The Lastest Macroeconomic News

15.08.2014 14:44 Russian growth data masks likely recession to come

Russia appears for now to have escaped an economic contraction, but recession is still likely in the second half of the year as western sanctions over Ukraine bite, analysts warn. Preliminary gross domestic product data showed the economy growing by 0.8 per cent in annual terms in April-June, compared with 0.9 per cent in January-March. But the figure was flattered by one-off factors, and the outlook for the rest of the year is rocky as US and European Union sanctions - and Russia`s retaliatory ban on food imports - exacerbate a climate of weak investment, high borrowing costs and upward pressure on prices. Russia`s economic data are being closely watched to gauge the impact of the sanctions, imposed over Moscow`s annexation of Crimea and what western governments see as its failure to curb pro-Russian separatists in eastern Ukraine. The measures are aggravating a slowdown that was already evident in 2013: economists polled by Reuters at the end of July predicted just 0.3 per cent economic growth in 2014 as a whole, with a 0.5 per cent year-on-year contraction in the third quarter. The preliminary data did not provide an assessment of quarter-on-quarter growth, leading to continuing speculation over whether Russia managed to avoid a “technical recession” - two consecutive three-month periods of negative quarter-on-quarter growth. Answering that question depends largely on seasonal adjustment methods, a complex technical matter that leaves the question open until the more detailed data is published. Most analysts calculated that Russia had avoided a technical recession, but saw that as scant consolation for an economy that will still struggle to avoid a contraction in the second half of the year.

15.08.2014 11:48 Can the BRICS Dominate the Global Economy?

Brazil, Russia, India, China, and South Africa have thrown down the gauntlet at the feet of the West. Last month these five emerging economies launched a New Development Bank - nicknamed the "BRICS Bank" - that combines features of the World Bank and International Monetary Fund (IMF). Meanwhile, China has proposed an Asian Infrastructure Investment Bank (AIIB) that could compete with the Asian Development Bank (ADB). These initiatives represent the first serious institutional challenge to the global economic order established at Bretton Woods 70 years ago this summer. The psychology behind them is clear, as advanced countries have damaged their own credibility as responsible economic stakeholders in recent years and have failed to fully accommodate the rise of the new powers. Less clear is how much of a substantive improvement these new institutions will make to global governance - or even to the interests of the countries championing them. At first blush, it is difficult to take the new BRICS Bank seriously. The five founding members were brought together by little more than a clever acronym and a shared desire to send a message to the West. The differences among the five in economic heft, political orientation, and geostrategic interests are cavernous. Moreover, the initial paid-in capital of only $10 billion is a drop in the bucket compared to the development challenges the bank is intended to address. But the BRICS Bank reflects a real grievance on the part of the emerging world about the state of global economic governance, including the recurring financial crises emanating from the United States and Europe in recent years and the failure of advanced countries to reallocate "shares and chairs" to emerging economies in existing institutions such as the IMF. Moreover, if managed well, the BRICS Bank could make a useful contribution to global development. Yet it could also undermine the global rules-based system that has largely served the economic interests of the BRICS well over the past seven decades.

13.08.2014 11:38 Russia`s economy expands 0.8 percent in the second quarter of 2014

Russia`s economy grew by 0.8 per cent from April to June compared with output during the same period last year, a preliminary estimate by Russia`s statistics committee show. The figure is lower than a 1.2-per cent growth forecast reported by Russia`s economy minister in July, and slightly less than the 0.9-per cent annualized pace recorded in the first quarter. The Rosstat state statistics service did not provide a quarterly figure. The economy minister warned earlier that Russia could slip into recession, commonly defined as two successive quarters of economic contraction. Russia`s economy was already expected to slow from 2013`s disappointing growth figure of 1.3 per cent, the lowest reading since the 2009 global financial crisis, before Western powers unleashed punishing sanctions in July in response to Moscow`s defiant stance on Ukraine. The United States has prohibited three leading Russian banks from raising anything but short-term funding on US markets. The European Union also began imposing so-called sector sanctions, crimping access of Russian state-controlled banks to European capital markets. After the economy minister said he expected growth to reach 1.2 per cent from April to June, the government said it planned to raise its annual forecast from 0.5 to around 1.0 per cent. But in late July the International Monetary Fund slashed its estimate by 1.1 points to just 0.2 per cent growth.

