Brilliant paper discussing millionaires in Britain between 1928-1929. An explosion of the super-rich which was brought on by a lack of competition within businesses and discusses  a lot of wealth from business. Economic History Review (EHR) has long been a favorite, and this is not disappoint. Below is an abstract and a link to the full article. 

- Chad Hagan

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This article examines the composition of Britain's `millionaire’ population during the late 1920s and early 1930s, based on data for living millionaires (in contrast to previous studies, which have focused on wealth at death). Using tabulated data compiled by the Inland Revenue for all persons on incomes over £50,000 per annum, it explores the factor incomes of Britain's millionaire population and their main sources of income, by sector. It then analyses a unique individual‐level data set of British millionaires, compiled by the Inland Revenue for the 1928/9 tax year, to show their sectoral and geographical composition. Most millionaires are shown to be `businesspeople’ rather than rentiers, while landed millionaires represented only a small proportion of the total. Businesspeople millionaires are shown to be disproportionately active in a relatively narrow range of sectors, the common characteristic of which was the potential to generate abnormal profits, mainly through cartelization or amalgamation. Thus, rather than revealing the sectors most important to national wealth, or competitive advantage, the clustering of millionaires primarily reflects rising barriers to competition in interwar Britain and the abnormal profits they generated.

Full EHR article at Wiley

Japan Is Ready to Become a Member of Five Eyes

Five Eyes is a five country pact composed of Anglo-Saxon countries sharing intelligence. A coalition of sorts. With Japan joining as a member we see a Chinese strategy emerging. Tokyo has wanted to join Five Eyes for years, long weary of China's encroachment. Technically this would make the organization “Six Eyes”, depending on how formal of a membership Japan takes.  - Chad Hagan

BBC: US singer-songwriter Bob Dylan has sold the rights to his entire song catalogue to Universal Music Group (UMG). The deal is one of the biggest acquisitions in Universal's history and means the company will collect all future income from the songs.

Hey! Chad Hagan here and I figured I would help unwind this deal for anyone confused. There has been a lot of talk in Mr. Dylan selling his catalog. 

Perhaps this is excellent timing on Dylan's part. 2020 was the year all concerts shuttered and many musicians - even established multimillionaires like Dylan - have felt the strain.  To begin, Dylan is nearing 80 years old and may have simply wanted to get his affairs in order - the deal was rumored to be at $200m and $450m (£150m - £340m). Did UMG overpay or underpay? I think they paid market rate,  and we do not know all the specifics. UMG is private - owned in part by Vivendi (90%) and Tencent (10%) - and there is a big chance they will go public in the next year or two. Also important to note, Columbia Records (owned by Sony), Dylan's longtime corporate label and the oldest recording company in America will still be involved in the relationship. To what extent I do not know. 

What about Taylor Swift? You cannot compare the two. First off Taylor is an anomaly, she has had a number of hits, including cross-over hits and hits that can be described as international hits all in a very short career. Swift's catalog may be one of the better performing catalogs at the moment but whether this continues no one knows. Also, the public has heard about her music catalog being sold twice, when it was first purchased and then when it was resold. Swift's team do a very good job managing her brand, and the constant noise surrounding her catalog is a great example of their master spinning. That said, when the chips fall Dylan may have been paid more that $300M. 

Will other Artists Follow Suit? For sure. Stevie Nicks sold 80 percent of her catalog to Primary Wave Music. 60's music icon David Crosby tweeted the other day that he was exploring such options. David Bowie and The Beatles are perhaps the best know artists who  pioneered monetizing their music. Recently Curtis James Jackson III (50 Cent) arranged a prepayment for his catalog administration, which is typical and reminiscent of artist advances during vinyl record, cassettes and compact discs days. Top artists with performing catalogs are viewed as safe haven commodities to investors. In year past Paul McCartney's Christmas song "Wonderful Christmastime" has generated over $500K per year in royalties alone.

A brighter outlook but recovery will be gradual.

Faster vaccine deployment and better cooperation for its distribution would boost confidence and strengthen the pickup but continued uncertainty risks further weakness. Vaccination campaigns, concerted health policies and government financial support are expected to lift global GDP by 4.2% in 2021 after a fall of 4.2% this year. The recovery would be stronger if vaccines are rolled out fast, boosting confidence and lowering uncertainty.

