The Lastest Macroeconomic News
24.05.2014 13:30 World Cup won`t lift Brazil`s economy
Hosting the World Cup might provide a small boost to Brazil, but it won`t be enough to snap the country`s economy out of its current funk. Once tipped as one of the brightest emerging economies, Brazil has seen growth fall off a cliff in recent quarters as long-term problems bubbled to the surface. Its workers are unproductive, infrastructure spending lags and protectionism remains in vogue. Elevated inflation has forced the central bank to hike rates several times, and the country`s credit rating was cut by Standard & Poor`s to one notch above junk in March. Brazil`s Bovespa stock market index has dropped more than 7% in the past year, falling faster than emerging market benchmarks. Enter the World Cup, the world`s biggest sporting event complete with millions of tourists and mega corporate sponsors. To capitalize on the spotlight, Brazil is spending an estimated $11.5 billion on new stadiums, transportation and airports. Seeking to justify the extravagance, politicians promised that the event would bring huge economic benefits and improved infrastructure. Many Brazilians are skeptical about these claims. Thousands took part in street protests and riots during last year`s Confederations Cup, the top soccer tournament in the Americas. Some said they were upset with lavish spending on sports events at the expense of the social safety net in a country beset with gross inequality. Brazilians are right to doubt the economic benefits of hosting the World Cup, according to a report by Moody`s Investors Service. The credit rating agency argues that new infrastructure spending associated with the event is small for the $2 trillion economy, and benefits to businesses will be fleeting. "We see little impact on Brazil considering the limited duration of the World Cup and the size of the country`s economy," Moody`s said.
23.05.2014 14:44 Russia`s industrial output rose by 2.4 percent in April
Russia`s industrial output rose by 2.4 percent in April, nearly triple the expected rate, surprising analysts after signs that Western sanctions imposed over the annexation of Crimea were weighing on the economy. The rise was spurred mainly by production of goods usually targeted at the domestic market, such as foodstuffs and textiles. Output of Russia`s main exports, such as oil and gas, was weaker, with oil production rising 1.3 percent and natural gas production falling 6.7 percent, compared to a year ago, data released by the State Statistics Service showed. Overall extraction of natural resources rose 1.1 percent, however, improving from 0.6 percent growth in March. Manufacturing output was up 3.9 percent and utilities down 1.9 percent. Production of some foods, such as butter, rose by nearly a third, while output of jackets was up by nearly two-thirds. Steel manufacturing rose modestly, with iron production up 1.5 percent in annual terms. But the auto industry saw mainly declines, with passenger car production falling 0.2 percent and down 28.2 percent for buses. The overall industrial output figure for April far outstripped the 0.9 percent growth expected by analysts polled by Reuters and a manufacturing poll done by HSBC, which saw manufacturing activity shrinking for the sixth month in a row.
22.05.2014 13:33 Gazprom goes to China, Russia`s economy rejoices
Russian President Vladimir Putin has been visiting China. The result? The two countries are reported to have struck a $400 billion deal in which the Russian gas company Gazprom will supply energy-hungry China. Gazprom is a company. It has a CEO, Alexei Miller, and you can buy its stock. But ownership is a combination of private and public, and Keith Crane, director of the Rand Corporation`s environment, energy and economic development program, says a little over half the shares are owned by the state and the state calls the shots. “Gazprom`s key asset is the fact that if you`re a gas producer in Russia, there`s only one company you can sell your gas to, and that`s Gazprom.” The company, says Crane, has something of a reputation. "It`s highly corrupt, and a lot of money leaks out of the country into the hands of various officials and individuals so I would not invest in it,” he says. That`s one reason why, he notes, this deal with China is so important. Then, there`s the European problem. With the tension between Russia and Ukraine, through which most Russian gas moves, European countries are looking for alternative sources. Andy Kuchins, director of the Russia and Eurasia program at the Center for Strategeic and International Studies, says the European market for Russian gas is growing a lot more slowly. “China is the largest growth engine, it`s the fastest growing consumer, and importer of hydrocarbons, oil and gas,” he says. And, Kuchin notes, while oil makes up a large part of Russia`s revenue, keeping natural gas prices low, for production and heating costs, is critical for the country`s domestic economy. "A good way to think about it is that for the Russians, they`ll say, `That`s oil, that`s dengi, that`s money. But for gas, `That`s khleb, that`s our bread,`" he says. Kuchins says Gazprom probably has rights to over 15 percent of the gas reserves in the world. And since it shares a border with China, this deal for gas should be a win for both countries.
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.
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