This one in Bloomberg brought a smile to my face:
Yen Jumps After Mirow Says IMF to Discuss Currency's Weakness
The yen jumped after German Deputy Finance Minister Thomas Mirow said the currency's weakness will be discussed when finance ministers and central bank governors meet in Singapore next week.
``The yen has clearly weakened against the dollar but also against the euro, and in so far this will surely be discussed,'' Mirow told reporters in Berlin today.
``There's growing unease outside Japan about the yen's weakness and government officials will have something to say about it,'' said Carsten Fritsch, a currency strategist at Commerzbank AG in Frankfurt.
The yen advanced to 116.26 against the dollar at 7:15 a.m. in New York, compared with 116.65 late yesterday. It also had its biggest gain against the euro since May, climbing to 148.17 from 149.39. The euro fell to $1.2727 from $1.2806.
Japan's currency has slid 6 percent since reaching 109 per dollar on May 17, the highest since September 2005. It also dropped to a record 150.73 versus the euro on Aug. 31.
Now the 24 hour change isn't that great, but the timing IS impeccable. So you can put two readings on this, either markets reacted anticipating changes, or someone somewhere threw a switch to try and ward-off criticism.
There are sort of wheels-within-wheels here, because of course it was a little strange that the yen should be so low against the euro if the Japanese economy was in the process of powering back into the growth arena.
So again you could read the low yen in a number of ways. It could be a sign that many in Japan don't believe the recovery story, and are hedging just in case, or it could be that the disappearance of deflation is in part produced by a policy of steering the yen downward. Choices to suit all appetites, so take your pick. Mind you, if it was the latter, then that *would* explain it if there had been a little hand reaching out discretely to throw a symbolic switch :).
Thursday, September 07, 2006
On The Commodities Boom
The IMF also has a view on the future of commodity prices as reported by the FT (again):
IMF warns on commodity price boom
he commodity price boom over the last three years is unsustainable and will result in sharp price declines by the end of the decade, the International Monetary Fund has warned.
However, the fund is not predicting an immediate price collapse and its chief economist, Raghuram Rajan, said on Wednesday that metal prices were fairly valued.
Higher commodity prices have boosted the economies of resource-rich nations in the Middle East, South America, Africa, as well as Canada and Australia, but have added to the import bill in consuming countries in North America, Europe and Asia.
“The real annual average price of aluminium and copper will decline from current levels by 35 and 57 per cent respectively by 2010,” the IMF said in its World Economic Outlook, the analytical chapters of which were released on Wednesday.
The IMF also dismissed suggestions that increased investor interest in commodity markets had been a significant factor in higher oil and metal prices.
It said that in the oil market there had been no persistent increase in the number of futures contracts bought by speculators who had taken the view of higher prices. In the copper market there had been a fall in the net long position, reflecting moves by investors to buy futures with a view for higher prices.
The IMF said the metals’ price declines would be a result of current high prices damping demand, and the expansion of mine and smelter production over the next five years.
I think all these projections need to be treated with a very high degree of caution. Really the commodities price boom is being driven by rapid growth in the developing world, and whether or not these prices are going to be sustained, decline, or even rise depends in large part on what happens to growth there. After the next global downturn it will be abundantly clear that these are the engines pulling the global train.
Now China itself may well slow (although when this will happen, and by how much, is far from clear), but let us not forget that India is just waiting in the wings to come onstream and take up the slack. I wouldn't want to stick my nexk out too far but I don't see any important and sustained 'correction' in commodity prices anywhere near on the forward horizon. Of course if there is a slowdown next year we could see a blip.
IMF warns on commodity price boom
he commodity price boom over the last three years is unsustainable and will result in sharp price declines by the end of the decade, the International Monetary Fund has warned.
However, the fund is not predicting an immediate price collapse and its chief economist, Raghuram Rajan, said on Wednesday that metal prices were fairly valued.
Higher commodity prices have boosted the economies of resource-rich nations in the Middle East, South America, Africa, as well as Canada and Australia, but have added to the import bill in consuming countries in North America, Europe and Asia.
