Posts Tagged ‘International Monetary Fund’

Global financial governance: Singapore’s Deputy Prime Minister Tharman Shanmugaratnam has been appointed chairman of a newly convened international group on global financial governance

April 22, 2017

DPM Tharman appointed chairman of top G20 group tasked to review global financial governance

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Deputy Prime Minister Tharman Shanmugaratnam has been appointed chairman of a newly convened international group of top economists and leaders, which has been tasked to review issues related to global financial governance. ST PHOTO: JONATHAN CHOO

SINGAPORE – Deputy Prime Minister Tharman Shanmugaratnam has been appointed chairman of a newly-convened international group of top economists and leaders, which has been tasked to review issues related to global financial governance.

At the Group of 20 (G20) Finance Ministers and Central Bank Governors meeting in Washington on Friday (April 21), German Finance Minister Wolfgang Schäuble and Bundesbank president Jens Weidmann announced the formation of an Eminent Persons Group on global financial governance, to be chaired by Mr Tharman.

The Eminent Persons Group will be tasked with reviewing issues relating to global financial governance, in particular the work of international finance institutions – which include the International Monetary Fund (IMF) and multilateral development banks such as the World Bank Group and the regional development banks.

An outline of their planned work will be presented at the next G20 meeting in October.

Other confirmed members of the Eminent Persons Group include:

– Dr Jacob Frenkel, Israeli economist and chairman of JPMorgan Chase International

– Mr Jean-Claude Trichet, former European Central Bank president

– Lord Nicholas Stern, British economist and academic

– Mr Zhu Min, former deputy managing director of the International Monetary Fund

– Dr Andrés Velasco, former finance minister of Chile

– Dr Ngozi Okonjo-Iweala, former World Bank managing director and Nigerian finance minister

– Dr Raghuram Rajan, Indian economist and University of Chicago professor

– Mr Ali Babacan, Turkish member of the parliament and former Deputy Prime Minister of Turkey responsible for the economy

– Dr Takatoshi Ito, Japanese economist and Columbia University professor

– Dr John Taylor, Stanford University professor

IMF sees ‘progress’ on Greece loan talks

April 6, 2017


© AFP/File | European Council’s President Donald Tusk (L), flanked by Greek Prime Minister Alexis Tsipras (R), gestures as he delivers a speech following their meeting in Athens on April 5, 2017

WASHINGTON (AFP) – Bailout talks to help resolve Greece’s pressing debt burden have made some progress but important matters remain unresolved, an International Monetary Fund spokesman said Thursday.

Greece is awaiting the next installment of an 86-billion-euro ($91.6 billion) aid package agreed in 2015 that it needs for debt repayments in July.

But talks between Athens and its eurozone and IMF creditors have been stalled for months.

Disagreements have focused on debt relief and budget targets for the austerity-hit country.

Greece is hoping a meeting Friday of eurozone finance ministers in Malta will yield a breakthrough on debt relief.

“There has been progress in the discussions but important issues remain outstanding. Discussions are continuing,” IMF spokesman Gerry Rice told reporters Thursday, adding that the Fund hoped to send a mission to Athens soon.

“We need to see progress on the reform package on behalf of the Greek authorities and credible debt relief commitment in order for the IMF to go forward. That position has not changed,” Rice said.

According to the IMF, Greece’s debt is not sustainable and must be restructured or else it will not participate in the third round of the bailout that began in 2010.

The IMF partnered with the European Union in the prior two bailouts of the debt-wracked country, a member of the 19-nation eurozone that shares a single currency.

Athens says its economy is performing better than expected, so it should not be asked to take austerity measures beyond those agreed to as part of its current eurozone bailout which ends in 2018.

But European governments, with Germany foremost among them, have resisted debt relief and disagree with the Fund’s position, calling instead for pension reforms, tax hikes and privatization.

The IMF has opposed further austerity for Greece while supporting some reforms.

Rice said Thursday that IMF staff would not present a proposal to the Fund’s executive board that does not have “both legs” — “credible economic reforms and credible commitment to debt relief.”

Talks were continuing in Brussels, according to Rice, who declined to speculate on the prospects for reaching an agreement.

Greece notably is due to make a debt repayment to the European Central Bank of 1.3 billion euros in April, and 4.0 billion euros in July.

France: Shooting at a school in the southern town of Grasse — Apparently eight wounded including the head teacher — Heavily armed student had rifle, handguns, grenades

March 16, 2017



© AFP | French police issued a smarphone alert after a shooting in a school in the southern town of Grasse

PARIS (AFP) – A 17-year-old pupil was arrested with a cache of weapons after a shooting in a high school in southern France on Thursday that left eight people injured including the head teacher.

Here is what we know about the shooting, which comes with France on high alert ahead of a presidential election and after a string of terror attacks:

– Who was the attacker? –

The suspect is a 17-year-old pupil at the Alexis de Tocqueville high school in the southern town of Grasse.

He was not previously known to police and appears to have acted alone, despite initial reports of a second attacker on the loose.

He was armed with a rifle, two handguns and two grenades.

The head of the regional government, Christian Estrosi, said that early indications pointed to someone with “psychological problems”.

– Was this a terror attack? –

Apparently not. Estrosi said they are “not at all” treating it as a terror attack at this stage.

France is still on high alert after a string of attacks by jihadists since January 2015 that has claimed around 230 lives.

Security was bolstered around schools for the new school year in September and more than 3,000 reservists were called up.

– Who was hurt? –

The head teacher and two others suffered gunshot wounds. Another five people were injured during a stampede following the shooting, according to a statement from the interior ministry.

