6/1/17: Euromoney Country Risk Review 2016

Euromoney article on "Country risk review 2016: Populism is risky" quoting, amongst others, myself: http://www.euromoney.com/Article/3650139/Category/0/ChannelPage/207410/Country-risk-review-2016-Populism-is-risky.html.

5/1/17: Global Growth Upside: More BRICs, less B

Back at the end of 3Q 2016, I contributed a chart to +Business Insider feature covering most important trends that analysts' keep an eye over. You can see the chart here: http://trueeconomics.blogspot.com/2016/09/22916-most-important-charts-in-world.html.

The key to global growth, in my opinion, will be recovery led by the emerging markets, and in particular - by world's largest emerging economies, the BRICs.

That was then, and this is now:

Observe the global growth trend implied by 4Q Composite PMIs:

1. We have a second quarter uptick in global growth. What was fragile bounce back from the 2Q 2016 low of 51.1 to 3Q 2016 reading of 51.7 is now a robust push up in growth terms to 4Q 2016 reading of 53.4 - the strongest growth signal since 3Q 2015. 
2. Two of the BRICs economies: Russia (4Q composite PMI average at 55.4) and China (4Q 2016 composite PMI average of 53.1) are leading the above trend.
3. India is on a surprise downside, most likely attributable to series of policy errors (including demonetization), which (for now) is not yet a new trend to the downside. Should Indian economy get back to its 'normal' running order, BRICs contribution to global growth will pick up and global PMIs will be supported even further to the upside.
4. Brazil, however, is a long term worry. Latin America's largest economy is in deep trouble, dragging down both BRIC growth prospects and the strength of the overall emerging markets growth.

What are the headwinds to watch?

1. China is the obvious one. Current level of activity, including that signalled by the PMIs, is simply too exposed to monetary and fiscal stimuli, and, thus, highly risky. 
2. Russia is another concern. Russian recovery from the recession is still fragile and requires continued confirmation, especially in Manufacturing sector. On the brighter side: improving commodities prices, and better prospects for monetary easing (due to significant decline in inflation pressures) are offering some hope forward. On the darker horizon, however, political cycle (2018 Presidential election) and geopolitical climate (elevated risks vis-a-vis Russian relations with the West and ongoing geopolitical rebalancing in Central Asia, Asia-Pacific, Eastern Europe and Middle East) present higher risks to the downside to growth.
3. Brazil is simply a basket case that will have to go through a painful process of structural deleveraging and political re-balancing. However, as the rate of contraction in Brazil's economy moderates over time, BRIC's growth momentum will also improve as a group.

So keep a closer eye on those PMIs coming in 1Q 2017.

3/9/16: Innovation policies scorecards: Euro Area and BRIC

An interesting, albeit rather arbitrary (in terms of methodology) assessment matrix for innovation environment rankings across a range of countries, via EU Commission.

Here are the BRIC economies:

All clustered in the “Above Average Harmful Policies” (negative institutional factors) and “Below Average / Average Beneficial Policies” (positive institutional factors). Surprisingly, however, India sports the worst innovation policies environment, followed by China (where “Beneficial Policies” are, of course, skewed by state supports for key sectors). Russia comes in third (where the beneficial policies are most likely skewed to the upside by so-called strategic sectors, also with heavy state involvement). You might laugh, because with Brazil being fourth 'least detrimental' environment for innovation, the EU rankings are clearly at odds with actual innovation outcomes (https://www.globalinnovationindex.org/userfiles/file/reportpdf/GII-2015-v5.pdf) where

• China = rank 29
• Russia = rank 48
• Brazil = rank 70
• India = rank 81

Looking at the contrasting case of key advanced economies with strong supports, one wonders how much of Ireland’s policy environment is due to multinationals’ accommodation and just how on earth can such an ‘innovation-centric’ economy be so ‘average’ in terms of its innovation policies despite hundreds of millions pumped into supporting indigenous innovation. 

Then again, look at Finland with its stellar innovation policies culture and… err… economy in total coma

Makes you think… 

12/4/16: IMF (RIP) Growth Update: Risks Realism, Policy Idiocy

IMF WORLD ECONOMIC OUTLOOK update out today (we don’t yet have full data set update).

Top line forecasts published confirm what we already knew: global economic growth is going nowhere, fast.  Actually, faster than 3 months ago.

Run through top figures:

• Global growth: In October 2015 (last full data update we had), the forecast for 2016-2017 was 3.6 percent and 3.8 percent. Now, it is 3.2 percent and 3.5 percent. Cumulated loss (over 2016-2017) of 0.725 percentage points in world GDP within a span 6 months.
• Advanced Economies growth: October 2015 forecast was for 2.2% in 2016 and 2.2% in 2017. Now: 1.9% and 2.0%. Cumulated loss of 0.51 percentage points in 6 months
• U.S.: October 2015 outlook estimated 2016-2017 annual rate of growth at 2.8 percent. April 2016 forecast is 2.4% and 2.5% respectively, for a cumulative two-years loss in growth terms of 0.72 percentage points
• Euro area: the comatose of growth were supposed to eek out GDP expansion of 1.6 and 1.7 percent in 2016-2017 under October 2015 forecast. April 2016 forecast suggests growth is expected to be 1.5% and 1.6%. The region remains the weakest advanced economy after Japan
• Japan is now completely, officially dead-zone for growth. In October 2015, IMF was forecasting growth of 1% in 2016 and 0.4% in 2017. That was bad? Now the forecast is for 0.5% and -0.1% respectively. Cumulated loss in Japan’s real GDP over 2016-2017 is 1.005 percentage points.
• Brazil: Following 3.8 contraction in 2015 is now expected to produce another 3.8 contraction in real GDP in 2016 before returning to 0.00 percent growth in 2017. Contrast this with October WEO forecast for 2016 growth at -1% and 2017 forecast for growth of +2.3% and you have two-years cumulated loss in real GDP of a whooping 5.08 percentage points.
• Russia: projections for 2016-2017 growth published in October 2015 were at -0.6% and 1% respectively. New projections are -1.8% and +0.8%, implying a cumulative loss in real GDP outlook for 2016-2017 of 1.41 percentage points.
• India: The only country covered by today’s update with no revisions to October 2015 forecasts. IMF still expects the country economy to expand 7.5% per annum in both 2016 and 2017
• China: China is the only country with an upgrade for forecasts for both 2016 and 2017 compared to both January 2016 and October 2016 IMF releases. Chinese economy is now forecast to grow 6.5% and 6.2% in 2016 and 2017, compared to October 2015 forecast of 6.3% and 6.0%.

