Showing posts with label economy. Show all posts
Showing posts with label economy. Show all posts

Wednesday, April 13, 2016

Yellen The US is not a ‘Bubble Economy'

Yellen

Yellen – Rebuffing Political Rhetoric – Bubble Ready to Burst


Janet Yellen, Federal Reserve Chair had touted recently on the strength of the United States economy, rebuffing political rhetoric recommending a bubble was ready to burst. Yellen noticing a healing labour market and a 5% headline unemployment number, had commented, `I certainly wouldn’t describe this as a bubble economy. Yellen had been on a panel with the earlier Fed Chairs Ben Bernanke, Paul Volcker and Alan Greenspan at the International House in New York and the U.S. central bank heads had discussions on the U.S. economy as well as monetary policy all over the world.

Yellen’s comment came soon after the Republican presidential contender Donald Trump’s disagreement that an economic bubble would erupt. She noted that she did not see `imbalances’ like `clearly overvalues’ asset prices. Though Volcker acknowledged that he saw some overextended pieces of the financial system he agreed stating that he does not believe that a bubble exists. Yellen adds that the global economy has been seen as a comparatively weak growth inspite of the positive signs in the U.S. Restrained approach had been taken by the Fed on raising interest rates this year after raising its target for the first time in almost a decade, in December.

Fed to Watch Carefully – Occurring in Economy


This year the policy committee of the bank now tend to project two rate hikes. Yellen has stated that she does not consider the decision taken in December as a mistake, since indicators during that time portrayed substantial progress towards the Fed’s labour market as well as inflation goals. Going ahead, he noticed the Fed would watch very carefully what is occurring in the economy.

The Fed had dealt with drooping global economy and U.S. inflation below its target, since it decides on how quickly to increase rates. The tightening path of the Fed came as other central banks all over the world including those in Europe and Japan tend to have eased. The policy committee would meet next on April 26 and 27. Some of the observers of the Fed have quizzed on how the central bank would react to a probable recession with policy already accommodative.

Yellen’s Comments – U.S. Stock Market Futures Dropped


On Thursday, Bernanke noticed that the fiscal policy `does not have a role to play’ on top of monetary policy. Greenspan added that the monetary policy should not have the whole load of battling an economic slowdown but he warned against creating more debt with increased government spending.

Yellen had also addressed a recent crusade by Minneapolis Fed President Neel, Kashkari who had floated breaking up large banks to increase financial system stability. She had observed that she shared the concern of Kashkari regarding ending firms’ `too big to fail’ status. However, she stated that the policies such as capital and liquidity needs and stress tests have improved the safety and soundness of the banking system. She commented that she feels more positive on the progress made.

She was also of the belief that the issue is within the purview of Kashkari, noticing that the decentralized structure of the Fed enables independent views. In the wake of Ms Yellen’s comment, the U.S. stock market futures dropped as traders processed signs from the Fed chairman that she would be willing to follow increases in interest rates in the future.

Friday, April 1, 2016

UK Inflation Rate Stays at 0.3%

uk

UK Inflations Unchanged at 0.3%


According to the Office for National Statistics – ONS, UK inflation, measured by the Consumer Prices Index remained unchanged at 0.3% in February. There was a big rise in vegetables though the transport cost had dropped as per ONS. The annual inflation was below the target of 2% of Bank of England for two years and last year it had been zero. Last month the Bank had stated that it predicted inflation to remain below 1% this year.

Other figures of ONS published at the same time showed that Chancellor George Osborne had been close to missing his target in cutting the budget deficit of the country in 2015-16 financial years. According to ONS, borrowing of the government dropped than anticipated in February which brought the overall deficit so far to £70 for the 11 months of the year, as against the chancellor’s full-year target of £72.2bn.

The borrowing figures could mean that the government could borrow on additional £1.5bn this month if it intends to avoid exceeding the forecast set by the Office for Budget Responsibility during the last week’s Budget. Recent ONS’s release revised January’s borrowing by 2.6bn and even though next month’s figure exceeds the forecast, there is a possibility of waiting longer for confirmation.

Difficulties in Implementing Some of the Planned Budget Cuts


Chief economist at the British Chambers of Commerce, David Kern, stated that while there is a gradual progress in reducing the deficit, the timetables outlined in the Budget last week tends to be ambitious and the return to surplus could take a bit longer than the chancellor hopes.

He further added that `the difficulties in implementing some of the planned budget cuts would increase the problem’. Under the single Retail Prices Index – RPI measure including housing cost, inflation was 1.3% in February, which also remained unchanged from the previous month. According to the ONS, the biggest downward pressure on the inflation rate was from the transport segment with the changes in prices for items like road passenger transport, second hand cars and bicycles.

There was a drop in prices for toothpaste together with other personal care products, though higher prices for vegetables, milk, eggs and cheese compensated for those declines.

Britain’s vote on European Union Membership – Hit UK Economic Growth


An increase was also seen in hotel accommodation and restaurant bills along with the price of furniture as well as household equipment. Lower oil prices kept a cover on inflation leaving the central bank in no haste to increase the rates beyond 0.5% which remained there for almost seven years. The unmoved level of inflation of February comes after three months of increased consumer prices.

 Clothing prices had been up by 0.4% when compared to last year while gas prices had dropped by 6% over the same period after energy giant E. ON’s decision to reduce the cost of gas by 5.1% for two million customers last month. The inflation announcement was made after the Bank of England had voted to maintain the rates on hold once more this month and cautioned that Britain’s vote on its European Union membership could hit UK economic growth.

Tuesday, March 22, 2016

IMF Says World at Risk of 'Economic Derailment’

IMF

Global Economy Faces Rising Risk of Economic Derailment - IMF


The International Monetary Fund – IMF has advised that the global economy tends to face a rising risk of economic derailment. David Lipton, Deputy Director has called for urgent steps to increase global demand. He had mentioned in his speech to the National Association for Business Economics in Washingtonrecently, that they are clearly at a delicate juncture. He warned that the IMF’s latest reading of the global economy indicates once again a weakening baseline.

His comments have come up after weaker than expected trade figures from China portrayed that the exports had plunged by a quarter from a year ago, in February. With the second largest economy of the world often stated as `the engine of global growth’, weaker global demand for its goods seems to be read as an indicator of the general global economic climate. IMF have already mentioned that it would be likely to downgrade the present forecast of 3.4% for global growth when it tend to release in April, the economic predictions. International lender had warned last month, that the world economy seemed to be highly susceptible and had called for new efforts to spur growth.

