Brazil Survey What will be the impact of the pension reform? Pension reform was approved last October, and includes measur...

Brazil Survey
What will be the impact of the pension reform?

Pension reform was approved last October, and includes measures such as raising the retirement age and increased workers’ pension contributions in a bid to save close to USD 200 billion over the next decade. The reform has undoubtedly provided a short-term boost to confidence, and raised expectations for progress on other reform fronts going forward. Moreover, the measures are an important step towards strengthening the public finances. However, the majority of panelists polled by FocusEconomics believe that the pension reform alone would not be enough to stabilize the public debt-to-GDP ratio—which, at close to 80%, is extremely high by emerging-market standards. The LatinFocus Consensus Forecast sees the public debt-toGDP ratio peaking in 2021 and declining marginally thereafter, suggesting panelists see further measures going forward to improve the fiscal outlook. “The approval of pension reform was essential to avoid the unsustainable rising trend of public debt. However, it is not enough to stabilize the public debt in the medium to long-run.” Mauricio Nakahodo, economist at Banco MUFG Brasil S.A. “Other measures are necessary to reduce the ratio.” Fernando Honorato Barbosa, chief economist at Banco Bradesco “[…] interest rate cuts were decisive to significantly improve the outlook for the public debt-to-GDP ratio as much as recent [political] developments were.” José Francisco Lima Gonçalves, chief economist at Banco Fator “The spending cap and the pension reform were the most important reforms [to reduce the debt burden]. The others are auxiliary, but not as fundamental as those were.” Sergio Vale, chief economist at MB Associados

Which further steps would reduce public debt?
Panelists frequently mentioned that fiscal and administrative reforms—particularly to address high mandatory expenditure— were key in order to complement the pension reform and put the public debt-to-GDP ratio on a firm downward path. In this regard, the fate of a package of measures presented to Congress in November—which includes the creation of a fiscal council, a fiscal emergency amendment enabling austerity measures, and changes to public-sector pay and conditions—will be important to watch. Most panelists do not see the package being implemented in full, however. “Brazil has roughly 90% of mandatory expenses in its annual budget, so the spending cap has been a burden on discretionary expenditure since 2017, especially public investment. To reduce the public debt/gdp more reforms targetting mandatory expenditure are required, such as: administrative reform and the fiscal emergency reform. The latter also include several measures to states and municipalities, that are also in fiscal difficulties.” Fernando Honorato Barbosa, chief economist at Banco Bradesco “Undoubtedly, administrative reform, which aims to reduce and control mandatory spending, is the biggest challenge and has the greatest weight on public accounts. In addition, tax reform would be of paramount importance to simplify the revenue side and improve the business environment.” Tarciso Gouveia, head of macroeconomic research at Petros.

What is the outlook for the reform agenda?
Panelists unanimously agreed that there will be some further progress on the government’s reform agenda, with tax reform the area mentioned most often by panelists. However, panelists were also clear that there were unlikely to be sweeping changes to the tax system, but rather more moderate tweaks, such as unifying federal taxes. Administrative reform to reduce the public wage burden was also mentioned frequently. However, this could be politically contentious, as demonstrated by the government’s decision to delay such a reform late last year for fear of public unrest. “A modest tax reform that focuses on simplification of some revenue streams appears possible, given strong support from Congressional leaders.” Jeffrey Lamoureux, head of country risk for the Americas at Fitch Solutions “The agenda is very complicated, but at least the value added tax should be somehow created.” José Francisco Lima Gonçalves, chief economist at Banco Fator.

“Both administrative and the fiscal emergency reforms have a significant approval probability, with some adjustments to the content – but should still have a positive effect on spending reduction over the next 10 years. We think a deep tax reform is unlikely, but the unification of federal taxes has significant probability of approval. Central Bank autonomy has a high probability of approval this year, as well as some privatizations.” Fernando Honorato Barbosa, chief economist at Banco Bradesco “In the case of administrative reform, it is more likely to be approved some reform focused on new public servants. And we expect a minor version of tax reform concentrated on the unification of a few federal taxes and some harmonization on the rates, and some changes to income tax.” Mauricio Nakahodo, economist at Banco MUFG Brasil S.A.

How will the 2020 budget impact the economy?

