USA: after 3% in the 3rd quarter, growth will not be in good shape

After falling 0.7%, GDP should recover by 3% annualised in the 3rd quarter, half as a consequence of the car scrappage scheme. However, there is a risk that growth will fall back significantly in the 4th quarter: the positive contribution from inventories and the continuing increase in public expenditure will to a large part be offset by a further fall in consumer expenditure for which the prospects are bad.
On top of the withdrawal of the car scrappage schemes, households will continue to reduce debt and wages costs will continue to be cut. This is the only way that firms can improve their profitability, which is still too low, depressed by increasing interest and impairment charges on property assets, due to overcapacity. It is also the only way for them to generate cash for the forced and necessary reduction in borrowings: financial institutions, which are seeing the capital they have recently raised consumed by the explosion in defaults on all types of loans, are engaged in a process of reducing their balance sheet liabilities, particularly their exposure to the private sector.
Non-resident private investors are furthermore not reassured by the state of the US economy and the solvency of its agencies: they are selling all types of US assets, and only foreign central banks are financing the US budget deficit.

Eurozone: the return to growth is ephemeral

After a drop that was revised downward from 0.1% to a fall of 0.2% in the 2nd quarter, GDP should increase by 0.5% in the 3rd quarter, thanks to the automotive sector. But growth will be lacklustre thereafter because of the delay by firms in adjusting labour costs. In fact their profits were still falling in the 2nd quarter, which will delay their resumption of capital expenditure even further. This will entail continuing job cuts at a still significant annual rate of 2%. Purchasing power will then fall substantially, after having been sustained up until the 2nd quarter by the reduction in taxes, steep falls in the price of energy and social security benefits, which had allowed consumer spending to continue. Moreover, households will be further hit by the drop in property prices which will affect all countries in the area, ranging from a drop of 4% in the Netherlands to a drop of 9% in France and Spain and a drop of over 16% in Ireland, coupled with lending institutions wanting to reduce their overall commitment to the private sector. Deflationary pressures will then intensify, with underlying inflation falling to 1.2% in September.

Japan: the recovery is running out of steam

In the 3rd quarter, growth will probably continue at the same rate as in the 2nd quarter (+0.6%). But the recovery in industrial production is already running out of steam. Exports have slowed down noticeably since the beginning of the 3rd quarter, because of the withdrawal of the car scrappage scheme in various countries throughout the world and falling competitiveness due to the appreciation of the yen. Furthermore, household expenditure is becoming sluggish as the effect of the eco-points and the car scrappage schemes wears off. Loss of purchasing power by employees remains marked: firms need to rebuild their operating margins, which are still negative throughout the manufacturing sector and to rebuild their cash resources to face a situation that will be tight financially worldwide. Furthermore, according to the most recent Tankan survey, firms are still significantly overstaffed and have never had such horrendous overcapacity: they will therefore continue to reduce their capital expenditure significantly. In spite of the recovery in activity, deflation is digging in as the months go by.