12/8/20: Beware of Longing for Pre-COVID19 Days

 

We tend to focus on shorter-term and sharper shocks than on longer-term trends, a sort of 'boiling a frog' conundrum in our behavioural biases. Hence, with the development of the current pandemic, we seem to have forgotten a simple fact of pre-COVID19 reality: things weren't going all too happily for the global economy in 2019 before the pandemic struck.

Here is a reminder: look at the economic policy uncertainty measures from the late 1990s through today

As it says in the chart comment box, economic uncertainty was running at elevated levels well before the pandemic struck. 

Here is another way to see this point:

There is a 'problem', folks, even though there is no Houston to page about it. The legacy of the Global Financial Crisis did not dissipate when non-performing loans were finally (largely) wiped out from the banks balance sheets. Since the 'recovery' from the Great Recession, we have been living in a state of perpetual precariat all the way into the current pandemic shock. This state of precariat has been evident in the world data and the European data, so the problem is not 'demographic' or at least not that of ageing. May be it is generational? 

Here is an interesting view on generational changes via Pew Research: https://www.pewsocialtrends.org/essay/on-the-cusp-of-adulthood-and-facing-an-uncertain-future-what-we-know-about-gen-z-so-far/.  As education levels rose across generations, state of insecurity rose as well. Quote; "There are already signs that the oldest Gen Zers have been particularly hard hit in the early weeks and months of the coronavirus crisis. In a March 2020 Pew Research Center survey, half of the oldest Gen Zers (ages 18 to 23) reported that they or someone in their household had lost a job or taken a cut in pay because of the outbreak. This was significantly higher than the shares of Millennials (40%), Gen Xers (36%) and Baby Boomers (25%) who said the same. In addition, an analysis of jobs data showed that young workers were particularly vulnerable to job loss before the coronavirus outbreak, as they were overrepresented in high-risk service sector industries." Note that GenZ has higher levels of educational attainment of any generation. And yet, they are more susceptible to labour market shocks. 

The younger generations are also progressively more attuned to news flows and more anxious about key structural (non-COVID shock) problems we face. 

Have the mid-2010s been a pivoting point toward the new Age of Anxiety? Did COVID19 pandemic exacerbate this onset of the new age? In the long run, these are more important questions than the coronavirus threat alone.

11/8/20: COVID19 Update: U.S. vs EU27

 

We are becoming numb to the sheer size of the public health disaster that is unfolding in the U.S. Numb, careless and utterly devoid of any concern for those around us. Here are the latest numbers:

See the dashed orange line in the chart below? That is the count of total COVID19-attributed deaths in the U.S. 

Yes, it has been thus from July 12 on: the U.S. continues to pull away from Europe in terms of total deaths counts. Higher testing rates, or better health care system, or the American Way of Life are clearly not doing anything worth hanging on the wall as a point of pride: Americans are dying from the disease that the rest of the developed world has managed to contain (at least for now). 

The #COVIDIOTS crowd is reproducing on social media various shades of logical garbage, along the line of 'My neighbour was reported to have died from COVID19, even though he was hit by a car" as some sort of a palatably consistent argument that coronavirus pandemic is just a 'Democrats Hoax' or a conspiracy of the 'doctors and the 1-percenters'. Yet, the reality is that even if you assume (do not do this at home) that some 25% of COVID19 attributed deaths are 'fake' or 'errors', you still get U.S. death rates from COVID19 in excess of those in thee EU27. 

Facts:

• Current U.S. death rate per capita is 63 percent above that for the EU27. Two week ago, this gap was 49 percent.
• Overall counts of deaths in the U.S. are now above the EU27, since July 12, with current excess gap at +27,104 up from +12,913 a month ago.
• Even without timing adjustment, current death rate per 1 million of population in the U.S. (499.6) is in excess of the EU27 (307.0).
• EU27 death rate per capita has effectively flattened-out at around 303-310 per 1 million.U.S. death rate per capita continues to rise.
• Since the start of August, U.S. averages 54,489 new cases per day and 1,036 deaths per day. Over the same time, EU27 averaged 9,842 new cases per day and 105 deaths per day.
• Note 1: European cases are rising once again (chart below) - a worrying sign that relaxing some of the restrictions might be triggering a risk of a new wave of the pandemic.
• Note 2: As the second chart below shows, there is some indication that European deaths are also rising, albeit with a less pronounced trend than new cases.

