Nigeria’s mighty economy
In a world of slowing growth (China), minimal growth (United States) and outright recession (Britain), it is startling to hear that Nigeria’s economy is likely to shoot up by 40 percent in the second quarter this year. Yep. Forty percent. Four – O.
An investigation by Reuters Lagos correspondent Chijioke Ohuocha came up with this staggering figure — which if borne out will lift Nigeria close to continental rival South Africa and raise it about 10 places on the IMF’s global list to around 3oth.
This mighty rise, however, is not actually because Nigeria has had a sudden spurt of growth. You can read Chijioke’s exclusive story here, but the gist is that the country is changing the base year for its GDP calculation to 2009 from its current 1990. One big reason is that data is better; another that it is more modern, taking in things like mobile phones and the internet, for example. It is the latter, and things like it, that have built up growth over thr years.
Nigeria’s current annual growth is around 7 percent, which puts it on track to overtake slower growing South Africa as Africa’s Number 1 economy. That, in itself, should make the country more of a target for investment over the longer term. It is currently considered “frontier”, which is a small pool when it comes to investment flows.
For now, though, it is as Chijioke writes: “The makeover may give the country financial bragging rights, but will change little for the millions trapped in poverty.”
The percentage of Nigerians living in absolute poverty, unable to afford only the bare essentials of food, shelter and clothing,- has risen to around 60 percent even as growth — rebased or not — has risen.
Gimme a P, gimme an M, gimme an I
If you have ever wondered why financial markets and economists are interested in purchasing managers indexes, here is why:
An even more British excuse
Britons have a reputation for endless talk about the weather, and the UK’s Office for National Statistics is no different.
We’ve already noted how the ONS cited the effect of the royal wedding and surrounding bank holidays as one reason why the economy only managed growth of 0.2 percent quarter-on-quarter between March and June.
While that’s taken up most of the talk, the ONS also pointed to the “record warm weather in April” as another “special event” that dented economic growth.
Back in the fourth quarter of last year, when the economy unexpectedly shrank 0.5 percent, the ONS said growth was “clearly affected by the extremely bad weather”.
Does the ONS have a particular temperature in mind that is conducive to economic growth? To paraphrase a British fairy tale: Something not too hot, not too cold, but just right?
UK GDP: Should have gone to Specsavers?
Markets are getting used to volatile swings in economic data since the financial crisis set in three years ago. But UK GDP figures for Q2 were so eye-poppingly strong they caused confusion on trading floors.
“Should have gone to Specsavers??” wrote Philip Shaw, chief economist at Investec, referring to British television commercials lampooning myopic citizens who desperately need a new pair of corrective lenses.
“Perhaps critics will suggest that the ONS has got it wrong again, but traders’ initial suggestions, calling into question the accuracy of the newswire reports — and this author’s eyesight — proved to be misplaced,” wrote Shaw.
The 1.1 percent quarterly growth the Office for National Statistics reported for Q2 was nearly double the 0.6 percent Reuters consensus forecast and blew out the highest forecast polled, 0.8 percent, by a significant margin. The fact it came a half hour after news the German Ifo index saw its biggest one month surge since reunification in 1990 made it all the more shocking.
Slowing growth, MPC splits? That’s so 2008
Sixties nostalgia was all the rage in the late 90s, and towards the end of the last decade we looked back only 20 years or so for a massive 80s revival in electronic pop and fashion.
With the 2010s in full flow, the current vogue of choice derives from just two years ago – at least among those noted trendsetters, economists.
Back in mid-2008, the signs for the UK economy were confusing and ominous. Inflation was too high, forward-looking indicators pointed to a slowdown of some sort in the near future, and the July minutes of the Bank of England’s monetary policy committee showed they debated both easing and tightening interest rate policy.
Step forward into 2010. In Wednesday’s July MPC minutes they discussed both easing and tightening while digesting a puzzling picture of – yes – high inflation and forward-looking surveys pointing to a slowdown of some sort in the near future.
“Do we have a much clearer idea over where monetary policy is going in the rest of the year?” asked Investec economist Philip Shaw after seeing the latest minutes.
“No. It’s shrouded in confusion,” was the stark conclusion.
Reuters’ latest long-term UK economy poll underscored this familiar sense of doubt. It showed a range of some 2.7 percentage points separating the lowest and highest forecasts for UK economic growth next year, compared to a 2.4 percentage points gap in the corresponding forecasts from the July 2008 poll.
It’s all Germany’s fault
It is fairly commonplace at the moment for U.S. and UK financial analysts — what continental Europeans call the Anglo-Saxons — to predict the collapse of the euro zone, a project they were mostly sceptical about in the first place. MacroScope touched on this on two occasions in March.
The latest foray into this area comes from Alan Brown, global chief investment officer at the large UK fund firm Schroders. But he does it with twist, blaming what he sees as the eventual collapse of the euro zone not on the structure itself nor on the profligacy of peripheral economies, but on Germany’s response to the crisis.
Brown reckons countries like Greece cannot do what is needed.
If Greece does all that it is asked to do, it’s debt/GDP ratio will rise to around 150 percent as debt continues to accumulate and the denominator declines as a result of a renewed recession and deflation. With debt at 150 percent and real interest rates anywhere near today’s level, Greece would have to run a primary surplus of around 8 percent of GDP just to stabilise its debt ratio.
In the best of worlds, Brown says, German and other northern euro zone countries would solve the problem by stimulating their own economies to offset the deflationary impact of measures to improve public finances in the profligacies.
Increased demand from Germany (and other Northern European countries) would boost demand for goods and services from the South helping to maintain growth in the euro zone region as a whole and to reduce the current chronic current account imbalances.
Brown says the trouble is that is not likely to happen. Germany has actually done the opposite, launching its own austerity programme.
