“The Italian economy shrank by 0.2% during the quarter for the three months to December of 2018, following a 0.1% contraction in the previous period. This was slightly more than market expectations of a 0.1% decrease. It marked the second consecutive quarter of contraction so throwing the country into recession.
“Just to be clear; a recession is defined by economists as gross domestic product (GDP) falling for two consecutive quarters…
“Brexit is an issue for the wider EU, not just the Eurozone, however, one cannot overlook the fact that Italian economy has become a mounting reason of concern over the past few months. Just look at the movement of the 10-year spread of Italian government bonds over the German equivalent.
“This morning the spread is +242.3 basis points or 2.423%. The rolling 12-month average is just +217 basis points. The market is expressing its concern in the spread of Italian debt over the Eurozone benchmark.
“The EU Commission knows that with a debt to GDP ratio of 131.8%, Italy has the second largest debt burden in relative terms…second only to Greece. However, the Italian economy is eight times as large as that of Greece and given the Eurozone is still haunted by the memory of the debt crisis that required bailouts for several countries it has insisted that the Italian government rein back on its spending plans. To be blunt, Italy could not be bailed out. It is so large; a crisis would cripple the Eurozone…”
[Actually it would crippled the global economy. The Italian economy is the eighth largest in the world by nominal GDP and has the world’s third largest sovereign bond market].
“Nearly one in three British businesses are planning to relocate some of their operations abroad or have already shifted them to cope with a hard Brexit, according to a leading lobby group.
“The Institute of Directors (IoD) warned that 29% of firms in a survey of 1,200 members believed Brexit posed a significant risk to their operations in the UK and had either moved part of their businesses abroad already or were planning to do so.”
“The danger occurs because lower oil demand growth [from a weakening economy] in China comes just when independent refining capacity there is rising. The capacity growth has been financed primarily by debt, most likely supplied by China’s alternative lenders.
“As demand slows, these refiners will turn to international markets, dumping products in Singapore, the Americas, or Europe to earn hard cash. In doing so, they could plunge the global refining industry into a serious recession and drive crude prices down sharply.”
“Home prices in Hong Kong fell 2.4 per cent in December, practically wiping out virtually all of last year’s gains, according to government data released on Thursday.
“Last month’s decline means house prices have slipped 9.2 per cent since they reached a peak in July. Some small flats have lost up to 20 per cent of their value because of falling property prices, causing the negative equity trend to reappear.”
“Factory activity shrank across much of Asia in January, falling to the weakest in years in several countries and adding to worries that trade tariffs and cooling demand in China pose an increasing threat to global growth.
“The weak Purchasing Managers Index (PMI) readings reinforce expectations that central banks in Asia will put any further interest rate hikes on hold this year.”
“The political and economic crisis requires Zimbabweans to have frank dialogue among themselves. Sadly, no amount of brutality by the state or noise on the streets by the opposition can resolve this crisis.
“As powerful and appealing as they are, the rhetoric of pan-Africanism, anti-imperialism, sanctions and boycotts will not bring stability and prosperity to Zimbabwe.”
“Iran, squeezed by punishing American sanctions, is confronting its most severe economic challenge in 40 years, President Hassan Rouhani said on Wednesday…
“Ordinary Iranians are feeling the pinch. There have been sporadic protests by laborers, retirees, truck drivers and teachers that have occasionally led to clashes with security forces. In a year, the national currency, the rial, has lost 70 percent of its value compared to the dollar. Inflation is over 35 percent.”
“Greg Ip of the Wall Street Journal thinks the Fed is signaling not a pause, but a complete halt in interest rate rises. And he has a theory about why the Fed has suddenly decided to end monetary tightening:
“”In the last six weeks Mr. Powell does seem to have shifted his views on inflation risk. He seems to have concluded that the lowest unemployment in 50 years isn’t going to push inflation back above 2% anytime soon, and that would be a prerequisite to tightening again.
“”If real rates above 0.5% are a threat to both economic growth and 2% inflation, then that suggests the economy is fundamentally more fragile than in the past.
“And he goes on to argue that the economic fragility that renders higher interest rates unsustainable is not confined to the U.S., but is a global phenomenon. Something has fundamentally changed since the 2008 financial crisis.”
