The Lastest Macroeconomic News
23.02.2014 17:55 Sliding ruble to drag Russian economy into recession
Russia`s GDP growth turned negative in January, with the lowest investment since 2010. Analysts say uncertainty surrounding the ruble, which hit its all-time low against the euro on Wednesday, is weighing on the economy and could drag it into recession. Russia`s GDP shrank during the first month of 2014, though so far there are no exact numbers. Inward investment slid 7 percent year on year in January, as real income was down 1.5 percent and wages grew the slowest since 2009, according to the report by Russia`s statistics service Rosstat. Retail growth also slowed to a four-year low at 2.4 percent. Ruble devaluation will benefit Russian exporters, but it won`t have any effect on investment, as the companies will keep their money in dollar accounts abroad. Analysts say the recent fall was caused by the announcement by Russia`s Ministry of Finance that it would buy about $6 billion (212 billion rubles) from the market by the end of May to transfer additional oil revenue to the Reserve Fund. The so-called banking “clean-up” in Russia was another huge blow to the economy, as the country`s banks have cut lending and people are shifting their savings from smaller banks to big state-owned ones.
19.02.2014 17:56 Emerging-Market Tremors Shake the World Economy
Emerging-market crises were supposed to be passé - a relic of the rocky 1990s, when investors suffered through the Tequila Crisis and the Asian Contagion in rapid succession. But history is stubbornly repeating itself. Emerging markets erupted afresh during last summer`s Taper Tantrum - who comes up with these names, anyway?- and as 2014 begins there`s turmoil from South America to Asia. Most at risk are poorly governed countries such as Argentina and Ukraine that became addicted to hot money from foreign investors in search of high returns. Those capital flows are sloshing back to developed economies like the U.S., leaving submerging economies behind. Countries with stronger finances and a unified citizenry are in less trouble, so the likelihood of another full-blown emerging-markets crisis remains low. Yet some of them could be dragged down if investors flee in a panic. “Events can unfold very rapidly if a disorderly process takes hold,” Morgan Stanley (MS) analysts warned clients on Jan. 27. Each emerging country is unhappy in its own way, making it hard to predict what happens next - and prescribe a one-size-fits-all policy fix. “You don`t have a silver bullet here,” says Pablo Goldberg, head of emerging-markets research at HSBC Securities (HSBC).
18.02.2014 20:13 The world economy will have a bumpy 2014. But the recovery is not, yet, at risk
For much of 2013 the world`s big stock markets had a magical quality about them. They soared upwards - America`s S&P 500 index rose by 30% last year, and Japan`s Nikkei by 57% - buoyed by monetary stimulus and growing optimism about global growth. Over the past month, the magic has abruptly worn off. More than $3 trillion has been wiped off global share prices since the start of January. The S&P 500 is down by almost 5%, the Nikkei by 14% and the MSCI emerging-market index by almost 9%. However, the assessment of the evidence to date is that investors` gloom is overdone. A handful of disappointing numbers does not mean that America`s underlying recovery is stalling. China`s economy is slowing, but the odds of a sudden slump remain low. Although other emerging markets will indeed grow more slowly in 2014, they are not heading for a broad collapse. And the odds are rising that monetary policy in both Europe and Japan is about to be eased further. Global growth will still probably exceed last year`s pace of 3% (on a purchasing-power parity basis). For now, this looks more like a wobble than a tumble.
18.02.2014 13:10 Russia`s Growing Regional Debts Threaten Stability
Since the 2009 financial crisis, the Kremlin has allowed Russia`s regions to take the brunt of the country`s economic decline in order to keep the federal government seemingly healthy, with a nominally small budget deficit and large currency reserves. But now most of Russia`s regional governments` debt is so high, it is becoming dangerous for the federal government and big banks and could soon become unmanageable. Most of Russia`s regional governments have always had some level of debt, but resource-based export revenues have kept it mostly manageable since the 1998 crisis. However, since the 2008-2009 financial crisis, most of the regions` debt has risen by more than 100 percent - from $35 billion in 2010 to an estimated $78 billion in 2014, and Standard & Poor`s has estimated that this will rise to $103 billion in 2015. Russia`s overall government debt - the federal and regional governments combined - is around $300 billion, or 14 percent of gross domestic product. This is small for a country as large as Russia, but the problem is that so much of the debt is concentrated in the regions, which do not have as many debt reduction tools as the federal government does. Of the 83 regional subjects in Russia, only 20 will be able to keep a budget surplus or a moderate level of debt by 2015, according to Standard & Poor`s calculations. This leaves the other 63 regions at risk of needing a federal bailout or defaulting on their debt.
