Tag Archives: Economics and demography

Oil At $96 A Barrel?

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Japan’s second-largest trading company Mitsui & Co. have just published a forecast: oil may rise to a record $96 a barrel in August, when hurricanes typically cut U.S. output. Like all such forecasts, this is subject to a large margin of possible error. But the arguments are coherent and certainly plausible. At least there is food for thought.

“Oil reached a record $70.85 on Aug. 30 the day after Hurricane Katrina made landfall on the U.S. Gulf Coast, wrecking oil platforms, pipelines and refineries, and cutting production in the world’s largest energy market. Global oil demand may rise 2.2 percent this year, almost twice as fast as in 2005, the Paris-based International Agency said last month“.

“Global growth, led by China and the U.S., will quicken to about 4.5 percent in 2006, the International Monetary Fund’s Managing Director Rodrigo de Rato said on Jan. 30“.

“Oil on the New York Mercantile Exchange has risen 6.2 percent this year after Iran, the world’s fourth-largest producer, pressed ahead with its nuclear research program, defying the U.S. and European Union. Rebel attacks on oil facilities in Nigeria cut shipments from Africa’s top exporter“.

“Not all analysts agree prices will increase. Rising supply may cause oil to fall this year, the Royal Bank of Scotland, the U.K.’s second-largest lender, said last month. Oil in New York may average $52.50 this year as global output increases, it said“.

Is The German Economic Recovery Really So Sustainable?

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Of course, I could be accused of only latching-on to the data that suits me, and it is true that there has been some reasonably optimistic reporting about the German economy of late: we had the German IFO index, and there was the apparently world cup driven consumer confidence index rise. So todays news that retaill sales fell by 1.4 % in December as compared with November while German unemployment rose in January for the first time in four months must have come as a bucket of cold water for some. Not here at Afoe though, since at least one of us has been stubbornly maintaining (and here) that a sustained internal consumption driven recovery was one thing which was definitely *off the cards*.

“Unexpectedly weak German retail sales figures for December have setback hopes that Europe’s largest economy is staging a comeback. Retail sales in the Christmas month tumbled by 1.4 per cent compared with November, according to the federal statistics office. Economists had expected a rise. The figures will heighten fears that overall German growth weakened at the end of last year.”

“Unemployment in Germany rose in January for the first time in four months, the Federal Labour Office reported today. The seasonally adjusted jobless total increased by 69,000 to 4.699 million from December, pushing the rate to 11.3 from 11.2 percent. In unadjusted terms, the jobless total rose by 408,000 to 5.012 million, taking the rate to 12.1 percent.“

Hot Labour Anyone?

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This post has one sovereign virtue: apart from in the current sentence it will not refer, either directly or indirectly, to the Catalan Statute. The topic it does deal with however is probably equally vital for the future of Spain. The issue is Spain’s housing boom, and the role of immigration in fuelling it. Two facts above all others stand out: Spain is currently ‘enjoying’ the longest and deepest housing boom (in the current round) among all the world’s developed economies (see this useful article from the Economist, or this one from Business Week), and Spain is also enjoying sustained rates of immigration which – at around 2% of the population per annum, may well be the most intense ever experienced in a developed economy. For purposes of comparison I could point out that Spain’s net migration rate of 17.6 per thousand in 2003 contrasts sharply with that recorded for the old European Union 15 for the same year – 5.4 per thousand – and is even well above the level recorded by Germany in the early 1990s – a maximum of 9.6 per thousand in 1992 – or by France in the early 1970s. So there is a housing boom, and there is immigration, the question is, what is the connection?
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The Booming Czech Republic

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The Czech Republic is booming apparently. Both per-capita GDP and fertility are definitely on an upswing, although surprisingly perhaps, for once I am not going to try and suggest that these are connected:

The Czech republic has joined Slovenia among new member states with higher levels of wealth per capita than old member Portugal, according to European Commission statistics.

This raises interesting questions which I just touch on in this AFEM post here. (Incidentally, you can find a one-page set of economic statistics for the Czech Republic from the OECD here).

What is perhaps most interesting about the Prague Post article is the way they explicitly link the increase in preganancy to a recent reform in maternity provision (due to come into effect in April), and to the fact that the ‘postponement phenomenon‘ often leads to a spike in births as women who have postponed reach the new ‘childbearing age’.