“The real annual average price of aluminium and copper will decline from current levels by 35 and 57 per cent respectively by 2010,” the IMF said in its World Economic Outlook, the analytical chapters of which were released on Wednesday.
The IMF also dismissed suggestions that increased investor interest in commodity markets had been a significant factor in higher oil and metal prices.
It said that in the oil market there had been no persistent increase in the number of futures contracts bought by speculators who had taken the view of higher prices. In the copper market there had been a fall in the net long position, reflecting moves by investors to buy futures with a view for higher prices.
The IMF said the metals’ price declines would be a result of current high prices damping demand, and the expansion of mine and smelter production over the next five years.
I think all these projections need to be treated with a very high degree of caution. Really the commodities price boom is being driven by rapid growth in the developing world, and whether or not these prices are going to be sustained, decline, or even rise depends in large part on what happens to growth there. After the next global downturn it will be abundantly clear that these are the engines pulling the global train.
Now China itself may well slow (although when this will happen, and by how much, is far from clear), but let us not forget that India is just waiting in the wings to come onstream and take up the slack. I wouldn't want to stick my nexk out too far but I don't see any important and sustained 'correction' in commodity prices anywhere near on the forward horizon. Of course if there is a slowdown next year we could see a blip.
IMF Global Slowdown Warning
The FT has an 'advanced peek' at the meat in the next IMF world outlook report:
IMF warns of ‘severe global slowdown’
The world is set to enjoy a fifth record year of high growth next year, says the International Monetary Fund, but it warns that the risks of a sharp slowdown have significantly increased.
The IMF will say next week that the world economy is on track to grow at 5.1 per cent this year but the risk of a severe global slowdown in 2007 is stronger than at any time since the 2001 terror attacks on the US.
“Risk to the global outlook is clearly tilted to the downside,” the IMF said, adding, “there is a one-in-six chance of growth falling below 3.25 per cent in 2007.”
The IMF warns slower growth could be triggered by a sharp US housing market slowdown or by surging inflationary expectations that forced central banks to raise interest rates.
“There is considerable uncertainty about whether the global economy will achieve a soft landing to a more sustainable pace of expansion or whether the world faces a period of sharply slower growth,” the Fund report says.
“Tight commodities markets are contributing to inflation concerns and the risk of a growth slowdown,” it warns. For that reason, “further [monetary] tightening cannot be ruled out” in the US, while “in the euro area, some further tightening will likely be needed to maintain price stability in the medium run”.
Actually I think the IMF is right to warn about the possibility of a slowdown next year. How severe it will be, and whether or not it will involve a recession in the US remains to be seen.
I seriously doubt that there is a major inflation problem in the eurozone itself, although there is, of course, an ongoing problem with undesireably high inflation in countries like Spain, Greece and Ireland. This problem has long existed, and is endemic to having a single common interest policy for all countries. So rather than the long term inflationary risk in the eurozone having risen spectacularly the ECB has obviously decided that enough is enough, and that it is time to pay attention to the needs of these high inflation economies, even if this is at the expense of countries like Germany and Italy, where the problem may be a looming slowdown.
The difficulty is that these two countries provide such an important part of the eurozone internal dynamic that the rebalancing which is in progress risks unhinging the nascent eurozone recovery even as it starts.
The problem posed by the US slowdown is real enough, but I am not convinced that the issue of inflation expectations in Europe (outside of the aforementioned high inflation countries and the ECB itself) is such a big deal. On the other hand the article doesn't mention the looming fiscal tightening scheduled in Germany and Italy for 2007, and I do think these will add even more momentum to any slowdown which does develop.
Definitely one more to watch.
IMF warns of ‘severe global slowdown’
The world is set to enjoy a fifth record year of high growth next year, says the International Monetary Fund, but it warns that the risks of a sharp slowdown have significantly increased.
The IMF will say next week that the world economy is on track to grow at 5.1 per cent this year but the risk of a severe global slowdown in 2007 is stronger than at any time since the 2001 terror attacks on the US.
“Risk to the global outlook is clearly tilted to the downside,” the IMF said, adding, “there is a one-in-six chance of growth falling below 3.25 per cent in 2007.”
