inventories as ‘too high’ for eight consecutive months. The prices manufacturers pay for their goods and services continue to decline; however, copper prices have bottomed and are now starting to rise. This is definitely a good start for the second quarter.”

Brazil

The seasonally adjusted Banco Santander manufacturing PMI continued to indicate a sharp contraction in Brazilian manufacturing in April. All five component indexes gave negative readings. The PMI has now registered contraction since the start of the fourth quarter of 2008. However, the reading was up for the third successive month at 44.8, suggesting a further easing in the rate of deterioration.

April's rise in the PMI reflected less severe drops in both output and new orders. Production levels at Brazilian manufacturers continued to fall, but the rate of contraction eased sharply to its weakest since last September. Declining output was predominantly attributed to unfavorable financial and economic conditions, alongside lower levels of new business. However, incoming work contracted at a noticeably slower rate than in March. Data suggested a milder decline in domestic sales, however foreign demand for Brazilian products fell at a faster pace than in earlier months.

By Claus Vistesen: Copenhagen

It is not secret that the author of this space, at times, has been rather critical towards the ECB. The reason has not been so much for its de-facto inability to amend the situation in the sense that this is an inbuilt characteristic of the system, but more so because of the seeming complacency with which ECB policy makers (with notable exceptions) have viewed the crisis.

However, and with the recent rate meeting one is tempted to conclude that the ECB is now seriously committed to considering alternative measures and also, as it were, drastic measures along the lines of its peers at the Fed, the BOE and the BOJ who have all in their distinct way been engaged in QE for quite some time. In the recent print edition, the Economist provides a fine overview of global central banking in the midst of the current financial crisis; what has changed, whether there will be a “normal” again, and specifically whether central banks will emerge in new clothing, as it were, with new policy targets and objectives. I think these are some important questions since there is indeed a big risk that the edifice of central bank policy which has been built up during the financial crisis may turn out to be anything but temporary. And here I am not talking about the inflationist hobby horse that central bankers may be too slow to haul back the reigns when the economy picks up again, but more so about the fact that whatever trend we will observe in the aftermath won’t be anything near the one markets and policy makers expect. Of course, the good old principle of falsification will help on this one as we move forward.

One way in which the ECB has so far differed from its peers can be seen from looking at the first figure in the Economist article where it shown how the ECB has certainly expanding its lending operations (and credit facilities), specifically in the interbank market, it has not yet entered the securities market to buy up debt and equity. Some of us has been surprised by this reluctance which, together with the fact that the ECB has been relatively shy in slashing nominal rates, means that the ECB has appeared lagging in its response. Now, there is nothing wrong with being different and there is certainly nothing wrong with applying different tools to a situation which you genuinely find different. However, as one friend to me pointed out a while back, the ECB’s unique, and according to some brave and prudent, response to the crisis is now a liability rather than an asset, and one has to wonder whether that strategy hasn’t been subject to revision for a while now.

Indeed, I would be unfair in omitting to mention the fact that the ECB has indeed continued to slash interest rates and that signs have emerged to indicate that the ECB may be more flexible towards non-traditional policy measures. However, if you look at the assessment of the central bank the risk of deflation is still not paramount. At the recent policy meeting where interest rates were lowered by 25 basis points to 1.25 Trichet consequently pointed towards risks being balanced and more specifically how he did not view dis-inflation as being the same thing as deflation. This suggests that the ECB is not yet ready to take steps similar to the ones being taken by the Fed, the BOE and the BOJ.

Trichet, a Man of Principles

The impending comparison in this relation is the one with the Fed and in a recent speech Trichet points towards three, well known, reasons why we should not compare the US and the Eurozone.

The first reason relates to the ECB’s focus on the banking sector. Pointing to the fact that banking loans make up a substantially larger part in the Eurozone than in the US (as a percentage of GDP), the chairman defends the focus on easing bank credit issues. Moreover, and as a related point Trichet points towards the importance of small and medium sized companies in the Eurozone (SMEs) and how these companies rely heavily on banks. Far be it from me to disagree with an expert (and I do consider Trichet an expert here), but I would humbly submit the point this is not only a (credit) supply story. At this point it is very much a demand story and how those very same companies need to find investment opportunities beyond maintaining credit to smooth their short term expenses with whatever revenues they might have in prospect.

As a second reason Trichet points towards a higher risk associated with the housing market in the US and thus why the US’ asset programs to purchase toxic housing assets should not be replicated in the US. Now, it is true that the wealth effect from housing is considerably higher in the US than in the Eurozone countries at large, but this is also as far as the argument goes. In essence, I really don’t know what to say here, and quite frankly this is an embarrassing remark from the president. I mean, doesn’t he know that Spain and Ireland are part of the Eurozone? Also the implicit narrative that Europe and the US differs because of the role of housing in the latter is extremely simplified. Take Eastern Europe for example not to mention my own country Denmark. In fact, if there ever was a call for a program to relinquish banks and credit institutions of bad mortgage assets it would be in the case of Spain. Add to this that the crisis exactly turned global the minute BNP Paripas revealed that they too would be suffering subprime related losses and after them a veritable tableau d’horreur has followed.