Beyond growth forecasts, IMF also revised its forecasts for World Trade Volumes. In October 2015, the Fund projected World Growth to expand at 4.1% and 4.6% y/y in 2016 and 2017. April 2016 update sees this growth falling to 3.1% and 3.8%, respectively. And this is without accounting for poor prices performance.

In short, World economy’s trip through the Deadville (that started around 2011) is running swimmingly:

Meanwhile, as IMF notes, “financial risks prominent, together with geopolitical shocks, political discord”. In other words,we are one shock away from a disaster.

IMF response to this is: "The current diminished outlook calls for an immediate, proactive response… To support global growth, …there is a need for a more potent policy mix—a three-pronged policy approach based on structural, fiscal, and monetary policies.” In other words, what IMF thinks the world needs is:

1. More private & financial debt shoved into the system via Central Banks
2. More deficit spending to boost Government debt levels for the sake of ‘jobs creation’, and
3. More tax ‘rebalancing’ to make sure you don’t feel too wealthy from (1) and (2) above, whilst those who do get wealthy from (1) and (2) - aka banks, institutional investors, crony state-connected contractors - can continue to enjoy tax holidays.

In addition, of course, the fabled IMF ‘structural reforms’ are supposed to benefit the World Economy by making sure that labour income does not get any growth any time soon. Because, you know, someone (labour earners) has to suffer if someone (banks & investment markets) were to party a bit harder… for sustainability sake.

IMF grafts this idiocy of an advice onto partially realistic analysis of underlying risks to global growth:

• “The recovery is hampered by weak demand, partly held down by unresolved crisis legacies, as well as unfavorable demographics and low productivity growth. In the United States, ..domestic demand will be supported by strengthening balance sheets, no further fiscal drag, and an improving housing market. These forces are expected to offset the drag to net exports coming from a strong dollar and weaker manufacturing.” One wonders if the IMF noticed rising debt levels in households (car loans, student loans) or U.S. corporates, or indeed the U.S. Government debt dynamics
• “In the euro area, low investment, high unemployment, and weak balance sheets weigh on growth…” You can’t but wonder if the IMF actually is capable of seeing households of Europe as still being somewhat economically alive.

But the Fund does see incoming risks rising: “In the current environment of weak growth, risks to the outlook are now more pronounced. These include:

• A return of financial turmoil, impairing confidence. For instance, an additional bout of exchange rate depreciations in emerging economies could further worsen corporate balance sheets, and a sharp decline in capital inflows could force a rapid compression of domestic demand. [Note: nothing about Western Banks being effectively zombified by capital requirements uncertainty, corporate over-leveraging, still weighted down by poor quality assets, etc]
• A sharper slowdown in China than currently projected could have strong international spillovers through trade, commodity prices, and confidence, and lead to a more generalized slowdown in the global economy. 
• Shocks of a noneconomic origin—related to geopolitical conflicts, political discord, terrorism, refugee flows, or global epidemics—loom over some countries and regions and, if left unchecked, could have significant spillovers on global economic activity.”

The key point, however, is that with currently excessively leveraged Central Banks’ balance sheets and with interest rates being effectively at zero, any of the above (and other, unmentioned by the IMF) shocks can derail the entire wedding of the ugly groom with an unsightly bride that politicians around the world call ‘the ongoing recovery’. And that point is only a sub-text to the IMF latest update. It should have been the front page of it.

So before anyone noticed, almost a 1,000 rate cuts around the world later, and roughly USD20 trillion in various asset purchasing programmes around the globe, trillions in bad assets work-outs and tens of trillions in Government and corporate debt uplifts, we are still where we were: at a point of system fragility being so acute, even the half-blind moles of IMF spotting the shine of the incoming train.

19/3/16: Danske’s forecasts for Russia: Mild with little chance of a surprise

Danske’s latest forecasts for Russia are out this week. In contrast to 2015 forecasts, Danske is now running a relatively moderately bearish outlook on Russia. Remember, Danske forecast - as late as of September 2015 - the Russian GDP to shrink 6.2% y/y in real terms (it ended the year with a decline of 3.7%), while projecting USDRUB exchange rate at 72-74 for 3mo-12mo horizon (it is now at around 68.1 and the bank’s new forecasts are for 62.2-66.4 over the next 3mo-12mo horizon).

Per latest, “The path of economic contraction continues to slow. GDP shrank 2.5% y/y In January 2016 versus a 3.5% y/y fall in December 2015. We expect the economy to shrink 2.1% y/y in 2016 if the crude price stays at USD31/bl on average, while we would expect expansion to happen if the oil price climbs to USD59/bl on average.”

Overall, Danske’s view is that supply side of growth equation is now close to / already in expansionary territory, while demand (and investment) sides are both still struggling.

