A very Happy New Year to all you econo-doomers. 2019 shaping up to be packed with incident and quite possibly the crucible for Global Financial Crisis 2.0. Watch this space!
“A decade ago, China played a vital role in rescuing the world economy from the financial crisis by launching an unprecedented Rmb4 trillion ($833 billion) stimulus programme. Today, the fear in markets is the opposite. Already unnerved about rising rates in the US and slowing growth in Europe, many investors now worry that China could lead the global economy into the next recession…
“A warning from Apple on Thursday about slowing iPhone sales in China has heightened concerns following a drumbeat of grim economic data, including outright declines in auto sales, home sales and factory profits…
“”Domestic sentiment is definitely very bad, perhaps even worse than during the 2008 global financial crisis,” says Fred Hu, founding partner of Primavera Capital, a Hong Kong-based private equity group, and former Greater China chairman for Goldman Sachs.
“”In theory, China has wide latitude to boost domestic demand to offset the trade war hit on external demand. But with sagging business and consumer confidence, private spending on both capital expenditure and personal consumption is more likely to trend down.”
“The signs of decelerating growth are by no means confined to China. Five advanced economies including Germany and Japan recorded contractions in the third quarter. In the US, almost half of US chief financial officers surveyed by Duke University believe the economy will be in recession by the end of 2019, and 82 per cent expect a recession by the end of 2020. In addition, the pent-up effects of nine quarter-point interest rate increases by the Federal Reserve may drag on the US economy.
“But even more than these concerns, the question that is hanging over global markets is just how vulnerable is China to a much sharper slowdown?
“Ominously, the recent downturn has occurred even though the expected hit to Chinese exports from the trade war has not yet materialised. In fact, analysts say exports probably received a one-off boost in recent months as traders front-loaded shipments to beat the expected tariff rise from 10 per cent to 25 per cent that US president Donald Trump threatened would take effect in January…
“”They [Beijing] will soon have no choice but to launch massive stimulus,” says Alicia García Herrero, chief Asia Pacific economist at Natixis in Hong Kong. “They do not want to give away their credibility because they said they wouldn’t do it, but there is no time to be cautious any more. Not having growth is ultimately the worst outcome of all.””
“China’s foreign debt has been rising rapidly, and that’s becoming an increasingly big problem — for the country and, potentially, the world…
“Short-term debt accounted for 62 percent of the total as of September, according to official data, meaning that $1.2 trillion will have to be rolled over this year. Just as worrying is the speed of increase: Total external debt has increased 14 percent in the past year and 35 percent since the beginning of 2017.”
“Factory activity weakened across much of Europe and Asia in December as the U.S.-China trade war and a slowdown in demand hit production in many economies, offering little reason for optimism as the new year begins.”
“Australia has not seen a recession since the June quarter of 1991 but if house prices can be a harbinger of economic wellbeing, storm clouds are gathering…
“But Sydney house prices have recently recorded their biggest monthly fall for 14 years. Melbourne is close behind and the OECD has told the Australian government to prepare for a hard landing in the housing market.”
“Latin America is reaching the end of its fifth consecutive year of anemic economic growth.
“From 2014 to 2018, annual GDP growth has averaged just 0.5 per cent, slower than during the first five years of the Latin American debt crisis (1981-85) and the five that followed the 1997 Asian financial crisis (1998-2002). It is safe to say that Latin America has suffered a “lost half-decade.””
“Analysts think the drop in price is due to depressed demand of the input due to depressed consumption as the demand for energy is expected to fall even more than the reduction in production that Opec and other countries will implement.
“Most experts predict the recession- a period of temporary economic decline during which trade and industrial activity- are reduced. And while the global economy is yet to experience a fall in GDP in two successive quarters, the signs are already on the wall.”
“Further signs of a cooldown in the eurozone economy emerged on Friday, weighing on expectations that the European Central Bank will start raising interest rates this year. Inflation across the 19-country currency union fell in December to an eight-month low in the wake of the recent slump in oil prices.”
“Britain could suffer a Donald Trump-style Government shut-down under a Remainer plot to block a no deal Brexit.
“Remainer Tories are joining with Labour and Lib Dem MPs to back changes to a key piece of legislation to bind the Government’s hands if Theresa May refuses to take no deal off the table.”
“Britain’s household debt mountain has reached a new peak, with UK homes now owing an average of £15,385 to credit card firms, banks and other lenders, according to the TUC.
“The trade union body said household debt rose sharply in 2018 as years of austerity and wage stagnation forced households to increase their borrowing.”
“[UK] Retail sales fell in December as a last-minute surge in trading and discounting failed to save embattled high street chains from their worst year on record.
“Store sales dropped 1.9% last month year-on-year, the sixth successive December to record negative sales growth, according to the high street sales tracker from accountants BDO.”
“British new car sales in 2018 fell at their fastest rate since the global financial crisis a decade ago, hit by a slump in demand for diesel, stricter emissions rules and waning consumer confidence due to Brexit, according to an industry body.
“Demand dropped by nearly 7 percent last year to 2.37 million vehicles, the largest fall since registrations nosedived 11.3 percent in 2008, preliminary data from the Society of Motor Manufacturers and Traders (SMMT) showed.”
“Trade frictions, risks linked to Britain’s possible departure from the European Union this year without a deal and weaker growth in emerging markets are putting the brakes on a nine-year upswing in Europe’s economic powerhouse.
“German industrial orders fell more than expected in November, data showed, adding to a slew of recent indicators showing Germany’s exporters are suffering from the trade dispute between China and the United States.”
“Renata is just one of 863,000 Czechs – out of a population of 10.6 million – facing paralysing demands after debt collectors ordered their bank accounts frozen and their incomes slashed on behalf of creditors determined to pursue outstanding dues regardless of ability to pay.
“Some 150,000 people have 10 or more outstanding debts for amounts they can never hope to pay. Many face inflated fines for not having valid tickets on public transport, often when they were children.”
“Federal Reserve officials, after navigating the U.S. economy through the financial crisis and its rebound, face a fresh test in 2019: engineering an economic soft landing.
“The central bank’s challenge is to manage a moderation in growth that keeps inflation contained but avoids a recession. It was a main topic at an annual economic conference in Atlanta this weekend that featured top current and former Fed officials.”
“If oil producers are not hiring service firms and deploying equipment, that suggests they are rather price sensitive. The fall in oil prices forced cutbacks in drilling activity.
“Oilfield service firms in particular are bearing the brunt of the slowdown. Executives from oilfield service firms told the Dallas Fed that their operating margins declined in the quarter… early data points already suggest that the U.S. shale industry could struggle if WTI remains below $50 per barrel. But the longer WTI stays low, the more likely we will see a broader slowdown.”
“Behind Apple’s disconcerting news of weak iPhone sales lies a more sobering truth: The tech industry has hit Peak Smartphone, a tipping point when everyone who can afford one already owns one and no breakthroughs are compelling them to upgrade as frequently as they once did… it’s not just Apple. Demand has been lacklustre across the board…”
“…the three years from 2014 were characterised by falling oil and commodity prices, which moderated inflation. This gave the global economy a boost it desperately needed, albeit at the expense of oil- and commodity-exporting nations – and the environment. The boost faded in 2017 and left 2018 as a particularly unspectacular year – except in the US, where Donald Trump’s tax cuts more than made up for lacklustre global trade and fed a consumption boom.
“As 2019 gets under way, things look very different. Consumer debt has risen back to pre-crisis levels in many countries. Corporate borrowing has soared and governments, while they have reduced annual deficits, continue to sit on mountains of debt that dwarf the borrowing seen before the crisis.”