The Lastest Macroeconomic News
27.10.2014 17:42 Financial Times: new G7, including Russia, emerges
The International Monetary Fund released its latest World Economic Outlook. A striking new finding emerges: the seven largest emerging markets are now bigger, in gross domestic product terms, than the long established G7 group of industrialized nations, when measured at purchasing power parity (PPP), the British daily said. A hypothetical new G7, comprising the BRICs Brazil, Russia, India and China and three of the so-called MINT economies Mexico, Indonesia and Turkey - has a combined GDP of $37.8 tn (at purchasing power parity) compared to $34,5 tn for the old G7 Canada, France, Germany, Italy, Japan, the UK and the US. The new attempts to measure GDP also confirm that, in PPP terms, China is now the world`s largest economy, overtaking the US (as revealed by the FT in April). At market exchange rates, the US economy is worth $17, 4 tn and the Chinese $10.4 tn. With an adjustment for relative prices, China`s economy moves up to first place, with a GDP of $17.6 tn. Russia is the sixth among the new top 10, ahead of France and the UK. "The new estimates point to a dramatically changed world: half of the twenty largest economies are now emerging markets and half are from the established rich world," the Financial Times said.
26.10.2014 12:44 Is Russia Heading for a New 1998 Crisis?
Not since the financial crisis of August 1998 has Russia faced the very real possibility of a currency crisis that could seriously threaten the fundamental stability of the country`s economic and political system. Though the ruble`s loss of 20 percent of its value this year falls well short of the 70 percent collapse in 1998 and is even lower — in relative terms — than the 30 percent decline experienced in 2008, there are key parallels between the 1998 crisis and the crisis developing in Russia today. Both Russia`s leaders and citizens would do well to remember the lessons of August 1998 as they face the coming storm. First, the country`s economic trajectory was put in a tailspin once again, with Russians` real wages falling to their lowest level in the post-Soviet era. Russia`s economy would recover only with the rebound in oil prices during the ensuing decade. There is no guarantee that Russia can count on such fortune today, and the full economic costs of Russia`s current confrontation with the West remain to be seen. However they tally, they will be steep. Second, the 1998 crisis was a watershed moment in Russia`s political development. The people of Russia, beaten down by years of economic trauma and failed reforms, were ready by 1998 for anyone but Yeltsin. Russians demanded anyone who could restore order and stability to Russia`s economic and political system; Russians demanded the anti-Yeltsin. August 1998 set the stage for the rise of Vladimir Putin, the anti-Yeltsin. Should the vicious cycle of economic crisis grip Russia once again, we can only imagine what kind of "anti-Putin" could rise from the ruins.
25.10.2014 15:53 Russia`s Economy Stalls Amid Western Sanctions, Oil Price Drop
Russia`s economy - battered by Western sanctions and falling prices for oil, its main export - stalled in September even as inflation hit the highest levels in months, data showed. The outlook appears dim, because officials said the surge in inflation is likely to force the central bank to further increase interest rates in the coming months. The inflation was fueled in part by Moscow`s move in August to ban food imports from Western countries that had imposed sanctions on Russia. The ruble, meanwhile, has slipped to record lows against the dollar and euro in recent weeks amid concerns about geopolitical tensions and falling oil prices. The currency drop has also contributed to inflation by boosting prices for imported goods. The State Statistics Service reported that consumer price inflation reached an annual rate of 8.3% in the third week of October, the highest level this year, driven by a rise in food prices. The central bank has intervened heavily this month to slow the ruble`s slide. The Finance Ministry announced it would soon begin offering foreign-currency deposits to banks in an effort to ease a shortage of dollars and euros on the market. Economy Minister Alexei Ulyukaev said GDP growth in the first nine months of this year was 0.7%, unchanged from the rate reported for the first eight months of the year, Russian news agencies reported Wednesday. That result would keep Russia`s economy on track for its weakest performance since the recession of 2009. Though Mr. Ulyukaev didn`t provide monthly figures, the latest result suggests that the economy stagnated or even contracted in September from the month before. In September 2013, GDP contracted 0.1% from the previous month. The government`s forecast calls for growth of 0.5% this year, down from 1.3% in 2013, but many economists expect the 2014 result to be weaker.