It is extremely frustrating for all of us involved with policy formation, statistical data flows, news flows and systemic analysis to watch, paralyzed by the large swaths of American public and political leadership virtual indifference, as the pandemic continues to rage across the country. The U.S. entered this pandemic 

1. At a later date than the EU27 - implying better capacity to prepare, test, diagnose, treat and triage pandemic victims;
2. With a younger (albeit hardly healthier) population than the EU27 - implying lower mortality from thee disease;
3. With vastly more financial and physical resources deployed in healthcare system - implying greater theoretical capacity to deal with the disease;
4. With demographics physically distributed in less densely populated areas - implying lower rate of contagion from the disease, all things being held equal;
5. With some of the Asian and European experiences and best practices already taking shape and becoming available to doctors, managers, public officials, elected politicians - implying theoretical faster 'learning curve' for the U.S.

None of this mattered in the end: the politics of 'exceptionalism' and the unfit-for-purpose public health provision systems too their toll. The U.S. now accounts for roughly 25% of all global cases (officially detected) and for 22% of world's deaths. The country only accounts for 4% of the global population.

11/8/20: ESG Risks, Environment and Consumer Behavior

 

COVID19 ESG impacts: 

• Europe thinks it is getting 'greener'

• The rest of the world is getting decisively not:

What's up with this, people? Wasn't COVID19 pandemic supposed to usher a new 'climate change awareness' era? Or is it all about: "I am doing better things. Everyone else is doing bad things" survey bias thingy?..

11/8/20: McKinsey on Changes in Economic Outlook

 

McKinsey have a neat summary of changes in economic outlook across major global regions:

A more granular perspective is from consensus forecasts, as summarized by the Focus Economics and by other sources:

The above are from my presentation deck from earlier today for a Dublin-based conference. 

The key to all of the above is that we are still in a very complex, highly uncertain forecasting environment, and behavioural differences between professional forecasters, economic analysts and business practitioners are vast, reflecting on overall forecasts and outlook sentiments reported. 

11/8/20: Euromoney Seminar on Longer-Term Trends in Economics

 

My seminar from last week for Euromoney is now available online here: https://zoom.us/webinar/register/3015960150760/WN_zHo5R5sNTMyKzm9xhxtIMA. 

We talked less about MMT (currently, monetary policies already replicate some of the key features of the proposition) and more about longer-term problems with economic growth and monetary policies.

4/8/20: COVID19 Update: U.S. vs EU27

Updating charts for the U.S. vs EEU27 comparatives through 04/08/2020 (CEDC timeline). All notes are in the charts

Meanwhile, U.S. newsflow: https://twitter.com/gavinsblog/status/1290630800401145856?s=20.

Takeaways from the above:

• EU27 are now experiencing renewed upward momentum in new cases which is yet to translate into similar trend in daily deaths.
• The U.S. remains global basket case across both new cases and daily deaths counts.
• The U.S. deaths rates are now on a sustained uplift, as was predicted on this blog some time ago.

Comparing aggregate numbers:

Having started on the COVID19 road somewhat later, the U.S. has now briskly surpassed all competitors. The U.S. accounts for 25.8 percent of ALL COVID19 cases globally, it also accounts for 22.4 percent of all deaths globally. This is despite the fact that the U.S. accounts for just 4.3 percent of global population. U.S. mortality rate (rate of deaths per number infected) is statistically similar to the global. That is right: the most expensive - by a factor of 40% - healthcare system in the world is not doing all too well at keeping people alive. U.S. infection rate is currently 6 times (!) higher than global.