Estrosi said the head teacher’s injuries are not life threatening.

There was panic at the school as some pupils escaped to a local supermarket and rumours spread quickly of an attack.

– What was the response? –

Schools in the town were immediately placed on lockdown and a smartphone application was triggered to warn people to stay away.

Terrified parents were also warned not to approach the school as elite special forces moved in to secure the area.

Prime Minister Bernard Cazeneuve broke off a visit to northern France and set off towards the scene in a helicopter.

Education Minister Najat Vallaud-Belkacem also said she was heading immediately to the school.

– Where did it take place? –

The Alexis de Tocqueville school has a good reputation and specialises in scientific courses.

The town of Grasse, just 40 kilometres (25 miles) from the French Riviera resort of Nice, is a quiet hillside town with a population of some 50,000 is famous for its perfume industry.



Heavily-armed student opens fire in French high school


Thu Mar 16, 2017 | 10:53am EDT

By Emmanuel Jarry and John Irish | PARIS

A teenage student opened fire on Thursday at a high school in southeastern France injuring three people, including the headmaster, in an attack carried out after he had watched American-style mass shooting videos, the interior ministry said.

The incident, which does not appear to be linked to terrorism, comes with France on high alert after more than 230 people were killed in the past two years by attackers allied to the militant group Islamic State.

With a presidential election less than six weeks away, the attack by the 17-year-old armed with a hunting rifle seemed likely to further stimulate debate on security and fears of terrorism which are among big campaign issues.

Separately, in Paris, a female employee of the International Monetary Fund was injured in the face and arms when a letter bomb posted to the world lender’s Paris office blew up as she opened it, police said.

Interior ministry spokesman Pierre-Henry Brandet said three people had been injured, and five other people were in shock after the teenager opened fire with the rifle in a high school in the town of Grasse.

The youth, who was also carrying two handguns and two grenades, was arrested at the school. Checks were underway to establish whether there was a second assailant.

“The first investigations suggest he had consulted American-style mass killings’ videos,” the spokesman said.

France has some of the strictest gun laws in the world. French citizens are banned from owning automatic weapons, while many other guns require government authorization and a medical exam, along with a permit from a hunting or sport shooting federation.

A police source said the youth arrested did not seem to be known to police.

Local emergency services used Twitter to advise residents of the town of about 50,000 inhabitants to stay at home. The government launched a mobile telephone application warning of a “terrorist” attack, although this is now automatic for any such incident.

Witnesses interviewed by local television described a scene of panic as the gunman entered the canteen with students rushing to hide under tables or sprinting for the exit.

“It was total panic,” Achraf, a student, said on BFM TV. “The gunshots were at 4 to 5 meters from where we were. We thought the gunman was coming towards us. We heard him shouting.

“I just know the gunman by sight. He was gentle and low-key key, not a nasty guy.”

(Reporting by Sophie Louet, Marine Pennetier, John Irish, Sudip Kar-Gupta and Brain Love, Geert De Clercq; writing by John Irish; Editing by Adrian Croft and Richard Balmforth)


A picture taken on February 7, 2017 shows the wreckage of a burnt car in one of the main streets of the Cite des 3000 in Aulnay-sous-Bois

The wreckage of a burnt car in Aulnay-sous-Bois after angry French youths clashed with police over the alleged rape of a local man during his arrest. CREDIT:GEOFFROY VAN DER HASSELT /AFP/GETTY IMAGES 

The area around the Louvre museum in Paris has been evacuated after a huge security operation was launched this morning

The area around the Louvre museum in Paris was evacuated after a huge security operation was launched

ATTACK AT THE LOUVRE: Machete-wielding man shouting ‘Allahu akbar’ stopped by soldier, police say

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 Paris — April 2016 — A protestor kicks a tear gas cannister as demonstrators clash with anti-riot police. Photograph by Joel Saget, AFP, Getty Images

The myths of a China-led global order

March 7, 2017


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By John Wong For The Straits Times

As presidential candidate, Mr Donald Trump had touted many radical anti-globalisation messages, from “America First” to building a wall on the border with Mexico.

Shortly after taking office, President Trump promptly followed up on his campaign pledges with measures against immigration and withdrawing the US from the Trans-Pacific Partnership pact. Most recently, Mr Trump said he was not the President of the world, but only the President of the United States. All these signal an American retreat from globalisation.

Introducing some high-profile anti-globalisation measures by itself might not immediately roll back globalisation, which as a process has been developing steadily since the end of World War II, and cannot be easily reversed by those policies. What is potentially more worrisome is whether Mr Trump would systemically re-orient America politically and economically to become inward-looking in the longer run, as this could eventually harm the globalisation process.

As the world’s principal global player and No. 1 economy stumbles, expectations have naturally started to build up on whether the world’s No. 2 might quickly step up to fill the leadership vacuum. The idea that China, as the world’s second-largest economy and leading trading country, is set to carry the banner of future globalisation has suddenly gained currency.

Chinese President Xi Jinping, in his keynote address to the World Economic Forum in Davos on Jan 17, put up a staunch defence of free trade and the existing global economic order. He specifically pointed out: “Many of the problems troubling the world are not caused by economic globalisation.” He further warned: “Pursuing protectionism is like locking oneself in a dark room. While the wind and rain may be kept outside, that dark room will also block light and air.” He thus pledged to create “an external environment of opening up for common development”.

