6/4/15: BRIC Services PMIs & Overall Activity in Q1 2015

BRIC Services PMIs (published by Markit) are finally out, with the last two countries instalments today, so time to look at the Q1 2015 data. And from the top level view, things are not encouraging:

• Brazil Services PMI slipped from 52.3 in February (a 14-months high that was a huge upside surprise) to a 70-months low of 47.9 in March - a massive fall. On a quarterly basis, things are not as bad, but that is all down to February reading. 3mo average for Q1 is at 49.5 - still contractionary/zero growth, compared to 49.3 Q4 1024 average and against weak growth recorded in Q1 2014 (50.5 average). In last 8 months, Brazil managed to post only two months of Services PMIs above 50, with only one month reading being statistically significantly above 50.0. In short, we now have a sign of deepening slowdown in the economy, based on both Manufacturing and Services surveys.
• Russia Services PMI was predictably weak at 46.1 in March, although a gain on totally abysmal 41.3 reading in February. 3mo average through Q1 2015 is at 43.8 and this is well below already contractionary 47.1 average through Q4 2-14. Q1 2014 registered a weak contraction/static growth of 49.6. March reading was the strongest in 5 months, but overall Services side of the Russian economy has posted below 50 survey readings continuously over 6 months now. This, coupled with another (4th monthly) below 50 reading in Manufacturing suggests that there is an ongoing significant recession in the economy and that this has accelerated in Q1 2015 compared to Q4 2014.
• China Services PMI remained in relatively moderate growth territory in March (at 52.3 against 52.0 in February) and 3mo average for Q1 2015 is at 52.0, weaker than Q4 2014 average of 53.2, but up on Q1 2014 average of 51.2. China never posted below 50 PMI in Services before , so we are left tracking relative weaknesses in positive growth signals here. Weak improvement in Services survey is offset, in China's case, by strong deterioration in Manufacturing index which fell below 50 in March.
• India Services PMI was somewhat weaker in March 2015 at 53.0 compared to February 53.9 reading. Still, this marks the second highest reading in 9 months. India's Services PMI average for Q1 2015 is at 53.1 - a major improvement on 51.3 average through Q4 2014 and a big gain y/y - in Q1 2014, Services PMI was averaging only 48.2. March marked 11th month of above 50 readings for Indian Services surveys. India is the only BRIC country that managed to post m/m growth (above 50 readings) across both sectors: Manufacturing and Services.

Chart below shows Services surveys dynamics:

Table below summarises changes in Manufacturing and Services PMIs:

Pooling together Services and Manufacturing surveys data, chart below shows the overall BRIC trend in growth. March came in with a slowdown of overall economic activity across the block of the largest emerging markets economies and this slowdown took place in the already weak growth environment. While the series remain on an upward trend established from the local low attained in July 2013, this trend is no longer convincing and since June 2014, there has been a pronounced downward sub-trend. This does not bode well for the global economy.

6/4/15: Greece Blinks... Again...

0 Yanis : Christine 3

Next round starts with the fallout in Athens tomorrow... 

5/4/15: Russian Offshore Capital Amnesty Law Proposal

Last week, Russian Duma received the government bill on amnesty for illegal expatriation of capital for private individuals.

• The bill will require those applying for amnesty to fully declare their offshore assets. 
• Upon declaration, that has to filled before the end of 2015, there will be no penalty for unauthorised expatriation. 
• The claimant is entitled, under the proposed law, to full confidentiality and do not have to disclose the sources of their assets held abroad. 
• The only liability that does arise under the proposal is the one relating to back taxes. In some cases, assets held abroad are subject to tax in Russia. 
• When that is the case, claimants will be required to settle any unpaid or underpaid tax obligations that arise from their ownership of the asset.
• The bill does not specify the full set of procedures for settling tax liabilities.

Illegal expatriation arises, for private citizens (excluding public and government officials, and elected representatives who are covered by more substantial restrictions on ownership and declaration of overseas assets), primarily from the restriction on expatriation of funds.

Some earlier versions of the bill required imposition of automatic fines on expatriated capital (this version was presented to the Government, but rejected in favour of a more liberal version), as well as a requirement to repatriate all foreign assets. The latter requirement was dropped in both versions considered by the Government and is not in the draft sent to Duma for consideration.

