One of my A2 students alerted me to the fact that the Yangtze River and the Shanghai Stock Exchange Composite Index (SSEC) in the post GFC period are quite similar in shape. Maybe the building of the three gorges dam led to a drop in the SSEC index.
A hat tip once again to colleague David Parr for this piece on buckwheat prices. As Russia comes to term with falling oil prices, a depreciating rouble, high inflation and sanctions over the Ukrainian crisis there is one other indicator that is worth a mention – buckwheat prices.
Buckwheat is seen as part of the Russian staple diet and can be eaten with any meal in Russia – porridge, served with liver, stuffed inside a roast piglet. It was when rumours started that buckwheat supplies were running low that shoppers rushed out to supermarkets to fill their trolleys. A drought in Russia reduced the buckwheat harvest from 700,000 tonnes to under 600,000 tonnes but this could hardly cause the rapid increase in prices. However media reports were enough to act as a catalyst for panic buying amongst consumers -it took only four days for the town of Penza to be stripped of buckwheat stocks which normally last for two months. In Moscow buckwheat rose from around 30 rubbles to 50 rubbles. Furthermore with the introduction of Western sanctions people are starting to stock pile buckwheat as they are unsure of what will eventuate. It is estimated that over a third of the population have stocked up on buckwheat over the last month.
It seems that buckwheat is a sacred food for Russians and it tends to be in very short supply when there is any sign of crisis in the economy. But it is not just buckwheat which has increased in price. There has been a 30-40% increase in basic foods such as eggs, fish chicken, and sausages as Russia enforces retaliatory embargo banning Western food imports.
Listening to “From Our Own Correspondent” on the BBC World Service I came across an interesting piece by Kate Adie on Global Trade. With the downturn in global trade the international transport industry has been very much affected. Those that have been associated with the distribution of goods get an early indication of the slowdown in global growth. The obvious indicators are: idle cranes, queues of merchant ships dwindle etc. But what about the speed of cargo ships and the length of ladders to climb aboard?
When the world economy was “steaming” ahead the captain of a merchant ship said that they cruised at 20 knots but when the economic crisis of 2008 arrived we slowed to 16 knots. A harbour pilot summed up the state of world trade by the length of the ladders that he climbs on the sides of ships.
A long climb up the ladder signifies that the ship is high in the water and exports are correspondingly low.
A short climb up the ladder signifies that the ship is low in the water and exports are correspondingly high.
The seafarers say that they take air to China before they load up with goods for the US.
An interesting paper by Ming Dong, Andréanne Tremblay of York University, Toronto investigated the effects of five weather conditions (sunshine, wind, rain, snow depth, and temperature) on daily index returns of 49 countries from 1973 to 2012.
The effects of the weather on mood depend critically on geographical regions, and more precisely, on regions defined by their annual average temperature. The emotional effects of other weather variables may be also specific to the temperature region – in hot countries rain might seen as a positive whilst in cold climates rain could be seen to exacerbate the cold climate. However they make two assumptions:
1. Comfortable weather should lead to an upbeat investor mood and therefore high stock returns.
2. The weather effects on returns should be stronger when people spend more time outdoors or when outdoor time is more valuable.
Here are some of their findings:
In the cold region, the positive sunshine effect on returns concentrates in the summer, when investors spend more time outdoors, and in late winter and early spring, when the marginal utility of outdoor experience may be particularly high after a long winter. However very cold weather is also associated with higher returns which suggest that cold stimulates risk-taking, referring to psychological studies in which participants reported increased aggression as temperatures dropped below -8 degrees C.
Sunshine has a positive effect on returns during the warmer portion of the year, from May through September—but not June or July, presumably because the scorching sun compromises the outdoor time during peak heat. The sunshine effect is also strong from December to February, consistent with the idea that sunshine brings pleasant warmth during the winter when people still spend considerable time outdoors.
Stock returns and temperature are strongly negatively correlated in the winter (from December to February). This finding is incompatible with the comfortable weather hypothesis, because it is unlikely that during winter times in the cold region, lower temperature leads to happy mood.
1. The effects of the weather on stock returns depend critically on the temperature environment, which is characterised by geographical region and month of the year.
2. All five weather conditions significantly influence returns, especially during seasons when people expect to spend, or highly value, time in the outdoors.
Here is something that I picked up from David Carpenter’s blog post on the Tutor2u site. It is an ebook put together by his A level economics class and is a useful guideline to the characteristics of Developing Countries. It goes through 5 categories for each country
4. Economy and Trade
5. Poverty & Income Inequality
This would be a worthwhile exercise for those doing Cambridge A2 economics Unit 6. Click below to download.