Meanwhile, the dithering fool from the White House is degenerating into a clown on live TV.

4/8/20: COVID19 Update: Worldwide Cases and Deaths

Global deaths and case counts charts through ECDC data as of 4/07/2020:

Summary of the above:

• Some improved dynamics in death counts since July 31, 2020 indicate potential moderation in COVID19 deaths going forward.
• Notably, we are still in the first wave of COVID19 deaths, which suggests that any moderation in daily deaths counts in August-September is subject to risk of re-acceleration later on in the Fall.
• No significant signs of improvements in daily new cases counts, supporting cautionary interpretation of the current death counts moderation,

The world is clearly not out of the woods yet on the first wave of the pandemic.

Summary tables for countries with > 25,000 cases:

Note: countries with more than 500,000 cases are highlighted in red.

4/8/20: BRIC: Manufacturing PMIs

BRIC Manufacturing PMIs are out for July and the numbers are bizarre:

Brazil is going parabolic? The country is absolutely devastated by COVID19, although the Government is hell-bent on Malthusian 'let them mind their own health or die' tactic. And its Manufacturing PMI came in at a world-leading 58.2 in July, up on weak growth-signalling 51.6 in June. This is the highest monthly reading on record for Brazil. It is such an outlier, in terms of historical record, in terms of recent pre-COVID19 trends and in terms of international comparatives, one is wondering if the data was compiled by someone with some serious fever.

On the mid-range of surprises, China's Manufacturing PMI came in at 52.8 in July compared to 51.2 in June. This marks second month of statistically positive growth-supporting PMI. China's Manufacturing PMIs are generally rather subdued, so 52.8 is the highest the index has been since January 2011. The outrun is not surprising, however, given that China managed to 'officially' contain COVID19 pandemic earlier in 2Q 2020 and moved to reopen its economy. Unlike in the case of Brazil, China's Manufacturing PMIs have been consistent (dynamically) with its Services PMIs.

On the downside surprise, Russia Manufacturing PMI fell in July to 48.4 from 49.4 in June. The index has now been nominally below 50 mark since May 2019, although June reading was not statistically different from 50.0. Still, July reading clearly shows deteriorating conditions in Russian manufacturing sectors.

On an even bigger downside surprise, India Manufacturing PMI fell to 46.0 in July down from 47.2 in June, marking fourth consecutive month of sub-50 readings. India's reading in July was the third lowest for any month since January 2009.

Overall, GDP-weighted BRIC Manufacturing PMI - computed by me using Markit countries-level data - stands at 51.1 in July, and improvement on 45.0 reading recorded over 2Q 2020.

3/8/20: Ireland's Real Surreal Economy

In recent months, I have mentioned on a number of occasions the problem of Ireland's growing GDP-GNI* gap. The gap is a partial (key, partial) measure of the extent to which official GDP overstates true extent of economic activity in Ireland.

In general terms, GDP is an estimate of the total value of all goods and services produced within a nation in a year. The problem is, it includes capital and investment inflows into the country from abroad and is also distorted by accounting manipulations by domestic and foreign companies attributing output produced elsewhere to output produced in the country. In Ireland's case, this presents a clear-cut problem. Take two examples:

