Wed, 23rd August 2017

Anirudh Sethi Report


Archives of “economic recession” Tag

Schäuble keeps quiet on mounting cost to Germany of Europe’s woes

Spare a thought for Wolfgang Schäuble, Germany’s 70-year-old finance minister. A politician of unparalleled experience in Angela Merkel’s centre-right government, he carries the flag for those who hold that the eurozone’s travails will be, in the long run, an opportunity to advance European integration.

Yet two government crises in the space of a month, the first in Greece and the second in Portugal, underline how his vision risks being buried under mountains of unrepaid southern European debt. Bruised and battered, the ruling coalitions in Athens and Lisbon limp on, scarcely more confident than the societies they govern that obedience to German-inspired policy prescriptions will save their countries.

 When Mr Schäuble visited Athens last week, the leftist Greek newspaper Avgi welcomed him with the abrasive headline: “Hail Schäuble! We who are about to die salute you.”

Behind the scorn and despair of this rhetorical flourish lies the smouldering conviction of millions of Greeks that, although their own rulers bear the original responsibility for six years of economic recession and mass unemployment, Germany has made matters worse.

Fitch Downgrades Cyprus to ‘B’; Outlook Negative

Fitch Ratings has downgraded the Republic of Cyprus’s Long-term foreign and local currency Issuer Default Rating (IDRs) to ‘B’ from ‘BB-‘. The Short-term IDR has been affirmed at ‘B’. The Outlook on the Long-term IDRs is Negative. Fitch has simultaneously affirmed the Country Ceiling for Cyprus at ‘AAA’.


The downgrade of Cyprus’s sovereign ratings partially reflects the agency’s view that the size of the government support to the banking sector is likely to be higher than previous Fitch estimates, which mainly focused on the three largest banks.

Uncertainty regarding the capital needs of the cooperative banks remains. Including the latter, the total recapitalisation costs of the banking sector could be up to EUR10 billion, although Fitch anticipates that this figure may include a degree of headroom. If fully realised it would increase the size of the necessary official support programme for the Cypriot sovereign to over EUR17 billion. In this scenario Fitch forecasts that government debt to GDP would jump to over 140% in 2013. This is significantly higher than Fitch’s previous estimate of peak debt of 120% of GDP and materially lowers the creditworthiness of the sovereign. Fitch’s estimates of the potential losses and capital needs of Cypriot banks are sensitive to various assumptions, which are subject to change as the situation unfolds.

‘India ranks a low 40th amongst 50 most dynamic economies’

India has been ranked at a low position of 40 among 50 economies in the world in terms of “dynamism”, which was topped by Singapore, in a list compiled by assurance, tax and advisory firm Grant Thornton.

According to Grant Thornton’s Global Dynamism Index (GDI), India was ranked 40th among 50 economies, which were analysed on 22 indicators of dynamism.

They were done across five categories: business operating environment, economics & growth, science & technology, labour & human capital and financing environment. The GDI Index defines dynamism as the changes to the economy which have enabled recovery from the 2008-09 economic recession and are likely to lead to a fast rate of future growth.

Singapore has emerged as the most dynamic economy in the world, followed by Finland in the list, Sweden was ranked third, Israel (fourth), Austria (fifth), Australia (sixth), Switzerland (seventh), Korea (eighth), Germany (ninth) and United States (10th).

Europeans vent their anger as cuts bite

A popular backlash is building against cuts to public services and the “internal devaluation” policies that have targeted wages and Europe’s high levels of social protection with the aim of restoring competitiveness to the EU’s highly indebted economies.

This year unemployment is expected to reach record levels of more than 11pc in the eurozone and 10.5pc in the EU. Taking a step away from the statistics, it means that more than 25m Europeans will be unemployed this Christmas.

It is going to get worse. EU forecasts predict that joblessness rates will climb even further, hitting 11pc in the EU and 12pc in 2013. In Greece, unemployment is 23.6pc, and 54pc among young people. One thousand Greeks are losing their jobs every day.

S&P Downgrades Spain To BBB- (Negative Outlook) As European Support Wanes


 Full Statement (via S&P)


  • The deepening economic recession is limiting the Spanish government’s policy options.
  • Rising unemployment and spending constraints are likely to intensify social discontent and contribute to friction between Spain’s central and regional governments.
  • Doubts over some eurozone governments’ commitment to mutualizing the costs of Spain’s bank recapitalization are, in our view, a destabilizing factor for the country’s credit outlook.
  • We are therefore lowering our long- and short-term sovereign credit ratings on Spain to ‘BBB-/A-3’ from ‘BBB+/A-2’.
  • The negative outlook on the long-term rating reflects our view of the significant risks to Spain’s economic growth and budgetary performance, and the lack of a clear direction in eurozone policy.

Rating Action

On Oct. 10, 2012, Standard & Poor’s Ratings Services lowered its long-term sovereign credit rating on the Kingdom of Spain to ‘BBB-‘ from ‘BBB+’. At the same time, we lowered the short-term sovereign credit rating to ‘A-3’ from ‘A-2’. The outlook on the long-term rating is negative.

IMF Warns Eurozone Banks May Face Asset Shrinkage Of $4.5 Trillion By End-2013

In the absence of decisive and urgent policy measures, banks in Europe may need to sell as much as $2.8 trillion to $4.5 trillion worth of assets through the end of 2013, the International Monetary Fund warned in its latest Global Financial Stability Report, published Wednesday.

The April report had estimated that a sample of 58 large EU banks would reduce assets by $2.2 trillion to $3.8 trillion over the period from the third quarter of 2011 to the fourth quarter of 2013.

