Russia’s Industrial Output, Reserves And Currency All Slump Together

Russian industrial production dropped sharply again in December – by the most since at least 2003. Output was down 10.3 percent following an 8.7 percent fall in November, according to data from the Federal Statistics Service announced yesterday (Thursday) by central Bank Chairman Sergey Ignatiev. Output growth for the year was 2.1 percent, the slowest since at least 1999.

Manufacturing fell an annual 13.2 percent in December, compared with a decline of 10.3 percent in November, as steel-pipe production dropped an annual 35.3 percent and coking coal output plunged 44.2 percent. Truck production plummeted 67.1 percent. Continue reading

January Activity Surveys Show German Economic Woes Continue

Germany’s economy continued to contract in January, and even more rapidly (slightly) than in December, according to the latest flash estimates for the Markit PMI.

The estimates showed that the composite Markit purchasing managers’ index (PMI) fell to 38.0 from December’s final 39.5 reading. Any reading below 50 means contraction from one month to the next, so what this means is that the German economy was contracting more rapidly in January. Taken together, the surveys of the manufacturing and service sector showed business activity shrinking at its fastest pace since the composite PMI series began in January 1998. A 38 reading on the monthly PMI is probably equivalent to something in the order of a 10% annual rate of GDP contraction (or a 2.5% quarter on quarter drop), which is, well, massive. Nor does this seem unreasonable, since on initial estimates it seems that German GDP contracted by 2% in Q3 2008 over Q2, which is an 8% annual rate of contraction. Whichever way you look at it, these numbers are very large. Continue reading

Two Views On The Future Of The Yuan

President Barack Obama believes China is “manipulating” its currency, his choice to head the U.S. Treasury said on Thursday using a term the Bush administration had deliberately avoided for years to describe Beijing’s foreign exchange practices.Washington will “aggressively” use all its diplomatic tools to press Beijing to move faster on currency reform, New York Federal Reserve Bank President Geithner said in response to written questions from the Senate Finance Committee, which voted 18-5 on Thursday in favor of his nomination. Doug Palmer, Reuters


Investors now reluctantly accept that this recession is the worst since The Great Depression. But the one event from the 1930s investors hope will be repeated is that the inauguration of a new president will mark a similar 75% rally in the equity market. In the UK it is notable that despite the implosion of bank share prices, the market has been rallying outside of this sector. Yet beware: outright deflation has already arrived and world trade is collapsing. Korean GDP has just declined a MASSIVE annualised 21% in 2008 Q4! China is now joining the rest of the world in the stinking cesspit of uncontrolled economic slump. As other Asian currencies slide, the trade-weighted Yuan is rocketing up. The Yuan needs to be devalued.

I laughed out loud when the highly manipulated Chinese GDP data was released, showing Q4 growth at a 6.8% yoy rate after 9.0% in Q3 and a peak of 12.6% in 2007. That this out-turn was bang in line with the median estimate of economists surveyed by Bloomberg makes it all the more unbelievable in my mind. All other economic data worldwide have been surprising massively on the downside and China should be no exception. A few hours earlier, for example, South Korea reported Q4 GDP had declined a hefty 5.6% QoQ, massively worse than a ReuterÂ’s consensus which looked for a contraction of 2.7%! I naively thought that this QoQ decline was already annualized, but it was not. On a US style of reporting, the South Korean economy contracted at a 20% annualised rate in Q4. Asia is in depression. Whatever the heavily manipulated Chinese GDP is telling us, that economy must now be contracting. The Yuan needs to be devalued.
Albert Edwards, Societe Generale

Obviously something, somewhere, is dead set on collision course. And my feeling is that we won’t be too long getting there.

Wage Cuts Now On The Agenda In Estonia

This is hardly surprising, but still. The Baltic Business News is reporting that Indrek Neivelt, chairperson of the Estonian Development Fund is saying that Estonia isn’t competitive with its current cost base, and the only option that faces the country is lowering prices and cutting salaries.

