Archive for September, 2017

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IF THERE is a consensus at the moment, it is that the global economy is finally managing a synchronised recovery. The purchasing managers' index for global manufacturing is at its highest level for six years; copper, the metal often seen as the most sensitive to global conditions, is up by a quarter since May. 

But Steen Jakobsen of Saxo Bank thinks this strength will not last. His leading indicator is a measure of the change in private sector credit growth. This peaked at the turn of the year and is now heading down sharply. Indeed the change in trend is the most negative since the financial crisis (see chart). Since this indicator leads the economy by 9-12 months, that suggests a significant economic slowdown either late this year or early  in 2018. He says thatThis call for a significant slowdown coincides with several facts: the ECB’s QE programme will conclude by end-2017 and will at best be scaled down by €10 billion per ECB meeting in 2018.  The Fed, for its part, will engage in quantitative tightening with its announced balance sheet runoff. All in all, the market already predicts significant tightening by mid-2018.Given the role played by central banks in propping up the economy and markets since 2009, it is certainly plausible that their role will be vital …

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Political leaders must learn to appreciate the virtues of budget deficits

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The borrowers

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What machines can tell from your face

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GOVERNMENTS do not always make the best budget managers. Assuming it avoids an accidental debt default, America will run a bigger budget deficit this year than the last, despite a booming economy. Germany runs a surplus—but scrimps on critical investments and annoys its euro-area neighbours in the process. Japan, cowering under a mammoth public-debt pile, is weighing raising its consumption tax, though the last rise strangled a tenuous economic recovery. It is awkward, therefore, that the role of fiscal policy as a recession-fighting tool is only growing. The next downturn will be a painful and dangerous learning experience for many politicians.
When that comes, at …

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THE last time Australia suffered a recession the web browser had just been invented and Bryan Adams topped the charts. Figures released today will show that its economy has racked up the longest stretch of growth in modern history: 104 quarters. The Netherlands, the previous title-holder, dipped into recession—defined as two consecutive quarters of contraction—after 103. In these 26 years, Australia has navigated the Asian financial crisis, the collapse of the dotcom bubble and the Great Recession, largely without scars. Its once-in-a-generation mining boom ended in 2014. Yet it has managed to avoid a bust. How did it break the record for economic growth?Its success was built on the structural reforms of the 1980s and ’90s, when trade barriers crumbled and foreign-exchange controls were removed. A floating dollar cushioned the economy against external aches; inflation stabilised around a target band of 2-3%; and government finances greatly improved. By the time the global financial crisis hit, Australia had enjoyed over a decade of budget surpluses and net debt had been eliminated. It helped that China’s demand for commodities was fuelling a mining boom that created jobs and pushed up wages. Australia’s terms of trade soared as it churned out coal and iron ore to feed its neighbour’s …

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