David Lubin

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A security guard walks past the International Monetary Fund (IMF) headquarters on 12 April 2024, in Washington DC, ahead of the IMF/World Bank 2024 Spring Meetings. Photo by MANDEL NGAN/AFP via Getty Images.

InternacionalEconomía

As the world’s finance officials head to Washington this week for the IMF and World Bank spring meetings, they are likely to be in a rather buoyant mood. The global economy – in broad terms – shows signs of surprisingly strong growth, while inflationary pressures continue to fall, notwithstanding recent jitters about price pressures in the US.

But what is the true cost of this robust growth? One answer is the apparently endless rise in the level of public debt.

The world has become familiar with the idea that US political system now has no mechanism to generate budget restraint: Republicans will cut taxes, Democrats will raise spending, and the result will be persistent fiscal incontinence.…  Seguir leyendo »

The Great Pyramid of Khufu and the pyramids of Khafre and Menkaure are visible in the background as a tourist walks at the Cairo Citadel overlooking the skyline of Cairo and Giza on 19 February 2024. Photo: AMIR MAKAR/AFP via Getty Images.

MundoOriente Próximo

When it comes to managing a financial crisis, luck is a valuable commodity – and Egypt has plenty of it. A $35 billion investment from the UAE and a $5 billion increase in a loan from the IMF – amounting in all to 10 per cent of Egypt’s $400 billion GDP – will go a very long way towards clearing the economy’s dollar shortage and eliminating any near-term risk of default.

The luck that has helped Egypt secure such massive financial resources comes from its proximity to rich neighbours, its strategic position in a fragile part of the world – especially its potential role in stabilizing a post-war Gaza Strip – and its political importance to the US, a status which has allowed Egypt to become the IMF’s second biggest borrower after Argentina.…  Seguir leyendo »

A clerk counts banknotes at a bank outlet in Hai'an in east China's Jiangsu province (Image credit XU JINBAI/ Feature China/Future Publishing via Getty Images)

MundoAsia,

Consumer prices in China have now fallen in five out of the last seven months, and the annual inflation rate fell to minus 0.8 per cent in January.

There is a growing risk that deflation and weak economic activity might aggravate each other, creating a kind of ‘doom loop’: prices fall because demand is weak, and demand stays weak since Chinese households reckon it’s better to delay spending in the hope that goods and services get even cheaper.

All this should have some implications for Chinese exchange rate policy: a weaker renminbi (CNY) could raise the domestic price of imported goods by enough to help unroot China’s deflationary psychology before it really establishes itself.…  Seguir leyendo »

An aerial photo showing a residential area of Country Garden in Nanjing, East China's Jiangsu province, on January 2, 2024. (Photo by Costfoto/NurPhoto via Getty Images)

MundoAsia

Last week’s news that China’s GDP grew 5.2 per cent in 2023 gave some comfort to policymakers in Beijing. The data allowed them to claim success over their target to grow the economy by around 5 per cent for the whole year.

But the mood among Chinese households and corporates is much bleaker than the data suggest; and without the post-lockdown economic bounce that supported China’s growth rate in 2023, growth looks set to weaken this year, limiting the support that China might provide for the rest of the world economy.

A deflationary trap

Chinese households are gloomy to a large degree because the value of their main asset, namely property, has been suffering losses for a considerable time now.…  Seguir leyendo »

Container cranes at terminal I of the Tanger Med port in the northern city of Tangiers on the Strait of Gibraltar. Photo by AFP via Getty Images.

InternacionalEconomía

As economists fret about whether we face a big or a small global recession, and whether we’ll face it sooner or later, it is worth bearing in mind that trade is already showing signs of deep stress. Risk appetite towards emerging economies might be shaken as a result.

The annual growth rate of global import volumes turned negative late last year, remained negative in early 2023 and there are few reasons to think that things will improve. As long as that’s true, it will be open, trade-dependent economies – especially in the developing world – that get hit hardest.

