Daily updates on climate change and the global economy.

Economy 8 March 2019 Global Slowdown Exposing Outgunned Central Banks

“The European Central Bank on Thursday unveiled a new economic rescue package, citing a darkening outlook driven by a slowdown in China, fears that the United Kingdom will make a chaotic exit from the European Union and aftershocks from President Trump’s tariff wars.

“The mounting worries prompted the bank to cut its growth forecast for 2019 by nearly one-third to just above 1 percent. ECB President Mario Draghi also said he would maintain rock-bottom interest rates through the end of this year, several months longer than previously planned, and funnel more credit to banks in hopes of spurring business lending.

“The move came less than three months after European authorities said the 19-nation euro zone economy no longer needed unusual help, capping more than a decade-long $3 trillion stimulus following the global financial crisis.”


“Eurozone productivity shrank in the second half of last year for the first time since the financial crisis, amid slowing economic growth.”


“German factory orders unexpectedly fell in January, piling on more evidence that Europe’s largest economy continued to lose momentum at the start of year.

“Orders were down 2.6 percent, the most since June, defying expectations for a 0.5 percent gain.”


Britain’s high street retailers suffered their worst February sales figures in a decade, down 3.7% from February 2018.

“This latest blow comes from the BDO’s High Street Sales Tracker, despite periods of unusually warm weather around Valentines Day and the half-term holidays.”


“Americans’ net worth fell at the highest level since the financial crisis in the fourth quarter of 2018 as sliding stock market prices ate into the household balance sheet.

“Net worth dropped to $104.3 trillion as the year came to an end, a decrease of $3.73 trillion from the third quarter, according to figures released Thursday by the Federal Reserve. The fall amounted to a drop of 3.4 percent.”


“China’s huge export industry has suffered its worst month in three years, hurt by the trade war with the United States and a slowing global economy.

“Chinese exports plunged 21% in February from a year earlier, according to Chinese government data released Friday. It was the weakest monthly performance since February 2016 and far worse than economists had predicted.”


“China’s coal imports in February tumbled 42 percent from the prior month as the world’s top buyer stalled custom clearances of shipments from Australia, sparking speculation it was retaliating politically against one of its biggest suppliers.”


“…ever since emerging markets became more integrated into the world’s financial markets, they have tended to be centre stage.

“A Fed tightening cycle preceded the debt crisis in Latin America in 1982, the Mexican crisis in 1995, the dotcom bubble in 2000 and the global financial crisis of 2008-09.”


“The Turkish economy will contract by as much as 1.8% this year, the Organization for Economic Cooperation and Development has forecast.

“The prediction came in a week that saw opposition newspapers deploring the soaring cost of vegetables, President Recep Tayyip Erdogan’s blaming the price rises on speculators whom he likened to “terrorists” and opposition leader Kemal Kilicdaroglu’s scoffing at Turkey’s having to import onions from Egypt.”


“Fishermen in Uttara Kannada [India] are left in the lurch as they are unable to get a good catch in the Arabian Sea for the past two weeks.

“Nearly 90 per cent of purse seine fishing boats have stopped fishing and have been anchored at Karwar port for the last two weeks. Like last year, fishermen this year too have been facing fish drought in February.”


“Women, wives, mothers who struggle to earn a living, despite the economic crisis in the Republic of Congo…

“Women fish vendors in Pointe-Noire, the Republic of Congo are unfortunately facing an increased shortage of their products in a country already hit by an economic crisis.”


“A widespread blackout enveloped much of Venezuela in darkness Thursday night, stopping subway service in the capital and causing problems around the country, which has been plagued by power failures as its economic crisis has worsened.”


“U.S. investors swarmed into sovereign debt and fled the volatility of stock markets on Thursday after Europe’s central bank cut its GDP forecast, rekindling fears that a slowdown overseas could send shock waves into the American economy… But where the ECB took investors mostly by surprise was in its decision to announce a new round of stimulus and push back its timeline for future rate hikes “at least through the end of 2019.””