 ST illustration by Miel

Much like a dramatic irony, a few days later, President Trump in his inaugural address continued to use strong anti-globalisation and protectionist rhetoric to support his “Make America Great Again”. According to him, globalisation, instead of bringing about mutual benefits, only “made other countries rich while the wealth, strength and confidence of our country have dissipated over the horizon”. Thus he promised to bring back jobs, business and capital from overseas. To him, “protection will lead to great prosperity and strength”. What a stark contrast between the rhetoric of Mr Xi and that of Mr Trump!
The American economy has been so dynamic precisely because it has been mainly market-driven. Now, as Mr Trump tries to fiddle around with the operation of the American economy, he would inevitably politicise his economic policies, which could undermine the dynamic aspects of American capitalism. This could in turn affect the long-term growth prospects of the American economy. Mr Trump’s presidency might just mark the turning point for the decline of the American economy.

The US has been instrumental in creating an open and market-oriented post-World War II international economic order with the establishment of the World Bank, the International Monetary Fund and the rules-based GATT international trade system, along with the Marshall Plan that facilitated Europe’s post-war recovery. Subsequently, the US-led international economic order also facilitated Japan’s post-war recovery and the successful economic take-off of East Asia’s “Four Little Dragons” of South Korea, Taiwan, Hong Kong and Singapore.

The US, in providing easy access to its vast domestic market, along with liberal capital flows and technology transfers, has been singularly beneficial to these export-oriented East Asian economies. To some extent, China’s economy later also benefited from the relatively open US market, though in a much restricted way.

Many Third World countries may have strong misgivings about the political and ideological aspects of the global economic order under Pax Americana, which inevitably embodies America’s institutional biases and its dominant political and social values, particularly during the Cold War era.

But the economic aspects of Pax Americana are basically about maximising economic growth and efficiency gains. An emerging economy that has successfully plugged itself into the American-led global economic order would benefit from rapid economic growth.

Mr Trump’s current economic policies with politics in command might well herald the gradual demise of the American-led global economic order along with the possible long-term decline of the American economy. Many American scholars have long argued vigorously against such a “declinist” scenario, pointing out that the US is still economically, militarily and technologically the most powerful in the world, which is further bolstered by its unmatched soft power. In fact, the US supremacy is so many notches above its next potential competitor. Thus, the US’ total gross domestic product (GDP) last year , at US$18.6 trillion (S$26.2 trillion), equals the combined GDP of the next three largest economies of China, Japan and Germany. Such is the absolutist and static argument.

However, in the long sweep of human history, there are numerous examples of the rise and fall of empires. The inevitable power transition from Athens to Rome, or later from Pax Britannica to Pax Americana, has been very much an iron law of historical evolution. Furthermore, the US may not be in decline relative to the economically near-stagnant Western Europe and Japan, but this looks strongly possible relative to the rapidly rising China, the world’s second-largest economy.


Currently, China’s economy is just about 60 per cent of the US size. The US’ long-term growth rate is around 2 per cent owing to its relatively low productivity growth and its mediocre human resource development – the US ranks near the bottom in skills level among Organisation for Economic Cooperation and Development countries. Furthermore, increasing political and social division in the US may accelerate America’s economic decline.

China’s economy is likely to continue growing at around 6.5 per cent a year till 2020 under the current 13th Five-Year Plan, and around 5 per cent to 6 per cent for the next Five-Year Plan, so that its total GDP will in any case surpass the US’, for China to become the world’s largest economy by 2030.

For the world’s largest country to become the world’s largest economy is actually no big deal. According to eminent economic historian Angus Maddison, China and India were historically the world’s two largest economies in terms of GDP based on purchasing power parity. Specifically for China, it remained the world’s largest economy until the early 19th century.

When China’s total GDP has overtaken the US level by 2030 to become the world’s largest, it will have also crossed the threshold of a developed economy. But China by then will still be a low-income developed economy.

According to the World Bank, China’s per capita GDP will then be only around US$17,000, which was Singapore’s level in 1993 and Japan’s in 1970. China may be nominally a developed economy by definition, but it will still be years away from being a truly affluent society, which is better reflected in a much higher per capita GDP.

Mr Xi is a cool and patient man. Currently, he is preoccupied with preparing China to realise its Xiaokang (moderately well-off) society by 2020.

To realise his “Chinese Dream”, Mr Xi has aimed higher and set his long-term vision of developing China into a fully developed Fuqiang (rich and powerful) country by 2049 – exactly 100 years after the founding of the People’s Republic in 1949. Such is the timeframe for the possible emergence of the Pax Sinica Global Order – about the same time span needed for the transition of Pax Britannica to Pax Americana!

It is thus too far-fetched to speak of China filling the US leadership vacuum, even though America is visibly turning inward. China is also far from being ready to fully embrace globalisation. China itself has always been ambivalent towards an open global order. Mao Zedong had preached self-reliance and imposed on China its self-isolation. Deng Xiaoping reversed this policy by taking to the open-door policy, thereby unleashing three decades of double-digit economic growth. China’s economy has been a truly outstanding beneficiary of globalisation.

Yet, China’s leaders have always been wary of some negative effects of globalisation. Deng had once said: “When you open the window, some flies would come in.” Not surprisingly, China has continued to maintain strict censorship on foreign media and a tight firewall on its cyberspace. It is not ready to be fully open to globalisation. It will remain a “reluctant global player” for a long time to come. This is not just because China today is ruled by the Communist Party. The mindset of Chinese leaders has been shaped by their culture and history.

As Sinologist Martin Jacques, in his famous volume, When China Rules The World, has argued, historically China as the “Middle Kingdom” is essentially a “civilisation state”, very different from the Western concept of nation-state. China used to see itself as the centre of the globalised world and pursued interstate relations with non-Chinese societies under its concept of a “Chinese World Order” based on the Confucian framework. There is still too much uncertainty as to how a China-led global order will evolve. What is sufficiently clear is that China will be a different global player.

