miércoles, 23 de julio de 2014

A poor year for US growth...

The IMF has again reduced its expectations for growth in the US. Now, the Fund is projecting a 1.7% growth rate for 2014. That's bad news for Mexico, for whom exports to the US are so important to its own growth.

It's not all bad news, though: the damage was done in the first quarter, when GDP contracted 2.9%. The rest of the year should be quite decent: the IMF expects the US economy to grow 3% - 3.5% in what remains of 2014.

The IMF has reservations about US growth over the longer-term, putting the growth rate at 2%, tops, unless there are major reforms, "including tax and immigration changes, more investment in infrastructure and job training, and the provision of childcare assistance, which could help lure more Americans into the workforce" (July 23 New York Times). The Fund even went so far as to argue there is a "strong case" for more government spending to support the recovery, provided there's a plan to tackle entitlement spending later.

The need for structural reforms to boost the economy's sustainable long-term growth rate isn't confined to Mexico.

jueves, 3 de julio de 2014

Bubbles? Not the preserve of monetary policy says the Fed...

Federal Reserve (Fed) Chairperson Yellen reiterated her view on expansive fiscal policies and asset bubbles in a speech at the International Monetary Fund on July 2. Dr. Yellen accepts that maintaining financial stability is a primary responsibility of the Fed but argued that is best done through macro-prudential regulation. Acknowledging the challenges to regulating successfully that the substantial shadow banking sector poses, she made it clear, however, that she hasn’t eliminated monetary policy as a tool to rein in financial excesses.

Not all policymakers are as sanguine that low interest rates and expansive monetary policy don’t pose a threat to financial stability. Perhaps the perception of a threat depends on whether the size of the economy relative to the size of capital flows… As RaboBank put it, although the “approach is arguably an improvement on the Greenspan/Bernanke-era “Let Them Eat Bubbles” policy stance, it still does not seem to address the issue that in today’s global, interconnected markets central banks will presumably have to be regulating left, right, and centre to try to prevent bubbles from forming somewhere”. 

domingo, 29 de junio de 2014

A sobering analysis by the world's central bankers...

The Bank For International Settlements (BIS) is the central bankers' bank. Its Annual Report is an ideal forum in which central bankers can voice concerns they aren't able to express as openly as individuals. The BIS's just published 2014 Annual Report makes for sobering reading. Here are some of the major concerns...

--New asset bubbles are forming -- and the global economy hasn't even fully recovered from the excesses of the financial crisis! With interest rates at record lows, investors aren't paying much attention to risk. Consequently, weak borrowers are able to issue debt at surprisingly low rates, given their underlying fundamentals.
   Does this remind you of the heady days before the PIIGS crisis? The head of the BIS's monetary and economic department said "There is a disappointing element of deja vu in all this... The signs of financial imbalances are there." According to the Annual Report, debt levels in many emerging markets and in Switzerland "are well above the threshold that indicates potential trouble."

--It could be a few more years before the the world recovers from the financial crisis. Europe could experience an especially slow recovery because of high debt levels: "During the boom, resources were misallocated on a huge scale and it will take time to move them to new and more productive uses", according to the text of a speech by the General Manager of the BIS, Jaime Caruana, a former Governor of Spain's central bank. 

--Governments need to take measures to improve their economies, including improving labor mobility. The governments of countries that are growing rapidly need to watch out for overheating.

--There were admonitions for the private sector as well. Banks should raise more capital, both as a cushion against risk and to deal more quickly with portfolio problems. That corporates haven't taken advantage of the boom in stock prices to increase investment is one reason productivity gains have slowed in most developed economies: "Instead of adding to productive capacity, large firms prefer to buy back shares or engage in mergers and acquisitions." 

The BIS sends this message: "...a growth model that relies too much on debt, both private and public, ... over time sows the seeds of its own demise."

jueves, 26 de junio de 2014

Fine tuning US GDP: ouch...

The US releases three estimates of each quarter's GDP. The first is a preliminary estimate; the second and third fine tune it. The latest estimate of the US growth rate in the first quarter was the largest quarterly revision from the second estimate since 1976! 

It now seems the US economy didn't contract 1.0% in the first quarter. It fell 2.9%. Although the number refers to what happened three months ago and signs of recovery are abundant, a contraction that large still has shock value. 

What changed? Personal consumption was much weaker than had been thought: instead of a 3.1% growth rate, personal consumption grew just 1.0%. The fall in exports was larger than in earlier estimates as was the rise in imports, meaning that net exports subtracted more from GDP than we'd thought. The drag from inventories was also larger than estimated earlier. What little good news there was came from the fact that the contractions in business investment and residential investment were smaller than we'd thought. 

miércoles, 18 de junio de 2014

How do Mexicans rate public services?

The results of INEGI's second annual survey of Mexicans' perceptions of the quality of government services makes for fascinating reading. (The link is below.) The maps illustrating the differences in perceptions by state are very interesting.


martes, 10 de junio de 2014

Who's borrowing abroad?

The public sector's net foreign borrowing was much higher in the first quarter of this year than in the first quarter of 2013. Development banks started borrowing instead of repaying debt: in the first three months of this year, development banks took on US$0.3 billion net; a year earlier, they repaid US$0.7 billion. Public sector companies borrowed US$7.5 billion net,  nearly quadrupling their borrowing compared to a year earlier. 

Private firms were also borrowing in foreign currencies. Borrowing by private sector companies (excluding banks) in the first quarter of 2014 was more than six times higher than a year earlier. The percentage increase did benefit from being measured against a low base. Still, net borrowing came to a not insignificant US$2.3 billion.

jueves, 5 de junio de 2014

Foreign investment isn't what it was...

Had foreign investment in Mexico in the first quarter of this year matched that of the first quarter of last year, this year’s first quarter capital account surplus would have exceeded last year’s. It didn't, so foreign investment was just three-fifths of its level a year earlier. Both components of foreign investment -- foreign direct investment (FDI) and portfolio investment (PI) -- were lower.
FDI was US$5.8 billion, 28.4% less than a year earlier. Three-fifths of FDI took the form of reinvested profits; that US$3.5 billion has as its counterpart an outflow of the same size in the current account. The remaining two-fifths of FDI – new investments and net liabilities with parent companies – does not have a mirror counterpart in the current account. New investments accounted for US$1.8 billion (31.4% of total FDI) and increased liabilities (net) with parent companies, US$0.5 billion (8.0% of the total). 
Portfolio investment was half its level of the first quarter of 2013. Foreign investment in equities was more than ten times its first quarter 2013 level. Such impressive growth is much easier to register when measuring against such a low base. And, alas, foreign investment in equities was just 5.9% of PI. Foreign investment in money market instruments -- 94.1% of PI -- was US$4.5 billion, half its level of a year earlier. It was also less than FDI in the quarter.