Showing posts with label growth. Show all posts
Showing posts with label growth. Show all posts

Tuesday, August 25, 2020

25/8/20: Germany's Economic Recovery: ifo Survey

ifo Institute's latest economic barometer for Germany is showing continued signs of recovery in the German economy, with remaining pressures in terms of current assessment of business conditions and more positive outlook forward (expectations):


Business expectations are now ahead of the same for December 2019 - February 2020 pre-pandemic period, which really says little about the levels of activity expected and more about the speed of adjustments to the expected activity. What matters more is the current climate perception. This is still some 11 points below the three months prior to the pandemic.

Given that German economy has largely moved past the stage of restricted activity, this is worrying, as it suggests the lack of domestic demand recovery in the medium term.


Monday, June 29, 2020

29/6/20: Eurocoin Growth Indicator June 2020


Using the latest Eurocoin leading growth indicator for the Euro area, we can position the current COVID19 pandemic-related recession in historical context.

Currently, we have two data points to deal with:

  1. Q1 2020 GDP change reported by Eurostat (first estimate) came in at -3.6 percent with HICP (12-mo average) declining from 1.2 percent in January-February to 1.1 percent in March.
  2. Q2 2020 Eurocoin has fallen from 0.13 in March 2020 to -0.37 in June 2020 and June reading is worse than -0.32 recorded in May. This suggests continued deterioration in GDP growth conditions, with an estimate of -2.1 percent decline in GDP over 2Q 2020. HICP confirms these: HiCP dropped from 1.1 percent in March 2020 to 0.9 percent in May. 
Here are the charts:


We are far, far away from the growth-inflation 'sweet spot':


Monday, June 1, 2020

1/6/20: 3 months of COVID19 impact: BRIC Manufacturing PMIs


BRIC Manufacturing PMIs are out for May, showing some marginal improvements in the sector. However, of all four economies, China is the only one that is currently posting activity reading within the statistical range of zero--to-positive growth. Brazil, Russia and India remain deeply underwater.

Please note, these are quarterly PMIs, not monthly, based on GDP-weighted shares of manufacturing sectors and monthly PMI data points. 

Tuesday, May 26, 2020

26/5/20: BRICS Growth Forecasts


BRICS and other major emerging economies: growth impact of COVID19


Note: Arrows indicate the change in Bloomberg consensus forecasts for growth and inflation from 2019 to 2020
Source: Bloomberg, Macrobond Financial, Danske Bank

Wednesday, May 6, 2020

6/5/20: Eurozone Composite PMI: Covid Horror Show


Final Eurozone Composite Output Index came in at 13.6 (Flash: 13.5, against March Final: 29.7). March was bad. April is worse. Final Eurozone Services Business Activity Index was at 12.0 (Flash: 11.7, March Final: 26.4), final Manufacturing PMI covered here: https://trueeconomics.blogspot.com/2020/05/4520-eurozone-manufacturing-pmis-crater.html.


1Q 2020 implied decline in Euro area GDP is at around 3.5%. 2Q 2020 start is now worse than 1Q 2020.


Monday, March 23, 2020

23/3/20: Private Consumption Gets the Virus. Heads to an ICU...


Via @bkollmeyer, Deutsche Bank's Research chart on discretionary spending across the global economy:


I have no access to the primary data on this, but if the chart is true, the global economy is 'borked'. 

One notable line here is for Ireland. Ireland's economy is heavily dependent on personal consumption expenditure. Here are the latest data:
    PC as % of
    modified
    total
   demand
        PC as %          of GNI*
     1995-199958.857.6
     2000-200754.755.2
200754.156.7
     2008-201462.863.8
     2015-201859.455.4
201958.7               NA

My estimate is that 2019 Personal Consumption to GNI* ratio was around 55.2%. If true, coupled with the above-cited DB research, Irish economy has taken a nosedive of around 4 percentage points for FY 2020 just on personal consumption side of economic activity. Investment and private sector production will be the other contributors to that decline.

Wednesday, June 19, 2019

18/6/19: In May, 12 month forward probability of a U.S. recession has jumped up


The NY Fed estimated risk of recession (12 months forward) has hit another business cycle high of 29.62% for May 2020, up from 27.49% for April 2020, marking seventh consecutive monthly increase.

Historically, probability of a recession 9-15mo ahead of the actual recession realisation has been at 18.45%, which is significantly below the current running 3 months average of 28.06%.

