Growing warnings about world economic outlook

In general the world economy has recovered and prospered since the Global Financial Crisis of 2007-2008, but there are growing warnings that the bubble might at least slow down. There is always a risk of it bursting.

International Monetary Fund:  World Economic Outlook, April 2019 Growth Slowdown, Precarious Recovery

After strong growth in 2017 and early 2018, global economic activity slowed notably in the second half of last year, reflecting a confluence of factors affecting major economies.

China’s growth declined following a combination of needed regulatory tightening to rein in shadow banking and an increase in trade tensions with the United States.

The euro area economy lost more momentum than expected as consumer and business confidence weakened and car production in Germany was disrupted by the introduction of new emission standards; investment dropped in Italy as sovereign spreads widened; and external demand, especially from emerging Asia, softened.

Elsewhere, natural disasters hurt activity in Japan. Trade tensions increasingly took a toll on business confidence and, so, financial market sentiment worsened, with financial conditions tightening for vulnerable emerging markets in the spring of 2018 and then in advanced economies later in the year, weighing on global demand.

Conditions have eased in 2019 as the US Federal Reserve signalled a more accommodative monetary policy stance and markets became more optimistic about a US–China trade deal, but they remain slightly more restrictive than in the fall.

Greg Jericho (Guardian Australia): The outlook for the global economy goes from bright to precarious

At the start of last year things were looking almost upbeat. The title of the IMF’s January update, Brighter Prospects, Optimistic Markets, Challenges Ahead, is economic speak for “cripes, aren’t we all a bit unusually happy!”. By April 2018 the title had become “Cyclical Upswing, Structural Change”, which again spoke of economic sunshine, even if it did warn of the need to adjust to the post-GFC world.

By the middle of last year the July update was warning “Less Even Expansion, Rising Trade Tensions”, and the October outlook was a decidedly measured if still somewhat neutral, “Challenges to Steady Growth”.

But with this new year, all neutrality has disappeared. The January update stated it plain: “A Weakening Global Expansion”. And just in case you had not caught their drift, the latest outlook, released this week, was headed, “Growth Slowdown, Precarious Recovery

From brighter prospect to precarious recovery in less than two years. Hope you enjoyed that moment of economic joy while it lasted.

The decline is across roughly 70% of the world’s economies, with the IMF blaming the “escalation of US–China trade tensions”, troubles in the “auto sector in Germany” plus “tighter credit policies in China, and financial tightening alongside the normalization of monetary policy in the larger advanced economies.”

In effect the structural changes and rising trade tensions warned in previous outlooks all came to pass.

Financial Times:  US consumer sentiment misses view as economic outlook softens

US consumer sentiment dipped in April as consumers’ economic outlook weakened and as they thought “stimulative impact” of the tax overhaul “has run its course”.

The University of Michigan’s preliminary consumer sentiment survey slid to 96.9 in April, from 98.4 the previous month. That missed analysts’ expectations for a drop to 98, according to a Thomson Reuters survey of economists.

Despite the modest decline, sentiment over the past 30 months remains higher than any other time since the 1997-2000 US economic expansion, as consumer confidence “continued its sideways shuffle in early April”, the report noted.

The report also showed the impact of the 2018 US tax overhaul on consumer sentiment has “all but disappeared”. The decline in consumer confidence follows the best first quarter for the S&P 500 in 21 years but comes amid uncertainty about the US economic outlook. The report showed the index of consumer expectations about the future fell to 85.8 — its lowest level in more than a year — from 88.8 the previous month.

Officials at the Federal Reserve have outlined “significant uncertainties” over the US and global economic outlook, according to the minutes of the central bank’s latest meeting, with some officials stressing their outlook could “shift in either direction”.

The Newyorker: The High-Stakes Battle Between Donald Trump and the Federal Reserve

For months now, Trump has been publicly railing against the Fed. In private, Bloomberg reported, he has been asking his aides if he can fire Powell, a sixty-six-year-old Republican banker who was confirmed at the start of last year. (According to legal experts, the question is a murky one.) On Friday, Trump again defied the convention that the President stays out of monetary policy, calling on Powell and his colleagues to cut interest rates in order to boost the economy.

Referring to the rate hikes that the Fed introduced last year, which were the source of his animus toward Powell, Trump said, “I think they really slowed us down.” Trump’s senior economic adviser in the White House, Larry Kudlow, has also called for a rate cut.

In addition to jawboning the Fed, Trump has moved to exert more control over its deliberations by announcing his intention to nominate two of his ardent political supporters to its board of directors: Stephen Moore, a conservative commentator who served as an economic adviser to the Trump campaign in 2016, and Herman Cain, a Republican businessman who ran for President, in 2012.