Problem is, this imbalance should be leading to rapidly declining inflation. In part this is starting to show through. As noted by Danske team: “Inflation eased to 8.1% y/y in February, from 9.8% y/y in January, as prices already included the RUB devaluation and the high base effect is weighing on the CPI. We expect 2016 inflation to stay single digit, posting 8.1% y/y in December 2016.”

With this in mind, table below shows Danske’s forecasts summary

At -2.1% for 2016, this is a relatively moderate forecast, at the lower end of the forecast envelope for the consensus, but not low enough to raise eyebrows as with their 2015 outlook. CPI forecasts at 8.1% for 2016 is probably realistic, whilst 5.8% forecast for 2017 is quite likely to go unmet, given upside to growth penciled in and M1 expansion estimated at 9.3% and 10.2% in 2016-2017.

Overall, not that far off from my own expectations for the year, though Current Account surplus is, in my view, more likely to come in at around 3.5-3.8 percent of GDP.

The key to the above is the headline GDP figure (weak and likely to remain weak for some time into 2016) and external balances (strong and likely to remain such into 2016-2017). The economy is struggling to gain the elusive recovery footing, but it is also paying for itself.

3/3/16: Long-Run China Tops Scary Charts League This Week

The Truly Scary Chart of the week comes not the courtesy of the world of finances, but that of demographics... and no, it is not of the dead elephants of Germany, Italy and the Euro area, but of the (for now much) alive China:

Yes, 2030s are far away, so level declines are yet to come, but rate declines are already here and it is the rate that matters, not so much the level, when it comes to growth.

2/3/16: BRIC Manufacturing PMI: February

BRIC manufacturing sector conditions have posted major deterioration in February 2016 compared to January, marking another ugly month for world’s largest emerging economies.

Russian Manufacturing PMI for February posted a rather unsurprising and relatively mild deterioration from already marginally-recessionary reading in January. Details are covered here: http://trueeconomics.blogspot.com/2016/03/2316-russia-manufacturing-pmi-february.html.

Chinese Manufacturing PMI continued to tank in February, with country Manufacturing sector remaining the weakest of all BRICs, save Brazil, every month since July 2015. The details are covered here: http://trueeconomics.blogspot.com/2016/03/2316-china-manufacturing-pmi-february.html.


Meanwhile, Brazil’s manufacturing recession “extended to February, with a further drop in incoming new work leading companies to lower production and cut jobs again. Such was the extent of the downturn that firms shed jobs at the second-fastest pace since April 2009,” per Markit.

Brazil’s Manufacturing PMI fell from an ugly 47.4 in January to a horrific 44.5 in February, marking 13th consecutive sub-50 reading. On a 3mo average basis, Brazil’s Manufacturing remained in a contraction (45.8) over the 3mo period through February 2016, just as it was in the contraction (44.0 average) in the 3mo period through November 2015. In 3mo period through February 2015, PMI averaged 50.2.

Per Markit: “Amid evidence of an increasingly fragile economy and a subsequent fall in demand, the level of new business received by Brazilian manufacturers decreased in February. Having accelerated to the fastest since November 2015, the pace of contraction was steep. As a consequence, companies scaled down output again. Production dipped at a sharp and accelerated rate.
Supported by the depreciating real, new foreign orders for Brazilian manufactured goods improved for the third straight month in February. That said, new business from abroad increased at a modest pace overall.”

All in, Brazil remains BRIC’s weakest economy in Manufacturing sector terms every month since February 2015.


As in previous months, India was the only BRIC economy with Manufacturing PMI reading above 50.0 marker. In February 2016, Indian Manufacturing PMI stood at 51.1, unchanged in January 2016. The positive impact of this, however, is weak, at 51.1 marks relatively low (by historical comparisons) growth in the Indian Manufacturing sector.

Per Markit: “Manufacturing business conditions in India continued to improve, with new orders, exports, output and purchasing activity all rising in February. However, a faster expansion in new business inflows failed to lift growth of output and workforce numbers were left broadly unchanged again. PMI
data also highlighted a weaker rise in costs and the first reduction in selling prices since September 2015… Reflecting sustained growth of new work, Indian manufacturers raised their production volumes in February. That said, the rate of expansion eased since January and was marginal overall.”

On a 3mo MA basis, Indian Manufacturing PMI averaged 50.4 in 3 months through February 2016, down on 50.7 average for the 3mo period through November 2015 and down massively on 52.9 3mo average through February 2015.

Overall, India remains the best performing economy in the BRIC group, even though its Manufacturing sector growth is now in slow growth mode since September 2015.

In summary, in February, BRIC group of world’s largest emerging markets economies has posted another deeply disappointing performance across the Manufacturing sector. This compounds adverse headwinds in these economies in January and signals strong possibility of the BRICs exerting a significant negative pressure on global growth.

2/3/16: China Manufacturing PMI: February

Chinese Manufacturing PMI for February signalled worsening operating conditions in the sector and marked 12th consecutive month of recessionary readings, reaching 48.0 in February, down from 48.4 in January and down from 50.7 in February 2015.

Per Markit: “Operating conditions faced by Chinese goods producers continued to deteriorate in February. Output and total new orders both declined at slightly faster rates than at the start of 2016, which in turn contributed to the quickest reduction in staffing levels since January 2009. Lower production was a key factor leading to the steepest fall in stocks of finished goods in nearly four-and-a-half years during February. At the same time, lower intakes of new work enabled firms to marginally reduce their level of work-in-hand for the first time in ten months. Prices data indicated weaker deflationary pressures, with both selling prices and input costs
declining at modest rates.”

