Author Archives: Edward Hugh

About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

The Global Manufacturing Contraction Eases Again In June

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Global manufacturing took another step towards growth in June – but the process was, as ever, uneven. The JPMorgan Global Manufacturing PMI posted 46.9, its highest reading since last August. The current output component even expanded slightly following a year-long period of contraction. The PMI has now remained below the neutral 50.0 mark for thirteen successive months.

The principal factors weighing down on the level of the PMI in June were declines in new orders, employment and inventories. However, rates of contraction in new work and employment eased to their weakest for thirteen and eight months respectively. Looking ahead, the new orders to inventories ratio – which tends to move in advance of the production cycle – rose for the sixth month running to its highest since April 2004. Only 4 PMIs – those for China, India, Turkey and Sweden posted growth readings in June (although Sweden is not included in the JP Morgan survey). There was a general easing in the rates of contraction recorded elsewhere. The next two to three months will now be critical in order to decide whether the sector is going to move over to expansion mode, and if it does, at what pace?

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Estonia’s Neck Goes Into A Latvian-style Noose

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Well, today is the 30 of June, and still no news from the IMF on releasing the next tranche of the Latvian loan. Perhaps this is one of the reasons why (via Ott Umelas at Bloomberg).

Estonia’s fiscal deficit under European Union terms more than doubled in the first quarter from a year earlier, indicating the Baltic country may not be able to adopt the euro in January 2011. The deficit, including social security and state and municipal spending, rose to 5.57 billion krooni ($502 million) from 2.06 billion krooni a year earlier, according to data published on the statistics office’s Web site today. The gap corresponds to 2.5 percent of gross domestic product, according to Bloomberg calculations based on the Finance Ministry’s forecast for Estonian GDP for 2009.

The first-quarter figure means the government will have to keep the deficit at 0.5 percent of GDP for the rest of the year to meet euro-entry criteria. Finance Minister Jurgen Ligi has said he sees no improvement in the economy before the third quarter. The minority Cabinet of Prime Minister Andrus Ansip has cut the 2009 budget deficit by 16 billion krooni, or 7.3 percent of GDP, in recent months to avoid depleting state reserves and keep the fiscal deficit at last year’s level of 3 percent of GDP, the same as the EU’s budget-deficit threshold. This would allow Estonia to adopt the euro in January 2011, the government’s main economic goal.

So why a “Latvian-style” noose? Because these countries have built for themselves a sort of “paradox of fiscal thrift” connundrum, whereby the more you cut, the more GDP falls, the more revenue rises, the more spending grows, the more the fiscal deficit goes up, the more you have to cut, and so on. In the end, as Kenneth Rogoff said yesterday, it simply becomes too painful. There seems no way Estonia can achieve a 3 percent deficit this year at this point. And remember what IMF First Deputy Managing Director John Lipsky said last week.

“If there is a solution it begins with macro policies,” Lipsky said. “No single exchange rates solution, or exchange regime represents a solution to these kinds of problems. What is important is that the currency regime is credible and coherent”.

Estonia now has no exit strategy, at least not to join the euro in 2011 it doesn’t And then we have Lithuania and Bulgaria to think about. Basically, the ECB and the European Commission should never have drawn a line in the sand across the original Maastricht criteria. But it’s too late for that now. Continue reading →

Are The IMF and The ECB Lining Up Against The EU Commission Over Latvia?

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There was a very interesting and revealing press conference given by IMF First Deputy Managing Director John Lipsky and European Central Bank governing council member Christian Noyer in Paris on Thursday. Christian Noyer said that, in his opinion, Baltic countries like Latvia would not be helped by joining the single currency (the euro) prematurely.

“It’s in the interest of candidate countries not to enter too early because it risks making the economic situation unbearable,” Noyer said.

Lipsky, for his part stressed the region could not depend on any particular foreign exchange regime to shield it from the effects of the financial market crisis:

“If there is a solution it begins with macro policies,” Lipsky said. “No single exchange rates solution, or exchange regime represents a solution to these kinds of problems. What is important is that the currency regime is credible and coherent”.

Do I detect a shift in emphasis here? Certainly Latvia’s currency regime is not credible (most external observers now consider devaluation inevitable), nor is it – in my opinion – coherent. And there has only been a deafening silence coming out from the IMF in recent days on the topic. Continue reading →

Japan Consumer Sentiment Rises, Even As Exports Slump – But Where, Oh Where, Is The Recovery?

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Japan put in a pretty negative export performance in May. Even shipments to China show little sign of improvement, and the general impression is that hopes for a quick recovery in global demand are looking very premature.