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Economy 7 March 2019 Every Major Economy Slowing

“Almost every major economy is slowing down as the global economic squeeze tightens, the Organisation for Economic Cooperation and Development (OECD) has warned.

“The analysts slashed their forecast for GDP as slowing trade growth, political tensions, and higher interest rates have all knocked the economy…

““The global economy is facing increasingly serious headwinds,” said chief economist Laurence Boone.

““A sharper slowdown in any of the major regions could derail activity worldwide, especially if it spills over to financial markets. Governments should … coordinate policy actions to avoid a further downturn.”

“Risks abound, from the dangers of a sharper slump in China to an intensification of the trade war, a “no deal” Brexit, and a debt crunch as borrowing has surged in the era of low interest rates.

“The economists chopped their German forecast by more than half, predicting that the eurozone powerhouse will grow by just 0.7pc this year, down from an earlier forecast of 1.6pc.

“Italy faces a longer recession: its GDP will fall by 0.2pc this year, the OECD believes, in a sharp turnaround from November’s forecast that anticipated growth of 0.9pc.

“French growth has also been trimmed, though to a more positive 1.3pc.

“The eurozone overall is set for GDP growth of 1pc, a major downgrade from November’s 1.8pc. Weak exports and political turmoil are pulling down growth, the economists said.

“Britain’s outlook has also been slashed almost in half. The growth forecast is down from 1.4pc to just 0.8pc.”


“The OECD said a steep fall in investment over the past year by UK-based firms had left the economy in a weak position to boost its poor productivity rates and increase wages growth.

“The economic health check comes as a string of major manufacturing firms have made clear that their future in the UK is in doubt should the government fail to secure a transition arrangement that allows them to trade freely inside a customs union with the EU.”


“The European Central Bank will slash growth forecasts on Thursday and is likely to send its strongest signal yet that fresh stimulus is coming in the form of more cheap loans, hoping to stop an unexpected slowdown from becoming a downturn.”


“The eurozone is beginning to resemble Japan with its low-growth and low-inflation environment, coupled with still very loose monetary policy, according to economists at ING.

“This raises questions about the European Central Bank’s tool kit and firing power. Interest rates haven’t gone up in either the eurozone or Japan since the aftermath of the global financial crisis.”


“The U.S. trade deficit widened in 2018 to a 10-year high of $621 billion, bucking President Donald Trump’s pledges to reduce it, as tax cuts boosted domestic demand for imports while the strong dollar and retaliatory tariffs weighed on exports.”


“People are not driving around anymore in Venezuela. To make things worse, 90% of buses were reportedly out of action by mid-2018. This is a society that just doesn’t go out for work or travel.

“Businesses are also using less transportation, since they produce fewer goods than they used to – including food.

“The last implication is terrifying, and can easily be missed when solely looking at numbers. It is possible to survive without a car, but not without food.”


“Libya’s parallel government in the east has sold bonds worth more than $23 billion to fund its wage bill, bypassing the central bank in Tripoli and creating a potential financial black hole if the country reunifies, bankers and diplomats said. The debt has been piling up since 2014, when the country split into two administrations – one in Tripoli and the other in the east – as a result of the power struggle that followed the fall of Muammar Gaddafi in 2011.”


“In February, S&P Global Ratings projected that the total value of outstanding bad debt in the Turkish banking sector will approximately double by the end of the second half of 2020 at the latest.

“The ratings agency stated that it expects non-performing loans (NPL), recorded at 3.5 percent in September 2018, to hit 8 percent; moreover, should the NPL definition be extended to encompass restructured loans, S&P observed that the current figure is already in excess of 10 percent, expecting it to surge to up to 20 percent using its base-case test scenario.”


“…the trade war is only one among many problems that China is struggling with. Even if a trade deal is finally struck with the US, relief will most likely only be temporary. The reasons behind the growth slowdown run much deeper and paint a truly worrying picture of the future.