To put these levels into perspective, here is the chart of the time series:


The current levels of the index are clearly in line with the historical trends for the 9-12 months recession expectations. More so, they are actually in line with 3-6 months recession expectations. In fact, we have to go back to 1967-1968 to find the only episode in the entire history of the data series where current levels of the index were not coincident with an actual recession or with 3-6 months-lagged realisation of a recession.

May 2020 reading is the ninth highest probability estimate for the probability of a recession in history for any period outside and actual recession + 6 months prior and 3 months after.

Friday, January 4, 2019

3/1/19: Happy New 2019 or 2018 or 2008...


Happy New Old Year 2019... oh, wait...


As @lisaabramowicz1 notes: "The gap between 3-month T-bill and 10-year Treasury yields has collapsed in the past few weeks and is now at a new post-crisis low." Or, put differently, the short run is the long run and vice versa. Which means that market expectations for longer term funding costs are now on par with markets assessment of the present, and the long term risk premium has been drawn to near zero. It also means that investors no longer view longer term returns as being attractive - a bond markets way of saying that any monetary policy normalization will have to be checked against the markets over-reliance on debt and leverage.

As a chart posted by @boes_ shows: the Fed has managed, so far, to completely flip upside down markets perceptions of forward risk pricing:


The white line above is the U.S. yield curve on the first day of Jay Powell's tenure at the Fed, against the blue line today.

Whether these expectations are macro-driven (concerns about future growth) or risk-driven (concerns about the Fed's capacity to normalize rates and money supply into the short- to medium-run based on liquidity/leverage/financial markets concerns) is an open question. It might be that the markets are now synchronized to price yeans the signs are pretty ugly for 2019 investment contribution to growth as well.

Thursday, June 21, 2018

21/6/18: Weaker growth signals for the euro area


I have not updated Eurocoin dynamics and euro area growth forecasts for some time now, so here is the latests, from May data:

  • Eurocoin, leading growth indicator for the euro area, has fallen significantly from the local high of 0.96 in February (the highest growth forecast since June 2000) to 0.89 in March, followed by continued decline to 0.76 for April and 0.55 in May
  • May reading is the lowest since December 2016
  • Growth forecasts consistent with Eurocoin dynamics indicate that, assuming revised 1Q growth remains at 0.4 percent, 2Q 2018 growth is likely to come in somewhere in the range of 0.35-0.55 percent


Chart below shows improving outlook for HICP (inflation) over the last 12 months through May 2018, just as the economy beginning to slow down:


On balance, we now have three consecutive months of declining Eurocoin-implied forecasts for euro area growth. It will be interesting to see eurocoin print for June, coming up in about a week, as well as July (coming out prior to the Eurostat growth estimates for 2Q 2018).

Saturday, December 31, 2016

30/12/16: In IMF's Forecasts, Happiness is Always Around the Corner


Remember the promises of the imminent global growth recovery 'next year'? IMF, the leading light of exuberant growth expectations has been at this game for some years now. And every time, turning the calendar resets the fabled 'growth recovery' out another 12 months.

Well, here's a simple view of the extent to which the IMF has missed the boat called Realism and jumped onboard the boat called Hope






































Table above posts cumulative 2010-2016 real GDP growth that was forecast by the IMF back in September 2011, against what the Fund now anticipates / estimates as of October 2016. The sea of red marks all the countries for which IMF's forecasts have been wildly on an optimistic side. Green marks the lonely four cases, including tax arbitrage-driven GDPs of Ireland and Luxembourg, where IMF forecasts turned out to be too conservative. German gap is minor in size - in fact, it is not even statistically different from zero. But Maltese one is a bit of an issue. Maltese economy has been growing fast in recent years, prompting the IMF to warn the Government this year that its banking sector is starting to get overexposed to construction sector, and its construction sector is becoming a bit of a bubble, and that all of this is too closely linked to Government spending and investment boom that cannot be sustained. Oh, and then there are inflows of labour from abroad to sustain all of this growth. Remember Ireland ca 2005-2006? Yep, Malta is a slightly milder version.

Notice the large negative gaps: Greece at -21 percentage points, Cyprus at -18 percentage points, Finland at -15 percentage points and so on... the bird-eye's view of the IMF's horrific errors is:

  • Two 'programme' countries - where the IMF is one of the economic policy 'masters', so at the very least it should have known what was happening on the ground; and 
  • IMF's sheer incomprehension of economic drivers for growth in the case of Finland, which, until the recession hit it, was the darling of IMF's 'competitiveness leaders board'.  

Median-average miss is between 4.33 and 4.97 percentage points in cumulative growth undershoot over 7 years, compared to IMF end-of-2011 projections.