“New research now shows that when central banks push rates below zero, it can have bad effects on the economy.
“”[…] we showed that a negative policy rate was at best irrelevant, but could potentially be contractionary due to a negative effect on bank profits,” states the paper titled: “Negative Nominal Interest Rates and the Bank Lending Channel,” by researchers at Harvard University, Brown University, and Norges Bank. The authors include Lawrence Summers, former U.S. Secretary of the Treasury and one-time president of Harvard.”
“China’s weakening economy is roiling export markets in the rest of Asia — and there’s more pain to come.
“From Hong Kong to Japan, exports data for December showed a marked downturn as supply-chain disruptions triggered by US-China tensions and a cyclical slowdown in the world economy, led by China, hit the trade-reliant region.
“More bad news is in store for January: Bloomberg Economics’ early indicator shows China’s economy slowed further this month, while Thursday’s purchasing managers index is set to show another decline in factory output.
“Nikkei PMIs for seven of the region’s economies are due Friday, with four of them already in contraction or less than half a point from contraction. A separate business survey on Wednesday showed South Korea manufacturers’ confidence for February at the most depressed level since the global financial crisis a decade ago.
“Hong Kong’s worse-than-expected plunge in exports was telling for its broadly subdued demand from the rest of Asia, especially mainland China. Trade-dependent Singapore posted its biggest fall in exports in more than two years, while in Indonesia, the biggest economy in Southeast Asia, the drop in shipments was the worst since mid-2017.
“South Korea and Taiwan had a pair of ugly exports reports last week, and Japan followed with the second decline in four months. January data for Vietnam, where trade accounts for twice the nation’s gross domestic product, showed a 1.3% contraction in exports from a year ago, the worst performance in five years.”
“South Korea’s industrial output extended weakening in December to reflect the downtrend in the chip segment with indicators for present and future economic activities in the longest slump since the oil crisis of the early 1970s…
“Samsung Electronics, the world’s biggest smartphone and memory chip maker, reported a slump in fourth-quarter net profits on Thursday, January 31, blaming a drop in demand for its key products. Net profits in the October-December period were 8.46 trillion won ($7.6 billion), it said, down 31% year-on-year… the picture is changing, with chip prices falling as global supply increases and demand weakens.”
“China has gone from a boon to world growth to a source of fragility. The policy response, driven mainly by Beijing and the Federal Reserve, is likely to be equally global in nature. The Fed took a big step on this front Wednesday, scrapping a preference to hike interest rates, citing global economic and financial conditions and waning price pressures. The principal worry is China and the weakness and deflationary pressures it’s exporting. China isn’t mentioned directly in the Federal Open Market Committee’s statement but it’s there in all but name.”
“The Federal Reserve may wind down its gradual asset-shedding operation sooner than thought, leaving the U.S. central bank with a bigger balance sheet than earlier anticipated, Fed Chairman Jerome Powell said Wednesday… late last year, prominent investors took to blaming the Fed’s balance sheet runoff for market volatility. President Donald Trump took up the drumbeat against the programme in December, tweeting at the Fed to “stop with the 50 B’s” – a reference to the $50 billion monthly cap.”
“Pending-home sales [in the US] slid 2.2% in December to a reading of 99, and were 9.8% lower compared to a year ago, marking the 12th straight month of annual declines, the National Association of Realtors said Wednesday. That’s the lowest reading since April 2014.”
“Billionaire apartment developer Harry Triguboff has warned this year could be worse than 2018 for Sydney and Melbourne’s already battered housing markets.
“The Meriton founder called for easing of taxes to coax foreign buyers back into the market and for young people to be able to access their superannuation to buy a home. “It may be as bad as last year, it may be worse,” he told The Australian. “Australia is completely dependent on the Chinese (buyers). (The slowdown) must affect the broader economy.””
“Concern about Brexit’s impact on the U.K. economy is growing, with consumer worries near crisis-era levels, investment falling and the property market suffering. Nationwide Building Society said Thursday that house-price growth ground close to a halt as values rose just 0.1 percent in January from a year earlier.”
“The average cost for British lenders of issuing secured debt has leapt to its highest since just after the 2016 EU referendum, JPMorgan data shows, as investors fret that political turmoil could tip the economy into recession.”