“And while the cracks are just beginning to show now, their origins actually lie all the way back in 2008… The Chinese economy accounts for almost a third of global growth, while the country is the world’s largest trader, driving global commerce. That means an economic slowdown is not just China’s problem. “


“China’s exports likely contracted in February after a surprise bounce in January, while imports fell for a third straight month, a Reuters poll showed, heightening anxiety over whether Washington and Beijing can resolve deep differences over trade.”


“Hyundai Motor Co is considering plans to suspend production at its oldest plant in China as it reels from tumbling sales and massive overcapacity in its biggest market. The move by Hyundai, which together with affiliate Kia Motors was the No.3 automaker in China until 2016, highlights the reversal of fortunes in the world’s biggest auto market that suffered its first contraction in decades last year.”


“A deepening credit squeeze is making it harder to get a mortgage in Australia, further dragging down a property market already deep in its worst slump in a generation. Gone are the days of banks throwing money at homebuyers. Instead they’re tightening lending criteria, after an inquiry into misconduct in the finance industry heard how lax standards had lumped people with mortgages they couldn’t afford.”


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Economy 6 March 2019 World Not Ready for Next Recession

“Britain is paralysed by Brexit uncertainty, the Eurozone – including its seemingly invincible German powerhouse – is stuttering, and China is experiencing its slowest economic growth since 1990.

“Even the US, which had been performing well of late, is seeing a slowdown as the sugar rush of Trump’s tax cuts wears off.

“The IMF frets about “a shadow over global economic prospects” while the World Bank warns ominously of “darkening skies”.”


“The UK economy came close to flatlining last month as Brexit uncertainty intensified and the global economy weakened, with employment levels falling at the fastest pace in almost nine years.

“According to the latest snapshot of Britain’s services sector – which accounts for 80% of economic growth – businesses have begun to delay hiring staff against a backdrop of subdued demand and concerns about the economic outlook…”


“Europe’s financial system faces “potential risks” to its stability arising from a no-deal Brexit, the Bank of England warned on Tuesday, as it extended its weekly lending facilities to include euros.

“With just 24 days to go until Britain is set to leave the European Union, the BoE said businesses and households across Britain and the EU were vulnerable.”


“Germany’s finance ministry has defended its so-called “bail-in” rules that cover failing banks the country’s finance ministry said when asked about a Bank of Italy official’s comment that they were damaging and virtually impossible to apply… Designed after the global financial crisis to shield taxpayers from costly bank bailouts, bail-in rules require investors in a bank to bear losses before public funds can be tapped.”


“Even for those who haven’t been following the vicissitudes of European banks blow by blow, the latest wave of money-laundering allegations to hit some of the region’s lenders is reason to look away in despair.

Firms from Swedbank AB to Raiffeisen Bank International are alleged to have handled a broad range of suspicious transactions involving Russian money.”


“Is Canada’s economy on the verge of slipping into a recession? Lower prices for oil, a slump in real estate prompted by tighter mortgage rules and slower business spending are some of the culprits for the slowdown cited by Statistics Canada.”


“Australia’s economy is coming to a screeching halt and the nation’s car dealers are bearing the brunt. Industry figures show new car sales in February were down a whopping 9.3 per cent on the same month last year.

“That backs up a 7.4 per cent slide in January, a 14.9 per cent slump in December and a 3 per cent fall over 2018 as a whole.”


“China is slashing business taxes as it tries to stop its economy from slowing down too sharply. The Chinese government on Tuesday predicted economic growth of between 6% and 6.5% in 2019.

“That’s a decline from last year’s 6.6% rate of expansion, which was already China’s weakest performance in three decades.”


“Bank of Japan board member Yutaka Harada said on Wednesday the central bank would need to step up stimulus “without delay” if risks to the economy threatened its efforts to hit its inflation target…

“He noted the growing risks Japan faced, such as slowing demand in China, simmering trade tensions, volatile stock price moves and weak private consumption.”


“Negative events “can lead to a contraction in credit and positive events fueling a domestic credit boom that could potentially result in financial stress as it turns to bust…

“Of concern to investors and rating agencies should be that emerging market companies’ debt in foreign currency has exploded in the last decade. From to 2008 until about now, foreign currency debt has risen almost 100%.”