So next time the Fund starts issuing 'happiness is just around the corner' updates, and anchoring them to the 'convincing' view of 'competitiveness' and 'structural drivers' stuff, take them with a grain of salt.

Wednesday, July 29, 2015

29/7/15: Retail@Google: Key Trends on Consumer Demand


Google folks made their Retail@Google event publicly available via videos. Worth listening through on key trends in consumer demand and retail services. The full even pages are here:
- Day 1 https://www.youtube.com/playlist?list=PLgIN4fB7J4qWK2np5oNbfW5_HlGUcdy4t
- Day 2 https://www.youtube.com/playlist?list=PLgIN4fB7J4qV_vPmv_T9k7Vpc54b_QDdn

My own contribution to the event is here: https://www.youtube.com/watch?v=XRR4KwtIYuE. I am looking at 7 key themes of the future in consumer demand, driven by geography of growth, technology and consumer demographics.

Monday, February 16, 2015

16/2/15: Current Account, Growth and 'Exports-led Recovery': 1999-2014


There is one European economic policy/theory fetishism that stresses the importance of external balance in 'underpinning sustainable' growth. The theory works the following way: countries with external imbalances (e.g. current account deficits) need to enact 'reforms' that would put their economies onto a path of external surpluses. More commonly, this is known as achieving an 'exports-led recovery'.

Set aside the Cartesian logic suggesting that if someone runs a current account surplus, someone else must run a current account deficit. Or in other words, if someone achieves 'sustainable' growth, someone else must be running an 'unsustainable' one.

Look at the actual historical relationship between current account position and growth in income per capita, measured in real (inflation-adjusted terms).

Take the sample of all advanced economies (34 in total, excluding those that we do not have full data for: San Marino and Malta). Take total growth achieved in GDP per capita from the end of 1999 through 2014. And set this against the average current account surplus/deficit achieved over the same period of time.

Chart below illustrates:

Note: there is no point, given the sample size, to deal with non-linear relationship here.

Per chart above, there is, statistically-speaking no relationship between two metrics. Multi-annual growth GDP per capita (in real terms) has basically zero (+0.019) correlation with multi-annual average current account balance. The coefficient of determination is a miserly 0.00036.

Now, cut off the 'outliers' - four countries with lowest GDP per capita: Estonia, Latvia, Slovak Republic and Slovenia. Chart below shows new relationship:


Per chart above, there is a very tenuous relationship between multi-annual growth GDP per capita (in real terms) and multi-annual average current account balance, highlighted by a rather weak, but positive correlation of +0.41 between two metrics. The coefficient of determination is around 0.17, which is relatively low for the longer-term averages relationship across the periods that capture both - a slowdown in growth in the 2002, a boom-time performance for both the advanced economies and the global economy during the 2000s and the global crises since 2008.

I tested the same relationship for GDP per capita adjusted for Purchasing Power Parity and the results were exactly identical. Furthermore, removing the three Asia-Pacific growth centres: Taiwan, Korea and Singapore from the sample leads to a complete breakdown of the stronger relationship attained by excluding the Eastern European outliers, with coefficient of determination falling to ca 0.05. Removing these three economies from the sample with Eastern European outliers present results in a negative (but statistically insignificant) relationship between the current account dynamics and growth.

Lastly, it is worth noting that the sample is most likely biased due to policy direction: during economic slowdowns and in poorer performing European economies in general, there is a strong policy bias to actively pursue exports-led growth strategies, while in non-euro area economies this is further reinforced by the pressure to devalue domestic currencies. Which, of course, suggests that the above correlation links are over-stating the true extent of the current account links to growth.

The conclusion from this exercise is simple: there is only a weak evidence to support the idea that for highly advanced economies, rebalancing their economic growth over the longer term toward persistent current account surpluses is associated with sustainable economic growth. And if we are to consider a simple fact that many euro area 'peripheral' economies (e.g. Greece, Cyprus, Portugal and Spain, as well as Slovenia) require higher upfront investments in physical and human capital to deliver future growth, the proposition of desirability of an 'exports-led' recovery model comes into serious questioning.

Wednesday, June 18, 2014

18/6/2014: IMF on Irish Economic Growth: Sunshine is Still Awaiting the Future


Per IMF: "Growth is expected to firm to about 2.5  percent from 2015, with a gradual rotation to domestic demand despite little support from credit initially. Risks appear broadly balanced in the near term, but are tilted to the downside over the medium term, in part owing to risks to reviving financial intermediation which is important for sustaining job rich domestic demand growth."

