Thursday, October 8, 2015

Storm Clouds Gather Over Global Economy as World Struggles to Shake Off Crisis


IMF Framed Forecast – 2015, UK Growth Among Downgrades

According to the International Monetary Fund, Britain is among some of the shining lights in the global economy and as the world views, the slowest period of growth since the financial crisis. The IMF framed up its forecast in 2015, for UK growth among downgrades `across the board’ for emerging and advanced economies.

It stated that China’s slowdown, dropping commodity prices together with an expected increase in the interest rate in US would tend to weigh on output. It is now expected that the world economy would expand by 3.1% in 2015 from a forecast of 3.3% in July. Since 2009, this would represent the slowest expansion when the global growth came to a halt.

According to the IMF’s chief economist, Maurice Obstfeld, who stated that `six years after the world economy came from its broadest and deepest post-war recession, the holy grail of robust as well as synchronised global expansion remains elusive.

Inspite of differences in country specific outlooks, the new forecasts tend to mark down expected near-term growth marginally though nearly across the board. Besides, downside risks to the world economy seems more pronounced than it was a few months back’

Risk of Recession over Next Year

The Fund had also cautioned that the risk of recession in the US, Eurozone as well as Japan over the next year seemed to have increased in the past six months since emerging markets face a fifth year of slow growth.

The year of weak demand as well as anaemic productivity development meant the probability of damage to the development on medium term was a great concern, warns IMF. Further drop in global demand would be leading to near stagnation in advanced economies should emerging markets tend to continue faltering, it added.

The UK economy is anticipated to grow by 2.5% this year, slightly up on the IMF’s forecast of July by 2.4% and its expectation for 2016 growth remained unchanged at 2.2%. IMF had stated in its latest World Economic Outlook that `in the United Kingdom constant steady growth is anticipated which is supported by lower oil prices as well as constant recovery in wage growth’.

Fund Cautions – Countries Need to Be Prepared for Higher Interest Rate

The outlook also portrayed US growth for 2015 had been higher than expected three months back when Italy envisaged upgrades for 2015 as well as 2016. The biggest economy of the world is expected to lead growth in the G7 this year but the UK and US economies have shown indications of slowing down, recently. The latest health-check of IMF portrays that it anticipates the UK government to balance its books by 2020.

Mr Obstfeld had stated that the UK and the US seemed `not totally immune’ to a probable slowdown in China but were less open than countries with closer trade connections. As per the Bank of England, should China’s grown be 3% lower over the next three years than it present forecast, it would knock 0.1% off the growth of UK.

IMF has stated that the risk of a recession would now be higher in the Latin America 5 – Brazil, Chile, Colombia, Mexico and Peru when compared to the rest of the world group. The Fund has informed that countries need to be prepared for higher interest rates in the US which is expected by the turn of this year. It also added that the Bank of England would probably raise rates by 2016.

Saturday, October 3, 2015

The Truth about China's Dwindling War Chest


China – The World’s Largest Creditor

China is considered to be the world’s largest creditor and the enormous money reserves of Beijing presently stands at a $3.6 trillion, which is still the leading owner foreign holder of US government debt. For over two decades, China, the world’s second largest economy had developed a war chest of foreign currency assets as a shield against the global winds.

However, on August 11, the decision taken to tweak its exchange rate regime to engineer the biggest single devaluation of the renminbi in 21 years has put forth the query of reserve depletion in severe aid. After deserting its peg with the US dollar for anachieveddrift, those in authority have been compelled to get involved on a huge scale to prop up the renminbi.

China had gone through reserves due to this failed devaluation, at an unmatched pace this summer wherein the reserves had dropped by $93.9 billion in August. This was the biggest monthly fall on record as well as the largest with regards to percentage terms since May 2012. This is set to continue for at least the remaining of the year. China would be slowly moving towards a much flexible exchange rate though not yet willing to feature a considerably weaker renminbi

Quantitative Tightening

As per UBS analysis, almost 70% of China’s reserve accumulation between 2005 and 2014 was from the country’s enormous present account excesses. The total reserves emaciated at $4 trillion in August 2014 had been on a steady decline since then.

As for the composition, UBS note that almost two-thirds around 62% was held in US dollar assets with about $1.27 trillion in the US treasury bonds. China had shifted from being a net buyer to a net seller of dollar assets to defend the value of the renminbi and this has given rise for concern that Beijing’s actions tends to have a stifling effect on the global credit as well as liquidity conditions.