“German retail sales plummeted by 4.3pc on the month in December, the fastest rate in 11 years, data released by the state statistics office on Thursday showed, sending a worrying signal about household spending in Europe’s biggest economy.
“The fall in real terms was far weaker than a Reuters consensus forecast for a 0.6pc drop.”
“Hedge funds haven’t been chasing the January rebound in U.S. equities on the heels of their worst year since 2011. According to Macro Risk Advisors, these big-money managers are acting much more like it’s the aftermath of the 2008 financial crisis than the relatively low-volatility environment that’s dominated for most of the past five years.”
“As the Greek debt crisis reached its peak in 2012, it was almost impossible to turn on the news without hearing the word “contagion” — the idea that the economic woes caused by Greece’s huge government debt (or, to some, by the greed of its creditors) would cause a systemic financial crisis across the globe.
“In 2019, a far larger country stands on the brink of potential meltdown, and the global response is … muted. If the United Kingdom does not find some way to either support a deal to exit the European Union or else to negotiate with its 27 EU partners an extension on the Article 50 process, the UK is set to leave the EU on March 29 with no deal.
“It is difficult to describe the scale of economic disaster this outcome would be for the UK. Most coverage has, reasonably, focused on the initial chaos — a country which relies heavily on cross-channel shipping for food, medicines, manufacturing supplies and more could see crossing fall by a reported 75% to 87% for six months, with almost no viable alternative routes to match anything like the lost capacity.
“But the longer-term economic harm would be devastating. The midpoint estimates of such a crisis suggest a drop of close to 9% in GDP — a far, far deeper recession than the financial crisis of 2009 — and huge increases in unemployment, the cost of borrowing, plummeting value of the pound, and more. This damage could easily take a decade or more to repair.
“That combination of chaos and of deep economic crisis would spell trouble in any economy — as the well-founded concerns about the broader effects of a Greek collapse showed — but the UK is not just any economy.
“Depending how you look at it, the UK is either the fifth- or sixth-biggest economy in the world — with a GDP around 13 times that of Greece. It is also, unlike Greece, perhaps the largest financial center in the world: many of the world’s key exchanges rely on London to function.
“More than a third of global foreign exchange trading operates out of London, as does a similar proportion of derivatives trading. Its banking sector is sized at more than €10 trillion ($11.4 trillion). It manages more than a third of Europe’s financial assets, and it is the insurer to the world. And many of the world’s largest global companies are either headquartered or co-headquartered here.
“Britain is an unimaginably sophisticated economy and is in many ways the world’s financial services provider. Its ties across the world economy would take years, if not decades, to unravel. And it stands on the very brink of an economic crisis never seen in living memory…”
“Leveraged loans, which helped cause the last financial crisis and have drawn fear that they could be a spark in the next one, are showing further signs of cracking as investors flock from the market and volumes dry up.
“Mutual funds that track the debt issued traditionally to companies with weak balance sheets and poor credit have seen $18 billion in outflows over the past 10 weeks, including $949 million for the period ended Jan. 23, according to data Refinitiv’s LPC team released Tuesday.”
“The chance of recession in the next 12 months spiked to its highest level in three years as market participants ratcheted up their worries about global economic weakness, Fed rate hikes, the market sell-off, trade tensions and the government shutdown.”
“Ford Motor Co.’s main partner in China is feeling the pain caused by the slowdown in the world’s biggest car market.
“Chongqing Changan Automobile Co. said in a filing late Tuesday its profit for 2018 may have tumbled as much as 93 percent. Sales at its joint venture with the American maker slumped 54 percent to 377,739 units last year…”
“Nissan Motor Co. reported its first slide in auto sales in almost a decade, adding to the challenges the company faces following the arrest of former chairman Carlos Ghosn in Japan for alleged financial misconduct.
“Global deliveries fell 2.8 percent last year to 5.7 million vehicles, the Yokohama, Japan-based carmaker said in a statement Wednesday.”
“You might say that a Government can never go bankrupt—they can always print more money. But a Government may default where debt is denominated in foreign currencies. The likelier scenario is that in the event of a crisis, Governments will need to pay significantly higher interest rates to sell bonds.
“The US Government currently pays about 8% of its budget to service debt, and this is with extremely low interest rates. What if the US Government had to triple its cost of servicing Treasuries during a recession, when tax revenues are falling? Ouch!