Delays to vaccination deployment, difficulties controlling new virus outbreaks and failure to learn lessons from the first wave would weaken the outlook.

The bounce-back will be strongest in the Asian countries that have brought the virus under control but even by the end of 2021, many economies will have shrunk from 2019 levels before the pandemic.

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Moderate growth is set to continue provided the pandemic can be contained effectively

The near-term global outlook remains highly uncertain. Growth prospects depend on many factors, including the magnitude, duration and frequency of new COVID-19 outbreaks, the degree to which these can be effectively contained, the time until an effective vaccine can be widely deployed, and the extent to which significant fiscal and monetary policy actions continue to support demand. Recent developments point to a rising possibility that effective vaccines will be widely deployed towards the end of 2021, improving the prospects for a durable recovery. However, time will be needed to manufacture and distribute the vaccine around the world and ensure it reaches those most at risk. Until then, sporadic and potentially sizeable outbreaks of the virus are likely to continue, as currently being experienced in many Northern Hemisphere economies, necessitating continued containment measures and strategies that differ across countries. Targeted restrictions on mobility and activity will need to be used to address any new outbreaks, accompanied by reinforced personal hygiene measures. Limits on personal interactions are assumed to persist, such as physical distancing requirements and restrictions on the size of gatherings. Restrictions on people crossing national borders are also expected to remain in force, at least partially. Voluntary physical distancing may also continue to restrain household spending.

Living with the virus for at least another six to nine months is likely to prove challenging. The impact of renewed periods of tighter containment measures on activity and confidence will differ across economies, depending on the effectiveness of testing, contact tracing and quarantine arrangements, and the availability of sufficient hospital capacity. However, even where outbreaks are more easily controlled, some of the service sectors most affected by restrictions may be disrupted. With these sectors accounting for a sizeable share of total activity and employment in many economies, adverse spillovers from job losses and bankruptcies into demand in other parts of the economy are likely. Persistent unemployment would also worsen the risk of poverty and deprivation for millions of informal workers. Pre-existing vulnerabilities that have been heightened by the pandemic, such as high corporate and sovereign debt in many countries, and trade tensions between the major economies, could also slow the pace of the recovery if there are prolonged outbreaks of the virus.

Based on the assumptions set out above, a gradual but uneven recovery in the global economy is projected to continue in the next two years following a temporary interruption at the end of the current year. After a decline of 4¼ per cent in 2020, global GDP is projected to pick up by 4¼ per cent in 2021, and a further 3¾ per cent in 2022 (Table 1.1; Figure 1.13, Panel A). OECD GDP is projected to rise by around 3¼ per cent per annum in 2021 and 2022, after dropping by around 5½ per cent in 2020. By the end of 2021, the level of global output is projected to have returned to that at the end of 2019 (Figure 1.13, Panel C), although this is not the case in all countries.

Output is set to remain persistently weaker than projected prior to the pandemic (Figure 1.13, Panel D), suggesting that the risk of long-lasting costs from the pandemic is high. Such shortfalls are projected to be relatively low in China, Korea, Japan and some Northern European economies, at between 1-2 per cent in 2022. The median advanced and emerging-market economy could have lost the equivalent of 4 to 5 years of per capita real income growth by 2022. Initial estimates of potential output growth in the aftermath of the pandemic also highlight the likelihood of permanent costs from the outbreak, with potential output growth in the OECD economies projected to slow to just over 1¼ per cent per annum in 2021-22, some ½ percentage point weaker than immediately prior to the crisis.

Considerable heterogeneity in developments in the major economies is set to persist, both between advanced and emerging-market economies, and between regions (Figure 1.13, Panel B). The economic impact of the pandemic and its aftermath has been relatively well contained in many Asia-Pacific and Northern European economies, reflecting effective containment measures, including well-resourced test, track and isolate systems, and familiarity with precautionary measures to protect against risks from transmissible diseases. In contrast, the measures required to control virus outbreaks in other parts of Europe and other emerging-market economies have been prolonged and involved much deeper declines in output.