Ignoring widespread criticism that neither Moore nor Cain is remotely qualified to sit on the Fed’s board, Kudlow said on Sunday that Trump is standing behind both of them. “We have two open seats,” he told CNN. “The President has every right in the world to nominate people who share his economic philosophy.”

Business Insider: Trump’s pick of former pizza-chain CEO Herman Cain for the Federal Reserve already looks like it could crash and burn

It’s been less than a week since President Donald Trump announced the selection of Herman Cain, the former Godfather’s Pizza CEO and 2012 Republican presidential candidate, for the Federal Reserve Board. The outlook already doesn’t look good for the potential nomination.

Washington Post: Four Senate Republicans signal opposition to Trump’s plan to put Herman Cain on Federal Reserve Board, all but sinking nomination

A swift defection of at least four Senate Republicans has all but doomed Herman Cain’s chances of winning a seat on the Federal Reserve’s board of governors, a striking rebuke to President Trump in his drive to remake the powerful U.S. central bank.

The rapid rejection of Cain — a 2012 GOP presidential candidate — pauses Trump’s effort to remold the central bank into a more political body with outspoken individuals who share his views. It also reflects a growing unease among Senate Republicans with the way Trump has tried to bend the institution to his will in the past six months.

Trump has jawboned Fed officials and pushed them to slash interest rates and flood the economy with cheap money, even though during his presidential campaign he accused the central bank of creating a “big, fat, ugly bubble.”

So uncertainty in the US doesn’t help.

RNZ Robertson: NZ economy well placed to handle impact of global downturn

The IMF is predicting New Zealand’s growth rates will be well ahead of other OECD countries in the face of a delicate moment for the global economy, Finance Minister Grant Robertson says.

Two days ago the International Monetary Fund cut its forecast for world economic growth this year as the global economy slowed more than expected, raising risks of a sharp downturn.

The impact of trade tensions between the United States and China and issues in Europe, including Brexit and some poorer performing economies among EU member countries, were among key risks contributing to a “delicate moment” for the global economy, IMF chief economist Gita Gopinath said.

In its third downgrade since October, the IMF said the global economy will likely grow 3.3 percent this year, the slowest expansion since 2016. The forecast cut 0.2 percentage points from the IMF’s outlook in January.

The projected growth rate for next year was unchanged at 3.6 percent.

Mr Robertson, who is at IMF and World Bank meetings in Washington, told Morning Report the IMF was predicting New Zealand’s growth rates will be well ahead of other OECD countries.

However, with economies slowing down in other parts of the world, there would be an impact for New Zealand as a small trading nation. The economy remained strong with sound fundamentals, including relatively low debt, low unemployment, and surpluses in the 2018 Budget.

So while the New Zealand outlook is relatively good any slowdown elsewhere in the world, especially the US, Australia (which is looking shaky) and China, will have a negative impact here.

The world is actually becoming a better place

Despite a lot of bad news and dire predictions NZ Herald repeats a story from The Conversation on Seven charts that show the world is actually becoming a better place.

Obviously that means better for people overall, there are some who have had a deterioration in their situations, like in Syria and Yemen (wars are always crap for people, but there are fewer and smaller wars these days).

Of course this doesn’t look intoo the future and what may happen through things like over-population, pollution, depletion of resources and climate change.

Swedish academic Hans Rosling has identified a worrying trend: not only do many people across advanced economies have no idea that the world is becoming a much better place, but they actually even think the opposite. This is no wonder, when the news focuses on reporting catastrophes, terrorist attacks, wars and famines.

Who wants to hear about the fact that every day some 200,000 people around the world are lifted above the US$2-a-day poverty line? Or that more than 300,000 people a day get access to electricity and clean water for the first time every day?

These stories of people in low-income countries simply doesn’t make for exciting news coverage. But, as Rosling pointed out in his book Factfulness, it’s important to put all the bad news in perspective, reports The Conversation.

While it is true that globalisation has put some downward pressure on middle-class wagesin advanced economies in recent decades, it has also helped lift hundreds of millions of people above the global poverty line – a development that has mostly occurred in South-East Asia.

one of the big facts of economic history is that until quite recently a significant part of the world population has lived under quite miserable conditions – and this has been true throughout most of human history. The following seven charts show how the world has become a much better place compared to just a few decades ago.

I won’t include the charts here but this is what they claim:

1. Life expectancy continues to rise.

During the Industrial Revolution, average life expectancy across European countries did not exceed around 35 years. Now it is getting close to 80. It has risen to over 70 in most other parts of the world, except Africa but even there it is on the rise and now over 60.

