Politics, Policy, Economics - Since 2010

Imran Khan - the newly elected PM of Pakistan - grabs $6B in aid money from MBS led Saudi Arabia. In the Kingdoms current quagmire MBS is no...

$6B In Saudi Aid To Pakistan





Imran Khan - the newly elected PM of Pakistan - grabs $6B in aid money from MBS led Saudi Arabia. In the Kingdoms current quagmire MBS is no doubt happy to lend a hand to the Pakistan premier. The relationship goes back to the first days of Pakistan in 1947 and is often described as a special relationship. Perhaps this will allow the Saudis to finally insert Pakistani troops into Yemen. 

The foreign misdirect issued an official statement: 

At the invitation of the Custodian of the Two Holy Mosques, His Majesty, King Salman bin Abdulaziz, the Prime Minister of the Islamic Republic of Pakistan, Mr. Imran Khan visited Saudi Arabia to participate in the Future Investment Initiative (FII) Conference on 22-23 October 2018. During the visit, the Prime Minister had detailed bilateral discussions with His Majesty, King Salman bin Abdul Aziz, and His Royal Highness, Crown Prince Muhammad bin Salman. The Crown Prince agreed to the Prime Minister’s suggestion to reduce visa fee for Pakistani workers, which is a significant step towards enhancing Pakistan’s workforce in Saudi Arabia, as well as facilitating travel of people from both countries.

Expect Imran’s next move to be with China as he leverages his countries geographic situation to enable the $70B China–Pakistan Economic Corridor super project connecting the port of Gwadar to western China. 

The outlook in Turkey has worsened. Economics Recent indicators suggest the economy slowed sharply in the third quarter. Consumer a...

Economic Snapshot For Turkey: In Deterioration



The outlook in Turkey has worsened.

Economics
Recent indicators suggest the economy slowed sharply in the third quarter. Consumer and business confidence continued to plummet in September and are now both firmly in negative territory, while in the same month the manufacturing PMI sank lower on stronger contractions in output and new orders. Moreover, annual retail sales growth reached an over one-year low in July. Retail sales likely softened further in the remainder of Q3, on higher inflation and weaker sentiment. On the plus side, the gaping current account deficit has begun to narrow thanks to the weaker currency and softer domestic demand. This comes after recent figures show that growth held up well in the second quarter, buoyed by a stronger external sector, a pre-election government spending boost and robust private consumption. On the political front, in late September Treasury and Finance Minister Berat Albayrak, presented the much-anticipated New Economic Plan, which sets out a more constrained fiscal stance and far lower growth forecasts. • The economy will likely lose considerable steam in the next few quarters on tight financial conditions, weak sentiment and sky-high inflation. Further exchange rate volatility and an escalation of geopolitical tensions pose significant downside risks. FocusEconomics panelists expect growth of 3.6% this year and 1.0% in 2019, down 2.0 percentage points from last month’s forecast. • Inflation rose from 15.8% in July to 17.9% in August, pushed up by the weaker lira. Inflation is likely to rise even further in the coming months given the recent currency crash but should then dip on softer domestic demand. Our panel sees inflation ending 2018 at 20.7% and 2019 at 13.7%. • At its 13 September meeting, the Central Bank jacked up the repo rate from 17.75% to 24.00%. The decisive move was designed to support the currency and temper price pressures, and it should go some way to restoring investors’ faith in the Bank’s independence. The Bank is likely to maintain its tight stance in the near-term to consolidate recent lira gains and check runaway inflation. Our panelists see the one-week repo rate ending 2018 at 24.25% and 2019 at 19.97%. • On 28 September, the lira traded at TRY 6.06 per USD, strengthening 3.5% from the same day in the previous month. The appreciation followed announcements of tighter fiscal and monetary policy. Nevertheless, the currency has still lost a huge amount of value since the start of the year. Going forward, the lira is likely to remain highly volatile, due to geopolitical tensions with the U.S. and ongoing market skepticism of the government’s policy agenda. Our panelists see the exchange rate ending 2018 at TRY 6.46 per USD and 2019 at TRY 6.73 per USD at end-2019.


