Markets Slip Despite a Return to Growth in the U.K.
New data released today by the National Institute of Economic and Social Research (NIESR), England's longest established independent economic institute, showed that the U.K. economy grew in the third quarter, breaking a recession that has seen the economy contract for two consecutive quarters. NIESR's latest monthly GDP tracking estimate shows that the economy probably grew 0.8 percent in the third quarter as compared to the second quarter, the largest quarterly growth in the U.K. economy in five years.
Even though the 0.8 percent increase in quarterly GDP may be due to some temporary factors (i.e. the Olympics), NIESR reported that underlying economic growth indicates that the economy probably would have grown 0.2-0.3 percent in the quarter, showing that England may be emerging from its second recession since the financial crisis.
The English economy has been suffering from the global slowdown, as trade with the Eurozone has dropped and hurt domestic growth. The protracted recession in the Eurozone will only continue to be a drag on U.K. growth going forward, as the Eurozone as a whole represents the single largest economy in the world, bigger than the U.S. The U.K. FTSE 100 Index, the benchmark stock index in London, fell on the news, closing down 31.49 points or 0.54 percent on broad risk-off sentiment.
Markets fell on weak industrial production data and the IMF warning on global growth in its revised World Economic Outlook. Although not unexpected, markets fell as the IMF warned that Europe's recession and the fiscal cliff in the U.S. could lower global growth to near 2.0 percent, the dreaded stall speed. The IMF also predicts stagnant growth in the Eurozone predicated on no worsening of the European debt crisis, raising fears that, should tensions between Greece and the Troika increase, troubles in Spain or Italy grow, or the core nations' finances come under pressure, the Eurozone economy could slip further into a recession and risk deflation in the continent.
U.S. equities fell on the global growth fears, with the S&P 500 led lower by technology stocks. The oil and gas sector was the only sector in the index to rise in Tuesday trading as oil prices rose. Resource stocks rose as well, led by Peabody Energy (NYSE: BTU). The coal producer rose 3.8 percent in New York trading as coal and steel stocks rallied ahead of Alcoa's (NYSE: AA) expected earnings release. A lower close for the index Tuesday would mean the S&P has fallen nearly 1.72 percent since just after the open on Friday morning.
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