In the cases where foreign assets assets have been accumulated in the tax havens for the purpose of tax evasion, these assets will have to be repatriated. More on the current proposal here: http://www.bloomberg.com/news/articles/2015-03-26/russia-sets-terms-for-capital-amnesty-to-correct-past-mistakes-

At this stage, the new proposal does not cover assets acquired through illegal means, only assets expatriated for tax purposes. The new bill was developed in close cooperation with the intergovernmental Financial Action Task Force (FATF) on money laundering and other financial crimes, but FATF is not quite happy with the draft legislation. The reason for FATF objections is the lack of disclosure and information sharing. This is a serious matter, as failure to comply with FATF regulations can get Russia blacklisted. Russian Government is promising a separate bill to cover assets accumulated through money laundering and other criminal activities, but it remains unclear if this system of presenting separate pieces of legislation on several different, but potentially connected types of assets will satisfy the FATF. See more on this here: http://www.themoscowtimes.com/business/article/putin-s-capital-amnesty-could-put-russia-on-money-laundering-blacklist/514470.html.

Russian role within the FATF has been actively positive in recent years. However, Western sanctions during 2014 have led to some serious conflicts within the FATF, prompted primarily by the US delegation to the organisation that has clearly been using FATF as a vehicle for exerting geopolitical pressure on Russia (see http://www.reuters.com/article/2014/05/05/us-ukraine-crisis-moneylaundering-idUSBREA440RR20140505).

Question is: from the global perspective, is the new draft law a good thing or a bad thing?

Globally-allocated Russian capital, held by private individuals, can be divided into 3 (unequal in volume) types:

• Type 1 - the unknown quantum of assets acquired using illicit gains from activities in Russia, and illegally shifted out of Russian. This bit is not covered by the new legislation, but Russian Government has already said it plans to introduce a separate piece of legislation to cover these assets, and it has promised that it will fully comply with FATF.
• Type 2 - the unknown quantum of assets, probably similar to that covered by Part 1 and, together with Type 1 accounting for more than 2/3rds of all Russian-owned assets held abroad, has been expatriated to minimise tax exposures. Some of it legally, some illegally. This bit is covered by the proposed bill. As I understand it, Russian authorities can make a determination if some of the assets declared under Type 2 really relate to Type 1. If they do, Russian can notify FATF, but if they don't, Russian does not have to notify FATF.
• Type 3 - smaller share of Russian assets abroad is perfectly legal and is not covered by the proposed law. To-date, FATF had no complaints with Russia on these assets. 

Since 2002, Russia is deemed as compliant with FATF regulations. Under the current state of our knowledge about Russian assets held abroad, FATF has no systemic complaint against Russia. The new law will not reduce this level of compliance and will not undermine information available to FATF. It may even increase it, and the follow up law for dealing with Type 1 assets promises to increase it even further. So what is the point for threatening Russia with non-compliance and black-listing today? What is the basis for such a threat?

As non-specialist on FATF, I would welcome all informed comments on this issue from the readers.

5/4/15: Irish Whiskey vs Scotch 2013-2014 data

Irish whiskey resurgence in recent years (here) has been a welcome development, in terms of offers and brands expansions, and in terms of exports growth. Between 2009-2014, average annual rate of growth in Irish whiskey exports stood at 9.86% pa.

However, owing to decades of under-development and the state policies of the past, Irish whiskey remains a poor cousin (in global sales terms) to Scotch. Over 2002-2013, Scotch posted an impressive exports growth of 7.0% pa on average, beating Irish growth over the same period. And it did so from a much higher base. Here are the comparatives:

In simple terms, Scotch exports are 3.8 times the size of all exports by the Irish drinks sector and almost 13 times the size of our exports of whiskey. All along, our state agencies and policymakers continue to measure success in volumes of sales, rather than in value. As the result, we are missing the boat in the high end, high value-added markets, going instead for the tradition market for Irish whiskey: mixer market.

Good news: with multiple new distilleries coming into production in the last 3-5 years, we are starting to see a promise of this trend being reversed, with some producers embracing quality over quantity approach. Bad news: it takes 12 years, plus, to mature premium whiskey. More bad news: Irish domestic markets for inputs into distillery: from barley to malt to electricity are either expensive (we rank third most expensive country for electricity supply to enterprises) or not available due to CAP-incentivised standardisation (lack of specialist barley is dire in Ireland, according to several smaller distillers I spoke to recently).

Update: Here is an interesting set of results from an international whiskey/whisky competition: http://uk.businessinsider.com/best-whiskeys-from-the-san-francisco-world-spirits-competition-2015-4?r=US# Note that Ireland features 3 brands (all independents) against massive dominance of Scotch.

4/4/15: US Jobs ≠ US Wages Inflation. Why not?

