Much has been made of the made of Chancellor George Osborne’s success with austerity and the UK’s eruption back into growth, confounding his critics. However, ‘austerity’ has been more of a publicity exercise. Government spending as percentage of GDP has fallen only slightly, but is still higher than it ever was before the financial crisis.
The Japanese economy continues to weaken and a recession is now the main consensus. The country’s trade balance, which was long in surplus, is now moving deeper and deeper into deficit and the third quarter numbers almost certainly will show contraction, and these are more than likely to be followed by another set of negative readings for Q4
In principle, a negative current account should not be a problem for Indonesia given the economy’s strong demographic profile, but the slump in external demand will expose the strong credit growth in the domestic economy