Downside Risks Clearly Pronounced


Ahead of last month’s Shanghai G20 meeting, in a report, the IMF had mentioned that the group need to plan a co-ordinated stimulus programme since the world growth had reduced and could be derailed by market turbulence, the oil price crash as well as geopolitical conflicts. In his speech in Washington, Mr Lipton had stated that the burden to lift growth falls more squarely on advanced economics which tend to have fiscal room to move.

He added that the `downside risks are clearly much more pronounced than earlier and the case for more forceful and concerted policy action has become more compelling. Moreover risks seemed to have increased further with volatile financial markets and low commodity prices creating fresh concern about the health of the global economy’. A swing of weak economic data had lately been added to these apprehensions and the US ratings agency Moody’s had downgraded its outlook for China from `stable’ to `negative’.

Time to Support Economic Activity


The rising unemployment is also another worry as Beijing tends to slowly shift its economy from over dependence on manufacturing and industry to more services and consumer spending. The economy of China seems to be growing at the slowest rate in 25 years which has resulted in considerable uncertainty in the financial markets all over the world leading to sharp falls in commodity prices.

Lipton has commented that `together with bank repair wherever needed and with adequate targeting on infrastructure, this approach could create jobs and probably reduce public debt-to-GDP ratios in the medium term by motivating nominal GDP as well as support credit and financial stability. On strengthening the global outlook, this coordinated action could hurry healing in the banking sector and prevent continent liabilities for the government which appear in case of inaction.

 Moreover it would also have considerable positive spill-overs to susceptible emerging economics comprising of commodity exporters which would be unable to participate in the fiscal expansion, directly. He added that at the recent G20 meetings in China, he thinks that `there was broad recognition of these risks and priorities and now is the time to support economic activity and put the global economy on a sounder footing’.

Friday, March 18, 2016

How Robots will Kill the 'Gig Economy

Gig Economy

Gig Economy – Cease to Exist in 20 Years


According to new report from venture backed start-up Thumbtack, an online marketplace which tends to help skilled workers locate customers, the so-called gig economy would cease to exist in 20 years. The study has forecast that logistic companies from start-ups like Uber right to tech giants like Amazon would be replacing drivers as well as delivery workers with autonomous vehicles and drones.

The study discovered that extremely skilled workers like lawyers and accountants would no longer be assured of jobs at big firms - will be the new gig economy workers. Jon Lieber, chief economist at Thumbtack and Lucas Puente, an economic analyst at the firm had mentioned in a report that `the gig economy known will not last.

 In the past few years, analysts and reports have obsessively focused on transportation technology platforms such as Uber and Lyft and delivery technology platforms like Instacart and the workers required for these on-demand services. The fine focus on low-skilled `gigs’ tends to miss a larger story. The rather commoditized, interchangeable services seem to supplement income, not generating middle class lifestyles. Besides, these jobs are probably going to be automated over a period of time and performed by self-driving cars and drones'.

Autonomous Driving Technology – Reduce Death/Transportation Affordable


Uber had been frank with regards to its plans in replacing drivers with robots over a period of time. An Uber spokesperson informed CNBC that `autonomous driving technology has the ability to drastically reduce deaths in cars, making transportation even more affordable. That it is an exciting future and one Uber plans to be part of, but that transition for technical, regulatory as well as adoption reasons, at scale, would take some time. The spokesperson stated that `in the meanwhile, the focus is providing flexible work opportunities for many people in the world as possible’.

According to Oxford academics Car Benedikt Frey and Michael A. Osborne, around half of U.S. jobs seem to be at high risk of computerization over the next 20 years. Their discoveries had been published in 2013 and are unchanged, but there are some limitations like resistance from stakeholders and relative wage levels which would determine if a job is in fact automated, according to Osborne.

Estimates on how many jobs robots will ultimately displace would vary widely. Forrester analyst J.P. Gownder mentioned in a report that `forecast of 16% of jobs would disappear owing to automation technologies between now and 2025.

Supervised by `Robo-Boss’ by 2018


However that jobs equivalent to 9% of present day’s jobs would be created. Physical robots need repair and maintenance professional, one of the several job categories which would grow around in a much automated world’. From the global point of view, over 3 million workers would be supervised by a `robo-boss’ toward 2018, as predicted late last year by research and advisory firm Gartner.

Osborne has stated that jobs which are least likely to be automated initially are those which need a high level of creativity or emotional intelligence. For instance, school teacher jobs seem to be comparatively safe due to the elevated level of social intelligence needed to teach as well as mentor children.

 The Oxford study found positions which seem mostly susceptible to automation comprise of telemarketers, watch repairer, tax preparers, insurance underwriters, cargo and freight agents and others. In each category, some jobs would be automated very soon. Osborne states that `this gig economy is being pursued via digital platform and is actually getting individuals to automate themselves out of a job by delivering data back to the platform which could be utilised in providing an automated substitute.

Tuesday, March 1, 2016

Pensions still the most effective savings option, says IFS

IFS

Pension – The Most Tax-Efficient Kind of Savings


Pensions still tends to be the most tax-efficient kind of savings, inspite of the tax changes, according to the Institute for Fiscal Studies – IFS. It seems to be the big winners since they are subject to various tax advantages. The pension contributions are taken out of untaxed income resulting in paying into a pension that actually lowers the income tax bill.

Moreover, the returns on your investments are not taxed though one tends to pay tax on withdrawals. Besides this one tends to take 25% of the pension as a lump sum without having to pay a penny in tax. According to IFS, `pension saving is in effect subsidised’.

 The IFS had made a comparison of saving in a pension with buying a house, putting funds in an Individual Saving Account –Isa, or investing in buy-to-let property. The foremost motive is that under the auto enrolment programme, employers tend to match employee contributions resulting in workers getting 60% increase to their pension, according to IFS. According to the report, since the employers seldom make equivalent offers matching employees’ contribution, for instance in an Isa or a house, it tends to make savings in a pension more attractive comparative to other assets.

Personal Savings Allowance – PSA


The research took into accountthe new Personal Savings Allowance – PSA as well as the changes to dividend taxation which will be effective in April and probable changes to pension taxation. The government had earlier mentioned that any such changes would motivate people in saving. When the PSA tends to become effective, basic rate taxpayer would not pay tax on the first £1,000 of their saving income while higher rate taxpayers would be getting an allowance of £500.

IFS have mentioned that due to this, the 16m people would stop paying any interest on their income savings and 95% of the people would no longer have their savings taxed. But the report has stated that the change would weaken the incentive for several people in saving in an Isa.

It stated that for most of the people, the ordinary bank account would in effect be tax-free just the same way as cash Isas and there would be little incentive in saving in a cash Isa. Moreover, the PSA would also mean an end to tax deduction at source on the saving accounts that would be of certain help to pensioners.