“Our main problem after this consumption party is competitiveness. The money has been devalued in many export markets. With our expense base and prices we are no longer competitive. Polish food is going to Lithuania and it’ll be here soon. Soon we might not be able to produce food competitively,” Neivelt said. “Today is the situation that shopping in the UK is cheaper, sitting into the taxi is cheaper than in Tallinn, eating out is cheaper than in Tallinn – with our prices we aren’t competitive,”

Estonian PM Andrus Ansip also acknowledged in a press conference today that one of the reasons for the deterioration of the current crisis in the country is that some the governments in some export markets such as Ukraine, Russia, Sweden and UK had gone for allowing their currencies to weaken against the euro.

The number of unemployed is also on the rise in Estonia, and increased by 4155 or 15.8 pct in December month on month, according to the local Labour Market Board. Compared to December 2007 the unemployment rate has risen by 115.3 pct.

And local stock market analyst Tõnis Oja has come to the conclusion that the Baltic economic crisis may have affected Sweden more even than the Baltics themselves. Oja wrote in the magazine Äripäev that concerns that Swedish banks were overexposed on the Baltic loan and real estate market not only caused the banks’ share prices to plummet, but it was also partly responsible for the value of the Swedish krona falling from 1.67 SEK per Estonian kroon in the summer to 1.43 kroons (and by an equivalent percentage against the euro).

“If we look back to when bubbles started to burst, then one sign was February 2007 when share prices started to fall in Tallinn. This was soon followed by a similar trend in other Central and East European bourses. Stocks in Tallinn had been posting some of the world’s fastest gains for years and, as pioneers, it was our time to lead the downfall,” writes Oja.

China Nears Recession Point As GDP Slumps

China’s National Bureau of Statistics released fourth quarter GDP growth statistics for 2008 today, and it turns out that (according to their initial estimates) the Chinese economy expanded by 6.8 per cent in the last quarter of the year when compared with the same period in 2007. This was the weakest quarterly year on year growth rate in seven years. For the year as a whole, the economy grew 9 per cent, down from the revised 13 per cent growth rate in 2007.

Strikingly, Japanese exports to the US were down some 37% yoy, losing some 26pp since the 11% yoy contraction in July. But we cannot highlight strongly enough how truly mindboggling Japan’s collapse in exports to China are. Last July they were expanding at a 16% yoy pace. Now they are contracting at a 35% yoy rate! This is a phenomenon throughout the region. Hence despite the notoriously manipulated Chinese GDP data showing a shocking slowdown in GDP growth to 6.8% yoy, I would eat my hat if the Chinese economy was doing anything other than contracting right now.
Albert Edwards Societe Generale

The steepness of this slowdown is likely to have a significant impact on much of the rest of Asia, which relies heavily on demand from China. Only this week a Singapore based economist friend of mine sent me this in an e-mail:

At S’pore’s port container terminal (the busiest in the world), a third of the cranes are idle. There are some companies saying they have inventories stretching 6 months out. December’s plunge in Asian exports was due to the shutdown of electronic companies during the Christmas period because of the pile up in inventories.

Continue reading

You are independent of all logic Giulio Tremonti!

Italian Finance Minister Giulio Tremonti is a strange and controversial figure.The peculiar phrase in the title to this post in fact came out of the very mouth of Tremonti himself, though they were addressed to an astounded, if now world famous, US economist, Nouriel Roubini, in front of an equally amazed and bemused Davos audience. Since in these kind of matters it is normally better to watch what it is you actually say, just in case in the fullness of time your own words come back to haunt you – as the famous “If you don’t fully understand an instrument, don’t buy it” ones of Santader Bank chief Emilio Botin just did in the Madoff affair – I simply can’t resist pointing out how lacking in logic the present Italian Finance Minister is himself at times. Continue reading

Freezing Yourself Out In Latvia and Lithuania

This very short piece of news in Bloomberg this morning is straight to the point, how the hell are you going to export to countries (whenyou now need to live from exports) if those countries are having massive devaluations while you mark time. Oh, I know, the Ukraine and Russia represent only a small fraction of Baltica exports, but they aren’t the only ones falling, the Romanian Leu, the Polish Zloty, the Hungarian Forint, the Czech Koruna are all falling, and all these countries are direct rivals for market share in the rest of the EU.