During the transition, a less assertive Pax American global order will continue, gradually giving way to a multipolar global order. China in the meanwhile will continue to expand its political and economic influence in the emerging countries, particularly in Africa and Latin America, where it has already built up a strong economic presence through trade, investment and economic assistance. China’s One Belt, One Road programme will further reinforce its endeavour. Together, these add up to the possible scenario of a China-led economic order in the developing world.

  • The writer is a professorial fellow at the East Asian Institute, National University of Singapore.
A version of this article appeared in the print edition of The Straits Times on March 07, 2017, with the headline ‘The myths of a China-led global order’.

Greek economy shrank 1.1 percent in Q4 2016 — Eight straight years of recession in Greece

March 6, 2017


© AFP | Greece obtained its third international rescue package worth 86 billion euros in 2015
ATHENS (AFP) – Debt-laden Greece’s economy shrank 1.1 percent in the last quarter of 2016 against the same period the previous year and Gross Domestic product fell 1.2 percent against the last quarter, the national statistics office said on Monday.

The new figures are far lower than previous estimates and come at a time when Athens is locked in crucial bailout talks with the IMF and the European Union for its crisis-battered economy.

The Elstat agency had earlier predicted a 0.4 percent GDP slide in the last quarter against the third. The new figure is a three-fold rise over the previous estimate.

The revised figures mean that Greece remained in recession for the eighth straight year.

Following a long standoff between the EU and the International Monetary Fund over debt relief and budget targets, talks between Greek officials and representatives from its creditors aimed at freeing up fresh funds resumed in Athens last week.

The Washington-based lender believes demands on Greece sought by the Europeans are too ambitious.

But if the eurozone is going to stick with its plans, then the IMF wants the necessary tax hikes and pension cuts to meet them before it will lend further to Athens.

China may drop stimulus measures as economy gathers steam

March 1, 2017
Wednesday, 01 March, 2017, 4:47pm

By Frank Tang
South China Morning Post

China’s economy has showed a strong recovery at the start of this year, offering a good opportunity for the country’s lawmakers attending the annual parliamentary sessions in Beijing starting on Sunday to discuss whether it’s time to pull back investment stimulus and focus on structural economic changes.

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The official Purchasing Managers’ Index measuring activity in the manufacturing sector beat market expectations by rising to a three-month high of 51.6 in February and has already stayed in the expansionary territory for seven consecutive months.

The Caixin manufacturing PMI, which weighs more on small and medium-sized firms, has also kept rising for six straight months and jumped to a four-year high of 51.7 last month. The 50-point mark separates growth from contraction.

The strong performances added fresh evidence that the much-feared “hard-landing” risk facing the world’s second biggest economy has dispersed, prompting a number of institutions from the International Monetary Fund to the brokerage China International Capital Corp to revise up their estimates for China’s growth in 2017, despite uncertainties created by threats of a trade war from US President Donald Trump.

“The Chinese economy has largely guaranteed a soft landing,” said Harrison Hu, chief Greater China economist of NatWest Markets in Singapore.

“Although the impact of headwinds, such as property restrictions, neutral monetary policy and less tax cuts in the auto sector, may show up in the second quarter, it still receives certain support in the medium-term cycle for the deep restructuring of manufacturing sector in the past several years,” he said.

The next step for decisionmakers, according to Harrison, should be considering how to end stimulus measures and pay more attention to reducing financial risks and levels of debt.

Local officials are planning trillions of yuan in new investment this year amid a major reshuffle within the central government ahead a Communist Party congress in the autumn in order to boost their economies and increase their chances of gaining promotion.

The central government seems cool headed about the recovery, which could lead to a shift away from eye-catching economic numbers towards the quality of economic growth.

The government has started with relatively tight monetary policy, including a money market rate rise and guidance on credit growth to tackle asset bubbles and reduce financial leverage.

At the meeting of the central financial and economic affairs leading group on Tuesday, President Xi Jinping said a system should be set up to coordinate financial regulations to safeguard against systemic risks and that the pace of economic reforms should be accelerated.

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Zhang Jie, an economist at China Investment Securities in Beijing, said China may still have concerns about economic growth in the second half of the year as it had highlighted the need for proactive and effective fiscal policy.

“China may continue to raise fiscal deficit ratios, probably to 3.5 per cent, at the upcoming National People’s Congress,” she said.

The recovery from the end of last year of economic demand overseas, which benefits China as the world’s largest exporter, also faces major uncertainties.

President Trump has not yet taken any meaningful actions against China despite his campaign rhetoric accusing Beijing of currency manipulation and his threats to impose 45 per cent tariff s on Chinese goods.

However, when addressing the US Congress on Tuesday, President Trump said he “believes strongly in free trade but it also has to be fair trade”, refuelling expectations that he may impose protectionist measures.

“Stronger external demand appears to have played a key role in the pick-up [in China]. We don’t think [this] will be sustained,” Julian Evans-Pritchard, a China economist at the Capital Economics, wrote in a research note.


 (January 24, 2017)

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Eurozone financial crisis? Big budget surplus in Germany but others carry huge debt — German budget surplus highest since 1990

February 23, 2017

ECONOMIC struggles of EU nations were drastically played down by the European Commission this week when it took a surprisingly soft approach amid rising anger at the bloc.