The research also observed that people desiring to invest in property would make a much better tax-efficient choice by investing in their own home instead of becoming buy-to-let landlords. The report further states that `investment in owner occupied housing is significantly more tax-advantaged than the investment in property to-let, prior to recently announced changed to the treatment of mortgage interest for landlords.

There have been plenty of talks regarding further changes to pension that would be announced in the next month’s Budget. The present thinking seems to be that the government would be setting a flat rate of around 30% and this would essentially represent a further increase to pension saving for basic rate taxpayers who tend to currently enjoy tax relief of 20% on their contribution.

 However, it will dip the appeal of pensions to higher rate as well as additional rate taxpayers who tend to enjoy tax relief of 40% and 45% presently.

The current thinking seems to be that the government will set a flat rate of somewhere around 30%. This will actually represent a further boost to pension saving for basic rate taxpayers, who currently enjoy tax relief of 20% on their contributions, but will dent the appeal of pensions to higher rate and additional rate taxpayers who enjoy tax relief of 40% and 45% at the moment.

Wednesday, January 27, 2016

What markets are really worried about

oil_price

Dull Start for Global Stock Market


It has been a dull start for the global stock market this year and the first week has been described as the worst start ever, for Wall Street. During the first week of 2016, Frankfurt and Tokyo had dropped by double digit percentages while in New York the drop was 9% and in London 8%. However, China was the eye of the storm where the key index in Shanghai had lost 19% of its value during the same period.

The prices of commodity had also stumbled where crude oil prices for the first time in almost 12 years, had slipped to below $30 per barrel. Share prices, at times had followed oil downwards which is likely for shares of the companies in oil business. However, for the others it tends to reduce costs leaving consumers with more to spend on their products.

There seems to be a slowdown in emerging growth of the economies and China is an exceptional example though certainly not the only one. The instability had begun in the Chinese market, spreading all around the world.The Chinese stock market in itself does not seem to be the ultimate international issue.

Currency under Pressure


Though it is a serious issue for Chinese investors who had purchased shares while the prices were high, they have lost a good amount of money. However there are few of them to have a possible impact on consumer spending in China.

 There are also few foreign investors in Chinese market withthe possibility of serious losses inflicted beyond the country as direct significance. Besides the stock market, the currency, Yuan has also been under pressure and has lost its ground this year though not on the stock market scale. In the first week, the onshore, official rate dropped down by almost 2%. Some had indicated that there could be a possibility of the decline in the Yuan revolving into a full blown loss of confidence.

The financial market pressures on China are in portion at least an indication of the extensive and much discussed economic slowdown. Since the Chinese economy seemed to lose some space there has been some uncertainty on how well the authorities would handle the process. China would certainly need to slow to an added sustainable pace, but would the path tend to be a rocky one with an abrupt slowdown?

Significant But Catastrophic Slowdown in Growth


The official figures so far indicate a significant though not catastrophic slowdown in growth. According to official figures published, after three decades of 10% average growth, China seemed to slow down to 6.9% last year.The new assessment of the economic outlook of IMF tends to predict a further easing of the pace to about 6.3% this year and in 2017 around 6.0%. It records that China has experienced a faster than presumed slowdown in exports and imports, partially reflecting weaker investments as well as manufacturing activity. The apprehensions regarding economic outlook are not only over China. The new forecast of IMF, downgrades the outlook for the emerging as well as the developing countries and the ones which tend to stand out are Brazil and Russia. This is partly regarding the low prices of oil together with the other commodities as well as the political issues, external for Russia and domestic for Brazil. Besides, this there is also a substantial downgrade in the forecast for South Africa.

Wednesday, January 20, 2016

RBS Cries 'Sell Everything' As Deflationary Crisis Nears

RBS

RBS Warns Clients – Brace for Cataclysmic Year/Global Deflationary Crisis


According to RBS, clients are advised to brace for a cataclysmic year as well as a global deflationary crisis, cautioning that main stock markets would fall by a 5th as well as oil would plunge to $16 per barrel. It was informed by the bank’s credit team that the markets tend to be blinking stress alerts similar to the stormy months prior to the Lehman crisis in 2008. In a client note it had stated to `sell everything except high quality bonds. This is about return of capital, not return on capital.

In a crowded hall, exit doors are small’. Bank’s research chief for European economics and rates, Andrew Roberts commented that the global trade as well as loans have been contracting nasty cocktail for corporate balance sheets and equity earnings which are mainly threatening,considering that global debt ratios have touched record highs.

He further added that `China has set off a main correction and the same is going to snowball. Equities as well as credit have become quite dangerous and we have hardly begun to retrace the `Goldlocks love-in’ of the last two years’. Mr Roberts is hopeful that the Wall Street and European stock would fall by 10 to 20% with a deeper slide for the FTSE 100 taking into account its high weighting of energy and commodities companies.

London Vulnerable to Negative Stock


He has commented saying that `London is vulnerable to a negative stock. All the peoplewho are `long’, oil and mining companies are under the impression that the dividends are safe, will discover that they are not safe at all. The oil prices of Brent will tend to continue to slide after breaking through an important technical level at $34.40, as claimed by RBS, with a `bear flag’ and `Fibonacci’ indication focusing to a floor of $16, which was a level seen last after the East Asia crisis in 1999. The bank has stated that a paralysed OPEC appears unable to respond to a deepening slowdown in Asia with swing region now for global oil demand. RBS predicts that yields on 10-year German Bunds would drop to an all-time low of 0.16% in an effort to safety and would break zero while deflationary powers tend to tighten their grip. The policy rate of European Central Bank would fall to -0.7%.

China – Epicentre of Global Stress


RBS had first delivered its grim warnings in November for the global economy though events had moved much quicker than dreaded. It had estimated that in the fourth quarter, the US economy had slowed to a growth rate of 0.5% and had accused the US Federal Reserve of `playing with fire’, by increasing rates. It stated that there has already been severe financial tightening in the US due to the rising dollar’.

 When the ISM manufacturing index appears to be below the boom-bust line of 50, it seems unusual for the Fed to tighten. Moreover, it is also more shocking to do so after nominal growth of GDP had fallen to 3% and since 2014 been trending down. RBS has informed that China is the epicentre of global stress where the debt driven expansion had reached saturation and the country is now facing a surge in capital flight and is in need of a dramatically lower currency. This next leg of the rolling global drama, according to them is to play out wild and frantically

Tuesday, December 15, 2015

Oil Sinks to Biggest Weekly Decline of 2015 after IEA Warning

Oil

Oil Dropped to Major Weekly Decline – IEA Emphasised Excess Level of Global Crude


Oil dropped to its major weekly decline of the year after International Energy Agency report emphasised the level of the global crude excess. The energy monitor - IEA, informed that low prices are taking a toll on supply. However, producers have not scrambled back to make dent in the stockpiles. For six straight sessions, oil had fallen, in registering its massive weekly percentage decline of 2015. The latest oil’s selloff that hadreduced prices by around a third since the beginning of the year has started rattling stock and debt market again.

