Daily updates on climate change and the global economy.

14th October 2019 Today’s Round-Up of Economic News

“The global economy has entered a period of “synchronised stagnation” with weak growth in some countries and no growth or a mild contraction in others, according to research by the Brookings Institution think-tank and the Financial Times.

“Headline economic indicators have slipped to their lowest levels since the spring of 2016, with real activity in both advanced and emerging economies losing momentum, compounded by falling economic confidence, the latest update of the tracking index has found.

“Only relatively strong performance in financial markets stopped the index from falling further into negative territory.”


“Global authorities gathering in Washington this week must stand ready to address emerging risks including a global economic downturn and Brexit, the leading body for global financial stability has warned.

“The Financial Stability Board – which was formed after the 2008 banking crisis that brought the financial system to its knees – said that while much has been achieved in the past decade, its job was “far from complete”.”


“Cuba’s President Miguel Díaz-Canel has said the island is currently operating with 62% of the petrol it needs, and announced emergency measures to “disrupt the plans of imperialism”.

“Across the island, production has been cut and stopgaps found, so that fuel can be prioritized for hospitals, schools and food distribution.”


“Huge crowds sang and danced in the streets of Port-au-Prince [Haiti] on Sunday as part of an anti-government rally organized by the art community.

“Protesters are calling for President Jovenel Moise to resign amid corruption allegations, rising inflation and food and fuel shortages. Many blame him for the economic crisis, but Moise has denied any wrongdoing.”


“Ecuador President Lenin Moreno on Saturday ordered the capital Quito and surrounding areas placed under curfew and military control, on the 11th day of deadly protests against government austerity measures.

“The order would “facilitate the work of public forces against intolerable outbreaks of violence,” he announced on Twitter.”


“A series of protests from opposition groups in recent weeks — sparked by the [Korean] president’s appointment of Cho Kuk as the justice minister tasked with carrying out the reforms…

“…have dealt the latest blow to the Moon government.

“On Monday, Mr Cho, a close aide to the president, stepped down just weeks after taking office.”


“A slide in China’s exports picked up pace in September while imports contracted for a fifth straight month, pointing to further weakness in the economy and underlining the need for more stimulus as the Sino-U.S. trade war drags on.”


“Chinese auto sales fell in September for the 15th month in 16, extending their unprecedented slump despite government efforts to support the world’s largest car market.

“Sales of sedans, sport utility vehicles, minivans and multipurpose vehicles dropped 6.6% from a year earlier to 1.81 million units, the China Passenger Car Association said in a statement Saturday.”


“…the problems aren’t just cooling global growth, but also more sluggish domestic activity, reflecting both anemic production and demand.

“This has ignited hopes for a forceful economic stimulus package from Beijing, as the world has relied on during previous periods of weakness over the past decade. But this time, it appears such hopes are in vain.”


“The World Bank joins a parade of multilateral institutions, rating firms and brokerages in cutting economic growth estimates for India, after Asia’s third-largest economy grew at the slowest pace in six years in the June quarter because of a demand slump.”


“Iran’s economy is expected to contract further by 8.7% in 2019-20 due to external shocks to oil and gas output.

“The plummeting exports comes after the expiration of US waivers to major importers of Iranian oil and tightening of banking restrictions in addition to new sanctions being imposed on the country’s petrochemical, metals, mining and maritime sectors.”


“The global economy is wobbling and whether it topples over is the big question in financial markets, executive suites and the corridors of power.”


“The world’s finance ministers and central bankers will be in Washington this week for the annual meetings of the International Monetary Fund and World Bank amid growing concerns that the global economy is heading towards stagnation.

“Predictions of a sharp downturn fill policymakers with anxiety, knowing that job losses and lower tax revenues can only lead to social unrest.”


“Investors are flocking to the relative safety of money market funds at the highest level since the financial crisis-era collapse of Lehman Brothers in 2008.

“The industry has pulled in $322 billion over the past six months, the fastest pace since the second half of 2008, bringing assets to nearly $3.5 trillion, according to data from FactSet and Bank of America Merrill Lynch.”


“Analysts at the International Monetary Fund (IMF) are comparing current global financial conditions to the types of conditions that sparked the global financial crisis of 2008 – a crisis that stemmed from the US mortgage market.

