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Emerging Market Channel: Latest Posts
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Asia
I still think its money, not pork, and I think credit is contracting very rapidly
In all the worry about the trade numbers I haven’t discussed another data release last week which, until recently, would have been the most important piece of economic news for me. It was only a few months ago that we were intensely debating the cause of rising inflation in China. Now, inflation is clearly receding. PPI and CPI figures for November were released Wednesday and Thursday, and they showed an unexpectedly high decrease in inflation, with month on month numbers implying actual deflation. Year on year PPI prices rose by 2.0%, compared to 6.6% in October and around 4.5% expectations. CPI inflation declined from 4.0% in October to 2.4% in November, also well below the 3.0%expectations.
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Asia
Asia faces a tough 2009 as output decreases
With the recent sharp decline in Chinese manufacturing output, the global decoupling theory seems to have died a well-deserved death. The idea that developing countries had become less dependent on US economic conditions, and so were insulated from the US crisis, was based on a potent combination of bad analysis and wishful thinking. In fact the first stage of the crisis has primarily affected trade-deficit countries, which included many of the rich countries. The second stage will see the crisis move to trade-surplus countries, most of which are in the developing world.
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Emerging Markets
Rapid and large liquidity funding for emerging markets
One can blame the G7 for incompetent financial supervision, but few would criticise them for the rapid and decisive action taken by their central banks and fiscal authorities after the crisis materialised.
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Asia
Thoughts on India’s Latest Policy Moves
The fiscal stimulus that was announced just after I wrote my last post turned out to be smaller than some in the media had predicted, at least in terms of direct spending. However, there were several other measures that increase the effect of the total package. Increased spending in the plan is Rs. 200 billion, or $ 4 billion. The infrastructure finance piece is Rs. 100 billion, or $2 billion, or only a fifth of what had been predicted earlier in the Times of India. But there is also a cut in the central value-added tax rate, credits and tax breaks for exporters, and some low interest loans for housing and for small and medium enterprises. The total impact on the government fiscal deficit could be about $6 billion, which will add something like 0.6 percentage points to the deficit-GDP ratio. This does not count the infrastructure finance part, which I think is being structured to be off-budget, like the recent oil subsidies. The latter have been very bad, but may be alleviated now by the fall in the oil price. All in all, the fiscal stimulus seems pretty substantial, and given the lags and other problems in implementation (lack of institutional capacity, in particular), I don’t agree with calls for further increased spending, as reported in the Financial Times. (By the way, I don’t know where that FT article got its claim that the government had promised $60 billion total of additional spending. That seems way too high to be right.)
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Emerging Markets
Should Emerging Markets Tighten the Belt?
Not this time. Tightening the fiscal belt when domestic economic conditions are deteriorating exacerbates the cyclical momentum of the economy (i.e., it is pro-cyclical), while good policies should smooth the cycle. The pro-cyclical fiscal policies of the past were predicated on the unsustainability of the fiscal position before shocks brought havoc and the lack of foreign financing to support a more gradual adjustment, even in the context of IMF-supported programs.
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Emerging Markets
The Brazilian
One of Macro Man’s favourite themes at the moment is the necessity and likelihood of EM policy easing in response to the global recession and disinflationary/deflationary dynamic. For sure, most EM countries have eased policy to one degree or another- some of them aggressively. But a few EM CBs have stuck to their guns….for now. Therein lies opportunity. One of the best out there at the moment is Brazil.
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Emerging Markets
On the contractionary effects of expansionary fiscal policy, sustainability, and income distribution in Argentina (cont.)
Fiscal Accounts Shortage (flows). In response to the crises, the government has announced a battery of government expenditures’ increases and (subsidized?) credit supply with the pension funds recently nationalized—very likely reducing the rate of return to future retirees instead of increasing them, the main official argument for nationalizing these funds in the first place. I argued in a previous post about the contractionary effects of these measures. This seems to be exacerbated by the fact that tax revenues are markedly slowing down—as predicted (not by the government, though). Unfortunately, this seems to be just the starting point, as tax revenues are likely to contract in real terms in the short-run, while spending seems to be on the rise.
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Don't Shoot the Messenger
The NBH Cuts Interest Rates As Hungary Enters Its Second Recession In Two Years
Well, before I go any further, yes you read the header right, with the contraction of 0.1% in Q3 over Q2 (seasonally and working day adjusted data) reported by the national statistics office (KSH) today (Tuesday) the Hungarian economy has now entered its second recession since the start of 2007, since data revisions accompanying today’s GDP detailed results from KSH show that they now estimat the economy contracted in both Q1 and Q2 of 2007 (by 0.2% in each case), thus satisfying the normal technical criterion for declaring a recession. Somehow I doubt the Hungarian press are filled today with headlines about this juicly little detail.
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Emerging Markets
India after the Mumbai Attack
The conversations and pronouncements from India, Pakistan and the United States since the Mumbai attack confirm the strategic dilemma facing the Indian government. India has evidence of Pakistani involvement. The United States recognizes this evidence and is leaning on Pakistan to do something about the terrorists being trained within is borders. The Pakistanis (to varying degrees in varying parts of the power structure) deny any kind of official hand in the attack or its preparation.
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The Wilder View
Why exactly does the Fed pay interest on reserves?
The Fed’s paying interest on reserve balances has been bugging me lately. I simply don’t understand why the Fed would initiate a policy shift desinged to “improve efficiency in the banking sector” when the banking sector is in the middle of a crisis. To me, all the policy shift has done is to pay banks not to lend.