- A gradual recovery is underway in Japan, with GDP growth projected to be around 2¼ per cent in 2021 and 1½ per cent in 2022, following an output decline of 5¼ per cent in 2020. Improving external demand will help exports strengthen further, but weak real income growth is likely to hold back private consumption. Strong fiscal measures have helped to cushion activity this year but a tighter fiscal stance in 2021, despite the new supplementary budget announced in November, will slow the pace of the recovery.

- In the euro area, GDP has declined by 7½ per cent this year, and near-term prospects are weak. Output is projected to drop by close to 3% in the fourth quarter of 2020, reflecting the recent reintroduction of stringent containment measures in most countries. Provided virus outbreaks can be effectively contained in the near term, and confidence restored, a moderate recovery is projected in 2021-22. However, area-wide pre-pandemic output levels may not be fully regained until after 2022. After sizeable support this year, fiscal policy is set to be broadly neutral in 2021 and mildly restrictive in 2022 despite the modest outlook, but Next Generation EU grants should help support investment in the hardest-hit economies during the projection period.

- A solid recovery is expected to continue in China, with GDP growth projected to be around 8% in 2021 and 5% in 2022. Monetary stimulus is now being withdrawn but fiscal policy is set to remain supportive. Strong investment in real estate and infrastructure, helped by policy stimulus and stronger credit growth, and improved export performance are driving the pick-up, and helping to boost external demand in many commodity-producing economies and key supply-chain partners in Asia. Progress in rebalancing the economy has however slowed, and significant financial risks remain from shadow banking and elevated corporate sector debt.

- The impact of the pandemic in many other emerging-market economies has been prolonged relative to that in China, reflecting difficulties in getting the pandemic under control, high poverty and informality levels, declining tourist inflows, and limited scope for policy support. Gradual recoveries are now starting in most economies, but the shortfalls from expectations prior to the pandemic are likely to remain sizeable.

- Output in India is projected to rise by 8% in FY 2021-22 provided confidence improves, after having declined by 10% in FY 2020-21. Further reductions in policy interest rates should help to support demand, if the current upturn in inflation subsides, but there is limited scope for additional fiscal measures, and pressures on corporate balance sheets and banking sector bad loans are also likely to restrain the pace of the upturn.

- A gradual recovery is projected to continue in Brazil, with GDP rising by 2½ per cent in 2021 and 2¼ per cent in 2022, after contracting by 6% this year. Strong fiscal and monetary support have helped to protect incomes and prevent a larger output decline this year. High unemployment and the planned withdrawal of some crisis-related fiscal measures will temper household spending in 2021, but historically low real interest rates and favourable credit conditions should help investment to strengthen.

Read more at OECD

The recovery remains firmly in place, with October indicators signaling still-robust economic dynamics. On 29 October, China’s top leadership finalized the blueprint of the 14th Five-Year Plan (2021—2025) and unveiled its “Vision 2035” program, which intends to catapult China to “moderately developed economy” status in 15 years. The final document will be approved at the March 2021 National People’s Congress. The agenda includes boosting total factor productivity, rebalancing economic development and reducing the economy’s dependence on external markets and technology. Although it is ambitious, China’s solid track record of meeting economic and social targets makes this initiative plausible. Regarding the U.S. elections, while a Biden presidency should lead to some reduction in trade tensions, the removal of existing trade tariffs is still uncertain. 

• Economic growth is expected to accelerate sharply in 2021. Next year, private consumption should be the main growth driver as it recovers from the coronavirus-induced slump and the impact of social distancing measures. Despite the new Democrat-led administration in the U.S., uncertainty over the China-U.S. relationship will likely persist and affect investment decisions. FocusEconomics panelists expect GDP to expand 7.9% in 2021, which is up 0.2 percentage points from last month’s estimate. In 2022, the panel foresees GDP expanding 5.2%. 

• Inflation tumbled to 0.5% in October from 1.7% in September, marking an over 10-year low. That said, the subdued reading mostly reflected a high base effect from last year due to the African swine fever outbreak, as well as declining fuel prices. Inflation is expected to pick up next year due to solid domestic growth. FocusEconomics panelists forecast that inflation will average 2.0% in 2021, which is down 0.1 percentage points from last month’s estimate. In 2022, they see inflation increasing to 2.2%. 

