Global Deflation Signals Persist, Signaling Economic Slowdown

More signs of a deflationary environment are appearing in Europe and Asia, leading many economists to give up on hopes of stronger growth in the near future.

In Japan, the government sold bonds at negative yields for the first time, while ten-year Japanese government bonds fell to negative yields. Despite the fact that bond buyers are now paying Japan for the privilege of lending the government money, the auction had a high turnout and issues were able to sell to cash-rich institutions looking for a place to park capital.

More signs of a deflationary environment are appearing in Europe and Asia, leading many economists to give up on hopes of stronger growth in the near future.

In Japan, the government sold bonds at negative yields for the first time, while ten-year Japanese government bonds fell to negative yields. Despite the fact that bond buyers are now paying Japan for the privilege of lending the government money, the auction had a high turnout and issues were able to sell to cash-rich institutions looking for a place to park capital.

The auction is another part of the global move towards “NIRP” or a “negative interest-rate policy,” which has faced fierce debate and argument among investors and economists. Some argue that NIRP will ultimately be good for the global economy by forcing capital holders to take on risk and invest in growth-inducing enterprises. Additionally, analysts in Japan said the country’s NIRP will also help the government expand its fiscal stimulus policies, thereby offering more capital to average Japanese citizens, which, in turn, will encourage consumption and drive domestic growth.

“Fiscal health can only be achieved through economic health,” said HeizÅ Takenaka in an interview last week. The former Minister of State for Economic and Fiscal Policy under Prime Minister Koizumi encouraged the Japanese government to issue more debt and use the cash proceeds to invest in various stimulative policies.

China Demand Drops, UK Manufacturing Falls

Meanwhile, in China demand continues to remain weak. The government’s official Purchasing Managers’ Index (PMI), which many believe to be overly optimistic, conceded contraction after falling to 49. That is the gauge’s lowest reading in almost 5 years, and approaches the private Caixin/Markit PMI, which fell to 48 in February, bringing a full year of manufacturing contraction.

In Europe, prices fell according to a study last week, with inflation falling to 0% growth in Germany for the first time in five months. Elsewhere in the Eurozone, the CPI went negative despite expectations of expansion.

In the UK, disappointing manufacturing data caused the British pound to continue its recent slide, after Markit Economics announced its UK PMI fell to 50.8 from 52.9. While still expansionary, the reading was far below expectations, leading Markit Senior Economist Rob Dobson to glumly call the slowdown “especially worrisome” for its broadness. “The domestic market is showing signs of weakening while export business continued to fall,” he said.

The weak manufacturing in the UK follows a trend found in the Eurozone, where all but Germany have seen weakening manufacturing and domestic production, as a lack of competitiveness brought by the monetary union makes it impossible for factories in France, Italy, Spain, and other European countries to compete with Germany.

German firms, however, are booming; a recent study showed that German joblessness fell by an adjusted 10,000 positions to 2.72 million. Unemployment remained at 6.2%, the lowest level since West and East Germany reunified in 1990.