The Euro area composite PMI rose to 54.0 from 53.1, making it unlikely that the ECB will move against deflation in May The Chinese HSBC/Markit flash manufacturing PMI was up to 48.3 from 48.0. However, this still shows contracting manufacturing and means China is still rebalancing Yesterday on Boom Bust, the finance show I produce, Marshall Auerback gave a good […]
Recent economic and geopolitical events should be seen through a longer-term strategic lens. During the Cold War, we lived in a bipolar world dominated by the US and its Allies on one side and the Soviets and their vassal states on the other. Ever since the Soviet Union and the east bloc collapsed, there has been a lot of talk […]
I had four big topics in today’s links: Japan, China, Ukraine and Spain. I want to concentrate here on the two Asian countries over the European ones. The wage issue in Japan is an important one because it informs the policy choices in the US and Europe. And the Chinese slowdown is having a big impact on commodity markets, softening growth prospects in emerging markets and commodity exporters.
I got a lot of feedback from my January 5 blog entry because of my argument that the implementation of the reforms proposed in the Third Plenum all but guarantees that growth rates in China will slow down. For that reason I thought it might make sense for me to explain a little more carefully why I think this must happen, and why I think that we can almost judge how successfully the reforms are implemented by how quickly growth slows.
George Magnus is one of the few economists that could claim to have predicted the financial crisis which began in 2007. And last night, he spoke with great concern about the budding crisis now ongoing throughout the emerging markets. I have posted the video below but I want to make a few comments about the discussion.
China is not the first country to have experienced a long period of miraculous growth. But the most difficult part of growth miracles has not been the growth miracle itself but rather the subsequent adjustment.
Current-account deficits have caused problems in several Eurozone countries, but surpluses are also an issue. This column argues that surpluses are detrimental to the welfare of the population to the extent they are driven by structural weaknesses affecting demand. Addressing these issues through structural reforms, while letting wages and prices respond flexibly to market signals, would be welfare-enhancing for the surplus countries.
As analysts and official entities like the World Bank continue to downgrade their forecasts for medium-term growth in China, I have been asked increasingly often for the reasons I believe that 3-4% average annual growth rates is likely to be the upper limit for China during the adjustment period. In this blog entry I want to explain how I arrived at my numbers.
If you look at the last two posts on this site from Marc Chandler and from Sober Look the connection between Fed tapering and money flows is clear. Hot money is flowing out of emerging markets and into Europe.
Michael Pettis had a very good post out yesterday that focused on the sectoral balances within and across eurozone countries which I recommend. His point is that excess German savings driven by wage suppression was behind macro imbalances and not thrift. I want to expand upon this theme. My prediction here is that rebalancing away from excess German savings will not occur on nearly a large of scale to matter.
I’ll be watching a number of things in 2013 in order to get a better sense of what the future will bring. On January 22 Princeton University Press will be publishing my book, The Great Rebalancing: Trade, Conflict, and the Perilous Road Ahead, and in the last chapter of the book I argue that the great trade, capital flow and debt imbalances the were built up over the preceding two decades must reverse themselves. Imbalances can continue for many years, I argue, but at some point they become unsustainable and the world must adjust by reversing those imbalances.
In China, I have argued many times, high growth is no longer compatible with a strengthening balance sheet. If China is growing at a rate that approaches or exceeds five or six percent, it is probably a safe bet that debt is rising faster than debt servicing capacity.