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Fri, 20th January 2017

Anirudh Sethi Report

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Archives of “developed country” Tag

China press (Xinhua): “China collapse” would be good for no one

A commentary piece in Xinhua that outloines current challenges facing the Chinese economy:

  • Such as a weak global recovery, rising trade protectionism, domestic debt overhang & excess capacity
But still, it says:
  • China’s contribution to world growth in 2016 is again poised to top that of all other countries, exceeding the figure for all developed economies combined
  • The IMF has projected China’s growth to be 6.6 percent with global growth at 3.1 percent in 2016
  • However, China’s growth last year appears set to hit 6.7 percent
It concludes with a projection on growth at 6.5%
( Xinhua News Agency is the official press agency of China, it is a ministry-level institution subordinate to the central government and its head is a member of the Central Committee of China’s Communist Party.)

World Bank latest reports says global growth to accelerate slightly

World Bank’s latest Global Economic Prospects report … headlines:

 
  • Forecasts global real GDP growth at 2.7% in 2017 vs 2.3% in 2016
  • Forecasts advanced economies’ growth at 1.8% in 2017 (vs 1.6% in 2016)
  • Emerging/developing economies’ growth at 4.2% in 2017 (3.4% in 2016)
  • Forecasts US growth at 2.2% in 2017 (vs 1.6% in 2016) … they say their forecast excludes effects of any policy proposals from trump administration

More:

  • Challenges for emerging market commodity exporters are receding, while domestic demand solid in emerging market commodity importers
  • Fiscal stimulus in US could generate faster domestic and global growth, but extended uncertainty over policy could keep global investment growth slow
  • Forecasts China’s growth slowing to 6.5% in 2017 (from 6.7% in 2016)
(Headlines via Reuters)
 
The World Bank looking at the recovering oil and commodity prices, noting this eases the pressures on emerging-market commodity exporters. Expects the recessions in Brazil and Russia to end.
As always the Bank notes uncertainties in its forecasts (all forecasters should), with upside uncertainty (in the short term at least) on US potential increased fiscal stimulus, tax cuts, infrastructure spending.  Looking further out, though, a surge in debt load, higher interest rates & tighter financial conditions would have adverse effects.
Also downside potential on a more protectionist trade stance.

The Big Theme for 2017: Global Cash Bans

The big theme for 2017 will be Cash… not a pro-deflationary “time to own cash” theme… but a “let’s ban it as quickly as possible” theme.

Let’s review.

In 2016:

1)   Former Secretary of the Treasury, Larry Summers, called for the US to do away with the $100 bill.

2)   Former Chief Economist for the IMF, Ken Rogoff, published his book The Curse of Cash.

3)   The New York Times and Financial Times publicly endorse a ban on cash.

4)   Fed Chair Janet Yellen, during a Q&A session said cash is “not a convenient store of value.”

Of course the above items are simply propaganda and words. But 2016 also featured major actions as far as the War on Cash is concerned…

The 7th largest country in the world by GDP (India) banned physical cash in denominations that comprise over 80% of all outstanding bills.

BIS Warns OF Bouts Of Extreme Volatility, As Market Undergoes “Paradigm Shift”

The Bank of International Settlements is particularly good at two things in its periodic quarterly review update: i) stating the obvious, especially when it comes to summarizing the trader and market participants concerns at any given moment, and ii) having its constituent central bank members – after all the BIS is the “central banks’ central bank” – ignore all of its warnings.

In its just released, latest report, the BIS continues to excel in both, when it lays out what it dubs a “paradigm shift in markets” and points out that unlike previous VaR shock episodes, most notably the 2013 Taper Tantrum, financial markets have been remarkably resilient to rising bond yields and sudden shift in outlook following last month’s shock U.S. election result.

Indian wealth falls 0.8% to $3 trillion in 2016: Credit Suisse

Hit by adverse currency movements, India’s household wealth has fallen by $26 billion to $3 trillion in the current year, shows the latest report by global financial services major Credit Suisse.

According to the ‘Global Wealth Report’ compiled by Credit Suisse Research Institute, wealth in the country in dollar terms went down by 0.8% ($26 billion) to $3.099 trillion in 2016 compared to last year. The report noted that while wealth has been rising in India, not everyone has shared in this growth.

“There is still considerable wealth poverty, reflected in the fact that 96% of the adult population has wealth below $10,000,” the report said. “At the other extreme, a small fraction of the population (0.3% of adults) has a net worth over $1,00,000,” it added, noting that due to India’s large population, this translates into 2.4 million people.

As per the report, the country has 2,48,000 adults in the top 1% of global wealth holders, a 0.5% share. “By our estimates, 2,260 adults have wealth over $50 million, and 1,040 have more than $100 million,” it added. Overall, the Asia Pacific region in 2016 saw wealth increase by 4.5% to nearly $80 trillion. “China and India were hit by adverse currency movements and as a result, their household wealth fell by 2.8% and 0.8% to $23 trillion and $3 trillion, respectively,” the report noted.

Among other major economies in the region, wealth in Australia remained largely unchanged (decline of 0.2%) and South Korea saw an increase of 1%. Globally, the wealth stood at $256 trillion— a rise of 1.4% from a year ago. The report noted that rise in global wealth is in line with the increase in the world’s adult population with average wealth per adult remaining constant at $52,800.

According to Credit Suisse, while developing economies are likely to outpace the developed world in terms of wealth growth, they will still only account for just under a third of growth over the next five years. “They (developing nations) currently account for around 18% of global household wealth, against just 12% in 2000,” it added.

