The Lastest Macroeconomic News
05.03.2015 22:25 The 15 most miserable economies in the world. Sorry, Venezuela
Inflation is a disease that can wreck a society, Milton Friedman, the late Nobel laureate economist, once said. Add rising unemployment to the diagnosis, and his profession ascribes a rather non-technical term to the debilitating effect on people: misery. That affliction this year will be most acute in Venezuela, Argentina, South Africa, Ukraine and Greece - the five most painful economies in which to live and work, according to Bloomberg survey data that make up the so-called misery index for 2015. (It`s a simple equation: unemployment rate + change in the consumer price index = misery.) In Ukraine`s case, war will exact greater economic casualties. Tension with Russia-backed rebels will prolong joblessness in the eastern-European nation, and inflation won`t offer much relief, the surveys showed. The one-two punch means Ukrainian consumers are set to be the fourth-saddest among 51 economies (including the euro area) based on forecasts for the misery measure. The three countries that will probably see the most economic misery in 2015 - South Africa, Argentina and Venezuela - haven`t budged much from their 2014 rankings, when they occupied three of the top four spots, the data showed. Greece is 5th, Spain is 6th, Portugal is 10th and Italy is 11th in this year`s ranking, though each show about average projected income levels relative to survey peers. (Ireland happily sits further down the chain at No. 16 in the misery ranking and with a much-better-than-average GDP per capita of US$48,787. The 51 economies in our misery index average GDP per capita of US$31,079.)
04.03.2015 21:19 Why Russia`s economy will not collapse
The rapid depreciation of the rouble, despite a dramatic – and seemingly desperate – late-night interest-rate hike by the Central Bank of Russia (CBR) in December last year, has raised the spectre of Russia`s economic meltdown in 1998. Indeed, the West has sought to animate that spectre in its ongoing confrontation with Russian President Vladimir Putin. But, though Russia`s economy is undoubtedly in trouble, a full-blown collapse is unlikely. Oil and gas account for more than 60% of Russia`s exports; other primary commodities make up much of the rest. Given this, the recent sharp decline in world oil prices obviously represents a major shock – large enough, when combined with the effect of increasingly strict Western sanctions – to provoke a sizeable recession. To make matters worse, commodity prices are expected to remain low for some time. In that case, the income loss would become much more than a temporary setback. But Russia is no economic basket-case-in-waiting – at least not yet. The situation today is very different from that in 1998, when Russia was running twin fiscal and current-account deficits. Russia needed to borrow, and it was borrowing heavily in foreign currency. This meant that as the ruble depreciated, Russia`s debts rose. Eventually, default became inevitable. By contrast, in recent years, Russia has enjoyed a sizeable budget surplus, and public debt is below 20% of GDP. It is true that income from oil and gas, which represents the bulk of government revenues, has been halved when measured in dollars.
26.02.2015 15:40 Russia`s Economy: Good, Bad, And Everything In Between
Rosstat, Russia`s state statistics service, released figures on January 2015 industrial production. They`re worth taking a close look at because they are an excellent example of how, when it comes to Russia`s economy, truth is largely in the eye of the beholder. On a macro level, the figures were OK. Total industrial production was up by 0.9% in comparison to January 2014. That`s not great, obviously, but considering the enormous pressure that Russia is under at the moment it`s actually a pretty decent figure. Things certainly could have been a whole lot worse. However, when you step one level down, from the total level of industrial production to the sector-by-sector breakdown, you immediately start to see a few problems. The first is that manufacturing actually shrank fractionally (0.1%) on a year-over-year basis. Meanwhile the extraction of natural resources and the total output of gas, water, and electric utilities grew by 1.5 and 1.2% respectively. What is clear, however, is that there isn`t any consistently positive, optimistic story to be told about the broader Russian manufacturing industry In the midst of a perfect storm for import substitution (e.g. a savage currency devaluation and sweeping restrictions on the purchase of foreign goods) Russian industry basically stayed in place. That`s not consistent with a thesis of “the whole rotten structure will soon come crashing down!” but nor is it consistent with a thesis of Russian dynamism.
22.02.2015 17:15 Russia`s Anti-Crisis Plan: Old Solutions To New Problems?
