Saturday, February 16, 2019

16/2/19: Deep Crises: past, present, future?


Venezuela's economic (and political, social, public, etc) woes have been documented with exhaustion, although no one so far has produced a half-meaningful outline of solutions that are feasible and effective at the same time.

Take for example, the @IIF pitch in: "Venezuela’s economic collapse is almost unprecedented in recent history. Zimbabwe in the last 20 years and the collapse of the Soviet Union are the only comparable episodes." This accompanied the following chart:


What is, however, remarkable in this exposition, is not Venezuela's demise, which is impressive, but the experience of Russia and the contrasting experience of Ukraine in post-Soviet collapse era.

Here is the data from the World Bank on post-USSR collapse recoveries, through 2017. It is the similar to the one used by IIF, but a bit more current and details. And it compares the Western 'darling' of Georgia experience with that of the Ukraine and Russia:


You don't need to have a PhD in economics to comprehend the chart above in political terms: like it or not, the Western 'policies prescriptions' have not been a great source of optimism for Georgia,  Ukraine and Russia in the 1990s.  It hasn't been a great source of optimism for Georgia in the 2000s, and it hasn't been of much use for Ukraine since 2014.

In part, the reason is that the Western prescriptions for policy development and reforms were not exactly followed by these countries in the past, and in part, these prescriptions were not suitable to these economies and their societies. But, also in part, the reason as to why Western reforms did not work their magic in the three former-USSR states is that they were never accompanied by the genuine buy-in from the West. There was no 'great trade' opening, no 'structural FDI rush', no 'Marshall Plan supports'.  What little tangible support was extended to these countries (and other post-Soviet states) from the West was largely siphoned off into the pockets of the Western contractors and domestic oligarchs.

Russian recovery 'miracle' that is traceable above was down to the removal of the Western contractors from the proverbial feeding trough, and consolidation of domestic oligarchs and corrupt elites. One can't call these changes 'liberal' or 'reforms', but they were successful while they lasted (through 2014).

What is also telling is that the rates of recovery - at peak rates - in Georgia (during the hey-days of Western-style reforms) were not quite comparable with the same rate of Russian economic recovery. And that is before one considers the peak recovery in Ukraine since 2014.

Incidentally, returning to the IIF chart above, neither Peru (it took the country 8 years to recover from its 1989 crisis) nor Bolivia (same duration for its crisis of 1982) compare to the cases of the post-USSR collapse crises in magnitude and recovery duration. Zimbabwe does, and it recovered from its 1998-started economic collapse in 18 years, by the end of 2017). Last time I checked, Zimbabwe also did not follow the Western 'prescriptions' in its policies path, and still beats Georgia and Ukraine in terms of its experience (both former USSR states are now in year 28 of post-1989 economic crisis).

16/2/19: Trump-o-rama taking a dip?


Summarizing the U.S. economic 'themes' of the last 21 years:


or put differently: 13 years of 'ugly', 8 years of 'euphoric'.

Source for the great chart (ex-my annotations): https://www.topdowncharts.com/.

Friday, February 15, 2019

15/2/19: Still Drowning in Love [for Debt]...


Debt... Sovereign debt... and Valentines...


A decade post-GFC, we are still shedding love to our overly-indebted sovereigns... so nothing can ever go wrong, again...

15/2/19: Nothing to Worry About for those Fiscally Conservative Republicans


H/T to @soberlook:

U.S. Federal deficit was up $192 billion y/y in December 2018. Nothing to worry about, as fiscal prudence has been the hallmark of the Republican party policies since... well... since some time back...  That, plus think of what fiscal surplus will be once Mexico pays for the Wall, and Europeans pay for the Nato.

Soldier on, Donald.

15/2/19: Euro area is sliding toward recession


Based on the latest data through January 2019, Eurozone’s economic problems are getting worse. In 4Q 2018, Euro area posted real GDP growth of just 0,.2% q/q - matching the print for 3Q 2018. Meanwhile, inflation has fallen from 1.7% in December 2018 to 1.6% in January 2018. And Eurocoin - a leading growth indicator for euro area GDP expansion slipped from 0.42 in December 2018 to 0.31 in January 2019. This marked the third consecutive month of decline in Eurocoin, and the steepest fall in 8 months. Worse, July 23016 was the last time Eurocoin was at this level.



Within the last 12 months, Eurozone growth has officially fallen from 0,.7% q/q in 4Q 2017 to 0.2% in 4Q 2018, HICP effectively stayed the same, with inflation at 1.6% in January 2018 agains 1.5% in January 2018. And forward growth indicator has collapsed from 0.95 in January 2018 to 0.31 in January 2019.

Euro area is heading backward when it comes to economic activity, fast.

Germany just narrowly escaped an official recession, with 4Q growth at zero, and 3Q growth at -0.2%


Italy is in official recession, with 3Q 2018 GDP growth of -0.1% followed by 4Q 2018 growth of -0.2%.

Industrial goods production is now down two consecutive months in the Euro area as a whole, with latest print for December 2018 sitting at - 4.2% decline, following a -3.0% y/y fall in November 2018.


Worse, capital goods industrial production - a signal of forward capacity investment, is now down even more sharply: from -4.4% in November 2018 to -5.5% in December 2018.

Thursday, February 7, 2019

7/2/19: S&P on Irish Banks Outlook


S&P on Irish banks outlook for 2019, with my comments included: https://www.spglobal.com/marketintelligence/en/news-insights/trending/wU14cpHw2NfouDi3MnHVQw2.

7/2/19: Global Trade Indicators: Tanking


There is no reason to panic about global growth. None. None at all...

Source: topdowncharts.com with my annotations

Nothing to see here. Because, obviously, structurally and statistically lower growth in trade turning negative on foot of Baltic Dry Index literally collapsing over the last two weeks, while China data and stock markets signals remain negative, is just a glitch...

Tuesday, February 5, 2019

5/2/19: The Myth of the Euro: Economic Convergence


The last eight years of Euro's 20 years in existence have been a disaster for the thesis of economic convergence - the idea that the common currency is a necessary condition for delivering economic growth to the 'peripheral' euro area economies in the need of 'convergence' with the more advanced economies levels of economic development.

The chart below plots annual rates of GDP growth for the original Eurozone 12 economies, broken into two groups: the more advanced EA8 economies and the so-called Club Med or the 'peripheral' economies.


It is clear from the chart that in  growth terms, using annual rates or the averages over each decade, the Euro creation did not sustain significant enough convergence of the 'peripheral' economies of Greece, Italy, Portugal and Spain with the EA8 more advanced economies of the original euro 12 states. Worse, since the Global Financial Crisis onset, we are witnessing a massive divergence in economic activity.

To highlight the compounding effects of these annual growth rates dynamics, consider an index of real GDP levels set at 100 for 1990 levels for both the EA8 and the 'peripheral' states:

Not only the divergence is dramatic, but the euro area 'peripheral' economies have not fully recovered from the 2008-2013 crisis, with their total real GDP sitting still 3.2 percentage points below the pre-crisis peak (attained in 2007), marking 2018 as the eleventh year of the crisis for these economies.  With Italy now in a technical recession - posting two consecutive quarters of negative growth in 3Q and 4Q 2018 based on preliminary data, and that recession accelerating (from -0.1% contraction in 3Q to -0.2% drop in 4Q) we are unlikely to see any fabled 'Euro-induced convergence' between the lower income states of the so-called Euro 'periphery' and the Euro area 8 states.