“… it seems that most Governments and corporations have not learned the lessons of the 2008 financial crisis. (Perhaps most households have). This creates a virtual certainty that there will be another financial crisis—the only question is when — and raises the question as to whether the next recession could be more severe than the one in 2008.”
“Italy risks sliding into a recessionary vortex after corporate lending slumped by 5.5pc in December, raising the odds of a fresh debt crisis in 2019 without a shift in policy by the eurozone authorities.
“Data from the European Central Bank on Monday shows that total loans to non-financial companies in Italy have been contracting at an accelerating pace since the insurgent Lega-Five Star coalition took power in June. This has metastasized into an incipient credit crunch over the last two months.
“Italian lenders are now being forced to rein in credit as the ECB imposes draconian capital requirements when the country is already in a technical recession, and in the midst of a serious economic slowdown across the eurozone…
“Lorenzo Codogno, the former chief economist of the Italian treasury and now at LC Macro Advisors, said the economy is “entering a self-defeating loop of negative growth”, with rising deficits and debt ratios.
“He warned that the economy is likely to contract by a further 0.2pc this year, with perilous effects on the country’s knife-edged debt dynamics.
“He said: “I always thought that Italy was one recession away from a full-fledged crisis, as it did not adequately address fiscal and structural issues in the past. Here we are now, with a crisis that looks almost unavoidable.”
“Mr Codogno said the banks are under huge pressure. The downturn is tightening the noose on their non-performing loans, and now the ECB has told them that they must provision fully for all of these bad debts.
““There isn’t enough capital in the Italian banking system to cover this so the ECB is basically saying that the whole sector is bankrupt,” he said…
“The more immediate worry is Italy’s relapse into its third recession in a decade, with economic output still 4pc below its previous peak and the debt ratio 30 percentage points higher at 132pc of GDP. Core inflation is pinned to the floor at 0.5pc, a near deflation trap that makes it even harder to control the debt trajectory.
“The ECB halted its bond purchase programme at the end of December, leaving Italy without a buyer-of-last resort standing behind its sovereign bonds. The political bar in Frankfurt to renewing quantitative easing is extremely high. The institution would do so only after a crisis was already well underway.
“The eurozone still lacks a pan-EMU deposit scheme to break the 2012 ‘doom loop’ between sovereign states and banking systems, each dragging the other down in a self-feeding crisis. “We desperately need to complete the banking union,” said Ana Botin, head of Santander.
“The danger for Italy is that it must roll over or finance €350bn of debt this year on the open market. It is not clear who will step into the breach at a time of net foreign outflows…
“Mr Codogno said the Lega-Five Star budget plans have worsened the structural deficit for years to come with spending on entitlement programmes that do nothing to raise productivity. The supply-reforms that Italy so badly needs have largely been shelved.
““They are going in exactly the wrong direction,” he said. “Pro-growth policies have disappeared. The focus on public investment has vanished. All the fiscal efforts went into the two flagship initiatives of rolling back the pension reform and introducing a basic income for all.”
“Combine this with recession and Italy’s debt trajectory can quickly go parabolic.”
“World trade growth slowed starting early 2018 just when the German auto industry was dealing with a wrenching drop in domestic sales.
“This concurrent hit to two of Germany’s vulnerabilities — overwhelming dependence on buoyant world trade and accelerating obsolescence of its industrial structure — is pushing the economy into recession.”
“Sabine Weyand said of the two years of talks due to end on 29 March: “There’s a very high risk of a crash out not by design, but by accident. Perhaps by the design of article 50, but not by policymakers.”
““We think we can handle it,” Weyand said. “I’m less sure about UK side. For us it’s about EU-UK trade relationship and disruption to supply chains. For the UK a no deal would mean that a part of the regulatory and supervisory structure of economy breaks away – a much bigger challenge.””
“China’s state planner has been rapidly approving big infrastructure projects, as it looks to give its flagging economy a shot in the arm…
“The acceleration comes after the NDRC vowed to speed up project approvals. This was in response to Beijing last month signalling more stimulus to counter the effect of the trade war with the United States and a broad-based slowdown in the domestic economy.”
“Caterpillar Inc. manufactures huge yellow bulldozers. Nvidia Corp. makes minuscule computer chips.
