Thursday, March 10, 2016

Predictions of the number 'seven'?

Is the world facing 7 years of famine following 7 years of plenty as happened in Egypt couple of thousand years ago. A professor thinks not. But, in a telling coincidence, he lists 7 dangers to the world economy. 1. There are worries about China. Although it is still growing at 7% there are doubts about its figures, which prompted the present Prime Minister, Li Kiqiang to develop his own index based on electricity consumption, rail cargo volume and new loans. Using this index economic growth comes in at 5%, but the government is moving the economy from investment towards services, so new indicators are needed. But is it working? The stock market and the currency are still falling, retail sales are static and people are travelling less. New Zealand just reduced interest rate because its dairy exports to China are falling. If the economy is still growing why are people eating less? 2. Emerging markets have large debts which could become a drag if the Federal Reserve increases interest rate further and the dollar becomes stronger. Using the Keqiang index India's growth rate falls to around 6%. 3. The Federal Reserve has to walk a tight rope. The unemployment rate has fallen to 4.9% but wages are not growing and a strong dollar is hurting exports, drawing scorn from both Democrat Bernie Sanders and Republican Donald Trump. 4. The middle east is on a knife edge. Having conned the US into lifting sanctions Iran has tested ballistic missiles with 'Israel must be wiped out' written on them in Hebrew. When criticised for the tests they threatened to walk away from the nuclear deal knowing that Europe will be reluctant to impose new sanctions and the west needs Iran and its proxy, the Hezbollah, to defeat ISIS. 5. The fall in oil prices is adding to the fear of deflation and causing losses for the shale oil industry in the US. 6. Banks are still in difficulty with bad loans. Indian banks are drowning in a sea of bad loans, some due to falling growth rate, some due to genuine mistakes but most due to corruption, as shown in the Kingfisher case. 7. Finally, the European Union where the central bank cut the interest rate to 0% from 0.05%, which seems meaningless, cut deposit rate to minus 0.4%, so banks will have to pay the central bank to park money with it, in an effort to force banks to lend, and increased its bond buying program from 60 billion to 80 billion Euros a month. A negative interest rate is supposed to weaken the currency but in the case of Japan it a had the opposite effect. Experts advise structural reforms, but what? Write off bad loans, lend more money to countries like Greece to stimulate growth and stop the flow of migrants. But politicians are committed to austerity and are building walls, which hampers trade. Time to be an atheist?

No comments: