Posts Tagged ‘International Monetary Fund’

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

Image may contain: 1 person


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

EU faces crisis as IMF warns Greek debts are on ‘explosive’ path

February 8, 2017

By Tim WallaceSzu Ping Chan

The Telegraph


Greece's debts are going to mount unsustainably,  the IMF believes, unless the country undertakes serious reforms - and receives more bailouts from its eurozone neighbours

Greece’s debts are going to mount unsustainably,  the IMF believes, unless the country undertakes serious reforms – and receives more bailouts from its eurozone neighbours CREDIT: MARKO DJURICA/REUTERS

The EU faces a looming crisis which could threaten the sustainability of the eurozone as the International Monetary Fund has warned Greece’s debts are on an “explosive” path, despite years of attempted austerity and economic reforms.

lobal financiers at the IMF are increasingly unwilling to fund endless bailouts for the eurozone’s most troubled country, passing more of the burden onto the EU – at a time when Germany does not want to keep sending cash to Athens.

The assessment opens up a fresh split with Europe over how to handle Greece’s massive public debts, as the IMF called on Europe to provide “significant debt relief” to Greece – despite Greece’s EU creditors ruling out any further relief before the current rescue programme expires in 2018.

Jeroen Dijsselbloem, the Eurogroup President repeated that position on Tuesday, saying there would be no Greek debt forgiveness and dismissing the IMF assessment of Greece’s growth prospects as overly pessimistic.

“It’s surprising because Greece is already doing better than that report describes,” said Mr Dijsselbloem, who chairs meetings of eurozone finance ministers, adding that Greece was on track for a “pretty good recovery at the moment”.

The renewed divisions over how to handle the Greek debt crisis has raised fresh questions over whether the IMF will be a full participant in the next phase of the Greek rescue – a key condition for backing from the German and Dutch parliaments.

As Angela Merkel, the German chancellor, fights a tough reelection battle, Germany is particularly reluctant to send funds directly to Greece, with populist parties in Germany arguing that the payments amount to an unfair bailout from hard-working Germans to less deserving Greeks.

The IMF split came as Mrs May last night comfortably defeated a Brexit rebellion in the Commons as MPs rejected Labour plans to give Parliament a “meaningful” vote on the terms of a final deal.

Despite suggestions that up to 30 Tory MPs could defy their party whip and back the Labour amendment just seven chose to do so.

Mrs May stemmed the rebellion after the Government pledged to hold a vote in Parliament on the deal before it is sent to the European Parliament.

However ministers said that MPs would have to “take or leave it”, meaning that Mrs May is prepared to walk away from Europe without a deal if Parliament rejects it.

A fresh crisis over Greek debt could be triggered as soon as in July when Greece is due to repay some 7bn euros to its creditors – money the country cannot pay without a fresh injection of bailout cash.

Beyond the long-running concerns over Greek debt, Europe is currently locked in a fierce internal struggle over how to “refound” the European Union in the wake of Brexit and the apparent hostility now emanating from White House.

Mrs Merkel, the German chancellor, acknowledged the calls for change from within the EU yesterday while on a trip to Poland, but said she would argue that the EU should “proceed very cautiously” on the question of treaty change as it faced down a growing number of existential threats

Reluctant EU members, led by Poland, are calling for a return to the union’s founding principles, asking for a fundamental overhaul of treaties that would return power back to nation states.

An EU ‘concept paper’ launched last week ahead of the 60th Anniversary celebrations of the Treaty of Rome next month has deepened divisions after it emerged that it did not contain a single mention of the member states, only the EU institutions, according to a senior diplomatic source.

Greek GDP has started to grow, expanding by an estimated 0.4 per cent last year, but it is on a very weak path. IMF economists expect the country to grow at less than 1 per cent per year over the long-term, which is too low for it to pay down its debts.

That means Greece’s “public debt remains highly unsustainable, despite generous official relief already provided by its European partners,” the IMF believes.

Even if the country successfully implements all of its planned financial and economic reforms – which has been a struggle so far – its debt is projected to fall to from 179pc of GDP a year ago to 160pc of GDP by 2030 “but become explosive thereafter”.

“Greece cannot be expected to grow out of its debt problem, even with full implementation of reforms,” the IMF warned on Tuesday.

Despite Eurogroup protestations that the Greek bailout was sustainable, the IMF estimates that by 2060 its debts will amount to a crushing 275 per cent of GDP.