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Economy March 1 2019 Global Manufacturing Slowdown Alarms

“Dutch factories haven’t escaped the global slowdown… Factory output in Italy has fallen at the fastest rate since 2013, as new orders continue to shrink…. Not good for Italy’s hopes of escaping recession soon… Ouch! Spain’s manufacturing sector has suffered its first contraction in five years…

“The slowdown in China appears to be a key factor…

“Poland’s factories had a very rough February, with growth shrinking at the fastest rate since the financial crisis… Russia’s factory sector came close to contracting last month…

Japan’s factories suffer biggest slowdown since 2016…”


“In many cases, business conditions were the worst Asian companies have faced since 2016, with demand weakening not only in China but globally.

“Japan’s factory gauge fell at the sharpest pace in 2-1/2 years as slumping orders prompted plants to cut production, while separate data from South Korea showed its exports plummeted.”


“The statement from Fitch says that they find China’s domestic demand slowdown as the main reason impacting trade flows in Asia rather than the direct impact of tariffs between US and China.

“Fitch adds that Germany in particular has been hit hard by declining auto sales in China as a result of the slump in demand.”


“India’s economy slowed further in the latest quarter, official data showed on Thursday, as the world’s largest democracy prepares for a national election and border clashes with rival Pakistan…

“The numbers boded poorly for Prime Minister Narendra Modi, who steamrolled to power in 2014 promising to create millions of jobs and spur economic growth, but must call a general election, due in April and May.”


“Turkey’s foreign trade deficit shrank by an annual 72.5 percent to $2.5 billion in January, indicating that the country’s economic downturn is set to continue…

“Turkish economic activity has slowed markedly since a currency crisis peaked in August, paring demand for imports. The economy contracted a quarterly 1.1 percent in the third quarter of 2018 despite government tax cuts and other incentives.”


“The administration of Mauricio Macri is facing yet another economic crisis. During 2018, the economy fell by 2.6% and the private sector lost 191,300 jobs.

“This situation confirms what is readily perceived on Argentine streets: shops that close their doors, companies that are merging or leaving the country, and a loss of jobs. The economic situation of those who can continue to operate and those who maintain employment is not good. Profit margins are shrinking…”


“Things are bad in Algeria, and they will likely get far worse. “[…] crunch point is approaching fast,” states a recent report from London-based financial analysis firm Capital Economics.

“The problems stem from a multitude of factors including a weak oil price and rotten economic policies, which are both exacerbated by recent mass protests… In other words, Algeria is heading for something close to an economic Armageddon.”


“The worst economic crisis in modern Latin American history has gotten “even worse” than expected as new U.S. sanctions exacerbate pain on Venezuela, according to the International Monetary Fund.

There’s more downside risk in the region after the Trump administration slapped a de facto oil ban on Venezuela and tightened restrictions on state oil giant PDVSA, said the IMF’s Western Hemisphere Director Alejandro Werner.”


“Last year was one of the best for the economy since the financial crisis, partly thanks to a big boost from the GOP tax cuts and a bump in government spending on military and domestic programs…

Growth at the start of this year could fall sharply to around 1 percent, many economists predict, as uncertainty around trade, weak growth abroad and the fallout from the partial government shutdown drag momentum down.”


“A No Deal Brexit would cause ‘considerable’ economic harm to the rest of Europe, Dutch MPs warned yesterday. The delegation, which visited Westminster last week on a fact-finding mission, said No Deal would worsen already weak growth across the eurozone.

“It could even trigger a banking crisis in Italy, they suggested, given the country’s vulnerability to economic shocks due to high public debt. ‘This could rebound on the eurozone,’ the Dutch said.”


“Australian home prices fell a further 0.7 per cent last month and are now down nearly 7 per cent from their peak, as the downturn extends beyond Sydney and Melbourne…

“Sydney and Melbourne have still suffered the worst fall over the past year, down 10.4 and 9.1 per cent respectively.”