The Dow Jones Industrial Average was down by 270 points recently and the Junk bonds which were also whirling from a fund’s closure had also collapsed. January delivery of U.S. oil futures had fallen by $1.14 to $35.62 per barrel on the New York Mercantile Exchange Brent, while the global benchmark had fallen by $1.80 per barrel, to $37.93 on ICE Futures Europe. Both had lost around 11% for the week, placing them down a third for the year as well as at their lowest settlement since the financial predicament.

IEA Monthly Report – World Oil-Demand Growth – To Be Relaxed


In February 2009, U.S. oil had last settled this low and Brent in December 2008 and the last time U.S. crude, had posted a six-session losing streak was in March. For Brent it was in mid-2014. In recent weeks, currency managers had abruptly moved against crude, constantly adding to bets on the falling prices. Recently the data released by the Commodity Futures Trading Commission, indicated only 80,474 additional bets on the rising prices than the falling prices, which is said to be the smallest margin in more than five years.

The IEA, in its monthly report had indicated that the world oil-demand growth would relax to 1.2 million barrel each day towards 2016 after flowing to 1.8 million barrels per day this year since support from sharply falling oil prices had started to disappear. Unrelenting strong OPEC production together with extra Iranian oil hitting the market in the next year would increase global inventories by around 300 million barrels.

Oil Would Rebound to $65


IEA has commented that `as inventories tend to increase towards 2016, there would be a lot of oil weighing on the market’. Prices of several oil company shares had revealed the notion that oil would rebound to $65 per barrel according to managing director at investment bank Tudor, Pickering, Holt & Co; Matt Portillo.

The prices together with the oil futures curve are presently below $60 per barrel all through 2024, and indication that a recovery seems very remote. Mr Portillo has informed that `it’s the slow meltdown which is being seen in the market presently’. Besides this, there also seems to be broad concerns regarding growth, particularly in emerging markets which in the earlier years had directed demand growth in raw materials.

Central bank of China had recently indicated its intention of changing the way it tends to manage the value of Yuan by loosening its peg to the dollar which could be a bad indication for oil demand in the second largest oil consumer in the world, according to senior research analyst at ClearBridge Investment, Dimitry Dayen, which manages the assets of $103.9 billion. He had commented that `if they tend to devalue their currency which is a bit of what is prevailing presently; the commodity will become more expensive locally and could drive the demand lower’.

RBI Rejects Bids at Bond Sale for Second Consecutive Week

Bond sale

RBI Rejects Bids at Government Bond Sale


The Reserve Bank of India rejected all the bids at its 150 billion rupee government bond sale including the benchmark 10 year debt, recently, marking the second week consecutively when it did not accept some of the bids. The RBI had only accepted 49.4 billion rupees worth of bids for its sale of 70 billion rupee of 2025 bonds and had accepted only 22.9 billion rupees of the 30 billion rupees worth of 2034 bonds that were being sold.

 The balance three bonds had been totally allotted. RBI has the option of not accepting all bids at the debt auctions through a procedure known as a `devolvement’, which tends to lead underwriting dealers to purchase some of the shortfall in undersubscribed tenders at determined cut-off yield. According to a treasurer at HDFC, Ashish Parthasarthy, he comments that `the yield may not be acceptable and they would find it too high’.The devolvement has come up when the RBI is tied up in a complicated balancing act with domestic yields in order to keep the volatility away from its bond markets ahead of the policy decision of the Federal Reserve this month.

Fourth Auction with Weak Bids/High Yields


This seems to be the fourth auction which has seen weak bids and demands at high yield levels from the market. The RBI may not have been relaxed giving a cut-off which did not reflect its accommodative monetary position, according to bond traders.

The government is scheduled to raise Rs 15,000 crore by allotting four bonds at the weekly auction. Presently the craving for bonds is quite low in the market and several investors have incurred losses after yields shot up sharply after the policy statement and are now being careful according to the managing director of ICICI Securities Primary Dealership, B. Prasanna. Government bond earnings have increased by at least 10 basis points over the last one week as an aggressive policy statement from RBI, the effects of global bond sell-off earlier in the month as well as anxieties over domestic inflation that kept several buyers at bay. The 10 year benchmark 7.72%, 2025 bond yield closed at 7.8%, up 10 bps from the earlier week. The bond has suffered losses for all investors who had bought it at the maiden auction in May.

Last Devolvement – June 12


In the policy of June, the RBI had reduced its repo rate by 25 bps, but had raised it inflation forecast to 6% for January and had commented that it has frontloaded its rate cuts. This however brought about expectations of the future rate cuts sharply down in the bond market. Moreover, the bond yields from US to Europe has also increased to multi-month highs since the investors deserted fixed income in the midst of rising oil prices as well as the forthcoming rate hike by the US Federal Reserve.

The last devolvement of RBI had been on June 12, when the sentiments seemed negative owing to high inflation reading. An official aware of the central bank’s decision in explaining the devolvement had informed that `the bids had come at much higher yields’. He had added that the central bank was also certain in not devolving in too big an amount to avoid destabilising the markets.

Saturday, November 28, 2015

Why China ‘Spill Over’ Poses Risks for the Euro Zone

China_trade

China’s Slowdown – Risks for Euro


The economic slowdown of China could face risks for euro ranging from decreasing exports, capital outflows and exchange rate fluctuations, according to the European Central Bank – ECB. China the second biggest economy following the US plays an important role in the global trade and its economy seems to have slowed down every year since 2010.

It seems to be continuing in doing so till at least 2016 when the International Monetary Fund forecasts growth by 6.3%. From the start of 2015, the slowdown of growth in China has condensed euro area exports especially exports of machinery and transport equipment and this has brought about adverse consequence particularly for exporters of manufactured goods.

 According to the bank’s recent financial stability review, this has been accountable for around 90% of goods exports to China. The ECB which tends to control the monetary policy in the 19 countries using the euro informed that 1% point slowdown in Chinese real gross domestic products – GDP would drop around 0.1-0.15% points off euro area movement after around two to three years.

Confidence Shock – Led to Tightening of Financial Situation


The ECB have stated that an economic `confidence shock’ probably owing to a worse than expected slowdown in China could have led to a tightening of financial situation in the emerging markets with a further slowdown of euro area foreign demand.