This occurrence named as `quantitative tightening has been seen as concern when China can no longer play a part as the driver of global economic prosperity, at a time when the Federal Reserves is ultimately poised to begin normalising the monetary policy. In the midst of the trouble surrounding China’s prospects, economist tends to remain optimistic, speculating the fears of a dwindling war chest are possibly overdone.

China/Emerging Markets – Offload Foreign Currency Assets

Bumper reserves of Beijing, at $3.6 trillion, seem to be adequate in continuing to establish the currency and covering 20 months of imports of goods and services. All this, states, Tao Wang at UBS, `while the country continues running a current account surplus of over $300bn a year’.

Others consider that Beijing’s intensive reserve accumulation had been developed to confront precisely the kind of headwinds presently facing the country and are not surprising that the Politburo is now organizing them for the same purpose.

The authorities have also other various tools to fight off tighter monetary conditions. With regards to the impact on the growth of China on the rest of the world, the QT theory for intuitive appeal is still to be materialised in the form of rising bond yields with higher debt costs in the developed world.

China together with the other emerging markets could be offloading their foreign currency assets to handle their individual exchange rates though these may not be destined to drive up the bond prices according to economists.

Thursday, September 24, 2015

Nine of the World’s Biggest Banks Form Blockchain Partnership


Banks in Partnership to Form Blockchain

According to reports, nine of the world’s biggest banks which include Goldman Sachs as well as Barclays have come together with New York based financial tech firm R3 in order to develop a structure in utilising blockchain technology in the market.

For the first time banks have now joined forces to work on a shared way in which the technology that helpsbitcoin a Web based cryptocurency couldbe utilised in finance. Interest in blockchain has increased in the past few years and has already attracted major investments from many important banks which would be saving them money by making their operation quicker, efficient and more translucent.

The latest project which is the outcome of over a year’s worth of consultations with the R3, the banks as well as other members of the financial industry, would be led by R3 CEO David Rutter, earlier CEO of electronic trading at ICAP Electronic Trading which is one of the world’s largest interdealer brokers.

Rutter had informed Reuters recently that they had several round tables to consider in depth what the possible implications of the blockchain would be and what it could probably do in order to save money and time as well as to create an improved paradigm for the world of Wall Street and finance.

Function as Huge Decentralized Ledger

Some of those who have signed up for the initiative are J P Morgan, UBS, State Street, Royal Bank of Scotland, BBVA and Commonwealth Bank of Australia and Credit Suisse.

Blockchain tends to function as a huge decentralized ledger of all bitcoin transaction made which has been verified and shared through a global network of computers.

Hence it tends to be effectively tamper-proof. A team from Bank of England have been dedicated to it calling it a `key technological innovation’. Data that can be safeguarded by using the technology is not limited to bitcoin transactions.

Two parties could utilise it for the exchange of any other information quickly as well as without the need of a third party to verify the same. Rutter has mentioned that the earlier focus would be to approve on underlying architecture, however it had not been certain whether it would be supported by bitcoin’s blockchain or another one like one which is being built by Ethereum, offering additional features than the initial bitcoin technology.

Technologies - Transform Financial Transactions

He further added that once the same is agreed on, the first use of the technology could be the issuance of commercial paper on the blockchain.

He is of the belief that these technologies would probably be post-trade and the savings would be in the settlement side, in post-trade in issuance though not in exchange trading of OTC trading, in the near future. He also mentioned that R3 will soon be announcing a few more banks that would be joining the banks.

 Hu Liang, Senior Vice President as well as the head of emerging technologies at State Street, had mentioned in a statement that these new technologies could transform how financial transactions are recorded, reconciled as well as reported, with all additional security, lower error rates and significant cost reductions.

Thursday, September 17, 2015

Could This Start-Up Save the Greek Economy


Week Long Start-up – Contribute to Crisis Worn Greek Economy

A week long start-up fast-track program had been started recently in London for the purpose of locating ways which would make some contribution to the crisis worn Greek economy. In 2012, the Greek government had the largest sovereign debt default in history and on June 30 2015, it became the first developed country to fail in making an IMF loan repayment while at that time, Greece’s government had debts amounting to €323bn.

Six short listed companies would now be working with mentors as well as investors which includes Steve Vranakis, Google executive together with George Kartakis of PayPal owned Braintree in refining their views prior to competing in a Dragons Den-style event.

The idea includes a chemical formula in order to protect historical sites from illustrations, a scheme of recycling unused hotel toiletries, a Mastiha liqueur importer, an online education manager a digital diary for the purpose of booking civil weddings as well as an internet shop for products that are handmade by the Greek businesses.

