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World Economy Faces Debt Doom Loop: The world economy will be exiting the pandemic weighed down by much bigger debts and increased inequality that could hobble growth in the longer term. That was one of the memes making the rounds at the annual meeting of the American Economic Association that winds up on Tuesday.

“We have met every crisis in the recent past with yet more aggressive central bank accommodation and yet more leverage, both public as well as private,” said former Reserve Bank of India Governor Raghuram Rajan. “The real question is: Is this a doom loop? Does it keep going until it is forced to stop?”

https://www.bloomberg.com/news/articles/2021-01-05/world-economy-faces-debt-doom-loop-more-inequity-post-pandemic


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More large U.S. companies filed for bankruptcy in 2020 than in any year since the global financial crisis, after the pandemic tipped swaths of the economy into distress.

“Energy, retail and consumer services companies led a total of 244 filings, according to data compiled by Bloomberg. That was the most since 2009…” [We ain’t seen nothing yet, as the Fed has been backstopping corporate debt].”

https://www.bloomberg.com/news/articles/2021-01-05/u-s-bankruptcy-tracker-pandemic-spurs-most-filings-since-2009?srnd=prognosis


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Corporate debt boom resumes as 2021 kicks off: Borrowing for January could reach $100 billion or more, despite lapse of Fed program.”

https://www.marketwatch.com/story/corporate-debt-boom-resumes-as-2021-kicks-off-11609811974

Companies may find themselves excessively indebted after the coronavirus pandemic even if their businesses rebound, Oaktree Capital founder Howard Marks has warned, underlining the strain facing corporate America.”

https://www.ft.com/content/5585b123-7b9d-40fe-8f63-95f7491e8193


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Britain began its third COVID-19 lockdown on Tuesday with the government calling for one last major national effort to defeat the spread of a virus that has infected an estimated one in 50 citizens…

“Chancellor Rishi Sunak’s latest package of grants adds to the eye-watering 280 billion pounds in UK government support already announced for this financial year to stave off total economic collapse.”

https://www.reuters.com/article/us-health-coronavirus-britain/bleak-start-to-new-year-for-britain-as-it-enters-third-lockdown-idUSKBN29A11R


The Bank of England is on course for a difficult 2021, after a Financial Times survey found investors believe the central bank’s quantitative easing programme is a thinly veiled attempt to finance the government’s deficit to keep its borrowing costs down.”

https://www.ft.com/content/f92b6c67-15ef-460f-8655-e458f2fe2487


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Figures released by the organisation on Wednesday showed new car sales in the UK fell by close to 30 per cent to 1.63m during 2020, the biggest annual fall since 1943.

“It was the worst sales year since 1992, and the first time the number of new cars sold fell below 2m since 2009, during the financial crisis.”

https://www.ft.com/content/ee3ee948-40ec-4d4d-aa95-15082299a7ad


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The food and drink industry has raised serious concerns about the new EU-UK trade deal because businesses face punitive tariffs on goods from the bloc processed at British distribution hubs that are re-exported to member states.

“Industry bodies on both sides of the Channel have warned that the so-called “rules of origin” chapter of the deal effectively blocks existing supply chains…”

https://www.ft.com/content/c068fc5f-dfe4-4890-8153-a59e1833c100


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Economic activity in the euro zone contracted more sharply than previously thought at the end of 2020 and could get worse as renewed lockdown restrictions imposed to contain the coronavirus hit the bloc’s dominant service industry, a survey showed…

“With much of the service industry being forced to close demand also shrank a lot more than thought.”

https://uk.reuters.com/article/uk-eurozone-economy-pmi/euro-zone-contraction-deeper-than-thought-in-december-as-lockdowns-bite-pmi-idUKKBN29B114


Italian Prime Minister Giuseppe Conte faces a showdown with his coalition partner and former premier Matteo Renzi this week that could bring down his government even as it struggles to contain the COVID-19 pandemic.”

https://www.reuters.com/article/italy-politics/italian-government-totters-as-conte-renzi-divide-deepens-idINKBN2980EO


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No one should be surprised by Turkey’s recent economic and financial woes.

“The country’s triple crisis (currency, banking, and sovereign debt) has been unfolding for years. Whether this economic turmoil will incite political turmoil is now a widely debated question.”

https://www.project-syndicate.org/commentary/turkey-economic-crisis-in-three-stages-by-selva-demiralp-and-sebnem-kalemli-ozcan-2021-01


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Youth unemployment in Turkey stood at 24 per cent in September, the most recent available data, as young people between the ages of 15 and 24 found themselves at the sharp end of a broader employment crisis that has been compounded by the economic consequences of Covid-19…

“The slump has political implications for Mr Erdogan, who has seen his popularity slide and faced sharp criticism from opposition parties over the lack of jobs.”

https://www.ft.com/content/00421e9a-ed1d-40f2-8372-982990929cd7


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Japan’s likely decision to declare a state of emergency in the Tokyo area will most probably trigger a contraction in January-March, analysts say, adding to the headache for policymakers struggling to cushion the blow to the economy from the pandemic…

“Media reported on Monday that preparations were being made for a state of emergency that would take effect by Friday.”

https://uk.finance.yahoo.com/news/japans-state-emergency-seen-triggering-095925277.html


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New car sales in Japan slumped 11.5 percent in 2020 from a year earlier amid the coronavirus pandemic, marking the largest fall in nine years.