• The People’s Bank of China (PBOC) has refrained from adding monetary stimulus in recent months as the economy appears to be on a path to recovery. The PBOC uses a complex system to implement monetary policy, including key benchmark rates and reserve requirement ratios. Panelists project the one-year deposit rate to end 2021 and 2022 at 1.50%. The loan prime rate is seen ending 2021 at 3.72%. 

• The yuan continued to post gains in recent weeks due to solid economic growth and a significant interest rate differential due to an ultra-low interest rate environment worldwide. On 13 November, the yuan traded at 6.61 CNY per USD, appreciating 2.1% month-on-month. Looking forward, the yuan is expected to broadly remain at current levels. Our panelists see the yuan ending 2021 at 6.67 CNY per USD and 2022 at 6.74 CNY per USD.

 

U.S. Economic Health Heavily Dependent on COVID-19 Path Housing Sector Remains Strong but Expected to Moderate in New Year

WASHINGTON, DC – November 17, 2020 – The response by consumers and policymakers to rising COVID-19 case counts is likely to determine whether currently projected improvements to U.S. economic growth materialize, according to the latest commentary from the Fannie Mae Economic and Strategic Research (ESR) Group . While the ESR group expects the virus’ resurgence to drag on consumer spending in coming months, absent spring-like behavioral shifts and lockdown measures, it expects that the further recovery of the domestic labor market and built-up household savings will likely be sufficient to drive continued real GDP growth, which is now forecast at 3.3 percent for full-year 2021, slightly below last month’s projection, and 3.0 percent for full-year 2022. Nearer-term projections, including the fourth quarter of 2020 and the first quarter of 2021, were revised modestly downward due in part to recent signs of modest, virus-related changes in consumer behavior. Although strict new lockdown or social distancing mandates remain the largest downside risk, the ESR Group notes that economic growth in coming quarters could substantially surpass the baseline forecast if, alternatively, such measures can be avoided and the development of a vaccine progresses swiftly.

After a sharp rebound in the third quarter, housing is expected to demonstrate continued strength through the rest of 2020 and into the new year. For the fourth quarter of 2020 and the first quarter of 2021, the ESR Group has upgraded its new and existing home sales forecasts – due to stronger-than-expected sales to date – as well as its mortgage origination forecasts for full-year 2020 and 2021. However, the ESR Group noted that the home sales pace may have peaked in September and expects a moderate slowdown to be underway. Pending sales and purchase mortgage applications have recently pulled back from highs as pent-up homebuyer demand from the spring continues to recede. A renewal of infection avoidance behavior among prospective homebuyers and home sellers could also adversely impact the forecast.

“The continued geographic shift and now resurgence of COVID-19 has raised risks to the pace of growth, though in our view not to the level of a potential second recessionary downturn,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist. “Households appear reasonably well-positioned to weather and cushion the slowdown, but if a strict broad-based lockdown were to be instituted and sustained, then the economy could turn down again. Meanwhile, the housing market continues to thrive in the low rate environment, particularly refinancing, but the sector is showing some early signs of slowing on the purchase side as the delayed seasonal effect works its way through the market.”

Brent crude prices plummeted in recent weeks as the oil market navigated election-related uncertainty in the U.S., soaring numbers of new Covid-19 cases globally and despite a tightening supply outlook. On 6 November, oil traded at USD 39.6 per barrel, which was 7.5% lower than on the same day last month. Moreover, the benchmark price for global crude oil was 36.4% lower than on the same day last year and was down 40.3% on a year-to-date basis. Oil prices sank to a five-month low at the end of October, battered by the second wave of the Covid-19 pandemic in Europe which prompted authorities to reintroduce lockdown measures in most countries. Moreover, rising oil output and the absence of further fiscal stimulus in the U.S. further hurt crude prices. That said, oil prices staged a strong bounceback in early November amid premature signs of a Trump victory in a tight election race. Prices dipped again, however, as Joe Biden secured the victory in the elections, promising to deliver a green new deal and signaling a likely re-engagement with Iran. Meanwhile, shrinking U.S. crude oil inventories and news that Russia is planning to roll over current production cuts until the end of Q1 2021 boded well for prices. Oil prices should regain some lost ground next year, as the global economy shrugs off the effects of the pandemic and oil demand rises thanks to rebounding economic activity. However, the outlook remains fragile amid an unprecedented mix of geopolitical, economic and health-related uncertainty. A prolonged global health crisis and the potential continuation of widespread lockdown measures, hotly contested U.S. election results, tensions in the Middle East, output volatility in Libya and OPEC+ production cuts are key factors to watch ahead. FocusEconomics panelists project prices to average USD 52.1 per barrel in Q4 2021 and USD 55.7 per barrel in Q4 2022. This month, 3 panelists upgraded their projections for Q4 2021, although 6 panelists revised down their estimates. Meanwhile, 26 panelists left their projections unchanged. Highlighting the lingering uncertainty, panelists continue to have diverging views on the price outlook: For Q4 2021, the maximum price forecast is USD 65.0 per barrel, while the minimum is USD 43.9 per barrel.