The reasons for muted growth

There are three main reasons why trade growth seems so muted these days.…  Seguir leyendo »

A visitor takes a photo of a display showing images of Chinese President Xi Jinping at the Museum of the Communist Party, on 13 October 2022 in Beijing, China. Photo by Kevin Frayer/Getty Images.

MundoAsiaInternacionalEconomía

We should adhere to self-reliance, put the development of the country and nation on the basis of our own strength, and firmly seize the initiative in development. To build a great modern socialist country in an all-round way and achieve the second Centenary Goal, we must take the road of independent innovation.

President Xi Jinping, August 2022

This quote by President Xi clearly outlines the inward tilt of Chinese economic policymaking that is now becoming increasingly obvious to the rest of the world. But it actually has deep roots. Ever since the 2008 global financial crisis, when the West’s reliability as a trading partner was thrown into question, self-reliance has become a more decisive organizing principle for Chinese officials.…  Seguir leyendo »

Panda Solar Station in Datong, Shanxi Province of China which aims to generate 3.2 billion kWh of electricity, saving on coal and reducing carbon emissions during its lifespan. Photo by Visual China Group via Getty Images.

MundoAsiaEuropa,

The main idea behind ‘fortress economics’ is that any country with a terminally bad relationship with the US is well-advised to try to earn more than it spends. Keeping the current account of the balance of payments in surplus is preferable to a deficit which then needs an external funding requirement – because most of that funding is dollar-denominated, which gives Washington leverage.

The logic of fortress economics also argues in favour of building up a big stock of foreign exchange reserves to support a country’s ability to spend if, and when, sanctions bite – and Russia has followed this pattern assiduously.…  Seguir leyendo »

Yes Bank branch of Malcha Marg, in New Delhi, India. Photo by Vipin Kumar/Hindustan Times via Getty Images.

InternacionalEconomía

Back in April, nervousness about external debts reached its peak when highly-respected economists Carmen Reinhart and Kenneth Rogoff suggested emerging economies with less than a AAA credit rating be offered a moratorium on all their external debt service payments.

Although such a proposal might make sense if emerging economies were actually facing any serious shortage of access to foreign exchange, it is a difficult case to make. What we should worry about is not the external debt of emerging economies, but rather the large increases in government debts denominated in their own currencies.

In the first six months of 2020, borrowers from emerging economies issued more than $400 billion of Eurobonds to international investors, up by one-fifth over the same period in 2019.…  Seguir leyendo »

Kristalina Georgieva, managing director of the International Monetary Fund (IMF), speaks during a virtual news conference on April 15, 2020. Photo by Andrew Harrer/Bloomberg via Getty Images

InternacionalEconomía

There were several notable achievements during last week’s Spring meetings. The Fund’s frank set of forecasts for world GDP growth are a grim but valuable reminder of the scale of the crisis we are facing, and the Fund’s richer members will finance a temporary suspension on payments to the IMF for 29 very poor countries.

Most importantly, a boost to the Fund’s main emergency facilities - the Rapid Credit Facility and the Rapid Financing Instrument - now makes $100bn of proper relief available to a wide range of countries. But the core problem is that the vast bulk of the Fund’s firepower is effectively inert.…  Seguir leyendo »

MundoAsia,

The renminbi seems to be back in business as a Chinese tool of retaliation against US tariffs. A 1.5 per cent fall in the currency early this month in response to proposed new US tariffs was only a start. Since the middle of August the renminbi has weakened further, and the exchange rate is now 4 per cent weaker than at the start of the month. We may well see more of a ‘weaponized’ renminbi, but there are four good reasons why Beijing might be wise to think before shooting.

The first has to do with how China seeks to promote its place in the world.…  Seguir leyendo »

InternacionalEconomía

It is nearly 30 years since Rudiger Dornbusch and Sebastian Edwards published a seminal book, The Macroeconomics of Populism. Their conclusion back then was that the economic policies of populist leaders were quintessentially irresponsible. These governments, blinded by an aim to address perceived social injustices, specialised in profligacy, unbothered by budget constraints or whether they might run out of foreign exchange.