“The 11.5 percent decline was the biggest since 2011, when auto sales tumbled 15.1 percent to about 4,210,000 vehicles, in the aftermath of the massive earthquake and tsunami that ravaged northeastern Japan and disrupted supply chains.”

https://english.kyodonews.net/news/2021/01/7d0420561278-japan-auto-sales-fall-115-in-2020-amid-virus-biggest-drop-in-9-yrs.html


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Xi Jinping orders China’s military to be ready for war ‘at any second’:

“As the PLA kicks off its training programme for 2021, its ultimate commander stresses combat readiness and more hi-tech. Frontline frictions must be used to polish troop capabilities and training exercises need to incorporate technology, Xi said.”

https://www.scmp.com/news/china/military/article/3116436/xi-jinping-orders-chinas-military-be-ready-war-any-second


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Saudi Arabia’s decision to cut oil production probably reflects expectations for demand to weaken further as coronavirus lockdowns return around the world, according to Goldman Sachs Group Inc…

“Goldman said its supply-demand balance for the first quarter is weaker than previously thought…”

https://www.bloomberg.com/news/articles/2021-01-06/goldman-sees-surprise-saudi-cut-as-signal-oil-demand-to-weaken


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Simply put, Iraq is running out of money to pay its bills.

“With its economy hammered by the pandemic and plunging oil and gas prices, which account for 90 percent of government revenue, Iraq was unable to pay government workers for months at a time last year.”

https://economictimes.indiatimes.com/news/international/world-news/hit-by-the-pandemic-struggling-to-pay-debts-and-salaries-iraq-plunges-into-economic-crisis/articleshow/80099171.cms


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[Nigeria’s] Power ‘stressing out’ under unsustainable cash flow challenge:

“Despite the intervention of Central Bank of Nigeria (CBN) and Nigerian Electricity Regulatory Commission (NERC) to address the liquidity crisis rocking Nigeria’s electricity market, the sector continues to struggle under heavy debt.”

https://guardian.ng/business-services/power-stressing-out-under-unsustainable-cash-flow-challenge/


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Chad and several other countries are already in deep debt distress and more will join their ranks this year, given the severity of the global recession triggered by the COVID-19 pandemic, World Bank Group President David Malpass said…

“The African oil producer Chad may need a deep reduction in the net present value of its debt, and creditors would need to work with the country to find a viable solution to its debt overhang, Malpass told reporters on Tuesday.”

https://www.reuters.com/article/worldbank-debt/update-1-world-bank-sees-more-countries-in-deep-debt-distress-this-year-idUSL1N2JG1AK


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Rising Debt Triggers Growing Alarm, Especially for Poorer Nations: How are countries going to cope with the sea of pandemic-related debt — will they drown in it?

“Lockdowns and coronavirus restrictions have caused some government revenues to collapse at the same time public spending increases to try to save jobs and livelihoods. Poor and developing countries are the hardest hit, but even rich, powerful nations are straining to cope with the economic wreckage…”

https://www.voanews.com/economy-business/rising-debt-triggers-growing-alarm-especially-poorer-nations


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As we head into 2021, investors will likely maintain an attitude that has served them well this year: put your faith in central banks’ ability to shield financial markets from any and all economic and corporate shocks.

This will encourage more irresponsible risk-taking by investors and debt issuers. It will also fuel investment approaches that fail to account for a longer term in which governments and central banks themselves face massive and persistent policy and operational challenges.”

https://www.ft.com/content/7cf5b4e7-ae24-4e49-8b10-e4380c120933


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In Bloomberg’s quarterly review of monetary policy that covers 90% of the world economy, no major western central bank is expected to hike interest rates this year.

“China, India, Russia and Mexico are among those predicted to cut their benchmarks even further.”

https://www.washingtonpost.com/business/on-small-business/ultra-low-interest-rates-here-to-stay-2021-central-bank-guide/2021/01/04/e3d791a2-4ef2-11eb-a1f5-fdaf28cfca90_story.html


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Unprecedented government spending has helped ward off a grave economic depression in nations around the world, but the debt load governments like the U.S. are taking on to fund such stimulus measures could stall economic growth for years to come, the World Bank warned Tuesday.

https://www.forbes.com/sites/jonathanponciano/2021/01/05/world-bank-warns-stimulus-and-dangerous-debt-crisis-could-trigger-recession-and-wipe-out-a-decade-of-income-gains/?sh=689992522f25


Debt defaults among businesses and countries are rising, and these could cascade through the financial system and possibly trigger another financial crisis, the former head of the Bank of England said Monday.”

https://www.marketwatch.com/story/former-bank-of-england-governor-mervyn-king-sees-risk-of-another-global-financial-crisis-11609784016


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As 2020 drew to a close with severe limitations to travel still in place, the World Tourism Organization (UNWTO) expects international arrivals to have declined by 70 to 75 percent compared to the previous year.

“That equates to a decline of around 1 billion international arrivals, bringing the industry back to 1990 levels.”

https://thewire.in/travel/chart-global-tourism-back-to-1990-levels-as-pandemic-halts-travel


You can read the previous ‘Economic’ thread here. I’ll be back tomorrow with a ‘Climate’ thread.

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