The Lastest Macroeconomic News
20.05.2014 13:09 The Global Economy: A World Of Acronyms
The world of finance gave birth in 2001 to a new buzzword: BRIC. The word is an acronym for Brazil, Russia, India and China. Jim O`Neill, an economist with Goldman Sachs who`s been credited with coining the term, saw those four countries as turbo-charged engines among emerging markets, ones that would give Western economies a run for their money. O`Neill says when he dreamed up the acronym 13 years ago, people didn`t really focus on the potential importance of some of these countries. "It sort of transformed ... the way, I think, many people thought about the world," he says now. For a stretch, the fast-growing BRIC economies lived up to the hype. The four countries formed their own economic and political alliance. In 2010, South Africa joined the group. But O`Neill considered it an interloper, saying South Africa isn`t at the same level as the others. The four original BRIC countries were his babies, but like many children, they can disappoint. "China is the only one of the four that`s growing by more than I ever assumed; the other three so far this decade have been disappointing," says O`Neill, particularly Brazil and Russia. "I have joked that if I had to dream the acronym up again today, I`d just call it `C,` " he says. While the BRIC engines may be misfiring, other economies have been gaining speed. O`Neill has now come up with a new group of promising emerging markets. He`s coined them M-I-N-T. "It stands for Mexico, Indonesia, Nigeria and Turkey," he says.
19.05.2014 14:05 German industry steps up drive to prevent Russia sanctions
German industry is ramping up efforts to dissuade Chancellor Angela Merkel from imposing tough new economic sanctions on Russia over Ukraine, warning of lasting damage to domestic firms and the broader economy if Moscow is hit hard. Although German companies have toned down their public criticism of sanctions since the CEO of Siemens (SIEGn.DE) was vilified in the press for meeting Russian President Vladimir Putin in late March, a behind-the-scenes lobby effort remains in full force. A confidential paper from the German-Russian chamber of foreign trade, which was sent to the government last week, shows the extent of the concern in German business circles as a May 25th presidential election in Ukraine nears. Merkel has said she will press for more punitive measures against Russia if the election is disrupted. The two-page position paper, dated May 7th, says the Ukraine crisis is already having a "massive impact" on German business in Russia and warns of dire consequences if Europe follows through on threats of economic sanctions. "Deeper economic sanctions would lead to a situation where contracts would increasingly be given to domestic firms, projects would be suspended or delayed by the Russian side, and Russian industry and politicians would turn to Asia, in particular China," the paper says. The resulting loss of market share for German and European firms would be "long-term and sustainable", causing "irreparable damage" to Germany`s competitive position, according to the paper, provided to Reuters by an official in Berlin. Moreover, sanctions would lead to job losses in Germany and expose companies to "massive compensation" claims if they were forced to break contracts with their Russian counterparts, it says.
18.05.2014 13:54 West`s Sanctions Sting Russian Consumers as Ruble Weakens
As Russia`s central bank struggles to shield the ruble from the standoff over Ukraine, Vasily Isaev it may already be too little, too late to save his plans for a vacation in Italy. “If you get your salary in rubles, a trip to the beach in Europe is going to be difficult this year,” said the 37-year- old sales manager, looking up from his English homework in the park near Tverskoy Boulevard in central Moscow. “We`re going to Bulgaria instead of Italy this year and we`re renting an apartment a little further away from the sea.” Consumers like Isaev, spending more than a few months ago to fill a shopping cart with everyday items, may be squeezed most by the currency`s decline as inflation quickens. Wobbling consumption threatens to knock out another pillar of the economy reeling from sanctions that stoked capital flight. Unruffled by the central bank`s emergency measures, the ruble has declined as an expanding list of U.S. and European Union sanctions in response to President Vladimir Putin`s actions in Ukraine sparked a selloff of Russian assets. The ruble has weakened 8 percent this year, the second-worst performance after the Argentine peso among 24 emerging-market currencies tracked by Bloomberg. The central bank has been trying to halt the decline by raising its benchmark interest rate twice in the last two months by a total of 2 percentage points. The ruble`s weakening is increasing the cost of living by making imported goods more expensive.