West Texas Intermediate (WTI) crude prices plunged over the past month, rocked by uncertainty over elections in the U.S. and a frail global demand backdrop due to soaring Covid-19 cases. WTI crude oil prices traded at USD 37.0 per barrel on 6 November, which was 8.8% lower than on the same day last month. Moreover, the price was 34.2% lower than on the same day last year and was down 39.5% on a year-to-date basis. The second wave of the Covid-19 pandemic hit Europe and the U.S. hard in late October, prompting authorities to reintroduce lockdown measures in most countries and hammering oil prices in turn. This, coupled with bearish factors in the U.S.— rising oil output, the absence of further fiscal stimulus and election-related uncertainty—sent WTI prices diving to a five-month low on 30 October. Although prices rebounded strongly in early November, on premature signs of an election victory for President Trump, Joe Biden’s projected victory in the elections dealt another blow to prices in recent days, as markets reacted to a green new deal agenda and likely reengagement with Iran. Shrinking U.S. crude oil inventories and news that Russia is planning to roll over current production cuts until the end of Q1 2021 supported the prices, however. Oil prices are seen trending upwards next year, propelled by recovering demand as the impact from the pandemic fades. That said, the outlook remains uncertain, with a longer-thanexpected global health crisis and the subsequent continuation of lockdown measures in many countries seen as a key downside risk. Geopolitical risks due to the hotly contested U.S. election results, lingering tensions in the Middle East and output volatility in Libya and the U.S. and uncertainty over OPEC+ output discipline, are all major factors to watch going forward. FocusEconomics panelists project prices to average USD 48.5 per barrel in Q4 2021 and USD 51.3 per barrel in Q4 2022.

Finnish economist Tuomas Malinen explains the nature and severity of the historic global financial crash underway. He foresees worst-case scenarios which can even include “widespread hunger and rationing in the western world for the first time since the 19th century.” As the Eurozone risks disintegration and China fakes its recovery, he worries about the real possibility of global hyperinflation and monetary destruction. The greatest risk is “Global Financial Socialism” brought about by central banks and supranational organizations (e.g. IMF, World Bank, UN) which could bring about a fascist and totalitarian “global economic dystopia”. This “financial takeover” or “endgame of the global elite” would include a surveillance state, digital currencies, the end of commercial banks, and the end of cash.

About Tuomas Malinen PhD (econ.) Tuomas Malinen is a CEO and Chief Economist of GnS Economics. He is also an Adjunct Professor of Economics at the University of Helsinki. He has studied economics in the University of Helsinki and in the New York University. He specializes in economic growth, economic crises, central banks and the business cycle. Tuomas is currently writing a book on Forecasting Financial Crises.

Geopolitics & Empire · Tuomas Malinen: Real Risk of Fascist Totalitarian "Global Economic Dystopia" #166

The federal deficit has reached historic levels in recent years, even before Congress passed the $2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES) in March 2020. Join us for a conversation with Lawrence H. Summers, former Secretary of the Treasury, and Maya MacGuineas, President of the Committee for a Responsible Federal Budget, on whether the growing federal deficit is sustainable for the United States economy. Betsey Stevenson, professor of economics and public policy, will moderate the discussion. Panelists will discuss the growing debate among economists and policymakers about whether the federal deficit presents a danger to the overall health of the U.S. economy. 