2. Child mortality continues to fall

More than a century ago, child mortality rates were still exceeding 10% (and were much higher than that 200 years ago). This halved overall, and for many parts of the world it is close to 1%.

3. Fertility rates are falling

 UN population estimates largely expect the global population to stabilise at about 11 billion by the end of this century.

That’s still a lot more than the current population of about 7.5 billion.

4. GDP growth has accelerated in developed countries.

Low-income countries, including China and India, have been growing at a significantly faster pace in recent decades and are quickly catching up to the West. A 10% growth rate over a prolonged period means that income levels double roughly every seven years. It is obviously good news if prosperity is more shared across the globe.

5. Global income inequality has gone down

While inequality within countries has gone up as a result of globalisation, global inequality has been on a steady downward trend for several decades. This is mostly a result of developing countries such as China and India where hundreds of millions of people have seen their living standards improve.

6. More people are living in democracies

As of today, about half of the human population is living in a democracy. Out of those still living in autocracies, 90% are in China.

7. Conflicts are on the decline

Throughout history, the world has been riven by conflict. In fact, at least two of the world’s largest powers have been at war with each other more than 50% of the time since about 1500.

While the early 20th century was especially brutal with two world wars in rapid succession, the postwar period has been very peaceful. For the first time ever, there has been no war or conflict in Western Europe in about three generations.

All of these indicators are positive for us here in New Zealand. We live in the best of times ever in human existence, in one of the most human friendly parts of the world. We have a lot to be thankful for, but shouldn’t be complacent about future challenges.

Life expectancy improvements

This shows how much life expectancy (at birth) has improved around the world over the last two centuries.

While they have improved a lot quite a few countries still lag behind developed countries by quite aa margin.

World poverty

Many people claim or believe that poverty its a either an unresolved problem or a growing problem, but statistics show that it has improved substantially.

From HumanProgress: Five Graphs that Will Change Your Mind About Poverty

In 1820, more than 90 per cent of the world population lived on less than $2 a day and more than 80 per cent lived on less than $1 a day (adjusted for inflation and differences in purchasing power). By 2015, less than 10 per cent of people lived on less than $1.90 a day, the World Bank’s current official definition of extreme poverty.

Not only has the percentage of people living in poverty declined, but the number of people in poverty has fallen as well – despite massive population growth. There are also more people alive who are not in penury than there have ever been. From 1820 to 2015, the number of people in extreme poverty fell from over a billion to 700 million, while the number of people better off than that rose from a mere 60 million to 6.6 billion.

Globally, poverty is about a quarter of what it was in 1990. And the graph below from Johan Norberg’s excellent book, Progress: 10 Reasons to Look Forward to the Future, illustrates how the decline of extreme poverty has raised living standards and brought about other tangible improvements. As poverty has lessened, so have child mortality, illiteracy, and even pollution in wealthy countries – all are now less than half of what they were in 1990. Hunger has also become much rarer.

If progress continues on its current trajectory, the Brookings Institution estimated in 2013 that extreme poverty (this time defined as living on $1.25 a day, again adjusted for inflation and differences in purchasing power) will all but vanish by 2030, affecting only 5 per cent of the global population. This is what they considered to be the “baseline” or most likely scenario. In the best-case scenario, they predicted that by 2030 poverty will decrease to a truly negligible level, affecting only 1.4 per cent of the planet’s population.

This is a measure of significant or extreme poverty.

Debate over poverty in New Zealand has risen over the last few years, but i think this is a different degree of poverty – many people are not as well off as they perhaps they should be in a modern society, but even here dire living conditions are uncommon.

And – have the claims of poverty been less prominent since the Labour led Government came to power? I don’t think the situation of the country’s poor people has changed markedly, but the focus seems to have faded away.

However here is still plenty that can and should be done to improve the living conditions and prospects for the poorest people in New Zealand.

Banker warns of financial bubble risks

Since recovering from the Global Financial Crisis in 2008 and the impact of the Christchurch earthquakes the economy has been humming along nicely in New Zealand for the last couple of years, allowing for political promises of increased spending. Some caution may be prudent.

However the world economic risks have risen – President Donald Trump claims to have lifted the US stock market and business confidence, but a world banker claims there is a bubble that is at risk of bursting.

NZH – Breaking point: World financial system as stretched as before 2008 crash, says banker

The world financial system is as dangerously stretched today as it was at the peak of the last bubble but this time the authorities are caught in a “policy trap” with few defences left, a veteran central banker has warned.

Nine years of emergency money has had a string of perverse effects and lured emerging markets into debt dependency, without addressing the structural causes of the global disorder.

