7/2/20: Mapping Real Economic Debt: BRICS

Some great charts on real economic debt, via IIF, with my highlighting of the BRICS economies:

First off, mapping corporate debt and government debt as a share of GDP:

 China is an outlier within the BRICS group when it comes to corporate debt.

 Chart above shows how dramatic has been deleveraging out of FX-denominated debt in Russia over the last decade. Much of this came from the reduction in US Dollar-denominated exposures.

Lastly, the chart above showing changes in the US Dollar-denominated debt quality (by corporate ratings). Again, Russia is a positive stand-alone in this, with more positive outlook than negative outlook corporates - a trend strikingly different from both the Emerging Markets overall, and for other BRIC economies.

13/7/19: BRICS and G7

As a side note: the BRICS now have a bigger share of the world economy than the Euro area and the U.S. combined:

In 2019, BRICS combined GDP will surpass (using PPP-adjusted GDP) that of G7 economies, and in 2020, based on IMF forecasts, it will exceed the combined share of the world GDP for the US + EU27 economies.

Not a single BRICS economy is currently represented in G7. Dire...

13/7/19: BRICS Current Account Surpluses: Its Russia and China Story

China and Russia dominate BRICS' current account dynamics and this is not about to change.

Both China and Russia have been posting strong current account figures in recent years, and this is not changing with the onset of the Russia sanctions in 2014 and the Trump Trade Wars in 2018. The two economies clearly dominate the emerging markets' current account dynamics in terms of both the sign of the balances (surpluses) and their magnitudes.

The caveat for Russia is that its current account gains are coming in at the time of relative weakness in its exports and net capital outflows:

Meanwhile, per latest data, U.S. trade deficit with China has widened once again as Chinese exports to the U.S. contracted by ca 7.8 percent y/y, while U.S. exports to China fell 31.4 percent. Which means the U.S. trade deficit with china is up 3 percent compared to June 2018.

It is a classic textbook example on how to lose 'bigly' from a trade war.

22/8/18: Emerging Markets Risks and International Reserves

Emerging markets are at the point of risk contagion these days, with a potential spillover into advanced economies. This brings us back to the memories of the past EM crises, such as the currencies crises of the late 1990s in the year (and month) that marks the 20th anniversary of Russian Sovereign Default.

Here is an interesting chart that shows just how far Russia has traveled from the past in terms of its macroeconomic management:

What the chart omits, of course, is a simple fact: of all these economies, Russia is the only one that (rightly or wrongly or both) is trading under severe financial and economic sanctions imposed by its major trading and investment partners. Which makes this performance even more impressive.

When it comes to a 'higher altitude' view of the Russian economy within historical and current geopolitical perspective, which is discussed here: http://trueeconomics.blogspot.com/2018/01/6118-spent-putins-call-means-growing.html.

17/5/18" Timeline of Russian Growth 1992-2023 (forecasts)

I have annotated the timeline of Russia's GDP per capita from 1992 through forecast (IMF) out to 2023 with the inflation dynamics and presidential terms. For comparison, BRICS ex-Russia GDP per capita dynamics are presented as well.

Draw any conclusions you want:

8/5/18: BRICS DECK: Part 2: PMIs, Investment and Inflation

In a recent post (http://trueeconomics.blogspot.com/2018/05/3518-brics-deck-2018-imf-updates.html) I have provided top level analysis of growth dynamics in the BRICS economies based on the IMF WEO April 2018 update. Here is the section of my BRICS deck with updated view on PMIs, Aggregate Investment and Inflation:

3/5/18: BRICS Deck 2018: IMF Updates

The first part of my slidedeck on BRICS economies, covering headline growth and macro performance dynamics and forecasts from the IMF WEO database:

25/3/18: Average Tariffs: 2000-2016

So how do the world's largest 50 economies (by size) score when it comes to the average trade tariffs they have in place? Who is the free trade champion? And who is not?

