Whisper quietly: the bursting of the BRICS bubble is already happening but few are paying attention… and it might become the main story of 2013.

According to a recent article by Andy Xie, the bubble bursting is happening in slow motion, confusing financial markets, because interest rates are low everywhere. As the months pass, the picture will become clear. The global economy is likely to be dragged into recession again, he says.

“When debt bubbles bursting brought down OECD economies, their central banks adopted quantitative easing to stabilize the situation. The resulting cheap liquidity flooded into emerging economies. Instead of learning from the bubble lessons in the West, they used the liquidity to manufacture bubbles themselves. The resulting growth led many to believe that emerging economies had found a way to grow despite the crisis. >> Read More

What is the most urgent economic priority shared by countries as diverse as Brazil, China, Cyprus, France, Greece, Iceland, Ireland, Korea, Portugal, the United Kingdom, and the United States?

It is not debt and deficits; and it is not dealing with the aftermath of irresponsible lending and borrowing. Yes, these are relevant and, in a handful of cases, urgent. But the number one challenge facing these countries is to develop growth models that can provide more ample, well-paid, and secure jobs amid a secular re-alignment of the global economy.

For both theoretical and practical reasons, this is a challenge that will not be met easily or quickly. And, when it is met, the process will most likely be partial and uneven, accentuating differences and posing tricky coordination issues at the national, regional, and global levels. >> Read More

It would appear that between the historical revisions of over-optimistic initial prints in macro data in the last few months and the reality of the weakness in Europe; the global economy is in Slowdown. Goldman’s Swirlogram has now seen its Global Leading Indicator in the ‘slowdown’ phase for two months as momentum fades rapidly and seven of the ten major factors in the index declining with Global (Aggregate) PMI, and Global New Orders-less-Inventories worsening. Quite comically, the three factors providing some positivity are the Baltic Dry Index (which we are told is irrelevant when it drops), Japanese Inventory/Sales (which improved but remains at depression-era levels), and US initial jobless claims (which have become a farce statistically from what we can tell). Of course, none of this macro reality matters for now – until it does that is.

 The red arrows show the relative size of adjustments from the initial estimates…

Pessimism among large Japanese companies lessened in the three months to March, the Bank of Japan’s closely watched tankan survey showed Monday, in the latest sign that business sentiment has started to improve as the economy gets back on the road to recovery.

The survey’s large manufacturers’ business sentiment index improved to minus 8, compared with minus 12 in December.

The reading came in slightly worse than economists’ median forecast for minus 7.

The improvement is due largely to a significant depreciation of the yen and spikes in share prices bolstered by hopes for pro-growth policies through bold monetary policy and fiscal spending by Prime Minister Shinzo Abe, who returned to power in December. >> Read More

We hope you’re having a relaxing weekend. It’s going to be another big week for the global economy, kicking off Sunday night.

Sunday evening is the beginning of global PMI day, in which we get surveys from Asia, Europe, South America, and the U.S. about the state of each country’s manufacturing sector.

The PMI day festivities start with China and Korean PMIs, then move to Europe in the early hours of Monday, and end with the release of the U.S. ISM report at 10 a.m. ET.

All of the big regions will be key to watch. China is always crucial. Europe seems to be heading into the toilet, and these numbers will provide a crucial gauge on what’s going on with that. And then for the U.S., the big question is whether events like the payroll tax holiday and the sequester have mattered at all.

There’s a lot more stuff throughout the week.

Leaders of the Brics group of emerging economies on Wednesday announced they had agreed to set up a development bank that could ultimately challenge the influence of the Bretton Woods institutions, but they failed to produce any details on its size or structure.

The push to create a bank was the key theme of the Brics summit in Durban that brought together leaders of Brazil, Russia, India, China and South Africa, with the move seen as a test of whether the club of nations can develop beyond a loose political grouping.

The five leaders unambiguously backed the development bank initiative and speeches were laced with calls for greater co-operation between Brics nations, amid references to a shifting world order as the west continues to grapple with its economic woes. >> Read More

India’s financial capital Mumbai slipped to 66th rank in the list of world’s leading financial centres, but New Delhi failed to make a mark, according to the latest Global Financial Centres Index (GFCI) released today.

GFCI which provides profiles, ratings and rankings for 79 financial centres worldwide ranked Mumbai at the 66th place, down three places from last year when it was ranked 63rd on the coveted list.

Mumbai is the only Indian city on the list, which was topped by London.

New York was ranked second in the list followed by Hong Kong and Singapore in the third and fourth place respectively. >> Read More

Monetary and Liquidity Measures

Based on an assessment of the current macroeconomic situation, it has been decided to:

• reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 7.75 per cent to 7.5 per cent with immediate effect;

Consequently, the reverse repo rate under the LAF stands adjusted to 6.5 per cent and the marginal standing facility (MSF) rate and the Bank Rate to 8.5 per cent with immediate effect.

Introduction

2. Since the Reserve Bank’s Third Quarter Review (TQR) of January 2013, global financial market conditions have improved, but global economic activity has weakened. On the domestic front too, growth has decelerated significantly, even as inflation remains at a level which is not conducive for sustained economic growth. Although there has been notable softening of non-food manufactured products inflation, food inflation remains high, driving a wedge between wholesale price and consumer price inflation, and is exacerbating the challenge for monetary management in anchoring inflationary expectations. >> Read More

Iron ore prices have fallen to a 2½-month low as Chinese steelmakers resist restocking amid weakening economic data.

Spot prices for the benchmark 62 per cent grade of the commodity fell to $144.10 a tonne on Monday, the lowest so far this year and down 9.3 per cent since mid-February, according to The Steel Index, a price reporting agency.

The price of iron ore is critical to the global economy as it feeds through into the price of steel and everyday goods such as cars and washing machines. It is also key to the profitability of three of the world’s largest mining companies: BHP Billiton, Vale and Rio Tinto.

Chinese steelmakers – by far the largest source of demand for iron ore globally – have pulled back from the market in recent weeks in the wake of the lunar new year holiday. >> Read More

India has attracted foreign direct investment (FDI) of $ 22.78 billion in 2012, a decline of 34 per cent over the previous year due to global economic uncertainties.

The country had attracted FDI of $ 34.62 billion in 2011, according to the Department of Industrial Policy and Promotion data.

“The dip in foreign direct investment (FDI) inflows is mainly due to uncertainties in the global economy,” an official said.

However, the official said that liberalisation of FDI policy in various sectors such as retail and civil aviation is expected to boost inflows in the coming months.

In 2012, the country received the highest FDI of $4.67 billion in September followed by $2.21 billion in February and $2 billion in January 2012.

Foreign investments are important for India, which needs around $ 1 trillion in the next five years to overhaul its infrastructure sector such as ports, airports and highways to boost growth.

Decline in foreign investments will put pressure on the country’s balance of payments and could also impact the value of rupee.