1. An aircraft leasing company from Germany registers its 'capital' - aircraft it owns - in Dublin IFSC. The value of aircraft according to the company books is EUR10 billion. Registration results in 'new investment inflow' into Ireland of EUR10 billion and all income from the leases on these aircraft is registered to Ireland, generating annual income, of, say EUR100 million. EUR 10.1 billion is added to Irish GDP in year of registration and thereafter, EUR 0.1 billion is added annually. Alas, none of these aircraft ever actually enter Ireland, not even for services. Worse, the leasing company has 1/4 employee in Ireland - a lad who flies into Dublin once a month to officially 'check mail' and 'hold meetings', plus an Irish law firm employee spending some time - say 8 hours a week - doing some paperwork for the company. Get the idea? Actual economic activity in Ireland is 12 hours/week x EUR150 per hour x usual multiplier for private expenditure = say, around EUR230,000; official GDP accounting activity is EUR100 million (in years 2 on) and EUR10.1 billion (in year 1).
2. A tech company from the U.S. registers its Intellectual Property in Ireland to the tune of EUR10 billion and attributes EUR 2 billion annually in sales resulting from the activities involving said property from around the world into Ireland. The company employs 1,000 employees in Dublin Technology Docks. Actual economic activity in Ireland is sizeable, say EUR 7 billion. Alas, registered - via GDP - activity is multiples of that. Suppose IP value grows at 10% per annum. In year 1 of IP transfer, company contribution to GDP is EUR 2 billion + EUR 10 billion + EUR 7 billion Normal Activity. In Year 2 and onwards it is EUR 2 billion + 10%*EUR 10 billion + EUR 7 billion Normal Activity. 

Now, normal GNI calculates the total income earned by a nation's employees and contractors, etc, and businesses, including investment income, regardless of where it was earned. It also covers money received from abroad such as foreign investment and economic development aid.

So GNI does NOT fully control for (1) and (2). Hence, CSO devised a GNI* measure that allows us to strip out (1) above (the EUR 10 billion original 'investment'), while leaving smaller parts of it still accounted for (employment effects, appreciation of capital stock of EUR 10 billion, etc), but largely leaves in the distorting effects of (2).  Hence, GNI* is a better measure of actual, real activity in Ireland, but by no means perfect.

Still, GNI*-GDP gap is telling us a lot about the nature and the extent of thee MNCs-led distortion of Irish economy. Take a look at the chart next, which includes my estimates for GDP-GNI* gap for 2020 based on consensus forecasts for the GDP changes in 2020 and the indicative data on flows of international trade (MNCs-dominated vs domestic sectors) implications for potential GNI* changes:

As it says in the chart, Irish GDP figures are an imaginary number that allows us to pretend that Ireland is a super-wealthy super-duper modern economy. These figures are a mirage, and an expensive one. Our contributions to international bodies, e.g. UN, OECD et al, is based on our GDP figures, and our contributions to the EU budget are, partially, based on GNI figures. None are based on GNI*. For the purpose of 'paying our way' in global institutional frameworks, we pretend to be a Rich Auntie, the one with a Gucci purse and no pension. For the purpose of balancing our own books at home, we are, well, whatever it is that we are, given GNI*. 

This distortion is also hugely material in terms of our internal policies structuring. We use international benchmarks to compare ourselves to other countries in terms of spending on public goods and services, public investment, private entrepreneurship etc. Vast majority of these metrics use GDP as a base, not GNI*. If we spend, say EUR10K per capita on a said service, we are spending 14% of our GDP per capita on the service, but 23% of our GNI*. If, say, Finland spends 20% of its GDP per capita on the same service, we 'under-spend' compared to the Finns on the GDP basis, but 'over-spend' based on GNI* basis.

There is a serious cost to us pretending to be a richer, more developed, more advanced as an economy, than we really are. This cost involves not only higher contributions to international institutions, but also potential waste and inefficiencies in our own domestic policies analysis. Gucci purse and no pension go hand-in-hand, you know... 

1/8/20: Ireland: Agricultural Subsidies and Production

CSO published final data for 2019 'value added' in agriculture. As always, a fun read from the perspective of which constituency in a 'market economy' loves Big State. You've guessed, it Agri business. And no, I can't claim it is farmers, for they get the minority stake in the largesses that are European Common Agricultural Policy subsidies.

Here is a chart:

In 2019, Irish agricultural sector gross output at producer prices was EUR 7,960.9 million. Based on estimated GNI*, this means that the entire sector gross output (not net) amounted to just around 3.73% of the domestic economy in Ireland, just around the average for the decade of the 2000-2009 (3.95%) and below the average for 2010-2018 (4.60%).  In annual terms, gross output was down 3.1 percent y/y and was the lowest since the end of 2016. Subsidies net of taxes paid amounted to EUR 1,837.1 million in 2019, the highest level since 2008 and up 2.63 percent y/y. 