It added that besides capital outflows from China if not compensated by the other private or official flows it could activate a depreciation of the Chinese currency taking into consideration, exchange rate depreciation of other emerging market currencies’. The bank has commented that China’s massive economy would mean that it had manipulated a significant effect on the charge of oil though this had declined in recent years as its rapid growth slowed down.

The U.S. crude oil prices had fallen by about 45% since the last year owing to an imbalance of demand as well as supply which has been partially motivated by the economic slowdown of China, an important purchaser of commodities.

Chinese Economy – Important Effect on Oil Prices


According to ECB, the Chinese economy size means that it has had an important effect on the prices of oil though its relevance had declined in recent years since the growth continued to weaken. Hence the influence of slowdown in China on the prices of oil could be limited but it significantly is based on whether the growth in other emerging market economies also slows down.

The background of global economic, including that of China could influence the decision of ECB on whether to extend or expand its 1 trillion euro – $1.1 trillion, asset purchasing program. It is said that the central bank is extensively expected to do so, when it would meet in Frankfurt on December 3.

In its report, the bank concluded that the influence on the euro area of a potential further slowdown in China eventually centres on the extent to which this slowdown spills over to the other emerging markets more generally and the point to which the subsequent loss of confidence tends to affect the global financial market together with global trade.

Thursday, November 5, 2015

Taiwan Economy Shrinks for First Time since 2009 on Exports

Taiwan

Economy of Taiwan Weakened - Global Financial Crisis


The economy of Taiwan weakened on a yearly basis for the first time since the global financial crisis, as a fall in exports and an inactive global recovery pulled on consumption. According to preliminary data provided by the statistic bureau recently, the product of gross domestic fell by 1.01% during the three months through September from a year earlier.

This compares with 0.52% growth initially reported in the earlier quarter with the 0.5% drop expected by the median estimate in a Bloomberg survey of economists. Taiwan’s exports seem to be sliding as the economic growth in the best location of China has slowed more to a six year low.

This had begun to curb domestic consumption last quarter that has marked the biggest slide for local shares since 2011 in the midst of Yuan’s stock devaluation in August. Economists are optimistic that the growth is likely to return to positive territory this quarter as U.S and Chinese demand tends to recover, restraining room for another rate cut in December this year.

An economist at DBS Group Holdings Ltd, in Singapore, Ma Tieying commented that `demand was poor in China and emerging markets in the third quarter, together with volatility in global markets accompanied with Yuan devaluation affected the stock performance and confidence of the consumer.

Government Unveiled Consumption Incentive Package


He added that the economy needs to bottom out in the fourth quarterand the weakening in export orders which narrowed in September, should enhance manufacturing. Recently the government had unveiled a NT$4.08 billion consumption incentive package after the announcement plans in July, to improve the infrastructure investment and credit.

Wai Ho Leong, economist of Barclays Plc. had mentioned in a note that, the new incentive would possibly have a little effect with regards to its size. The domestic consumption which had extended gradually during the past two years amidst fluctuations in exports had grown by 0.89% last quarter as against 2.85% in the previous year.

Benchmark rate was cut by central bank for the first time since 2009 in September, quoting high rates and a negative output gap. Besides, considering the next decision in December is that, if the Federal Reserve tends to raise the rates that month that would also increase Taiwan’s risk of outflows if it agrees to ease the policy.

Poor Economic Outlook – Markets Affected


Leong stated that the growth seems to have bottomed in the third quarter and would extend discreetly in the fourth on the back of a late year pickup in external demand. He also quoted steadier stocks and spending earlier to January’s presidential elections.

He added that in the absence of a clear systemic shock and the Fed considering a December rate hike, they are expecting the central bank to keep its benchmark interest rate unchanged at its December meeting. An economist at Capital Securities Corp in Taipei, Hsu Kuo,said that in the midst of poor economic outlook

Taiwan’s intermediary exports to China as well as other emerging markets are affected. US intended to raise rate but had not done so, which indicates recovery in the world’s largest consumer nation is still weak according to Bloomberg.

Wednesday, October 14, 2015

Why US Banks soon will be singing the Blues

cnbc

Analysts Apprehensive – Quarterly Profits Reports


Estimates seem to be moving in the wrong direction with Wall Street banks about to report on how much money they have been making. The industry had jointly reported $43 billion in profits, coming off a quarter and analysts are expecting a rising rate environment with increased demand which would tend to keep things moving for $15.1 trillion sector.

But with declining expectations for a rate hike in 2015 together with other factors, it tends to make the analysts apprehensive with regards to how the quarterly profit reports would turn out. For the Big Four coming up, JPMorgan Chase would get things started with the others following during the week, like Bank of America, Wells Fargo, Citigroup, Goldman Sachs and PNC. S&P 500 financials, as a sector is expected to indicate a 3.8% annual growth in profits as per S&P Capital IQ.

This seems to be an improvement than the 5.1% decline predicted for the total index and is a big disillusionment from early forecasts. The revenue is said to grow by 4.4%. As per July, analysts had been predicting 9.9% growth which a year back the expectations seemed to be a showy 27%.

Bank Earning – Increase – Based on Performance of Bank Stocks


Hence the results showed better than expected and are likely to remain below the earlier high hopes for financials which were expected to be the best performing sector of 2015. Bank earnings are increasing based on the performance of bank stocks recently and one would think that the earning could be a disappointment. However, it is not the same for all bank stocks.

Two great concerns for bank earnings are the weak trading and low interest rates. Trading profits being low seems to be correct. Trades in government bonds and the equity trading could be alright in the quarter though activity in the range of other financial areas could have been weak to awful.

In the case of awful, one could point to agency, asset backed bond as well as commodity trading. With regards to the weak side, one could view at corporates, currencies and municipals.

Substantial Revision – Individual Companies


Substantial revision has been seen in individual companies recently. According to FactSet, analysts have reduced MetLife estimates from 88% a share to 77 cents, while Goldman Sachs from $3.46 to $3.20, Morgan Stanley from 68 cents to 63 cents. In the S&P 500’s financial sector, expectations on earnings have been condensed for 53 of the 88 companies.

The weakness tends to come since loan growth has been steady due to strong climate in the commercial real estate. According to Federal Reserve data, in the third quarter, the sector increased by 9.7%, the greatest of the year after rising 6.7% in 2014.

Moreover, investment banking has been fairly strong all through the year and though the global revenue has been down by 10% year after year, it has been in level at $28 billion in the U.S. This was due to a record of $9.7 billion haul by way of mergers and acquisition revenue, as per Dealogic.

Banks stocks seem to have failed in 2015 with KBW NASDAQ Bank Index off 4.8% a year to date as against a 2.2% less in the S&P 500. In October, the index was up by 1.3% trailing behind the broader market’s gain of almost 5%.

