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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.

19.09.2014 13:59 Here`s What The Global Economy Looked Like In Year 1

Have you ever wondered what the economy looked like in the year 1 AD? Deutsche Bank released a note that included a chart of major global economies in the first year of the common era. They`re ranked by "economic power," which is measured in terms of economic output compared to the total world output. Unsurprisingly, Augustus` Roman Empire ranked first. It controlled slightly over 25% of total world output. Rome`s largest competitors, Parthia (whose modern territory is roughly modern day Iran) and Germany controlled only 2% and 1%, respectively, of the global economic output. Deutsche Bank`s note added that, "whilst economic output is not the only important variable in understanding the ability of a nation or empire to exert global power, it is probably the most important basic element as it determines the total pool of resources that can be devoted to war." "Here the `world` is defined as the empire`s contemporaries would have thought of it - as Western Europe, North Africa and the Middle East," bank said. As you can see from the chart, certain empires such as China under the Han Dynasty are excluded.

16.09.2014 19:16 Un Projects 2.5-3% Growth For World Economy In 2014

The global economy is forecast to grow by 2.5 to 3 percent this year, with growth in Asia and sub-Saharan developing economies in excess of 5.5 percent, suggesting they will become the main drivers of the world economy, the UN said. UNCTAD, the UN`s trade and development arm`s annual trade and development report was presented by the UN Development Program`s Resident Representative Kamal Malhotra in Ankara. The Geneva-based think tank calls for major changes in the way the global economy is governed and managed. The report examines the health of the global economy and asks whether current conditions and policies are fit to sustain growth and support an ambitious development agenda after 2015. It calls for more policy coordination at global level and more policy and fiscal space for developing countries to pursue an inclusive and sustainable trade and development agenda. The report argues the global recovery remains weak, while the policies supporting it are not only inadequate but often inconsistent. Six years after the onset of the global economic and financial crisis, the world economy has still not found a sustainable growth path, the report argues. The report forecasts that developing economies as a whole are likely to repeat the performance of previous years, growing at between 4.5 and 5 percent. The growth will exceed 5.5 percent in Asian and sub-Saharan countries, but will remain subdued at around 2 percent in North Africa and Latin America and the Caribbean. The report added that international capital flows usually generate a financial cycle in the receiving countries and often increase their financial fragility, eventually leading to a financial crisis.

12.09.2014 14:34 A Western Strategy for a Declining Russia

The Aspen Strategy Group, a non-partisan group of foreign-policy experts that former US National Security Adviser Brent Scowcroft and I co-chair, recently wrestled with the question of how to respond to Russia`s actions in Ukraine. And now NATO is wrestling with the same question. While the West must resist Russian President Vladimir Putin`s challenge to the post-1945 norm of not claiming territory by force, it must not completely isolate Russia, a country with which the West has overlapping interests concerning nuclear security, non-proliferation, anti-terrorism, the Arctic, and regional issues like Iran and Afghanistan. Moreover, simple geography gives Putin the advantage in any escalation of the conflict in Ukraine. It is natural to feel angry at Putin`s deceptions, but anger is not a strategy. The West needs to impose financial and energy sanctions to deter Russia in Ukraine; but it also must not lose sight of the need to work with Russia on other issues. Reconciling these objectives is not easy, and neither side would gain from a new Cold War. Thus, it is not surprising that when it came to specific policy recommendations, the Aspen group was divided between squeezers and dealers. This dilemma should be put in long-term perspective: What type of Russia do we hope to see a decade from now? Despite Putin`s aggressive use of force and blustery propaganda, Russia is a country in decline. Putin`s illiberal strategy of looking East while waging unconventional war on the West will turn Russia into China`s gas station while cutting off its economy from the Western capital, technology, and contacts that it needs.

09.09.2014 17:34 Why Putin`s Russia is weaker than the USSR?

Since Russia invaded Ukraine, there`ve been a lot of comparisons between Putin`s Russia and the Soviet Union. There`s a lot wrong with that comparison, starting with one fairly obvious point: the Soviet empire wasn`t just Russia. The Soviet republics in the USSR itself and the "Iron Curtain" client states in eastern Europe were key contributors to Soviet power. And Putin can`t draw on them in nearly the same way as his Soviet predecessors. To see just how much that matters, check out this chart of former Soviet-aligned economies from JP Morgan. Michael Cembalest, the investment firm`s Chairman of Market and Investment Strategy, put together a list of important economic indicators for each country - GDP, trade rate, etc. This isn`t a trivial amount of wealth: Cembalest notes that, together, these countries roughly equal Russia`s current GDP, and their trade volume is 2.5 times larger. What he found is that the bulk of economic power in the former communist bloc now isn`t Putin`s to command, and often is aligned against him. Most of that power is now in NATO and/or EU countries, like Poland and the part of Germany that used to be East Germany, or countries where Cembalest judges Russian influence to be fairly limited.