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Economy 28 Feb 2019 Swiftest Exports Orders Drop for China Since 2008

“Chinese factories have suffered the swiftest drop in export orders since the financial crisis a decade ago, fuelling concerns that the country’s economy has weakened.

“Fresh economic data show that manufacturing activity in China shrank in February, for the third month running, at the fastest rate in three years.

“This dragged the official manufacturing purchasing managers index (PMI) down to just 49.2, from 49.5 in January (any figure below 50 shows a contraction).”


“Growth in disposable income slowed in China last year while living costs rose, highlighting the increasing strains Chinese households are facing as the economy cools.

“Beijing is counting on the nation’s vast consumer base to cushion the broader slowdown. But as the outlook grows more clouded Chinese are tightening their belts…”


“The plunge in auto sales in China has made its way to the US heartland. Nearly 1,400 autoworkers in Belvidere, Illinois, will lose their jobs as a result of weak demand in China for the Jeep Cherokee.

“Fiat Chrysler announced it is eliminating the third shift at the Illinois plant in May. It said that the layoffs are needed to “better align production with global demand.” The company also cut its sales outlook for 2019 because of the slowdown in the Chinese auto market.”


“The US economy is slowing and the rest of the world is highly exposed, meaning a serious slump could spread quickly to other nations, economists have warned.

“At the same time China has little room to launch any major stimulus, as it did in the financial crisis, and other leading economies are unlikely to help. Analysts at Citi have chopped their forecasts for the world’s largest economy…”


“British car production declined by 18.2% in the first month of 2019, sparked by a significant fall in demand from China and Europe… It is the eighth consecutive month in which production has declined in the UK.

“While the number of cars manufactured for the domestic market fell by 4.8%, the bulk of the decline came from the export market, which fell by 21.4%. Demand for British-built cars in China declined by 72.3%…”


“UK house price growth remained sluggish in February, as property experts warned the housing market is “on its knees”

“…prices actually slumped month on month, falling 0.1 per cent from January to an average of £211,304, down from £211,966, Nationwide’s house price index found.”


“Economic sentiment in the UK plummeted in February to its lowest level in six years as Brexit uncertainty intensified, according to an EU survey.”


“Norway’s $1tn oil fund suffered its worst performance since the depths of the global financial crisis as weak equity markets weighed on the world’s largest sovereign wealth fund.”


“Italian banks had a deterioration in “liquidity and capital adequacy indicators”, the central bank said in November.

“…large sovereign debt positions a crisis in the fiscal arena can spill over into the banking arena…”


“Australian private sector credit growth remains anaemic, especially for housing and personal purposes. In January, housing credit grew by the smallest amount since 1984. Over the year, growth was the weakest on record.

“The weakness in housing credit reflects a steep slowdown in both investor and owner-occupier categories.”


“Former Federal Reserve (Fed) Chair Janet Yellen warned on Tuesday that America’s corporate debt binge could end up sparking a deeper recession when the next downturn hits. Rock-bottom rates and easy lending standards have allowed US companies to pile on record levels of debt, sparking concern from regulators about the risk the credit markets may pose to the U.S. economy.

“When asked about asset bubbles and potential fallout when the current US economic expansion cools down, Yellen singled out high corporate debt levels as a worry…”


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Economy 27 Feb 2019 Dubai Headed for Multi-Billion $ Debt Crisis

“A debt-fueled crisis is headed to Dubai, the trading hub of the United Arab Emirates.

“Despite Dubai’s diversification away from oil over the past few decades, the entire region is still dependent on energy revenues. The fall in prices for crude oil over the past half decade have squeezed Gulf governments and private enterprises alike. Brent crude oil, the European benchmark, fetched more than $100 a barrel in mid-2014 versus around $65 recently, according to data from media company Bloomberg.

“The slowdown in global trade hasn’t helped Dubai either. In a similar way to Singapore and Hong Kong in the far east, Dubai has set itself up as a trading hub in the Gulf, benefiting from the flow in international trade. However, the recent slump in trade, combined with growing protectionism means that the city’s business will suffer…

“”The backdrop of weak growth across the Gulf and the risk of overcapacity after the 2020 World Expo means that the GRE’s revenues could be weaker-than-expected, harming their ability to service these debts,” the Capital Economics report continues.