Thursday, September 17, 2015

Could This Start-Up Save the Greek Economy

Greace

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’.

Saturday, August 15, 2015

Apple Feels the Pain of China's Yuan Move

Yuan

Apple’s Discomfort on China’s Yuan Move

U.S. companies relying greatly on sales to China which includes Apple as well as fast food chain Yum Brands are feeling the discomfort of China’s move to weaken its currency. On Tuesday, in reply to the country’s economic slowdown, China’s central bank undervalued the nation’s tightly controlled currency, the Renminbi – RMB or the Yuan.

The 1.9% cut, its biggest one-day drop in decade,was called as a onetime adjustment by the People’s Bank of China though the surprised move had moved the stocks down together with concerns that it would affect U.S. companies, like Apple which have been on the rise selling their products to the world’s most populated nations. China had become Apple’s leading revenue source under CEO Tim Cook, after its Americas region, including the U.S.

The iPhone maker, in the latest financial quarter ending June had stated that China had made up around $13.2 billion of its overall $49.6 billion by way of revenues. This was up by 112% from the same quarter of 2014, when China had made up just around $6.2 billion of the overall revenue of Apple.

Several Companies Deprived of Huge Percentage

Yum Brands also had broad exposure to China owing to the popularity of its KFC fast food chain and about 52% of its revenue came from China as per Goldman Sachs. Mead Johnson Nutrition, the baby formula maker, in the meanwhile developed 31% of its revenue from China and Tesla; the electric car maker had been moving to sell in China after the nation had broken a record for car sales in 2013.

 Wynn Resorts that runs hotels as well as casinos gained a massive 83% of its sales to China, according to Goldman. Several of the chipmakers together with other tech companies too derived a huge percentage of their revenues from China as per Goldman Sachs which included:

  • Chipmaker Qualcomm with 61% of its revenue exposed to China 
  • Chipmaker Nvidia got 54% of its revenue from China 
  • Chipmaker Intel Corp that got 36% of its revenue from China

Negative Effect on Sales – Offset of Lower Production Cost

The negative effect on sales could be the offset of lower production cost for some of the companies, according to Adolfo Laurenti, chief international economist for Mesirow Financial in Chicago.

Apple for instance assembles several of their products in China and hence could benefit from the cheaper Yuan. Laurenti also mentioned that companies having strong brands, such as Apple could not be rejected as badly as the less popular products since wealthy Chinese consumers would be willing to spend more to have those brands name.

He further added that `Chinese consumers in particular preferred American brands especially marquee products and so the adjustment in price would not deter them much’. The major apprehension is what the devaluation move would recommend about the larger economy of China, according to senior economist with Morningstar Investment Management, Francisco Torralba and his main concern is that the depreciation of the RMB is construed by markets as a sign that Chinese economy tends to be weakening more than what they contemplated. He adds that should it occur, sales to China will be affected by more than just currency cost.

Saturday, July 18, 2015

Greece Asks For A Third Bailout

Greece

Greek Government’s Official Request – 3rd International Bailout

The Greek government has officially requested a 3rd international bailout in order to help in paying its debt, to prevent economic downfall and ejection from euro. It was recently confirmed by the European Stability Mechanism which acts as Europe’s financial rescue fund that Greece had applied for a new bailout package. According to a senior economist at ING, Carsten Brzeski who informed CNBC through email that there would be new negotiations and these would be tough.

Greece had received its first aid in 2010 with 110 billion euro rescue package while the second program brought the bailouts of 240 billion euros, for which the payment deadline was extended recently for another four month on the premise that the Greece’s government would be making a renewed push for economic improvements. Greece still needed financial help due to its huge debt burden unlike other euro zone members likeIreland and Portugal.

The latest bailout program ended recently and Greece had missed the big debt payment to the International Monetary Fund thus becoming the first developed economy for non-payment of fund. The Greek government has requested for the new package for three years and has promised to present fresh economic reforms for exchange of money. Moreover it has also implied that it would prefer some form of debt relief from previous bailouts.

Greece Economy in Deep Crisis

The European Union is expected to come to a decision soon whether to grant another bailout program once it receives more details with regards to the economic plans of Greece. Recently the International Monetary Fund had estimated that Greece would need at least 50 billion euros though analysts are of the opinion that the figure could be much higher since the IMF analysis had been conducted prior to the Greek banks being forced to shut down creating added havoc on the economy.

Greek economy is in a deep crisis due to years of overspending as well as mismanagement and the government has fundamentally run out of funds. Banks have been closed for over a week and will continue to remain close for some time with cash withdrawals being stopped for individuals and businesses. Driving has also been stopped by regular people since they now want to conserve any cash that they may have.

Experts are of the opinion that Greece would soon be compelled in printing their own currency and ditch the euro if the leaders tend to disagree on the new rescue package. Market News International – MNI, the News organization had recently reported that the creditors of Greece have been considering the possibility of a third package for several months, quoting top euro zone official.

Germany Powerhouse of Euro Zone

The source also informed that the possibility had increased in the hope of higher deficits and weaker growth owing to the turmoil of the recent snap election of the country. The deputy parliamentary floor leader of Chancellor Angela Merkel’s CDU party, Michael Fuchs, informed CNBC that another round of financial aid would probably be difficult.

He commented that it would depend on the Greek Government and that they have to come up with serious proposals. Greece needs to show that they are capable of really changing the situation. Germany has been known to be the powerhouse of the euro zone and the German taxpayer had portrayed signs that they are little more reluctant in continuing to bail out the struggling euro zone nations.

According to a recent new survey by Polit Barometer, around three quarters of Germans are in doubt that the Greek government would implement the announced serious measures and reforms while an INSA poll also indicated that only 21 percent of Germans support the present extension for Greece. German parliament had voted in support of the bailout extension, however with lot of dissatisfaction shown in these polls, it could not be too long before the German politician may change tact.
Cease Fire But No Peace Agreement
ING’s Brzeski informed CNBC that `the current compromise was a cease fire but no peace agreement. A lot of goodwill has been destroyed by the Greek negotiation strategy and it is completely open whether there will be an agreement on a third package or whether we could still see a Grexit later this year’.

Chief executive at the German Federation of Industry, Markus Kerber, had informed CNBC that Greece needs the reforms for the people of Greece and not just of its international creditors. He further added that Greece has four months now to show that the new government would be willing to do the structural reforms in the country that has been waiting for long and if this happens in the next four months, then there could be signs of hope on the horizon’.