The problem is simple enough, if all the advanced nations, every last one, cut back on deficit spending while consumers have already cut back on credit/debt and are saving more, then….simply there is mathematically less spending, and thus, mathematically, less demand for products of businesses, leading to more layoffs and a sharp new downward leg in the world economy.
It’s just math.
Pure and simple.
The result?
An economic “depression.”
The real thing.
Record Strength? You Heard Right
With the economy still mired in a rut and consumer confidence struggling to rebound, the words “record high” are not something we hear very often (unless, perhaps, in reference to the job market). Which makes the surge in the growth rate of the Economic Cycle Research Institute’s Weekly Leading Indicator, the WLI, all the more impressive. “Rocketing is the word,” said Achuthan in an email.
Contrarian calls are nothing new for ECRI. Back in late 2000, when most Wall Street economists were looking for continued growth in the coming year, ECRI was a lone voice in predicting an imminent recession. Time proved them correct. In a recent presentation, managing editor Lakshman Achuthan makes a pretty convincing case for his firm’s recent forecasting record.
Now, with many economists saying a “new normal” of weak consumption and tepid growth is upon us, the folks are ECRI say wrong again:
“Given the growing strength in ECRI’s objective leading indexes, the odds are rising that at least the early stage of this economic recovery will be the strongest since the early 1980s.”
Needless to say, the group does not believe a double-dip is in the cards.
The amount of hate that ECRI is getting is telling — lots of people didn’t buy into this market rally and so want it to fail. ERCI likely made the right call on the cycle — again.
No swift turnaround in euro zone
MacroScope is pleased to post the following from guest blogger Sarah Hewin. Sarah is senior economist at Standard Chartered Bank and here outlines why she sees no swift turnaround in the euro zone economy.
Overnight indexed swap rates –- which I prefer to Libor, given high liquidity premia — are indicating a tightening of monetary conditions from Q1 next year. But I expect policy rates to stay low through 2010.
True, there have been some signs that the worst of the euro zone recession is past -– rising PMI indicators, improving expectations, a pick-up in exports and orders. Nevertheless, the turnaround in sentiment has been relatively recent (mostly in the last month or so, compared with clear signs of a U.S. improvement since early in the year) and remains choppy, with German businesses still downbeat, particularly on the current situation.
It has come as shock to euro zone policymakers that their recession has been deeper than the profligate Anglo-Saxons. Euro zone GDP is down 4.8 percent from its peak, so far, compared with a fall of 3.2 percent in the U.S. and 4.1 percent in the UK. Worse, the inventory overhang in the euro zone has been slow to correct. Yesterday’s GDP figures showed the drag from inventories at just -0.5 percent since the recession started, significantly less than in the U.S, and UK, which suggests a further de-stocking hit to euro zone GDP in Q209. The downturn in euro zone employment is also accelerating and the recent recovery in consumer sentiment has stalled.
Euro strength poses an additional deflationary risk. My colleagues and I see the euro averaging stronger than $1.50 in H209, an appreciation since Q109 which would nullify the most recent 50bps cuts in the refi.
After its July 2008 policy error the ECB has been swift to tackle the liquidity crisis, with considerable balance sheet expansion. The upcoming covered bond purchase programme should give an additional, albeit minor, boost, though the ECB’s Bundesbank legacy means that euro zone policymakers will move cautiously on any policy which smacks of printing money. But inflation looks set to turn negative from next month, and rising spare capacity is likely to ensure that core inflation stays low even once the temporary impact of energy price cuts fades.
Meanwhile, money supply data and lending surveys show that credit is still tightening (by contrast, there are hints of a turnaround in credit availability in some parts of the UK economy). Finally, Germany’s recent vote in support of a “debt brake”, which could trigger a fiscal crackdown soon after the September elections, risks hobbling any eventual recovery in the euro zone’s largest economy.
from Changing China:
Can China save the world?
China has long said that its biggest contribution to a world racked by financial turmoil would be to ensure that its own economy grows strongly, implying that a rising Chinese tide will lift all boats. The latest data show that Beijing has delivered on one part of the bargain; its economy, the toast of the world over the past five years, is once again ahead, far ahead, of the pack.
Many investors and companies are confident that the second part of the bargain will follow – that China's recovery will be just the cure for markets still woozy from the financial battering. Such faith is not yet justified.
To be sure, China has already delivered a cortisone injection to some commodities, notably copper, the price of which has risen more than 40 percent this year. Strong stock markets, from Japan to Canada, since March are in part a play on positive sentiment spilling over from the Chinese rally that began in January. China also stands as the one growth market for global auto makers.
China has not only been stockpiling commodities, they have also invested heavily in mining and exploration companies, for example Rio Tinto and Fortesque in Australia. Compared to a year ago these mining stocks are dead cheap, China knows that it needs to secure a steady supply of commodities and this is the perfect time to do so.
Fire up the motor
People have suddenly started buying cars. At least that is the implication from recent data that has surprised markets and delighted economists scrutinising the garden for the oft-cited green shoots of recovery.
First it was the United States. Yes, on a yearly basis sales plunged, but on a month-by-month comparison with February, things look a lot better. Eg, General Motors sales plunged 45 percent in March from a year earlier, but it said they were up 23 percent over February. It reckoned that increase was U.S. industry-wide, too.
Then came Germany, Europe’s biggest automaker. Car sales jumped 40 percent in March.
This is resonating with economists. Barclays Capital calculates that, globally, car sales may have risen some 4.5 percent. Advisors Lombard Street Research reckons the U.S. data implies positive real consumer growth for the first quarter. “The annual rate of GDP decline could be 3 percent, about half the consensus forecast decline,” it said.
(Reuters photo: Mike Cassese)