In December, Congress approved the 2020 budget. The government assumes GDP growth of 2.3% and inflation of 3.5%—both figures which are slightly above our panelists’ forecasts—and sets a primary deficit target of 1.6%. The panel had mixed views on the economic impact of the budget, ranging from contractionary to broadly neutral. “The 2020 budget is less restrictive than the previous years. The expenses are still restricted by the spending cap, but the restriction is smaller in the margin.” Fernando Honorato Barbosa, chief economist at Banco Bradesco “2020 will be another year of budget constraint due to the need for fiscal adjustment. This is a year of local elections and we might see some higher expenditures during the first half, but as compared to past election years, the situation is also tough at regional level meaning moderate expenditures.” Mauricio Nakahodo, economist at Banco MUFG Brasil S.A. “As we have been seeing lately, it will be a drag for economic growth”. Flávio Serrano, chief economist at Haitong “The public budget, while conservative, should make room for investment resources as fiscal dynamics improve, particularly with regard to the primary surplus that is expected to be much better in 2020.” Tarciso Gouveia, head of macroeconomic research at Petros “Moderate fiscal consolidation will be somewhat of a drag on aggregate demand. On the other hand, fiscal consolidation can be a positive driver for private confidence and, thus, investments. All in all, the effect should be roughly neutral.” Luis Suzigan, senior economist at LCA Consultores.

Will Brazil receive a rating upgrade this year?
Virtually all panelists expect Brazil to receive a credit rating upgrade this year in response to the improved fiscal and growth outlook. While some panelists see positive economic repercussions from an upgrade, others see no significant change, and some pointed out that the credit rating will remain below investment grade—an important threshold for decisively boosting capital inflows. “We should witness portfolio capital flows and a strengthening of the real (R$) in the short term.” Tarciso Gouveia, head of macroeconomic research at Petros “We think the BRL would strengthen against the USD [in the case of a rating upgrade], helping maintain the inflation rate at a low level, even under a solid rebound of economic activity.” Helcio Takeda, head of research at Pezco Economics “Very little [impact] – already priced into bond markets.” William Jackson, chief emerging markets economist at Capital Economics “Somewhat limited [impact], there’s a lot of uncertainty in the political and economic areas.” César Carrasquero, executive director of treasury & finance at Banesco “It will be positive, but not as positive as gaining back the investment grade, which we consider may happen only after 2022.” Sergio Vale, chief economist at MB Associados.

How will the stock market evolve in 2020?
In 2019, the Brazilian stock market reached an all-time high on investor optimism over economic reforms and lower interest rates. For 2020 panelists are broadly optimistic on the outlook for Brazilian stocks, with most seeing further price gains. “According to our scenario, we expect at least 16% [gains]. Alongside our macroeconomic scenario, there is still plenty of room for advancing multiples of companies. In addition, we should watch a new round of IPOs throughout 2020.” Tarciso Gouveia, head of macroeconomic research at Petros “[Stock prices should rise] linked to our expectation of more solid GDP growth this and next year.” Mauricio Nakahodo, economist at Banco MUFG Brasil S.A. “Most fundamental drivers of stock prices are already counted in. The low interest rates, less weak economic activity. Further relevant gains depend on inflows of capital. I don’t expect too much of this.” José Francisco Lima Gonçalves, chief economist at Banco Fator

From John Kemp @ Reuters U.K. REGIONAL EXPORTS: London generates more exports per capita than any other region of the United Kingd...

From John Kemp @ Reuters

U.K. REGIONAL EXPORTS: London generates more exports per capita than any other region of the United Kingdom: 

LONDON’s internal regional economy is so large, however, that exports are relatively less important than for any other region. Northern Ireland, Wales and the regions of northern England and the Midlands are the regions most dependent on exports as a share of their economies:

LONDON’s exports are somewhat more oriented towards the rest of the world. London sent just 49% of its exports to the EU in 2010. Northern Ireland and regions of northern England and Midlands all sent 60% or more of exports to the EU and were more heavily dependent on access to the Single Market:

What will we see in 2020*? - Impeachment? Impeachment has become a tool for both parties to continue to dominate the airwaves...

What will we see in 2020*?

- Impeachment? Impeachment has become a tool for both parties to continue to dominate the airwaves and not get things done. Expect 2020 to be especially hard. Trump and the democrats will step up the fight, and so will the super PACs and state elections. Get ready for big money and dirty fighting, again. This is the new normal.