AB Snaige, the only refrigerator maker in the Baltic states, will cut about 300 jobs in its Lithuanian factory, citing lower demand in Russia and Ukraine as both the ruble and hryvnia lose value against Lithuanian litas. Sales in Russia and Ukraine have “stopped” and “there is no evidence these markets will revive” during the first quarter, the Alytus, Lithuania-based company said in a statement to the Vilnius Stock Exchange today. The company employs “more than” 2,300 workers in its two factories in Lithuania and Kaliningrad, Russia, according to its Web page.

Continue reading

Geert Wilders criminally prosecuted

The Amsterdan Court of Appeal has ordered the criminal prosecution of Dutch MP Geert Wilders (you know, the Fitna guy). I do not have time to elaborate on this right now, but I thought the Court’s argumentation (see first link) makes for some nice debating material. Two snippets:

The Court of Appeal has considered that the contested views of Wilders (also as shown in his movie Fitna) constitute a criminal offence according to Dutch law as seen in connection with each other, both because of their contents and the method of presentation. This method of presentation is characterized by biased, strongly generalizing phrasings with a radical meaning, ongoing reiteration and an increasing intensity, as a result of which hate is created. According to the Court of Appeal most statements are insulting as well since these statements substantially harm the religious esteem of the Islamic worshippers. According to the Court of Appeal Wilders has indeed insulted the Islamic worshippers themselves by affecting the symbols of the Islamic belief as well.

And Godwin is in there too:

However, the Court of Appeal makes an exception as regards insulting statements in which a connection with Nazism is made (for instance by comparing the Koran with “Mein Kampf”). The Court of Appeal considers this insulting to such a degree for a community of Islamic worshippers that a general interest is deemed to be present in order to prosecute Wilders because of this.

BBC News article here. Maybe more later.

The Forex Lending Crunch Means Trouble Is Looming Large In Poland

Poland now looks set to become the latest shoe to drop in the ongoing crisis which is steadily extending its reach from one country top another, right across the whole of Central and Eastern Europe – the latest and possibly the last in the sense that if Poland does role belly side up this will probably be the one which finally does turn the apple cart well and truly over.

Italy’s UniCredit, the biggest lender in emerging Europe, said on Wednesday there was a clear risk of the global credit crunch gripping the region and it was up to international banks to help to avert it. UniCredit board member Erich Hampel said in a presentation at the Euromoney conference in Vienna that the bank was committed to fund its subsidiaries in those countries and would continue to lend to consumers and companies. It called on other banks active in the region, the European Union, the International Monetary Fund, other institutions and the countries concerned to launch a joint plan to stem the threat that funds could stop flowing and choke economic growth. “The international financial crisis is questioning future developments and the risk of a credit crunch is clear,” said Hampel, who steers most of UniCredit’s emerging European units as head of its Bank Austria arm. “A number of interested parties are involved and the support to the region should come from all of them together,” Hampel said. “Coordination is essential and a ‘Plan for CEE’ should be designed.”

Eastern Europe is – as Unicredit’s Eric Hempel argues in the extended quote above – quite simply falling headlong into a very severe credit crunch, as funding for bank lending steadily dries up. And, unfortunately, as the evidence mounts that Poland is caught in the teeth of this crunch, its real economy falls deeper and deeper into the dreaded pit with each passing day. FT Alphaville’s Izabella Kaminska has the forex loan story here (see also see here last Friday). Basically all I have to add are some charts (and some real economy analysis) to add a bit more weight to the point and illustrate more explicitly the speed with which things are now moving forward. Continue reading

A Little Housekeeping

The administration here isn’t changing, but we are doing a little cleaning up. At the moment, it’s confined to the blogroll. First, I’ll be pruning the blogs that have gone on hiatus. Then, probably some time next week, we will add new ones. We always want to hear about good blogs writing about Europe, but now is a particularly good time to let us know. Comment here, or drop me a note at the address under “Contact” to the right.