On a 3mo MA basis, 3mo average through February stood at 48.2 - second lowest in the BRICs, up marginally on 48.0 3mo average through November 2015, but down on 50.0 3mo average through February 2015.

It is simply impossible to imagine how this data can be consistent with 6.9 percent growth recorded in 2015 or with over 6% growth being penciled for 1Q 2016.

As shown above, China is now a consistent under-performer in the BRIC group since July 2015 with its Manufacturing PMI reading below that of Russia (in a recession) and above Brazil (in a deep recession).

2/3/16: Russia Manufacturing PMI: February

Russian Manufacturing PMI for February produced another disappointment, falling from a marginally contractionary reading of 49.8 to somewhat faster contraction-signalling 49.3.

Per Markit, “Russian manufacturers reported a further deterioration in operating conditions during February, the third in as many months. Job cuts
were evident amid a sharp fall in backlogs of work. However, production remained broadly unchanged as a slight rise in new orders was reported. Meanwhile, price pressures remained evident, as both output charges and input costs rose.” So firms effectively were reducing their backlogs of orders, with work-in-hand reductions continuing now every month since March 2013.

On a slightly positive note, per Markit: “Russian goods producers recorded a slight expansion in new business volumes during February. According to anecdotal evidence, a higher volume of new work reflected the development of new products. However, the rise in new orders was driven by the domestic market, as new export orders declined further. The rate of contraction accelerated to the sharpest in 19 months and was marked overall.”

On a 3mo MA basis, 3mo average through February 2016 stood at 49.3, which is lower than the 3mo average through November 2015 (49.8), but still better than the 3mo average through February 2015 (48.7).

So the key reading from this data is that Manufacturing remains in a shallow downturn for the third month in a row, signalling a poor start to 2016 and leaving no doubt that the economy is now set to post another quarter of negative growth, unless there is a major improvement in Services sector readings in February and a major gain across both sectors in March.

3/2/16: BRIC Services PMIs for January: Some Rays of Hope

In the previous two posts, I covered

• Russian Services and Composite PMIs: see detailed discussion here http://trueeconomics.blogspot.com/2016/02/3216-russian-services-composite-pmi.html and 
• China Services and Composite PMIs here: http://trueeconomics.blogspot.com/2016/02/3216-russian-services-composite-pmi.html

Now, let’s take a look at the Services PMIs for all BRIC economies, followed by a post on their Composite PMIs.


Russian Services PMI for January 2016 came in with a hugely disappointing reading of 47.1 from already poor 47.8 recorded in December. On a 3mo average basis, the index is now at 48.2, worse than already poor 49.4 average for the 3 months through October 2015, although, as expected - well above the abysmal 44.7 average for the 3mo period through January 2015. The Services sector has now posted sub-50 PMI readings in 4 consecutive months, with deteriorating readings in 3 consecutive months, signalling no respite to the Services sector contraction.


China Services PMI came in at a surprising uplift in January, reaching 52.4 - the highest reading since August 2015, and up on 50.2 in December. This move was surprising since Chinese services PMI has been deteriorating every month from October 2015. As a reminder, the downturn in the manufacturing sector hit Chinese Manufacturing PMI hard with index falling to a 3-mo low in January and staying below 50.0 line of zero growth for 11 months in a row.


Brazil Services PMI remained the weakest of all BRIC economies at 44.4 in January up on a truly abysmal 43.5 in December. 3mo average for Brazil Services PMI was at 44.5, which is somewhat better than 43.2 average for the 3mo period through October 2015, but worse than 48.7 3mo average through January 2015. Brazil’s Services PMIs have now been below 50 line for 11 months in a row.

According to Markit: “Current downturn longer than 08-09 crisis… Activity decreased in all six monitored categories, with the quickest contraction seen at Renting & Business Activities. Leading services output to fall was another decline in incoming new work. Inflows of new business dipped at a softer pace, but one that remained sharp.” As in the case with Russian economy, inflationary pressures, primarily driven by currency devaluations, have created adverse headwinds for Services sector firms in Brazil. “January data pointed to a build-up of inflationary pressures in Brazil’s service economy. A weaker currency (particularly against the US dollar) combined with higher utility bills had reportedly resulted in an overall increase in cost burdens. The rate of inflation climbed to a three-month high and was well above the long-run series trend. As a consequence, service providers raised their average tariffs again, and at the fastest pace since October.”

Brazil’s economy not only continuing to contract, but remains the weakest of all BRIC economies, in Services sector terms since April 2015.


India Services PMI posted an impressive rise from already rather robust 53.6 in December to 54.3 in January 2016. The 3mo average has reached 52.7 in the period through January 2016, which is stronger than 52.1 recorded for the period through October 2015 and ahead of 52.0 3mo average through January 2015. Overall, this was the highest Services PMI reading for India since January 2013 and marks second consecutive month of PMIs acceleration. With this, Indian economy clearly has shaken off some of the downward momentum on growth that was building up in May-September 2015 and again roared it’s head in November 2015.

Per Markit: “Posting a 19-month high… Services Business Activity Index pointed to a marked and accelerated expansion of activity across the sector. Growth was noted in four of the six monitored categories, the exceptions being Hotels & Restaurants and Transport & Storage. Underpinning the overall increase in services output was a seventh successive monthly expansion of new business inflows. Having accelerated to the joint-fastest since June 2014, the growth rate was marked. Anecdotal evidence highlighted strengthening underlying demand and improved weather conditions.”

Overall, January marks the second month of India’s Services PMI leading other BRIC economies to the upside.

Chart and summary table to illustrate:

2/2/16: China Services & Composite PMIs for January: No Signs of Roaring Growth

China Services PMI came in at a surprising uplift in January, reaching 52.4 - the highest reading since August 2015, and up on 50.2 in December. This move was surprising since Chinese services PMI has been deteriorating every month from October 2015.