- Tariffs? China and the US will continue to fight. This for that, here and there. This is the new normal, again.

- Racism is on the rise, particularly anti-semitism. There are many reasons for this but, how can this happen in 2020? Western countries and citizens will stand up for Jews and take a stand against the onslaught of anti-semitism, but in some places it will remain. 

- We hate to group the continent together like this but so be it. South America is in trouble, again. Roughly 30% of the population on the continent want to leave for America. What does this mean? Deep discontent and very little room for poor policy. Unfortunately South America has quite a history of political upheaval.

- Technology changes? Expect one of the tech giants to be broken up and expect one or two to move into banking (hint - it’s not Libra).

* From Chad Hagan & Chaganomics

Below A Prediction List for 2020*:

More people will own a phone than have electricity.

London's "Stratford City" is fully built

China completes the world's largest rail system (120,000 km)

New Zealand's "Rebuilding of Christchurch" is fully built

Indonesian's "Sunda Strait Bridge" is fully built

Saudi Arabia's "Kingdom Tower" is fully built

Congo's "Great Inga Dam" is fully built

Scandinavia and Germany's "Fehmarn Belt Fixed Link" is fully built

China's "Great City" is fully built

Venera-D space probe to reaches Venus

Overwhelmingly Large Telescope (OWL) goes into operation

Giant Magellan Telescope goes into operation

World population forecasted to reach 7,758,156,000

Share of global car sales taken by autonomous vehicles equals 5 per cent

* Predictions from Quantumrun

Outlook improves. Annual economic growth accelerated in the third quarter, powered by strong private consumption, government spendin...

Outlook improves.
Annual economic growth accelerated in the third quarter, powered by strong private consumption, government spending and a resilient external sector. However, the economy likely lost momentum in Q4. Industrial output fell in October and the manufacturing PMI for November remained in contractionary territory, pointing to weaker business activity. Moreover, tourism figures dipped in October—likely hit by China’s attempts to curb visits to the island—although remained strong for the year to date. More positively, external trade remains robust, with Taiwan benefiting from trade diversion from China due to the U.S.-China trade war. Meanwhile, Taiwan goes to the polls in early January to elect a new president and legislature, with China relations at the forefront of voters’ minds. The pro-independence DPP looks likely to retain the presidency, which could have detrimental effects on the external sector going forward. Next year, economic growth is expected to slow slightly, in part due to waning growth in mainland China and the U.S., although trade diversion from China should support the economy. Tense relations with the mainland pose a downside risk to the outlook. FocusEconomics panelists forecast GDP growth of 2.1% in 2020, which is up 0.1 percentage points from last month’s forecast, and 2.2% in 2021.

On 11 January 2020, the Taiwanese electorate will head to the polls to elect a new president and legislative assembly, with cross-strait relations and events in Hong Kong at the forefront of voters’ minds. Incumbent Tsai Ing-wen of the independence-leaning Democratic Progressive Party (DPP) looks likely to retain her hold on the presidency, with recent polls indicating a widening lead over the Kuomintang (KMT), the China-friendly opposition party. This should mean a broad continuation of past policies. Measures such as Invest Taiwan—which aims to attract overseas investment via cheap loans and preferential tax rates—look likely to continue supporting growth and the labor market. Meanwhile, on the fiscal front, planned increases in infrastructure spending should benefit imports and fixed investment. That said, a continued push to reduce dependence on mainland China could affect the external sector somewhat owing to a potential economic backlash from authorities in Beijing. On this point, analysts at Goldman Sachs note: “Another macroeconomic implication in the event President Tsai wins a second term is potential headwinds to services exports, particularly tourism. Amid heightened crossstrait tensions, inbound Chinese tourism declined after her 2016 election. That said, the downside risk may be limited, given an already lowered share of mainland Chinese visitors within the total visitor arrivals.” If the KMT candidate Han Kuo-yu were to confound market expectations and win the presidential elections, this would likely lead to closer ties to China, potentially aiding the external and tourism sectors in the short-term. The KMT is also proposing to reduce infrastructure investment, which would likely dampen imports and fixed investment levels, while boosting government spending somewhat. Meanwhile, the race for all 113 seats of the legislature looks less clear cut, with the emergence of the Taiwan People’s Party likely to deny either the DPP or KMT a parliamentary majority. As such, even if the DPP wins the presidential race as predicted, the loss of its present majority could entail increased resistance to its attempts to pass proposed policies into law. Our panelists project that GDP will grow 2.1% in 2020, which is up 0.1 percentage points from last month’s estimate but down from the 2.6% growth averaged during President Tsai’s first term in office to date. In 2021, our panel sees GDP growth of 2.2%.