“The report shows that US-induced vulnerabilities are still present, representing a widespread economic threat.”


Read the previous ‘Economic’ thread here and visit my Patreon page here.

3rd October 2019 Today’s Round-Up of Economic News

“Markets hate uncertainty. It’s a well-worn truism that is trotted out every time the pound plunges on the latest Brexit twist or stocks swoon on another Twitter tirade from Donald Trump.

“But one index empirically shows that businesses and investors are facing a level of uncertainty never seen before and that could be hurting the world economy.

“The Global Economic Policy Uncertainty Index, devised by a trio of professors under the names Baker, Bloom & Davis, has surged to its highest level since it began in 1997.

“The policies of the US and Chinese, in particular, are at their most volatile ever while the UK gauge has been elevated since the EU referendum.”


“U.S. equity markets on Wednesday were ensnared in a two-day tailspin that has pushed the benchmark indexes to one of the worst starts to a quarter since the 2008-09 financial crisis.

“The Dow Jones Industrial Average DJIA, -1.86%, was down more than 500 points, or 1.9%, at 26,078, with a two-session skid of more than 3%, representing the worst start to a quarter since the last three months of 2008.”


“The Reis data published on Thursday, which track 77 metro areas, show 9.4 per cent of units [in US malls] were empty in the third quarter — equalling a post-financial crisis high reached in 2011…”


“The last slump in oil and gas drilling contributed to the mid-cycle economic slowdown in 2015/16, which helped fuel the political discontent that resulted in the election of populist President Donald Trump to the White House.

“Now the pattern risks being repeated as oil and gas companies cut back on new well drilling and completions in response to lower oil prices, with ripples felt throughout the entire supply chain.”


“The UK has set the EU a deadline of just two days to begin intensive talks on Boris Johnson’s new Brexit proposals, risking a new rupture in relations with Brussels.

“Stephen Barclay, the Brexit secretary, said negotiations had to “move forward at pace”, with the crucial summit at which an agreement must be reached just two weeks away.”


“The construction sector activity in the UK continued to deteriorate last month, the latest survey report from Markit Economics showed this Wednesday.

“The final Purchasing Managers’ Index (PMI) came in at 43.3 in September, down sharply from 45.0 recorded in August and missed the consensus estimates pointing to a reading of 45.0 [sub 50 denotes contraction].”


“German private sector activity shrank for the first time in 6-1/2 years in September as a manufacturing recession deepened unexpectedly and growth in the service sector lost momentum, a survey showed on Monday.”


“Euro zone business growth stalled in September as an ongoing contraction in manufacturing activity is increasingly affecting the services industry, according to a survey which showed little chance of an improvement this month.”


“Growth in the United Arab Emirates’s non-oil private sector slowed to a nine-year low in September, amid record low new orders reflecting soft demand, a survey showed on Thursday…

“New orders were at the softest they have been since the survey began more than 10 years ago, demonstrating weak demand in the country’s non-oil economy.”


“India’s banking sector has been going through a rough patch for the last five years. The number of non-performing assets (NPAs) has sky-rocketed. At its peak, the gross NPA to advances ratio exceeded 11 per cent.

“Until the NPA crisis hit, banks contributed more than 90 per cent of the economy’s commercial credit. As a result, any impairment of banking has a deep and long-lasting impact on the economy.”


“Once a poster child for China’s regional banks, Bank of Jinzhou became the centre of storm in the country’s banking industry, undermining confidence in the sector in the process.

“Beijing came swiftly to the rescue, with the asset management arm of the Industrial and Commercial Bank of China saying at the end of July it would spend up to 3 billion yuan (US$419 million) to recapitalise the lender…

“But it appears the state funds are not enough for the troubled lender.”


“One of the engines that drove a global economic recovery after the last two downdrafts in America – the relatively shallow one in 2001 and the catastrophe that began in 2007 – was China. As the financial crisis escalated, Beijing opened a floodgate of credit and cut interest rates, which stoked demand for everything from Australian coal to German cars.