The IMF said progress to date in turning the crisis around has been “significant” but also acknowledged that the deep cuts to public services and pensions had come “at a high cost to society, reflected in declining incomes and exceptionally high unemployment.” Unemployment is currently still stuck at above 23 per cent.

The IMF is very clear about who it believes should give Greece more money to try to turn this situation around. “Greece cannot restore debt sustainability through its efforts alone and needs significant debt relief from its European partners,” the IMF said.

Greek finance minister Euclid Tsakalotos said the IMF’s report “fails to do justice” to the strength of the economic recovery and the improvement in the government’s books.

The IMF also gives a “misleading representation” of the government’s reform efforts, he said.

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.


Davos: IMF chief Christine Lagarde Addresses Income Inequality That “Threatens to Pull Our Societies Apart”

January 18, 2017


© AFP | IMF chief Christine Lagarde says the Fund is now looking more closely at inequality
DAVOS (SWITZERLAND) (AFP) – IMF head Christine Lagarde conceded Wednesday the Washington lender had been late waking up to the widening gap between rich and poor around the world, but is now researching answers to the problem.”There has been a strong backlash (against) economists in particular saying that this was not really of their business to worry about these things, including in my own institution,” Lagarde told an audience of high-flying executives at the World Economic Forum in Davos, Switzerland.

The International Monetary Fund is “now being very harshly converted to the importance of inequality and studying it and providing policies in response to that”, she said.

An Oxfam report coinciding with Davos this week said eight billionaire men own the same wealth as the poorest half of the world’s population.

That level of inequality “threatens to pull our societies apart”, Oxfam said.

For its part, the IMF often demands unpopular reforms from governments in return for its financial aid stoking voter discontent where it is active, including in Greece.

Lagarde has been trying to make the IMF more responsive to public disquiet and has speaking out about inequality linked to globalisation, as voters in the West increasingly turn to populist parties.

“When you have a real crisis or when you have very strong signals as we have received from the voters from people who say no, it’s really time to say … what more can we do,” she said.

“If policymakers do not get the signal now, I don’t know when they will.”


Income inequality: The good, the bad, and how to tackle it

Populism in the West is bringing concerns over economic inequality – and scrutiny over how to ameliorate it – to the forefront. Will nationalist leaders respond?

By David Iaconangelo
The Christian Science Monitor

JANUARY 17, 2017 Eight of the world’s richest men now own as much wealth as half of the world’s poorest people, anti-poverty organization Oxfam said in a report released on Tuesday.

Public reaction to inequality is driving political division in rich countries, the group wrote. On the upside, poor countries have also seen hundreds of millions of their citizens escape poverty in recent decades, Oxfam acknowledges. But it suggests that these countries have also missed out on an opportunity to do the same for hundreds of millions more.

“The very design of our economies and the principles of our economics have taken us to this extreme, unsustainable and unjust point,” says the report. “It’s time to build a human economy that benefits everyone, not just the privileged few.”

The report, based on data from a 2016 global wealth index from Credit Suisse and Forbes’ billionaires list, comes as political and business leaders meet at Davos, Switzerland, for this year’s World Economic Forum (WEF) summit, where inequality is a top item on the agenda.

And it sounds an alarm about a problem that is stirring unprecedented debate among the political classes of wealthy countries: what the gap between rich and poor could spell for the direction of world trade and security, as well as how national governments ought to address it.

“We’re in a moment where policy proposals being put on table are being held up against this light: that people feel that their economies are increasingly unfair and unequal,” says Paul O’Brien, vice president of policy and campaigns at Oxfam America. “And I think it’s harder for policymakers to talk about economic growth without talking about inclusive economic growth.”

But here’s the catch: There’s no consensus among economists that inequality should be considered a problem. Conservative thought tends to see it as a consequence of a process that is actually quite beneficial for societies, even for those at the bottom rungs of the income ladder. The rich are getting richer, but so are the poor. Economists point to how the decades-long drop in global inequality of incomes – that is, between countries – has created new middle-classes in developing countries, especially in Asia.

“My own reaction is, well, who cares?” wrote Forbes columnist Tim Worstall about the Oxfam report:

Wealth, value, is something created. And some of it will stick to the people doing the original creation, some tiny, tiny, fraction and the rest of it goes out into the world to be enjoyed by the rest of us. Thus the solution to poverty is that there be more rich people, people who have grown rich by creating value for the rest of us to consume.