PMI Remains Depressed
The manufacturing Purchasing Managers’ Index (PMI), reported by IHS Markit, remained unchanged at 49.8 in November, once again coming in below the 50-threshold that signals deteriorating operating conditions in the manufacturing sector. The amount of new work received by manufacturers decreased in November for the 15th consecutive month. This came against the backdrop of weak customer demand weighing on both domestic and external sales, with production falling as a result. Furthermore, purchasing activity and backlogs declined, while employment figures were unchanged, putting an end to a fourmonth-long period of expansion. Regarding prices, output prices fell again in November, despite an increase in input costs. Annabel Fiddes, principal economist at IHS Markit, commented: “Businesses remain particularly vulnerable to a slowdown across the global economy. Data highlighted a solid decline in export sales amid reports of weaker demand across key markets like China, Japan, Europe and the US. The latest survey also suggests that this soft patch may extend into 2020 unless there is a meaningful pick-up in client demand.” FocusEconomics Consensus Forecast panelists expect fixed investment to expand 3.0% in 2020, which is down 0.1 percentage points from last month’s forecast. For 2021, participants expect fixed investment to increase 3.1%.

Industrial Production In Doldrums
Industrial output declined 2.9% in October compared to the same month a year earlier, sharper than the 0.7% decrease in September (previously reported: -0.8% year-on-year). The downturn in October was driven by a steeper fall in output in the manufacturing sector, which represents more than 90% of total industrial production. Moreover, a plunge in mining and quarrying output weighed on industrial output in October. More positively, however, output in the water supply sector increased for the second consecutive month in October. On a seasonally-adjusted month-on-month basis, industrial output flatlined in October, following a 2.2% drop in September. Annual average growth in industrial production, meanwhile, fell 0.8% in October, contrasting a 0.1% increase in September. FocusEconomics Consensus Forecast panelists expect industrial production to expand 1.5% in 2020, which is down 0.8 percentage points from last month’s forecast. For 2021, participants expect industrial output to grow 3.2%.

Exports and Imports Rebound
Merchandise exports increased 3.3% in November in annual terms, contrasting October’s 1.5% contraction. The rebound came amid a strong increase in ICT exports, although falling exports of metals, machinery, plastics and rubber moderated the overall reading. Exports to the U.S. continued to surge—up almost 17% this month after October’s near-18% increase—with year-todate results also showing the increased importance of the U.S. as a trading partner, likely linked to trade diversion from China. However, export orders— which typically lead actual exports by two to three months—decreased 3.5% in October, the latest month for which data is available, suggesting softer export momentum ahead. Meanwhile, merchandise imports rose 5.8% in November, contrasting the 4.1% decrease in October. The increase was primarily driven by a surge in machinery imports, which outweighed falling imports of electronic, mineral and chemical products. The trade surplus was USD 4.3 billion in November, down from the USD 4.7 billion figure observed in November 2018, but nonetheless up from the USD 4.0 billion surplus in the previous month. The 12-month trailing trade surplus decreased to USD 45.7 billion in November from USD 46.1 billion in October. Our panelists forecast that exports will expand 3.2% in 2020 and imports will rise 3.8%, bringing the trade surplus to USD 56.1 billion. In 2021, our panel expects exports will expand 0.8%, while imports will rise 1.0%, bringing down the trade surplus to USD 55.9 billion.

The outlook remains stable. Available economic indicators show growth momentum remains weak. Industrial production was subdued in ...

The outlook remains stable.
Available economic indicators show growth momentum remains weak. Industrial production was subdued in October, as the trade war with the U.S eroded manufacturing activities. This trend is expected to continue in the coming months as corroborated by a new drop in exports in November. Moreover, mounting economic uncertainty is postponing investment plans, especially among foreign firms. The main silver lining has been the rebound in the manufacturing PMI in November. Meanwhile, on 13 December, President Trump agreed to a limited trade deal with China, effectively barring a fresh round of tariffs due on 15 December. As part of the deal, U.S. officials stated that China will purchase more U.S. agricultural products, while the U.S. will remove some existing tariffs in return. At the time of writing, however, Chinese authorities have not yet confirmed whether the two sides have reached an agreement.