Here is the data on top 50 largest global economies (I have aggregated EU members of the top 50) into one group, as they share common tariffs against the rest of the world:

Source: data from the World Bank

One thing is clear: tariffs did come down quite substantially between 2000 and 2016. Average world-wide tariff in 2000 stood at just over 8.69%, which fell to just under 4.29% by 2016.

Another interesting fact is that the U.S. average tariff of 1.61% is matched by the EU's 1.6%, with both higher than Australia's 1.17%, Canada's 0.85%, Japan's 1.35%, and Norway's 1.02%. So, the free trade champions of the U.S. and EU are, sort of, poorer than average for the advanced economies, when it comes to trading free of tariffs protection.

Third point worth noting relates to the BRICS: these the largest emerging economies, jointly accounting for 32.0% of the global GDP (PPP-adjusted). Brazil's average tariff in 2016 stood at 8.01%, down from 12.69% in 2000. Russia's average tariff in 2016 stood at 3.43% and we do not have that figure for 2000, while India's was at 6.32% (down from 23.28% in 2000), China's fell from 14.67% in 2000 to 3.54% in 2016, while South Africa's average tariff declined from 4.5% in 2000 to 4.19% in 2016. So, amongst the BRICS, today, Brazil imposes the highest tariffs (86.8% higher than the global average), followed by India (47.4% above the global average), S. Africa (2.3% below the global average),  China (17.4% below the global average), and Russia (20% below the global average). In other words, based on average tariffs, Russia is the most open to trade economy in the BRICS group, followed by China.

Of course, tariffs are not the only barriers to trade, and in fact, non-tariff protectionism measures have been more important in the era of the WTO agreements. However, the data on tariffs is somewhat illustrative.

Here is the same data, covering 2010 and 2016 periods, arranged by the order of magnitude for 2016 tariffs:

Source: data from the World Bank

12/1/18: Euromoney Credit Risk Survey of 2017

Euromoney Country Risk survey for 2017 is out with comments from, amongst others, myself: (https://www.euromoneycountryrisk.com/Analysis/ECR-survey-results-2017-EMs-back-in-vogue-as-global-prospects-soar-?LS=Adestra64171_&utm_source=Adestra&utm_medium=email&utm_term=&utm_content=ECR%C2%A0%20Q4%202017%20Survey%20Results%20-%20Emerging%20markets%20back%20in%20vogue%20as%20global%20prospects%20soar&utm_campaign=ECR%20Weekly%20Round%20Up%2012%20Jan%202018)

3/12/17: Russian and BRICS debt dynamics since 2012

Back in 2014, Russia entered a period of recessionary economic dynamics, coupled with the diminishing access to foreign debt markets. Ever since, I occasionally wrote about the positive impact of the economy's deleveraging from debt. Here is the latest evidence from the BIS on the subject, positing Russia in comparative to the rest of the BRICS economies:

In absolute terms, Russian deleveraging has been absolutely dramatic. Since 2014, the total amounts of debt outstanding against Russia have shrunk more than 50 percent. The deleveraging stage in the Russian economy actually started in 1Q 2014 (before Western sanctions) and the deleveraging dynamics have been the sharpest during 2014 (before the bulk of Western sanctions). This suggests that the two major drivers for deleveraging have been: economic growth slowdown (2013-1Q 2014) and economic recession (H2 2014-2016), plus devaluation of the ruble in late 2014 - early 2015.

The last chart on the right shows that deleveraging has impacted all BRICS (with exception of South Africa) starting in 2H 2013 - 1H 2014 (except for China, where deleveraging only lasted between 2H 2015 and through the end of 2016, although deleveraging was very sharp during that brief period).

In other words, there is very little evidence that any aspect of Russian debt dynamics had anything to do with the Western sanctions, and all the evidence to support the proposition that the deleveraging is organic to an economy going through the structural growth slowdown period.

17/1/17: Russian Economic Policy Uncertainty 2016

In the previous post (link here), I covered 2016 full year spike in economic policy uncertainty in Europe on foot of amplification of systemic risks. Here is the analysis of Russian index.