Politics
Treasury and Finance Minister Berat Albayrak presented the New Economic Program (NEP) (formerly the Medium-Term Program, MTP) on 20 September. The plan provided more credible macroeconomic forecasts—including for reduced growth and markedly higher inflation—and set out a more cautious fiscal stance. As a result, the program should go some way to restoring investors’ faith in the government’s macroeconomic policymaking, reduce economic imbalances and support the lira. However, full implementation of the announced measures will be key to rebuilding investors’ trust, while concrete proposals for the banking sector were limited. The program established TRY 60 billion of cost savings and TRY 16 billion of extra revenue for 2019 (around USD 12 billion in total). The vast majority of cost savings are expected to come from investment programs, incentives and
the social security system, while extra revenue will be raised by broadening the tax base through a reduction in exemptions. The government also announced changes to public-private partnership (PPP) initiatives to boost affordability. This comes after the IMF warned the country earlier this year
about the fiscal risks associated with such schemes, which have played a key role in infrastructure development under President Erdogan and were recently valued by the Fund at around USD 61 billion. Thanks to this fiscal austerity, the NEP forecasts a rising primary surplus and a central budget deficit contained below 2% of GDP going forward. Moreover, the plan sees the economy growing just 2.3% next year and 3.5% in 2020, in contrast to a target of 5.5% growth in both those years in last year’s MTP.  

The 2019 target is still markedly above FocusEconomics panelists’ expectations, but the overall message is that—at least in the near-term—President Erdogan appears willing to temper his growth-at-all-costs approach to economic policymaking. Regarding inflation, the plan sees it ending next
year at around 16%, and only returning to single digits in 2020. Looking at the external sector, the government aims to sharply reduce the current account deficit going forward. As well as the weaker lira aiding competitiveness, the program also aims to achieve this by boosting domestic production in areas such as pharmaceuticals, energy and machinery, where Turkey is currently extremely dependent on imports. This will take time, however, and FocusEconomics panelists predict a more modest narrowing of the current account deficit over the coming years. Regarding the banking sector, the NEP stated that the government will conduct a review of banks’ financial soundness. However, there were no concrete steps to address concerns over non-performing loans—which could rise as firms struggle with a hefty external debt burden—or banks’ access to international financing. According to ING analysts, the “programme is a step in the right direction with rebalancing on growth and reviving a commitment to fiscal prudence, though the inflation path is to remain elevated longer.”


Economists at Nomura also agree that the NEP—together with the Central Bank’s recent rate hike—is a sign that “the authorities are gradually adjusting to reality.” However, they go on to state: “We do not believe they [the NEP and rate hike] are enough to reverse the long-running trend of erosion of policy making credibility in Turkey. Even if these are credible policy changes, it is probably too late to reverse the economic downturn because of the negative effects of currency depreciation on private sector balance sheets.” The more conservative fiscal stance should provide support to the beleaguered lira going forward. However, ING and Nomura highlight that the Plan’s implicit 2019 exchange rate assumption—calculated by both firms at around TRY 5.60 per USD—could be slightly optimistic. FocusEconomics panelists concur, and see the currency ending 2018 at TRY 6.46 per USD and 2019 at TRY 6.73 per USD. Despite tighter fiscal and monetary policy, a sustained improvement in the exchange rate outlook will likely be dependent on a reduction in geopolitical tensions, particularly a normalization of relations with the United States. As economists at Nomura comment: “We also need a de-escalation on the foreign policy front. […] If there is no resolution […] and if this is followed by further US sanctions on Turkey (and a possible fine on state-owned Halkbank), then the pressure on Turkish assets will resume forcefully.”

Looking ahead, economic growth is expected to decelerate. This reflects China’s more mature economic cycle and the impact of previou...

China 2019 Growth Pegged At 6.3%



Looking ahead, economic growth is expected to decelerate. This reflects China’s more mature economic cycle and the impact of previous economic reforms, as well as the tit-for-tat trade war with the United States and the cooling housing market. However, a looser fiscal stance and a more accommodative monetary policy should cushion the slowdown. FocusEconomics panelists see the economy growing 6.3% in 2019, which is unchanged from last month’s forecast. In 2020 the economy is seen expanding 6.1%.

The People’s Bank of China (PBOC) uses a complex system to implement monetary policy, including the use of key benchmark rates, open market operations and reserve requirement ratios. On 6 October, the Bank announced a cut of 100 basis points to the reserve requirement ratio for most banks, which will release around CNY 750 billion. The move is intended to spur credit growth amid softening economic conditions. Panelists expect that the one-year deposit and lending rates to close 2019 at 1.52% and 4.32% respectively and 2020 at 1.58% and 4.33%

