What is a recession?
Wikipedia editors couldn't agree on the definition of the word "recession" to the point when site had to ban them. Moreover, definition of "recession" has been a subject of political sparring.
In general, recession is a period of significant decline in economic activity.
But if we ask for details, definition differs from country to country. So in Britain, France and Germany 2 quarters of negative GDP indicates recession; in Japan cabinet office includes factory output, retail sales, employment and personal income in indicating recession; America's government has delegated authority to declare recession to the National Bureau of Economic Research(NBER), a private but non-profit organisation; a part of NBER — known as the Business Cycle Dating Committee (BCDC) — has been America’s arbiter of recessions since 1978.
One former member of Japan's committee compared indicating recession by GDP alone to diagnosing a patient's illness by just measuring their temperature.
And this statement explains one of the reasons why America is still not officially in a recession. Despite GDP falling, unemployment is low and job growth is fast and strong.
Another reason is that the committee does not make real-time judgments or predictions. It prefers to be retrospective, avoiding all possible errors. BCDC's usual lag between the start of a recession and its announcement is almost 12 months(sometimes a recession is flaged only when it is already over).
- Anastasia🍵🍰
Wikipedia editors couldn't agree on the definition of the word "recession" to the point when site had to ban them. Moreover, definition of "recession" has been a subject of political sparring.
In general, recession is a period of significant decline in economic activity.
But if we ask for details, definition differs from country to country. So in Britain, France and Germany 2 quarters of negative GDP indicates recession; in Japan cabinet office includes factory output, retail sales, employment and personal income in indicating recession; America's government has delegated authority to declare recession to the National Bureau of Economic Research(NBER), a private but non-profit organisation; a part of NBER — known as the Business Cycle Dating Committee (BCDC) — has been America’s arbiter of recessions since 1978.
One former member of Japan's committee compared indicating recession by GDP alone to diagnosing a patient's illness by just measuring their temperature.
And this statement explains one of the reasons why America is still not officially in a recession. Despite GDP falling, unemployment is low and job growth is fast and strong.
Another reason is that the committee does not make real-time judgments or predictions. It prefers to be retrospective, avoiding all possible errors. BCDC's usual lag between the start of a recession and its announcement is almost 12 months(sometimes a recession is flaged only when it is already over).
- Anastasia🍵🍰
🔥4👍2🤯2
The silver linings of a recession
Lower inflation and greener energy are worth the price of a short downturn.
Today saying that the world will avoid a downturn is much less common opinion than predicting a recession. And it's easy to understand why: America’s Federal Reserve is leading a broad charge to tighten monetary policy; Europe is short of natural gas; Chinese growth has slowed sharply.
Has recession already arrived? It's hard to answer this question, 'cause pandemic has messed up the economic indicators. Consumer confidence plunged, but when asked about their personal finances rather than the whole economy, people are much cheerier. Even the threat of an emerging-market financial crisis — the usual worry when the Fed raises rates — is not what it once was. In fact, households and companies look strong. And as was said in the previous post, America’s disappointing GDP figures do not tally with other measures of output or employers’ growing payrolls.
Regardless of whether economies are already shrinking, it is hard to see how they can avoid a recession over the next year as monetary tightening bites and Europe heads into a bleak winter.
The silver lining is that both higher interest rates and the energy shock will bring gains that should strengthen the world economy in the long run.
Some recessions feed on themselves as indebted households cut their spending or defaults cascade through a fragile financial system.
The main global economic fault line is inflation. Thankfully, long-term inflation expectations remain modest.
The best historical analogy is probably the burst in consumer prices that followed the mass disruption of the WW II. The downturn that brought that inflation to an end was shallow and left few scars.
A mild recession should squeeze price rises out of the economy this time, too.
Elsewhere the main impetus for inflation is soaring global food and energy prices and disrupted supply chains, which are raising the price of imported goods.
Some shortages are already easing and supply chains are recovering.
Unfortunately, Europe’s gas shortage is getting worse, even though governments are doing their best to shield consumers.
Yet in the same way that a downturn should purge the American economy of its inflation problem, so Europe could emerge from recession having overcome its complacency about the supply of energy. Policymakers have belatedly realised that a carefully managed shift to clean energy also eases their dependence on autocratic regimes.
Around the world, investment in renewable energy is surging and governments that were previously sceptical about nuclear power—an essential part of a low-carbon energy grid—are reconsidering their opposition to it. Even Japan, which suffered the Fukushima disaster in 2011, is hoping to restart more nuclear reactors. If the world emerges from the coming downturn with inflation under control and on the path to greener, more secure energy supplies, the pain will not have been for nothing.