Others cast doubt on the viability of democracies in conditions of intense inequality – particularly in the case of the US, where some studies trumpet its arrival into full-blown plutocracy. Even much of the US political elite sees inequality as a catalyst of instability. Economists such as Branko Milanovic, a leading scholar on inequality at the City University of New York, have argued that the past century’s world wars came about in large part because of the pressures of inequality, as the Financial Times noted last April. And this past week, the WEF pointed to the election of Donald Trump and Britain’s vote to leave the European Union as evidence that “fundamental reforms of market capitalism” were in order.

The United States has made slight progress over the past few years, with median incomes and wages rising, says Jennifer Blanke, chief economist at the WEF.

But “there are huge warning signs right now,” she tells The Christian Science Monitor, “and a lot of disgruntlement.”

The assiduousness of inequality scholars in recent years has produced a few unorthodox proposals, including French economist Thomas Piketty’s proposed global tax on wealth. Still, the remedies that tend to be put forth – more progressive taxation, including new solutions to crack down on tax havens; stronger wage laws for workers; and expenditure policies that direct more money toward education, health care, and other programs designed to benefit the lower-income – read like pages cut out of a social democrat’s playbook.

Since their shellacking in the 2012 presidential election, Republicans in the US have begun to speak the language of inequality, with figures such as House Speaker Paul Ryan (R) of Wisconsin drafting anti-poverty plans and candidates incorporating it into campaign rhetoric.

President-elect Donald Trump, meanwhile, has begun to sketch the initial contours of his America-first agenda, pressuring specific manufacturers (notably, Ford and Carrier) not to relocate production overseas and threatening tariffs on imports from countries such as China, Mexico, and even Germany. That would seem to set the interests of US workers against those of workers in places like China and Mexico who have carved out a livelihood with US companies.

How a Trump government – and other conservative populists elsewhere – might manage protectionist measures, without causing a shock to their own economies, remains opaque. Another central question might be whether they will be able to pioneer solutions that reduce inequality at home, and convince their trading partners abroad to go along with this approach.

Mr. O’Brien of Oxfam sees uncertainty, with regard to how governments, including the US, will respond to pressure for a need to address income inequality.

But “if one of the consequences of this election is that more politicians are paying attention to the fact that huge swaths of Americans and people around the world feel they’re being left behind by extreme inequality,” he adds, “then that awareness is a good thing.”

PM Najib says Malaysia’s economic plan on track despite challenging 2016 — “The Government is committed to building a more prosperous and equitable Malaysia.”

December 31, 2016


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Malaysian Prime Minister Najib Razak said the country’s economic plan was working, as evidenced by independent assessments carried out by the world’s top economic experts. PHOTO: AFP

PETALING JAYA (THE STAR/ASIA NEWS NETWORK) – Malaysian Prime Minister Najib Razak has reminded all Malaysians that despite a challenging 2016, the Government is committed to building a more prosperous and equitable Malaysia.

Datuk Seri Najib said the country’s economic plan was working, as evidenced by independent assessments carried out by the world’s top economic experts, and urged everyone not to fall for smear campaigns carried out by certain groups for their own political gains.

“Assessments such as these are independent and conducted by the world’s top experts. They reflect the true picture of Malaysia – contrary to the smear campaigns of those who have been trying to commit economic sabotage against their own country just for their own selfish political objectives,” Najib said in a New Year’s message on his blog on Saturday (Dec 31).

He said Malaysians should be proud of the growth the country was achieving, highlighting the latest International Monetary Fund (IMF) report which concluded that “despite headwinds, the Malaysian economy continues to perform well”.

The IMF report also praised Malaysia for making “significant progress toward achieving high-income status”, and Najib said this is the economic reality of Malaysia instead of the false stories being propagated.

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High speed rail

“Fake news and the proliferation of false stories has become a worldwide phenomenon, and is a grave problem in our country as well,” he said.

The Prime Minister also acknowledged that the IMF’s assessment may seem remote to Malaysians who are struggling to afford a decent life, adding that this was why Budget 2017 would pay greater attention to the needs of the Bottom 40 and Middle 40.

He said that the large-scale infrastructure projects planned for Malaysia, such as Bandar Malaysia, Tun Razak Exchange, the East Coast Rail Link, the High Speed Rail, and the Pan Borneo Highway would ensure long-term sustainability.

“The Pan Borneo Highway, for instance, will not only connect Serundong in Sabah to Semantan in Sarawak, it will also help re-energise numerous towns along the way.

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Pan-Borneo Highway. Pic Sam, Flickr

“I am determined to see this project through as I know the sheer number of communities, many of whom I have visited, that will benefit from it,” said the Prime Minister.