The largest burden of credit supply contraction will fall on the euro area periphery, today’s report pointed out. Faltering market confidence has led to capital flight from countries on the ‘periphery’ to the core of the euro area.

Eurozone crisis growing deeper

Europe appears headed for a deepening economic recession despite a recent easing in market concerns over the three-year debt crisis, a closely watched survey found Thursday.

Financial data company Markit said its purchasing managers’ index – a gauge of business activity – for the 17-country eurozone fell to 45.9 in September from 46.3 the previous month.

The decline was a surprise as the consensus in the markets was for a modest improvement. Anything below 50 indicates a contraction in economic activity.

September’s rate was the lowest in over three years and came despite an easing in the rate of economic contraction in Germany, the eurozone’s largest economy.

The decline also highlights the scale of the challenge facing European policymakers as they seek to get a grip on the debt crisis and may fuel hopes that the European Central Bank will cut its main interest rate further from the record low of 0.75 percent.

Talk of ‘Italy next for bailout’

Raising the stakes in Europe’s debt crisis, Austria’s finance minister said Italy may need a financial rescue due to its high borrowing costs, drawing a furious rebuke from the Italian prime minister.

Maria Fekter’s assessment of the eurozone’s third-largest economy stoked investors’ fears that Europe is far from ending two years of turmoil — a feeling reinforced by Dutch Finance Minister Jan Kees de Jager, who said the eurozone was “still far from stable”. 

A deal by eurozone finance ministers on Saturday to lend Spain up to €100bn to recapitalise its banks was seen by many in the markets as yet another sticking plaster. Spanish 10-year bond government yields soared to 6.81%, their highest level since the euro’s launch in 1999. 

“It may be that, given the high rates Italy pays to refinance on markets, they too will need support,” Fekter said. 

Italian Prime Minister Mario Monti called her comments “completely inappropriate” for an EU finance minister. Eurozone officials said they were deeply unhelpful. 

The market reaction suggests that ministers have failed to break the so-called doom loop between rising government debt, economic recession and teetering banks that previously drove Greece, Ireland and Portugal into EU/IMF bailouts. 

The euro-zone economy is on the “red light”

Europe’s debt crisis continues to deepen as well as euro-zone edge of the national economic recession deepens, the euro area economy finally embarrassing burden. ” February 15, Eurostat data show that the euro area last year’s fourth quarter GDP to decline 0.3%, which is the data the first decline since the second quarter of 2009. Chief Adviser to the President of the China Galaxy Securities Zuo Xiaolei said the interview with this reporter on the 16th, the fourth quarter of last year, the euro-zone economychain decline, escalating debt crisis and Europe, the region vigorously the implementation of austerity measures, as well as many other euro area member states has long been poor economic conditions are closely related. All walks of life have different views on the future of the euro area economic trends, but she believes the declining trend of the euro-zone economy in the current situation is relatively mild, no need to get too excited. However, due to the interests of all parties in the second round of the Greek aid and debt write-down agreement, the game constantly, the euro zone economic outlook will continue to remain under pressure.

on the 15th, the latest data, the 17 member countries of the euro area, France, last year’s fourth quarter performance the most impressive: before the market is widely expected the French economy will decline 0.2 percent is very different in industrial output and investment driven by the French season growth of 0.2%. Other euro area member economies are mostly poor performance: In addition to the economic downturn camp join the euro zone’s largest economy, Germany, the economy the rate of decline of 0.2% the previous quarter in the euro zone’s third largest economy in Italy fell 0.2 percent on the basis of the fourth quarter of last year to continue the chain fell 0.7 percent; the euro zone’s fourth largest economy, Spain, the first decline in two years, economic qoq 0.3%. Other euro-zone edge of the whirlpool of debt crisis countries the situation is even worse: the economy such as Greece, Portugal, the Netherlands and Belgium, are at least two quarters of economic decline. Which, in the fourth quarter of last year, the Portuguese economy Ring decline of 1.3 percent, and Greece last year’s fourth quarter year on year decline of up to 7%. Separate data showed that the 27 EU countries last year’s fourth quarter GDP to show ratio fell 0.3 percent, Britain seasonal decline of 0.2%, which is the country’s first economic contraction since last year.

Ten Themes for 2012

  1. Severe European Recession as the sovereign debt crisis escalates: Austerity measures in Italy, Greece, Spain, and Portugal plunges all of Europe into a major recession. Spain and Portugal will follow Greece into an outright depression.
  2. Political Crisis in Europe: French President Sarkozy loses to socialist challenger Francois Hollande. German Chancellor Angela Merkel’s coalition collapses. The Merkozy agreement is either modified to do virtually nothing or is not ratified at all. This chain of events will not be good for European equities or European bonds.
  3. Relatively Minor US Economic Recession: The US will not avoid a recession in 2012. Retail spending ran its course with the tail-off into Christmas of 2011. The Republican Congress has little incentive for fiscal stimulus measures in 2012 so do not expect any. However, with housing already limping along the bottom in terms of construction and investment (not prices), a US GDP decline will not be severe. The US may see a recession even if GDP barely drops. Certainly the US recession will be far less severe than the recession in Europe and Australia.
  4. Major Profit Recession in US: Profit margins in the US will be torn to shreds as businesses will be unable to reduce costs the same way they did in 2008 and 2009 (by shedding massive numbers of employees).
  5. Global Equity Prices Under Huge Pressure: Don’t expect the same degree of reverse decoupling of US equities we saw in 2011. The US economy will be better than Europe, but equities globally will take a hit, including the US. Simply put, stocks are not cheap. Read More