-Anastasia🌿☕️
Lower inflation and greener energy are worth the price of a short downturn.
Today saying that the world will avoid a downturn is much less common opinion than predicting a recession. And it's easy to understand why: America’s Federal Reserve is leading a broad charge to tighten monetary policy; Europe is short of natural gas; Chinese growth has slowed sharply.
Has recession already arrived? It's hard to answer this question, 'cause pandemic has messed up the economic indicators. Consumer confidence plunged, but when asked about their personal finances rather than the whole economy, people are much cheerier. Even the threat of an emerging-market financial crisis — the usual worry when the Fed raises rates — is not what it once was. In fact, households and companies look strong. And as was said in the previous post, America’s disappointing GDP figures do not tally with other measures of output or employers’ growing payrolls.
Regardless of whether economies are already shrinking, it is hard to see how they can avoid a recession over the next year as monetary tightening bites and Europe heads into a bleak winter.
The silver lining is that both higher interest rates and the energy shock will bring gains that should strengthen the world economy in the long run.
Some recessions feed on themselves as indebted households cut their spending or defaults cascade through a fragile financial system.
The main global economic fault line is inflation. Thankfully, long-term inflation expectations remain modest.
The best historical analogy is probably the burst in consumer prices that followed the mass disruption of the WW II. The downturn that brought that inflation to an end was shallow and left few scars.
A mild recession should squeeze price rises out of the economy this time, too.
Elsewhere the main impetus for inflation is soaring global food and energy prices and disrupted supply chains, which are raising the price of imported goods.
Some shortages are already easing and supply chains are recovering.
Unfortunately, Europe’s gas shortage is getting worse, even though governments are doing their best to shield consumers.
Yet in the same way that a downturn should purge the American economy of its inflation problem, so Europe could emerge from recession having overcome its complacency about the supply of energy. Policymakers have belatedly realised that a carefully managed shift to clean energy also eases their dependence on autocratic regimes.
Around the world, investment in renewable energy is surging and governments that were previously sceptical about nuclear power—an essential part of a low-carbon energy grid—are reconsidering their opposition to it. Even Japan, which suffered the Fukushima disaster in 2011, is hoping to restart more nuclear reactors. If the world emerges from the coming downturn with inflation under control and on the path to greener, more secure energy supplies, the pain will not have been for nothing.
-Anastasia🌿☕️
🤩4🤯2🔥1
Financial markets. Part1: Financial markets are in trouble. Where will the cracks appear?
As the Federal Reserve has tightened policy, America faced a lot of negative consequences.
The world is entering a new phase, in which financial markets no longer just reflect the pain of adjusting to the new economic context—pricing in higher rates and lower growth—but now also spread pain of their own.
The worst pain is felt when financial institutions fail. There are two ways they do so: illiquidity or insolvency. Tighter monetary policy is likely to prompt or reveal both. It is illiquidity that comes first—and it has well and truly arrived.
Main bond holders facing liquidity issues are pension funds and open-ended bond funds.
Credit costs are rising so abruptly even financial researchers have never seen this before. Yet the real problem is when credit is unavailable—no matter the price. Strategists at Bank of America describe their index of credit stress as “borderline critical”.
Stockmarkets have been very turbulent, but they have at least continued to function. “You might not have liked the price you were seeing,” says Tal Cohen of Nasdaq, a stock exchange, “but you were always seeing a price.” He has yet to witness “demand destruction”, the thinning out of the order book. This is despite the fact that Bank of America strategists think markets have fallen to levels at which losses may be forcing funds to sell assets to raise cash, accelerating the sell-off.
Illiquidity in credit markets is enough of a problem. It can morph into a total lack of lending. Typically it can be solved by central banks stepping in and operating as a lenders of last resort. However, such an intervention might undermine faith in central bankers’ commitment to fighting inflation.
Market-watchers now wonder whether all this pressure will lead to insolvencies, which happen when the value of an institution’s assets falls below its liabilities. Insolvency is fatal, and only resolvable by bankruptcy or bail-outs.
The current tension is the first big test of a new-look financial system. Regulators have sought to make systemically important institutions too safe to fail.
The result is that there are layers of protection around the financial system’s most important institutions. At the heart of markets are clearing houses, which settle trades in stocks and derivatives between their members.
The banks, which stand between the clearing houses and other financial institutions, are also in better shape.
Today there are 30 banks designated as systemically important by regulators, some 28 of which are in the kbw Nasdaq Global Bank Index, which tracks bank stocks.