Najib said Malaysia would also continue playing a leading role on the international stage, and bringing attention to global issues such as the Rohingya and Palestinian plight.

“At home and abroad, we continue to be at the forefront of the fight against extremism and radicalisation.

“We suffered our first ISIS-linked attack in June, and only the tireless dedication of our brave police and armed services have prevented there being more,” he said.

He also paid tribute to the unforgettable performances of Team Malaysia at the Olympics and Paralympics Games in Brazil.

“While all of our athletes are worthy of mention, to have won our first two gold medals was a truly historic achievement, and one which swelled the hearts of all Malaysians,” he said, adding that the coming together of all Malaysians in support of the national team was a true reflection of 1Malaysia.

“A nation confident in ourselves, celebrating our diversity, proud of our successes, and always looking to ensure that all our brothers and sisters are fully part of this great journey that Malaysia is on.

“I ask all Malaysians to be united in this spirit, and I wish you a happy, safe and prosperous New Year,” he added.


Malaysia’s growth is one that developed countries can only dream of: Najib

December 31, 2016

KUALA LUMPUR: Malaysia’s estimated growth rate for 2016 is something developed countries “can only dream of”, Malaysia’s Prime Minister Najib Razak said in his New Year message on Saturday (Dec 31).

“Our estimated growth rate of 4.3-4.5 per cent for this year is one that developed countries in Europe and North America can only dream of,” he said.

“Malaysians should be proud of the growth we are achieving.”

Citing an International Monetary Fund (IMF) report which concluded that “despite headwinds, the Malaysian economy continues to perform well”, Najib said that such assessments “reflect the true picture of Malaysia”.

“Assessments such as these are independent and conducted by the world’s top experts. They reflect the true picture of Malaysia – contrary to the smear campaigns of those who have been trying to commit economic sabotage against their own country just for their own selfish political objectives,” said Najib.

He added that fake news was a “grave problem in our country”, and urged Malaysians “not to fall for lies that are spread”.

However Najib’s assessment came at the close of a year which saw the ringgit fall to 4.4805 against the US dollar. This was its weakest level since the Asian financial crisis in 1998, according to a Bloomberg report.


Turning to global affairs, Najib said that Malaysia “will not shy away from speaking out” on “global issues that matter”.

“In response to the tragic events involving the Rohingya population in Myanmar, we successfully requested a gathering of ASEAN Foreign Ministers to discuss possible solutions to what is an increasingly concerning situation,” he said.

He added that Malaysia remained committed to supporting the quest for peace in the Middle East, citing the country’s co-sponsorship of a UN resolution against illegal settlement building in Palestinian territories.

China Hits Reset on Yuan Fixing

December 29, 2016

Central bank is adjusting mix of foreign currencies used in setting official daily value

The dollar’s weighting in the basket of currencies used to set the yuan’s daily value will be reduced.
The dollar’s weighting in the basket of currencies used to set the yuan’s daily value will be reduced. PHOTO: REUTERS

Updated Dec. 29, 2016 12:54 p.m. ET

BEIJING—China’s central bank is adjusting the mix of foreign currencies used in setting the yuan’s official daily value—a change analysts said should help ease recent pressure weakening the Chinese currency.

Starting Jan. 1, the central bank will expand the number of currencies in the basket uses to calibrate the yuan’s value to 24 from 13 and reduce the weighting given to the U.S. dollar to 22.4%, from 26.4%, according to an announcement by the central bank’s China Foreign Exchange Trade System late Thursday.

China wants a slightly weaker currency to help exporters and maintain competitiveness with other economies as the dollar rises, but it doesn’t want to lose control. By diluting the dollar’s share and bringing in currencies from the Korean won to the Saudi riyal and Swedish krona, the People’s Bank of China is giving itself more room to maneuver to keep the yuan from falling too fast, analysts said.

In recent weeks, the yuan has buckled under uncertainty about China’s economic performance, a surging U.S. dollar following Donald Trump’s presidential-election victory and escalating flows of Chinese currency moving offshore. A rapid descent in the yuan’s value would raise fears the central bank is losing control, undermine confidence in the economy and accelerate the outflows.

The potential for faster U.S. interest-rate increases could add even more downward pressure on the yuan, with some analysts and investors predicting that the currency could break the psychologically important seven-yuan-per-dollar level as soon as next month. So far this year the yuan has dropped 7% against the dollar, nearly double the decline from the year before.

How to manage the yuan’s value has become a hot topic in official circles since a nearly 2% devaluation 16 months ago shocked global markets. In the past year the central bank has sought a less abrupt path, constricting channels for moving money out of the country and managing the pace of depreciation.

