Tag Archives: Eco Indicators

World Recovery – Moped or V8 turbo

It seems that we currently have a recovery in the global economy that is either like that of a moped or a turbo charged V8. China and India are racing ahead of the more traditional developed countries as they avoided the credit crisis and the exposure to sub-prime mortgages.

Moped – USA, UK, EU
Turbo charged V8 – China, India, Brazil

Even through the turmoil of 2008 and 2009 the developing economies avoided the housing crisis and never had to bailout their banks or withstand the high unemployment and stagnant growth that plagued their developed counterparts. Some interesting facts from the World bank:

Developing economies share of world GDP – 1980 = 18% 2010 = 26%
Developing economies accounted for 45% of world GDP in 2010
Internal demand in China accounted for 80% of its GDP

India and China have a huge middle class which is now wishing to acquire all those western products. However, as investors look to emerging markets to deposit their money there is the risk of asset and property bubbles. Brazil has already increased its RRR Reserve Requirement Ratio – see previous post – QE or QT 1st April 2011. In order to soften the impact of inflation these countries could let their currency rise rapidly which would reduce the cost of their imports but this does affect the competitiveness of their exports.

30% of China’s GDP is generated from the export market.

Between 1999 and 2008, US multinationals slashed 1.1 million jobs in the US and added 2.4 million jobs overseas with more than 520,000 in China. In 2010 GM sold more cars in China than at home in the US. However what is more poignant is that of the 2.35 million cars sold in China 99% of them were made locally. It seems that the Brazil, India, and China are the new turbo economies to bring us out of recession.

Below are some useful indicators to show the Mopeds and the V8s of the world economy.

China’s Capitalist Revolution

Currently doing economic systems with my AS Level class and came across a DVD entitled “China’s Capitlist Revolution” (BBC) which is also on YouTube. It covers the radical movement in China from a economic communist system to that of the free market. China has maintained the political system of communism but embraced the economic system of capitalism – often alluded to as Market Socialism. Some very interesting facts including a factory that would complete their yearly quota in 3 days.

When will China overtake the US?

A few days have past since my last post – I’ve been on holiday where there was no Internet access. Here is an interesting gaphic from The Economist where you can input data into their interactive chart to predict when China will overtake the USA as the world’s major economy. Click here to go to the page on The Economist site.

Our best guess for the next decade is that annual real GDP growth averages 7.75% in China and 2.5% in America, inflation rates average 4% and 1.5%, and the yuan appreciates by 3% a year. Plug in these numbers and China will overtake America in 2019. But if China’s real growth rate slows to an annual average of only 5%, then (leaving the other assumptions unchanged) China would become number one in 2022. Please place your own bets.

Problems of the long-term unemployed

The New York Times recently ran a very interesting article on the long-term unemployed. Economists and politicians have been debating whether the problems in the job market are primarily cyclical – influenced by the business cycle or structural – the decline of a certain occupations. What they seem to miss is the fact that cyclical can be structural as workers become less employable the longer they are out of work

It is acknowledged that the likelihood of finding a job falls considerably the longe the person has been out of work. Research by Robert Shimer from the University of Chicago averaged job-finding data from the Bureau of Labour Statistics from January 1976 to October 2007, looking at only people who either lost or left jobs before becoming unemployed (that is, excluding people who were new entrants or re-entrants to the labor force).

The horizontal axis shows how long someone has been unemployed, and the vertical axis shows the likelihood that the person will find a job in the next month. Shimer found that 51 percent of workers who had been unemployed for one week obtained work in the following month, but the share declined sharply after that.

Over recent decades, a person out of work for a week was nearly four times as likely to find a job the next month as a counterpart who’d been out of work for a year.

Furthermore, the re-employment data by week shows the same trend in that the longer you are unemployed the less likely you are to get back into the labour force – see graph below:

But the experience of unemployment itself also seems to damage workers’ prospects.

1. Employers will look at a yawning gap in a worker’s resume and wonder why no one else would take this applicant. It’s the “lemon” issue that also applies to housing and used cars: The fact that a person has been unemployed for so long (or that, say, a house has been on the market so long) is a signal that something is defective, even if the defect is not obvious to the naked eye.
2. Employers may also worry that jobless people have gotten out of the habit of working, which appears to be a valid concern.

But the other effects of long-term unemployment may be more permanently scarring. This is a phenomenon Europe appeared to go through starting in the 1980s, as an entire class of workers became very difficult to put back to gainful employment.