In the meanwhile, a second reading of gross domestic product for Greece recently indicated that the economy had contracted 0.4 percent in the last quarter of 2014. Leaders of all 28 European Union countries would be holding a summit to decide on Greece’s fate in the euro and have warned that any bailout deal would tend to come with tougher requirements than the earlier deal offered which was rejected by the Greeks in a referendum earlier this month.

Wednesday, July 1, 2015

Interest Rates Could Stay 'Glued' to the Floor, Admits Bank's Chief Economist


Bank
Photo: CHRISTOPHER PLEDGER
Interest Rates Remain Glued to the Floor – Andy Haldane-Chief Economist

Reports have come in from the Bank of England’s chief economist, that the interest rates would remain glued to the floor for the instant future. It has been stated by Andy Haldane who sits on the Bank’s committee of interest rate setter that inspite of strong attempts in dislodging them; rates tend to remain stuck at unprecedentedly low levels across major economies.Presently the financial markets are speculating that the UK rates would rise from their lows of 0.5pc to around 2,5pc ten years from now which according to Mr Haldane implies an extraordinarily slow pace of monetary tightening at least by historical standards.

He suggested that policymakers, in trying too hard to raise rates would make the situation even worse, but on the contrary with in due course, they could come free of their own accord. He further stated that it is one reason why the glue holding interest rates to their floor has stayed so strong and feels no immediate need to loosen that glue.Mr Haldane has earlier considered himself as one of the Bank’s most dovish interest rate setters, indicated that he would prefer rates to be lower, instead of being higher. He comments that the Bank should be prepared to cut interest rates if it looks like low inflation and tends to become entrenched in the UK.

Interpreted Downward Drift as Evidence of Secular Stagnation

He has said that the glue holding rates low is remarkably resilient and could have been aggravated by deficient western investment together with additional savings in the east. While in conversation with Milton Keynes, Haldane has stated that `some have interpreted their downward drift as evidence of secular stagnation’, which is a concept that economies tend will grow slowly than in the past and this fear is an echo of concerns raised after the Great Depression. Consumers and businesses now are concerned that what is a reasonable recovery may not be permanent. Consumers are pleased that their glass is now less than half empty but they are no more willing to drink it and this cautious behaviour is to a degree, mirrored also among companies’.

Wage Growth Causing Fluttering 

Inspite of encouraging signs of wage growth during the year right up to April, together with rise in pay with its fastest pace from the time of the crisis, Mr Haldane had cautioned using the phrase `one swallow does not a summer make’. Analysts had informed that the pay growth could be even stronger after accounting changes in the UK’s workforce like the changing mix of employee ages, occupation and job tenures.

However, Mr Haldane has criticized the idea stating that `the wage growth is causing some fluttering though not in this dovecote’. It is now a matter of time to wait and watch for the outcome of the prevailing scenario on the interest rates in the near future.

Monday, June 8, 2015

India's May Month Iran Oil Imports Hit Highest Since March 2014


Iran_OilRefinery_Reuters
India’s Import – Increased to Highest Level – May 2014

Last month, India’s imports of Iranian crude oil increased to its highest level since May 2014 as the refiners enhanced the purchase ahead of a final push by the international negotiator in order to reach a deal on Tehran’s doubtful nuclear program by the end of June.

The increase to a 14 month high just two months after India, dropped its import on crude from Iran to zero under the pressure of U.S. to limit the purchases of the Islamic republics’ oil.For the first time, India did not take any Iranian oil, in at least a decade in March this year. Several analysts state that the United States, Tehran, Britain, China, France, Germany and Russia would be reaching an agreement by or littler later after June 30 deadline for a deal, though the sanctions which have cut Iran’s oil exports to less than half of pre-2012 levels are probably not likely to be lifted till next year.

United States along with its five partners have approved a way of restoring U.N. sanctions on Iran should the country tend to break the terms of any future nuclear deal, clearing a major problem of an agreement ahead of the deadline, though there are several other issues that need to be resolved.

India – World’s Fourth Biggest Oil Consumer

India, being the world’s fourth biggest oil consumer and Tehran’s top consumer after China, had shipped in about 367,900 barrels per day-bpd in nine vessels of Iranian crude in May, up 39% over April, as per preliminary data from trade sources as well as a report compiled by Thomson Reuter Oil Research and Forecasts. The data also indicated that the May imports surged by two-thirds from last year.

Between January to May, India had taken 203,100 bpd from Iran which is about 33% less oil than in the same period of last year, since the nations’ refiners had cut imports in the first quarter. This was to maintain the overall imports from the OPEC producers to a 2013/14 level of around 220,000 bpd. Private refiner Essar Oil was the biggest Indian client of Iran in 2014 which was followed by Mangalore Refinery and Petrochemicals Ltd and India Oil Corp.

Iran – Nuclear Programme – Peaceful/Rejects Accusations

The data also indicated Iran’s biggest Indian client in May which was Mangalore Refinery and Petrochemical Ltd – MRPL.NS that shipped in around 207,400 bpd from Iran. Purchases had been stepped up in May ahead of a three month shutdown by MRPL, during the coming monsoon season of a one point mooring site which enabled it to import oil in large crude carrier, according to a source.

The data also revealed that Indian Oil Corp. – IOC.NS, the country’s largest refiner, received around a million barrels of Iranian oil in May. The data also showed that India’s Iran oil imports surged by 43% to 316,800 bpd, in the first two months of the fiscal year being in April.

According to Iran, it states that its nuclear programme tends to be peaceful and rejects accusations from the Western countries that it wants the possibilities in producing atomic weapons. The data indicated that Iran was the seventh biggest oil supplier to India in 2014 and its share in the overall purchases rose to 7.3% last year when compared with 5.1% in 2013.

Saturday, February 28, 2015

Complication and Implication of Virtual Water- II


Fresh Water – Concern on Global Food Security

For several parts of the world, fresh water has become a scarcity and over exploited natural resource has now given rise to concern on global food security as well as damage to fresh water ecosystems. Situation seems to increase with the FAO making its estimate that the food production should be double by 2050 and hence food chains should be more efficient with regards to the usage of consumptive water. For geographically and small well defined Australian mango industry, with an average annual production of 44,692 ton of marketable fresh fruit, was 2298.1 kg−1 of average virtual water content, which is a sum of green, blue as well as grey water, at the orchard gate.

