Oh, come on Edward, surely this time you are going too far? The Germany economy is the strongest in Europe, time and again we have been told it is powering and powering ahead. It has just demonstrated record growth performances. So where the hell could you possibly get the crazy idea that Germany might be in for a double-dip recession? Must be the summer Spanish heat. Continue reading
As Mr Zapatero put it on Saturday, when he announced the date of Spain’s general election, the decision “is in the country’s interest” since from now on there will be certainty, and “certainty is stability”. While it is quite possible that almost all of Spain’s politicians shared this sentiment, and welcomed the bringing forward of the election date, they may very well be the only ones to do so. Certainty is undoubtedly a strong positive, but when the only thing about your country which people can be certain of is the election date, then maybe on balance you won’t have gained much. Continue reading
The Hungarian government’s much publicised unorthodox plans to cut the country’s public debt level has been attracting a lot of attention of late, both from the media and from the rating agencies. Some observers have been quite positively impressed. Fitch Ratings, for example, raised their outlook on Hungary’s sovereign credit rating in early June from negative to stable, citing government plans to reduce what is currently the largest accumulated public debt among the European Union’s eastern members. Others, however, continue to have their doubts. Moody’s, for example, has decided to maintain a negative outlook on the country’s due to concerns about the general trend in government policy, and the possibility of slippage with deficit objectives. Either way, these are changes within very defined margins, since at the end of the dat Fitch currently still rates Hungary at BBB- and Moody’s at Baa3, in both cases these ratings amount to the lowest investment grades. Continue reading
As Europe’s leaders struggle to convince markets that their Greek debt problem-resolution-proposals are actually viable, and will really do the trick, last week’s flash PMI readings seem to have attracted rather less attention than they might. Nonetheless, the fact of the matter is that it is steadily becoming clearer that the current slowdown in Eurozone economic growth is turning into something more than just another one of those pesky “soft patches”. The pace of economic expansion in core Europe has slowed dramatically, falling back in July for the third consecutive month, according to the latest flash PMI. Commenting on the flash results Chris Williamson, Chief Economist at Markit said: “The Eurozone recovery lost almost all of its momentum in July, recording the weakest growth since August 2009 when the recovery first began. Excluding the financial crisis, the July survey was the most downbeat since the Iraq war in 2003, and consistent with a flat trend in quarterly gross domestic product.
“The market is pricing these sovereigns at much wider levels than where their agency ratings would imply,” said Diana Allmendinger, a director at Fitch Solutions.CDS on Italy imply a rating of BBB, five notches below its agency rating of AA-minus. And Spain’s implied rating is BB-plus, nine notches below its agency rating of AA-plus.
With so much emphasis being placed on what has been happening farther to the South, economic realities on Europe’s Eastern periphery have largely been escaping the close scrutiny of media and analyst attention. In the wake of the belated recognition of the region’s vulnerability which followed the bout of acute stress experienced during the post-Lehman crisis, a new consensus has now emerged (for an in-depth study of the Latvian example see this piece) that the IMF-guided programmes put in place at the time have essentially set things, if not entirely straight then at least on the right track. In particular, as a result of the extensive fiscal discipline and willingness to sacrifice shown a much brighter future now awaits these countries well to the sidelines of all those horrible Greek debt concerns. Continue reading
What follows is simply a follow-up note to my earlier (Elephant in The Euro Room) piece on Italy. The decision by S&P to put Italian sovereign debt on negative outlook, and the subsequent announcement by Moody’s that it was considering a downgrade has been widely commented on by analysts, and it might be interesting to take a look at some of the views that have been advanced on either side of the argument (although for the detailed analysis see me earlier post). But first, a summary of the problem. Continue reading
Spain, as those 1990s tourist brochures used to tell us, is different. And it certainly shouldn’t be confused with Greece. Even a cursory look at the most basic of maps should satisfy any doubts we might be harbouring in that regard. But being different is not the same thing as being economically sound. Which is what Societe Generale’s Klaus Baader has just tried to argue in a recent research note: “The Spanish bond market was hit hard in the wake of the quantum leap in the Greece crisis. But fundamentally the case for Spain remains strong”.