The central bank controls the mainland trading of the yuan by specifying an official rate for the yuan against the dollar and then allowing the currency to move 2% above or below the so-called daily fix. Since the beginning of this year, the central bank has been taking into account the yuan’s performance against both the dollar and a wider selection of currencies when determining the daily fix. That move has paved the way for the yuan’s gradual deprecation, which helps make Chinese goods cheaper in foreign markets.

With the pressure building for further depreciation, Chinese leaders have been trying to assert greater control and slow the decline. At a top-level meeting earlier this month, Chinese leaders said that maintaining the yuan’s “basic stability” would be a main economic task for 2017.

Expanding the currency basket and reducing the dollar’s weighting could help “reduce fluctuations of the daily fix and stabilize market expectations” for the yuan, said Zhu Chaoping, China economist at UOB Kay Hian Holdings Ltd., a Singapore-based investment bank.

When calculating the yuan’s daily fix against the dollar, the central bank considers both the yuan’s previous close versus the greenback and the overnight changes in the value of the currency basket against the dollar. As more currencies are included in the basket, the currency group likely will become more stable–potentially making the yuan’s official value against the dollar less volatile.

However, most investors still focus on the yuan’s performance against the dollar as opposed to its value against the basket. The fresh mix in the currency group, therefore, likely won’t change many investors’ pessimistic outlook for the yuan, analysts say.

The new basket will include the currencies of almost all of China’s trading partners and therefore will be more representative of the yuan’s performance against its peers, the announcement said.

Many analysts and investors said the basket can play only a limited role in steadying expectations for the yuan. A bigger issue, they said is how to break the cycle of greater depreciation leading to more outflows and more stress.

“The one-way depreciation has led to rising depreciation expectations, resulting in huge capital outflow pressure,” said China economist Larry Hu at Macquarie Securities, a Sydney-based investment bank.

The authorities face an imminent test as the clock is reset on individuals’ annual foreign-exchange quotas. Currently, Chinese citizens are allowed to exchange up to $50,000 worth of yuan a year. The opportunity to exchange yuan in 2017 is expected to set off fresh outflows, many analysts and economists said, potentially forcing Beijing to further tighten capital controls.

In recent weeks, the central bank has sought to slow the pace of the yuan’s depreciation by market interventions and a stronger-than-expected daily fix. Some of those efforts, like the actions to sell dollars and buy yuan, threaten to drain more liquidity from China’s financial system at a time when the demand for cash from ordinary Chinese is growing ahead of Lunar New Year in late January. Chinese traditionally make cash gifts during the Lunar New Year celebrations.

That demand has led to calls on the central bank to release more funds for commercial banks to lend. So far, the central bank appears to be maintaining a tightening bias in its monetary stance, analysts said, as any credit-loosening could add to more pressure on the yuan.

Write to Lingling Wei at

China expands forex basket, dilutes role of dollar

December 29, 2016


© AFP/File | China’s currency has been under pressure from uncertainty over the health of the world’s second largest economy

BEIJING (AFP) – China said Thursday it would almost double the number of foreign currencies it uses to determine the official value of the yuan, thereby diluting the role of the dollar.

The move to expand the foreign exchange basket used to set a daily reference rate for the yuan, or renminbi, will help Beijing shake off the weakness of the currency against the greenback and project an image of stability in the unit.

The dollar will see its prominence in the basket dented by the newcomers, with its share falling from 26.4 percent to 22.4 percent. It is followed by the euro at 16.34 percent.

Among the 11 currencies to join the 13 existing ones are the South Korean won, the South African rand, the Hungarian forint, the Turkish lira and the Polish zloty, according to the Chinese Foreign Exchange Trade System, which is run by the central bank.

The expansion is designed to “strengthen the representativeness” of the basket and will come into force on January 1, it added.

“The move is aim (ed) to reduce the impact of dollar strength on the overall performance of the basket,” said Christy Tan, head of markets strategy in Hong Kong at National Australia Bank Ltd.

China’s currency has been under pressure from uncertainty over the health of the world’s second largest economy, massive capital outflows and the sharp rise in the dollar following Donald Trump’s election victory and anticipation of US interest rate hikes.

However, when valued against the “basket of currencies” as a whole, the yuan fares much better, even seeing a rise over the past four months.

China’s communist regime likely hopes the move will project an image of stability and strengthen the international stature of the renminbi after it was welcomed by the International Monetary Fund into its elite currency basket in October.