PUBLISHED: 09:32, Thu, Feb 23, 2017 | UPDATED: 13:06, Thu, Feb 23, 2017
Appearing to recognise the growing hostility around the union, the EC heaped praise on itself and all members for successes and downplayed failures as it announced the latest annual assessments of the economic situation.Understating rule-breaks as “imbalances” the EC swerved the opportunity to lambast 12 nations where rigid guidelines are not being complied with.

Delivering the ‘European Semester Winter Package’, the EC said the entire Union was “making headway” with “the virtuous triangle of boosting investment, pursuing structural reforms and ensuring responsible fiscal policies”.

In reality, tensions are growing over the spending behaviour of neighbouring member states.

While right-wing parties make gains across the bloc, it seems bureaucrats are keen to keep voters onside.

Europe’s approach is actually seeing countries make “real progress”, according to the commission.

EU Commission treading carefully over economies GETTY

EU Commission treads lightly over member states with economic ‘imbalances’ (Pierre Moscovici)

Greeks protest the crisis at homeGETTY

Economic crises’ have rocked the eurozone and turned voters against the Union

Today’s analysis shows that our policy strategy based on boosting investment, pursuing structural reforms and sound budgetary policies is bearing fruit

Vice-President Valdis Dombrovskis

Vice-President Valdis Dombrovskis said: “Today’s analysis shows that our policy strategy based on boosting investment, pursuing structural reforms and sound budgetary policies is bearing fruit.“This is why, rather than giving people false promises that cannot be delivered, we should stay the course and continue to address the legacies of the crisis and structural weaknesses in our economies.

“EU and national policies should aim to make our economies more resilient and ensure that the recovery is felt by all.”

Bulgaria, France, Croatia, Italy, Portugal and Cyprus were named as countries with “excessive economic imbalances”.

But while the current political situation across the Union remains at risk of take-over from the right, the Commission appeared to be treading carefully.

France, where Marine Le Pen’s National Front is creeping ahead of her nearest rivals in the race for presidency, the Commission called for action where it found “excessive” imbalances.

Issues identified included the need to “increase the efficiency of public spending and taxation” and reform minimum wage and benefits.

Brussels predicted a 97 percent GDP rise by 2018.

Despite attempts by Paris to lower debt, the Commission said it was not enough.

Marine Le PenGETTY

The right-wing politicians taking votes across the EU is worrying bureaucrats

Greece desperately needs to pay off a €7 billion debt but with less than 50 per cent of homes paying income tax it is not raising enough.The International Monetary Fund (IMF) and Union leaders will travel to Greece in the coming weeks to discuss a third bailout.

Now, unionists fear the debt could spark Greece’s exit.

Germany was also accused of riding roughshod over economic targets set by Brussels.

Government debt it Italy represents a huge problem for the Commission, as it rose again in 2016.

Debt burdens from Italy and Greece have become progressively worse as their economies stagnate.

Italy’s debt has risen to 133 percent from 123 percent.

In Greece, debt has increased to an expected 183 percent of the country’s total economy from 159 percent.

Greece desperately needs to pay off a €7 billion debt but with less than 50 per cent of homes paying income tax it is not raising enough.

The International Monetary Fund (IMF) and Union leaders will travel to Greece in the coming weeks to discuss a third bailout.

Now, unionists fear the debt could spark Greece’s exit.

Pierre Moscovici, EU economy commissioner has denied this saying Greece is making huge progress.



German budget surplus highest since 1990

BBC News

German Shoppers at mall in Metzingen, Germany

Higher consumer spending has helped to boost growth in the economy. Getty Images

Germany’s budget surplus hit a post-reunification high of nearly 24bn euros (£20bn) in 2016 boosted by a higher tax take and increased employment.

This is the third year running that German government revenue has outstripped expenditure.

However, there was an increase in spending on housing and integrating refugees.

Under budget law, some of the surplus money will go into a fund to support the refugees.

Separately, official figures confirmed the economy grew by 1.9% last year, mainly because of higher spending by consumers and government.

High employment

The budget figures, published by Germany’s Federal Statistical Office, showed that income was higher than spending in all areas of government – federal, state and local government, as well as social security.

The office said the main factors improving revenues were the large increase in income tax and property tax payments as well as the “good employment situation”, which led to a “considerable growth” in social contributions.

In terms of expenditure, a big factor was increased spending by state and local governments on things such as accommodation for refugees, as well as payments to them for living expenses.

Germany has taken in more than a million migrants over the past two years, mainly from Africa and the Middle East.

Jobs fair for refugees and migrants in Berlin

This jobs fair in Berlin is an example of German efforts to integrate migrants. Getty

The actual surplus figure of 23.7bn euros represents 0.8% of gross domestic product (GDP).

The federal government’s share of the surplus amounts to 7.7bn euros, all of which will be paid into a fund to support refugees.

Chancellor Angela Merkel played down the new figures. “If you look at the federal level alone, the surplus is rather small,” she said.

She said the government would increase spending on defence, as well as on domestic security and social improvements.

“At the same time, we don’t want to take on new debt. So the room for manoeuvre is rather limited,” she added.

The GDP figures showed that the German economy grew by 0.4% in the final quarter of 2016, primarily because of strong domestic demand.

As well as higher consumer spending, there was an increase in federal, state and local government expenditure.

Germany’s economic strength has traditionally been bolstered by exports.

In the final quarter of last year, however “the development of foreign trade had a downward effect on growth”, the Statistical Office said.

While exports of goods and services rose by 3.3% from a year earlier, imports increased by 4.5%.

Too strong

Thursday’s figures follow European Commission criticism of Germany’s relative economic strength within the eurozone.

On Wednesday the Commission said Germany’s current account surplus – which measures the balance of goods, services and investments into and out of the country – was too big.

