A Fuss Over Chinese Leading Indicators?

Rachel Ziemba, Jun 29, 2010 1:54PM

Today the conference board announced a downward revision in its almost brand new leading indicator for China, suggesting that Chinese growth trajectory will be slower than expected. Markets characteristically did not react well, with the Shanghai stock exchange falling over 4% today, extending its losses to 26% from the peak. But liquidity rather than just the news about the revision seems more likely to be the cause.

The most recent (April 2010) reading of the conference board leading indicator, which launched earlier this quarter shows an increase of only 0.3% rather than the 1.7% previously indicated. The downward revision, wholly due to a miscalculation in one of the four main indicators used (the construction sector), brings the CB survey more in line with the longer standing OECD leading indicator for China, which has been signaling a deceleration of growth of late. In fact, the strength of the indicator was puzzling when the first version was released in mid June, since it seemed at odds with a range of other recent data.

What Might History Tell Us About the Greek Crisis?

Michael Pettis, Jun 28, 2010 1:19PM

With the PBoC’s currency announcement last Saturday and the surge (!) in the value of RMB on Monday (all very kindly timed to add zest to my meetings this week in Boston, New York, and Washington), you would assume that today’s entry would be all about the RMB and the effect of the PBoC announcement. But aside from a brief aside to say that I am a little skeptical that this announcement adds up to much beyond a desire to head off China-bashing at the G20 meeting – bad news for Germany, who will now have to absorb much of the heat – I plan instead to discuss what I think the history of sovereign debt crises might tell us about the recent events in Europe. 

More on the Coming European Bank Stress Test Fiasco

Yves Smith, Jun 28, 2010 7:20PM

We noted a bit more than a week ago that we expect the European banks stress tests to backfire. The US version was a successful con game because the officialdom provided adequate disclosure about the process and stayed firmly on message, the banks were allowed to “manufacture” as analyst Meredith Whitney put it, impressive earnings, putting a tail wind behind their stock prices, and there was a mechanism for the US to inject capital if banks who were directed to raise equity levels were not able to do so. 

Germany’s Super Competitiveness: A Helping Hand from Eastern Europe

Dalia Marin, Jun 24, 2010 6:03PM

Discussions about the current-account imbalance within the Eurozone have focused on the under-competitive periphery and super-competitive Germany. This column suggests that the argument ignores one powerful way that Germany lowered its relative unit labour costs. German firms offshored parts of their production to the new member states in Eastern Europe, Russia, and the Ukraine.   Germany’s substantial trade surplus with its southern neighbours is in the spotlight (Wyplosz 2010). Many economists argue that Germany’s trade imbalance with its southern Eurozone neighbours has contributed to their woes. German industry has boosted the competitiveness of its exports over the past decade by keeping wages flat.

GIIPS Labor Costs Not Moving in the „Competitive“ Direction

Rebecca Wilder

Jun 24, 2010 11:24AM

The GIIPS (Greece, Italy, Ireland, Portugal, and Spain) hope: exports. Fiscal austerity crimps the saving of the private sector. And provided the governments make good their plans to put on the fiscal straight-jacket, there’s no other impetus for growth except foreign demand. Financial crises are often accompanied by currency crises, i.e., Sweden 1991, which drives export growth if there is sufficient external demand. For Sweden, there was.

Is the Recession Heading for a Double-Dip?

Roubini on CNBC’s The Kudlow Report: Is the Recession Heading for a Double-Dip?

Gestern, 29. Juni 2010, 22:32:06 | Nouriel Roubini

CNBC: The Kudlow Report — Crisis Economics: Discussing whether the recession is headed for a double-dip, with Nouriel Roubini, Roubini Global Economics chairman.  (Click for Video [6:48])

Greece’s best option is an orderly default

By Nouriel Roubini, FT.com Published: June 28 2010 22:56

It is time to recognise that Greece is not just suffering from a liquidity crisis; it is facing an insolvency crisis too. Rating agencies have started to downgrade its public debt to junk level, while spreads on Greek sovereign bonds last week spiked to new highs. The €110bn bail-out agreed by the European Union and the International Monetary Fund in May only delays the inevitable default and risks making it disorderly when it comes. Instead, an orderly restructuring of Greece’s public debt is needed now.