12.08.2014 12:01 Eurozone Economy Weakened By Conficts In Ukraine And Iraq

Participants will measure the strength of the Eurozone`s fragile economy this week as escalating conflicts in Ukraine and Iraq darken the mood. In contrast to the US and UK, which are growing strongly, economic output in the Euro bloc came to a halt in Q-2. Its #1 economy, Germany, is losing momentum and Italy fell back into recession. The growing sanctions “contest” between Russia and the West over Moscow`s backing of rebels in Ukraine and US air strikes to block Islamist militants in Iraq are upsetting the markets. To compound matters, tit-for-tat sanctions between Moscow and the European Union and fears that Russia could even invade eastern Ukraine are already sapping business confidence and will eat into paltry economic growth later this year. Not only does Moscow supply about at least 33% of the European Union`s Nat Gas need, trade ties in other areas between Russia and Europe run deep. German energy giant E.ON SE, for instance, has invested EUR 6-B ($8-B) since Y 2007 in Russia, while chemicals firm BASF has a joint venture with Gazprom. The market has been ignoring the geopolitical risks for some time now. The escalation in Ukraine and a spiral of sanctions could be a turning point. Exports to Russia were falling even before Ukraine and could fall further. The Iraq crisis increases nervousness.

11.08.2014 15:10 Global economy one shock away from another crisis

Fathom Consulting warns that world is sliding towards its next "Minsky moment", with biggest risk stemming from China. The world is sliding towards another debt-ridden disaster, with the Eurozone and China one shock away from a fresh crisis, according to a leading economics consultancy. Fathom Consulting, which is run by former Bank of England economists, said current levels of low volatility masked systemic risks in the global financial system. Danny Gabay, director of Fathom, said an oil price shock would be enough to trigger a "hard landing" in China as growth slowed, house prices plummeted and the country`s already huge amount of non-performing loans soared. Mr Gabay drew parallels between China today and America in 2006, when a number of households began to default on their sub-prime mortgages but authorities played down the potential impact on the rest of the global economy. He said a spike in the oil price to $150 a barrel, from current levels of around $105, would knock around two percentage points off headline growth in China. "There are certain markets that cause us concern," said Mr Gabay. "China is way out in front." Fathom also said high levels of non-performing loans in the eurozone posed a threat to the 18-nation bloc, while a strong euro and contracting private sector credit would push the eurozone into deflation within the next 12 months. Charles Goodhart, senior economic consultant at Morgan Stanley and a former Bank of England rate setter, compared Fathom`s assessment of global risks to the ideas of Hyman Minsky, who believed that "stability is destabilising" and the global financial system itself could generate shocks because of investor complacency. "When you have so much stability, particularly at very low yields, what everyone does is they reach for yield, and they take on riskier and riskier positions. When something causes the balloon to blow up, then you`re in real trouble," said Mr Goodhart.

08.08.2014 14:49 Graham: Russia has an economy the size of Italy

While the fighting in Ukraine stirs memories of the Cold War, there`s little appetite in the United States to get into a military showdown with Russia. Where`s there`s bipartisan support is to get Europe to take stronger stand. Sen. Lindsey Graham, R-S.C., said on CNN`s State of the Union Sunday that President Barack Obama should be getting the European Union nations into line. "They`re dysfunctional political organization, Europe is," Graham said. "And without American leadership organizing Europe and the world, you see people like (Russian President Vladimir) Putin, who has an economy the size of Italy -- he`s playing a poker game with a pair of 2s and winning." Really? Russia is the world`s second-largest producer of natural gas and the third-largest producer of oil, and it has an economy the size of Italy? In terms of nominal GDP, Graham is correct. But if you run the numbers a different way and measure purchasing power parity, Russia`s economy is larger than Italy`s. Graham`s statement is accurate but needs additional information. We rate his claim Mostly True.