Export growth surges in September despite escalating U.S.-China trade tensions Export growth accelerated from 9.8% in August to 14.5% in September. The reading surprised market analysts as they had expected a slowdown to an 8.9% rise. The surge in export growth likely reflected a hike of the export tax rebate rates for selected products effective 15 September as well as front-loading shipments to the United States before the implementation of additional tariffs on USD 200 billion of Chinese products by the United States on 25 September. Although imports expanded at double-digit figures for the seventh consecutive month, import growth softened from 19.9% in August to 14.3% in September. The print was below the 15.0% rise that market analysts had expected and reflected weaker domestic demand. The trade surplus consequently rose from USD 28.5 billion in September 2017 to USD 31.7 billion in September 2018 (August 2018: USD 27.9 billion). The 12-month moving sum of the trade surplus increased from USD 350 billion in August to USD 355 billion in September. Our panelists forecast that exports will expand 5.7% in 2019 and imports will rise 8.0%, bringing the trade surplus to USD 316 billion. In 2020, FocusEconomics panelists expect exports will expand 2.9%, while imports will rise 5.8%, bringing down the trade surplus to USD 258 billion

Geopolitical tensions are at a boiling point, and despite the slight reprise for the upcoming elections there is no end in sight. - CH “The ...

China Trade War To Escalate




Geopolitical tensions are at a boiling point, and despite the slight reprise for the upcoming elections there is no end in sight. - CH


“The world should brace for an escalation in the trade war between China and the US following the American mid-term elections, that could see Donald Trump test the strength of Chinese resolution with steeper tariffs”...

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Does China has universal health care? In a way yes, but it is a combination of a few programs in theory. These programs range from the...

A Look Inside China's Healthcare System


Does China has universal health care? In a way yes, but it is a combination of a few programs in theory. These programs range from the UK, US and German models. China runs a mixed system with additives, much like the US VA program. In fact, you can even buy a ticket for around $10.00 and access mega-hospitals in the city centers of China and have consultations with the countries supreme specialists at will. What could be be the draw back? You may wait for hours. 

"How to provide health care for millions of people is a question that has vexed countries and governments around the world. It’s a modern notion, but nowadays we take for granted the idea that people have the right to access health services, regardless of their wealth or social standing. We also demand that the government play some role in keeping people healthy. Americans have been arguing about whether medical insurance should be mandatory. In the UK, people are more worried that their free-for-all health care, the National Health Service, will not survive in the face of rising costs. All countries are urgently looking for a way to achieve so-called “universal health coverage” – a commitment all members of the World Health Organization made in 2005" - 

At the time of writing, the Italian government budget deficit target is 2.4% in 2019, 2.1% in 2020 and 1.8% in 2021. This misses the...

Will Italy Default? Italian Budget Concerning Investors



At the time of writing, the Italian government budget deficit target is 2.4% in 2019, 2.1% in 2020 and 1.8% in 2021. This misses the ECB target of 1.6% each consecutive year. Politicians are hoping to stimulate the country’s lacklustre economy and fulfil pre-election pledges including: the introduction of a guaranteed basic income; the adoption of a flat rate of income tax and the repeal of the previous government’s pension reforms. For the Five Star Movement, the agreement to enlarge the budget deficit and implement their flagship policies is an important step forward, as polls suggest that the party has been losing ground to its coalition partner. However, Italy’s fiscal space is already limited and, despite running a primary surplus, the government’s debt repayments equate to roughly 4% of GDP. According to Fathom calculations, the coalition’s current spending plans would see government debt hit 134% of GDP in 2020. Markets have taken a dim view of the proposed fiscal expansion and are currently pricing in a nearly 15% probability that the Italian government defaults on its debt within the next five years. Several rating agencies had already revised Italy’s outlook to negative ahead of the budget proposals, and any downgrade to the country’s credit rating could spark a new wave of volatility.

- Fathom Consulting




October 2018: Greece is now in a stable status.  The economy lost pace in the second quarter as domestic demand waned. Susta...

Greece: Outlook Is Stable



October 2018: Greece is now in a stable status. 



The economy lost pace in the second quarter as domestic demand waned. Sustained austerity measures and sky-high unemployment dented private consumption growth, despite signs of a moderate improvement in the labor market. In addition, public spending dipped in the quarter as the government remained committed to its fiscal consolidation plans. On a brighter note, booming inbound tourism propped up the external sector in the quarter. Available economic indicators appear more upbeat for the third quarter: economic sentiment shot up to an over four-year high in August, and a solid outturn by the manufacturing sector buoyed otherwise lackluster industrial output growth in July. On the heels of exiting its third government bailout, on 28 August, Prime Minister Alexis Tsipras reshuffled his cabinet. The reshuffle involved few key posts and was likely aimed at shoring up government support before next year’s election.