Ah, the dreams… Firstly, actual IMF projection is for growth ow 2.4% not 2.5% in 2015. That 2.5% based on Fund own forecast will only arrive in 2016, not 2015. Secondly, per IMF previous forecasts (see next post), that 2.5% growth was supposed to hit us in 2015 (based on December 2013 forecast), reach 2.7% in 2015 based on June 2013 forecast and reach 2.5% in 2014 based on June 2012 forecast… so that 2.5% growth is, as before, still a mirage on the horizon...

"Strong domestic indicators and an improving external environment support staff projections for real GDP growth of 1.7 percent in 2014. Recent World Economic Outlook projections put growth of Ireland’s trading partners at 2 percent, driving export growth of 2.5 percent." Oops… but a tar ago the Fund said in 2014 we shall have 3.5% exports expansion… In fact, the fund downgraded Irish exports growth from 3.7% in 2015 to 3.6% between December 2013 and today's forecasts.

"Final domestic demand is expected to expand by 1.1 percent, led by investment, with significant upside potential given the investment surge in the second half of 2013. A modest ó percent increase in private consumption reflects rising incomes driven by job creation and improving consumer confidence. Public consumption will remain a drag on domestic demand as public sector wage costs continue to decline under the Haddington Road agreement." Wait… so consumption and domestic investment are booming. And IMF is moving forecast for 2014 for final domestic demand from 0.4% in December 2013 to 1.1% now. But materially, IMF forecast did not change that much: it was 1% for 2014 in June 2013, 1.1% in June 2012 and 1.4% in May 2011. And this is against a shallower GDP base since then! In other words, growth is improving forward because it disappointed in the past...

Summary:



Neat summary of risks around recovery: "prospects appear broadly balanced in 2014–15 but tilted to the downside over the medium term. Staff’s growth projections lie at the bottom end of the forecast range for 2014, and near the median for 2015, with sources of upside to both exports and domestic demand. Key risks include:

  • External demand. Ireland’s openness (exports at about 110 percent of GDP) makes it vulnerable to trading partner growth, such as a scenario of protracted slow global growth, or if escalating geopolitical tensions were to notably affect EU growth.
  • Financial market conditions. The substantial spread tightening despite high public and private debts faces some risk of reversal, perhaps linked to a surge in global financial market volatility. Although the direct fiscal impact would be modest owing to long debt maturities, adverse confidence effects would likely slow domestic demand.
  • Low inflation. Ongoing low inflation in the euro area would lower inflation in Ireland, slowing declines in debt ratios and dragging on domestic demand in the medium term.
  • Bank repair shortfalls. As firms’ internal financing capacity is drawn down, sustaining domestic demand recovery will depend increasingly on a revival of sound lending, where substantial work remains ahead to resolve high NPLs to underpin banks’ lending capacity."
Surprisingly, IMF lists no risks relating to households or SMEs, despite pointing at these in relation to the banks. Which implies that the Fund sees no difficulty arising in the households and SMEs sectors from banks aggressively pursuing bad debts, but it sees risk of this to the banks. I am, frankly, puzzled.


You can see the virtual flat-lining of Irish economy in 2012-2013 here:



Next post: IMF growth projections: a trip through the years...

Tuesday, June 17, 2014

17/6/2014: Some more troublesome facts about European Competitiveness rankings...


Yesterday, I posted briefly on World Economic Forum Competitiveness Rankings for European Union. That post is available here.

Since then, few people came back to me with a request of running the same analysis across all countries covered in the report. So here it is.

First, WEF Rankings:

Supposedly, higher ranking (lower rank number) means better economic competitiveness. Which should imply two things:
1) Negative correlation between rank and economic growth (higher competitiveness --> higher growth in the economy)
2) Negative correlation between rank improvement (improved rankings) and economic growth (improving competitiveness --> higher growth).

Here is a chart plotting average growth rate in the economies covered by WEF over 2010-2013 (same result, qualitatively, holds for 2012-2013 average, to remove some of the volatility in growth rates) and WEF rankings improvements:


No, statistically-speaking there is no relationship of any meaning between WEF Competitiveness performance over 2012-2014 and growth performance over 2010-2013.

What about rank performance in 2014 and 2012-2013 growth rates?
Nope. No relationship at all.

How about rank performance in 2012 against future 2012-2013 growth?
Totally zero relationship.

So what does this WEF Competitiveness indicator measure exactly? Pet projects of WEF members? Intensity of politically correct policies deployment in the European states? I have no idea, but their competitiveness seems to have preciously nada to do with growth performance...

