Monthly economic review of G7 economies: May 2010 update

In April 2010, the IMF revised upwards its real GDP growth forecasts for advanced economies in 2010 to 2.3% from 2.1%. However, growth is expected to remain sluggish and fears of possible contagion started by the Greek debt crisis loom over these economies.

In April 2010, consumer confidence fell to its lowest level post-recession. During the month, the central bank kept its target interest rate at 0.25% but removed its commitment to keep them on hold in H1 2010 suggesting that its monetary stance can change depending on the outlook for the economy and inflation:

  • Canada’s consumer confidence dipped by 7.8 points in April 2010 and fell to its lowest level post-recession. The index has been volatile since the beginning of 2010 changing its course each month. During the month, consumers were more pessimistic about their unemployment situations, their ability to make major purchases and their sentiment towards future financial situations;
  • Nonetheless, the recovery in the Canadian economy supported by the strong rebound in commodities prices has benefitted the Canadian dollar. In April 2010, the currency strengthened to C$1.01 per US$, an appreciation of 17.8% since April 2009. While this will make imports cheaper, exporters’ profits might suffer;
  • In March 2010, Canada’s consumer price index grew 1.4% over the same month a year ago, easing for the second consecutive month. Gasoline prices exerted the most upward pressure on the consumer price index for the fifth consecutive month and were 17.2% higher than they were in March 2009.


Consumer confidence weakened for the third consecutive month in April 2010. The French economy remains fragile as unemployment levels remain high:

  • In April 2010, consumer confidence in France declined for the third consecutive month dropping by 2.6 points over the previous month. Consumer sentiment on the current and future economic situation deteriorated during the month while fears on high unemployment levels remain. In March 2010, the unemployment rate remained unchanged from the previous month at 10.1%;
  • Annual inflation in France rose to its highest level since November 2008 reaching 1.6% in March 2010, owing to the increase in the prices of manufactured products, linked mainly to the end of winter sales, and due to the steep rise in prices of energy products;
  • During the same month, producer prices of manufactured goods continued its upward trend for the third consecutive month rising by 2.5% annually. On a monthly basis, they increased by 0.7% in March 2010 on top of the 0.1% growth recorded in the previous month.


In April 2010, consumer confidence improved for the third consecutive month while inflation eased marginally. The German economy is benefiting from improved economic outlook and the rebound in its industrial sector:

  • According to preliminary data, Germany’s annual inflation eased marginally to 1.0% in April 2010 compared to 1.1% recorded in the previous month. On a monthly basis, however, consumer prices declined by 0.1% during the same month. Low gas prices in April 2010 accounted for this decline;
  • During the same month, consumer confidence remained upbeat and improved for the third consecutive month. In April 2010, the index was up by 6.7 points over the previous month. This is mostly due to the improved outlook for the overall economy as well as resilient labour markets;
  • The unemployment rate in Germany fell to 7.3% in March 2010 from 7.4% in the previous month. This was the lowest level of unemployment recorded since February 2009 and reflects the rebound in the German industry. In addition, measures taken by the government to help support the labour market have also contributed. These include a policy of work-sharing and reducing hours worked per employee, which has helped retain the workforce.


In April 2010, consumer confidence rose unexpectedly due to a more optimistic outlook on the job markets. However, unemployment continued to rise in March 2010 and is expected to remain high through the year:

  • In April 2010, Italy’s consumer confidence index bounced back unexpectedly rising from its lowest level since June 2009. The index rose by 1.5 points over the previous month as households grew more optimistic about the labour market outlook. The unemployment rate, however, rose to 8.8% in March 2010 from 8.6% registered in the previous month;
  • During the same month, annual inflation stood at 1.5% compared to 1.4% in March 2010 according to preliminary estimates. This was largely on account of rising energy prices;
  • Italy’s purchasing managers’ index (PMI) improved for the sixth consecutive month reaching 54.3 in April 2010 from 53.7 in the previous month. A reading above the level of 50.0 suggests an expansion in manufacturing from new orders.


As the Japanese economy continued to battle with deflation in March 2010, there are growing concerns that the Greece debt crisis and the possible contagion in Europe is likely to expose the fragility of Japan’s public debt position which amounted to 180% of total GDP in 2009 (the highest in the world):

  • In Japan, the deflationary trend continued in March 2010 when annual inflation declined by 1.1%, the same rate as the previous month. This was the 14th consecutive month of decline in consumer prices as weak demand is forcing companies to cut prices. In its April 2010 meeting the Bank of Japan kept interest rates unchanged at 0.1% and emphasised that a self-sustaining recovery in domestic private demand has not been achieved yet;
  • During the same month, industrial production showed an increase of 28.8% year-on-year (y-o-y) compared to the 31.2% annual rise in February 2010. On a monthly basis, industrial output increased by 0.3% after declining by 0.6% in the previous month. Sectors that contributed towards this increase include electrical machinery, transport equipment and iron and steel;
  • In March 2010, Japanese exports recorded a robust growth of 17.1% over the previous month and 43.5% over the same month a year ago. The export sector is largely benefitting from increased exports to Asia (China in particular). During the month, exports to Asia increased by 52.9% y-o-y.

United Kingdom

In Q1 2010, the UK economy grew by 0.2% over the previous quarter, a slower pace compared to the previous quarter. In April 2010, the sterling continued to be under pressure due to uncertainties that prevail over the May 2010 elections:

  • In the first quarter of 2010, the UK economy grew by 0.2% quarter-on-quarter (q-o-q), lower than the 0.4% q-o-q increase recorded in Q4 2009. The fall in the growth rate was due to weaker growth of services sector output. Within the sector, the biggest contribution to growth came from business and financial services;
  • In March 2010, consumer confidence fell by 8.5 points over the previous month, the largest monthly decline since July 2008. During the month concerns over the general election in May 2010 loomed over consumers who are unsure about the economic and employment prospects of the UK;
  • The unemployment rate for the three months to February 2010 stood at 8.0%, the highest level since the three months to September 1996. The number of unemployed people increased by 43,000 over the quarter to reach 2.5 million, the highest since the three months to December 1994;
  • In April 2010, house prices in the UK measured by the Nationwide house price index witnessed its first double-digit annual rise since October 2007. During the month, house prices rose by 10.5% y-o-y compared to 9.0% y-o-y growth recorded in March 2010.


The US economy continued to recover strongly in Q1 2010 despite the partial withdrawal of government stimulus measures. However, consumer confidence declined unexpectedly in April 2010:

  • In Q1 2010, the US economy grew by 0.8% over the previous quarter, slower than the 1.4% q-o-q growth registered in Q4 2009 as a result of lower government spending. While the recovery in the economy was broad-based, it was boosted by growth in private consumption;
  • Consumer confidence declined unexpectedly in April 2010. During the month, the index was down by 1.4 points over March 2010 as consumers became less optimistic about long term prospects for the overall economy and their personal financial prospects;
  • In March 2010, the unemployment rate remained unchanged from the previous month at 9.7%. During the month, non-payroll employment increased by 162,000. Much of this growth was due to temporary help services and in healthcare.