Want to understand why the US Economy adding jobs is not translating into the US workers gaining wages? Here's a handy PBS report worth reading: http://www.pbs.org/newshour/making-sense/why-you-shouldnt-expect-wages-to-rise-any-time-soon/

H/T to John Komlos

Update: an interesting take on the ongoing US economic slowdown from the BusinessInsider: http://uk.businessinsider.com/2015-has-broken-everyones-assumptions-so-far-2015-4?r=US. Note the Atlanta Fed estimate of zero growth in Q1. Weather might be the case. Oil prices, however, are bogus scape goat. Here's a chart showing that the US in fact is  the driver for lower oil prices:

H/T for that to @business 

4/4/15: A Sign of Ruble Stabilisation? Russian Forex Reserves Rise

The latest data (through last week) published two days ago by the Central Bank of Russia shows that Russian Forex reserves have risen for the second week in a row. In the week of 27/03/2015 Forex reserves rose USD7.9 billion to USD360.8 billion and in the week prior they were up USD1.2 billion. Thus, relative to the crisis period low of USD351.7 billion set in the week of 13/03/2015, Russian Forex reserves are up USD9.1 billion. This puts weekly reserves at USD2.2 billion below end of February reading.

This is a very uncertain development at this point in time. Russian Forex reserves were down 15 consecutive weeks prior to the last two weeks of increases, so it is too early to read the latest upticks as reversal of the trend, but it is pretty clear that, for now, things have stabilised somewhat.

Monthly data, not yet fully available, but reflective of the last week results, suggests that the aggregate reserves are slightly up m/m. At the end of March, Forex reserves at USD360.8 billion appear to be up USD579 million on the end of February.

In the year through the end of March 2015, the reserves are down USD125.33 billion (-25.8%) and on the start of the sanctions, these are down USD132.53 billion (-26.9%). Q1 2015 (end of quarter) reserves are down USD24.66 billion on end of Q4 2014. In other words, we need to see several more weeks of improved reserves before we can call a new trend.

4/4/15: Two Stunning Visualisations: Yield Curves & The Great Recession

An absolutely stunning (and hugely informative) 3D plot of US, Germany and Japan yield curves: http://www.nytimes.com/interactive/2015/03/19/upshot/3d-yield-curve-economic-growth.html?rref=upshot&smid=tw-upshotnyt&_r=0

Via @UpshotNYT

And it is interactive - you can rotate and fold curves.

While at it, another @UpshotNYT stunning visualisation: 255 charts showing how the Great Recession reshaped the economy: http://www.nytimes.com/interactive/2014/06/05/upshot/how-the-recession-reshaped-the-economy-in-255-charts.html?abt=0002&abg=0

4/4/15: History of Capitalism in 12 minutes & its Future in 4 more...

A new series of programmes for BBC (#BBCRicherWorld) by our own Colm O'Regan @colmoregan (one of the all-time-bestest hosts at Kilkenomics):

Episode 1: http://www.bbc.com/news/magazine-31658746
Episode 2: http://www.bbc.com/news/magazine-31817997
Episode 3: http://www.bbc.com/news/magazine-31818000
Episode 4: http://www.bbc.com/news/magazine-31818387

Self-promotion warning… absolutely worth a look for the lighter look at Capitalism. Covering Marx, Smith, other dead souls of economics, Keynes & Friedman, the twin evils of the recent past, and reaching into 21st Century and Corporatism. Even Anglo gets visualised... which just confirms: Ireland's bust is now the stuff of the global legends...

H/T to Stephen Ryan for posting the link to the fourth segment.

4/4/15: Another Sign of US Growth Slowdown Risks: ISM

A very interesting chart via Bloomberg's @M_McDonough showing the growing weakness in US Manufacturing:

Local max at November-December 2014 is now being eroded, although ISM is still reading reasonably above 50.

This is just another confirmation of some (early) signs of the US economy shifting toward 'mature expansion' stage of the cycle. Given that all of this is still based on two exogenous factors: the hang-over of lower capex costs and low energy costs, the signal is not good - slowing economy into the Fed rising reversal that might coincide with firming of oil prices in H2 2015 will be a tricky risk to manage.

Note some other data points relating to the slowdown in growth signals: http://trueeconomics.blogspot.ie/2015/04/2415-oh-someone-spotted-us-growth.html.

3/4/15: Russian Services & Composite PMIs: Signal of Slower Contraction in Q1 15

Russian Services PMI (Markit and HSBC) came in with a slight improvement in March, rising to 46.1 from 41.3 in February and signalling slower rate of contraction. Services PMI is now reading sub-50 for the 6th month in a row, with 3mo average for Q1 2015 at abysmal 43.8 against Q4 2014 average of 45.9 and Q1 2014 reading of 49.6.

Per Markit release: "Russian service providers signalled some confidence that the recent downturn will prove transitory, with over a third of panellists forecasting some growth of activity from present levels over the next 12 months." Nonetheless, forward expectations are not translating in an improvement in operating conditions today, so "…service sector firms continued to shed staff during March. Latest data showed employment falling for a thirteenth successive month, and again at a marked pace. Despite a reduction in capacity, service providers had sufficient spare resources… Manufacturers also signalled spare capacity during March, with both employment and outstanding business being cut, albeit at slower rates."

