The Lastest Macroeconomic News
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.
16.08.2014 11:43 Eurozone economy fails to grow in second quarter
The Eurozone`s economic recovery has shuddered to a halt, bolstering calls for the European Central Bank to take aggressive measures to boost growth and halt a slide towards deflation. Gross domestic product was flat in the second quarter of 2014, compared with growth of 0.2 per cent in the previous three months, according to official figures released on Thursday. Inflation fell to a four-and-a-half-year low of 0.4 per cent in July. Dismal performances from Germany, France and Italy - the core of the single-currency region - were responsible for the stagnation, while parts of the periphery beat expectations. Escalating geopolitical tensions with Russia damaged confidence in Germany, contributing to a 0.2 per cent fall in economic output – the first contraction since the end of 2012. The German economy accounts for almost 30 per cent of Eurozone GDP. France`s economy stagnated, while Italy has fallen into its third recession since 2008, meaning none of the Eurozone`s three biggest economies registered any growth in the second quarter. The Dutch economy grew 0.5 per cent after contracting between January and March, while Portugal and Spain expanded by 0.6 per cent. While the US and UK have surpassed their pre-crisis peaks, the currency bloc`s economy is still smaller than before the collapse of Lehman Brothers almost six years ago.
15.08.2014 14:44 Russian growth data masks likely recession to come
Russia appears for now to have escaped an economic contraction, but recession is still likely in the second half of the year as western sanctions over Ukraine bite, analysts warn. Preliminary gross domestic product data showed the economy growing by 0.8 per cent in annual terms in April-June, compared with 0.9 per cent in January-March. But the figure was flattered by one-off factors, and the outlook for the rest of the year is rocky as US and European Union sanctions - and Russia`s retaliatory ban on food imports - exacerbate a climate of weak investment, high borrowing costs and upward pressure on prices. Russia`s economic data are being closely watched to gauge the impact of the sanctions, imposed over Moscow`s annexation of Crimea and what western governments see as its failure to curb pro-Russian separatists in eastern Ukraine. The measures are aggravating a slowdown that was already evident in 2013: economists polled by Reuters at the end of July predicted just 0.3 per cent economic growth in 2014 as a whole, with a 0.5 per cent year-on-year contraction in the third quarter. The preliminary data did not provide an assessment of quarter-on-quarter growth, leading to continuing speculation over whether Russia managed to avoid a “technical recession” - two consecutive three-month periods of negative quarter-on-quarter growth. Answering that question depends largely on seasonal adjustment methods, a complex technical matter that leaves the question open until the more detailed data is published. Most analysts calculated that Russia had avoided a technical recession, but saw that as scant consolation for an economy that will still struggle to avoid a contraction in the second half of the year.
15.08.2014 11:48 Can the BRICS Dominate the Global Economy?
Brazil, Russia, India, China, and South Africa have thrown down the gauntlet at the feet of the West. Last month these five emerging economies launched a New Development Bank - nicknamed the "BRICS Bank" - that combines features of the World Bank and International Monetary Fund (IMF). Meanwhile, China has proposed an Asian Infrastructure Investment Bank (AIIB) that could compete with the Asian Development Bank (ADB). These initiatives represent the first serious institutional challenge to the global economic order established at Bretton Woods 70 years ago this summer. The psychology behind them is clear, as advanced countries have damaged their own credibility as responsible economic stakeholders in recent years and have failed to fully accommodate the rise of the new powers. Less clear is how much of a substantive improvement these new institutions will make to global governance - or even to the interests of the countries championing them. At first blush, it is difficult to take the new BRICS Bank seriously. The five founding members were brought together by little more than a clever acronym and a shared desire to send a message to the West. The differences among the five in economic heft, political orientation, and geostrategic interests are cavernous. Moreover, the initial paid-in capital of only $10 billion is a drop in the bucket compared to the development challenges the bank is intended to address. But the BRICS Bank reflects a real grievance on the part of the emerging world about the state of global economic governance, including the recurring financial crises emanating from the United States and Europe in recent years and the failure of advanced countries to reallocate "shares and chairs" to emerging economies in existing institutions such as the IMF. Moreover, if managed well, the BRICS Bank could make a useful contribution to global development. Yet it could also undermine the global rules-based system that has largely served the economic interests of the BRICS well over the past seven decades.
13.08.2014 11:38 Russia`s economy expands 0.8 percent in the second quarter of 2014
Russia`s economy grew by 0.8 per cent from April to June compared with output during the same period last year, a preliminary estimate by Russia`s statistics committee show. The figure is lower than a 1.2-per cent growth forecast reported by Russia`s economy minister in July, and slightly less than the 0.9-per cent annualized pace recorded in the first quarter. The Rosstat state statistics service did not provide a quarterly figure. The economy minister warned earlier that Russia could slip into recession, commonly defined as two successive quarters of economic contraction. Russia`s economy was already expected to slow from 2013`s disappointing growth figure of 1.3 per cent, the lowest reading since the 2009 global financial crisis, before Western powers unleashed punishing sanctions in July in response to Moscow`s defiant stance on Ukraine. The United States has prohibited three leading Russian banks from raising anything but short-term funding on US markets. The European Union also began imposing so-called sector sanctions, crimping access of Russian state-controlled banks to European capital markets. After the economy minister said he expected growth to reach 1.2 per cent from April to June, the government said it planned to raise its annual forecast from 0.5 to around 1.0 per cent. But in late July the International Monetary Fund slashed its estimate by 1.1 points to just 0.2 per cent growth.