Because of this disregard for basic economic logic, their policy experiments inevitably ended badly, with some combination of inflation, capital flight, recession and default. Salvador Allende’s Chile in the 1970s, or Alan García’s Peru in the 1980s, capture this story perfectly.…  Seguir leyendo »

An investor looks at a board showing stock market movements at a securities company in Beijing on 10 July 2015. Photo by Getty Images.

MundoAsia

So, the Chinese economy does have a pulse after all. Credit extension by banks and bond issuance by local governments are supporting some kind of revival in infrastructure investment, and a 30 per cent rise in the Chinese equity market since the start of this year is helping to lift the intensely pessimistic mood that paralysed Chinese spending in the latter part of 2018.

The stimulus policies that China started to introduce last summer, and intensified more recently, now seem to be reviving the patient. From the rest of the world’s point of view, all this is greatly to be welcomed, since China’s last round of stimulus, which lasted from late 2015 until late 2017, did something amazing to the global economy.…  Seguir leyendo »

Deputy Governor of the People's Bank of China Hu Xiaolian and Deputy Governor of the Bank of England John Cunliffe sign a memorandum of understanding on Renminbi clearing and settlement in London in 2014. Photo: Getty Images.

MundoAsia,

'Great powers,' says the Nobel-laureate economist Robert Mundell, 'have great currencies.' So where is China’s?

In the years following the 2008 financial crisis, things seemed to be looking up for the renminbi. By the middle of 2015, almost 30% of China’s trade was being settled in renminbi; Hong Kong banks were holding some RMB 1 trillion worth of yuan-denominated deposits; and there was life in the dim sum bond market, with issuance running close to the equivalent of $10 billion per month.

That year was also the year the International Monetary Fund (IMF) announced that the renminbi would become one of currencies that underpin its own reserve asset, the special drawing right (SDR).…  Seguir leyendo »

US Federal Reserve Chairman Jerome Powell. Photo: Getty Images.

InternacionalEconomía,

Chinese leaders do like their slogans, and where foreign policy is concerned there are two that have reflected Beijing’s thinking in recent years. The first is tao guang yang hui, usually rendered into English as ‘hide your light and bide your time’, which guided Chinese policy for decades from the 1980s when Deng Xiaoping first established it as a principle of caution in foreign affairs. In late 2013, though, a new slogan was coined by President Xi Jinping to define a more assertive, muscular approach to foreign policy: fen fa you wei or, as it is commonly translated, ‘strive for achievement’.…  Seguir leyendo »

People walk past the 'Belt and Road' ecological wall in Beijing during the Belt and Road Forum for International Cooperation in May. Photo: Getty Images.

MundoAsia,

One could be forgiven for having missed the fifth birthday last month of China’s Belt and Road Initiative (BRI).

Celebrations were notably mute, for two obvious reasons. One is the increasingly audible grumbling among recipient countries about the effects of what Malaysian prime minister Mahathir Mohamad has called a 'new colonialism' — a phrase that captures the idea that the BRI has led to the accumulation of debt on receiving countries’ balance sheets to pay for projects of uncertain value, built mostly by Chinese contractors on opaque terms, allowing China’s regional influence to grow in ways that are out of proportion to the benefits that countries can expect to enjoy.…  Seguir leyendo »

Headquarters of the People's Bank of China. Photo: Getty Images.

MundoAsia,

The Chinese currency has lost more value in the past eight weeks than during any eight-week period since 1994.

That’s not saying much, mind you: the exchange rate is still a bit stronger than it was just over a year ago, and considerably stronger than it was in the 2000s. So although the renminbi has depreciated, it is difficult to say that it’s weak. There might be plenty of room for it to fall further.

The simplest way to think about China’s desire to see its currency weaken is that it is somehow part of Beijing’s armoury to meet the threats of trade and economic conflict coming out of Washington.…  Seguir leyendo »