The IMF warns slower growth could be triggered by a sharp US housing market slowdown or by surging inflationary expectations that forced central banks to raise interest rates.
“There is considerable uncertainty about whether the global economy will achieve a soft landing to a more sustainable pace of expansion or whether the world faces a period of sharply slower growth,” the Fund report says.
“Tight commodities markets are contributing to inflation concerns and the risk of a growth slowdown,” it warns. For that reason, “further [monetary] tightening cannot be ruled out” in the US, while “in the euro area, some further tightening will likely be needed to maintain price stability in the medium run”.
Actually I think the IMF is right to warn about the possibility of a slowdown next year. How severe it will be, and whether or not it will involve a recession in the US remains to be seen.
I seriously doubt that there is a major inflation problem in the eurozone itself, although there is, of course, an ongoing problem with undesireably high inflation in countries like Spain, Greece and Ireland. This problem has long existed, and is endemic to having a single common interest policy for all countries. So rather than the long term inflationary risk in the eurozone having risen spectacularly the ECB has obviously decided that enough is enough, and that it is time to pay attention to the needs of these high inflation economies, even if this is at the expense of countries like Germany and Italy, where the problem may be a looming slowdown.
The difficulty is that these two countries provide such an important part of the eurozone internal dynamic that the rebalancing which is in progress risks unhinging the nascent eurozone recovery even as it starts.
The problem posed by the US slowdown is real enough, but I am not convinced that the issue of inflation expectations in Europe (outside of the aforementioned high inflation countries and the ECB itself) is such a big deal. On the other hand the article doesn't mention the looming fiscal tightening scheduled in Germany and Italy for 2007, and I do think these will add even more momentum to any slowdown which does develop.
Definitely one more to watch.
China's Influence on the Rise
A couple of intersting articles in the FT today about China's growing global clout. Firstly in Egypt:
China becoming Egypt’s biggest trading partner
China will surpass the US as Egypt’s biggest individual trading partner within eight years, and Beijing is rapidly also becoming a key source of investment and technology, according to Rachid Mohamed Rachid, Egypt’s minister of trade and industry.
China was beginning to replace some US and Europe suppliers not just in consumer products but also capital goods ranging up to turn-key industrial projects, said Mr Rachid.
“We are getting capital goods at a lower cost and with the same or better technology,” he said, noting that the increase in trade with China would have a “large impact” on Egypt’s economic policies.
and then in Zimbabwe:
China intervenes in Zambian election
The Chinese government has intervened in Zambia’s upcoming presidential election in a forceful sign of the commodity-hungry country’s growing economic and political clout in Africa.
Li Baodong, China’s ambassador in Lusaka, said Beijing might cut diplomatic relations with Zambia if voters elected Michael Sata, an opposition candidate, as president, Zambian media reported on Tuesday.
His remarks are the first sign of overt political interference by China in African affairs in decades, reflecting Beijing’s rapidly expanding role as an investor on the continent and as a client for long-term supplies of raw materials. China is a leading investor in Zambian copper, the country’s biggest export product by value.
It will be interesting to watch how all this develops.
China becoming Egypt’s biggest trading partner
China will surpass the US as Egypt’s biggest individual trading partner within eight years, and Beijing is rapidly also becoming a key source of investment and technology, according to Rachid Mohamed Rachid, Egypt’s minister of trade and industry.
China was beginning to replace some US and Europe suppliers not just in consumer products but also capital goods ranging up to turn-key industrial projects, said Mr Rachid.
“We are getting capital goods at a lower cost and with the same or better technology,” he said, noting that the increase in trade with China would have a “large impact” on Egypt’s economic policies.
and then in Zimbabwe:
China intervenes in Zambian election
The Chinese government has intervened in Zambia’s upcoming presidential election in a forceful sign of the commodity-hungry country’s growing economic and political clout in Africa.
Li Baodong, China’s ambassador in Lusaka, said Beijing might cut diplomatic relations with Zambia if voters elected Michael Sata, an opposition candidate, as president, Zambian media reported on Tuesday.