Per Markit: services “providers had a strong start to 2016, with business activity increasing at the fastest rate in six months. …According to panellists, improved inflows of new business underpinned the latest expansion of services activity.”

As a reminder, the downturn in the manufacturing sector hit Chinese Manufacturing PMI hard with index falling to a 3-mo low in January and staying below 50.0 line of zero growth for 11 months in a row. Details of Manufacturing PMI dynamics are covered in-depth here: http://trueeconomics.blogspot.com/2016/02/1216-bric-manufacturing-pmi-january.html.

On a 3mo moving average basis, China Services PMI stood at 51.3 in January 2016, exactly the same as for the 3mo period through October 2015 and down on 52.7 reading for the 3mo average through January 2015. It is worth noting that the index never dipped below 50.0 in its entire history and the historical average for the index is at 55.1. Current reading is statistically significantly below the historical average.

Due to substantial improvement in the Services PMI, China’s Composite PMI signalled stabilisation in overall economy-wide Chinese business activity in January, with Composite Output Index registering fractionally above the no-change 50.0 value at 50.1, up from 49.4 in December. However, overall, Composite PMI of China has been above 50.0 in only two of the last 6 months and on both occasions, index readings were not statistically distinguishable from 50.0.

Still, 3mo average through January for Composite PMI stood at 50.0 (zero growth) against 48.9 average through October 2015 and 51.3 average through January 2015. In other words, the economy, judging by Composite PMI might be closer to stabilising, but growth is not exactly roaring back.

1/2/16: BRIC Manufacturing PMI January: A Test of Stagnation?

I covered China Manufacturing PMI in an earlier separate note here: http://trueeconomics.blogspot.com/2016/02/31116-china-manufacturing-pmi-its-at.html with core conclusion that Chinese Manufacturing PMIs have been now running second worst in the BRIC’s group since July 2015, staying above only Brazil’s - a country that is in an outright recession. PMI index came in tat 48.4 in January, marginally up on 48.2 in December 2015, marking 11th consecutive month of sub-50 readings. 3mo average through January 2016 is now at 48.4 against 3mo average through October 2015 at 47.6. Current 3mo average is down significantly on 49.8 3mo average through January 2015. Last time Chinese Manufacturing posted statistically significant expansion (as measured by PMI reading above 51.46 - the statistically significant growth marker - was back in July 2014.

India Manufacturing PMI posted a rise to 51.1 in January from 49.1 in December, with January reading being highest in 4 months. This sounds like good news, expect it is not. The reason is that at 51.1, the PMI is well below historical average of 54.5. And it is below January 2015 level of 52.9. 3mo average through January 2016 is at zero growth mark 50.0, which compered poorly to 3mo average through October 2015 at 51.4 and worse relative to 53.6 which is 3mo average through January 2015. Market release was quite upbeat on India numbers, however, noting that “the industry recovered following the contraction seen at the end of last year. Alongside a resumption of output at some firms impacted by December’s flooding, manufacturers also benefited from rising inflows of new business from domestic and export clients.” The sectoral breakdown of the index is also concerning. Again per Markit, “The consumer goods subsector remained the principal growth engine at the start of the year, seeing substantial expansions of both output and new orders. In contrast, producers of investment goods saw output and new orders fall, while production volumes stagnated in the intermediate goods category.”

Russian PMIs were covered in a stand alone post here: http://trueeconomics.blogspot.com/2016/02/1216-russian-manufacturing-pmi-january.html with core conclusion that although Russia retained its's position as the second strongest performing economy by Manufacturing PMIs in the BRIC group in January, the latest reading puts Russian Manufacturing in a stagnation zone too close to 50.0 to call it a full-blown contraction. This has meant that over the last 3 months, Russian Manufacturing PMI averaged 49.7, a reading nominally below 50.0, although an improvement on 49.1 average for 3 months through October 2015, and on 49.4 3-mo average through January 2015. In simple terms, Russian Manufacturing continued to contract in 3 months through January 2016, but the rate of contraction was virtually indistinguishable from zero growth.


This leaves us to cover Brazil Manufacturing PMI. Brazil Manufacturing index posted a rise in January, hitting an 11-mo high of 47.4. By all normal metrics, this is a disaster territory reading, consistent with rather sharp deterioration in trading conditions. But for Brazil - this was an improvement, especially as output and news orders both were contracting at slower rates in January. Per Markit: “The downturn in the Brazilian manufacturing sector continued at the start of 2016, with levels of production and new orders contracting for the twelfth successive month. This continued to filter through to decisions relating to staff hiring, stock holdings and purchasing activity, all of which also declined during the latest survey month.”  On the positive (sort of) side, “output declined at weaker rates in each of the three production categories (consumer, intermediate and investment) covered by the survey. Underlying the latest decrease in output was a further reduction in the level of incoming new orders. The latest drop in inflows of new work received was mainly centred on the domestic market, as the volume of new export business expanded for the second straight month in January.” On a 3mo average basis, 3mo average through January 2016 is at 44.5, which is worse that 3mo average through October 2015 (45.6) and 3mo average through Ja
nuary 2015 (49.9). In simple terms, Brazil remains the basket case of BRIC economies, leading the group to the downside on Manufacturing.

Chart and table below summarise the BRIC’s outlook:

So, overall, BRIC Manufacturing side of the economy is still in a woeful shape. India's return to growth is relatively weak, while contractionary conditions prevail in Brazil (strong, albeit moderating on the end of 2015), Russia (very weak contraction, closer to stagnation) and China (where PMI data has been at serious odds with official national accounts data for some time now). The net result for the global growth is not exactly encouraging.