Thirdly and perhaps most popularly in this discourse, Trichet points to the mitigating effects of a relative high degree of price rigidities in a European context. The point goes that if prices are rigid on the downside, companies will have a harder time lowering wages and prices and thus provoking inflation. We could think of this as a structural hedge against a collapse into deflation and it is basically driven by the fact that if headline inflation did not spark core inflation growth on the up, it won’t do it on the downside either. From the point of view of ECB policy however, this argument would be rather inconsistent since we all remember the horror of second round effects that the ECB tried to enshrine into markets as rates were raised back in 2006-07 to counter the increase in headline inflation. In this way, one would assume that such logic applied on the downside too and what is more, it is quite obvious that the deleveraging needed across the global economy need to be deflationary by very nature of the problem at hand. Trichet on the other hand is a man of principles and his remarks, in the context of inflation expectations, during an interview with Süddeutsche Zeitung brought a smile to my face.

But citizens can have full confidence that we will guarantee stable prices over the medium and long term. The 329 million citizens of the euro area are very clever. They would not improve their level of confidence and help restarting the economy if they had the sentiment that we were forgetting our primary medium term goal.

(…)

We should not confuse disinflation and deflation. At the moment I am speaking, we are experiencing very low inflation and in the months to come negative inflation due to the decrease of the prices of oil, energy and commodities, before it increases again at the end of the year. This is good for the purchasing power of households and is a correction of the high prices of the past.

It would be interesting to take a poll to see whether those 329 million souls really were as clever as Trichet thinks, whether they are imbued with the kind expectations assumed here, or whether they agree with the ECB overall main objective.

The ECB, a Hydra?

Meanwhile and although the President certainly seems to be keeping his discourse straight, it is not easy to get a handle of what exactly the ECB is planning as we move forward. One classic dichotomy in the context of ECB watching and one which is dearly loved by financial journalists is between Axel Weber, as a hawk, one the one side and e.g. Greek council member Athanasios Orphanides on the other. It is well known that the former on several occasions have argued against slashing the nominal interest rates below 1% whereas the latter has advocated for the ECB to engage in QE-like purchases of assets in the market place. Weber has even been quoted of arguing how the ECB should set a specific floor under how low the nominal interest rate could be slashed.

But, by no means is this only a Saxon-Hellenist skirmish.

Recently, Bloomberg ran a piece in which the Dutch and Belgian council members Noel Wellink and Guy Quaden were quoted of saying that the ECB could (potentially) serve up extraordinary measures as we move forward from the next meeting the 7th of May. On the economic outlook, it is also difficult to get a handle on what the council members think with some arguing how the economy is improving and some, on the other hand, voicing concern over downside risks to prices and economic momentum. Also, on the outlook for deflation, the opinions are many. Trichet is well known to hold the belief that we are not going to see deflation, but only dis-inflation which, in itself, is not detrimental and may even be good for households’ disposable income. However, Wellink was also quoted by Bloomberg of saying that the longer this disinflationary process lingers, the higher the risk will be that we get into an unwanted situation.

Adding to the cacophony, executive board member Lorenzo Bini Smaghi recently pointed to the fact (get the speech here) that bringing interest rates close to the zero bound would risk distorting money markets as it could curtail interbank lending. Apart from constituting yet another voice in the wilderness of official ECB opinion makings, this is a point worth considering in the sense that financial institutions might swap what was otherwise a smoothly functioning interbank market for the soothing liquidity tap of the central bank. I think it is important to emphasise though that there is a big difference between short term and long term financing here, where one would assume the central bank to stay exclusively on the short end of the curve. In essence, Mr. Smaghi’s speech is a well argued one, and I would not want to leave the impression that I am trying to present a picture of an ECB that is torn to a greater extent than is really the case.

However, it appears that I am not the only picking up the mixed discourses on the radar. Consequently, Bloomberg reporter Simone Meier has a piece which details how Trichet has decided to silence his fellow council members, at least as so far goes the measures taking during the next meeting the 7th of May.

European Central Bank President Jean-Claude Trichet has imposed a vow of silence on Governing Council members as they struggle to agree on what to do next to rescue the economy from recession.

Trichet asked council members last week to refrain from commenting on what new measures the ECB will unveil at its next policy meeting on May 7. Austria's Ewald Nowotny confirmed the ban today, telling reporters in Vienna officials had been asked "in the name of the President not to talk about details before the May meeting." Trichet said on April 27 that council members had agreed "not to give any further indications."

