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03.05.2015 17:03 In what condition does the coalition government leave the UK economy?

In what condition does the coalition government leave the UK economy? Needless to say, its members are fighting the general election on the proposition that they have done a fine job of rescuing the crisis-hit economy they inherited. It seems, at the moment, that this argument is not playing that well in the polls. Does it deserve to? Here is a scorecard. Let us start with the simplest measure of overall economic performance. In the last quarter of 2014, UK real gross domestic product per head was 4.8 per cent higher than it had been in the second quarter of 2010 when the coalition took office, and 6.2 per cent above the trough of the “great recession” in the third quarters of 2009. But it was much the same as in the first quarter of 2007 and below its pre-crisis peak. In the fourth quarter of 2014, real GDP per head was close to 16 per cent below where it would have been if the 1955-2007 trend had continued. Even the recovery has not shrunk this gap. This largely explains the disappointment over living standards. Moreover, this huge shortfall cannot be explained by a pre-crisis boom. On the contrary, the economy was close to its long-term trend in 2007. Booms had been far bigger in the early 1970s, late 1970s and late 1980s. Data on inflation tell much the same story. The argument that the UK economy was in a grossly unsustainable state in 2007 is largely ex-post rationalisation. Even house prices turn out not to have been unsustainably high. What nearly everybody missed was the vulnerability of the UK`s financial sector to a global crisis.

02.05.2015 13:24 Fitch predicts India`s GDP growth at 8 per cent in FY2015-16

Projecting an 8 per cent growth for the current fiscal, rating agency Fitch on Thursday said India is less vulnerable to risks from capital flight, on account of of drop in oil prices and the government`s reform agenda. India had previously been clubbed with Brazil, Indonesia, South Africa and Turkey for being the most at risk of capital outflows following US Federal Reserve`s proposed unwinding of the monetary stimulus. "India`s vulnerability has declined since 2013," Fitch said in a report. "A changing policy environment has had a positive impact on its macroeconomic risk profile." Fitch said two years ago, many emerging markets experienced some credit market and currency stress after the Fed discussed tapering of asset purchases. "Brazil, India, Indonesia, South Africa and Turkey - commonly referred to as the `Fragile Five` in 2013 - stood out at the time with the risk from capital flight resulting in currency volatility and widening credit spreads," it said. On India, it said: "The government`s broad-based reforms agenda, introduced following the 2014 general election, could transform the country`s business environment and investment climate."

01.05.2015 20:41 Is low growth the global economy`s new norm?

In the 25 years before the Great Recession of 2008-2009, the United States experienced two brief, mild recessions and two strong, long expansions. Globally, incomes grew briskly; inflation abated; and stock markets boomed. Moreover, the recovery from the last major slump, in the early 1980s, brought about a quarter-century of unprecedentedly strong and stable macroeconomic performance. This time, however, the return to growth has been much more difficult. America`s recovery since the Great Recession, has been inconsistent, with growth repeatedly picking up and then sputtering out. In fact, the U.S. has not experienced three consecutive quarters of 3 percent growth in a decade. Though lower oil prices are helping consumers, this gain is partly offset by less energy investment, and the effects of the stronger dollar will be even larger. The U.S. is not alone. Though most European economies are now growing again, aided by lower oil prices and currency depreciation, the pace of expansion remains anemic. Similarly, Japan`s recovery remains fragile, despite strong efforts by the government. Even the major emerging economies, which were supposed to serve as global growth engines in the years ahead, are struggling: China and India have downshifted, and Brazil and Russia are contracting. When a boom or bust lasts for such a long time, it begins to seem like it will continue indefinitely. Six years after the crisis, some prominent economists are asking whether insufficient investment and/or waning gains from technological innovation have pushed the global economy into a “new normal” of lower growth and slow, if any, gains in living standards. Some economists call this “secular stagnation” - a fancy way of saying that the good times are gone for good. Are they right?

01.05.2015 13:33 The rouble: The worst is yet to come

Russia`s currency, the rouble, had a terrible 2014. As oil prices collapsed and Western sanctions bit, export revenues slumped. Nervous investors pulled $150 billion from the country. As a result, the rouble lost about half its value against the dollar. But over the past few months, it has climbed out of its trough. Russian bonds and stocks have done well, too. The Central Bank of Russia (CBR) has been cutting interest rates - an unthinkable prospect just a few months ago. On April 30th it lowered its main rate from 14% to 12.5%. All this, some say, is proof that investors are too pessimistic about the Russian economy. They are wrong. Oil prices have risen slightly since the start of the year. That is helpful for an economy where the stuff provides half of all exports. The cheaper rouble has buoyed exports, too. A new deal to end the Russian-backed insurgency in Ukraine, signed in February, has also made investors less jittery. Nonetheless, the rouble`s strength is a puzzle, since in many ways the Russian economy looks worse than it did in December. Inflation, at 16.9%, is 5.6 percentage points higher, a jump that would normally spur depreciation. Real wages are tumbling fast. The foreign-exchange reserves of the CBR have fallen by about $30 billion so far this year, and by $130 billion since this time last year. The IMF thinks that the economy will shrink by 4% in 2015 - and it is a relative optimist.