IMF Report Austria

Austria—2010 Article IV Consultation Conclusions of the Mission

Vienna, June 29, 2010

1. The Austrian economy is recovering from its recession. A combination of a trade and financial shocks and a related sharp contraction of investment resulted in a fall in GDP by 3 ½ percent in 2009, in spite of consumption remaining resilient. In line with the recovery in world trade, growth picked up in the second half of 2009 and is projected to be around 1 ½ percent in 2010 and 2011. Confidence has also improved in the financial sector, as evidenced by lower credit spreads. However, uncertainties are elevated and relate mainly to outside real and financial developments.

2. Austria is facing a number of challenges. As a very open and competitive economy, Austria had benefited from strong links with dynamic neighboring countries up to the crisis, and experienced higher growth than the euro area average. However, this integration also bears risks, notably in the financial sector. This calls for a cautious fiscal policy stance, as while Austria’s fiscal position remains relatively solid compared to most of its Euro area peers, market tensions may arise in case of adverse developments. This also calls for strong supervision to address remaining vulnerabilities in the financial sector. Finally, growth in some Central, Eastern and South eastern European (CESEE) countries is likely to be lower than before the crisis, while the labor force is ageing and Austria should adopt policies to strengthen its growth potential. There is no room for complacency.

3. In this context, main recommendations are three-fold:

In Ireland, a Picture of the High Cost of Austerity

June 28, 2010, NYT

By LIZ ALDERMAN

DUBLIN — As Europe’s major economies focus on belt-tightening, they are following the path of Ireland. But the once thriving nation is struggling, with no sign of a rapid turnaround in sight.

Nearly two years ago, an economic collapse forced Ireland to cut public spending and raise taxes, the type of austerity measures that financial markets are now pressing on most advanced industrial nations.

“When our public finance situation blew wide open, the dominant consideration was ensuring that there was international investor confidence in Ireland so we could continue to borrow,” said Alan Barrett, chief economist at the Economic and Social Research Institute of Ireland. “A lot of the argument was, ‘Let’s get this over with quickly.’ ”

Rather than being rewarded for its actions, though, Ireland is being penalized. Its downturn has certainly been sharper than if the government had spent more to keep people working. Lacking stimulus money, the Irish economy shrank 7.1 percent last year and remains in recession.

Joblessness in this country of 4.5 million is above 13 percent, and the ranks of the long-term unemployed — those out of work for a year or more — have more than doubled, to 5.3 percent.

Now, the Irish are being warned of more pain to come.

The German Experiment

   Date: 28-06-2010
 Source: Technology Review

The government sets a premium price on solar and other alternative power sources. The policy offers lessons in ways to encourage the use of renewable energy.

A decade ago, Germany launched a renewable-­energy plan on an unprecedented scale. Its parliament, the Bundestag, enacted a law obligating the nation’s electric utilities to purchase green power at sky-high rates–as much as 60 cents per kilowatt-hour for solar–under fixed contracts lasting up to 20 years. (German market prices for electricity, largely produced by coal and nuclear plants, were about 12 cents per kilowatt-hour.) The idea behind this „feed-in tariff“ was that anyone would be able to build a renewable-power plant–or install rooftop solar panels–and be guaranteed predictable profits by feeding energy into the grid, where utilities would buy it at premium prices. The higher costs would be passed on as monthly surcharges to ratepayers, spread out among all homes and businesses in a country of about 80 million people. Fossil and nuclear fuels amount to „global pyromania,“ said Hermann Scheer, the German politician who championed the policy. „Renewable energy is the fire extinguisher.“