“The Labor and Social Affairs Ministry recently launched its own reforms aimed at encouraging couples to have children. The reforms provide generous benefit packages and require companies to hold the jobs of employees on leave for up to four years, and, as of April, women will begin receiving a state subsidy of 17,500 Kč ($725) for each newborn child — more than double the current amount.”
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Three Points to Remember

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February in Paris, 1983. A group of student leaders are ushered into the presence of President Mitterand by huissiers. They stay slightly more than an hour, discussing Marxism-Leninism, youth, and society with the ever-inconsistent, sometimes brilliant, sometimes crooked, sometimes socialist and sometime fascist president. Years later, one of them, Jean-Claude Cambalebis remembers the three questions Mitterand advised him to deal with if he wanted to “avoid becoming Minister of Public Works”.

They were as follows: the first, he said, was Poland, or more specifically that spiritual power had defeated political power there. The second was the way Britain would never be European and would always prefer to maintain ties with its favoured trading partners in the Commonwealth. For the third, Mitterand produced an electronic listening device (un puce electronique) from his pocket and remarked that such things would “turn the organisation of work upside-down”.

23 years down-range from that meeting with the UNEF executive committee at the Elysée Palace, and ten years on from Mitterand’s death, how do those part-predictions, part-suggestions stack up?

More in the geek hole..
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Is The ECB Measured-Pace Cycle Over?

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Well, not unexpectedly, the ECB decided to leave its main refinancing rate unchanged at 2.25% yesterday. Rather more surprisingly (for some at least) the German Federal Statistical agency reported that German economic growth ground to a halt at the end of 2005.

According to the Financial Times:

Johann Hahlen, president of the federal statistics office, said that growth last year had been based largely on exports, with domestic demand remaining weak. “Broad and self-supporting growth is still not being observed”.

Again according to the FT, Herr Hahlen’s comments “surprised economists, who had expected growth to continue and have become increasingly upbeat about the outlook in 2006″. I’m surpised the FT can be so blazé in saying ‘economists’: they certainly didn’t surprise me. I think it was reasonably clear that this was coming. If I am surprised by anything it is that it has come so quickly.

So where do we go from here? Well Jean-Claude Trichet, the ECB president, has been trotting out the party line to the effect “we have to be vigilant as regards inflation”, but with inflation now falling back (in December the harmonised rate slipped back a fraction to 2.2% from the 2.3% in the year to November) and with virtually no ‘second round oil rise’ effects in evidence this argument is going to sound increasingly hollow. Couple this with the ongoing ‘low- growth’ environment in the Eurozone (we’re still awaiting the sort of news from Italy which will again I imagine surprise ‘economists’) and you can see that there will be few reasons to justify any serious interest rate rises. At the limit we may just see one more quarter point rise squeezed-in before year’s end. Aside from that the ECB tightening cycle is, as I suggest, just about done.

Since it has recently become fashionableto try to predict the future, below the fold are my 2006 forecasts.
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The Perrenial Euro Story (or lack of it)

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Brad Setser has a post, the perrenial dollar story, which IMHO, has one large and significant ommission: it doesn’t really mention the euro. Personally I don’t really see how you can consider the future evolution of the dollar without taking the euro into account. This realisation provoked a rather long comment from me on Brad’s blog, and it is this comment, in a slightly modifed form, that I am now posting here. (Update: incidentally, I notice that Claus Vistessen has two highly relevant summaries of the great greenback debate (here, and here) which. among other things, serve as an excellent introdiction to the issues involved).
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What Gives in Moldova?

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Only last week, following the Russian decision to turn of Moldova’s gas supply along with Ukraine, Alex and I were asking ourselves the question: whatever happened to Moldova.

Well here comes the answer, from Randy McDonalds Live Journal, they are either growing wine or leaving it seems:

Moldova, as it happens, shares with Georgia a long tradition of wine-growing, something that ensured Moldova a prestigious position in the domestic wine supplies of the former Soviet Union….

Why wouldn’t mass emigration be a perfectly rational solution for Moldovans tired of their poverty? Moldova’s work force might be depleted, true, but the Moldovans abroad enjoy higher living standards while the Moldovans remaining behind benefit from the fact that their country stands just behind Tonga in the percentage of its GDP derived from remittances, in Moldova’s case by the million or so people scattered across the Russian Federation, Romania, Turkey, and southern Europe.

