Supported by a 1.5% expansion in Japan, retail sales volumes increased 0.6% in April for the 25 mostly high-income countries with current data (m/m, sa). This reverses a March decline, which appears to have been largely tied to the Tohoku disaster. While many headwinds to consumer spending remain—including elevated fuel prices, policy tightening, and heightened uncertainty (political turmoil in the Middle East and North Africa, and the rapidly evolving European debt-crisis)—the negative effects of Tohoku appear to be temporary. World import volumes declined 2.7% (m/m, sa) in April, led by Asia and Pacific given temporary supply-chain disruptions. But, partial May data suggest a rebound is underway. Greece is being pressured to impose deep austerity measures to secure foreign assistance to forestall a default on its debt in early-July, while ECB Chairman Trichet warned that EU debt problems threaten European financial-stability. Direct bank exposures to Greek, Irish, and Portuguese debt are highest in Europe, but U.S. banks hold the largest level of indirect exposures. Total exposures (direct and indirect) to the three euro-countries’ debt represent 2.6% of bank assets in Germany, 2.5% in the U.K., and 1.6% in the United States.
Retail sales volumes grew 0.6% in April (m/m, sa) after contracting 0.2% in March (in 25 countries with current data). The April gain was supported by a 1.5% revival in Japan, following a 3% fall in March tied to the Tohoku disaster. This may signal a recovery in Japanese demand—underscored by a rise in the May Tokyo index of consumer confidence. Much of the recent softness in global activity appears tied to Japan, global demand growth weakened to 1.2% in April from a vibrant 4.9% in October 2010 (3m/3m, saar). U.S. retail sales fell in April, reflecting a sharp drop in auto purchases linked to supply-chain disruptions. Excluding autos, U.S. retail sales accelerated. An end to rising fuel prices, which cut into real disposable incomes, and reconstruction in Japan, support the view that demand growth will begin to firm in the coming months.
World import volumes declined 2.7% in April (m/m, sa), with sharp declines reported in China (4.1%), Hong Kong, SAR China (11.9%), India (9.7%), and Australia (10.2%). On a momentum basis, imports slowed to 10.3% from 22.9% in March, led by developing countries, where the pace shifted to minus 2.6% from 27% growth over the same period (3m/3m, saar). The falloff in trade reflects a softening of demand to more sustainable levels, along with the temporary wide-ranging effects of the Japanese earthquake and tsunami. On a positive note, May readings for China and Japan show strong import gains of 4% and 5.7% (m/m, sa), respectively. And the plunge in Japanese exports appears to be abating with a 1.8% decline in May following a steep 8.3% drop in April (m/m, sa).
|U.S. financial institutions carry the highest level of indirect exposures to Greek, Irish, and Portuguese debt—$129bn or 35% of the reported world total, versus only 8% of the total for direct exposures. Much of the U.S. indirect exposures are held in credit derivatives (e.g., CDS contracts issued to bond-holders). U.S. banks held $193bn in total debt exposures (indirect and direct) to the three euro-area countries at end-2010—the third largest among the 24 reporting countries. German and U.K. banks hold the largest total exposures. These represent 2.6% of bank assets in Germany, 2.5% in the U.K., and 1.6% in the United States. Risk-adjusted Tier-1 capital ratios are estimated at 11.6% in the U.S., somewhat larger than the ratios of 10.3% in Germany and 10% in the United Kingdom.|