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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. Japans 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.

01.10.2014 15:41 Oil Prices Fall, and the Global Economy Wins

Oil is in the midst of one of its steepest selloffs since the financial crisis, with prices falling 16 percent since mid-June. This has the Saudis contemplating even deeper cuts in oil production to keep prices from declining any further. The world`s biggest crude exporter told OPEC recently that in August it reduced output by more than 400,000 barrels a day. It`s not yet clear how well that`s working. The Saudi cuts were offset in part by more oil from Iran, Iraq, and Nigeria - not to mention the continued record increase in U.S. oil production thanks to the shale boom. While prices are expected to rise slightly for international blends of crude over the next six months, domestic prices in the U.S. are forecast to be cheaper by next spring. That`s not necessarily great news for oil producers, but it could be good news for consumers and the global economy. There are two schools of thought to explain the recent crash in oil prices: too little demand and too much supply. The question is which one is having the bigger influence. While the results are the same (lower oil prices), the reason for them is equally if not more important to the global economy. Demand certainly could be stronger. But the bigger factor appears to be on the supply side, as production growth outpaces demand. That was the case last year and is shaping up to happen again in 2014. A new report by Andrew Kenningham, senior global economist at Capital Economics, attempts to gauge the hard-to-measure global economic boost from lower oil prices. A $10 fall in the price of oil transfers the equivalent of 0.5 percent of world GDP from oil producers to oil consumers, he writes. That in turn will have a knock-on effect on global consumption, since consumers tend to spend more of their income than businesses. Assuming consumers spend half their savings for cheaper oil, Kenningham continues, a $10 fall in the oil price would boost global demand by 0.2 to 0.3 percent. This means different things for different parts of the world. In Europe, for example, where policymakers are already struggling with deflation, lower oil prices will only make the European Central Bank`s challenge harder in loosening its monetary policy to try and boost prices. It also might not be good news for some big oil-producing economies.

29.09.2014 10:30 Chinese economy takes 12.3 pct of world total in 2013

The Chinese economy comprised about 12.3 percent of the world total in 2013, according to the National Bureau of Statistics (NBS). China`s GDP was 56.9 trillion yuan (9.32 trillion U.S. dollars) in 2013. GDP per capita was 41,908 yuan. These indicate remarkable progresses from 1952, when GDP was 67.9 billion yuan and GDP per capita was 119 yuan. From 1953 to 2013, China`s GDP increased 122 times at comparable prices, with annual average growth of 8.2 percent. The service sector has been growing remarkably. In 1952, agriculture took about 51 percent of the total economy, followed by the service sector with about 28 percent and industry at 21 percent. In 1978, the industrial sector had grown to 48 percent, followed by agriculture with about 28 percent and services on 24 percent. In 2013, the service sector took the largest share for the first time, accounting for about 46 percent.

27.09.2014 12:16 World Bank Slashes Forecast for Russian Economy

The World Bank slashed its forecast for Russia`s economy over the next two years, saying growth would stagnate amid a lack of structural reforms and Western sanctions over Russia`s role in the Ukraine conflict. In its biannual report, the World Bank cut its forecast for Russian economic growth to 0.3% in 2015 and 0.4% in 2016 under its baseline scenario from 1.5% and 2.2%, respectively--well below the government`s estimates. Even under the most optimistic scenario, which envisages the full resolution of the geopolitical tensions and an end of all sanctions by the end of 2014, the World Bank sees only a 0.9% growth in 2015, increasing to 1.3% in 2016. Under the pessimistic scenario of an increasing intensity of geopolitical tensions, the bank said the economy slipping into a protracted low-level recession. If the government lifts caps on budgetary spending in an attempt to kick-start the economy, it would lead to higher inflation, ruble depreciation and further deterioration of the investment climate, the bank said. Although the bank doesn`t expect any limitation of Russia`s oil trade, access to the international capital market would become increasingly restricted for the country`s companies and banks, further increasing borrowing costs and hampering investment activities. Under this scenario the World Bank expects the economy to contract 0.9% next year and by a further 0.4% in 2016. The bank reiterated its usual suggestions for Russia to grow its economy: keep the macroeconomic stability, make the policy environment predictable and ensure a positive shift in business and consumer confidence.

20.09.2014 10:46 1937 parallels for today`s global economy

The depression that followed the stock-market crash of 1929 took a turn for the worse eight years later, and recovery came only with the enormous economic stimulus provided by the second world war, a conflict that cost more than 60 million lives. By the time recovery finally arrived, much of Europe and Asia lay in ruins. The current world situation is not nearly so dire, but there are parallels, particularly to 1937. Now, as then, people have been disappointed for a long time, and many are despairing. They are becoming more fearful for their long-term economic future. And such fears can have severe consequences. For example, the impact of the 2008 financial crisis on the Ukrainian and Russian economies might ultimately be behind the recent war there. According to the International Monetary Fund, both Ukraine and Russia experienced spectacular growth from 2002 to 2007: over those five years, real per capita GDP rose 52% in Ukraine and 46% in Russia. That is history now: real per capita GDP growth was only 0.2% last year in Ukraine, and only 1.3% in Russia. The discontent generated by such disappointment may help to explain Ukrainian separatists` anger, Russians` discontent, and the Russian president Vladimir Putin`s decision to annex Crimea and to support the separatists. The despair felt after 1937 led to the emergence of similar new terms then, too. In the late 1930s, people were also worrying about discontent in Europe, which had already powered the rise of Adolph Hitler and Benito Mussolini.


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