17.05.2014 12:18 Russia PM: Country`s GDP will decline in Q2
Russia`s Prime Minister says the country`s Gross Domestic Product will decline to between 0 and 0.1 percent in the second quarter. His comments comes just after the the European Bank for Reconstruction and Development said that Russia`s economy will slip into recession with the conflict between Russia and Ukraine taking its toll. In the short term Russia`s economic growth would virtually stagnate, said Prime Minister Medvedev. For the year the conservative forecast from Russia`s Ministry of Economic Development has the economy growing by 0.5%. Europe`s Bank for Reconstruction and Development predicts Russia will slip into recession and the average regional growth rate will grind to a halt from 2014-5. Much of this has been put down to the ongoing crisis over Ukraine and resultant sanctions. Both the EU and US have now targeted individuals and companies in Russia and Crimea with asset freezes and visa bans which have intensified capital flight, already running higher so far this year than in all of 2013. For 2015 Russia`s Economic Development Ministry puts the conservative GDP growth for Russia`s economy at 2 to 2.4%. An energy dispute also threatens Russia`s economy in the longer term. Russian President Vladimir Putin says gas supplies to Ukraine will be switched off in June if payments aren`t made. Russian state oil giant Gazprom says the total debt amounts to $3.5 billion, which Ukraine disputes. The EU, currently Moscow`s biggest customer, has started to look at diversifying its gas supply away from Russia while Russia is looking to seal a deal with China to diversify its energy exports.
12.05.2014 20:28 World Bank: Australia No. 4 Most Expensive Economy in the World
The World Bank has declared Australia one of the most expensive countries in the G20 economy. Australia`s cost of goods and services makes it at par with other expensive European countries like Denmark, Norway, Sweden and Switzerland. According to the World Bank, Australia ranks fourth out of 177 countries around the world based on price level index (PLI) which includes exchange rates and purchasing power in 2011. Economists believe Australia`s cost of goods and services have increased due to the mining boom, high exchange rate and "unbroken" economic growth for 22 years. They also cited low unemployment rate, high labour costs and oligopolistic major industries as the main drivers of high local prices. The World Bank study revealed that the most expensive economies are part of the Eurostat-OECD region, with the exception of Bermuda. Switzerland was declared the most expensive economy, followed by Norway and Bermuda in second and third places, respectively. Denmark followed Australia in fifth place. Sweden, Japan, Finland, Luxembourg and Canada were included in the Top 10 most expensive countries. In its latest regional report released in April, the IMF has downgraded its growth forecast for Australia since October 2013 from 2.6 per cent to in 2014 to 2.7 per cent in 2015. The Washington-based institution has previously expected Australia`s economy to grow between 2.8 and 2.9 per cent. The IMF said Australia`s economy is expected to grow below the trend since investments in the mining boom have reached its peak and is now on a declining phase.
07.05.2014 18:35 Why the Russian sanctions don`t work
The obvious objection is that economic gestures from the United States and Europe have proved pathetically ineffectual in deterring Russia and only emphasizes the West`s lack of conviction and planning. Russian President Vladimir Putin, meanwhile, has achieved what were probably his main goals: gaining tacit international recognition for the annexation of Crimea, as an irreversible fait accompli; and extracting an admission from Ukrainian President Oleksandr Turchynov that Kiev is “helpless” to prevent the country`s disintegration as long as Russia remains hostile. In addition to conceding these huge gains to Putin and undermining U.S. credibility as a global policeman in the Middle East and Asia, economic sanctions could prove disastrous for several more subtle reasons. First, the transformation of what was a military-diplomatic dispute about Ukraine`s borders into an economic confrontation between the West and Russia is likely to tempt other powerful countries, such as China and Israel, into taking military action to settle their territorial disputes. Also if economic sanctions start seriously threatening Russian wealth abroad, they will play into Putin`s hands in the short-term by forcing the oligarchs to repatriate their foreign assets. The long-term effects of isolating Russia economically could be even more perverse. If economic sanctions were to force Russia onto a path of greater self-reliance and protectionism, its domestic manufacturing and service industries would almost certainly grow much bigger, even if their quality and productivity fell further behind Western standards. Certainly not the outcome that economic sanctions are supposed to produce.
04.05.2014 17:09 IMF says Russian economy already in recession, bleeding capital
Russia`s economy is already in recession and is expected to lose at least $100 billion in investment this year, largely due to the "geopolitical uncertainties" created by its conflict with Ukraine, the International Monetary Fund mission chief in Moscow said. As investors flee and Western powers threaten Moscow with increased sanctions for its seizure of Ukrainian territory, the IMF has lowered its growth forecast for Russia this year to 0.2%, down from the 1.3% that had been expected before the Ukraine crisis unfolded. In a report posted on the fund`s website after the latest round of consultations with Russian economic leaders, the IMF blamed the declining outlook on both the security situation and the Russian government`s failure to adopt structural reforms and cut red tape. "Fostering competition across sectors and regions, improving governance, and lifting heavy regulations are necessary to attract high-quality investment and boost potential growth," the IMF report stated. But Antonio Spilimbergo, the IMF economist in charge of Russia, told reporters in Moscow that the darkening outlook for the Russian economy was due to "the difficult current situation and the significant level of uncertainty related to geopolitical tensions and sanctions." The sanctions have had little direct effect on the economy in the few weeks they have been in place. But the threat of a more damaging toll if Russian meddling in Ukraine`s affairs continues has undermined investor confidence and spooked the currency and stock markets. "This all has a very negative effect on the investment climate," Spilimbergo said of the sanctions and the mounting violence in eastern Ukraine. The IMF expects capital outflows from Russia this year to be $100 billion, he said, but noted that capital flight could be even worse if the uncertainties inflicted by the Ukraine conflict persist or worsen. Russia`s economy shrank by 0.5% in the first quarter of this year, the IMF said, after a stagnant end to 2013.
