Posts

Showing posts from August, 2013

Graph of the week: A slowdown in emerging markets

Image
From the WSJ:
For the first time since the start of the crisis, emerging economies are contributing less to global GDP than the developed ones (see graph below). Just as the developed economies are starting to bounce back, BRICs and Mexico are declining. Exports have plummeted in China, declined in India and Mexico and are slightly recovering in Brazil, while manufacturing is slowing down in all of these economies (graph above). On the other hand developed nations are finally seeing an improvement in manufacturing and exports, which will soon enough be visible in the growth numbers. The stock markets in both sets of nations show this forthcoming trend better than anything. Why is this? Shouldn't the BRICs also feel the recovery of the West and carry on growing just as they did in the pre-crisis decade? 
Certain things have changed since before the crisis. The most important one was a reverse of the outsourcing trend - the so called "insourcing", where (mainly US) compani…

Eurozone's nominal rigidities

Image
In an article published in the Journal of Economic Perspectives, Kevin O'Rourke and Alan Taylor examine Eurozone's ongoing depression and focus on monetary adjustments and Eurozone-wide automatic stabilizers that could supposedly help Europe in its painful recovery, suggesting a full-pledged banking union and a stronger consolidation of Europe's institutions. What caught my attention was the brief look at nominal wages and employment in four peripheral economies during the length of the crisis. The authors found an interesting pattern where nominal wages seem to have risen during the crisis (everywhere except in Greece), while employment was (and still is) falling. In Ireland, despite claiming to have performed an internal devaluation wages have been rather stagnant. However their employment slump was stopped in 2012. 
What could this be a signal of? First of all, as Fatas and Mihov in their article on VoxEU suggest, it could be a signal of a structural change and a "…

New trends in education

Image
Education is, like the whole economy in this digital age, undergoing a structural change. The newest special report from Scientific American, entitled "Learning in the Digital Age" finds that more and more universities and students are switching to online education, which offers the convenience of faster learning and is also considerably cheaper, particularly for those coming from developing countries. The quality of knowledge the online course-takers will receive is yet to be seen. This of course depends on the skills they wish to acquire and the career they wish to pursue. However, for some it presents a remarkable opportunity they would have never had the chance to obtain in their regular environment. And while many experts suggest that online education and new technologies will be welfare enhancing, particularly for the residents of developing economies, it is the change in the skill sets offered in online courses (in regular classes as well) that suggests the magnitude…

Graph of the week: credit and investment booms

Image
From Credit Suisse here is a graph comparing the non-financial private sector credit growth and growth of fixed capital formation (i.e. investments), both with respect to GDP for a number of mostly developing nations: (click to enlarge) 
HT: Marginal Revolution

What it reveals immediately is the dangerous position China is currently in.

The scatter plot offers a good insight into some basic wisdom in economics; "when credit growth significantly outpaces investments into the economy, a nation could be in for a deleveraging period." We can see three very good historical examples of this almost stylized fact; the booms in Korea 94-98, USA 04-08 and Japan 85-89, after which all these countries experienced a huge slump and a painful recovery (too bad we can't see any Eurozone economies in there, particularly Britain, Ireland or Spain). 
Now look at China. One can argue it's only a matter of time before it's bubble bursts and China enters a large and painful deleverag…

The pain in Spain

Image
In June last year Spain received a €100bn bank bailout from the ESM, in an attempt to prevent a supposedly inevitable bankruptcy of its banking system, and consequently a default of its government. Recall the paradox of the situation I wrote about back then"...who would buy the Spanish debt? Only the Spanish banks, as investors are fleeing from Spanish bonds. The big banks are also staying away from government bonds, afraid of being pulled in the turmoil. So the only banks buying government debt are the same ones that are being bailed out (!). That makes the current bank bailout in fact a government bailout – or a “credit line” to the government, to be more precise. (Technically the story is more complicated than that - even more so as the government will have to repay the European loans made to the banks, but the idea is essentially the same)." Up around the same time, Cesar Molinas, a Spanish economist with experience in consulting, investment banking, and public admini…

The Big Data Makeover of the US economy

Image
There has been a lot of talk recently on the newest data revisions of some of the main US economic national accounts. The US Bureau of Economic Analysis (BEA) has revised the methodological definition of how they measure gross domestic product and has adjusted the previous US GDP data all the way back to 1929. As they usually do once every five years. The change this time is an expanded definition of investment to include intangible assets, thus adding 3.6 % to the size of GDP in 2012 (around $560bn). The revision seems reasonable enough; the BEA wanted to include all the benefits of innovation, R&D and things like intellectual property, software and even entertainment, literary and artistic originals. Certainly things the US is abundant of, and certainly things that contribute well to the US domestic output. R&D by itself added 2.5% to overall output (see graph below), as it is not anymore in the 'cost of producing other products' category. There were a number of oth…

Is there a new employment-population curve in the US?

Image
The monthly unemployment report for the US came out today from the Bureau of Labour Statistics. Here's a summary from the NYT:America’s employers added 162,000 jobs in July, fewer than expected, as the unemployment rate ticked down to 7.4 percent. The job gains reported by the Labor Department on Friday, were concentrated in retail, food services, financial activities and wholesale trade. The manufacturing sector gained 6,000 jobs; government employment stayed basically flat. While July represented the 34th straight month of job creation, the relatively strong employment gains were still not on track to absorb the backlog of unemployed workers anytime soon. At the recent pace of job growth, it would take about seven years to close the so-called jobs gap left by the recession, according to the Hamilton Project at the Brookings Institution. We have yet to see how the Federal Reserve will react according with their QE infinity program, since the job growth is positive (almost double th…