23.10.2014 12:29 Ukraine GDP to shrink 8% this year
Ukraine`s economy is likely to suffer more than previously predicted because of the conflict in the east of the country, the World Bank has said. It now says that GDP is likely to contract by 8% this year, compared with its previous prediction of 5%. It also now expects a 1% contraction in 2015, instead of 2.5% growth. The World Bank said the conflict had caused disruption in economic activity in the eastern Donetsk and Luhansk regions, leading to a sharper decline in GDP. The bank`s chief representative in Ukraine, Qimiao Fan, said the two regions accounted for about one-sixth of the country`s GDP, including a quarter of industrial output. The fall of Ukraine`s GDP in 2014 could reach 8-9% against the background of the aggressors` destructing industrial infrastructure in the east of the country, Finance Minister Oleksandr Shlapak has said. According to the minister, this situation affects the balance of payments: enterprises in the east of the country provided 30% of the country`s foreign exchange earnings. In addition, the balance of payments is under pressure due to Moscow`s restricting Ukrainian imports. "We will see a shortage of export resources to the tune of about $5 billion because of the conflict with Russia. But basically, the situation with the currency balance is getting worse. And here the National Bank takes the fall," Shlapak said.
22.10.2014 15:22 Five known unknowns about the future of the global economy
Since it seems Daniel Dresna has written the Book of the Week this week on the global economy, it`s apropos to think a little more about the future. Over the past week economists have been debating whether Thomas Piketty`s r > g argument is kicking in yet. And as Robert Shiller noted this weekend, there`s an awful lot of loose talk about secular stagnation these days. As someone who`s paid to think about the future of the global political economy, Dresna`d humbly suggest that the big known unknowns about the future of the global economy probably are not attracting a lot of scholarly chatter precisely because of the massive number of unknown parameters. When people think about, say, the next 30 years of the global economy, they`re trying to marry a few deeply known ideas with some deep questions about the implications of those deeply known facts of life for the future. There`s another reason, however: a lot of the big questions are being asked by non-economists. Precisely because economists start off with a lot of baked-in assumptions. it doesn`t always occur to them that these assumptions might not hold up. Dresna has observed top five known unknowns about the future of the global economy. Each unknown is named after the two authors largely responsible for planting the idea in my head. Half of these people are economists; the other half are outside the field but asking very interesting questions.
16.10.2014 14:36 Will Cheap Oil Choke the Russian Economy?
Among the many threats facing Russia`s economy, cheap oil could be the biggest of all. Crude prices have fallen more than 23 percent since June, depressing the ruble and knocking a potentially gaping hole in the national budget, which draws 45 percent of revenues from oil taxes. The Kremlin warned that it will have to dig deeply into reserves if oil prices and the ruble exchange rate remain at current levels. Covering budget shortfalls over the next three years could deplete half of a $74 billion reserve fund the government created to guard against energy price fluctuations. Russia`s draft budget for 2015 is based on $100-a-barrel oil, but crude is now trading at about $88, the lowest since December 2010. Oil prices, not Western sanctions, are what`s driving the currency`s sharp decline, analysts say. “The value of the ruble stayed relatively calm through the summer, even as sanctions were being ratcheted up,” Chris Weafer of Moscow consultancy Macro Advisory wrote in the Moscow Times. “Since early August, the ruble has fallen 9 percent against the dollar-euro basket, almost exactly mirroring the 8 percent decline in the price of crude oil over the same period.” The ruble, he said, “is behaving as a petro-currency.” And it`s still falling: Despite $6 billion in interventions by the central bank over the past two weeks, the ruble declined again on October 15th, to more than 41 against the dollar. Because of Russia`s outsize dependence on oil and gas, which account for more than two-thirds of its exports, lower energy prices can easily tip its $2 trillion economy into recession. “Growth is likely to remain positive only with oil prices above $92 to $93 a barrel,” says economist Charles Robertson of Renaissance Capital. At $90 a barrel, the economy would contract 0.4 percent next year, and at $80 a barrel it would shrink 1.7 percent, he predicts.
09.10.2014 14:49 IMF says economic growth may never return to pre-crisis levels
The International Monetary Fund (IMF) has cut its global growth forecasts for 2014 and 2015 and warned that the world economy may never return to the pace of expansion seen before the financial crisis. The IMF said it expected global growth to be 3.3% in 2014, 0.4 points lower than it was predicting in the April WEO and 0.1 points down on interim forecasts made in July. A pick-up in the rate of expansion to 3.8% is forecast for 2015, down from 3.9% in the April WEO and 4% in July. But the IMF highlighted the risk that its predictions would once again be too optimistic. Britain is forecast to see its gross domestic product increase by 3.2% in 2014 – up 0.3 points from the April WEO and the fastest of any G7 nation. America`s slow start to 2014 means, according to the IMF, that it will expand by 2.2% this year, rising to 3.1% in 2015 – faster than Britain`s 2.7%. Euro area growth is predicted to be 0.8% in 2014, rising to 1.3% next year. Japan’s high level of public debt and ageing population mean it will grow by less than 1% in both years, the IMF said. The IMF said the slowdown in growth was affecting not just the west but also emerging markets such as China, Russia and Brazil.