His remarks are the first sign of overt political interference by China in African affairs in decades, reflecting Beijing’s rapidly expanding role as an investor on the continent and as a client for long-term supplies of raw materials. China is a leading investor in Zambian copper, the country’s biggest export product by value.
It will be interesting to watch how all this develops.
Tuesday, September 05, 2006
Senegalese Boat People
I have an extensive post on Afoe on this topic. This post really responds to a request from fellow Afoe blogger Alex to know what the boats look like.
Eurozone Services Slowdown
Well here's another data point for the 'now just hang on a minute' dossier:
Europe's Services Expand at Slowest Pace in 7 Months
European service industries from banking to telecommunications, the biggest part of the economy, expanded at the slowest pace in seven months in August after oil and interest rates rose.
Royal Bank of Scotland Group Plc said today its index based on a survey of 2,000 purchasing managers in the dozen euro nations fell to 57.1 from 57.9 in July, its second straight drop. Economists expected a reading of 57.5, the median of 37 estimates in a Bloomberg survey. A level above 50 indicates growth. Services account for about one third of the economy.
Expansion in the euro region may have peaked in the first half after registering the fastest pace since 2000. Since then, surveys across the $10 trillion economy have indicated dimming consumer and business confidence and a manufacturing slowdown as the European Central Bank signaled it will probably raise borrowing costs further to contain inflation.
So based on a rudimentary headcount that makes the US, Japan and the eurozone to be slowing, leaving the global economy train to be pulled by China, India, Brazil etc, all of whome to greater or lesser degress need to export to those who are slowing. Anyone have a dictionary definition of 'sustainable' to hand?
Europe's Services Expand at Slowest Pace in 7 Months
European service industries from banking to telecommunications, the biggest part of the economy, expanded at the slowest pace in seven months in August after oil and interest rates rose.
Royal Bank of Scotland Group Plc said today its index based on a survey of 2,000 purchasing managers in the dozen euro nations fell to 57.1 from 57.9 in July, its second straight drop. Economists expected a reading of 57.5, the median of 37 estimates in a Bloomberg survey. A level above 50 indicates growth. Services account for about one third of the economy.
Expansion in the euro region may have peaked in the first half after registering the fastest pace since 2000. Since then, surveys across the $10 trillion economy have indicated dimming consumer and business confidence and a manufacturing slowdown as the European Central Bank signaled it will probably raise borrowing costs further to contain inflation.
So based on a rudimentary headcount that makes the US, Japan and the eurozone to be slowing, leaving the global economy train to be pulled by China, India, Brazil etc, all of whome to greater or lesser degress need to export to those who are slowing. Anyone have a dictionary definition of 'sustainable' to hand?
Fiscal Tightening On The Horizon
The over-enthusiastic tone of a lot of earlier eurozone and Japan forecasts is now having to come to terms with some evident economic realities, in particular both Germany and Japan are headed for some pretty substantial fiscal tightening in 2007 and this eventuality is not going un-noticed in some quarters:
The taxman is about to pay a visit to consumers and businesses in Europe that will inflict pain around the world.
German Chancellor Angela Merkel and Italian Prime Minister Romano Prodi plan to raise taxes to reduce their budget deficits, increasing pressure on the European economy only months after it recorded its best growth since 2000. Confidence in Europe's expansion is already waning amid rising interest rates, declining foreign demand and record fuel bills.
A slowdown in the dozen euro nations would deal a blow to global growth at a time when the U.S., the world's largest economy, is decelerating with the end of a housing boom.
``It's a delicate time,'' says Harvard University professor Ken Rogoff, a former chief economist at the International Monetary Fund. `It would help a lot if Europe grew more strongly, and raising taxes doesn't make sense.
``If Europe's day in the sun is over and Japan is unable to grow much faster, we could see all of the industrial economies growing more slowly next year,'' says Michael Mussa, senior fellow at the Institute for International Economics in Washington and another former IMF chief economist.