“We’re unlikely to see anything like that this time. Beijing has shown little appetite for another round of massive fiscal stimulus…”


“The Reserve Bank of Australia could be forced into unconventional policy measures such as money printing to save the economy from stagnation if its latest round of interest rates cuts fail to stimulate growth, economists have warned.

“After cutting the cash rate for the third time this year on Tuesday to a fresh record low of 0.75%, the central bank warned that there could be more cuts to come…”


“Data released by the Federal Chamber of Automotive Industries (FCAI) on Thursday showed total sales for September skidded nearly 7% to 88,181 vehicles from a year earlier. For January-September were down about 8% from the same period in 2018.

“The weak data will disappoint the Reserve Bank of Australia…”


“Argentine economists forecast a deeper recession and maintained a pessimistic inflation forecast at a shade under 55% in the latest central bank monthly poll of analysts released on Wednesday.

“The prediction follows weeks of political uncertainty and a plunge in the value of the peso…”


“Fears over the world economy have sent shares around the world tumbling as the manufacturing slowdown deepened. Wall Street stocks suffered their steepest declines in almost six weeks after weak factory and employment data.

“Manufacturers around the globe are cutting back production, faced with falling orders, according to the latest batch of PMI surveys…”

Live feed for any economic news junkies wanting to follow the slowdown in real time:


Read the previous ‘Economic’ thread here and visit my Patreon page here.

Our Energy Predicament

A friend on Facebook asked me a couple of questions: one about why wages have been stagnant for so long and one about the effects of divestment on the global economy. My response offers a brief overview of our energy-constrained economy, which perhaps adds a little to the essay in the ‘About’ section. These are huge issues and my analysis is necessarily a little trite but here it is: 

As far as I can see, the global economy has self-organised over 250 years to depend on fossil fuels, as these have been the most convenient and energy-dense fuel sources available to us, and the human collective is always going to want as much comfort, convenience, choice, novelty etc. for as little expenditure as possible.

Oil, gas and coal provide around 85% of our energy needs directly and are intrinsic to the production, maintenance etc of nuclear, hydro and renewables that make up the remaining 15%.

Since around the turn of the century, less and less ‘energy profit’ has been flowing through the system from these fossil fuels. Oil in particular has been growing more and more expensive to extract, and we can see this in the rapid fall-off in capex productivity that the major oil firms have experienced since around 2000, with each barrel of oil getting more and more expensive to produce. [The image to the left is somewhat old now. Brent has fallen substantially since, whilst costs continue to rise].

This is important because the global economy is an energy system upon which we superimpose a monetary system (and then pretend that it is the money that matters). Standard neo-classical economics completely overlooks the centrality of energy in economic growth but it is common sense if you really think about it. In the natural world, an organism needs to earn more calories than it expends in sourcing its food or it will die of starvation. Likewise, no economic activity can take place without energy and no economic exchange is worthwhile unless there is an ‘energy profit’ embedded in it.

The global economy as whole needs to be growing at a rate of around 3% per annum, and (bar the odd recession) has been doing so since around 1850. If it falls below this level of growth for too long, the financial system is likely be paralysed by loss of faith in fiat currencies and cascading defaults.

Unfortunately we are now deep into an era defined by *energy-constraints*, and indeed by a wide variety of resource-constraints and other growth-limiting factors like pollution and climate change.

“The stagnant wages you mention are a symptom of this insufficient energy-profit. So is the increasing surreality and complexity of our financial system, as it tries to compensate and maintain growth. Zero and negative interest rates are a tacit admission that some economies can no longer offer a return on investment. The political polarisation and geopolitical/trade friction we are seeing are also symptomatic of too many claims on a shrinking/degrading resource-base.

Unfortunately workers with stagnant wages find it hard to afford the goods and services into which energy products (primarily fossil fuels) go. They can add debt or buy things on long-term payment plans but sooner or later they start getting tapped out. I believe we are about at that point now. This in turn weakens demand for energy products and oil, coal and gas prices fall too low for producers. Again we are seeing this now. The danger is that we get sucked into a deflationary death-spiral.

Divestment, well intentioned though it may be, can only exacerbate this problem. Oil companies are already self-liquidating and drowning in debt. Oil producing nations are in varying degrees of pain with Venezuela being in the most notably dire straits – but even Saudi is struggling. I haven’t done any research into the figures so I can’t comment on the extent to which divestment may be harming energy companies and energy producing nations.

