Contractionary

All spending categories are now in contractionary territory – that is, below 100 per cent – aside from non-discretionary spending, or essentials.

The current state of manufacturing in the region is best highlighted by 11 consecutive contractionary monthly readings for German manufacturing PMI and 13 straight in Poland.

Bad news is good news for ECB monetary policy, and the manufacturing sector is certainly in a contractionary environment.

The manufacturing sector is expected to continue showing weakness and to remain in contractionary territory despite small gains, while a slight improvement in the services sector is also likely.

Thus it is overall a fiscally conservative, if not contractionary, budget.

But the monetary authority - the central bank - has been following contractionary monetary policy, like restricting banks from offering credit to the private sector by introducing high interest rates and liquidity reserves.

Following the sharp decline in February – which exceeded that of the global financial crisis – the global manufacturing Purchasing Managers’ Index (PMI) rose slightly in March but remained in contractionary territory.

The Architecture Billings Index (ABI), which is released monthly by the American Institute of Architects and tracks billings growth, closed 2019 on a positive note after having spent most of the year in sideways or contractionary territory.

Chinese Manufacturing PMI data is released, and is forecast to show a slight improvement in manufacturing activity in the Middle Kingdom – however, at an estimated 49.9, will remain, slightly, in contractionary territory.

In Europe, regional indices trade sharply lower, reversing earlier gains, after both France and Germany manufacturing PMI’s (see below) missed forecasts and entered into contractionary territory.

The PMI data “remained in the contractionary territory for the 5th month in a row, indicating that economic fundamentals were still weak,” Citi analysts said in a note.

Today’s Manufacturing PMI is expected to show just that, printing at a “contractionary” 49.6 – though it must be stated that, if realized, will mark an improvement from last month’s figure.

Although Milton Friedman believed that wealth effects make deficit spending contractionary, Blinder and Solow believed that in reality fiscal stimulus is effective.

In fact, if it ran a deficit of 10% last year and 5% this year, this would actually be contractionary.

Nothing improved when the government then tried to go into reverse with contractionary macroeconomic policies and renewed depreciation.