It said that cutting that surplus would help the whole of the eurozone.

It also said Germans were saving too much and not investing enough in both the private and public sector.

The Commission acknowledged that steps had been taken to reverse that situation, but more could be done.

To address the economic “imbalances” the Commission said: “Further policy action should aim at further strengthening investment, including by reforming the services sector and improving the efficiency of the tax system, as well as stimulating labour market activity of second earners, low-income earners and older workers to boost households’ incomes and counter the effects of ageing.”

China’s growth stabilises, but dangers loom — Some economists say slowing economy is the classic definition of a burst credit bubble

February 20, 2017

Lack of clarity about President Donald Trump’s economic policies adding to the uncertainties facing the mainland economy, according to observers

By Wendy Wu
South China Morning Post

PUBLISHED : Monday, 20 February, 2017, 12:26pm
UPDATED : Monday, 20 February, 2017, 12:26pm
Economic and financial movements in the US were the biggest uncertainty globally given the lack of details about President Trump’s economic policies.

China’s economic growth looks stronger so far this year, but the country still faces financial risks and uncertainties created by the lack of clarity over the policies to be pursued by Donald Trump’s administration in Washington, Chinese economists said.

The world’s second-largest economy is likely to grow by seven per cent in the first quarter due to a recovery in manufacturing and exports, said Liang Hong, chief economist at China International Capital Corporation, a leading brokerage firm in the mainland. That compares with growth of 6.8 per cent posted in the final quarter of last year.

Without black swan events such as “a cliff fall in external demand” or a rapid rise in real interest rates in China, the nation’s economic recovery will continue, Liang told a forum held by the National School of Development at Peking University on Sunday.

However, the risk of capital flowing out of the country will persist as the US Federal Reserve is likely to continue to raise interest rates, said Guan Tao, a former senior official at the State Administration of Foreign Exchange.

This is forcing China’s central bank to walk a fine line between monetary easing and tightening.

The People’s Bank of China has refrained from lowering the amount banks must hold in reserves or cutting interest rates for almost a year for fear of fuelling asset bubbles and weakening the strength of the country’s currency.

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People’s Bank of China

The People’s Bank of China said in a quarterly monetary policy report published on Friday that it would focus more on managing financial risks as the downward pressure on economic growth “has lessened”.

However, the central bank will still need to cut banks’ reserve ratios to release cash into the economy, according to George Wu, a former monetary policy official at the central bank and now chief economist at Huarong Securities.

“The technique and timing [for the central bank] to adjust is very important,” he said, pointing out that China’s deposit reserve ratio remains one of the highest among the major economies.

“Within all levels inside the government, there is a lack of lack consensus on many issues: whether financial risk is the biggest risk, whether supervision is problematic, whether these are the responsibilities of the central bank and financial regulators,” said Wu.

Part of the reason was that there are many uncertainties beyond Beijing’s control, one economist said.

Zhu Min, former deputy director of the International Monetary Fund, said economic and financial movements in the US were the biggest uncertainty globally given the lack of details about President Trump’s economic policies.

But Trump’s pledge to cut taxes, if pursued, would add fuel to Chinese enterprises investing in the US, said Zhu, who is the director of the National Institute of Financial Research at Tsinghua University in Beijing.

He said political factors would affect US economic policy decisions and rising protectionism and the backlash against globalisation around the world risks creating further political instability.

“We will see greater volatility in financial markets this year,” he said.


Opinion: China’s economy is dangerously close to unraveling

Published: Feb 18, 2017 1:48 p.m.

The country’s debt is rising dramatically, while growth in gross domestic product is slowing

Getty Images
The People’s Bank of China in Beijing.

Market Watch

It came not with a bang but a whimper.

The January data from China finally confirmed that the country’s foreign-exchange reserves fell by $12.3 billion to $2.998 trillion, which compares with the all-time high of $3.993 trillion in June 2014 (see chart).

A trillion here, a trillion there, and pretty soon we’re talking real money, right?

What the official reserve data do not show is that massive borrowings outside China have accumulated over the past 15 years, bringing net reserves down to about $1.7 trillion, according to statistics prepared by Kynikos Associates.

That much smaller reserve amount is not necessarily large enough to support the yuan exchange rate, particularly if foreign-exchange outflows accelerate again as the Chinese credit bubble has now burst, in my opinion.

An acceleration in borrowing with a slowing economy is the classic definition of a burst credit bubble.

Ivan Martchev

China has a total debt-to-GDP ratio of close to 400%, if one includes the infamous unregulated shadow banking system that is habitually omitted from official statistics. In 2000, China’s total debt-to-GDP ratio stood near 100%. As Chinese GDP grew from $1.094 trillion at the end of the 20th century to $11.75 trillion at the end of 2016, the country’s total leverage ratio ballooned. China’s economy grew 11-fold, and total credit in the financial system surged by over 40-fold.

As the Chinese economy slows (see chart), the level of borrowing is accelerating, as can be seen here in China’s “total social financing” data.

This credit metric includes off-balance sheet financing outside the conventional bank lending system, such as initial public offerings, loans from trust companies and bond sales. If Chinese GDP continues to slow (and there are many observers, myself included, that do not believe the official 2016 GDP growth rate of 6.7%), and total credit in the economy continues to surge, then the Chinese economy will in effect be running as fast as it can just to stand still. An acceleration in borrowing with a slowing economy is the classic definition of a burst credit bubble.