Maya MacGuineas is the president of the bipartisan Committee for a Responsible Federal Budget. Her areas of expertise include budget, tax, and economic policy. As a leading budget expert for the past twenty years and a political independent, she has worked closely with members of both parties and serves as a trusted resource on Capitol Hill. MacGuineas testifies regularly before Congress and has published broadly, including regularly in The Washington Post, The Wall Street Journal, The New York Times, The Financial Times, The Atlantic, and numerous other outlets. She also appears regularly as a commentator on television. 

MacGuineas oversees a number of the Committee’s projects including the grassroots coalition Fix the Debt; the Committee’s Fiscal Institute; and FixUS, a project seeking to better understand the root causes of our nation’s growing divisions and deteriorating political system, and to work with others to bring attention to these issues and the need to fix them. Her most recent area of focus is on the future of the economy, technology, and capitalism. Previously, MacGuineas worked at the Brookings Institution and on Wall Street, and in the spring of 2009 she did a stint on The Washington Post editorial board, covering economic and fiscal policy. MacGuineas serves on a number of boards and is a native Washingtonian. 

Lawrence H. Summers is the Charles W. Eliot University Professor and President Emeritus of Harvard University. During the past two decades, he has served in a series of senior policy positions in Washington, D.C., including the 71st Secretary of the Treasury for President Clinton, Director of the National Economic Council for President Obama and Vice President of Development Economics and Chief Economist of the World Bank.

He received a bachelor of science degree from the Massachusetts Institute of Technology in 1975 and was awarded a Ph.D. from Harvard in 1982. In 1983, he became one of the youngest individuals in recent history to be named as a tenured member of the Harvard University faculty. In 1987, Mr. Summers became the first social scientist ever to receive the annual Alan T. Waterman Award of the National Science Foundation (NSF), and in 1993 he was awarded the John Bates Clark Medal, given every two years to the outstanding American economist under the age of 40.

He is currently the Charles W. Eliot University Professor at Harvard University and the Weil Director of the Mossavar-Rahmani Center for Business & Government at Harvard’s Kennedy School.

This event is sponsored by the Ford School and co-sponsored by the Gerald R. Ford Presidential Foundation and the West Michigan Policy Forum. 

OVERVIEW | Global commodity prices dip in September Global commodity prices fell 2.5% over the previous month in September, contrasting August’s 3.9% increase and marking the first decline since April. September’s downturn was chiefly driven by a broad-based decline in prices for energy and precious metals. The recovery in oil prices was stopped in its tracks at the end of Q3 amid muted global demand, while prices for gold, silver and platinum dived for the first time in five months as safe-haven demand shifted to the strengthening U.S. dollar. That said, robust Chinese demand continued to fuel price growth for base metals, while agricultural prices rose at the strongest pace in over a year in September, thus softening the overall downturn. FocusEconomics panelists expect global commodity prices to contract 16.1% year-on-year in Q4 2020 (previous edition: -16.4% year-on-year). Plunging energy prices are set to spearhead the downturn, due to a sharp decline in prices for oil and its derivatives. That said, soaring prices for precious metals should soften the overall drop. Meanwhile, base metal prices are seen finishing this year at close to the previous year’s levels. Global commodity prices are projected to recover next year, mostly led by a rebound in energy prices.

ENERGY | Energy prices dive in September on weak demand Energy prices plunged 5.8% in September, swinging from August’s 4.1% month-on-month increase and marking the first slump in prices since the height of the global lockdowns in April. The recovery in energy prices stalled at the end of Q3, derailed by a weaker-than-expected recovery in demand amid soaring numbers of new Covid-19 cases across the world and a gradual rise in global supply levels. In a similar fashion, prices for oil derivatives slid on a worsening consumption outlook following the end of summer driving season in the northern hemisphere. Natural gas prices also slipped amid lingering oversupply conditions. That said, prices for thermal coal and coking coal edged up in the month. The energy price outlook remained grim in September, with the global surge in Covid-19 cases continuing to weigh on short-term demand prospects. As such, FocusEconomics panelists forecast a 26.2% year-on-year dive in Q4 2020 (previous edition: -25.4% yoy). Energy prices are expected to regain some lost ground next year, however, as the global economic recovery gathers steam. That said, uncertainty over the course of the pandemic, geopolitical risks stemming from the U.S. elections, trade wars and tensions in the Middle East, and volatile global oil supply levels all cloud the outlook. Our panelists see energy prices growing 16.1% in annual terms in Q4 2021.