“Their products have little in common, but their earnings on Monday pointed to the same direction: demand in China is slowing down for a widening range of goods. The world’s second-largest economy, which contributes about a third of global growth, has been weakening for years…”
“Taiwan’s economy continued to weaken as the key economic indicators for December 2018 flashed a “blue” light for the first time since April 2016, indicating contraction, the National Development Council said Monday.
“The NDC composite index of monitoring indicators fell to 16 points for December, flashing a “blue” light, down from 17 points a month earlier when it flashed a “yellow-blue” light.”
“[Australian] Companies suffered the worst slump in conditions since the 2008 global financial crisis as evidence mounts that the economy slowed in the latter part of last year.
“The business conditions index – measuring hiring, sales and profits – dropped to 2 in December from 11 a month earlier, a National Australia Bank report showed on Tuesday. A gauge of employment fell to 4 from 9 in November, while profitability plunged to zero from 8.”
“The US housing market was at the heart of the financial crisis that rippled through the global economy a decade ago. Today, emerging cracks in a property recovery are darkening the outlook for housing-related stocks.”
“Venezuelan opposition leader and self-proclaimed president Juan Guaido ordered congress on Monday to appoint new boards of directors to state oil company PDVSA and U.S. subsidiary Citgo, shortly before the United States imposed sanctions on the firm…
“Guaido, who has not yet appointed a Cabinet, faces the intricate legal challenge of nominating new leadership for PDVSA and its subsidiaries, including Citgo Petroleum, who would manage the companies during a transition.”
“From the National Park Service to Nasa, the Coast Guard to border patrol, the Internal Revenue Service to the Transportation Security Administration – federal agencies are now filled with workers with damaged credit ratings, missed mortgage payments, new debts and, especially, new doubts about their basic job security and the future.”
“During 2018, the Federal Reserve increased interest rates multiple times, and additional increases are widely expected to occur during 2019. This could have substantial consequences for student loan borrowers…”
““With the pace of economic expansion slowing across major economies and the balance of risks tilting to the downside, the G-3 central banks — the U.S. Federal Reserve, the European Central Bank and the Bank of Japan — are all signaling a wait-and-see approach.”
“The company’s views were altered in part because of the Fed’s recent greater emphasis on the need to be “patient” and “cautious.””
“Earnings at China’s industrial firms shrank for a second straight month in December on slowing prices and sluggish factory activity, piling more pressure on an economy in the grips of its slowest growth in nearly three decades.”
“Three mainland Chinese companies have missed a combined 2.5 billion yuan (US$369.6 million) in debt repayments over the past two months despite apparently high cash holdings, a development that has exposed deep flaws in the auditing and financial disclosure practices in the country.”
“One of the most reckless measures, analysts said, was the country proceeding with public sector pay raises last year, which cost the state $917 million and further inflated the country’s $83 billion debt. For many experts, the question is not if the Lebanese economy will collapse but when.
“One international financial expert with intimate knowledge of the Lebanese economy said such a collapse is ongoing.”
“Zimbabwe’s inflation rate has hit 290 percent – the second highest in the world after Venezuela (reportedly 80 000 percent at the end of 2018), United States economist and currency expert Steve Hanke said…
“Inflation was being driven mostly by the shortage of foreign currency, which had led to huge disparities in the exchange rate between Zimbabwe’s surrogate currency, the bond note, and the US dollar.”
“Members of Venezuela’s opposition canvassed military bases across the embattled nation on Sunday, offering amnesty to troops and police officers who defect from the South American nation’s embattled president Nicolás Maduro.
“The bold attempt to dent Maduro’s grip on the military – long seen as the arbiter of political disputes in Venezuela – was led by Juan Guaidó, the leader of the opposition-held national assembly.”
“No question, the people who show up at the World Economic Forum see it. They see inequality is on the rise. They see it is no accident that weather-related incidents are happening a lot more frequently.
“They see another financial crisis is lurking out there somewhere… Even so, there remains a yawning reality gap between what is said and what is actually happening.”
““If you said just a few years ago that starting forest fires because of transmission malfunctions was going to bankrupt a major American utility, people would be like, ‘No that’s crazy, that can’t happen,’” Elias Hinckley, a Washington, DC–based energy and climate finance lawyer at the global law firm K&L Gates, told VICE. “But here we are.”