Partially inaccurate statistics

What was most surprising in 2016 is how orderly the situation in China was. There is also evidence of a slight uptick in economic activity, if one looks at the official statistics. But I don’t believe it to be fully accurate, because the Chinese have a history of “smoothing out” their official economic statistics. For example, their 34% devaluation of the yuan in December 1993 was aimed to help China deal with a recession that was never officially acknowledged. Evidence of the recession only showed up in secondary loan-loss data and other “undoctored” metrics.

I am surprised at the current calm in China, as credit bubbles tend to pick up speed and get rather disorderly when they begin to unravel. I don’t know if this unraveling will come in 2017 or later, but I am watching the official forex reserve data for evidence of accelerating outflows, which would be one sign that the unraveling is picking up steam.

Trump to accelerate China’s woes

On top of China’s own epic credit bubble, we have a phenomenon called Donald J. Trump, who has made it a priority to rebalance the U.S. trade deficit. While I fully support the president in his quest, he appears to point the finger at both China and Mexico in the same fashion. However, the Mexican situation is very different from the one with China, where the trade imbalance is running out of control.

Also see: Donald Trump picks the wrong target with his Mexican standoff

In 2016, as this table shows, the Chinese bought $115.775 billion of U.S. goods and services, while the U.S. bought $462.813 billion worth of Chinese goods and services, which makes for a gargantuan $347 billion trade imbalance and accounts for the lion’s share of the total U.S. trade deficit (see chart).

To be fair to Trump, the Chinese have been running a persistent trade surplus with the rest of the world over the past 10 years (see chart), but that surplus has been getting bigger because exports to China are slowing with the decline in Chinese GDP growth.

Trade as a political tool

More importantly, the Chinese have been using trade as a political tool as they habitually run bilateral trade deficits with many of their Asian trade partners to increase their political influence in the region. Such trade strategies are unlikely to influence the Trump administration, which is hell-bent on rebalancing the U.S.-China trade imbalance.

Trump’s clash with China on the trade issue comes at precisely the wrong time for the Chinese as their epic credit bubble is unraveling. While trade frictions and financial issues in China are unrelated events, Trump’s election is like kerosene thrown on an already burning economic fire in China. What I foresee happening here is similar to the Asian crisis in 1997-1998, this time emanating from China, with the caveat that today’s Chinese GDP is much bigger than total Asian GDP in 1997.

To those who may suggest I am merely making observations and not predictions, please see my January 23, 2015, MarketWatch article, “Why 2015 could be rough for China,” which I wrote before the bulk of China’s $1 trillion foreign-exchange outflow materialized. I am not sure if 2017 will be the year when the wheels come off the wagon in China, but I have seen increasing evidence of my credit-bubble theory coming to fruition and the economic repercussions likely to follow.

Ivan Martchev is an investment specialist with institutional money manager Navellier and Associates. The opinions expressed are his own.


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Why the U.S. Could Suffer Deeper Economic Shock Than China in a Trade War

February 14, 2017

Retaliation could cause inflation to surge and cut demand for U.S. goods

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Feb 13, 2017 7:02 am ET

A lot of economists aren’t factoring a U.S.-China trade war into their central forecast scenarios, counting on the Trump administration to curb its sharpest protectionist tendencies.

But what if it doesn’t?

“Bad for the world, worse for the U.S.,” says Nicholas Fawcett, a senior global economist with Goldman Sachs. “Trade is not a zero-sum game; by curbing imports, the U.S. could lose out in the long run.”

Mr. Fawcett figures a 45% tariff on Chinese imports and 35% fees on goods from Mexico translate into an effective tariff rate of around 11%, given their share of total U.S. trade.  Assuming Beijing and Mexico City retaliate with equivalent tariffs, he estimates it could depress U.S. gross domestic product by 0.7 percentage point by 2019. That’s more than twice the hit on China’s growth, at 0.3 percentage point. Roughly 21% of the value of U.S. imports are from China, more than double that of China’s imports from the U.S.

The most immediate impact would be a surge in prices for American consumers, given that around 10% of the basket of prices that comprise the inflation index is imported. The U.S. imports roughly three-quarters of its toys, shoes, computers and telecoms equipment from China and other Asian emerging markets.

The higher costs for U.S. goods abroad would also sink demand for American exports.

“In fact, tariffs would likely hit U.S. GDP so sharply that the Federal Reserve would be prompted to reduce interest rates to cushion the blow—despite an increase in inflation,” Mr. Fawcett says in a Goldman Sachs research report.

Ian Tomb, a macro strategist with Goldman, says either a surge in input costs for U.S. production or falling demand “could prompt globally connected firms to reduce wages and cut workers.”

That’s why among the losers will be some of his most ardent supporters: blue-collar workers who helped sweep him to election victory.

The fallout would spread to other countries, including Europe and Japan, as U.S. demand for international goods slumped. U.S. allies with strong trade relationships with China such as Korea would get hit from both sides of the shock. And with the Fed cutting rates and the dollar subsequently weakening, the yen and the euro would appreciate, adding to their woes.

The potential danger of a trade war is why the International Monetary Fund and others aren’t including a tit-for-tat tariff brawl in their projections. (Here’s why the IMF is worried about rising protectionism globally.)

But, warns the Institute of International Finance, “The likelihood of harsher trade initiatives should not be underestimated.”


China will likely withstand the shock of a trade war better than the US will

Friday, 27 Jan 2017 | 3:44 PM ET

China setting itself up as 'the reassuring power'

China setting itself up as ‘the reassuring power’: Expert  Friday, 27 Jan 2017 | 3:58 AM ET | 03:14

While China will suffer from a trade war with the United States, some experts say the Asian giant has more resilience than the U.S.

