The Lastest Macroeconomic News
26.06.2015 18:43 World economy may be slipping into 1930s Great Depression problems
RBI Governor Raghuram Rajan has asked central banks from across the world to define `new rules of the game` as he warned that the global economy may be slipping into problems similar to the Great Depression of the 1930s. Rajan, who has been warning against competitive monetary policy easing by central banks, however, said the situation is different in India where RBI still needs to bring down lending rates to spur investments. He expressed concern that the world may be slipping into the kind of problems of the depression of the 1930s and an international consensus was needed to be built over time. "We need rules of the game in order to effect a better solution. I think it is time to start debating what should the global rules of the game be on what is allowed in terms of central bank action," he said at a London Business School (LBS) conference here last evening. "I am not going to venture a guess as to how we establish new rules of the game. It has to be international discussion, international consensus built over time after much research and action," Rajan said. "But I do worry that we are slowly slipping into the kind of problems that we had in the thirties in attempts to activate growth. And, I think it`s a problem for the world. It`s not just a problem for the industrial countries or emerging markets, now it`s a broader game," he noted.
24.06.2015 19:29 Ruble Is Elephant In Room as Russia Invokes Inflation Threat
Russia`s central bank Governor Elvira Nabiullina cited the threat of inflation as she warned future interest-rate cuts would be smaller and fewer. Economists see a different reason: the ruble. After lowering its key borrowing cost at every meeting this year by at least 1 percentage point, Nabiullina said Monday that inflation would limit the scope for further easing. While prices are rising at almost four times the central bank`s 4 percent target, the pace has slowed from a 13-year high in March as consumer demand weakens. “If the central bank was targeting inflation, they would emphasize downside risks given that demand is contracting faster than they expected,” Tatiana Orlova, the chief Russia economist in London for Royal Bank of Scotland Group Plc, said by e-mail. “There`s an elephant in the room, whose name is the ruble.” The assessment highlights the skepticism among analysts that Russia has given up targeting a ruble exchange rate seven months after it announced the switch to a free float. This year`s best-performing currency became the worst in the past month and domestic bonds fell after the central bank spent about $3.8 billion buying foreign exchange. “The Bank of Russia is trying not to upset the foreign-exchange market, as an aggressive cut could provoke a new bout of ruble weakening,” Orlova said.
23.06.2015 00:30 China`s Q1 GDP Growth: When 7% Isn`t 7%
Concerns with China`s reported economic statistics are far from a new issue, but they have taken on added importance given both the lack of economic growth in other corners of the world and the inflating Chinese stock bubble. The underlying incentives – maintaining social stability under autocratic rule – suggest that there is plenty of reasons for party operatives to fudge the numbers upward. When China released its tabulation of first-quarter growth earlier this month, the 7% figure – the worst in six years – stirred fears of a deepening slowdown. It also raised fresh doubt about the trustworthiness of China`s own statistics. “Growth Likely Overstated,” said a Citibank report, concluding that actual quarterly growth could be below 6% year to year, depending on the factors weighed. Other research firms put their numbers far lower, with Capital Economics pegging the quarter at 4.9%, the Conference Board`s China Center at 4% and Lombard Street Research at 3.8%. Efforts to discern China`s actual growth rate have kept economists pinned to their calculators for years, and for good reason. For one, the figures are suspiciously smooth, with none of the sharp gyrations seen in the U.S. or other economies. The methodology often appears inconsistent or contradictory. Also, no one knows how China accounts for inflation when tabulating its gross domestic product.
21.06.2015 14:01 Russian economy shrank by 3.2 pct in first five months
Russia`s economy contracted by 3.2 percent in the first five months of the year, Economy Minister Alexei Ulyukayev said on Friday Jun 19th, citing a preliminary estimate. Russia`s economy is sliding towards recession, hurt by weaker oil prices and sanctions over the Ukraine crisis. Ulyukayev said at the St Petersburg International Economic Forum that he expected the contraction in the second and third quarters of this year to be around 3.5 to 4 percent and that he saw a decline of around 2 percent in the fourth quarter. "Starting from the second quarter of next year, we will approach levels of 2 percent GDP growth or a little higher," Ulyukayev said. Russian industrial output fell in May at its fastest pace since October 2009, official data showed on Tuesday Jun 16th, underlining that the country`s sanctions-hit economy has yet to bottom out. Industrial output fell by 5.5 percent year-on-year in May, worse than a 4.5 percent fall a month earlier, Federal Statistics Service data showed. Particularly sharp falls were seen in the manufacturing sector, which collapsed 8.3 percent versus a year earlier. Production of machinery, consumer goods and cars performed especially badly. As in previous months, output of certain food items subject to an import ban introduced in response to Western sanctions over the Ukraine conflict outperformed.
19.06.2015 12:34 Can Russia`s economic forum revive its fortunes?
International business leaders will be assembling in St. Petersburg in Russia for the country`s annual economic forum this week amid hopes that the country can still rebuild its investment outlook and relationship with the rest of the world. The three-day St. Petersburg International Economic Forum (SPIEF) started on June 18 and came at a difficult time for Russia. The country remains largely isolated on a political and economic level due to international sanctions on the country, imposed for Russia`s perceived role in the pro-Russian uprising in Ukraine, which it denies. Making matters worse in Ukraine, there has been an escalation of violence lately between pro-Russian rebels and the country`s armed forces, threatening a fragile official ceasefire, called the Minsk agreements, and potentially earning Moscow an extension of sanctions until the end of the year. Russia`s economy has been on a roller-coaster ride since the conflict erupted in spring 2014 with its currency and stocks hit hard by declining oil prices, capital outflows and soaring inflation. There are signs that the rate of inflation is slowing and the ruble has recovered some strength to trade around 55 to the dollar (from lows of around 70 in February) – factors which could buoy investor sentiment towards Russia.