30.04.2015 20:01 Inflation in Russia slowed to 16.5% in April 2015

Inflation in Russia, which, as polls show, is one of the biggest problems for the Russians, began to slow in April, after a significant acceleration of up to 16.8 and 16.9 percent year on year, respectively, in February and March. The rise in prices has decreased to 16.5 percent, as at 27 April and, according to official forecasts, it will continue to decline. “Amid ruble appreciation and a significant contraction in consumer demand in February-April 2015, monthly consumer price growth is declining and annual inflation is tending to stabilize,” the central bank said in the statement. According to the forecast of the Central Bank, inflation in Russia will drop to 8 percent in April 2016. The Bank of Russia also added that inflation is slowing down "faster than expected". In the previous forecast of the Central Bank predicted slowdown in inflation during the year to a level of 9 percent. According to various forecasts, inflation in Russia in 2014 will amount to 12 to 14 percent. The ruble`s collapse last year and Russia`s ban on some food imports in retaliation for sanctions over the conflict in Ukraine contributed to inflation more than doubling from the start of last year. The central bank`s medium-term inflation target is 4 percent for 2017.

30.04.2015 17:08 Ruble Is Seen as Overvalued to 63% of Economists After Rally

The ruble is too strong after appreciating 14 percent in April, according to most of the economists surveyed by Bloomberg. Seventeen of the 27 analysts polled April 24-29 said the currency was overvalued, nine saw it near its “fundamental value” and one said it was still too weak. The ruble is staging its biggest monthly rally since 1993, buoyed by a cease-fire in Ukraine and a revival in the price of oil, Russia`s main export earner, as the peak of foreign debt repayment has passed. The ruble traded 0.1 percent weaker at 51.1120 against the dollar at 11:15 a.m. in Moscow. President Vladimir Putin has used the ruble`s recovery in 2015 to highlight the resilience of his country`s economy in the face of international sanctions over Ukraine and last year`s plunge in oil prices. Economy Minister Alexei Ulyukayev said April 17 that the currency`s “fundamental value” is close to 50 per dollar and predicted it would fluctuate around that level. “The ruble has not yet found its new equilibrium price,” Wolf-Fabian Hungerland, an economist at Berenberg Bank in Hamburg, Germany, said by e-mail. “We expect that the ruble will oscillate between 55 and 60 in the medium term.” Derivatives also suggest the ruble is more likely to weaken. There is a 48 percent probability of the currency depreciating 10 percent by June 30, and a 35 percent chance of a similar-sized gain, according to options data compiled by Bloomberg. The Russian currency tumbled 46 percent against the dollar last year before climbing 19 percent in 2015.

29.04.2015 19:25 U.S. economy grew at 0.2% pace in Q1 2015

The economy slowed significantly in the first quarter as cold weather, a strong dollar and shipping snags dampened activity. Gross domestic product - the value of goods and services produced in the U.S. - expanded at a seasonally adjusted annual rate of 0.2% in first quarter, the Commerce Department said. That`s down from 2.2% in the fourth quarter. The report was the government`s first estimate of first-quarter GDP. Two revised estimates, based on more complete data, will be published in May and June. First-quarter growth was substantially less than the 1% expected by economists surveyed by Action Economics. Analysts say the slowdown largely reflects temporary factors, such as harsh weather and a labor dispute at West Coast ports that hampered exports and delayed deliveries to factories and retailers. Other economic headwinds could linger, including a strong dollar that`s making U.S. goods more expensive for foreign buyers and a pullback in energy company investment amid a plunge in oil prices. Business investment, for example, fell 3.4% after increasing 4.4% in the previous quarter as the muscular greenback dented manufacturers` sales. And investment in non-residential structures plunged 23.1% in the quarter, in large part a consequence of the oil price slump, as energy companies sharply reduced the number of oil drilling rigs. Exports dropped 7.2% as manufacturers lost sales to other countries with more favorable currency exchange rates. Consumer spending, which makes up more than two-thirds of economic activity, also slowed, growing 1.9% compared with 4.4% in the fourth quarter. Rough weather kept many shoppers at home. And government spending declined 0.8% as defense and state and local outlays all fell.