US labour market going sideways – Paul Krugman

Last week the U.S. jobs report was better than forecast, with private sector hiring more than double what economists had expected. It wasn’t enough to put a dent in the jobless rate, but it suggested businesses may be getting more confident. Unemployment is 9.6% with over 15 milion people out of work. According to Paul Krugman:
There’s not much news here. This is still a picture of a labour market going sideways. So, if you believe one survey, we’re adding jobs at a pace that, if continued, would bring us to full employment around the year 2030. And if you believe the other survey, actually, things are getting a little bit worse, because the job growth isn’t keeping up with population. This is not progress. It’s better than a big negative number, but it’s not good.

Have a look at this interview on PBS Newshour

New Zealand and World Economy Overview

Following on from my previous posting on the Outlook for the New Zealand economy, here is some more commentary and data that might be useful for the forthcoming CIE and NCEA exams.

Outlook for the New Zealand Economy (from Parliamentary Economic Review)
The economy is forecast to remain relatively weak over the short-term, with households and businesses paying down debt rather than consuming and investing in capital. Rebuilding activity in the Canterbury region will provide a stimulus to growth over the next year or so, as will rising export receipts on the back of high commodity prices and increased demand from Australia and China in particular. However, the high New Zealand dollar against some currencies will be of concern for some exporters (but favourable for importers). The unemployment rate is forecast to ease gradually over the coming year. Most economic commentators believe that the Reserve Bank will hold off raising its official cash rate until next March. A further round of quantitative easing in the United States is expected, which will place downward pressure on the United States dollar (and consequently, further upward pressure on the New Zealand dollar).

Outlook for World Economy (from IMF Oct. Report)
Thus far, economic recovery is proceeding broadly as expected, but downside risks remain elevated. Most advanced economies and a few emerging economies still face large adjustments. Their recoveries are proceeding at a sluggish pace, and high unemployment poses major social challenges. By contrast, many emerging and developing economies are again seeing strong growth, because they did not experience major financial excesses just prior to the Great Recession. Sustained, healthy recovery rests on two rebalancing acts: internal rebalancing, with a strengthening of private demand in advanced economies, allowing for fiscal consolidation; and external rebalancing, with an increase in net exports in deficit countries, such as the United States, and a decrease in net exports in surplus countries, notably emerging Asia. The two interact in strong ways. Increased net exports in advanced economies imply higher demand and higher growth, allowing more room for fiscal consolidation. Strengthened domestic demand helps emerging market economies maintain growth in the face of lower exports.

Central Bank interest rates (13th Oct 2010)


 

 

 

 

Exchange Rates – NZ$1 as at 13th Oct 2010

 

 

 

 

Oil – 13th Oct 2010
Brent crude: US$83.98 per barrel

Outlook for New Zealand Economy

Whether students are doing NCEA or CIE I feel it is important for them to have some knowledge of the current state of the macro indicators in the NZ economy. The BNZ publication entitled “New Zealand At A Glance” produces a good summary of these indicators. They include the following:

*NZ’s Trading-Partner Growth
*Gross Domestic Product
*Unemployment Rate
*Consumer Price Index
*Current Account Balance

We remain in a period of significant uncertainty. That’s not going to change any time soon. Even longer lasting will be the period of deleveraging that we now face. This will place restrictions on economic activity, particularly in the developed world, for the foreseeable future. Be that as it may, we still believe the New Zealand economy can put in a creditable performance over the next year or so. Indeed, more creditable than many care to believe. Accordingly, we think the cash rate will eventually move higher than the market has priced and that the NZD may now hold up for longer than we had first believed. Click the link below to download the full article.
NZGlance_101007

Business Policy versus Government Policy

Many thanks to colleague John Beck from the Geography Dept for this piece by Bryan Gould in today’s New Zealand Herald. Former UK Labour Party Deputy Leader and currently Vice-Chancellor of Waikato University argues that in recessionary phases of the economic cycle what is in the best interests of a business is the opposite of what the actual economy requires. A business might cut costs and make workers redundant to help its balance sheet but the economy requires more employment and spending to get out of the downturn. Good economic management may often seem counter-intuitive. A case in point is what economists call the “lump of labour” fallacy – the belief that there is a fixed amount of work available and that the task is to decide how that is to be shared out fairly. Click here to see the full article.