On the other hand a 42 per cent year-on-year fall in imports in May left Japan with a trade surplus of Y299.8bn for the month – something that will help push gross domestic product back toward growth this quarter, but a trade surplus where imports fall faster than exports is not the same as a surplus where exports grow faster than imports, and certainly for the global economy it isn’t. Continue reading →

Europe’s Economies Move Sideways In June

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The eurozone economies moved sideways in June, with the flash reading on the composite purchasing managers index (which covers both industry and services) for the 16 nation euro area rising to 44.4, fractionally above the 44 registered in May. So we are just where we were before, contracting more slowly than in Q1, but still contracting, and the fiscal bullet is now almost spent.

Not without importance was that the reading came in significantly weaker than the consensus expectation for a sharp increase to 45.3. So the market *has* been getting ahead of itself.

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Everything In Germany Is Going Up….

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Everything in Germany is going up, except it seems the real economy – and except of course prices, which were stationary in May (that is a change of 0% year on year – the lowest inflation rate for over 20 years). Anyway, today it was the turn of investor confidence to put in another good reading. In fact German investor confidence rose to what is effectively a three-year high in June. Aparently investors feel the recession in Europe’s largest economy is bottoming out.

The ZEW Center for European Economic Research said its index of investor and analyst expectations increased to 44.8 from 31.1 in May – the highest reading since May 2006.

Unfortunately, there is little real evidence to support this highly optimistic view of the future. Continue reading →

E-Facing The Future

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Quietly clicking my way through Bloomberg last Sunday afternoon, I came across this:

Facebook Members Register Names at 550 a Second

Facebook Inc., the world’s largest social-networking site, said members registered new user names at a rate of more than 550 a second after the company offered people the chance to claim a personalized Web address.

Facebook started accepted registrations at midnight New York time on a first-come, first-served basis. Within the first seven minutes, 345,000 people had claimed user names, said Larry Yu, a spokesman for Palo Alto, California-based Facebook. Within 15 minutes, 500,000 users had grabbed a name.

Mein Gott, I thought to myself, if 550 people a second are doing something, they can’t all be wrong. So I immediately signed up. Actually, this isn’t my first experience with social networking since I did try Orkut out some years back, but somehow I didn’t quite get the point. Either I was missing something, or Orkut was. Now I think I’ve finally got it. Perhaps the technology has improved, or perhaps I have. As I said in one of my first postings:

Ok. This is just what I’ve always wanted really. A quick’n dirty personal blog. Here we go. Boy am I going to enjoy this.

Daniel Dresner once broke bloggers down into two groups, the “thinkers” and the “linkers”. I probably would be immodest enough to suggest that most of my material falls into the first category (my postings are lo-o-o-ng, horribly long), but since I don’t fit any mould, and Iam hard to typecast, I also have that hidden “linker” part, struggling within and desperate to come out. Which is why Facebook is just great.

In addition, on blogs like this I can probably only manage to post something worthwhile perhaps once or twice a month, and there is news everyday.

So, if you want some of that up to the minute “breaking” stuff, and are willing to submit yourself to a good dose of link spam, why not come on in and subscribe to my new state-of-the-art blog? You can either send me a friend request via FB, or mail me direct (you can find the mail on my Roubini Global page). Let’s all go and take a long hard look at the future, you never know, it might just work.

Banking Problems In Europe Send The Whole World Running For Cover

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Well that so called investor “risk appetite” took a surprise hit yesterday (and from an unexpected quarter). It wasn’t the worries about US fiscal deficits that caused the panic, but problems in the European banking system. Gwen Robinson reports:

Risk appetite suffered a sharp deterioration on Monday as fresh uncertainty about the global economy prompted investors to shift from equities, commodities and emerging market assets into the perceived safety of government bonds and the dollar. Markets were further unnerved by warnings on the economic outlook from the head of the IMF and an ECB report saying eurozone banks face another $283bn in writedowns on bad loans and securities this year and next.

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Policy Dilemmas For Next Week’s Fed Meeting

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Krishna Guha in his assessment in the Financial Times this morning of the key policy issues facing Ben Bernanke and his team at next weeks Federal Reserve meeting had this to say:

“Meanwhile, the Fed is likely to reiterate that it expects to keep rates near zero for an “extended period”, challenging market expectations of early tightening.”

Which struck me as interesting, since in an article which I wrote for yesterday’s (Sunday) edition (offline and in Spanish) of La Vanguardia newspaper (English text below) I said the following:

Investors are, on Krugmans view, simply erroneously positioning themselves in the face of what they now feel is inevitable. This view is erroneous he argues, since the road to full blown recovery is likely to be longer and harder than market participants are currently envisioning, and the only way to really get interest rates back under control would be for Bernanke to commit himself to holding down short term interest rates for a lengthy and indefinite period of time.

This is what is called keeping yourself just nicely ahead of the curve I think. The article which follows is basically a journalistic rewrite of this post (which appeared on Afoe last week). It does have the advantage of being considerably more digestible for the non specialist than the Afoe original Continue reading →