28.07.2014 13:35 Harsher Sanctions Would Cost Russia 0.3% of GDP

An upsurge in international tensions and further sanctions slapped on sectors of the Russian economy over the country`s annexation of Crimea from Ukraine would cost Russia 0.2 to 0.3 percent of the GDP this year, according to Russia`s Finance Ministry. But longer-term implications could be broader, crippling the country`s much-needed modernization drive and hampering Russia`s ability to emerge from an sharp economic slowdown, the ministry said in a budgetary policy outline for 2015-2017 published on its website. In the international furore that followed Russia`s land grab in March, the European Union blacklisted about 60 Russian top officials, businessmen and companies, while the U.S. sanctioned some 50 names, banned cooperation in the nuclear and space industries and restricted the sale of hi-tech products to Russia. Broader sanctions against whole sectors of the Russian economy, including its main staple, oil and gas, have been threatened, but not implemented. Skeptics said such sanctions would backfire against the EU, Russia`s leading trade partner which is also heavily reliant on Russian petroleum exports. The ministry`s forecast assumes no "sectoral" sanctions will be imposed. Broad damage has been done, however - the spike in uncertainty has sent the perceived risks of operating in Russia skyrocketing, leading Western banks to shy away from the country, while many companies not already tied into Russia have put investment plans on hold. The value of syndicated loans granted to Russian commodities producers plummeted by 82 percent to $3.5 billion in the first half of this year, Bloomberg reported. Russian economic growth has been sputtering since 2012, and the country entered technical recession in the first half of 2014, according to HSBC, though official statistics indicated GDP growth of 1.1 percent between January and May.

21.07.2014 12:27 What`s Making US Economy a World Beater? 5 Factors

How does the U.S. economy do it? Europe is floundering. China faces slower growth. Japan is struggling to sustain tentative gains. Yet the U.S. job market is humming, and the pace of economic growth is steadily rising. Five full years after a devastating recession officially ended, the economy is finally showing the vigor that Americans have long awaited. Last month, employers added 288,000 jobs and helped reduce the unemployment rate to 6.1 percent, the lowest since September 2008. June capped a five-month stretch of 200,000-plus job gains - the first in nearly 15 years. After having shrunk at a 2.9 percent annual rate from January through March - largely because of a brutal winter - the U.S. economy is expected to grow at a healthy 3 percent pace the rest of the year. Here are five reasons the United States is outpacing other major economies: an aggressive central bank, stronger banks, a more flexible economy, less budget-cutting, a roaring stock market. Most economists agree it`s worked.

15.07.2014 15:30 Mexico`s Economy in Recovery Mode, Financial Council Says

Mexico`s economy will continue to recover during the rest of this year, but the situation in international markets poses risks, the Financial System Stability Council (CESF) said. Foreign demand and the federal government`s stimulus policies should help bolster the recovery in the wake of first-quarter gross domestic product (GDP) growth that came in lower than expected, the CESF said in a statement. Demand in developed countries has given a boost to Mexico`s economy, but “signs of relative weakness persist,” said the CESF, whose members are the heads of Mexico`s main economic organizations. Monetary policy in the main developed economies is likely to experience “gradual” normalization, the CESF said. Investors` outlook for monetary policy “has contributed to low volatility” in the financial markets and “encouraged capital flows to return to emerging economies,” the council said, referring to the low interest policies adopted by many central banks around the world. Mexico`s GDP grew 1.8 percent in the first quarter, compared to the same period in 2013, a figure that was well below expectations. The government has revised its economic growth forecast for this year downward from 3.9 percent to 2.7 percent. Mexico`s economy grew just 1.1 percent in 2013 due to a strong deceleration in the first half of the year.

10.07.2014 15:57 World Bank cuts South Africa`s 2014 growth outlook to 2%

The World Bank has joined other institutions that are revising downwards their 2014 economic growth forecasts for South Africa as strikes, higher interest rates, rising inflation and weak demand weigh. South Africa`s economy contracted by 0.6% in the first quarter of 2014. In its latest global economic prospects report, the bank cut South Africa`s economic growth forecast for 2014 to 2% from an earlier forecast of 2.7%. The bank also downwardly revised its economic growth forecast for 2015 to 3% from 3.4% previously, and left its outlook for 2016 unchanged at 3.5%. Most institutions are downwardly revising their economic growth forecasts for the country as a strike at platinum mines and disruptions to power supply cause lower output by key sectors such as manufacturing. The World Bank forecast that South Africa`s current account deficit - which has often been one of the main reasons behind rand weakness - would improve slightly but remain large. Forecasts are for a deficit of 5.9% in 2014, 4.7% in 2015, and 5% in 2016. The World Bank said in its report that it expected economic growth in sub-Saharan Africa to remain flat at about 4.7% in 2014 mainly due to economic weakness in South Africa and oil-infrastructure bottlenecks in Angola. Growth in the rest of the region was expected to remain robust, boosted by resilient domestic demand. Economic growth in the region is then expected to pick up to about 5.1% in 2015 and 2016.

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