Overall, subsidies in 2019 amounted to 64 percent of the entire Gross Value Added in the sector, and 96 percent of the Net Value Added. CSO reports data for 'entrepreneurial income' in agriculture, which, really, is income accruing to owners of the production units. These include farmers, but also large corporates and coops. Subsidies amounted to 69 percent of the total Entrepreneurial Income in 2019.

Subsidies fell in importance when it comes to the Net Value Added in the sector year on year from 103% in 2018 to 96% in 2019, but remained the same in terms of their importance to the 'Entrepreneurial Income' in the sector.

By decade: subsidies amounted to 39% of the 'Entrepreneurial Income' in the sector in the 1990s on average, rising to 99% in the decade of 2000s, primarily due to a massive jump over 2005-2009, before falling back to 78% for the decade through 2019. Excluding net subsidies, 'Entrepreneurial Income' in agriculture averaged EUR 1,127.6 million per annum in the 1990s, and excluding the Great Recession period, EUR 259.8 million in the 2000s. Again, excluding the period of the Great Recession, the same annual average was EUR 666.12 million in 2010-2019, with 2019 annual figure of EUR 829.6 million. 

To say there is little growth in economic activity in Irish agricultural sector, in terms of sector value added is to make an understatement. Comparing 1995-1999 average to 2017-2019 average, Irish GNI* is now 3.1 times higher than it was in the 1990s. Meanwhile, agricultural output at basic prices rose by just 46 percent, Agricultural sector Gross Value Added is up only 1 percent, Net Value Added is down 15 percent, Entrepreneurial Income is up 45.7 percent, while subsidies (net of taxes) are up 73 percent.

29/07/20: Federal Deficit in COVID19 Era

Roger, we need a new scale for the chart.

Latest data for U.S. Federal deficit through June 2020 is shocking. Here is a visual:

June deficit was a whooping $864.07 billion, the largest on record. This bring Trump 1 term cumulative deficits to a staggering $5.105 trillion, far in excess to $3.52 trillion average Obama term deficit.

Some historical comparatives:

The sheer scale of fiscal spending is frightening! No question, this is an emergency situation, but do observe that since 1980 through today, the U.S. has seen not a single decade of balanced fiscal policies. And within the next two months, the U.S. Federal deficit for 2020 alone will be in excess of the combined deficits accumulated in two decades between 1980 and 1999. 

29/7/20: COVID19 Update: Russia and BRIICS

An infrequent update on Russia COVID19 stats:

Daily Cases and Deaths:

Russia is failing to arrest the new cases curve and the deaths curve, with both series running at elevated levels through July. Thee decline in new cases around the end of June was also associated with a drop in daily deaths. Since the opening up of the restrictions in advance of the July referendum vote, Russian COVID19 cases and deaths have shown disruption in the prior positive trends. Last 7-days average new cases are running at 5,741, which is statistically indistinguishable from the prior 7-days average of 6,197. Similarly, current 7-days average of 132 is materially indistinguishable from the prior 7-days average of 138.

I noted in late June that Russia is rushing into relaxation of restrictions and this is a mis-guided policy decision that seem to have nothing to do with the pandemic dynamics. It appears that my analysis was correct.

Mortality Rates: 

Russian mortality rates are rising, and are now firmly close to the average of the BRIICS economies:

Amongst all countries with more than 25,000 cases (58 countries & EU27), currently, Russia ranks

• 22nd highest by the number of COVID19 cases per capita
• 32nd highest by the number of deaths per capita of population
• 44th highest by the mortality rate (deaths per 1,000 COVID19 cases)
• Cumulatively, across all three categories of metrics, Russia scores within the 95% confidence interval for the mean score for the group of 58 countries and the EU27.