For all the admirable sentiment from Ken Rogoff that strong growth in the eurozone would help power the growth needs of the international economy the tax raising exercise unfortunately makes perfect sense since unsustainable fiscal deficit profiles have been maintained in some key economies (Germany, Italy, Japan) throughout the entire course of the upswing in the latest global cycle, and this of course has to come to an end at some point. Clearly it would have been much more judicious to have economised during the (comparatively) good times in order to have had more leeway during the downturn, but I guess we already knew that.
The taxman is about to pay a visit to consumers and businesses in Europe that will inflict pain around the world.
German Chancellor Angela Merkel and Italian Prime Minister Romano Prodi plan to raise taxes to reduce their budget deficits, increasing pressure on the European economy only months after it recorded its best growth since 2000. Confidence in Europe's expansion is already waning amid rising interest rates, declining foreign demand and record fuel bills.
A slowdown in the dozen euro nations would deal a blow to global growth at a time when the U.S., the world's largest economy, is decelerating with the end of a housing boom.
``It's a delicate time,'' says Harvard University professor Ken Rogoff, a former chief economist at the International Monetary Fund. `It would help a lot if Europe grew more strongly, and raising taxes doesn't make sense.
``If Europe's day in the sun is over and Japan is unable to grow much faster, we could see all of the industrial economies growing more slowly next year,'' says Michael Mussa, senior fellow at the Institute for International Economics in Washington and another former IMF chief economist.
For all the admirable sentiment from Ken Rogoff that strong growth in the eurozone would help power the growth needs of the international economy the tax raising exercise unfortunately makes perfect sense since unsustainable fiscal deficit profiles have been maintained in some key economies (Germany, Italy, Japan) throughout the entire course of the upswing in the latest global cycle, and this of course has to come to an end at some point. Clearly it would have been much more judicious to have economised during the (comparatively) good times in order to have had more leeway during the downturn, but I guess we already knew that.
Italy's Reform Programme Under Strain
The strains are begining to show in the Prodi coalition, and it is very difficult to see serious reforms being implemented in this environment. Italy's rapidly ageing population presents new and important challenges to the Italian government, but somehow I am sceptical that the nettle is gowing to be grasped.
One of the striking details is the retirement age, which they are only now trying to raise to 60. Clearly Italy's low retirement ages are a product of a much sorter earlier life expectancy and a much thicker population pyramid. The fact that they are still as low as they are is also some kind of reflection on the pace at which Italy is able to reform itself, which evidently falls far short of the challenge.
OTOH pensions for many in Italy, like in Spain, are undoubtedly very low. In this sense the German problem is a bigger one, since the welfare system there is much more extensive and much more expensive, and simply going for the Italian model at this stage won't work in a German cultural environment.
However I still think Italy is the weakest link in the international economic chain, and certainly the one to watch.
Incidentally I have a post today on Demography Matters which looks at how population ageing is affecting one Italian region, Liguria.
One of the striking details is the retirement age, which they are only now trying to raise to 60. Clearly Italy's low retirement ages are a product of a much sorter earlier life expectancy and a much thicker population pyramid. The fact that they are still as low as they are is also some kind of reflection on the pace at which Italy is able to reform itself, which evidently falls far short of the challenge.
OTOH pensions for many in Italy, like in Spain, are undoubtedly very low. In this sense the German problem is a bigger one, since the welfare system there is much more extensive and much more expensive, and simply going for the Italian model at this stage won't work in a German cultural environment.
However I still think Italy is the weakest link in the international economic chain, and certainly the one to watch.
Incidentally I have a post today on Demography Matters which looks at how population ageing is affecting one Italian region, Liguria.
A Chilling Reminder
I'm no scientific expert but these latest East Antarctic core findings certainly don't exactly fill me with reassurance:
Carbon dioxide levels are substantially higher now than at anytime in the last 800,000 years, the latest study of ice drilled out of Antarctica confirms.....
Initial results from the Epica core were published in 2004 and 2005, detailing the events back to 440,000 years and 650,000 years respectively. Scientists have now gone the full way through the column, back another 150,000 years.
The picture is the same: carbon dioxide and temperature rise and fall in step.