“All the market indicators right now look very similar to what we saw before the Lehman crisis, but the lesson has somehow been forgotten,” said William White, the Swiss-based head of the OECD’s review board and ex-chief economist for the Bank for International Settlements.

Prof White said disturbing evidence of credit degradation is emerging almost daily.

Prof White said there was an intoxicating optimism at the top of every unstable boom when people convince themselves that risk is fading, but that is when the worst mistakes are made. Stress indicators were equally depres-sed in 2007 just before the storm broke.

This time central banks are holding a particularly ferocious tiger by the tail. Global debt ratios have surged by a further 51 percentage points of GDP since the Lehman crisis, reaching a record 327 per cent (IIF data).

“Central banks have been pouring more fuel on the fire,” he told The Daily Telegraph, speaking before the World Economic Forum in Davos.

The US Federal Reserve is already reversing bond purchases – ignoring warnings by former Fed chair Ben Bernanke – and will ratchet up the pace to US$50b a month this year. It will lead to a surge in supply of US Treasury bonds just as the Trump Administration’s tax and spending blitz pushes the US budget deficit toward US$1 trillion, and China and Japan trim Treasury holdings.

It has the makings of a perfect storm. At best, the implication is that yields on 10-year Treasuries – the world’s benchmark price of money – will spike enough to send tremors through credit markets.

The world economy is always at risk of catastrophe. There are always people predicting imminent financial collapse.

The edifice of inflated equity and asset markets is built on the premise that interest rates will remain pinned to the floor. The latest stability report by the US Treasury’s Office of Financial Research warned that a 100 basis point rate rise would slash US$1.2 trillion of value from the Barclays US Aggregate Bond Index, with further losses once junk bonds, fixed-rate mortgages, and derivatives are included.

The global fall-out could be violent.

If that happens it will impact on New Zealand. If interest rates rise or property prices fall it will create difficulties many property owners. If interest rates rise and property prices fall the damage will be greater.

While higher inflation is needed in one sense to right the global ship – since it lifts nominal GDP faster, and whittles down debt – the danger is that the shock of higher rates will hit first.

Central banks are now caught in a “debt trap”. They cannot hold rates near zero as inflation pressures build, but they cannot easily raise rates either because it risks blowing up the system. “It is frankly scary,” said Prof White.

The authorities may not yet have reached the end of the road but this strategy is clearly pregnant with danger. Global finance has become so sensitive to monetary policy that central banks risk triggering a downturn long before they have built up the safety buffer of 400 to 500 basis points in interest rate cuts needed to fight recessions.

“We are running out of ammunition. I am afraid that at some point this is going to be resolved with a lot of debt defaults. And what did we do with the demographic dividend? We wasted it,” he said.

Financial hiccups are inevitable, it’s just a matter of when and how drastic.

The New Zealand Government has committed to ‘fiscal responsibility’ – it may be wise for them to stick to that aim.

NZ night lights

NASA has released composite images of the world as lit up at night. Here is New Zealand:

NZByNight

And the rest of the world (with us omitted):

324350main_11_full

Our lights would hardly show up on that scale.

No wonder at Arctic is melting with all that energy being burned in the northern hemisphere.

NASA: Earth at night

Temperature record for third straight year

Reports keep coming out of record world temperatures.

NY Times: Earth Sets a Temperature Record for the Third Straight Year

Marking another milestone for a changing planet, scientists reported on Wednesday that the Earth reached its highest temperature on record in 2016 — trouncing a record set only a year earlier, which beat one set in 2014. It is the first time in the modern era of global warming data that temperatures have blown past the previous record three years in a row.

The Earth is heating up, a point long beyond serious scientific dispute, but one becoming more evident as the records keep falling. Temperatures are heading toward levels that many experts believe will pose a profound threat to both the natural world and to human civilization.

In 2015 and 2016, the planetary warming was intensified by the weather pattern known as El Niño, in which the Pacific Ocean released a huge burst of energy and water vapor into the atmosphere.

But the bigger factor in setting the records was the long-term trend of rising temperature, which scientists say is being driven by increasing levels of carbon dioxide and other greenhouse gases.

“A single warm year is something of a curiosity,” said Deke Arndt, chief of global climate monitoring for the National Oceanic and Atmospheric Administration. “It’s really the trend, and the fact that we’re punching at the ceiling every year now, that is the real indicator that we’re undergoing big changes.”

I doubt that every year will set a new record, but the trend is upwards.

Scientists expect that the early months of 2017 will continue to show levels of warming beyond the norm, but likely not at the level of 2016 because a strong El Niño weather pattern is now subsiding.

worldtemperaturetrends

Are there any other scientific temperature records that show anything different?

