Archive for July, 2016

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The Economist asks

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Anne McElvoy is joined in The Economist studio by Ruchir Sharma, investment strategist and author of The Rise and Fall of Nations: Forces of Change in a Post-Crisis World, to discuss the continuing legacy of the 2007-8 financial crash, the prospects for investment in a low growth world- and how The Economist defied the curse of the cover story.

 

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20160728

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The new political divide

The volume of world merchandise trade grew by an insipid 2.7% in 2015, the fourth year in a row that it had been below 3%. China’s slowdown and recession in places like Brazil weighed on trade. Between 1990 and 2008, trade grew twice as fast as world GDP on average; last year they were roughly similar. Statistics on trade value are gloomier still. In 2015 the value of merchandise trade in current dollar terms plummeted by 13% to $16 trillion, due largely to the strong dollar and plunging commodity prices. Although merchandise trade values seemed to stabilise in the first quarter of 2016 as dollar appreciation slowed and oil prices started to recover, the outlook is still subdued.

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20160730

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The new political divide

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Abenomics

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What Japan’s economic experiment can teach the rest of the world

IN THE 1980s Japan was a closely studied example of economic dynamism. In the decades since, it has commanded attention largely for its economic stagnation. After years of falling prices and fitful growth, Japan’s nominal GDP was roughly the same in 2015 as it was 20 years earlier. America’s grew by 134% in the same time period; even Italy’s went up by two-thirds. Now Japan is in the spotlight for a different reason: its attempts at economic resuscitation.
To reflate Japan and reform it, Shinzo Abe, prime minister since December 2012, proposed the three “arrows” of what has become known as Abenomics: monetary stimulus, fiscal “flexibility” and structural reform. The first arrow would mobilise Japan’s productive powers and the third would expand them, allowing the second arrow to hit an …

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Erdogan’s revenge

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Big economic ideas

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IT IS easy enough to criticise economists: too superior, too blinkered, too often wrong. Paul Samuelson, one of the discipline’s great figures, once lampooned stockmarkets for predicting nine out of the last five recessions. Economists, in contrast, barely ever see downturns coming. They failed to predict the 2007-08 financial crisis.
Yet this is not the best test of success. Much as doctors understand diseases but cannot predict when you will fall ill, economists’ fundamental mission is not to forecast recessions but to explain how the world works. Over the next six weeks we will be running a series of briefs on important economic theories that did just that—from the Nash equilibrium, a cornerstone of game theory, to the Mundell-Fleming trilemma, which lays bare the trade-offs countries face in their management of capital flows, exchange rates and monetary policy; from the financial-instability hypothesis of Hyman Minsky to …

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IN LATE 2008, during a briefing at the London School of Economics, Queen Elizabeth II famously asked why no-one had seen the downturn coming. There can be no better answer than the current furore over the outlook for the British economy in the wake of the vote to leave the EU. A poll by Bloomberg shows that economists expect the UK economy to shrink by a modest 0.1% in each of the third and fourth quarters, compared with the 0.6% gains expected before the vote. And the forecast growth rate for next year will be a sluggish 0.6%. The IMF is a bit more upbeat, expecting 1.3% growth next year, but that is still 0.9 percentage points lower than its pre-referendum expectation.Why the gloom? This explanation from Barclays is fairly typical.we expect already elevated levels of uncertainty will spiral out of control. Therefore, we forecast fixed investment to materially contract immediately, with consumption to ease at first before contracting by end-2017 as households feel the pinch from rising unemployment and a sharp increase in headline CPI weighing down spending power. Hence, we forecast UK GDP growth of 1.1% in 2016 and -0.4% in 2017, following 2.2% in 2015.Such forecasts are hardly a surprise, given the widespread view of economists before the referendum that the short-term impact of a Brexit vote would be damaging. But this is not going down well with the Leave camp, …

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Paul Ryan talks to Steve Inskeep about his ideas to reshape the countries policies to address poverty in America. He wants welfare benefits to be tapered as recipients’ financial situations improve.

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THIS ought to be an obvious point but it bears stating at the outset, to be as clear as possible: China’s growth remains strong. Its economy expanded 6.7% year-on-year in the second quarter, according to data published today, exactly level with its first-quarter pace. Coming off last year’s stockmarket crash and the surprise depreciation of the yuan, many had expected the economy to swoon this year. Willem Buiter, chief economist of Citigroup, had even talked about China falling into a recession in mid-2016 (i.e. right about now). This newspaper had been more upbeat about its growth prospects for this year, if not over the longer term. So far at least, the economy is holding up well.The veracity of the data is, as ever, open to question. There has long been evidence that the government smooths out growth trends over time. Last year, it appeared to be playing games with the GDP deflator, in effect depicting real growth as stronger than it actually was. But a big jump in the deflator in the second quarter (to 1.69% from -0.45% in the final quarter last year) is more closely aligned with price movements in the economy, suggesting that reported growth now is probably a little closer to reality than it was last year. Moreover, there are a host of alternative indicators that support this view: infrastructure investment has surged, the property market has had a strong first half …

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