Monday, December 23, 2013

23/12/2013: Long term growth in Advanced Economies and Ireland


Long range growth figures are a fascinating source of insight into what is happening in the economies over decades. Here's the data on GDP growth in advanced economies (29 countries) for 1980-2013. All figures are computed by me from the IMF data.

Let's start with a long view.

Chart below shows growth in real GDP per capita cumulated over 1980-2013 period:


The chart above clearly shows that after 33 years spanning periods of growth and two crises, Ireland is well-ahead of all euro area and Western economies in terms of cumulated growth in real GDP (the series are based on GDP expressed in constant prices in national currencies).

What the chart above does not show is that:

  • In the period of 1980-1989 Irish growth run at an annualised rate of 1.8% per annum, earning us 17th rank out of all 29 economies
  • In the period of 1990-1999 Irish growth run at an annualised rate of 5.6% per annum, earning us 1st rank out of all 29 economies
  • In the period of 2000-2009 Irish growth run at an annualised rate of 0.74% per annum, earning us 17th rank out of all 29 economies
  • In the period of 2010-2013 Irish growth run at an annualised rate of 0.65% per annum, earning us 17th rank out of all 29 economies

What does the above suggest? One: it suggests that our 'catching up' period of the 1990s was very robust: we outperformed the group average growth rate by a factor of x2.66 times.
Two: it also suggests that the 'catching up' period was not followed by sustainable growth momentum, as our growth rates declined in 2000-2013 period to those below the rates recorded in the 1980-1989 period and once again fell below those for the majority of advanced economies average.
Three: With our catch-up growth still putting us well ahead of the average in cumulated growth terms, including the growth rates for comparable catch-up economies, it is unlikely that we are due another 'catching up' period of growth any time soon. In other words, we need to get organic, sustainable growth sources to continue expanding in the future.

Chart below shows our performance across the above metric by decade:


Our performance, once adjusted for FX rates and price differentials tells a slightly different story: once we control for currencies movements, it turns out that we were less exceptional than based on comparatives for GDP expressed in national currencies:

  • In the period of 1980-1989 Irish growth run at an annualised rate of 5.6% per annum, earning us 17th rank out of all 29 economies. The average growth for all of the 29 economies was 6.4% and median was 5.8%, so we were below average, but not that much different from the median.
  • In the period of 1990-1999 Irish growth in GDP per capita pop-adjusted run accelerated to an annualised rate of 7.6% per annum, earning us 1st rank out of all 29 economies. The average for the 29 economies fell to 4.0% and the median to 3.8%. This was the period of our catch-up. So instead of x2.66 rate of growth relative to the average, we got x1.90 times the average.
  • In the period of 2000-2009 Irish growth in GDP per capita PPP-adjusted run at an annualised rate of 2.6%% per annum, earning us 21st rank out of all 29 economies, which averaged growth rate of 3.05% and median of 2.9% per annum. The period marked the end of our catching up and the on-set of our bubble-driven growth that still was less than average or median.
  • In the period of 2010-2013 Irish growth run at an annualised rate of 2.7% per annum, earning us 17th rank out of all 29 economies, against their average of 2.2%, but a median of 3.0%. This confirmed the growth trends in 2000-2009.
  • Beyond our own case, note the steady decline in the advanced economies average growth rates by decade.

Do note two interesting facts emerging from the above, based on both GDP in national currencies and GDP PPP-adjusted:

  • By both metrics of GDP per capita growth, Ireland in 2000-2009 had growth lower than Ireland in the abysmal 1980s (that is the effect of the massive crisis covering years of 2008-2010).
  • By both metrics of GDP per capita growth, 2010-2013 period (after we officially 'emerged' from the Great Recession) have been worse than the dreaded 1980s.

One last chart, showing evolution of GDP per capita over time:


Friday, November 22, 2013

22/11/2013: German GDP - no surprise to the downside

German GDP figures out: Q2 2013 confirmed at +0.7% q/q, Q3 2013 final at 0.3% q/q. Year-on-Year Q3 2013 at +1.1%, exports up only +0.1% q/q, imports up +0.8% q/q.

A chart (via @moved_average):


And the chart lesson? Recovery period: 2010-to-date: Trend growth down-sloping, volatility consistent with 2002-2007 period. The latest recovery sub-period - unconvincing.

More on euro area growth: http://trueeconomics.blogspot.ie/2013/11/20112013-euro-area-zaporozhetz-of-growth.html