Next year, the economy will continue to moderate amid a long-lasting trade rift with the United States. Moreover, the property sector is expected to suffer from tight financing, which will weigh on overall economic growth. Although supportive fiscal and monetary policies are expected to cushion the slowdown, the scale of the measures will be limited. FocusEconomics panelists see the economy growing 5.9% in 2020, which is unchanged from last month’s forecast, before decelerating to 5.7% in 2021. Inflation soared from October’s 3.8% to 4.5% in November, a near eight-year high. The African swine fever outbreak continues to push up prices not only for pork but also for substitute products such as beef and lamb. Conversely, non-food inflation remains subdued, reflecting weak economic growth. Looking forward, inflation will inch down on this year’s high base effect. FocusEconomics panelists forecast that inflation will average 2.7% in 2020, which is up 0.2 percentage points from last month’s estimate, and 2.3% in 2021.

On 18 November, the Central Bank slashed its seven-day reserve repo rate by 5 basis points (bp) to 2.50%, while, on 20 November, the Bank cut the one-year loan prime rate by 5 bp to 4.15%. These actions followed a similar move with the medium-term lending facility on 5 November, and should lower borrowing costs especially for small-to-medium-sized firms. Panelists project the one-year deposit and lending rates to close 2020 at 1.48% and 4.33%, respectively, and 2021 at 1.50% and 4.35%.

Lack of tangible progress on a potential trade deal between China and the United States weighed on the yuan in recent weeks. On 11 December, the yuan traded at 7.04 CNY per USD, a marginal 0.4% month-on-month depreciation. President Trump’s erratic foreign trade policies and a challenging domestic economy will determine the evolution of the yuan further down the road. Our panelists see the yuan ending 2020 at 7.12 CNY per USD and 2021 at 7.07 CNY per USD.

PMI & Beyond
The manufacturing Purchasing Managers’ Index (PMI) published by the National Bureau of Statistics (NBS) and the China Federation of Logistics and Purchasing (CFLP) rose from 49.3% in October to November’s 50.2%. The print was above the 49.5% result expected by market analysts. As a result, the index sits above the 50.0% threshold that separates contraction from expansion in the manufacturing sector for the first time in seven months. November’s improvement reflected a sharp turnaround in new orders, along with stronger growth in the production index. While robust demand boosted suppliers’ delivery times and purchasing activity, job creation was unchanged. Despite remaining well below the 50.0% threshold, export orders gained some ground in November, likely reflecting hopes of a trade agreement between China and the United States. Input prices—a reliable leading indicator for inflation—receded further in the same month. Against this backdrop, Ting Lu, Lisheng Wang and Jing Wang, economists at Nomura, comment that: “The blip of a rise in the official manufacturing PMI certainly looks positive for markets, but we do not think such a rebound suggests a bottoming out of the economy, as strong growth headwinds remain, especially from the cooling property sector and China’s worsening fiscal situation. […] We do not think Beijing will overreact to this reading, as it has already learned the lessons from spring this year when some headline data pointed to a recovery. Amid a deteriorating growth outlook, Beijing will likely to roll out more easing measures despite limited policy room.” Panelists expect GDP to expand 5.9% in 2020, which is unchanged from last month’s estimate. In 2021, the panel foresees lower economic growth of 5.7%.

Industrial Production
Industrial production increased 4.7% year-on-year in October, sharply down from September’s 5.8% expansion and undershooting analysts’ expectations of a 5.4% rise. The reading was led by sizeable decelerations in mining and manufacturing output. The energy sector, however, posted an acceleration in the same month. On a month-on-month seasonally-adjusted terms basis, industrial production increased 0.17% in October, down from the 0.71% expansion in September. Annual average growth in industrial production, meanwhile, inched down from 5.7% in September to 5.6% in October. Against this backdrop, Iris Pang, Greater China economist at ING, comments that: “Industrial production of vehicles (-11.1%YoY) and smartphones (-7.3%YoY) show how the trade war has affected exports as well as local demand. Vehicles and smartphones share two similar features; they are both expensive and demand for new models from consumers is low without an obvious reason to upgrade. As demand is weak, production shrinks as inventory must be sold. It’s not all bad though. Production of integrated circuits grew 23.5%YoY in October and we expect this to remain strong due to the production of 5G parts and products.”