As the result of improved (slower) rate of decline in Services activity, Russian Composite PMI also moderated the rate of decline, rising from 44.7 in February to 46.8 in March. As with Services sector, Composite PMI is now running below 50.0 for the sixth month in a row. 3mo average through Q1 2015 is at 45.7, which is much worse than already poor 48.0 average for Q4 2014 and 49.2 average for Q1 2014.

As chart above confirms, Russian economy is in a state of 'getting worse  more slowly' rather than in a state of 'getting better'. Positive outlook over the next 12 months (see details here: http://trueeconomics.blogspot.ie/2015/04/2415-russia-business-outlook-q1-2015.html remains subdued, with Q1 2015 improvement on Q4 2014 failing to restore expectations to 2012-2013 average, let alone to the recovery-consistent 2010-2011 averages.

2/4/15: PewResearch: "The Future of World Religions 2010-2050" Project

Fascinating projections out to 2050 for religious composition of population produced by the Pew Research Center @pewresearch here: http://www.pewforum.org/2015/04/02/religious-projections-2010-2050/

"The Future of World Religions: Population Growth Projections, 2010-2050"

Really very interesting and superbly presented with lots of interactive sources.

2/4/15: Irish Consumer Sentiment and Expectations: March 2015

In recent months, Irish Consumer Confidence Index (officially known as Consumer Sentiment Index and prepared and published by the ESRI) has been re-establishing sufficiently strong positive correlation with retail sales data, which warrants its re-inclusion in my coverage of the Irish economy as a stand alone series to track.

Hence, this more in-depth than usual analysis of dynamics in the Consumer Sentiment data.

March 2015 reading for the headline Consumer Sentiment Index came in at 97.8 up on 96.1 in February, but still below 101.1 registered in January. January reading was the highest since February 2006 (109 months high) and March reading is the second highest reading since May 2006. So by all measures, consumer confidence is booming in Ireland.

March reading is almost on par with pre-crisis average (through December 2007) which stands at 99.2 and significantly above the average for the period from January 2012 through present (the recovery period) which stands at 71.8. Year on year, index is up 14.8 points.

Given January reading, the 3mo MA through March is now at 98.3 - the highest 3mo MA reading since March 2006.

These levels of sentiment are simply not consistent with the retail sales data, as I noted before, but are close to the longer-term trend and consistent with the recovery. In addition, volume of retail sales index is now co-trending with consumer Sentiment index as covered here: http://trueeconomics.blogspot.ie/2015/03/27315-irish-retail-sales-february-2015.html - a pattern that was established around July 2013.

The elevated level of y/y rises in Consumer Sentiment Index, set on from December 2013 is a positive indicator of firming up volume activity in consumer demand, although not as strong of an indicator, yet, of the value of consumer demand. If the value of retail sales starts to catch up with consumer confidence, we are going to see significant boost to the domestic demand side of the National Accounts in later quarters of the year, pushing economic growth away from the questionable external trade stats and in favour of more domestic growth.


Index of Current Economic Conditions meanwhile, rose to 110.0 in March from 107.2 in February. This marks the second highest reading for the index since March 2006, with the highest reading recorded in January 2015 at 112.8. Again, index reads boom-time territory. It is only 16.8 points below all-time high and just 2.9 points behind post 2006 high. Current reading is up 19.6 points year on year - strong growth - strongest since April 2014. And index 3mo average though March is at 110.0 which is also the second highest 3mo average for the index from March 2006.

Again, the recovery is clearly visible in y/y growth rates starting from December 2013 and index readings are now above pre-crisis average.


Index of Consumer Expectations is showing more subdued increases, rising to 89.6 in March from 88.6 in February. However, as with other two indices, Consumer expectations currently sit at the second highest reading from May 2006, with the highest reading recorded in January 2015 at 93.2. Year on year index is up 11.5 - the slowest increase in 3 months and second slowest rise in 8 months. Still, 3mo average though March 2015 is now at the highest level for 3mo average series since March 2006.

Consumer Expectations, for now, remain below pre-crisis average, but trending up strongly, with elevated y/y rises from December 2013. Slight issue is - per chart above, y/y increases, while remaining strong, are now trending down off Q3 2014 highs.


Overall, Consumer Confidence indicators discussed above suggest full reversion of consumer sentiment and expectations to pre-crisis conditions. Much of this will have to be tested in more normal inflation environment in the future and I am not sure this confidence will be sustained then (higher inflation is likely to cut back on consumer purchases and expectations, while associated higher interest rates are likely to severely impair demand).

In other words, stay tuned for more regular analysis of the series in the future.