As shown in the chart above, 2016 continued the trend for downward correction in Russian economic policy uncertainty that took the index from its all-time high in 2014 (at 180.4) to 160 in 2015 and 142.5 in 2016. All data is rebased to 1994 - the first year for which Russian data is available. However, at 142.5, the index is still well above its historical average of 94.1 and stands at the fifth highest reading in history.

Much of the reduction in economic policy uncertainty over 2016 came over the fist seven months of the year, with index readings rising into the second half of 2016 and peaking at 251.1 in December.

In simple terms, while the peak of 2014 crisis has now passed, questions about economic policies in Russia remain, in line with concerns about the sustainability of the nascent economic recovery. Moderation in economic policy uncertainty over the course of 2016 appears to be closely aligned with:

1. Variations in oil prices outlook; and
2. External geopolitical shocks (including the election of Donald Trump, with raw index data spiking in August and September 2016 and November and December 2016, while falling in October, in line with Mr. Trump's electoral prospect).

In other words, relative moderation in the index appears to reflect mostly exogenous factors, rather than internal structural reforms or policies changes.

14/1/17: Country Risks survey results for 2016

+Euromoney have published their @CountryRisks survey results for 2016: available here quoting, amongst other analysts, myself.

22/4/16: Russian Economy: Renewed Signs of Pressure

Earlier this week, I posted my latest comprehensive deck covering Russian economy prospects for 2016-2017 (see here: http://trueeconomics.blogspot.com/2016/04/20416-russian-deck-update-april-2016.html). Key conclusion from that data was that Russian economy is desperately searching for a domestic growth catalyst and not finding one to-date.

Today, we have some new data out showing there has been significant deterioration in the underlying economic conditions in the Russian economy and confirming my key thesis.

As reported by BOFIT, based on Russian data, “Russian economy has shrunk considerably from
early 2015. Seasonally adjusted figures show a substantial recovery in industrial output in the first three months of this year. Extractive industries, particularly oil production, drove that growth with production in the extractive sector rising nearly 3.5 % y-o-y. Seasonally adjusted manufacturing output remained rather flat in the first quarter with output down more than 3 % y-o-y.”

As the result, “the economy ministry estimates GDP declined slightly less than 2% y-o-y in 1Q16. Adjusting for the February 29 “leap day,” the fall was closer to 2.5%.”

Meanwhile, domestic demand remained under pressure. Seasonally adjusted volume of retail sales fell 5.5% y/y and is now down 12% on same period in 2014. “Real household incomes contracted nearly 4% y-o-y. Driven by private sector wage hikes, nominal wages rose 6 % y-o-y, just a couple of percentage points less than the pace of 12-month inflation.”

A handy chart:

Oil and gas production, however, continued to boom:

What’s happening? “Russian crude oil output was up in January-March by 4.5% y-o-y to record levels. Under Russia’s interpretation of the proposed production freeze to January levels, it could increase oil output this year by 1.5‒2%. The energy ministry just recently estimated that growth of output this year would only reach 0.5‒1%, which is quite in line with the latest estimate of the International Energy Agency (IEA). However, Russia’s energy ministry expects Russian oil exports to increase 4‒6% this year as domestic oil consumption falls.”

It is worth noting that the signals of a renewed pressure on economic growth side have been present in advanced data for some time now.

Two charts below show Russian (and other BRIC) Manufacturing and Services PMIs:

Both indicate effectively no recovery in the two sectors in 1Q 2016. While Services PMI ended 1Q 2016 with a quarterly average reading of 50.0 (zero growth), marking second consecutive quarter of zero-to-negative growth in the sector, Manufacturing PMI posted average reading of 49.1, below the 50.0 zero growth line and below already contractionary 49.7 reading for 4Q 2015.

Russia’s composite quarterly reading is at 49.9 for 1Q 2016 an improvement on 4Q 2015 reading of 49.1, but still not above 50.0.

In simple terms, the problem remains even though its acuteness might have abated somewhat.

20/4/16: Russian Deck Update: April 2016

Updated version of my Russian markets deck