Investment Growth Falls To Record Low
Nominal urban fixed asset investment expanded 5.2% year-to-date in October, below the 5.4% increase in January–September. The reading undershot market expectations of a 5.4% rise and represented the lowest print since the data started in 1998. The reading reflected a slowdown in growth in the tertiary sector as well as a sharper decline in the primary sector. The secondary sector, however, posted an acceleration in the same period. Meanwhile, property investment growth slowed slightly to 10.3%, the lowest rate since the start of the year. In terms of ownership, investment growth in fixed assets of state-owned enterprises accelerated in January-October, while the expansion in investment among private companies softened to a nearly three-year low in the same period. On a month-on-month basis, investment in urban fixed assets rose a seasonally-adjusted 0.40% in October, marginally down from the 0.42% expansion in September. Yi David Wang, head of China economics at Credit Suisse, noted that: “Looking ahead, domestic demand indicators will likely remain tame over the next couple of months. However, we maintain the view that an inflection point to underlying growth momentum will likely occur by December/January in light of our outlook for more supportive policies to come in 2020.”

Exports Contract For Fourth Consecutive Month
In November, exports fell 1.1% over the same month last year, coming in below the 0.8% drop in October. Moreover, the print marked the fourth contraction in a row and contrasted the 0.8% rise that market analysts had expected. Meanwhile, imports rose 0.3% in annual terms in November, contrasting the 6.2% contraction in October and marking the first positive reading in seven months. Moreover, the print was above the 1.4% decline that market analysts had projected. As a result of the expansion in imports, the trade surplus fell to USD 38.7 billion in November 2019 from USD 41.9 billion in November 2018 (October 2019: USD 42.5 billion surplus). The 12-month moving sum of the trade surplus fell to USD 434 billion from USD 438 billion in October. Our panelists forecast that exports will expand 1.5% in 2020 and imports will rise 2.6%, bringing the trade surplus to USD 393 billion. In 2021, FocusEconomics panelists expect exports will expand 2.9%, while imports will rise 3.7%, leaving the trade surplus at USD 388 billion.

Economics Realities of China's Global Influence from chaganomics

A special survey on the Hong Kong political crisis When will political unrest subside? “An amicable resolution to the crisis would t...

A special survey on the Hong Kong political crisis

When will political unrest subside?

“An amicable resolution to the crisis would take compromise on both sides but we see the key issues being that of electoral reform (what the protesters call universal suffrage) and the setting up of an independent commission of inquiry into alleged police brutality. The anti-government movement must also be willing to see their five demands as separate issues, rather than an indivisible package.” - Fitch Solutions

“The authorities will eventually have no choice but to make a meaningful concession.”- Kasikorn Research

What assets will be affected?

“We expect to see some spill-over into the real estate sector. Demand is likely to soften as protests will place a drag on investor confidence, and slowing economic growth will weigh on purchasing power of Hong Kong residents. At the same time, the government seems to be placing emphasis on the housing market to placate protesters, which will likely see a slight increase in housing supply. In her policy address in October, Chief Executive Carrie Lam focused on housing and land policies, proclaiming that these would alleviate ‘issues of greatest public concern.” - Fitch Solutions

 “With less inbound tourism coming from China, the personal financial and insurance services would be affected as the protests persist, although I don’t expect the demand for these services to decline significantly. The institutional activities (such as IPOs) are unlikely affected.” - Oxford Economics

“Real estate seems to be already affected by subdued price growth, in some reported cases heavy discounting by agencies, which in turn affects profitability. As for financial and insurance, I think Hong Kong’s reputation of a financial hub will be left intact.” - Moodys

Outlook deteriorates in Hong Kong
\The economy declined notably in the third quarter, as widespread protests undercut domestic demand. Private consumption and fixed investment nosedived, while exports were also down markedly. Turning to the fourth quarter, economic conditions likely remain anemic. The private sector PMI continued to freefall in November as business activity fell at the sharpest pace on record. Moreover, in October, retail sales plummeted to an all-time low; tourist arrivals continued to tumble; and unemployment ticked up to the highest rate since September 2017— boding poorly for household spending. In politics, an overwhelming majority of pro-democracy candidates were elected in the local district council elections in late November. On 4 December, the IMF concluded its Article IV visit. The Fund recommended a notable increase in fiscal stimulus to counter the downturn, mainly by addressing housing supply and income inequality