29.08.2014 18:27 Russia`s Economy Close To Recession With Sanctions, Food Import Ban

Russia`s economy is creeping closer to recession, officials said, while Western sanctions over the Ukraine conflict strangle growth and push up inflation. The economy is close to recession, Oleg Zasov, head of forecasting at Russia`s economic ministry, told Russian news agencies. The ministry halved its 2015 growth forecast from 2 percent to 1 percent and upped its inflation forecasts, among key economic indicators that the government relies on for budget planning. Citing a ban on Western food imports, introduced by Russia as retaliation for Western sanctions related to the ongoing Russia-Ukraine conflict, Deputy Economic Development Minister Alexei Vedev said at a briefing that inflation is likely to end the year at 7 percent to 7.5 percent, up from a previous forecast of 6 percent. Price levels in the U.S. rise at about 2 percent a year, considered healthy by economists. Vedev also said a new sales tax coming next year could add another 1 percent to the inflation rate. The ministry forecasts growth of 0.5 percent this year, down from the prediction of 1 percent last month, when the West imposed its first sanctions targeting particular sectors of Russia`s economy as punishment for supporting pro-Russian rebels fighting in eastern Ukraine. In 2013, the Russian economy grew by 1.3 percent. Economists polled by Reuters in late July, before Russia`s food import ban, forecasted economic growth of 0.3 percent this year and 6.5 percent inflation. Falling oil prices, which had risen on geopolitical tensions, are also hurting Russia`s economy, a heavy oil exporter. Russia`s benchmark Urals oil fell to $98 a barrel this week, its lowest level since May 2013 and down from $115 a barrel last month, according to OilPrice.com and Russia Beyond the Headlines.

28.08.2014 13:40 When China`s economy will overtake America`s?

LESS than two centuries ago, China was far and away the world`s biggest economy. It accounted for more than 30% of global GDP in 1820, according to estimates by Angus Maddison, a late economist. Its share dwindled in the 19th century as the industrial revolution propelled Europe and America rose up. The 20th was even less kind to China, riven by invasion, civil war and a lurch to communism. Thanks to a furious 35 years of market reforms, it is only a matter of time before China reclaims its spot as the biggest economy of all. Our essay this week"What China wants"argues that China now also craves the respect it once enjoyed, but does not know how to achieve it. China`s path to being the world`s biggest economy is, by contrast, much clearer. In December 2010 we introduced an interactive chart that allows you to make your own prediction of when China`s economy will overtake America`s. There are a variety of ways to compare economies. Our chart looks at their GDP in current dollars at market exchange rates. The timing of China`s ascent thus depends on five things: its own growth, America`s growth, the evolution of prices in each country, and the exchange rate between them. Based on this combination of assumptions, China would overtake America as early as 2019. We are now four years into that forecast. How have we done? In the spirit of transparency that we urge of other would-be economic fortune tellers, we admit to being a little off, though not, it must be said, by much. It now looks like America`s eclipse will come two years later than initially anticipated.

24.08.2014 12:58 Five Things to Know About the Global Economy Right Now

Things could be worse, right? Having shaken off the jitters that saw shares drop at the end of July, the major markets have been enjoying another period of relative stability. Apart from Argentina`s comic default and a few geopolitical flare-ups, little has happened to raise fears of another crash. The unemployment rate has been falling steadily -- if slowly -- in the United States, Eurozone, and even Japan, where more people are also joining the labor force. Domestic demand has returned even as the fringes of the global economy have frayed. But is there a storm around the corner? Here are a few things to keep in mind as we look to the next couple of years: 1. The Federal Reserve is not out to surprise anyone. 2. The Eurozone is still in trouble. 3. Japan is a wildcard in global credit markets. 4. China has an enormous opportunity to grow. 5. Emerging market acronyms are marketing tools. Despite sanctions on Russia, belligerence in East Asian waters, chaos in the Middle East, and other distractions, the biggest wheels in the global economy have continued to turn. Even as the companies that move markets have expanded around the world, investors and executives have become more adept at insulating themselves from temporary hotspots. Insurance, hedging using derivatives, the globalization of purchasing, and the proliferation of transport options have all helped. But geopolitical troubles still constrain growth and make it tougher to establish new business relationships. If things ever settle down, the world will be wealthier still.