This past week, as the Russian ruble weakened again and the rating agency Standard & Poor lowered the country`s sovereign credit rating status to “junk,” the Russian government unveiled a 2.3 trillion ruble ($35 billion) “anti-crisis” plan. The Kremlin hopes this plan will lead the country out of its current recession. Earlier this week, Russian President Vladimir Putin assured the Russian public that plan will bring stability. “It [social stability] can only be achieved if acceptable parameters are preserved in the economy, first of all, it is linked with the budget, inflation, foreign debt, reserves, and so on,” he said, “This is all we have been rightly proud of in the recent years and it is called macroeconomic stability.” Yet Russian experts raise doubts. Their main critique is, the plan offers no new thinking to confront the current crisis, which is a different problem than the last economic crisis Russia faced in 2008-2009. According to FBK Institute for Strategic Analysis Director Igor Nikolayev, the plan`s authors “are acting about the same way as they had done six years ago – on the principle of `let`s pour money [on the problem], and then, maybe, everything will end, oil prices will bounce back again.`” The plan`s priorities, too, according to Nikolayev, are about the same as they were during the global financial crisis, but “you have to consider that this is a different crisis,” he said.
19.02.2015 14:32 Russia Economy Moves Further Toward Recession
Economic data published Wednesday showed Russia`s economy moving further toward recession under the weight of Western sanctions and a sharp decline in the price for oil, its main source of hard currency. Although the rate of inflation is slowing, a sharp decline in retail sales and a drop in real wages indicated that consumers are bearing the brunt of the economic pressure. The government expects gross domestic product to shrink by 3% in 2015, the first drop since 2009; many private economists expect a deeper contraction. The Wednesday data from the Federal Statistics Service RosStat showed a decline in domestic demand, which had been one of the main drivers of the economy for years, but has been hit by a drop in consumer confidence. The consumer-price index added another 0.4% in the week to Feb. 16, making an annualized inflation rate of 15.9%. However the weekly price rise was the lowest since mid-December, when a sharp ruble devaluation led to record high weekly inflation figures. Retail sales fell in January for the first time since 2009, while the decline in real wages was the steepest on record. Sales contracted by 4.4% year on year in January, and real wages fell by 8% from January 2014.
18.02.2015 14:49 Japan`s recession is over
Japan`s economy rebounded from recession to grow an annualized 2.2 percent in the final quarter of last year, giving a much-needed boost to premier Shinzo Abe`s efforts to shake off decades of stagnation even as the global outlook deteriorates. But the expansion was smaller than a 3.7 percent increase forecast in a Reuters poll, suggesting a fragile recovery for the world`s third-largest economy as consumer mood remained soft and uneven global growth weighed on exports. Still, the return to growth will allow the Bank of Japan to hold off on expanding monetary stimulus in coming months, even as slumping oil prices push inflation further away from its 2 percent target, analysts say. The data will be one of the key factors the BOJ will scrutinize at its two-day rate review ending on Wednesday, where it is widely set to maintain the current pace of asset purchases in its monetary stimulus program. The preliminary reading for gross domestic product (GDP), which translates into a quarter-on-quarter increase of 0.6 percent, follows two straight quarters of contraction blamed on the hit on consumption from a sales tax hike last April. External demand added 0.2 percentage point to growth in the quarter, a sign the weak yen was finally driving up exports. Private consumption, which makes up about 60 percent of the economy, rose 0.3 percent in the final quarter, less than a median market forecast for a 0.7 percent increase.
17.02.2015 13:59 Russian Inflation Is Getting Worse
Rosstat recently released a bunch of data on inflation through February 9th. It isn`t very surprising, but the numbers don`t look good. In fact, they look downright awful. Since the beginning of the year consumer prices in Russia have grown by a full 4.8%. No they haven`t grown at the rate of 4.8%, but by that actual amount. In comparison, by this time last year prices had grown by a mere 1.3%. It`s true that price growth in Russia is usually more rapid in the winter months (so linearly projecting the past month`s data for the full year wouldn`t be accurate) but it`s also true that 2015 is shaping up to be way worse than 2014′s already quite poor performance. When you start to dig into the report and look at specific foodstuffs the already ugly headline numbers start to look even worse. Rice prices grew by 2.3% in just the past week (they`ve grown by more than 15% since December) while fish prices were up by 1.9% and 10.4% respectively. Other items that have experienced double digit inflation since December include onions (29.8%), carrots (31.8%), cucumbers (38.9%), and cabbage (46%). Yes produce prices usually go up in Russia over the winter, but not by such huge amounts.