02.05.2014 15:21 U.S. GDP Grew A Glacial 0.1% In The First Quarter 2014
The U.S. economy grew in the first quarter - but very, very, very slowly. Most economy watchers blame frigid winter weather for dampening forward progress but not everyone is convinced weather tells the whole story. The Bureau of Economic Analysis` advance estimate of first quarter 2014 real gross domestic product shows output produced in the U.S. grew at a glacial 0.1% rate. This is growth relative to fourth quarter 2013, when real GDP increased 2.6%. Economists were anticipating growth around 1.1%. Most of the weakness came from trade and inventories which subtracted 80 basis points and 60 basis points from overall GDP respectively. According to BEA, the slowing growth also reflected a downturn in nonresidential fixed investment growth, as well as lower state and local government spending. Federal government spending, on the other hand, picked up 0.7% but that growth come off of a quarter than included the 16 day government shutdown and a 12.8% decline. To the extent GDP grew, BEA said it was a reflection of a decreased in imports and an increase in personal consumption. The price index for gross domestic purchases - which measures prices paid by U.S. residents - increased 1.4% versus 1.5% growth in the fourth quarter. Real personal consumption expenditures increased by 3%, compared to 3.3% in the fourth.
26.04.2014 20:43 Even Without Sanctions, Russia`s Economy Is Looking Sicklier Than Ever
Signs of Russia`s growing economic distress became even clearer, as the central bank unexpectedly raised interest rates for the second time since March, while Standard & Poor`s cut the country`s debt rating to one notch above junk. In lifting the benchmark borrowing rate from 7 percent to 7.5 percent, the bank said it was acting to cool inflation that`s now running above 7 percent. But, says economist Tim Ash of Standard Bank in London, “it has nothing to do with inflation. It`s all about signaling that the central bank is shoring up its defenses” to strengthen the ruble and stem the flight of capital from the country. Whether the bank can achieve those goals looks doubtful. The ruble, the second-worst-performing currency among developing countries this year, continued to lose ground today, trading above 36.01 against the dollar. And, as S&P noted in its downgrade announcement, the standoff over Ukraine could spur capital outflows, which already exceeded $50 billion during the first three months of the year. Ash predicts the total could reach as much as $200 billion by yearend. With Russian companies and consumers facing higher borrowing costs, the rate hike will depress an economy that`s already in danger of tipping into recession. And continuing political uncertainty over Ukraine means that foreign companies “will not invest in Russia`s real economy, they`ll just stall their investment,” Ash says. Moreover, “inflation is likely to remain relatively high,” above 7 percent this year, emerging-markets economist Liza Ermolenko of Capital Economics in London wrote in a note to clients. “This is the result of Russia’s deep-seated economic problems - in particular, the fact that wages have been growing well ahead of productivity.”
23.04.2014 14:16 World economy on steady course at best, China a worry, polls show
The world economy can expect steady growth at best over the coming year, but any rapid slowdown in China as it tries to rebalance its economy could upset the still-unsteady progress, Reuters polls showed. Growth in the United States, the world`s largest economy, looks set to outpace its peers, with Japan and the euro zone still lagging and emerging markets - particularly Latin America - in for a challenging year. The poll results suggest that exuberance in financial markets, especially stock markets, may have been overdone in the past few years on expectations for a robust pick-up in global growth. With a few notable exceptions like Britain, developed economies are also showing scant evidence of an imminent and significant improvement in hiring, particularly so in the euro zone and the United States. Overall, the world economy is expected to grow 3.4 percent this year, just a tad below the 3.6 percent projected by the IMF and the January Reuters poll. That is still better than the 2.9 percent clocked last year. With so many economies at best humming along at a modest rate of expansion, much will depend on China, the world`s second-largest economy, which for many years was the driver of global growth.