“In other words, unless something changes to help Dubai’s economy, the debt problems could sink the city.”


“The worldwide slump in smartphone sales and the slowing semiconductor cycle have been increasingly weighing on Southeast Asia, with official manufacturing output figures weakening across the region.”


“Hong Kong unveiled a less expansionary budget for fiscal year 2019/20 on Wednesday, though with relief measures for individuals and businesses at a time of economic uncertainty and trade tensions as growth slowed sharply… Hong Kong’s open and trade-reliant economy has been buffeted by external risks, including an economic slowdown in China, cooling property prices and stock market volatility.”


“The mountain of debt encumbering China’s economy looks set to grow after private companies piled on leverage at the start of 2019.

“Having spent two years trying to de-leverage — reduce debt piles — in an attempt to rebalance its economy China appears to have changed its policy. Its a risky decision given the already staggering levels of leverage that exist in the Chinese economy.”


“China’s steel mills may have taken a wrong turn by adding millions of tonnes of new high-end capacity just as the country’s car sector, a key steel consumer, undergoes its first contraction in decades, cutting metal demand.

“Hot-rolled coil, steel that is heat processed into metal sheets used for car bodies and household appliances, was a steady profit driver for mills but orders are now slowing down, two major steel mills and several traders told Reuters.”


“A fresh wave of investor concern loomed over Metro Bank tonight [UK] after an emergency cash call and news of a regulator probe spooked the City.

“The dog-friendly challenger bank made a shock move to rush out its full-year results this evening in a bid to quell concerns after announcing a plan to tap up investors for a further £350m of capital following a major accountancy blunder last month.”


“…countries that are home to globally systemically important banks such as Italy, Japan, Spain, and Switzerland have FSCs that lack good processes and tools to implement macroprudential policies.

“Financial institutions, especially internationally active banks, are incredibly interconnected, so financial stability can only be strong as the weakest link.”


“Italy’s massive sovereign debt pile has kept the country’s credit rating on the cusp of junk status, while political uncertainties and a fragile financial sector have served as strong headwinds…

“Against this backdrop, business confidence has weakened, manufacturing conditions have deteriorated, the rate of inflation has decelerated, and political dominance appears to be shifting. Italy has also entered its second recession in four years.”


“Greece’s foot-dragging on some key economic reforms is raising creditor concern, putting at risk a planned debt relief measure next month and a rebound in its stock and bond markets.”


“I think spiking income inequality causes recessions and that means we’re in for a doozy… I think rapidly rising income inequality is a good predictor of a recession. That’s because the bottom 99 percent of the income distribution envies the top 1 percent. To close the gap, they take financial risks…

“For example, during the run-up to the Great Depression, shoe shine boys gave out stock tips; during the dot-com boom, taxi drivers day-traded Internet stocks; and in years before the 2008 recession, people with low incomes borrowed way more than they could afford – taking on subprime mortgages — to buy houses.

“When the debts could not be repaid, people lost their homes, consumer spending — which accounts for some 70 percent of GDP growth — went down, companies responded to the drop in demand by cutting millions of jobs – which initiated a doom loop of declining incomes, spending, and demand.”


“Last year was the worst for returns from global equities since the financial crisis, according to research published by Credit Suisse.

“The bank’s Global Investment Returns Yearbook, compiled with the London Business School, provides long-run return data and risk premiums. Its latest edition, published on Tuesday, found returns from global equities declined 9% in 2018.”


And not unconnected to that:

“Federal Reserve Chairman Jerome Powell told U.S. lawmakers that the central bank plans soon to reconsider its years-long effort to shrink its $4 trillion balance sheet, given recent “crosscurrents” in markets and the global economy. The Fed has been shrinking the balance sheet since 2017, after swelling total assets from around $900 billion in the wake of the 2008 financial crisis.”


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