This underscores a major problem for the eurozone. The European Central Bank's Long Term Refinancing Operations have flowed into bonds and helped lift money supply, but it has not reached the end users. This in part is the money multiplier problem, as the high-powered money that the ECB creates is not reaching the real economy.
And it's not just the ECB. To differing degrees, the Bank of Japan, the
, and the Bank of England are all facing a similar dynamic, though recent U.S. data suggests loan activity is finally picking up.
France fourth-quarter GDP revision saw its quarter-over-quarter rate steady at 0.2% but the year-over-year rate lowered to 1.3%. Support seems to be picking up for a larger EFSF/ESM firewall, though numbers being floated (EUR700 billion to EUR940 billion according to one European Union official) are still not large, especially in light of recent press reports suggesting Spain may tap funds for bank rescue (though later rejected by Spain). EU officials are expressing concern about delays in overhauling Spain's banking sector.
The UK GDP was the biggest quarter-over-quarter decline since Q4 2010. The breakdown highlighted the fact that real household disposable income in 2011 as a whole fell 1.2%. This is the biggest fall in real incomes since 1977, illustrating one of the core factors that have been battering UK consumer confidence and the retail sector.
However, it is not clear that the current UK economic outlook is dire enough to drive policymakers to ease monetary conditions further. EUR-GBP resistance is near the recent high of 0.842, with support near the recent low of 0.828. The U.S. is reporting revised Q4 GDP Thursday and it is worth noting that there is some upside potential due to an upward revision U.S. consumer services, namely health care.
Chinese equity markets were sharply lower with the Shanghai index falling 2.65%. The State Council has reportedly issued a directive Tuesday calling for increased vigilance on inflation. At the same time, local banks and now the
Shanghai Securities Journal
continue to revise their GDP forecasts lower -- consensus seems to be moving toward the low end of 8% to 9% for Q1.
Lower profits by several Chinese corporates seem to confirm this view. However, iron ore and steel prices have been rising steadily, which, all else equal, would be a positive sign.