Brazil’s Q3 GDP Disappointed: Is Growth Sustainable? What Are the Drivers?

Industrial production declined 0.2% m/m s.a. in November (consensus +1.0% m/m). On an annual basis, industrial production (IP) increased 5.1% (-3.2% y/y in October). Capital goods (+6.1% m/m s.a., -2.5% y/y), intermediate goods (+2.1% m/m s.a., +5.2% y/y), and consumer goods (-0.6% m/m s.a., +6.8% y/y), mainly due to auto production (-2.2% m/m s.a.), posted mixed results. BNP analysts highlighted that „the number was weak and looking forward, BNP expects IP to continue losing momentum. The main reasons behind that are i/ tighter fiscal policy, ii/ weakness of external demand and iii/ increasing unemployment rate expected to be seen in early 2010… The weakness of banking lending from non-public institutions is another headwind to consider.“ (Not available online, Diego Donadio, BNP, Brazil: Nov’s Industrial Production declined 0.2% m/m, below consensus, 01/06/09)

How Sustainable Are the Improvements in Global Manufacturing?

 • Surveys suggest that global manufacturing activity continued to expand in December 2009 with growth in output, orders and the overall PMIs accelerating in many countries. The pace of expansion has slowed, however, indicating that the recovery is strong going into the new year. The U.S., EMU, China and Japan all continued to record expansions. Spain, Greece and Russia are among the few countries to continue to see contraction in manufacturing.

Hungary’s Economic Correction Still Fails to Convince

Edward Hugh

Dec 29, 2009 1:22PM

„Hungary’s potential economic growth should be 2 percentage points over the corresponding EU figure in order to ensure convergence“. Prime Minister Gordon Bajnai, speaking in London in October

Two contrasting pieces of news about Hungary’s economic plight have caught my eye over the last week. In the first place, and in an evident sign of the times, retail sales reportedly fell at their fastest annual rate in over ten years in October, whilst secondly, and more surprisingly, I learnt that Hungary’s economic-sentiment index rose to its highest level since October last year, when the gale force wind sent by the fall of Lehman Brothers engulfed the country. How can this be, I thought? These two pieces of information would, at least on the surface, seem to be pretty contractictory, with the former suggesting the deepest recession in living memory is getting even worse, while the latter seems to add backing to government claims that the worst is now behind them. 

The Fairness of Financial Rescue

Mark Thoma

Dec 29, 2009 5:45PM

Brad DeLong says the undesirable act of bailing out those who helped to cause the financial crisis is justified by the greater good that came from this policy, but the public does not see it that way: 

The Fairness of Financial Rescue, by J. Bradford DeLong, Commentary, Project Syndicate: Perhaps the best way to view a financial crisis is to look at it as a collapse in the risk tolerance of investors in private financial markets. … [W]hen the risk tolerance of the market crashes, so do prices of risky financial assets. … This crash in prices of risky financial assets would not overly concern the rest of us were it not for the havoc that it has wrought on the price system… The price system is saying: shut down risky production activities and don’t undertake any new activities that might be risky.

Lost Decade for Stocks

James Hamilton

Dec 28, 2009 6:59PM

Why were the aughts so nasty for stocks?

The U.S. ended the decade more or less where it began in terms of total employment.  

 

  

Source: FRED.

Poland’s Economy Stands Out from Regional Peers: Explaining the Outperformance

• Poland stands out as the only EU economy to avert recession in 2009. The economy’s resilience in the face of the global crisis is attributed to a number of factors, ranging from a flexible exchange rate to smaller pre-crisis external imbalances, as well as a lower export-to-GDP ratio than most CEE peers.

Eastern Europe: How High Could NPLs Rise?

Analysis of financial health indicators shows that Eastern European banks are generally well-capitalized. In recent years, the share of non-performing loans (NPLs) in total loans ranged between 2% and 4% in most new member states. Nevertheless, NPLs are now spiking in most CEE countries, amid economic downturns and falling property prices. Most analysts do not expect NPLs to peak until mid-2010 at the earliest.

PMI Shows Continued Expansion of Chinese Manufacturing

• Data collected by the Chinese Federation of Labor (CFL) showed the PMI strengthened to 56.6 in December from 55.2 in October and November 2009. This marks the tenth month above the 50 threshold that indicates expansion, following a bottoming out of the index at a level of 38.8 in November 2008. All but two of the 11 subindices showed improvement, with output and new orders above 61%. This follows a plateau in the previous month when some sub-indices showed declines. CFL data are thought to do a particularly good job capturing trends among state-owned companies. (Li & Fung, 01/01/10)

Record Reserve Accumulation in 2009?

The IMF’s data on the Currency Composition of Official Foreign Exchange Reserves (COFER), the most comprehensive data on foreign exchange reserves, showed that global foreign exchange reserves exceeded US$7.5 trillion at the end of Q3 2009, up from US7.2 trillion at the end of Q2 2009. The COFER data also suggest that the USD share of global reserves continues to drift downward. The dollar share of countries that report the currency composition of their reserves fell to 62% in Q3, from 63% in Q2. However, 40% of global reserves are held by countries like China that do not report the composition of their reserves. (RGE analysis of IMF data)

Credit Crunch in the Eurozone Intensifies: Loans to Non-Financial Corporations Decrease Further

• The annual rate of change of M3 decreased to -0.2% in November 2009, from 0.3% in October 2009. Regarding the main components of M3, the annual rate of growth of M1 increased to 12.6% in November 2009, from 11.8% in October. The annual rate of change of loans to the private sector was -0.7% in November, after -0.8% in the previous month. The annual rate of change of loans to nonfinancial corporations decreased to -1.9% in November, from -1.2% in October. The annual growth rate of loans to households increased to 0.5% in November, from -0.1% in the previous month. (ECB, 12/30/09)