Developing Country Case Studies Edexcel Economics Unit 4
Heard about this indicator on National Radio Morning Report programme this morning and is another variable that can be useful to gauge the state of the economy. The ANZ Truckometer is a set of two economic indicators derived using traffic volume data from around the country. Traffic flows are a real-time and real-world proxy for economic activity –particularly for the New Zealand economy, where a large proportion of freight is moved by road. It represents an extremely timely barometer of economic momentum. The ANZ Heavy Traffic Index shows a strong contemporaneous relationship to GDP, while the ANZ Light Traffic Index has a six month lead on activity as measured by GDP. Notice the change around 2007/08 with the GFC.
The Daily Chart in The Economist recently looked at the fastest growing and contracting economies since 1980. The main points:
Fastest Growing: In 2012 Libya with 122% growth came out on top – due to the recovery of oil production. However you must remember that this is a % change from the previous year when the economy contracted by about 60% with the civil unrest and the departure of foreign oil companies. Statistically this creates a smaller base when you calculate % change.
If a country’s GDP shrinks by 60%, it must grow by 150% just to restore its former size. Thus even if Libya fulfills the IMF’s forecast for this year, its GDP will still be smaller than it was in 2010
The Economist also looked at other countries that had fast growth rates but this was predominately due to a disaster of some sort in the preceding year or the discovery of a natural resource.
Equitorial Guinea – In the 1990‘s very poor and depended on cocoa and timber for income. 1996 they discovered oil and attracted FDI. After producing 80,000 barrels per day increasing GDP by 150%.
Kuwait – contracted 41% during the first Gulf War on 1991 but grew 50% the next year as growth started to return.
It is important that you are aware of current issues to do with the New Zealand and the World Economy. Examiners always like students to relate current issues to the economic theory as it gives a good impression of being well read in the subject. Only use these indicators if it is applicable to the question.
Indicators that you might want to mention are as follows:
The New Zealand Economy
The New Zealand economy expanded by 0.6 percent in the June 2012 quarter, while economic growth in the March quarter was revised down slightly to one percent. Favourable weather conditions leading to an increase in milk production was a significant driver of economic growth over the June quarter. The current account deficit rose to $10,087 million in the year ended June 2012, equivalent to 4.9 percent of GDP. Higher profits by foreign-owned New Zealand-operated banks and higher international fuel prices were factors behind the increase in the deficit during the year. Unemployment is currently at 6.8% but is expected to fall below 6% with the predicted increase in GDP. Annual inflation is approaching its trough. It is of the opinion that it will head towards the top end of the Reserve Bank’s target band (3%) by late next year.
The Global Economy
After the Global Financial Crisis (GFC) the debt-burdened economies are still struggling to reduce household debt to pre-crisis levels and monetary and fiscal policies have failed to overcome “liquidity traps”. Rising budget deficits and government debt levels have become more unsustainable. The US have employed the third round of quantitative easing and are buying US$40bn of mortgage backed securities each month as well as indicating that interest rates will remain at near zero levels until 2015. Meanwhile in the eurozone governments have implemented policies of austerity and are taking money out of the circular flow. However in the emerging economies there has been increasing inflation arising from capacity constraints as well as excess credit creation. Overall the deleveraging process can take years as the excesses of the previous credit booms are unwound. The price to be paid is a period of sub-trend economic growth which in Japan’s case ends up in lost decades of growth and diminished productive potential. The main economies are essentially pursuing their own policies especially as the election cycle demands a more domestic focus for government policy – voter concerns are low incomes and rising unemployment. Next month see the US elections and the changing of the guard in China. In early 2013 there is elections in Germany. The International Monetary Fund released their World Economic Outlook in which they downgraded their formal growth outlook. They also described the risk of a global recession as “alarmingly high”.
Here is a graph I got from the Business Insider website. The American Trucking Association (ATA) Index measures tonnage being moved in the US and its movements correlate quite nicely with that of economic growth in the economy. ATA Chief Economist Bob Costello said. “Manufacturing output was strong in June, which helped tonnage levels.”
Costello said he’s still concerned about businesses sitting on cash instead of hiring more workers or spending it on capital, both of which would give the economy and tonnage a shot in the arm, as they are worried about Europe and the U.S. fiscal cliff at the end of the year. Costello lowered his tonnage outlook for 2012 to the 3% to 3.5% range due to recent economic weakness.
I got this video on Poverty from Ben White on Twitter – very useful for Unit 6 of the Cambridge International A2 Economics course. Produced by the World Bank it asks the following questions:
Do you wonder how we measure poverty?
Do you know how we do it, but have a hard time putting it into simple words?
This 3 minute video explains the methodology that we used, how it works and why it is important. Click here to go to their website.