“The global economy faces a prolonged slump as the US slows, the UK and eurozone struggle to recover historic growth rates and China sinks towards 5pc annual growth over the foreseeable future, economists have warned.
“World GDP growth will slide to 2.7pc this year and stay below 3pc out to at least 2023, according to experts at Citibank, who trimmed forecasts for this year and next by 0.1 percentage points.
[I seriously doubt that world GDP is even this high, given that the real value of global exports is contracting and global manufacturing is in recession. Chinese and Indian GDP are certainly exaggerated at this point. And of course GDP is itself a dubious metric, given that it fails to factor in the ever greater amounts of debt required to stimulate it, changes in asset prices, ‘externalities’, ie damage to the environment etc.]
“This would represent the longest spell of sub-3pc growth on the International Monetary Fund’s records going back to 1969…”
“The International Energy Agency (IEA) may cut its growth estimates for global oil demand for 2019 and 2020, should the global economy weaken further, its chief said on Friday.
“The Paris-based agency trimmed in August its global oil demand growth estimates for 2019 and 2020 to 1.1 million and 1.3 million barrels per day, respectively, as trade woes weighed on global oil consumption, making demand grow at its slowest pace since the financial crisis of 2008.”
“…the [repo] cash crunch has only subsided because of all that free money being pumped in by the Fed. Without emergency cash injections, stress would probably return. Although the NY Fed’s rescue is working, it hasn’t fixed the underlying problem.
“”It’s like a painkiller. It works, but you’re never really dealing with why the market is broken in the first place,” said James Bianco, president of Bianco Research. “You’re just medicating the market, you’re not figuring out why the pain exists.”
“That pain could come back as the third quarter winds to an end next week.”
“…it shows a …fundamental problem with the banking system. Interest rates on offer in the repo market touched 10 per cent during last week’s upheavals. But this was not enough to tempt lenders to increase supply, despite excess reserves only earning 1.8 per cent when deposited at the Federal Reserve. That reflects that bankers now see a greater need to have cash on hand to meet the regulatory requirements imposed on them since the financial crisis.
“…the Fed may find it needs to resume some form of asset purchases far earlier than it might feel comfortable with in order to keep lending flowing.”
“American corporate debt is close to all-time highs, says Daniel Bergstresser on PBS. The total value of non-financial company debt is now almost $10trn, equivalent to half of America’s GDP…
“As long as corporate profits remained strong nobody thought that the debt was anything to worry about, writes Justin Lahart in The Wall Street Journal. Yet recent revisions to profit figures have made the “debt-to-income” tabulations look a whole lot worse.”
“The consequence of continued aggressive easing by the BoJ and ECB is that the US dollar is seeing continued unwelcome strength. Unwelcome in the sense that the US is in effect, importing eurozone and Japanese deflation. I simply don’t think this is sustainable much longer. Patience is wearing very thin at the White House at the Fed’s lack of easing vigor and the impact this is having on the dollar.
“I expect President Trump to take matters into his own hands and respond with real aggression imposing tariffs on EU auto exports to the US and authorizing unlimited foreign exchange intervention to drive the dollar lower.”
“Indicators that gave an early read to recession in 2008 are flashing red and suggest the UK is already in recession.
“We know GDP growth was -0.2% in the second quarter of 2019, and if another negative quarter follows then that will fit the technical definition of a recession.”
“The German economy probably shrank again this quarter, tipping it into recession amid a deepening slump in manufacturing, according to the DIW institute.
“It forecasts a 0.2% fall in output in the three months through September after a decline of 0.1% in the previous quarter.”
“The State Duma of the Russian Federation is preparing a draft law aiming to introduce negative rates on foreign currency deposits.
“The Central Bank insists on introducing negative rates on foreign currency deposits. The Ministry of Finance has already supported this idea, the newsru portal writes.”
“Former BJP MP Kirit Somaiya and several account holders of the crippled Punjab and Maharashtra Cooperative (PMC) Bank filed police complaints on Thursday against top officials of the bank and HDIL for allegedly looting ₹3,000 crore of the depositors, police said.”
“Chinese industrial companies’ profits fell in August, with the 2% drop from a year ago another sign of how the slowing economy is hurting business and increasing problems for the government.
“The fall was due to a slowdown in industrial production and sales, the deeper drop in producer prices and super typhoons hitting the nation, according to a statement from the National Bureau of Statistics Friday.”
“The Korean central bank raised alert about escalated risks to the financial system due to growing delinquency ratio in household and corporate loans amid a protracted economic slump.”
“Export-driven Singapore does not envisage an improvement in its trade performance in the second half of the year, according to a senior trade ministry official, reflecting the gloomy outlook held across Asia as global trade tensions halt a recovery in export growth…
“From South Korea’s semiconductors to Singapore’s electronic products, exports are sputtering amid a global contraction in trade.”
“…this week’s release of disappointing economic data in France and Germany came as a sharp and unpleasant wake-up call for the fans of equities that have returned a whopping 19% this year.
“The seriousness of the slowdown makes investors doubt the potency of the ECB measures without the support of individual nations’ fiscal stimulus.”
“…several big emerging economies are already in recession (Figure 1) and some advanced economies (including Germany and the United Kingdom) are dangerously close… The slowdown in growth in all the major developed economies, including the US, confirms that relying on easy monetary policy and asset price rises to stimulate demand produces, at best, ephemeral growth, while tax cuts for corporations and wealthy individuals fail to trigger productive investment.
“The bigger concern, according to the report, is that 10 years on from the crisis, the global economy remains excessively financialized and fragile.”
“That fateful year of 2008, global debt was ‘only’ about $175 trillion, and you’ll recall that it was bad real-estate loans that triggered what came close to the end of money, also known as the end of the world.
“Now global indebtedness is 40 per cent higher.”
“Dickon Pinner, a McKinsey consultant, gave the UN a couple of examples of where “disorderly” repricing might occur. Coastal regions such as Florida, he warned, could deliver asset price shocks for lenders, insurers and homeowners.
“So, too, in places such as Spain, southern France, Greece and Italy which are projected to see eye-popping increases in drought.”