In singling out the nine points that Klaus advances in support of his thesis for detailed examination, I do not do so because I find the arguments particulary bad (or even especially “noteworthy” in the negative sense). He has a point of view, and he is doingh is job, and in neither case can I fault him for this.
The reason I have decided to single Klaus out for special treatment here is because he conveniently brings together, in a clear and succinct fashion, a number of arguments which are widely accepted and used by both analysts and policy makers. Unfortunately the fact that arguments are widely held does not make them valid, or in anything other than the most trivial conventialist sense “true”. Indeed it is precisely because I feel that these arguments are not well founded that I have decided to reply to them in this rather detailed way. Basically I don’t buy the idea that Spain is simply suffering from a crisis of confidence, one which, in its turn, puts pressure on the government bond spread. I think Spain has a problem in the fundamentals department, and unless this problem is first accepted and then addressed the wrong (inadequate) remedies will continue to be applied, putting the Eurozone and its citizens at risk of financial catastrophe in the medium term. Continue reading
The June Flash PMI reports, which were out on Thursday, make do not make agreeable reading, in the sense that while the French and German economies both continued to expand during the month, their rate of expansion, and in particular in the leading manufacturing sector, seems to have dropped sharply, and for the second month running. In contrast, the economies on the Eurozone periphery moved closed to outright contraction. All in all the survey results only add to concerns about the global recovery which came into focus after the May PMI results (see my To QE3 or Not to QE3).
“If you look at the world, it would inevitably appear India’s growth is preordained. The world needs working hands. The world needs back offices. India seems to be a natural fit…We are producing a workforce which is not only for India, but a global workforce.”
Sunil Bharti Mittal, founder and chairman of New Delhi-based Bharti Enterprises
As the European Central Bank moves steadily and earnestly forward with its ongoing rate hike cycle – in so doing sending one fragile economy after another along Europe’s periphery drifting off towards recession – there is at least one prominent global central banker who must be feeling vindicated in the policy stance he has taken to try and bring the rampant inflation from which his country has been suffering back under control. Duvvuri Subbarao is Governor of the Reserve Bank of India, and under his stewardship the central bank has been hard at work over the last twelve months trying to credibly fight inflation. So far raised rates have been raised ten times, and the bank has managed to claw the annual rate of wholesale price inflation back from its peak of 10.9% to the current level of 9.06%. Hardly a level to be complacent about, but then Mr Subarrao seems far from complacent. Continue reading
Back in July 2010, in introducing a blog post with the title “Is There Global Economic Slowdown In The Works?” I couldn’t help posing the following question:
“According to Ralph Atkins writing in the Financial Times last week, “the pace of Germany’s recovery is helping dispel fears of a “double dip” recession across the continent as a result of the crisis over public finances in southern European countries”. Coincidentally, however, on the very same day, Alan Beattie writing from Washington informed us that the IMF feel “the risk of a slowdown in the global economic recovery has risen sharply”. This left me asking myself which is it: is the global recovery a question of up up and away, or are we at the start of a renewed slowdown (whether or not you wish to term this a “double-dip”)? So I thought I would take a look through some of the most recent data (both hard and soft) to see if I could make any sense of the situation”.
Strangely, just this week, and nearly 12 months later, I now find myself asking almost the very same question. Naturally I am not alone in this. Here’s a link to ECRI’s Lakshman Achuthan talking with MSNBC’s Tom Roberts about the US May jobs report and the reality of a global industrial slowdown. As Achuthan emphasises, in the US context this is still all about growth, about less growth rather than more growth, since we are not talking about recession, merely slower growth, but at the same time it isn’t simply a “soft-patch” either, since the many “exceptional factors” which are lined up (like supply chain problems following the Japan tsunami, or bad weather in the US) aren’t sufficient on their own to explain the scale of the phenomenon. Continue reading