“The question some people in the financial world are now asking is: Who will be next?”
“Freight rates for dry-bulk and container ships, carriers of most of the world’s raw materials and finished goods, have plunged over the last six months in the latest sign the global economy is slowing significantly.
“The Baltic Dry Index, measure of ship transport costs for materials like iron ore and coal, has fallen by 47 percent since mid-2018, when a trade dispute between the United States and China resulted in the world’s two biggest economies slapping import tariffs on each other’s goods.
“Dry-bulk commodities are taken as a leading economic indicator, because they are used in core industrial sectors like steelmaking and power generation, and analysts say the recent declines in activity point to a serious economic slowdown.”
“”The global economy and dry-bulk shipping market are showing us very real signs of distress,” said Jeffrey Landsberg, managing director of commodity consultancy Commodore Research.”
“Britain is preparing for Brexit in little over two months against a backdrop of faltering domestic growth and a global economic slowdown, which threatens to compound the consequences of a no-deal exit, according to Guardian analysis of economic news over the past month.
“UK plc has begun to enact emergency plans for crashing out of the EU, with Westminster gridlocked since Theresa May suffered the worst government defeat of any British PM in the democratic era over her withdrawal plan.”
“The European Central Bank has sounded the alarm over the euro-zone economy, warning a slowdown it thought would be temporary was showing signs of becoming long-lasting because of global trade tensions, Brexit and financial market volatility.
“The shift in outlook, which policymakers said had clearly “moved to the downside”, comes just six weeks after the ECB removed the most important element of its crisis-era stimulus, halting new purchases of bonds as part of its €2.6 trillion quantitative easing programme.”
“As China’s car industry loses its shine, automakers are starting to buckle up for the downward slope with Hyundai Motor Co. announcing it’s letting workers go and is reviewing production plans in the world’s biggest market.
“Beijing Hyundai Motor Co., the joint venture between Hyundai and BAIC Motor Corp., is accepting voluntary retirements from employees and reviewing “production optimization” to enhance plant efficiency around the Chinese New Year holidays, Hyundai said in a text message Friday.”
“Rising interest rates and the latest round of property curbs have put the brakes on mortgage demand at Singapore’s banks, potentially further dragging down the city’s housing market…
“The credit slowdown threatens to further accelerate the decline in residential prices… Housing values may drop as much as 3 per cent this year, and new home sales might plunge 20 per cent, according to Mr Derek Tan, a real estate analyst at DBS Group Holdings.”
“President Donald Trump’s political plight gets worse with every day that passes in history’s longest government shutdown. Yet at a moment when a conventional president would fold a bad hand and spare the federal workers victimized by the debacle, Trump is digging ever deeper.
“And the most foreboding sign emerging from Capitol Hill on the 35th day of the impasse is that no one — not his Republican allies or Democratic foes — has any idea how he plans to extricate the nation from the darkening crisis.”
“The Crisis in Zimbabwe Coalition on Thursday warned of “greater chances of escalation of social unrest and instability” if the volatility in that country was not adequately addressed.
“Addressing journalists in Johannesburg, the coalition’s regional coordinator – Blessing Vava – said while there was a national outcry over the deteriorating economic situation in Zimbabwe, there was also an apparent attempt by the state to silence dissenting voices through arbitrary arrests, beatings, abductions and threatening civil society leaders and unionists.”
“Central banks are fast losing their chance to tighten before the next downturn in the cycle, though it’s still unclear what the Federal Reserve’s “patience” means for interest-rate hikes this year. Ray Dalio’s leading a crowd calling for a rethink on policy tightening amid all the weak growth signs.”
“As far as I know, your work is unique in pulling together stories from all over the world. Very sobering but a better and more complete view. Terrific and necessary work. Thank you!” – Simon
“With the inundation of so much depressing news, Justin Panopticon presents it in a succinct format that one can quickly go thru and see the big picture of climate and economics/politics to stay current and if a particle topic is of interest one can delve into the details… I try never to miss any of his posts…I am a Patreon of his work.”
– Karina S.
About This Site
Weekday updates on both climate change and the global economy. Stay current with what’s happening around the world with a quick scan of top news.