1/2/16: Russian Manufacturing PMI January 2016: Stagnation Looms

Russian Manufacturing PMI rebound in January compared to December slump, rising from 48.7 in December (the lowest reading since August 2015, to 49.8. Still, January reading was nominally below 50.0, signalling second consecutive month of contraction in country manufacturing activity. In statistical significance terms, January reading is basically singling zero growth.

Per Markit, this means that “Russian manufacturing sector edgeed closer to stability during the first month of 2016” with “both output and incoming new orders return to growth territory”. However, overall, “survey data for the first month of 2016 remained disappointing for Russian manufacturers, as the sector stayed in contractionary territory. Although there were marginal increases in volumes of both production and incoming new orders, job shedding was still evident. Meanwhile, average cost burdens increased at a marked pace, while a more moderate rise in output charges was reported”.

On sectoral basis,”production volumes grew at Russian goods producers during January, having contracted in the final month of 2015. Anecdotal evidence suggested the expansion in output was linked to an increase in
incoming new orders. Job cuts were still evident in the manufacturing sector of Russia in January, continuing a trend that began in July 2013. The rate of job shedding accelerated to a four-month high and was solid overall.”

All of the expansion in new orders was contained within domestic economy, “as new export orders contracted. Falling new business from abroad has been reported in every month since September 2013.”

On a 3mo average basis, Manufacturing PMI for 3 months through January 2016 was 49.7 - below 50.0, although an improvement on 49.1 average for 3 months through October 2015, and on 49.4 3-mo average through January 2015. In simple terms, Russian Manufacturing continued to contract in 3 months through January 2016, but the rate of contraction was virtually indistinguishable from zero growth.

As shown above, Russia retained its's position as the second strongest performing economy by Manufacturing PMIs in the BRIC group.

31/1/16: China Manufacturing PMI: It's at Recession Levels, Folks

China manufacturing PMI signalled another month of deterioration in operating conditions for January 2016. Per Markit, “with both output and employment declining at slightly faster rates than in December. Total new business meanwhile fell at the weakest rate in seven months, and despite a faster decline in new export work.’

Overall, PMI index came in tat 48.4 in January, marginally up on 48.2 in December 2015, marking 11th consecutive month of sub-50 readings. 3mo average through January 2016 is now at 48.4 against 3mo average through October 2015 at 47.6. Current 3mo average is down significantly on 49.8 3mo average through January 2015. Last time Chinese Manufacturing posted statistically significant expansion (as measured by PMI reading above 51.46 - the statistically significant growth marker - was back in July 2014.

Interestingly, Markit is using very ‘diplomatic’ language in their release, saying that “Production at Chinese goods producers fell for the second successive month in January. Though modest, the rate of contraction was the fastest seen in four months. According to panellists, relatively weak market conditions and fewer new orders had led firms to cut production.” In simple terms, this means that the Manufacturing sector in Chine is not growing slower, but is contracting. Which, of course, is vastly inconsistent with official GDP growth data. Over the last 15 months, Chinese Manufacturing managed to hit PMI >50.0 on only one month. One month. How this can be consistent with an economy growing at 6.9 percent is anyone’s guess.

And Chinese companies are now appearing to be deep in revenue recession too. per Markit: “Weaker client demand led manufacturers to discount their prices charged again in January, thereby extending the current sequence of deflation to 18 months (although the rate of reduction was the slowest seen since June 2015). Lower selling prices were supported by a further fall in average input costs at the start of the year.”

In fact, Chinese Manufacturing PMIs have been now running second worst in the BRIC’s group since July 2015, staying above only Brazil’s - a country that is in an outright recession.

I mean you getting any signs of the 6.8-6.9 percent growth anywhere here? No? Well, in general, Services PMIs are also in a tanking mode, but more on this separately.

10/1/16: Crisis Contagion from Advanced Economies into BRIC

New paper available: Gurdgiev, Constantin and Trueick, Barry, Crisis Contagion from Advanced Economies into Bric: Not as Simple as in the Old Days (January 10, 2016). 

Forthcoming as Chapter 11 in Lessons from the Great Recession: At the Crossroads of Sustainability and Recovery, edited by Constantin Gurdgiev, Liam Leonard & Alejandra Maria Gonzalez-Perez, Emerald, ASEJ, vol 18; ISBN: 978-1-78560-743-1. Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2713335.

Abstract:      

At the onset of the Global Financial Crisis in 2007-2008, majority of the analysts and policymakers have anticipated contagion from the markets volatility in the advanced economies (AEs) to the emerging markets (EMs). This chapter examines the volatility spillovers from the AEs’ equity markets (Japan, the U.S and Europe) to four key EMs, the BRIC (Brazil, Russia, India and China). The period under study, from 2000 through mid-2014, reflects a time of varying regimes in markets volatility, including the periods of dot.com bubble, the Global Financial Crisis and the European Sovereign Debt Crisis, the Great Recession and the start of the Russian-Ukrainian crisis. To estimate volatility cross-linkages between the advanced economies and BRIC, we use multivariate GARCH BEKK model across a number of specifications. We find that, the developed economies weighted return volatility did have a significant impact on volatility across all four of the BRIC economies returns. However, contrary to the consensus view, there was no evidence of volatility spillover from the individual AEs onto BRIC economies with the exception of a spillover from Europe to Brazil. The implied forward-looking expectations for markets volatility had a strong and significant spillover effect onto Brazil, Russia and China, and a weaker effect on India. The evidence on volatility spillovers from the advanced economies markets to emerging markets puts into question the traditional view of financial and economic systems sustainability in the presence of higher orders of integration of the global monetary and financial systems. Overall, data suggests that we are witnessing less than perfect integration between BRIC economies and advanced economies markets to-date.