Given the short overview above of the different voices, one can hardly fault the President for this initiative and as David Milleker, chief economist at Union Investment in Frankfurt is quoted of saying;

"They've created more confusion than clarity. The entire cacophony didn't exactly give the picture of a united council in any case."

This seems to be the point in a nutshell and in an environment where the uncertainty surrounding the ECB’s strategy and play book is generally high, the confusion only increases.

Charting a Course

In many ways I think it is natural that the ECB, just as its peers, are finding it difficult to deal with the present circumstances. Nobody ever said that this was easy, but the ECB still leaves an impression that it really does not know what it wants and, more importantly, how it wants to get there. In the recent World Economic Outlook 09, the IMF heads of the description of the European economic edifice with the point that Europe is searching for a coherent policy response. The fund highlights how the severe stress that has built up in the financial system and in the real economy (especially in the context of the CEE) calls for coordination between fiscal and monetary policy. The niggle here is of course that, at present, this is difficulty achieved in a Eurozone, let alone, European context. Moreover, the ECB’s sole focus on price stability may be robbing it of looking at more flexible measures although of course, in relation to buying securities in the open market, it is not certain e.g. which countries’ bonds it should buy. This is why I, and among others the IMF, have argued that Euro Bonds be considered.

For me, there are two additional issues here. Firstly, I think the ECB is too dogmatic. Sure, you can call me excessively worried about deflation and you can argue that since we are currently sustaining a three month rally things are perhaps not as bad as they seem. However, I still believe that the myopic look on inflation expectations in the aggregate for the Eurozone as well as the idea that price stability in the long run follows naturally from anchoring these expectations constitute a severely miscalibrated compass to navigate the waters in which the economy finds itself at present. There is a fine balance between sticking to one’s convention and adjusting to new circumstances, and the ECB is, in my opinion, leaning too much to former. Secondly, I think the ECB and indeed Eurozone policy makers have a responsibility towards on the one hand, the CEE; and on the other keeping the Eurozone in one piece. I think that this responsibility should be conveyed very clearly in speech and action. You can always argue that measures already have been taking, but I think there is good chance (risk) that the whole European economic system needs a serious re-boot on the back of this crisis. Such re-structuring need to be intimately tuned to these two challenges which means that we need to be able to speak openly about them and not narrate anything in the context of one set of aggregate inflation expectations measures. If it is not, then we will truly be all at sea.

Each one of us knows that this is a time of recession. In this difficult time, many firms have started cutting off the salaries of their employees. I am quite sure that it is creating problems in many families. Many households feel it hard to run their monthly expenses in their limited salaries.

But don’t worry my friends! This time of difficulty will pass quickly. I know that there is a question which is striking in your minds. That is, what to do at this moment? But if you pay some heed to the UK financial market, then you will find that there are a lot of schemes in order to get rid of the financial problems. With these plans, you can manage your monthly expenses with ease. The best way that is getting popular among people is taking payday loan. It is short term loan which is provided to the people till their next payday.

I know what you are thinking now? Individuals generally fear submitting large number of documents while availing debt. It is really a headache for many people. But, this problem is also eliminated by many lenders who offer payday loan no faxing. This is a type of debt in which absolutely no documents are required. You just have to fill a small form and your loan is applied.

The form can be filled either offline or online. In order to apply offline, you have to visit the loan agency to fill a small paper form. But in the fast lives of today, I think it will be better if your go through the online procedure. There are a plenty of Internet portals which facilitate the borrowers to apply the borrowings on the Internet. I am quite sure that payday loans no faxing will prove to be a great help for the people of UK.

Each one of us knows that this is a time of recession. In this difficult time, many firms have started cutting off the salaries of their employees. I am quite sure that it is creating problems in many families. Many households feel it hard to run their monthly expenses in their limited salaries.

But don’t worry my friends! This time of difficulty will pass quickly. I know that there is a question which is striking in your minds. That is, what to do at this moment? But if you pay some heed to the UK financial market, then you will find that there are a lot of schemes in order to get rid of the financial problems. With these plans, you can manage your monthly expenses with ease. The best way that is getting popular among people is taking payday loan. It is short term loan which is provided to the people till their next payday.

I know what you are thinking now? Individuals generally fear submitting large number of documents while availing debt. It is really a headache for many people. But, this problem is also eliminated by many lenders who offer payday loan no faxing. This is a type of debt in which absolutely no documents are required. You just have to fill a small form and your loan is applied.

The form can be filled either offline or online. In order to apply offline, you have to visit the loan agency to fill a small paper form. But in the fast lives of today, I think it will be better if your go through the online procedure. There are a plenty of Internet portals which facilitate the borrowers to apply the borrowings on the Internet. I am quite sure that payday loans no faxing will prove to be a great help for the people of UK.