BASE METALS | Base metal price growth remains upbeat in August Prices for base metals rose 4.7% on a monthly basis in August, softening slightly from July’s 6.6% jump, yet still marking the fourth consecutive month of growth. Base metal prices continued to rise in September, albeit at the slowest pace in four months, as strong industrial demand in top consumer China was partly offset by moderating economic momentum in most other major economies. A sustained economic recovery in China, growing optimism over the country’s future infrastructure projects and a stronger yuan bolstered demand for base metals, especially steel, at the end of Q3. Uncertainty over an additional U.S. fiscal stimulus package, geopolitical risks and a reintroduction of lockdown restrictions in some countries capped the overall upturn, however. The outlook for base metal prices improved further at the end of Q3, chiefly thanks to a healthy demand outlook in top metals consumer China amid the government’s fiscal spending program, which includes plans for massive infrastructure projects. As a result, FocusEconomics panelists project prices rise 1.7% annually in Q4 2020. Turning to next year, prices are seen edging up further as the global economy shrugs off the constraining effects of Covid-19, although frail economic conditions, a possible flareup of trade tensions and volatile supply conditions all cloud the outlook. Our panelists project prices to edge up 0.8% in Q4 2021.

PRECIOUS METALS | Precious metal prices decline in September Precious metal prices fell 1.9% month-on-month in September, contrasting August’s 8.7% upturn and marking the first fall in prices since March. The plethora of factors sent shivers throughout markets over the past month, as hopes of another U.S. stimulus package faded rapidly, following the Fed’s call for further fiscal stimulus amid economic headwinds. Moreover, a more dovish ECB and a resurgence in Covid-19 cases in Europe also raised economic uncertainty. Consequently, investors sought safety in the USD and away from precious metals as prices tend to fall in times of heightened uncertainty. Gold, silver and platinum prices all tumbled in September, although palladium prices remained upbeat due to still-strong demand from the automotive sector. The outlook for precious metal prices remains robust, with FocusEconomics panelists projecting prices to jump 30.7% annually in Q4 2020 (previous edition: +26.9% yoy). The bullish outlook chiefly reflects sufficient safe-haven demand for gold due to the pandemic and geopolitical tensions, and widespread interest rate cuts by major central banks. Next year, silver and platinum prices are seen rising further on a recovery in industrial demand. 

AGRICULTURAL | Agricultural prices surge in September Agricultural prices rose 6.8% month-on-month in September after falling 0.2% in August, marking the strongest increase since June 2019. Septmeber’s price jump was largely driven by higher prices for corn, soybeans and wheat, likely due to solid demand conditions and downbeat supply outlooks. Moreover, cocoa, coffee and cotton prices also received a boost thanks to stronger demand, partly due to the ongoing recovery in economic activity. That said, wool prices continued to fall amid still-subdued demand from Chinese buyers. FocusEconomics panelists project agricultural prices to decline 2.0% year-on-year in Q4 2020 (previous edition: -4.2% yoy). Tepid demand for wool, sugar and palm oil, amid weaker global retail sales and a softer appetite for biofuels, will likely drive the overall fall. Next year, prices should rise due to stronger economic output, although uncertainty regarding U.S.–China trade tensions remains a key risk to the outlook. Our panelists forecast agricultural prices to rise 2.8% in annual terms in Q4 2021.

FocusEconomics - Commodities - October 2020

Outlook
On the heels of the worst economic downturn in over a decade in Q2 owing to the Covid-19 fallout, recent data hints at a fragile recovery in Q3. After two months of robust gains as the economy reopened, industrial production cooled markedly in July in monthly terms as output in the mining and manufacturing sectors lost stride. Additionally, despite a strong rebound in June, merchandise exports contracted again in both July and August amid still-subdued foreign demand. Leading data also shows a slight retreat in sentiment, with business confidence edging lower in September as views over the general business situation deteriorated. Similarly, the manufacturing PMI slipped in the same month on signs of demand losing strength. Complicating matters, Moody’s cut the country’s credit rating deeper into junk from B1 to B2 on 14 September, citing increasing risks of a balance of payments crisis. 