Hard-earned momentum should carry into next year as the economy finally emerges from eight years of creditor bailouts. Improving labor market dynamics and a pick-up in investment activity should drive the recovery. However, doubts remain over long-term debt sustainability and the government’s willingness to maintain fiscal discipline. FocusEconomics panelists see GDP expanding 2.0% in 2018 and 2.0% in 2019, unchanged from last month’s projection. Harmonized inflation ticked up to 0.9% in August (July: 0.9%). Our panel sees harmonized inflation averaging 0.8% in 2018 and 1.1% in 2019.

REAL SECTOR | Recovery loses traction in Q2
According to provisional data released by the Hellenic Statistical Authority (ELSTAT), the Greek economy lost some momentum in the second quarter, after expanding at the fastest pace in over 10 years at the start of the year. GDP expanded 1.8% annually in Q2, down from 2.6% in Q1. The print matched FocusEconomics’ expectations. While the economy has come a long way since the height of the crisis, growth is still moderate and gradual considering the depth of the country’s recession. The slowdown was driven by a deterioration in the domestic economy in the second quarter. Private consumption growth slowed from Q1’s 1.3% to 0.4%. While the labor market has tightened in recent quarters, unemployment is still elevated and austerity measures have dented households’ spending power. Government consumption plunged 2.0% in the quarter, the biggest drop in over a year, as the government pursues fiscal consolidation. In addition, fixed investment fell 5.3% in Q2, a softer drop than Q1’s 9.9% decrease which was largely due to strong base effects.

Unemployment rate dips in June According to data released by the Hellenic Statistical Authority (EL.STAT), the number of unemployed workers fell by 12,624 in June compared with May, while those in employment rose by 17,656 in the same period. In turn, the seasonally-adjusted unemployment rate moderated to 19.1% from a revised 19.3% in the previous month (previously reported: 19.5%). Moreover, June’s unemployment rate was 2.2 percentage points lower compared to the same month of last year (June 2017: 21.3%). Meanwhile, youth unemployment—categorized by individuals between the ages of 15-24—inched down slightly to 39.1% in June, although still the highest in the Eurozone by far. FocusEconomics Consensus Forecast panelists expect the unemployment rate to average 19.8% in 2018, which is down 0.1 percentage points from last month’s forecast. For 2019, the panel expects the unemployment rate to average 18.6%, unchanged from last month’s projection.


Italy’s economic recovery moderated further in the second quarter, weighed on by a weak external sector and anemic consumer spen...

Italy: Outlook Moderates, October 2018




Italy’s economic recovery moderated further in the second quarter, weighed on by a weak external sector and anemic consumer spending. This was despite the significant rebound in fixed investment, on the back of robust growth in transport equipment and rising housing investment. Monthly data for the third quarter, meanwhile, suggests the economy has shifted into a lower gear. In July industrial production contracted significantly, as was seen more broadly across the Eurozone, while in August economic sentiment cooled and the manufacturing sector neared stagnation. As for household spending, retail sales dropped in July and consumer sentiment dipped in August. Nevertheless, sentiment remains positive and, although the level of employment dropped, the unemployment rate fell to its lowest levels in over six years in July. This, coupled with the formation of a government in June, could have supported spending in Q3. However, ongoing 2019 budget negotiations within the government continue to worry investors; interest rates on Italian bonds remain extremely sensitive to government announcements concerning the future fiscal stance. • Next year, the pace of recovery will remain sluggish. Although credit growth is expected to strengthen thanks to improvements within the banking sector, expansion in demand will likely be modest, and employment growth will slow. A loose fiscal stance may also lead to a hike in interest rates as markets question the sustainability of Italy’s huge public debt, while political uncertainty is unlikely to dissipate due to the entrenched ideological differences within the governing coalition. Escalating trade tensions and potential financial instability could further darken the outlook. FocusEconomics panelists project growth of 1.2% in 2018 and 1.1% in 2019, down 0.1 percentage points from last month’s forecast. • Harmonized inflation eased to 1.6% in August from a 15-month high of 1.9% in July. FocusEconomics panelists expect inflation to average 1.3% in 2018 and 1.4% in 2019.


The recovery is set to continue this year, albeit at a slower pace. Fixed investment should continue to strengthen in the second half of the year. The unemployment rate ticked down to 10.4% in July, the lowest level since March 2012, which should bode well for household spending in H2. However, longstanding problems including the second-highest public debt-to-GDP ratio in the European Union, sluggish productivity growth, a slow judicial system, high taxes and cumbersome bureaucracy, continue to weigh on Italy’s outlook. Moreover, protracted domestic political instability and uncertainties surrounding the direction of the government’s economic policy are also substantial risks.

-FocusEconomics