06.10.2014 19:59 Zero Growth Seen for Russian Economy in 2014
Russia`s economy will fail to grow at all in 2014 and inflation will reach a four-year high, a Reuters poll of economists showed, as Western sanctions over Ukraine bite. Economists cut back their growth forecasts for Russia this year as the escalating Ukraine crisis prompted waves of Western sanctions and a massive outflow of capital that are both hurting Russian companies` ability to raise finance. The latest poll, the first since a cease-fire in Ukraine between government forces and separatist rebels, suggests the economic fall-out from the crisis for Russia is far from over. Western governments are expected to keep existing sanctions in place for the foreseeable future to keep up pressure on Russia after it annexed Crimea earlier this year and gave support to pro-Russian separatists in eastern Ukraine, a charge it denies. The current cease-fire in Ukraine remains highly fragile. Without access to Western finance, Russian companies are being forced to cut back on investments to reduce their debts. At the same time, they are squeezed by high local interest rates as the central bank struggles to stabilize the sinking ruble. The last time economists anticipated zero or negative growth for Russia over a full year was in 2009, when the economy slumped in the wake of the global financial crisis. The country`s economy only grew by 1.3 percent in 2013 and by 3.4 percent in 2012, already disappointing compared with growth of around 7 percent annually before the 2008-9 crisis. Analysts predicted that the economy would contract by 0.3 percent in the fourth quarter of 2014 and recover only gradually over the next twelve months, with growth in annual terms rising to 0.2 percent in the first quarter of 2015, 0.5 percent in the second quarter and one percent in the third quarter.
03.10.2014 13:50 Hong Kong unrest may shake world economy
The protests in Hong Kong are not yet sparking fears that the region will become the next trouble spot for the global economy, but such concerns will grow if the conflict intensifies and ensnares China, economists say. Hong Kong is small, producing 0.4% of the world`s gross domestic product. IHS Global Insight estimates its economy will grow 2.5% this year and 3.2% in 2015. The region is a small U.S. trading partner, accounting for 0.3% of U.S. imports and 2.7% of exports, according to the Office of the U.S. Trade representative and PNC Financial Group. Pro-democracy protests that don`t turn more violent likely would have minimal effects on the global and U.S. economy, says Bill Adams, PNC`s senior international economist. In the short term, continued unrest could disrupt Golden Week, an early October holiday during which Chinese tourists flock to Hong Kong. Jewelry and other luxury retailers in the region could see reduced sales, hurting their stocks and Asian stock indexes more broadly, Adams says. U.S. stock markets could be modestly affected. Among the bigger risks, he says, is a spread of the demonstrations to China, rattling the world`s second-largest economy. China is a major U.S. trading partner, making up about a quarter of U.S. imports and 8.5% of exports. Its economy already has slowed recently. Another concern stems from Hong Kong`s status as a major financial center that supplies capital to China. An escalation of the protests could chill U.S. investment in China, further crimp China`s economic growth and ripple across the global economy. An even more dire scenario could develop if China responded by sending troops to Hong Kong, provoking trade sanctions from other countries, Capital Economics said in a research note.
02.10.2014 12:37 Germany Replaces China as World`s Trade-Surplus Boogeyman
China`s devalued exchange rate has made it a pariah of U.S.-based manufacturing and a beloved target of countless U.S. political diatribes and bills seeking to censure Beijing for its currency policy. But it is key U.S. ally Germany that`s sapping growth from the global economy, according to the latest tally of trade surpluses by the International Monetary Fund. Germany has replaced China as the largest surplus economy in the world. Why does that matter? Fostering growth where exports far outweigh imports means that expansion comes at the expense of other economies. Instead of encouraging German domestic consumers to boost growth in its weaker eurozone members, for example, Berlin`s economic policies have hindered Europe`s recovery, the IMF and U.S. officials have repeatedly warned. Concern over global trade imbalances is why finance leaders from the world`s top economies have vowed not to use their exchange rates to gain a competitive advantage over other countries. (Though without a global currency cop, there`s little to stop tit-for-tat currency depreciations across the world.) That`s why the U.S. took Germany to task late last year in its semiannual currency report, and is why Berlin is likely to be targeted in the next review due out in a few weeks. Under pressure from the U.S., China has appreciated its currency by around 30% since 2006, not including inflation. Although the IMF says China`s yuan is still between 5%-10% undervalued, it estimates the euro to be up to 15% undervalued for Germany`s economy. It`s not just Europe`s problem, however. Worth $18.5 trillion, Europe`s collective economy is the largest in the world. The regional recession and the potential for a triple dip back into economic contraction still on the horizon are putting the brakes on global growth. As the IMF plans to revise down its outlook for the global economy next week at a gathering of top finance officials from around the world, Germany is likely to come under pressure to do more to fuel domestic growth, and in turn, help the European and global economies rev up.