“Growth is sputtering all over the world. Germany and the U.K. have both reported that their economies shrank in the second quarter, and signs of a slowdown are apparent in lots of other places. But as central bankers gather in Jackson Hole, Wyoming, and government leaders in Biarritz, France, to discuss what to do, it seems worth pointing out how slow growth already was in most rich countries even before the recent bad news…
“We aren’t really back in the Middle Ages. But per-capita GDP growth in wealthy countries does seem to have slowed to a much slower pace than in the 20th century, and possibly at any time since the dawn of the Industrial Revolution. Add to this the fact that population isn’t growing much in these countries, and in some cases is actually shrinking, and you have at least part of the explanation for why interest rates are so low and politics so weird these days. The growth that we’ve gotten used to over the past two centuries or so just hasn’t been there lately.”
The U.S. manufacturing PMI (purchasing managers index) was 49.9 in August, below the neutral 50.0 threshold for the first time since September 2009, according to IHS Markit. “
“New orders received by manufacturers dropped the most in 10 years, while the data also showed export sales tanked to the lowest level since August 2009, the data show.”
“Turns out hiring wasn’t nearly as strong in 2018 and early 2019 as the [US] government initially reported — by about a half-million jobs…
“The newly revised figures indicate the economy didn’t get a huge boost last year from President Trump’s tax cuts and higher federal spending. They also signal the economy is a bit weaker than previously believed.”
“The loosening of the Volcker rule announced this week opens the door to a rebound in risky behaviour on Wall Street, proponents of the initial legislation have warned, even as investors and analysts insist there will be little impact on bank profits.”
“Argentina will not allow a chaotic fall in the peso and will use its dollar reserves to bolster the currency against political uncertainty that has swept the country since the Aug. 11 primary election, Treasury Minister Hernan Lacunza said on Wednesday…
“”We will not allow an irrational run on the currency. That’s why we have international reserves,” Lacunza told local radio station Mitre in an early morning interview, less than 24 hours after being sworn in as treasury chief.”
“The Brazilian Central Bank began auctioning, on Wednesday, August 21, US$200 (R$800) million dollars from its currency reserves to stabilize the increasingly volatile exchange rate.
“This type of operation had not taken place since February 2009, when the global economic crisis reached its peak due to the collapse of subprime lending in the U.S. housing market.”
“A report from the Confederation of British Industry (CBI) has found that retail sales volumes and orders both fell at their sharpest rate since December 2008 in the year to August. Companies in the retail sector are also expecting further trouble in the months ahead, with industry sentiment falling to its lowest levels in more than a decade.”
“Germany had a black Christmas in 2008. Three months after the collapse of Lehman Brothers, triggering the global financial crisis, the Bundesbank warned Germans to prepare for the worst.
“The country was facing a slump of 0.8 per cent, the Frankfurt central bank forecast, one of its worst economic declines since the 0.9 per cent slump during the 1975 oil crisis.
“A decade on, there is a whiff of deja vu in Germany…”
“Italy’s president has given the country’s main political parties four more days to negotiate the formation of an alternative government after the collapse of the stormy alliance between the far-right League and anti-establishment Five Star Movement…
“Sergio Mattarella said on Thursday night that the crisis must be “resolved quickly” and that without a solid majority the only other option would be new elections.”
“Eurozone central bankers had worried that an economic slowdown hitting the bloc would drag on, as they prepared the ground for a new package of stimulus measures, according to minutes of their July meeting published Thursday.
“In a pessimistic reading of the outlook for the single currency zone, the bankers noted that “there was now an increased likelihood that the economic slowdown…”
“…the Swedish krona has weakened from 10.12 per euro to 10.85, in turn its weakest since 2009 when it managed a record 11.79 in the financial crisis; targets were given in the article. Against its Norwegian counterpart, it shrivelled from 1.02 to 1.10 krona per Nokkie krone. Likewise, against the US dollar, where at 9.70 per greenback it’s at its weakest since the tech stock bust in 2001, when one needed 11.05 krona. I feel we’re likely to match these record highs this year.”
“Sweden’s Finance Minister Magdalena Andersson believes the country is entering an economic downturn, Swedish news SVT reported on Thursday.
“”We have seen that several of the risks we pointed to have increased during the summer, such as both the trade dispute between China and the U.S., and a no-deal Brexit,” Minister Andersson said.”
“Rajiv Kumar says India is facing such an economic downturn for the first time in 70 years, a liquidity crisis wherein lenders have stopped funding businesses, resulting in a situation where they have to survive on cash…
“Niti Aayog Vice-Chairman Rajiv Kumar has said the ongoing financial crisis in India is “unprecedented”. He said the government must take steps to handle the ongoing economic slowdown.”
“With India’s auto sales declining for the ninth straight month in July, more automotive manufacturers are laying off workers and temporarily halting production to keep costs in check, according to sources and documents seen by Reuters. Japanese carmaker Toyota Motor (7203.T) and South Korea’s Hyundai Motor (005380.KS) are the latest in a string of companies to halt production at plants to combat slumping sales…”
“The world’s second biggest economy, which is slowing, is past a point where it cannot ignore its enormous debt anymore, according to an analyst…
““China is very much past the tipping point where the debt simply no longer can be ignored. The cost of servicing the debt … simply distracts from almost everything else…””
“China’s currency the renminbi has fallen to its lowest level against the dollar in 11 years in a move likely to anger US President Donald Trump, who earlier this month accused Beijing of currency manipulation… The trade war has hurt China’s currency, which has in turn affected other emerging market currencies.”
““Retail sales are particularly badly affected and mainland tourism has fallen,” says Capital’s Julian Evans-Pritchard. “Four per cent of Hong Kong’s GDP is from tourism and 75% of tourists are from the mainland and they’ve stopped going because of the way the protests are portrayed there.
“We see this continuing deep into [the third quarter] with a technical recession – the first since the global financial crisis.””
“Japanese manufacturing activity shrank for a fourth straight month in August as export orders fell at a sharper pace, a preliminary business survey yesterday showed…
“Factory output and total new orders contracted again, though at a slightly more moderate pace than in July.”
“…the global economy may be at risk of returning to the rut it tumbled into after the financial crisis of 2007-2009.
“Worse, solutions seem far from obvious. Central banks can’t just slash interest rates. Rates are already ultra-low. And even if they did, the central banks would risk robbing themselves of the ammunition they would need later to fight a recession. What’s more, high government debts make it politically problematic to cut taxes or pour money into new bridges, roads and other public works projects.”
“…the wheels are spinning in reverse for the world’s manufacturing economies. As multinational companies scramble to mitigate the effects of trade tariffs by reorganising supply chains and onshoring production, Emerging Markets need to find a new source of demand. If they fail to adapt, global growth will grind to a halt…
“Lowering interest rates relieves some of the immediate pressure on EMs by reducing the rates on dollar-denominated debt. This sugar rush buys EMs time to develop new sources of demand for the manufacturing industries. But the strategy is fraught with risk, and if it fails we can expect major headwinds for global growth…
“Investors should not put faith in the idea that Fed can stop the unravelling of global growth, regardless of the statements coming out of Jackson Hole on Friday.”