Due to wastage however, in the distribution as well as the consumption level of product life cycle, the virtual water average content of 1 kg of Australian grown fresh mango used by Australian household was 52181. This figure compared to an Australian equivalent water footprint of 2171 k−1is the volume of the usage of water in Australia with equivalent capabilities in contributing to water scarcity. Nationally, the distribution and consumption waste in food chain of Australian grown fresh mango to the consumers, indicate an annual waste of 26.7 Gl of green water with 16.6. Gl of blue water

Intervention in Reducing Food Chain Waste – Great Impact on Fresh Water 

These discoveries indicate that the intervention in reducing food chain waste would probably have a great or even a greater impact on freshwater resource available like other water use efficiency measures in food production and agriculture. Analyses of evolution and the structure of trade in virtual water had shown that a number of trade connections together with volume of virtual water trade had doubled for the past few decades. Developed countries have been drawing on the rest of the world to ease the pressure on domestic water resources.

Three studies have been done though it fills three important gaps in the research on global virtual water trade, the first being that in previous studies, virtual water volumes were put together from countries which were envisaging various degrees of water scarcity which was incorporated into assessments of virtual water flows. Secondly some previous studies assessing virtual water networks in terms of immediate water was used for food production though refrained from indirect virtual water used in the supply chains underlying all traded goods.

Global Virtual Water Network Structure

In the analysis, the use of input-output analysis included indirect virtual water, noting the existing conflicting views on whether trade in virtual water could lead to overall savings in global water resources. A re-visit to the Hechscher-Ohlin Theorem was done in the context of direct and indirect virtual water, to determine if international trade could be seen as feasible demand management tool in reducing the water scarcity. It was found that the global virtual water network structure changes significantly on adjusting for the purpose of scarcity.

Besides, the Heckscher-Ohlin Theorem can be validated when indirect virtual water is appraised. Water once seen as an infinite resource is in fact, a finite resource. Moreover, fresh water is an important resource to plants, animals, human and all living things on the planet Earth. Geographic zone of abundance and scarcity is due to unequal global distribution of fresh water and global climatic changes tend to redistribute precipitation away from geographic locations which has sufficient or excess supply to cope up with the population.

Wednesday, February 25, 2015

Virtual Water


Virtual Water
Virtual Water Trade – Embedded/Embodied Water 

Virtual water is defined as the total volume water which is needed in order to produce and process. Virtual water trade also known as trade in embodied or embedded water is related to hidden flow of water in case other commodities or food tend to get traded in different places.

On an average it takes around1,600 cubic meters of water to produce ` metric tonne of wheat and the accurate volume could depend on more or less on the climate as well as agricultural conditions. According to Hoekstra and Chapagain they have defined virtual content of product – a commodity, service or good, as `volume of freshwater which is utilised to create a product, measured at the place it was actually produced’ and relates to the sum on the utilisation of the water in the various stages of the production chain.

According to John Anthony Allan, Professor from King’s College London and the School of Oriental and African Studies had introduced the concept of virtual water in order to support his views that countries in the Middle East could save their scarce supply of water by relying on import of food.

He received an award of the 2008 Stockholm Water Prize, for his contribution. He states that `the water is considered to be virtual due to the fact that once the wheat is grown, the real water used to grow it is no longer actually contained in the wheat and the concept of virtual water helps in realizing how much water could be needed to produce different goods and services’.

Some Deficiencies in Concept of Virtual Water

He further states that in `arid and semi-arid locations, the value of the virtual water of good or service could be useful in determining the best use of the available scarce water.’ However there are some deficiencies in the concept of virtual water which means that there is a significant danger on depending on these measures in order to guide policy conclusions.

As per Australia’s National Water Commission it is considered that the measurement of virtual water has less practical value in the making of decision with regards to the best allocation of scarce water resources.

Recently the concept of virtual water trade has been gaining weightage in the scientific and the political arguments with the notion of its concept being ambiguous and changes have been moving between a descriptive, analytical concept and a political induced strategy.

From the point of view of an analytical concept, virtual water trade relates to an instrument which enables the identification as well as the assessment of policy choice not only in the scientific but also in the political discourse.

Concept Analytically helps Global/Local/Regional Level

From the point of politically induced strategy, the query is whether virtual water trade could be used in a sustainable way, or whether implementation could be managed in an economic, social or in an ecological manner and which countries would have a meaningful option of the concept offered.

In the framework of latest developments from supply oriented to demand oriented management of water resources, new field of governance has opened up which facilitates a differentiation as well as balancing of different perspective, interest and basic condition.

The concept analytically helps in distinguishing between global, local and regional level, together with their linkages. Which means that water resource problem needs to be solved.

Tuesday, February 17, 2015

Negative Inflation


Negative_Inflation
Image credit: Sofia news agency
Inflation – Deflation 

Inflation is a term which tends to reduce the real value of money over time and deflation increases the real value of money, the currency of a regional or national economy, enabling an individual to purchase more products with the same amount of money overtime. In other words deflation is a situation when the price level decreases and the inflation rate tends to get negative.

Economist are of the opinion that deflation could be a problem in a modern economy since it increases the real value of debt and affects recessions, leading to a deflationary spiral. All episodes of deflations do not correspond with phases of poor economic growth. During the 19th century, deflation took place periodically in the U.S. and this deflation was the result of technological progress creating significant economic growth while at other times was due to financial crises particularly the Panic of 1837 that caused deflation during1844 as well as the Panic of 1873 triggering the Long Depression which lasted till 1879.

These periods of deflation were prior to the establishment of the U.S. Federal Reserve System and the active management of monetary issues. Deflation episodes were rare and brief with the development of Federal Reserve while American economic progress has been unprecedented

Negative Inflation 

Negative inflation is said to be an economic phenomenon wherein the economy tends to move out of an inflationary phase and enters into a phase where there is less money in circulation. Negative inflation tends to occur when the prices fall due to the supply of goods which is higher than the demand for those products.

It is often due to reduction in money, consumer or credit spending and could be the result of a combination of various factors which may include, having excess money in circulation that may decrease the value of money which in turn would reduce prices, with more products manufactured than the demand for the same.

 This could lead to businesses decreasing their prices in order to urge consumers to purchase those products and not having sufficient money in circulation causes those with money to hold on to it instead of spending it and decreased demand for goods decreases spending.

Though it would seem that lower prices are good, deflation could ripple through the economy for instance when it creates high level of unemployment, turning into a bad situation and this type of a recession could turn into a worse situation like a depression.

Leads to Unemployment => Decrease in Spending => Less Demand

Deflation could lead to unemployment since the companies tend to make less money and react on cutting costs to survive which may include in closing of the stores, plants and warehouses and laying-off their workers.

This results in the worker having to decrease on their spending leading to less demand with more deflation causing a deflation spiral which may be difficult to break. Deflation tends to work without affecting the rest of the economy when businesses are capable of cutting the costs of production for the purpose of lowering prices like in the case of technology, since the cost of technology products has reduced over the years though it was due to the cost of producing technology that had decreased and not due to decreased demand.