"Ice cores reveal the Earth's natural climate rhythm over the last 800,000 years. When carbon dioxide changed there was always an accompanying climate change. Over the last 200 years human activity has increased carbon dioxide to well outside the natural range," explained Dr Wolff.
The "scary thing", he added, was the rate of change now occurring in CO2 concentrations. In the core, the fastest increase seen was of the order of 30 parts per million (ppm) by volume over a period of roughly 1,000 years.
"The last 30 ppm of increase has occurred in just 17 years. We really are in the situation where we don't have an analogue in our records," he said.
Carbon dioxide levels are substantially higher now than at anytime in the last 800,000 years, the latest study of ice drilled out of Antarctica confirms.....
Initial results from the Epica core were published in 2004 and 2005, detailing the events back to 440,000 years and 650,000 years respectively. Scientists have now gone the full way through the column, back another 150,000 years.
The picture is the same: carbon dioxide and temperature rise and fall in step.
"Ice cores reveal the Earth's natural climate rhythm over the last 800,000 years. When carbon dioxide changed there was always an accompanying climate change. Over the last 200 years human activity has increased carbon dioxide to well outside the natural range," explained Dr Wolff.
The "scary thing", he added, was the rate of change now occurring in CO2 concentrations. In the core, the fastest increase seen was of the order of 30 parts per million (ppm) by volume over a period of roughly 1,000 years.
"The last 30 ppm of increase has occurred in just 17 years. We really are in the situation where we don't have an analogue in our records," he said.
Monday, September 04, 2006
How To Get It Wrong, Bigtime
Hi, I've been on a long summer break. Unfortunately I'm now back. This will be short and sweet, Christian Noyer has things absolutely back to front:
Globalization harbors inflationary risks: Bank of France study
A bank study noted that while globalization had spurred disinflation over the past 15 years, the trend is now reversing itself.
It said the opening of formerly protected economies and their inter-dependence, as well as the emergence of low-cost producers such as China, had increased price and salary competition and had thereby helped to control inflation.
But the bank also found that "the disinflationary effects of globalization are weakening, even reversing themselves today".
It said producers of manufactured goods, such as China, were increasing their demand for energy resources and are driving up energy prices.
Basically I'd seen this being propounded by Charles Bean over at Jacksons Hole, but I think it is absolute bunk. Globalisation may be many things but it isn't inflationary, at least not yet, and not for a long time to come it won''t be.
Inflation and a change in the terms of trade are not exactly the same thing. Of course developed economies have felt the pinch as third world growth pushes against global supply constraints, but the downward pressure on manufacturing and services isn't done yet, and not by a long haul.
Sure there is increasing pressure on prices in the bottom end of the Chinese labour market, but many of the products here will move out to other sources, and China will move up the supply chain to other - more valuable - products, and so we will move on, and on, and meantime 'disinflation' will continue its course. There's still one hell of a lot of slack out there to soak up.
Globalization harbors inflationary risks: Bank of France study
A bank study noted that while globalization had spurred disinflation over the past 15 years, the trend is now reversing itself.
It said the opening of formerly protected economies and their inter-dependence, as well as the emergence of low-cost producers such as China, had increased price and salary competition and had thereby helped to control inflation.
But the bank also found that "the disinflationary effects of globalization are weakening, even reversing themselves today".
It said producers of manufactured goods, such as China, were increasing their demand for energy resources and are driving up energy prices.
Basically I'd seen this being propounded by Charles Bean over at Jacksons Hole, but I think it is absolute bunk. Globalisation may be many things but it isn't inflationary, at least not yet, and not for a long time to come it won''t be.
Inflation and a change in the terms of trade are not exactly the same thing. Of course developed economies have felt the pinch as third world growth pushes against global supply constraints, but the downward pressure on manufacturing and services isn't done yet, and not by a long haul.
Sure there is increasing pressure on prices in the bottom end of the Chinese labour market, but many of the products here will move out to other sources, and China will move up the supply chain to other - more valuable - products, and so we will move on, and on, and meantime 'disinflation' will continue its course. There's still one hell of a lot of slack out there to soak up.
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