The “Chinese government has plenty of financial resources to step in,” said Arthur Kroeber, founding partner of Hong Kong-based financial services and research firm Gavekal Dragonomics.

“I think the Chinese government has looked at this and is prepared to act,” Kroeber said, speaking by phone from Beijing.

In the last few decades, the communist government in Beijing has built China into the world’s second-largest economy with a state-backed form of capitalism and has expanded the nation’s global reach. A large portion of that growth came from heavy-handed policies that favored domestic industries, displaced more than a million people for infrastructure projects and generated questionably high levels of debt.

US/UK trade deal hype is overblown: HSBC strategist

Currency angle massive for China this year: HSBC  Friday, 27 Jan 2017 | 1:07 AM ET | 00:51

But key to China’s rise has been access to the global market, particularly the U.S. consumer. And in the very near term, that makes the Asian giant vulnerable to increased tensions with the U.S.

China was the largest source of goods imported to the 2015, according to an estimate from the Office of the U.S. Trade Representative. The U.S. goods trade deficit with China was $366 billion in 2015, meaning the U.S. bought far more from China than the other way around.

“If there is a full-fledged trade war, China is going to get hurt disproportionately to the U.S.,” said Jacob Shapiro, director of analysis at Geopolitical Futures, an online publication that analyzes and forecasts the course of global events.

“It’s not really about what China wants. China needs access to the U.S. consumer market,” Shapiro said. He doesn’t expect tensions to escalate into a trade war.

Could be more action in China ahead of the year of the rooster: Haitong

Could be more action in China as year of the rooster begins: Expert  Friday, 27 Jan 2017 | 1:07 AM ET | 02:11

U.S. President Donald Trump has promised a policy of “America First” and bringing back jobs, ostensibly lost to China. He has also threatened tariffs on goods imported from the Asian giant and chosen a group of outspoken China critics for top positions on trade policy.

However, Beijing has an array of tools to strike back with, and the message from the state is it will use them. China’s state-backed Global Times said in an English editorial after the U.S. presidential election that:

“A batch of Boeing orders will be replaced by Airbus. U.S. auto and iPhone sales in China will suffer a setback, and U.S. soybean and maize imports will be halted. China can also limit the number of Chinese students studying in the U.S.”

“There’s an array of things China could do that are not trade related that would enable them to persuade in a personal way,” Kroeber said, adding that Beijing could also make China a tougher business environment for U.S. companies operating there.

In the last few weeks, China’s president, Xi Jinping, and other top Chinese leaders have also stepped up efforts to promote China as a globalization-friendly alternative to Trump’s protectionist stance. The power play is especially important this year. Xi is set to consolidate his authority at a Communist Party congress this fall.

The political support for free trade rhetoric is more divided in the U.S.

“Trump also needs to show he’s making things better for the American worker,” Shapiro said. “He’s also limited” in power due to the U.S. democratic system of checks and balances.

The challenge is if trade tensions escalate, Shapiro said, “the U.S. is going to be hurt anyways” from disruption to the supply chain. Many products sold in the U.S. are partly or wholly manufactured in China.

To be sure, it’s still unclear whether U.S-China tensions will heat up into a trade war that decimates one party over the other. China’s economy is by no means as advanced as that of the United States, but can increasingly hold its own while U.S. presidents come and go. Meanwhile, deep business relations between the two countries will be complicated to unravel.

“I don’t see trade as a zero-sum game where, if one country benefits the other loses,” said Ira Kalish, chief global economist at Deloitte. “Certainly both countries depend on one another substantially.”

Reliance on China growth to ease: Expert

Reliance on China growth to ease: Expert  Thursday, 26 Jan 2017 | 8:35 PM ET | 01:57

China reports 6.7 per cent GDP expansion in 2016 amid data cooking scandal

January 20, 2017

By Frank Tang
South China Morning Post

Friday, January 20, 2017

China’s government said the nation’s economy expanded by 6.7 per cent in 2016, within its target but the slowest pace of growth in 26 years.

The publication of the figures comes as investor confidence in the Chinese economy, and even the credibility of official economic data, is waning.

China’s economy is expected to face more headwinds this year after Donald Trump, who has been threatening tough trade measures against Beijing, assumes the presidency.

The data released by the National Bureau of Statistics on Friday showed that China’s economy expanded by 6.8 per cent in the final quarter of last year, accelerating from 6.7 per cent growth in the third, second and first quarters of 2016.

Property and infrastructure construction, together with a credit boom, played a key role in stabilising the economy last year, according to analysts.

It raises doubts about whether there will be a further return to an investment-led growth model, which the Chinese government says it is trying to shift away from.

Fixed-asset investment rose 8.1 per cent last year, while retail sales, a barometer of consumption, gained 10.4 per cent, the statistics agency said.


 Residential and office buildings in the centre of Beijing. Photo: Reuters

China’s curbs to overcapacity in the steel and coal sectors plus a global commodity prices rebound helped shore up production, but fuelled worsening air pollution on the mainland.

China’s total GDP reached 74.4 trillion yuan (HK$84.2 trillion) last year.

However, China’s economic data came under fresh scrutiny this week after the northeastern province of Liaoning admitted cooking its books from 2011 to 2014.

“Data distortion harmed the judgement of policymakers in 2016 when the government unleashed a hefty monetary and fiscal stimulus to shore up investment,” Shen Jianguang, chief economist at Mizuho Securities Asia, wrote in a research note.

The International Monetary Fund is still optimistic about China’s growth prospects, upgrading its 2017 forecast to 6.5 per cent from 6.2 per cent in its World Economic Outlook released on Monday.