23.08.2014 12:17 Russian sanctions start to bite as growth forecasts are downgraded

Six months after the confrontation over Ukraine first blew up, the damage is starting to be counted in dollars, euros and roubles. And as Russian foreign minister Sergei Lavrov met his counterparts from Ukraine, Germany and France, he will have been aware that it is Russia that has most to lose from a protracted economic stand-off with the west. The effects of successive rounds of sanctions on the Russian economy are starting to trickle down, even if there are loopholes and exceptions aplenty in the measures. Foreign banks have tightened credit for all Russian companies, even those not featured on any government`s blacklist. Retail prices are rising on the back of Russia`s retaliatory ban on European foodstuffs. Growth is anaemic, the business elite twitchy. The Royal Bank of Scotland, which is 81% owned by the British taxpayer, has restricted lending to Russian companies across the board, while Dutch bank ING is also looking to reduce its Russian loan book. Banks, especially those bailed out by the taxpayer and still battling to restore tarnished reputations, are nervous about lending to Russia, although oil companies don`t share those qualms about doing business in Moscow. As a result, not a single US dollar, euro or Swiss franc was lent to a Russian company in July, according to Bloomberg research, the first time since the depths of the financial crisis that Russian companies have faced such a credit drought. Timothy Ash, head of emerging market research at Standard Bank, said if the west was really serious it would have banned trading of Russian bank debt on secondary markets, closing a loophole that allows Russian bank debt to remain a valid asset. Ash thinks sanctions will weigh on the Russian economy, without causing imminent panic. "Are you going to see a financial crisis in the short-term? Probably not on the back of this. Does the west have the capability to do that? Absolutely. Do they want to? Clearly not." But the tightening of credit cascades around the economy like falling dominoes: big Russian companies, sensing reluctance from western creditors, turn to Russian banks for loans. They in turn go to the central bank, which reacts by raising interest rates. Higher interest rates help prop up the rouble, but make it more expensive to pay off debts, so Russian consumers begin to rein in spending. Just as credit is becoming more expensive, Russian shoppers face higher grocery bills, after Vladimir Putin banned food imports in retaliation against western sanctions. Although pictures of empty shelves once laden with Parmesan and Brie are doing the rounds on Russian social media, there are no 1980s-style shortages. But most economists and the Russian government expect food prices to rise, a setback for Russia`s long-running struggle to tame inflation. While other state firms are expected to join the queue for a share of the state`s cash pile, economists have been downgrading their growth forecasts. The International Monetary Fund, which has said Russia is already in recession, expects Russia to grow by 0.2% this year. This is actually worse than it sounds. Russia is still a developing economy, with 18 million people below the poverty line (13% of the population). Putin, who is looking to run for president in 2018, wants Russia to grow like China, with its 7.5% growth rate, not France, which is flatlining.

21.08.2014 12:43 UK economy winning global growth race

The UK`s economy has performed better than that of any other G7 state in the year running to the end of June. Official estimates of growth were revised up to show that output was 3.2pc higher in the quarter to the end of June, compared with the same period a year earlier. The UK`s performance contrasts starkly with its developed world peers. With growth in the period revised up from 3.1pc, the economy is expanding at its fastest pace since 2007. Only Canada is yet to report growth for the second quarter, and it appears unlikely that it will knock the UK off the top when it does, on August 29. "All the signs are that the UK economy is growing strongly across a board base", said Michael Saunders, the chief UK economist at Citigroup. The Office for National Statistics` (ONS) estimate of the UK`s quarterly growth remains unchanged, at 0.8pc. The revised estimate of UK growth saw some tweaks to key components of output in the second quarter. Industrial production`s expansion was revised down from 0.4pc to 0.3pc, and construction output`s fall has been upwardly revised from a 0.5pc contraction to flat. Output in finance and insurance fell by 1.3pc over the past year. Over the same period, wholesaling and retailing saw growth of 5pc, while output from professional, scientific, administrative and support services jumped by an "astonishing" 9.3pc. Rob Wood of Berenberg said that he expected that growth "could well get more lopsided in the near term". The UK`s manufacturing sector is "internationally exposed", said Mr Wood, with geopolitical tensions over Ukraine weighing on production. Berenberg forecasted that UK GDP would grow at 3pc this year, accelerating to growth of 3.2pc in 2015.


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