The economy is seen recovering next year on a favorable base effect and some support from fiscal stimulus. However, activity is set to remain weak, as political turmoil will likely continue weighing on domestic activity. A further deterioration of the domestic situation and the U.S.-China trade war are the key downside risks. Our panel expects growth of 0.3% in 2020, which is down 0.4 percentage points from last month’s forecast. Moving to 2021, the panel projects the economy to grow 2.4%.

Real Sector
The revised GDP reading confirmed the economy contracted at the sharpest pace since June 2009 in the third quarter, as Hong Kong faced the double whammy of mass protests battering domestic demand and the U.S.-China trade war hampering the external sector. GDP tumbled 2.9% in year-on-year terms, which is unchanged from the preliminary reading, following Q2’s 0.4% expansion. Meanwhile, on a seasonally-adjusted quarter-on-quarter basis, the economy fell an unrevised 3.2% in Q3, which was steeper than Q2’s 0.5%. The fall in year-on-year GDP in the third quarter was mainly driven by a revised 3.4% decline in private consumption (previously reported: -3.5% yoy; Q2: +1.3 yoy), while fixed investment contracted at an unrevised pace of 16.3% in Q3 (Q2: -10.8% yoy). In contrast, government consumption growth accelerated from 4.0% in Q2 to a revised 5.9% (previously reported: 5.3% yoy). On the external front, both exports and imports of goods and services contracted at a sharper pace in Q3 relative to Q2. Muted demand from mainland China weighed on exports, while depressed business and consumer sentiment have suppressed import demand in recent months.

PMI Sinks to 15 year low
The IHS Markit Purchasing Managers’ Index (PMI) slipped to 38.5 in November (October: 39.3), marking the worst reading since April 2003. November’s deterioration came on the back of business activity slumping at the fastest pace since contemporary records began and new business falling at the steepest pace in 11 years. Moreover, headcounts declined slightly and backlogs of work dropped steeply. Needless to say, business sentiment remained the lowest on record in November, as many firms expect lower output in a year from now due to ongoing political unrest. On the price front, input prices fell in November, mainly due to a decrease in staffing costs, while output prices also dipped. Commenting on November’s print, Bernard Aw, an economist at IHS Markit, noted: “The average PMI reading for October and November combined showed the economy on track to see GDP fall by over 5% in the fourth quarter, unless December brings a dramatic recovery.” Going forward, political turmoil and the U.S.-China trade war will continue to undermine Hong Kong’s private sector, which is currently undergoing the worst deterioration since the severe acute respiratory syndrome (SARS) epidemic in 2003. With no clear end in sight to either headwind, business investment will likely continue to markedly contract, which could translate in to a significant spike in unemployment.

Retail Sales
Retail sales by volume plummeted 26.2% year-on-year in October, even more sharply than September’s revised 20.3% freefall (previously reported: -20.4% year-on-year). The knock-on effects from the civil unrest, which has hammered tourist arrivals and caused several major shopping outlets to temporarily close, continued to take its toll. In October, tourist arrivals plunged 43.7% year-on-year, after nosediving 34.2% year-on-year in September. This was despite China’s “Golden Week” holiday that commences in the first week of October each year and brought in roughly 4.7 million tourists from mainland China in the same month last year. The stronger deterioration in sales volume was mainly driven by a more pronounced fall in clothing and footwear; durable goods, notably motor vehicles and electrical goods; and sales of jewelry, watches and clocks. On a seasonally-adjusted, three-month moving average basis, retail sales by volume in the August–October period tumbled 18.5% from the preceding three-month period, down from the 16.7% decline in July–September.

Overall, the annual average variation in retail sales volume fell 8.5% in October after falling 5.9% in September. Going forward, civil unrest seems set to continue to depress the retail and tourism sectors, which will likely bring about a slight fall in employment levels, further suppressing private consumption in turn. FocusEconomics Consensus Forecast panelists expect retail sales to decrease 4.9% in 2020, which is down 3.9 percentage points from last month’s forecast. For 2021, the panel sees retail sales growing 6.5%.