28.04.2015 21:58 Ruble Is in Good Shape, Russian Economy Is Not

Over the course of the winter a combination of rapidly falling oil prices, heightened geopolitical uncertainty and enormous private capital outflows contrived to create a palpable sense of panic in the Russian economy. A rebound for the ruble has now given Russia some respite and contributed to a more optimistic economic outlook, but it has also diverted attention away from the need to address the growing list of serious problems that face the country. These have not disappeared, whatever the ruble says. When the ruble plunged late last year and unemployment began to rise, the Russian government was forced to hastily cobble together an anti-crisis plan to restore economic confidence. Spring has now brought with it a renewed sense of calm. Since the end of January, oil prices stabilized, then rose slightly to their current levels. The Minsk II agreement, while fragile and only partially observed, at least appears to be preventing the conflict in southeast Ukraine from escalating any further. Capital outflows, which reached $77 billion in the final quarter of 2014, slowed down to $32 billion in the first quarter of 2015. Perhaps most notably, the ruble has reversed its downward trajectory to become one of the best-performing emerging market currencies in 2015. Such is the apparent turnaround in fortunes for the Russian economy that President Vladimir Putin was emboldened to declare in his recent annual call-in program that the economic crisis had been averted, and that the "peak of Russia`s problems" were now in the past. The ruble, which started the year trading at over 70 to the U.S. dollar, is now trading at around 50. Economic activity in the final quarter of 2014 was also better than expected, with gross domestic product expanding by a modest 0.3 percent when most analysts had forecast a contraction. Scratch the surface, however, and it is clear that on other economic indicators the picture is less benign. Prices continue to rise, with annualized inflation reaching nearly 17 percent in March. Industrial production, although boosted by the weak ruble, remains anemic. Investment, which as a proportion of GDP is already comparatively low, is falling rapidly, with a year-on-year decline of 5.3 percent registered in March.

27.04.2015 21:06 Russia`s Economy: Not Just Natural Resources

Russia`s economy doesn`t get a lot of love. It`s “Nigeria with snow,” “Burkina Faso with rockets,” or, in John McCain`s oft-repeated quip, “a gas station masquerading as a country.” To be sure, natural resources genuinely play a large role. It would be foolish (and inaccurate!) to try to totally discount the huge influence of companies like Gazprom, Rosneft, and several other state-run resource extractors. The Russian state`s finances really are based on the heavy taxation of energy producers, and the Kremlin would be in a world of trouble if the oil/gas spigot ever truly ran dry. But Russia, despite what you often hear, is more than just a gas station. It`s manufacturing and service sectors aren`t particularly competitive by world standards (very few people in North America are buying Russian cars) but they do exist. Using World Bank data on natural resource rents, officially defined as “the difference between the value of commodity production at world prices and total costs of production,” it`s instructive to compare Russia`s level to those in the members of OPEC, the prototypical petro states. Natural resource rents are a non-negligible percentage of Russian output. But these rents are nowhere near as high as in many of the world`s largest oil producers. Russian resource rents aren`t even particularly large compared to other post-Soviet states: Azerbaijan (36%), Kazakhstan (29%), and Uzbekistan (20.1%) all had proportionally larger rents. It`s also interesting to compare Russia`s actual GDP per capita with what it would have been if all natural resource rents were eliminated. Here, again, Russia just doesn`t appear to be particularly exceptional when compared to OPEC members.

24.04.2015 22:08 China`s economic growth hits 6-year low

A slump in the property market pushed Chinese economic growth down to 7 percent in the first three months of this year, its lowest quarterly pace since 2009. Premier Li Keqiang warned that the numbers were “not pretty” and that the country should brace for tougher times ahead. The housing slowdown has also hit heavy industries such as steel and cement, while falling global commodity prices have squeezed industrial profits. The government expects to be able to hold the line at 7 percent for 2015. That would be the lowest annual rate of growth in 25 years but still considerably faster than most major nations, and enough for the Communist Party to maintain its claim to sound economic leadership. Economists expect the government to cut interest rates further and bolster infrastructure spending in coming months to prevent a sharper slowdown, but officials acknowledge the risks to the economy have increased. “Economic data in the first quarter are not pretty,” Li told a seminar Tuesday, a day before the numbers were released, according to the official China Daily newspaper. “Traditional economic driving forces such as consumption and investment are diminishing, while new forces are not compensating.” Li said the nation should be prepared for greater downward pressure on the economy and increasing difficulties, although the premier expressed confidence about the economy`s long-term prospects.


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