7/1/16: BRIC Brake on Global Growth

As I noted in analysis of the BRIC Composite PMIs (http://trueeconomics.blogspot.ie/2016/01/6116-bric-composite-pmis-december.html) December turned out to be another month when BRIC economic fortunes were weighing on the global economy.

As a reminder, overall 4Q 2015 BRIC Composite Activity Index stood at 99.0, down on 99.2 in 3Q 2015 and on 102.1 recorded in 4Q 2014.

Sectorally, both Services and Manufacturing Aggregate Indices for BRIC group of countries continued to trend down - a trend now running uninterrupted since the start of 2H 2010 and accelerating since 2H 2014 for Manufacturing.

Meanwhile, Global Composite PMI slipped in 3Q and 4Q 2015 below longer trend (that is still gently upward).

Chart below illustrates:

4/1/16: BRIC Manufacturing PMIs: December 2015 and 4Q 2015

BRIC Manufacturing PMIs posted another sector-wide weakening in growth conditions in December, ending 2015 on foot of an outright contraction across the sector in all BRIC economies for the first time since late 2013.

Russian manufacturing PMI posted a deterioration in sector performance in December, falling to 48.7 from 50.1 in November. This reverses two consecutive months of above 50 readings in October and November. On a quarterly basis, 4Q 2015 average reading was 49.7, which is better than 48.4 average for 3Q 2015, but still below 50.0 line. Overall December reading was the weakest since August 2015 and signals that the much anticipated stabilisation of the Russian economy did not take place in December. More detailed analysis of Russian PMIs is available here for monthly data and here for quarterly data. Overall, Russia was the third weakest PMI performer in Manufacturing sector terms within the BRIC group.

Brazil’s Manufacturing PMI remained deeply below 50.0 mark in December, although rising to 45.6 from 43.8 in November. December reading stands as the highest in 3 months, but still signals sharp rate of activity contraction. 4Q 2015 average is at 44.5, which is down on 46.7 average for 3Q 2015. Brazil has now posted Manufacturing PMI readings below 50.0 for 11 months in a row, the longest such record in the group of BRIC countries. In addition, Brazil remained the weakest performer in terms of Manufacturing PMIs in the BRIC group.

Per Markit: “Brazilian manufacturing companies reported worsening operating conditions at the end of 2015. December saw output and new orders dip at rates that, although slower, remained sharp…Amid evidence of cashflow problems, stocks of purchases and post-production inventories both decreased at rates that were the quickest in over six years. …severe downturn in the sector that was evident among the three monitored market groups: consumer, intermediate and investment goods. …December data pointed to a further decline in incoming new work, the eleventh in as many months. …Panellists indicated that a deeper economic retreat and falling purchasing power among consumers had led domestic demand to dwindle. Conversely, new orders from abroad rose. The weaker real had reportedly supported firms in securing new business from external clients. That said, the overall pace of expansion was only marginal.”

China Manufacturing PMI fell from 48.6 in November to 48.2 in October, marking 10th consecutive month of sub-50 readings and the weakest reading in 3 months. On a quarterly basis, 4Q 2015 reading was 48.4 which is somewhat better than 47.4 reading for 3Q 2015, although still signifying overall contraction in the sector. By all metrics, Chinese Manufacturing PMI came in second weakest in the BRIC grouping after Brazil.

Per Markit: “Operating conditions faced by Chinese goods producers continued to deteriorate in December. Production declined for the seventh time in the past eight months, driven in part by a further fall in total new work. Data suggested that client demand was weak both at home and abroad, with new export business falling for the first time in three months in December. As a result, manufacturers continued to trim their staff numbers and reduce their purchasing activity in line with lower production requirements. Meanwhile, deflationary pressures persisted, as highlighted by further marked declines in both input costs and selling prices.” Overall, this was the first time exports orders fell since September 2015.

India Manufacturing PMI posted a moderate drop from 50.3 in November to 49.1 in December, putting PMI reading below 50.0 line for the first time since June 2015. However, on a quarterly average basis, 4Q 2015 came in at 50.0, signalling zero growth in the sector over the last quarter of 2015, down from relatively robust growth posted in 3Q 2015 (with PMI averaging 52.1). PMI averaged 51.7 in 2Q 2015. The data confirms my previously expressed view that India is now skirting dangerously close to a manufacturing recession and that overall economic growth conditions in the economy have deteriorated significantly compared to 2014.

Per Markit: “Indian manufacturers saw business conditions deteriorate at the end of 2015. December’s incessant rainfall in Chennai impacted heavily on the sector, with falling new work leading companies to scale back output at the sharpest pace since February 2009. On the price front, inflation rates of both input costs and output charges were at seven month highs. …Consumer goods bucked the sub-sector trend and was the only category to see improving business conditions in December as production and new orders rose. Conversely, incoming new work and output fell in both the intermediate and investment goods market groups. Having risen for 25 straight months, total
manufacturing production in India fell during December. Furthermore, the rate of contraction was the sharpest in almost seven years.”

Summary table:

And a chart to illustrate

Hence, overall, as of December, 

• Brazil manufacturing PMI continued to move along the general downward trend that started around 1Q 2013 and runs unabated since then, with Manufacturing recession setting in firmly from 2Q 2015 on. 
• China, having displaced Russia for the second weakest position in the BRIC economies in terms of Manufacturing PMIs back in July 2015 remains the second weakest link in the BRIC group. Chinese manufacturing has been posting negative trend in PMIs since mid 2014, although in the last 3 months of 2015 this trend somewhat improved. 
• Meanwhile, Russian Manufacturing is once again taking on water, having reverted down from a positive sub-trend that was present over May-November 2015.
• Last, but not least, the bright star of India is now fading in terms of Manufacturing PMIs, with both trend (downward since December 2014 and more pronounced downward trend since July 2015) and absolute level of PMI reading signalling a risk of manufacturing sector recession in India. 