Thank you FocusEconomics

LatinFocus December 04, 2019 Argentina: The economy most likely slid back into recession in the third quarter and seems to be performing ...

December 04, 2019

The economy most likely slid back into recession in the third quarter and seems to be performing poorly in the fourth quarter. Economic activity slumped in August due to the financial turbulence which followed the unexpectedly large victory of Alberto Fernández in the primary elections and remained mired in contraction in September. While the external sector probably cushioned the downturn somewhat in Q3 and continued to support growth in October, abysmal consumer confidence in October− November spells trouble for the last quarter of the year. Meanwhile, in mid-November, President-elect Alberto Fernández met Kristalina Georgieva, the new head of the IMF. Although Georgieva expressed the Fund’s willingness to engage with the new government, Fernández has so far remained elusive as to how he will address Argentina’s sizable debt burden, stoking anxiety among investors.

Recent data suggests that the economy is gaining gradual steam, albeit from a subdued level. Data for September revealed a positive end to Q3 for the domestic economy, with economic activity and retail sales both jumping. Moreover, incoming data for Q4 points to broadly sustained momentum, with the manufacturing PMI staying in expansionary territory for the third consecutive month in October and business confidence edging up in November. That said, the external sector continues to remain under pressure amid evaporated demand from Argentina and subdued exports to China; exports recorded the largest drop since January 2016 in October. Meanwhile, on the political front, the government presented a slew of reform proposals in November, aimed at cutting government spending to reduce the bloated fiscal deficit. If approved, the measures should help reduce non-discretionary spending, although doubts over the proposed timeline remain given Brazil’s slow political system.

The economy is in the midst of a rocky fourth quarter as President Sebastian Piñera’s efforts to quell the protests that have engulfed the country since mid-October have so far proved unsuccessful. Amid the upheaval, the government proposed a rewriting of the constitution, while Congress approved a revised 2020 budget that ramps up public expenditure on pensions, healthcare and transport, and is projected to push the fiscal deficit to 2.9% of GDP from a previously planned 2.0% of GDP. Although this should provide a temporary boost to private consumption, it is not clear if higher public expenditure alone will defuse the protests, while business confidence could be hit by heightened uncertainties surrounding a new constitution. Available data since the start of the turbulence has been bleak, with economic activity contracting for the first time in two and a half years in October. This markedly contrasts the third quarter’s expansion, which saw the economy growing at the fastest pace of the year thanks to blistering fixed investment growth and a rebound in exports.

Growth accelerated to a four-year high in the third quarter, contrasting the Q2’s slowdown. Robust domestic demand drove Q3’s expansion. Household spending rose at a faster clip compared to Q2 on the back of sturdy remittance inflows and credit growth, rising real wages and migration inflows from Venezuela. Moreover, fixed investment growth quickened in Q3 amid buoyant business sentiment and VAT deductions on investment in machinery and equipment. That said, the external sector dragged on overall growth in Q3 as export growth lost pace while imports surged. Meanwhile, Colombians have taken to the streets recently in widespread anti-government protests. The protests have quickly turned violent, while meetings between President Duque and protest leaders have failed to produce any breakthrough. Duque has promised to hold a national dialogue with all social stakeholders to address these issues; however, this has so far been met with skepticism.

Oil production climbed modestly in October following three months of decline, but was still down more than 40% since the beginning of the year and at the lowest levels for several decades. A raft of U.S. sanctions and major power outages have choked the oil industry, while plunging exports have led to severe shortages in U.S. dollars needed to pay for imports. With sanctions making it near impossible to purchase vital supplies for the oil sector, the country has been forced to sell cheaper blends of petroleum at a cut price. In late November, the government reportedly proposed paying suppliers and contractors in yuan in a bid to circumvent sanctions. Moreover, the government inaugurated the country’s first gold extraction and processing complex on 25 November, which will transform gold ore into sellable gold bars without having to rely on expensive foreign assistance. Meanwhile, the opposition struck a deal to prevent bondholders from seizing PDVSA’s U.S. refining unit Citgo, the country’s most valuable overseas asset, until at least May next year

Happy Thanksgiving ! 1) Gold / Silver Ratio 2) Silver price since 1915 3) Gold price since 1915 

Happy Thanksgiving !

1) Gold / Silver Ratio

2) Silver price since 1915

3) Gold price since 1915 

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