The accelerator program which is run in partnership with Watershed Entrepreneurs is planned by Greek expats as well as others who have a social and an economic impact in Greece.

The Brain Drain-Lost Generation-Lose Contact

Co-founder Effie Kyrtata, a 25 year old Athenian who had moved to London seven years back has stated that `as they are based in London, they are tapping into the dispersion, the global community who are connected with Greece.

He adds that they have seen a lot of people leaving Greece to go to other countries – the brain drain, the lost generation and lose contact with Greece and that he wants to create a bridge between Greece and the UK’. Reload Greece, has helped entrepreneurs to raise £1m in funding over the past 18 months which generally runs mentorship schemes that tend to run for several months, however was prompted to do the strong accelerator as a reaction to the recent economic improvements in Greece.

Kyrtata has stated that this is our effort to do something fast due to the great need that exists. They are aiming to activate the community which resides abroad in making an immediate impact now and what can be done that will help the Greek economy straight away by using the youth and the people who have left’.

Six Start-ups – Refining Business Plans/Coordinate/Interact

The six start-ups that had been selected from more than thirty applications from the UK as well as Europe would be refining their business plans, coordinate with successful entrepreneurs and interact with expert mentors prior to pitching to a panel of investors. The winner is said to receive five free business coaching sessions from Eudaimonia Coaching.

However, Reload Greece is hoping that all the participants would be able to make their contributions to the Greek economy by developing jobs and boosting businesses. Moreover, the non-profit organisation also perceives its task as much more than financial. Kyrtata has commented that they desire to change the perception which the world has created about Greece by showcasing young as well as successful entrepreneurs who could make a difference and that there is a crisis and it is essential to be motivated to create new things’.

Thursday, September 10, 2015

China Economic Transformation Painful and Treacherous

China’s Economic Changeover – `Painful & Treacherous’

China’s changeover from an economy which is greatly dependent on manufacturing is a painful and treacherous one. China’s economic reformation has entered its most critical phase and authorities should deepen improvements in significant areas, eliminate barriers and restore the framework. Various challenges and tough times will be faced ahead.

This would create rare investment opportunities together with volatility and fluctuations and investors need to be positive and alert, looking for options to profit from the changes. China’s Premier Li Keqiang answered queries during a meeting on September 2, 2015, with foreign company executives at the World Economic Forum – WEF, in China’s port city Dalian and stated that China should embrace its global obligations with regards to combating climate change and that the country was already under huge pressure to meet emission reduction goals.

He admitted that the country is on track in achieving its target this year. He had informed the audience at the event that it was difficult to achieve 7% growth domestic product – GDP growth as China has targeted in 2015. However the nation’s new growth drivers as it tends to move from factories to a broader, service based economy would speedily tend to take shape.

Leaders Not Influenced by Short-Term Fluctuations

Li added that the Chinese economy has a bright future to what is known as the Summer Davos saying that `this is not unrealistic optimism’. Li further commented that China would be continuing in reforming its markets which included adopting an open and transparent capital market and relax restrictions on capital flow in the country.

He adds that over 10,000 new businesses are being registered in China each day and `sharing economy’ have been making new ways in creating growth.As the changeover takes place, leaders of China would not be influenced by short-term fluctuation in the economy, according to Li, who describes the company as shock-resistant and resilient.

His message reverberated to a statement which had been made by Finance Minister, Lou Jiwei earlier at the G-20 meeting in Ankara, Turkey wherein he had informed that China was not focused on monthly data. The position is at add with some of the economists who believe that what data is available from China, indicate that the world’s second largest economy is probably heading for a recession.

Risk of Falling into Deflation

Recession is usually demarcated as two successive quarters of a contraction in GDP. The influential Citigroup chief economists and a former member of the Bank of England’s interest rate-setting committee, Willem Buiter, have cautioned in a note that `there is a high and rising likelihood of a Chinese, EM – emerging market and global recession scenario playing out’.

Later on he also informed CNBC that the official data which had been provided by China was `largely meaningless’ and as per Citi’s own model, the economy of China had increased by 4 percent in 2014 and not at 7.3 percent since the number was studied down, by China earlier in the week.

The data that was released recently indicated that consumer inflation had accelerated in August when producers’ prices had fallen deeper into deflation. The CPI – China’s consumer price index increased to 2% in August from the previous year against expectations for a 1.8% increase from Reuter’s poll, following July’s gain of 1.6%. Chief China economist, Li-Gang Liu, at ANX stated that `as PPI remains negative for over three years, China is still facing the risk of falling into deflation’.