17.06.2015 14:17 Why the G-7 Warning of More Sanctions Won`t Worry Russia
The world`s leading Western economic powers warned of fresh sanctions against Russia at the G-7 summit. Led by U.S President Barack Obama, they are a weak attempt at stopping Russia`s incursion into Eastern Ukraine and the escalation of violence there. Despite having the desired effect of hurting the Russian economy, discord in the West and Russia`s continued access to the global financial system means they lack bite. Western sanctions were first imposed on Russia following its annexation of Crimea in March 2014. The initial diplomatic measures (visa bans and asset freezes) were soon followed by more direct financial restrictions. Western financial institutions are not allowed to lend to Russian counterparts on a midterm to long-term basis, effectively isolating Russia from Western capital markets. The Sanctions Rationale. The rationale behind the choice of economic instruments to pressure the Kremlin has been based on a straightforward assumption. The Russian economy - critically dependent on oil and gas revenues (which together comprise about 72–75 percent of the country`s exports) - is unable to withstand the economic pressures of low oil prices and financial draught. The internal economic crisis in Russia, in turn, is calculated to generate two effects. First, it will prove too costly for the Kremlin to continue military involvement in Ukraine. Second, falling incomes and rising inflation will also weaken popular support for Putin and his rule and may bring about a change of policy (or leadership) in Moscow.
16.06.2015 12:10 Russia: Time to invest despite sanctions threat?
Despite the potential for more international sanctions on Russia, some investors and market analysts have argued there is value to be found in the country – but only for those prepared to handle the volatility. Sanctions on Russia, which were imposed by the West after the country`s annexation of Crimea and role in the conflict in east Ukraine last year, could soon be extended, U.S. Treasury Secretary Jack Lew said. It comes as a ceasefire between the two countries -- known as the Minsk agreement -- looks shaky, with an uptick in violence in the region over recent weeks between the Ukraine military and pro-Russian rebels. Should sanctions be extended further, Russia`s economy could be in for a repeat of 2014`s rollercoaster ride, when its currency and stocks were hit hard by declining oil prices, capital outflows and soaring inflation. Despite this uncertainty, however, some market participants argued there were "bargains" in Russia. "There is significant opportunity here. The one thing with Russia is that it generally goes from being the worst (performing) stock market to the first stock market in a very rapid rate," Simon Fentham-Fletcher, chief information officer of Freedom Asset Management, told CNBC Europe`s "Squawk Box". His company specializes in investment in emerging markets, such as Russia. Certain sectors – such as retail and real estate – were thriving, Fentham-Fletcher said, speaking from Moscow.
15.06.2015 15:10 Russia`s Top 3 Obstacles to Economic Growth
The Russian economy has its fair share of problems, as the government knows all too well. But as the country slides into a deep recession this year, is the state focusing on the right ones? This question came to the fore last week when the government published a document on its website listing the three "main challenges" it sees to Russia`s socio-economic development. With the economy expected to contract by up to 5 percent this year and relations with the West at a post-Cold War low, the question of how the government chooses to pursue economic growth — and whether it succeeds — has rarely been so urgent. "This whole crisis has greatly exposed the need for more urgent action on attracting investment and creating diversification," said Chris Weafer, a senior partner with Moscow-based investment consultancy Macro Advisory. Here are the top three challenges to Russian socio-economic development, as listed in the government`s revised guidelines for action through 2018: 1. Cheaper Oil, Gas and Metals. 2. Geopolitical Tensions. 3. Not Enough Workers.
11.06.2015 15:17 World Bank slashes growth forecast for emerging economies
The World Bank has cut its forecasts for growth across emerging economies this year, warning that they face a double whammy from rising US interest rates and lower commodity prices. “Developing countries were an engine of global growth following the financial crisis, but now they face a more difficult economic environment,” said the bank`s president, Jim Yong Kim, as the anti-poverty body published its twice-yearly Global Economic Prospects document. Growth in emerging economies is expected to be 4.4% in 2015, down from the 4.8% the World Bank was expecting in December. The World Bank`s senior economist, Franziska Ohnsorge, explained that while the crash in the global oil prices since last year has hit government revenues and undermined growth in exporting countries, it has so far not provided the expected boost to oil importers. Some of the largest downgrades are for oil-exporting countries, including Nigeria, Angola and Brazil, with South America`s largest economy expected to contract by 1.3% this year. However, the document reserved some praise for India, describing the country as a "shining star" for tackling its economic problems.
08.06.2015 20:45 Slow Chinese economy impact global
China`s economy had deteriorated recently but the weakness is likely to be more persistent than in the United States, Forsyth Barr broker Peter Young says. Credit had exploded since 2009 and officials were anxious to curb the boom before it became too large to control, he said. Tighter credit conditions had exposed China`s overcapacity, especially in certain sectors such as construction and heavy industry, prompting a sharp downturn in investment. ”Given investment accounts for around 50% of GDP, this adjustment almost certainly has further to run. The authorities have resorted to targeted and small-scale macro stimulus as they endeavor to steer the economy along a new path.” On some measures, China accounted for about 15% of global economic growth as measured by gross domestic product (GDP) and was similar in size to the United States. That meant a slowdown in China would have a significant impact on the rest of the world, including the direct impact of lower global aggregate growth but also through indirect impacts on supply-chain economies (other Asian countries), capital goods producers (Europe and the US) and commodity exporters, such as New Zealand and Australia, Mr. Young said.