Goldman Sachs Top Ten Market Themes for 2017

Chief Credit Strategist Charles Himmelberg says 2017 will be “High growth, higher risk, slightly higher returns”

  1. Slightly higher returns relative to 2016. “Best improvement in the opportunity in global equities is in Asia ex-Japan.”
  2. Fiscal stimulus in the U.S. will help reflate the economy
  3. No imminent trade war on the horizon, any re-negotiation of agreements currently in place (like NAFTA) to focus on attempts to improve the prospects for the U.S. manufacturing
  4. The Emerging Markets risk ‘Trump tantrum’ is temporary
  5. Forecasts ($/CNY at 7.30 in 12 months) a depreciation for yuan well beyond forward market pricing
  6. Monetary policy will increasingly focus on credit creation
  7. 2017 will confirm that the U.S. corporate sector has emerged from its recent ‘revenue recession’
  8. Forecasting large boosts to public spending in Japan, China, the U.S., and Europe, which should fuel inflationary pressures in those economies
  9. Commodity-sensitive segments of the credit market have suffered pain in 2016, there hasn’t been much in the way of contagion… expect more of the same in 2017, with the credit cycle not making a turn for the worse
  10. Conditional on a large fiscal stimulus in 2017, the FOMC will be obliged to respond more aggressively to an easing of financial conditions, all else equal … cautions that it’s no sure bet that financial conditions will ease in the year ahead, noting the recent rise in bond yields and the U.S. dollar

“China’s Debt Has Grown $4.5 Trillion In Past 12 Months, More Than The US, Japan And Europe Combined”

While concerns about China’s debt load, capital flows, and depreciating currency have been pushed to the backburner in recent months, perhaps facilitated by a welcome rebound in global inflation – perceived by markets and global central bankers that monetary policy is finally working –  it is worth a quick reminder of how we got here.

First, a quick trip through memory lane to remind us how much has changed in just the past year.

In a note by Morgan Stanley’s Chetan Ahya released on Sunday, the strategist reminds us that a little more than a year ago, the global economy was facing intense disinflationary pressures. Global commodity prices were declining significantly and the slowdown in China and other major commodity-producing EMs had led to some concerns that it could pull developed markets into recession and drag inflation down along with it. At the same time, in China, producer prices fell by almost 6%Y and the regime change in its currency management approach meant that China was no longer absorbing disinflationary pressures from abroad.

And while this seems like a distant memory today, thanks to China which has played a pivotal role in driving the global inflation cycle – this time on the upside – as the cyclical recovery has both lifted China’s own inflation and transmitted it globally, here is how this happened: the recovery in China has been driven by yet another round of debt indulgence. Debt in China has grown by US$4.5 trillion over the past 12 months, by far the highest amount of debt creation globally as compared to US$2.2 trillion in the US, US$870 billion in Japan and US$550 billion in the euro area. Indeed, China on its own has added more debt than the US, Japan and the euro area combined.

While we have shown the IIF’s forecast of Chinese debt countless times in recent months, here it is once again to put China’s unprecedented debt expansion in context:

Fitch: US is slowing, UK is growing, China is reaping what its sowing

Rating agency Fitch has cut its US economic growth forecasts for this year, warning “downside risks to advanced country economic growth have risen in recent months”.

Fitch has cuts its 2016 US growth forecast to 1.4 per cent from the 1.8 per cent pace it predicted in July.

Brian Coulton, chief economist, said:

This year is likely to see the lowest annual growth rate for US GDP since 2009 as oil sector adjustments, weak external demand and the earlier appreciation of the dollar take their toll on industrial demand.

The report also highlights worrying trends in other key developed markets across the globe.

It says that eurozone growth likely peaked in early 2016, and there have been no improvements to the outlook for the UK and Japan “despite significant monetary policy moves”.

It concludes:

The outlook for the advanced countries is best described as a low-growth, muddle-through path.

Global economic growth ‘sliding back into the morass’

The global economy is faltering again with growth rates “sliding back into the morass [they have] been stuck in for some time”, according to the Brookings Institution-Financial Times tracking index.

In a publication ahead of this week’s annual meetings of the International Monetary Fund and World Bank, the results will reinforce fears that many countries have become caught in a vicious circle of low growth, popular discontent and a backlash against trade and openness, resulting in more economic weakness.

The annual meetings will encourage policymakers to pursue inclusive and faster global growth as international organisations, finance ministers and central bank governors seek to reassure the public they can co-operate and that they have the necessary tools to break five years of economic disappointments.

Hanging over the meetings is the fear that the failure to improve living standards in advanced and emerging economies was important in the UK’s vote to leave the EU, may propel Donald Trump to the US presidency and will strengthen the hands of populists such as Marine Le Pen in France.

India’s salary growth at 0.2 per cent, GDP gain of 63.8 per cent since 2008

India has seen a salary growth of just 0.2 per cent since the great recession eight years back, while China recorded the largest real salary growth of 10.6 per cent during the period under review, says a report.

According to a new analysis by the Hay Group division of Korn Ferry, India’s salary growth stood at 0.2 per cent in real terms, with a GDP gain of 63.8 per cent over the same period.

During the period under review, China, Indonesia and Mexico had the largest real salary growth at 10.6 per cent, 9.3 per cent and 8.9 per cent, respectively.

Meanwhile, some other emerging markets including Turkey, Argentina, Russia and Brazil had the worst real salary growth at (-) 34.4 per cent, (-) 18.6 per cent, (-) 17.1 per cent and (-) 15.3 per cent, respectively.

“Most emerging G20 markets stood at either one end of the scale or the other either amongst the highest for wage growth, or amongst the lowest. However, India stood right in the middle, with all the mature markets,” the report said.