12.08.2014 12:01 Eurozone Economy Weakened By Conficts In Ukraine And Iraq
Participants will measure the strength of the Eurozone`s fragile economy this week as escalating conflicts in Ukraine and Iraq darken the mood. In contrast to the US and UK, which are growing strongly, economic output in the Euro bloc came to a halt in Q-2. Its #1 economy, Germany, is losing momentum and Italy fell back into recession. The growing sanctions “contest” between Russia and the West over Moscow`s backing of rebels in Ukraine and US air strikes to block Islamist militants in Iraq are upsetting the markets. To compound matters, tit-for-tat sanctions between Moscow and the European Union and fears that Russia could even invade eastern Ukraine are already sapping business confidence and will eat into paltry economic growth later this year. Not only does Moscow supply about at least 33% of the European Union`s Nat Gas need, trade ties in other areas between Russia and Europe run deep. German energy giant E.ON SE, for instance, has invested EUR 6-B ($8-B) since Y 2007 in Russia, while chemicals firm BASF has a joint venture with Gazprom. The market has been ignoring the geopolitical risks for some time now. The escalation in Ukraine and a spiral of sanctions could be a turning point. Exports to Russia were falling even before Ukraine and could fall further. The Iraq crisis increases nervousness.
11.08.2014 15:10 Global economy one shock away from another crisis
Fathom Consulting warns that world is sliding towards its next "Minsky moment", with biggest risk stemming from China. The world is sliding towards another debt-ridden disaster, with the Eurozone and China one shock away from a fresh crisis, according to a leading economics consultancy. Fathom Consulting, which is run by former Bank of England economists, said current levels of low volatility masked systemic risks in the global financial system. Danny Gabay, director of Fathom, said an oil price shock would be enough to trigger a "hard landing" in China as growth slowed, house prices plummeted and the country`s already huge amount of non-performing loans soared. Mr Gabay drew parallels between China today and America in 2006, when a number of households began to default on their sub-prime mortgages but authorities played down the potential impact on the rest of the global economy. He said a spike in the oil price to $150 a barrel, from current levels of around $105, would knock around two percentage points off headline growth in China. "There are certain markets that cause us concern," said Mr Gabay. "China is way out in front." Fathom also said high levels of non-performing loans in the eurozone posed a threat to the 18-nation bloc, while a strong euro and contracting private sector credit would push the eurozone into deflation within the next 12 months. Charles Goodhart, senior economic consultant at Morgan Stanley and a former Bank of England rate setter, compared Fathom`s assessment of global risks to the ideas of Hyman Minsky, who believed that "stability is destabilising" and the global financial system itself could generate shocks because of investor complacency. "When you have so much stability, particularly at very low yields, what everyone does is they reach for yield, and they take on riskier and riskier positions. When something causes the balloon to blow up, then you`re in real trouble," said Mr Goodhart.
08.08.2014 14:49 Graham: Russia has an economy the size of Italy
While the fighting in Ukraine stirs memories of the Cold War, there`s little appetite in the United States to get into a military showdown with Russia. Where`s there`s bipartisan support is to get Europe to take stronger stand. Sen. Lindsey Graham, R-S.C., said on CNN`s State of the Union Sunday that President Barack Obama should be getting the European Union nations into line. "They`re dysfunctional political organization, Europe is," Graham said. "And without American leadership organizing Europe and the world, you see people like (Russian President Vladimir) Putin, who has an economy the size of Italy -- he`s playing a poker game with a pair of 2s and winning." Really? Russia is the world`s second-largest producer of natural gas and the third-largest producer of oil, and it has an economy the size of Italy? In terms of nominal GDP, Graham is correct. But if you run the numbers a different way and measure purchasing power parity, Russia`s economy is larger than Italy`s. Graham`s statement is accurate but needs additional information. We rate his claim Mostly True.
28.07.2014 13:35 Harsher Sanctions Would Cost Russia 0.3% of GDP
An upsurge in international tensions and further sanctions slapped on sectors of the Russian economy over the country`s annexation of Crimea from Ukraine would cost Russia 0.2 to 0.3 percent of the GDP this year, according to Russia`s Finance Ministry. But longer-term implications could be broader, crippling the country`s much-needed modernization drive and hampering Russia`s ability to emerge from an sharp economic slowdown, the ministry said in a budgetary policy outline for 2015-2017 published on its website. In the international furore that followed Russia`s land grab in March, the European Union blacklisted about 60 Russian top officials, businessmen and companies, while the U.S. sanctioned some 50 names, banned cooperation in the nuclear and space industries and restricted the sale of hi-tech products to Russia. Broader sanctions against whole sectors of the Russian economy, including its main staple, oil and gas, have been threatened, but not implemented. Skeptics said such sanctions would backfire against the EU, Russia`s leading trade partner which is also heavily reliant on Russian petroleum exports. The ministry`s forecast assumes no "sectoral" sanctions will be imposed. Broad damage has been done, however - the spike in uncertainty has sent the perceived risks of operating in Russia skyrocketing, leading Western banks to shy away from the country, while many companies not already tied into Russia have put investment plans on hold. The value of syndicated loans granted to Russian commodities producers plummeted by 82 percent to $3.5 billion in the first half of this year, Bloomberg reported. Russian economic growth has been sputtering since 2012, and the country entered technical recession in the first half of 2014, according to HSBC, though official statistics indicated GDP growth of 1.1 percent between January and May.