Overall, we now have all BRIC Manufacturing PMIs below 50 line for the first time since March 2009. This strongly shows overall continued downward pressures on growth in world’s largest emerging markets.

1/10/15: Russia Manufacturing PMIs: Some Easing in Contraction

Russia’s manufacturing PMI released by Markit showed slower rate of decline in the sector activity in September, rising to 49.1 from 47.9 in August. This is the highest reading in the series since February 2015, but marks 10th consecutive month of sub-50 readings.

Per Markit: both output and new orders posted “negligible growth” in September. More importantly:

• “…excess capacity remained prevalent, leading to further job cuts, while price pressures continued to intensify due to a lower value of the rouble against other major international currencies.”
• “Contributing to the rise in the PMI in September were improved trends in output and new orders, following a period of contraction. In particular, the intermediate goods sector performed well, recording rises in both output and new work. There were reports from the survey panel that domestic demand had firmed over the month and was a key support to production and order books.”
• Key driver to the upside, therefore, was imports substitution. 
• “International demand, in contrast, continued to deteriorate, as highlighted by a fall in new export orders for a twenty-fifth successive month. The rate of contraction was again solid, but nonetheless the slowest since June.”

Overall, Manufacturing PMI signal, in my view, is not yet consistent with expected stabilisation of the economy. Remember, I recently noted that previous hopes for economic recession bottoming out in 2Q 2015 have been squashed by the data, with new consensus outlook for stabilisation in 3Q. Based on the data to-date, this stabilisation did not take place. We are now looking at another quarter of below zero growth and most likely will see sub-zero GDP growth through 4Q 2015 as well.

Chart to illustrate manufacturing sector activity trends:

Note: I covered China Manufacturing, Services & Composite PMIs for September in an earlier note here http://trueeconomics.blogspot.ie/2015/10/11015-china-pmis-signalling-deeper.html. Overall, Russian Manufacturing PMI (and the exports component of the index especially) are broadly in line with Chinese data so far.

1/10/15: China PMIs: Signalling Deeper Problems Ahead

Latest Manufacturing and Services PMI data for China posted a strong signal of continued deterioration in the economy.

Manufacturing PMI came in at the lowest levels since March 2009, posting 47.2 in September, compared to 47.3 in August, and marking 7th consecutive month of sub-50 readings. Over the last 12 months, Manufacturing PMI reached above 50.0 in just two months, hit exactly 50.0 in one (marking zero growth in the sector) and was below 50 (marking contraction of activity) in the rest. Last time Manufacturing PMI was statistically above 50.0 was in July 2014 and last time it happened before then was in October-November 2013. In other words, there has not been statistically significant growth singled by Manufacturing PMIs for some two years now.

Per Markit release, things were even worse than the headline Manufacturing index suggested:

• “Total new work fell at the quickest rate in over three years, partly driven by a steeper fall in new export business. 
• “As a result, companies cut output at the sharpest rate in six-and-a-half years, while staff numbers fell at the quickest pace since the start of 2009. 
• “The health of the sector has now deteriorated in each of the past seven months. Furthermore, the latest deterioration was the most marked since March 2009.”

On Services side, Markit’s Services PMI for September came in at 50.5, the lowest reading since July 2014. Services PMI for China has never posted a sub-50 reading in the series history, so there is little we can tell about actual levels of activity in the sector based on this data. Still, 50.5 reading is so bad, it ranks as the second lowest reading in the history of the series.

Which brings us to the Composite PMI. China’s Composite PMI posted another sub-50 reading, falling from August 48.8 to September 48.0. This implies the fastest rate of contraction across the economy since January 2009.

Per Markit:

• “Employment trends continued to diverge across the manufacturing and services sectors in September. Manufacturers cut their workforce numbers at a solid pace that was similar to that seen in the prior month, while service providers continued to increase their payroll numbers. However, the rate of job creation was only slight, despite improving upon August’s fractional pace. Consequently, employment at the composite level declined for the fourth successive month.
• “Manufacturing companies signalled a further increase in outstanding workloads in September, which was often linked to reduced productive capacity. Meanwhile, softer growth in new work enabled service sector firms to work through their unfinished business in September and at the fastest rate in ten months. Overall, backlogs of work declined again at the composite level, albeit at a marginal rate.”

In simple terms, whatever growth was squeezed out of both sectors, that growth came from depleting outstanding orders, rather than signing new business.

Two charts to highlight these trends:

24/9/15: The Ugly Faces of Trade Protectionism

Neat chart from Credit Suisse summarising the extent (and distribution) of new protectionist policies across several key economies:

Several points worth making:

• The obvious one: the U.S. leads in terms of protectionism. Which is ironic, given the U.S. championship of open trade agreements (TTIP and TPP being the most current ones) and the U.S. tendency to de-alienate the world into 'Free Trade' and 'Protectionist' groups of countries.
• BRIC come second and Europe comes third. Which is again highly ironic as BRIC rely heavily on trade-driven model for growth and Europe can't get over how (allegedly) free trade it is.
• Everywhere, save Russia and the U.S., state aid & bailouts is minor segment of trade protectionism policies.
• Export subsidies are meaningful in China and India.
• Trade defence and finance measures dominate in the U.S., India, Brazil and Europe, and are weaker in Japan and China, while virtually non-existent in Russia.

All-in - a pretty ugly picture of reality post-crisis.