This is not a debate I generally get involved in because there are no good solutions. Fossil fuels are of course quickly rendering the planet non-viable for humans but if we attempt to wean ourselves off them we will ‘starve’ the global economy into a disorderly and extreme contraction, and obliterate the supply-chains that keep most of us fed, watered and warm. What can you do? 


2nd October 2019 Today’s Round-Up of Economic News

“Manufacturing activity is contracting across advanced economies, according to a raft of data released on Tuesday that pointed to the impact of US President Donald Trump’s trade policies [this is the orthodox and superficial analysis of the situation].

“In the US, a key indicator measuring activity recorded its lowest level in more than a decade for September, while global data showed the sector was feeling the chill wind of recession amid fears that trade tensions will escalate further.

“Output this summer was lower than a year earlier across all 36 advanced economies and sentiment indicators show that it is the most geographically widespread manufacturing downturn for seven years.

“The global purchasing managers’ index in September recorded its fifth month below the 50 mark, the level that divides expansion from contraction. That was the longest period that indicator has been so low since 2012.

“The PMI for the eurozone fell to 45.7 last month, down from 47 in August and its lowest reading since October 2012. The Institute for Supply Management index of US manufacturing activity fell much more than expected to 47.8, down from 49.1 in August, to its worst since June 2009.”


“Car loans that are increasingly stretched out are a pronounced sign that some American middle class buyers can’t afford a middle-class lifestyle.

“Incomes have risen at a sluggish pace in the past decade, but car prices have grown rapidly. New technological and safety features, such as larger and more sophisticated multimedia displays, have made even the most basic cars more expensive.”


“Canada’s economy is poised to grow at modest rate, but will face an environment “riddled with risks” from ongoing geopolitical and trade frictions, a new report from Deloitte Canada states.”


“Boris Johnson will lay down a “take it or leave it” ultimatum to Brussels on Wednesday, warning he will take the UK out of the European Union without a deal if it is rejected.

“If the EU is unwilling to “engage” with the final offer, there will be no further negotiation and Britain will leave without a deal in 29 days’ time on 31 October, said Downing Street.”


“The European Central Bank was dealt another blow in its battle to stop the eurozone economy sliding into deflation after the consumer price index sank below 1pc for the first time in three years.

“The huge task facing incoming ECB president Christine Lagarde to tackle the region’s inflation woes was highlighted by CPI unexpectedly dropping to 0.9pc.”


“A shortage of US dollars is forcing Lebanese authorities to work on new financial instruments and trade mechanisms to import wheat, medicine and fuel, triggering internal tensions and a confidence crisis.

“Ali Yaacoub, secretary general of the small El-Nahj party, says that Lebanon is acccumulating more and more debt each year, and that its dollar reserves are “basically over.””


“Zimbabwe’s President Emmerson Mnangagwa has pleaded for time and patience to bring the country’s economy back from the “dead”, as his government faces blame for surging inflation that evokes dark days under late former leader Robert Mugabe.”


“South Africa’s debt to GDP ratio is fast approaching the 60% seen as a red line by ratings agencies, while interest payments on outstanding debt regularly outpace key spending such as infrastructure and health.”


“The outlook for the world economy, including Australia’s, is looking more pessimistic as China’s economic growth continues to slow down.”


“Emerging market policymakers slashed interest rates further in September, taking their lead from major central banks and joining in efforts to shore up their economies.”


“Heading into October, it was clear Federal Reserve officials would face a difficult decision at their meeting at the end of the month. Just one day into October, the challenges have already become even more intense.”


“World trade flows are set to increase at the weakest pace since the global financial crisis in 2019 as tariffs rise and the global economy cools, the World Trade Organization said Tuesday.”


Read the previous ‘Economic’ thread here and visit my Patreon page here.

1st October 2019 Today’s Round-Up of Economic News

“[As in 2008], the key factor is weakness within a bank’s business model, and of course, whether that weakness is shared by other banks, either by practice or exposure. That’s where Germany’s Deutsche Bank, and indeed, other European banks find themselves today. The weakness isn’t so much from issuing and selling risky mortgages as much as from larger, systemic and business practice issues.