GDP is seen tumbling at the sharpest pace since the 2009 global financial crisis this year as the pandemic and associated restrictions take their toll. Fiscal stimulus should help to cushion the contraction somewhat, however, and the economy should recover strongly next year. Elevated inflation, a depreciating currency and a fragile external position all cloud the outlook. FocusEconomics Consensus Forecast panelists project the economy to contract 3.3% in 2020. In 2021, GDP growth is seen at 4.4%, which is down 0.5 percentage points from last month. 

Price pressures remained high in August, with inflation coming in at July’s 11.8%, in part stoked by continued lira weakness. Inflation should subside gradually ahead, weighed on by tepid aggregate demand and subdued energy prices. Potential further depreciation of the lira poses an upward risk, however. FocusEconomics Consensus Forecast panelists see inflation ending 2020 at 11.8% and 2021 at 10.5%, which is up 0.4 percentage points from last month. • At its 24 September meeting, the Central Bank raised the one-week repo rate by 200 basis points to 10.25%, taking market analysts by surprise and tightening policy for the first time since the 2018 currency crisis. The move was aimed at quelling elevated inflation and propping up a sliding lira. Most of our panelists expect the Bank to tighten policy further by year-end. FocusEconomics Consensus Forecast panelists see the one- week repo rate ending 2020 at 11.52% and 2021 at 11.02%. 

On 2 October, the lira traded at TRY 7.77 per USD, depreciating 5.0% month-on-month. Although the Central Bank’s unexpected rate hike sent the lira rallying, concerns that Turkey could get more involved in the Azerbaijan-Armenia conflict erased those gains. Depleted FX reserves and low real interest rates weighed further. The lira is seen remaining under pressure ahead. FocusEconomics Consensus Forecast panelists project the lira to end 2020 at TRY 7.63 per USD and 2021 at TRY 8.04 per USD.

Central Bank unexpectedly raises interest rate in September
At its 24 September meeting, the Central Bank’s Monetary Policy Committee (MPC) took market analysts by surprise and raised the one-week repo rate by 200 basis points to 10.25% from 8.25%. Market analysts had largely expected the Central Bank to stand pat, but the MPC instead delivered the first rate hike since the country’s currency crisis in 2018.

In deliberating the decision, the Bank took into account the higher-thanexpected inflation readings and as such opted to tighten financial conditions in the market to cool price pressures. The MPC noted that it had expected “demand-driven disinflationary effects” as domestic demand has been weakened by the pandemic; however, the strong credit impulse and the fiscal and monetary policy action taken so far have fueled a robust economic recovery in the third quarter. This, in conjunction with continued lira weakness, put upside pressure on prices. The move to aggressively hike the interest rate was likely also aimed at stemming the lira’s slide and appeasing international financial markets to an extent. On 23 September, the currency was down 4.7% month-on-month and 22.8% year-to-date against the U.S. dollar amid renewed geopolitical tensions with Greece in the Mediterranean. Moreover, in mid-September, Moody’s downgraded Turkey’s credit rating to B2 and maintained the negative outlook in part due to deteriorating government finances and the fact that the country’s institutions “appear to be unwilling […] to effectively address” increasing credit profile risks. 

In the press release, the Bank struck a largely unchanged tone, reaffirming its belief that “a cautious monetary stance” is needed to sustain a disinflationary process. Commenting on the potential policy direction ahead, Gökçe Çelik, senior CEE economist at Unicredit, noted: “The CBRT’s outright rate hike might support the TRY against further depreciation in the short term. However, the re-acceleration of COVID-19 infection rates and uncertainty surrounding the upcoming US presidential election could deteriorate sentiment in financial markets, hurting risky assets in 4Q20. Meanwhile, annual inflation is likely to trend upward from 11.8% in August, and towards 13% by the end of 2020, driven primarily by the exchange-rate pass through. […] We see inflation ending next year at 10.8%. These factors call for the central bank to carry on with monetary tightening strongly.” The next monetary policy meeting is scheduled for 22 October.

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