17.02.2014 18:49 Japan`s GDP miss – What went wrong?
Japan`s economy grew at a much slower pace than expected at the end of 2013, stoking fears that Abenomics` momentum has stalled, but some economists say the dip will prove fleeting. Japan`s economy grew 0.3 percent in the fourth quarter of last year from the previous quarter, below analysts` expectations in a Reuters` poll for a 0.7 percent gain, data showed. On an annualized basis the economy grew 1 percent, below expectations of 2.8 percent. Japan`s growth in the fourth quarter was fueled by strong rises in private consumption – which grew 0.5 percent on quarter – and non-residential investment, which ticked up 1.3 percent on quarter. However, faster private demand was offset by slower public demand, and a sharp decline in net exports, which shaved 0.5 percentage points off headline growth, lowered the overall figure. Prime Minister Shinzo Abe`s ambitious plan to reform Japan`s struggling economy has included aggressive monetary easing, fiscal stimulus and structural reform. Since it has been put into action, it has been effective in dragging Japan out of recession and helped stimulate a healthy level of inflation – last recorded at 1.3 percent year on year - but doubts remain over Abe`s commitment to structural reform.
16.02.2014 22:27 Eurozone GDP growth gathers speed
The eurozone`s economy grew by 0.3% in the final three months of 2013, up from 0.1% growth in the previous quarter. It was the third quarter of growth since the end of an 18-month recession, the longest period of contraction to affect the single currency area. The eurozone figures include 17 of the EU`s economies. Latvia became the currency zone`s 18th member in January. Across the whole 28-nation EU, including the UK, growth for the October-to-December period was 0.4%. The figures from Eurostat, the EU`s statistics office, also showed that during 2013, GDP contracted by 0.4% in the eurozone, but increased by 0.1% in the EU as a whole. Earlier, French government figures indicated the country`s economy grew by 0.3% in the last three months of 2013. The INSEE statistical office also reported that growth was zero in the third quarter of 2013, revised up from an initial estimate of a 0.1% contraction.Over the whole of 2013, the French economy grew by 0.3%. The German economy also notched up higher growth in the October-to-December period. The country`s GDP expanded by 0.4% in the final quarter of 2013, after seeing growth of 0.3% in the previous three months, according to the federal statistics office, Destatis. Italy`s official statistics office also issued figures showing that its economy returned to growth after a two-year recession. Istat said GDP grew by 0.1% in the final quarter of 2013, after showing zero growth in the previous three months. However, during 2013 as a whole, the economy shrank by 1.9%.
14.02.2014 17:18 China`s slowdown will ripple across global economy
The reaction was slow in coming, but financial markets and corporate bosses have been jolted awake to China`s relentless growth decline and are scrambling to cope with wrenching changes in global business. For the past decade, China poured money into building new factories, highways and apartment blocks. That propelled explosive growth at home and a flood of money to exporters of iron ore and other commodities such as Australia and Peru. But now, Beijing has put the brakes on that boom. Like a captain turning a heavy ship in choppy seas, its leaders are trying to steer the world`s second-largest economy away from reliance on investment and toward being a consumer society. Growth has marched steadily downward over the past two years as Beijing clamped down on a spending boom that analysts worry has pushed debt to dangerous levels. That has meant less Chinese demand for imported goods from copper and cement to factory machinery and earth movers. China is far from falling off a financial cliff, but last year`s 7.7 per cent growth was barely half of 2007`s 14.2 per cent. Global stock markets slid after an unexpected fall in January manufacturing drew attention to the depth of the slowdown. Growth looks set to fall further amid weakness in trade, retail sales and manufacturing. Already, slumping Chinese demand has led to job cuts at mines in Australia and elsewhere. Other companies that looked to China to drive revenues are cutting sales forecasts. Some have pulled out and profits are down, possibly endangering jobs abroad. As for Chinese companies, they face tougher competition at home. That, combined with weaker investment, could lead to job or wage cuts if Beijing fails to manage the challenges of its transition. That might hurt consumer spending, leading to a downward spiral.