This sort of mass emigration isn’t going to help Moldova develop securely, though. It will help Moldova become a depopulated periphery, true, with its potential work force gone off to work in larger and wealthier countries,
leaving the old behind to tend the country through its collapse, but it won’t help Moldova grow.

Randy also makes a very positive comparison between Estonia’s recent history and what just happened to Ukraine.

New Year’s Resolution

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Some people start the year by resolving to give something up. Sweden’s new year’s resolution, it seems, is to give up oil by 2020.

Breaking dependence on oil brings many opportunities for strengthened competitiveness, technological development and progress. The aim is to break dependence on fossil fuels by 2020. By then no home will need oil for heating. By then no motorist will be obliged to use petrol as the sole option available. By then there will always be better alternatives to oil.

They’re not the only ones. Jacques Chirac’s New Year message included the promise that SNCF and the Paris public transport system would not use a drop of oil in 20 years’ time.

Obviously the French view of this is primarily nuclear. The Swedes, though, seem keener on efficiency’n'renewables; apparently they have increased renewable power production by 4.5 terawatt-hours since 2002 with a target of 15TWh more by 2016. It might be worth pointing out something which got very little blog attention when it appeared last year – the UK wind industry’s capacity is now doubling every other year, which makes the UK government’s targets look anaemic. (10% of electricity generation).

After all, there are 986TWh of wind out there in the UK offshore economic zone. At a capacity factor of 30%, that ought to be enough to do the whole electricity supply (321TWh) – without getting started on the onshore sites.

Bulgaria Says “Thanks, But No Thanks”

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Over at TYR, I argued that the explanation of the Ukraine-Russia gas dispute was an effort by the Russian side to break up the European gas customers as a negotiating block by exploiting the conflict between the transit states (like the Ukraine) and the customers (like Germany). This gave rise to further discussion down-blog right here on AFOE, in the comments to this post of Tobias’s, where this was said…

I think he was trying to play off the customer states against the pipeline states, in order not to deal with a European monopsony. Unfortunately, the pipeliners and customers were rather induced to hang together rather than swing separately, and he backed down in order to prevent the point of payment being moved to the Russian-Ukrainian border, which would have effectively put the Ukraine in the EU for gas purposes.
Posted by Alex at January 5, 2006 10:50 AM

“I think he was trying to play off the customer states against the pipeline states”

Interesting theory, but how do Moldova and Armenia fit into this. The former was cut off and the latter has been badly threatened?
Posted by Edward at January 5, 2006 11:02 AM

Armenia – rather different case. The pipeline/customer thing doesn’t apply (AFAIK), but as Armenia is a small customer relative to Russian gas production, the relationship is very different. No need for anything complicated, just a shakedown for more cash.

Moldova – interesting question. It’s not on the way to anywhere is it?
Posted by Alex at January 5, 2006 03:32 PM

“It’s not on the way to anywhere is it?”

Not that I know of. It just seems to have been……forgotten.
Posted by Edward at January 5, 2006 03:43 PM

It seems Moldova is sitting on the pipeline to Romania and Bulgaria.
Posted by Oliver at January 5, 2006 03:53 PM

That’s it, then: a power grab for control of (or at least cheaper rates on) two export lines, by trying to play off the customers against the pipelines. Armenia was pure opportunism.
Posted by Alex at January 5, 2006 04:43 PM

“It seems Moldova is sitting on the pipeline”

“That’s it, then: a power grab”

Fascinating! This certainly gives plausibility to the idea that they were going for control of the landline installation. The issue now is how will the customers respond.
Posted by Edward at January 5, 2006 09:28 PM

Now, though, we may be about to find out. Bulgaria has been faced with a demand from Gazprom very similar to the one to the Ukrainians, and it seems they’ve given them the brushoff in much the same way. A very similar logic applies, as Bulgaria is both a transit provider (it’s odd how this Internetworking terminology creeps into what is after all a discussion of networks) and a fair-sized gas customer. The Russians seem to have been of a mind to use the latter fact to force changes on the former, and the Bulgarians have adopted an identical strategy.

Which would predict a settlement in double quick time, if we’re right.