13.02.2015 14:45 Is Russia`s Economy Rebalancing In The Face Of Western Sanctions?
Ever since the West slapped punitive sanctions on Russia in response to its blatant military intervention in Ukraine, Pro-Kremlin commentators in the Russian media (i.e. almost all of them) have been making bold statements about their economy`s resilience. Russia, they say, will move swiftly and boldly into an import-substituting mode of development whereby domestic production entirely fills the void left by sanctions. Russia might even emerge from the crisis with a stronger economy than it had before! In this, rather curious, view of the world sanctions don`t punish Russia but only punish the West itself: Western firms will lose out on access to Russia`s substantial domestic market and, even if the sanctions are eventually lifted, they will find themselves facing a fundamentally changed reality in which they are unable to effectively compete with a new generation of Russian entrepreneurs. There was never a particularly good reason to believe this story. Russia`s business climate is simply far too troubled for an entire generation of entrepreneurs to emerge in the span of a few months, and the economy`s constantly-declining rate of growth has pretty clearly indicated that there wasn`t very much dynamism left. But Rosstat`s latest data shows just how poorly the thesis of “Russia will emerge stronger than ever” fits reality. Throughout 2014, Russia`s total industrial production grew by roughly 1.7%, while its total agricultural output grew by about 3.7%. Considering the scale of the ruble`s devaluation and the growing upward pressure on prices (inflation was more than 10% in 2014 and could be 15% or higher in 2015) these are hardly robust figures. In fact, they`re substantially worse than several of the, rather tepid, post-crisis years.
09.02.2015 22:40 Russia: How long until the economy cracks?
Russia is skating on thin ice: Cheap oil, Western sanctions and years of mismanagement have sent its economy into a deep freeze. Now everyone is wondering when the ice will crack. As things stand, Russian GDP is expected to shrink by 5% (or more) this year, inflation has soared to 15%, the ruble is trading near record lows, consumer and business sentiment is on the slide, and its companies are shut out of financial markets in the U.S. and Europe. Escalating violence in Ukraine could lead to new international sanctions, and there`s little sign of a significant rebound in world oil prices. So just how long can Russia avoid complete economic meltdown? Much will depend on how fast it burns through its remaining stash of foreign currency. Last year it spent $134 billion trying to prop up the ruble, bail out struggling companies and contain the crisis. That splurge cut its international reserves to about $376 billion, more than enough to finance a year of imports if necessary, but the lowest level since the depths of the global financial crisis in March 2009. Russia needs reserves for imports, but also to service $600 billion worth of foreign debt -- most of it held by Russian companies and banks. Depending on who you ask, the crunch could come by the end of this year, or it could hold out for another 12 months beyond that.
27.01.2015 17:00 Russian Economy Will Rally, But Won`t Boom
There is currently a lot of noise about the Russian economy and almost all of it is bad. Many commentators predict that a catastrophe lies ahead and the economic destruction will lead to social instability and eventually a political crisis. But is such a negative view really valid? And is it fair to say that the crisis is either all about sanctions or all about the oil price collapse? Let`s turn down the noise a bit and have a look at the key issues. How bad will the downturn get? A decline of about 5 percent over the first two quarters of this year is not an unreasonable expectation as consumer activity and investment spending have already collapsed. In addition, consumer inflation is expected to peak around 15 or 16 percent in the spring, with food inflation probably near double that. The prevailing uncertainty will also depress economic activity. But forecasts of a full year collapse similar to that of 2009, when gross domestic product contracted 8 percent, are wide of the mark based on currently known facts and trends. Oil trades will certainly be key but also, one must not forget that the ruble collapse is a two-sided story; the weak ruble has helped substantially cut imports and boost demand for some locally produced goods. People who are now unable to afford to travel abroad for leisure or health care will spend more at home. This trend is one reason why the manufacturing and agriculture sectors were much better in 2014 and helped keep the GDP indicator marginally positive at about 0.5 percent growth. That will also be the case this year and a more reasonable assumption is for a full year decline of about 3 percent.