11.02.2014 18:22 The 3 Biggest Threats to Japan`s Economy in 2014
Japan`s economy has been the biggest story in global investing over the past year. In that time, Japan`s Nikkei 225 stock index has roared to gains of more than 47%, fueled by a combination of unprecedented stimulus and a weakening yen that has reignited growth in the Japanese economy after more than two decades of stagnation. The Nikkei`s ranked among the top global markets in the world despite a year where major indices rallied worldwide, and it has investors seeing green in 2014`s encore. However, past performance is no indicator of future results. If Japan can`t keep inflation and growth on target, or if it loses a handle on either its debt or its relations with pivotal trade partner China, the country`s economic turnaround could be short-lived -- and Japan investors may see their expectations for a repeat performance of the Nikkei`s big 2013 gains left unfulfilled.
11.02.2014 14:24 The global economy without steroids
The fact that the advanced economies are bouncing back is good news for everyone. But, for the emerging and developing economies that dominated global growth over the last five years, it raises an important question: Now, with high-income countries joining them, is business as usual good enough to compete? The simple answer is no. Just as an athlete might use steroids to get quick results, while avoiding the tough workouts that are needed to develop endurance and ensure long-term health, some emerging economies have relied on short-term capital inflows (so-called “hot money”) to support growth, while delaying or even avoiding difficult but necessary economic and financial reforms. With the US Federal Reserve set to tighten the exceptionally generous monetary conditions that have driven this “easy growth,” such emerging economies will have to change their approach, despite much tighter room for maneuver, or risk losing the ground that they have gained in recent years. As is true of an exhausted athlete who needs to rebuild strength, it is never easy for a political leader to take tough reform steps under pressure. But, for emerging economies, doing so is critical to restoring growth and enhancing citizens` wellbeing.
08.02.2014 15:09 Russia`s Economic Performance Is Actually Very Similar To Other East European Countries
Ever since it was lumped in with the BRICs, people have judged the performance of Russia`s economy primarily in comparison to India, Brazil, and China. While Russia does not necessarily come out looking bad when compared to Brazil, if you look only at headline GDP growth numbers then it is clearly lagging pretty far behind India, China, and several other of the more dynamic emerging markets. Quite a lot of people never thought Russia belonged in the BRICs in the first place, and the calls for removing it from the club grew ever louder as its 2013 GDP number were repeatedly revised downward to a measly 1.3%. While the BRICs are an interesting concept, and while Jim O`Neill, the person who coined the term, accurately predicted a strong shift in economic gravity away from the developed world, the simple fact is that Brazil, Russia, India, and China are extremely different countries with extremely different cultures, politics, economics, and demographics. Apart from being large, they just don`t have very much in common. It makes far more sense to compare Russia to the countries with which it shares the myriad aftereffects of state socialism. Russia and the countries of Central and Eastern Europe are, of course, not identical. But in trying to build market structures on the wreckage of the command economy, Russia and other post-Communist countries have shared many of the same economic, social, and political challenges. They inherited economies that were way too focused on heavy industry and that had extremely under-developed service sectors. Manufacturing both employed way too large a percentage of the workforce and was extraordinarily inefficient. Banking systems were practically non-existent, and the management of state finances was chaotic (at best). Due in large part to uncertainty over the new “rules of the game,” corruption was pervasive and on a scale rarely seen in other periods of history. This was a specific set of challenges that few countries outside of Eastern Europe had to face.