“At the macro level, a weak European economy is a big factor. As the economy slows down, banking activity slows down as well. What’s more, the European economy isn’t immune from the trade tensions of the world. As much of Europe struggles with low or zero growth, falling demand from China and different European economies, the pressure on banking business models increases.

“This recession pressure is seen in the low and even negative interest rates European banks charge for borrowing money. Though banks make money on fees, they also gain from interest rate spreads on lending. Subdued economic activity means a loss of lending business for banks…

“Unfortunately, as in 2008, the interconnected global financial system results in major banks and financial institutions have exposure to financial risk in multiple markets. A whopping 41 percent of American banks’ foreign balance sheet exposure is to European banks.

“That’s too big to ignore or to avoid. Problems that begin with Deutsche Bank will certainly be problematic for the Europe and America, which will, of course, impact the health of the entire global financial system.”


“The threat of a no-deal Brexit has sent profits and sentiment in Britain’s financial services falling at their fastest pace since the global financial crash a decade ago, a CBI/PwC survey showed on Tuesday…

“…the level of business activity at banks fell at its fastest pace in 28 years.”


“Yes Bank slumped to the lowest level in a decade, leading a selloff in Indian lenders. IDFC Securities Ltd. says the blood-letting in the stock isn’t done yet.

“The brokerage slashed the bank’s target price to 35 rupees, implying a 19% drop from the current level of 43 rupees.”


“Growth worries for the government escalated, with the output of India’s eight infrastructure sectors contracting for the first time in more than four years in August.

“The index of eight core infrastructure industries declined 0.5% during the month, according to government data released on Monday.”


“Manufacturing sentiment throughout Asia remained mostly bleak in September amid trade tensions and waning global demand.

“Purchasing manager indexes for South Korea, Japan, and Indonesia were still in contraction territory, with South Korea’s slipped by one point to 48.”


“South Korea’s exports sank 11.7 percent in September from a year earlier, extending their slump to a 10th consecutive month, data showed Tuesday, hurt by still weak prices of semiconductors and the yearlong trade row between the United States and China.”


“Japanese bond traders just had a taste of what it’s like when the nation’s central bank and pension fund aren’t there to support them.

“Bond futures tumbled by the most since 2016, triggering margin calls for investors, after the worst 10-year debt auction in three years. Yields across the curve climbed, while the sell-off also spilled into Treasuries and European debt.”


“The Reserve Bank of Australia has driven its official cash rate below 1 per cent for the first time as it battles to head off rising unemployment and stimulate a stalling economy.

“The cut, of 25 basis points to 0.75 per cent, is the RBA’s third cut since June and comes after jobs data showed the unemployment rate had risen to 5.3 per cent from 4.9 per cent at the start of the year.”


“In its latest attempt to tackle a chronic cash shortage, Zimbabwe’s central bank on Monday banned cash transactions using the mobile money service, amid a surge in prices of goods and services.

“Years of economic crisis have left the country short of bank notes and commercial banks have been rationing cash withdrawals to a maximum daily limit of 100 ZWL (S$1.38) per customer, forcing people to turn to electronic financial transactions.”


“Sorting out the debt issue may not be enough for Argentina to solve its growth problem – as a reference, per capita GDP in 2019 is now roughly the same as it was in 2009. But it is certainly a necessary condition.

“For starters, the debt crisis is the main factor behind the exchange rate pressure that fuels inflation, and the high financing costs that discourage private investment – the only remaining real potential engine for growth.”


“Manufacturing activity in the US midwest contracted in September, continuing a patch of weakness in the region over the summer.”


““The first sign of a change in the labor market, we and the market are going to scream recession,” said Russell Silberston, a money manager at Investec Asset Management, which is overweight cash…

“A forecast issued Monday from Fitch Ratings that global growth will hit an eight-year low in 2020 also pointed to a lack of traction for economies around the world. It came after some of the loudest doubts about the ability of monetary policy were voiced by top-level policy makers and politicians, adding to their resonance.”


“It has been a pivotal few months for financial markets. China and Europe have halted the global stocks rally, oil has cooled dramatically and rising recession worries have sent gold and government bonds charging again…

“The switch back into support mode by the top global central banks has swollen the amount of bonds trading at negative rates — where investors pay rather than get paid to lend – to a record $17 trillion.”