End of world this October

We don’t have time ot worry about climate change, Donald Trump or Muslim terrorists, according to a David Meade the world will end this October – the world being Earth, smashed by Planet Nibiru. Apparently as indicated in the Bible.

NZ Herald: Conspiracy theorist claims mysterious planet Nibiru will smash into Earth and the world will end in October 2017

David Meade, author of the book Planet X – The 2017 Arrival, believes a star, which he calls ‘”a binary twin of our sun”, is coming “at us towards the south pole”, Daily Mail reports.

He says the star will bring with it “seven orbiting bodies”, including Nibiru, a large, blue planet that he also refers to as Planet X hurtling towards our planet.

David Meade believes the planet is set to hit into our planet in October this year, after being driven here by the gravitational pull from a ‘binary star’ twinned with the sun – of which there is no evidence.

He says the star is difficult to spot because of the angle it is approaching Earth.

“This system is, of course, not aligned with our solar system’s ecliptic, but is coming to us from an oblique angle and toward our South Pole.

“This makes observations difficult, unless you’re flying at a high altitude over South America with an excellent camera.”

Tuis can fly at oblique angles too, but perhaps not high enough to spot planets and suns coming our way.

In his book, he claims to put forward scientific evidence, but readers commenting on the book say the argument quickly develops into a religious argument.

One reviewer says: “on his website he focus on facts and science, astronomical ‘evidence’ to lure some readers into his material, but after a dozen pages it starts to get all religious for almost 40 pages, more than a 1/3 of the book, mentioning visions and dreams.”

He continues, the “author mentions several times how certain things are ‘facts’ just because “God said so on the Bible”, and then goes on and on over the rapture.”

Another truth teller?

Nibiru was widely predicted to hit our planet in December 2015, and before that in September.

It was also predicted to smash into our planet to coincide with the Mayan apocalypse that did not occur in 2012.

Even before that it was predicted Nibiru would destroy the world in 2003.

Maybe it was even harder to spot in 2003, 2012 and 2015.

endofworld

“Nibiru and other stories about wayward planets are an internet hoax,” Nasa has said.

‘Obviously, it does not exist.”

Who can trust what NASA says, what with climate change and moon landings and stuff like that?

‘Most important problems’

Roy Morgan have polled on what people think are the most important problems.

“Firstly, what do you think is the most important problem facing the World today?

7088-world-large

  • Wars & Conflicts/ Unrest 14% (up from 7)
  • Terrorism 9% (down from 16)
  • Refugee/ Migrant Crisis 3% (no change)
  • Religion/ Religious Conflict 2% (no change)

What do you think is the most important problem facing New Zealand today?”

7088-new-zealand-large

Not surprising to see housing jump over economic issues.

  • Poverty/inequality is near it’s lowest over last year and this year on 16%.
  • Immigration/ Refugees is barely changed over the last year, on 4% .
  • Climate Change/ Global Warming 1%
  • Environmental Pollution/ Water Pollution
  • Homeless/ Homelessness/ Housing shortage 10% (3% until July 2016)

These findings come from a special New Zealand Roy Morgan survey conducted with New Zealanders aged 14+ asked what are the most important issues facing New Zealand and the World today.

In New Zealand, a cross-section of 1,001 men and women aged 14 or over were interviewed by telephone in October 2016. The research conducted was both qualitative (in that people were asked to use their own words) and quantitative (in that the ‘open-ended’ responses were analysed and ‘coded’ so that the results could be counted and reported as percentages).

http://www.roymorgan.com/findings/7088-roy-morgan-new-zealand-most-important-problems-november-2016-201612141151

World University Rankings

NZ Herald reports on the latest QS World University Rankings in New Zealand universities confirmed as world-class.

The QS (Quacquarelli Symonds) rankings assess universities across four areas: research, resourcing, graduate employability and internationalisation.

The QS Rankings considers 3800 institutions worldwide and ranks the top 916.

  • University of Auckland 81
  • University of Otago 169 (up 4)
  • Canterbury University 214
  • Victoria University 228
  • Waikato University 324 (up 77)
  • Lincoln University 343 (up 68)
  • Auckland University of Technology 450 (up 60)

Chris Whelan, the executive director of Universities New Zealand, said the rankings are an extraordinary result and “something that New Zealanders should be proud of”.

“We are the only country in the world to have all our universities ranked within the top 500. If you are a young New Zealander thinking about where to do a degree, you can be confident of getting a world-class education at any of our universities.”

Whelan said an increased focus on funding high quality research contributed to the success of New Zealand rankings.