“Companies across the globe sold a record amount of bonds in September, as low borrowing costs fuelled issuance and investors searching for yield lapped up the new debt.”


“…the worst may not be over for markets in October, during what has been described as the “jinx month” for stocks by Stock Trader’s Almanac. “It is widely known as a bearish month, mainly due to the fact it has had huge crashes in 1929, 1987, and 2008…””


Read the previous ‘Economic’ thread here and visit my Patreon page here.

30th September 2019 Today’s Round-Up of Economic News

“Banks were at the centre of the 2008 crisis because of their excess liquidity and their consequent involvement with dicey debt obligations such as subprime mortgages and other collateralised debt obligations. They have since been brought under control but the big risks have migrated to…

“…nonbank financial institutions, [which] have increasingly replaced banks by lending to businesses via the leveraged loan market and by buying corporate bonds. (A leveraged loan is one that is extended to companies or individuals that already have considerable amounts of debt or a poor credit history.)

“Since the 2008 crisis, the global non-financial corporate sector has stepped up its borrowing sharply, boosting outstanding debt to US$73 trillion (or 92 per cent of world gross domestic product), according to the Institute of International Finance. At the same time, the quality of the corporate bond market has deteriorated.

“If a recession comes or when interest rates rise, a multitude of such companies will be severely distressed and face bankruptcy. If enough fail, that will constitute a major shock to the financial system… It may be much more difficult to stabilise the next global liquidity crisis.”


“The Euro zone economy has been spluttering during September following a sharp decline in global trade and the threat of a “no-deal” Brexit still looms large.

“It is not a good signal as the data for Q3 2019 will probably not improve from the May through June period.”


“In a speech, Michael Saunders, an external member of the Bank’s Monetary Policy Committee, said that UK interest rates may need to fall further regardless of what happens over Brexit, such is the likely seemingly never-ending uncertainty created by its political fallout.

“This runs contrary to the official line, which is that even in the event of a no deal Brexit, interest rates may have to rise to deal with the inflationary consequences of any shock to output capacity.”


“Protesters blocked roads across Lebanon’s capital city in demonstrations against deteriorating conditions as the country grapples with an economic and financial crisis that has stoked fears of currency devaluation…

“…protesters set tyres ablaze on several major roads, paralysing the city.”


“Saudi Crown Prince Mohammed Bin Salman warned that war between his country and Iran would lead to a “total collapse of the global economy” and said

“…he prefers non-military pressure to stymie Iranian ambitions.”


“China’s manufacturing sector shrank for a fifth month in September, government data showed on Monday, amid the effects of the ongoing China-US trade war.

“China’s official manufacturing purchasing managers’ index nudged higher to 49.8 during the month, according to the National Bureau of Statistics…”


“China’s central bank said it will work to produce a “noticeable decline” in market interest rates to support growth, as pressure on the economy mounts amid the trade war with the United States.

“At its third-quarter conference, chaired by governor Yi Gang on Wednesday, the monetary policy committee of the People’s Bank of China said the international economic and financial environment remained complex as uncertainty and instability had increased.”


“South Korean consumer prices likely dropped for the first time in September, raising the spectre of deflation for a nation struggling with falling exports and cooling household demand.”


“Japan’s industrial output shrank more than expected in August in the latest warning that the economy and its manufacturers are facing intensifying pressure from a bitter Sino-U.S. trade war.”


“Interest rates are widely expected to be cut to a new record-low tomorrow as the experts worry about Australia falling into a recession for the first time since 1991. Financial markets see an October rate cut on Tuesday as a 76 per cent chance.

“Should the Reserve Bank of Australia do the expected, the cash rate would fall by a quarter of a percentage point to just 0.75 per cent.”


“Recession fears are mounting but central banks have very little firepower remaining with traditional monetary policy – the control of the money supply and interest rates – blunted.

“Helicopter money to stimulate the economy therefore “seems inevitable over the medium to longer term”, said Jim Reid, a Deutsche analyst.”


Read the previous ‘Economic’ thread here and visit my Patreon page here.