“American banks are unequivocally much stronger,” says a bank boss. Few are making such statements about European banks, and certainly nobody is about Credit Suisse.
Big banks head into the new era fortified. But the regulation that has strengthened their defences has also diminished them. By contrast, financial institutions that are not systemically important are unencumbered.
In 2007 problems started in real estate. The sheer pace of price growth in residential housing was too fast. Other forms of real estate are also vulnerable.
Michael Burry is concerned by unsecured consumer finance given the growth of “buy-now-pay-later” providers and the ease with which consumers have been able to tap credit-card lines. Ms Graseck of Morgan Stanley points out that, because this is an interest rate-shock driven cycle, trouble will probably first arrive in the loans that reprice to higher rates quickly: “Floating rate debt, like credit cards, is immediate, then commercial real estate, autos and eventually mortgages.”
One of the fastest-growing parts of private credit has been that offered to software-service firms. The cash flows they provide have been used to secure financing, meaning many firms are now highly leveraged. They are also untested in a downturn. It is companies more broadly that appear most at risk.
As the Federal Reserve has tightened policy, America faced a lot of negative consequences.
The world is entering a new phase, in which financial markets no longer just reflect the pain of adjusting to the new economic context—pricing in higher rates and lower growth—but now also spread pain of their own.
The worst pain is felt when financial institutions fail. There are two ways they do so: illiquidity or insolvency. Tighter monetary policy is likely to prompt or reveal both. It is illiquidity that comes first—and it has well and truly arrived.
Main bond holders facing liquidity issues are pension funds and open-ended bond funds.
Credit costs are rising so abruptly even financial researchers have never seen this before. Yet the real problem is when credit is unavailable—no matter the price. Strategists at Bank of America describe their index of credit stress as “borderline critical”.
Stockmarkets have been very turbulent, but they have at least continued to function. “You might not have liked the price you were seeing,” says Tal Cohen of Nasdaq, a stock exchange, “but you were always seeing a price.” He has yet to witness “demand destruction”, the thinning out of the order book. This is despite the fact that Bank of America strategists think markets have fallen to levels at which losses may be forcing funds to sell assets to raise cash, accelerating the sell-off.
Illiquidity in credit markets is enough of a problem. It can morph into a total lack of lending. Typically it can be solved by central banks stepping in and operating as a lenders of last resort. However, such an intervention might undermine faith in central bankers’ commitment to fighting inflation.
Market-watchers now wonder whether all this pressure will lead to insolvencies, which happen when the value of an institution’s assets falls below its liabilities. Insolvency is fatal, and only resolvable by bankruptcy or bail-outs.
The current tension is the first big test of a new-look financial system. Regulators have sought to make systemically important institutions too safe to fail.
The result is that there are layers of protection around the financial system’s most important institutions. At the heart of markets are clearing houses, which settle trades in stocks and derivatives between their members.
The banks, which stand between the clearing houses and other financial institutions, are also in better shape.
Today there are 30 banks designated as systemically important by regulators, some 28 of which are in the kbw Nasdaq Global Bank Index, which tracks bank stocks.
“American banks are unequivocally much stronger,” says a bank boss. Few are making such statements about European banks, and certainly nobody is about Credit Suisse.
Big banks head into the new era fortified. But the regulation that has strengthened their defences has also diminished them. By contrast, financial institutions that are not systemically important are unencumbered.
In 2007 problems started in real estate. The sheer pace of price growth in residential housing was too fast. Other forms of real estate are also vulnerable.
Michael Burry is concerned by unsecured consumer finance given the growth of “buy-now-pay-later” providers and the ease with which consumers have been able to tap credit-card lines. Ms Graseck of Morgan Stanley points out that, because this is an interest rate-shock driven cycle, trouble will probably first arrive in the loans that reprice to higher rates quickly: “Floating rate debt, like credit cards, is immediate, then commercial real estate, autos and eventually mortgages.”
One of the fastest-growing parts of private credit has been that offered to software-service firms. The cash flows they provide have been used to secure financing, meaning many firms are now highly leveraged. They are also untested in a downturn. It is companies more broadly that appear most at risk.
❤2🔥1
Who holds assets? Financial firms that have grown lots over the past 15 years are the first place to look. Firms that have escaped the full weight of regulation are another place to look.
Given reforms since the last financial crisis, it seems unlikely that there will be failures of institutions that are so big and important that governments need to bail them out. The systemic institutions will survive. But that does not make life any easier for central banks. It is their job to tighten policy enough to cool inflation without causing seriously disruptive activity in financial markets. And it is looking increasingly difficult to do both.
— Anastasia☕️🥐
Given reforms since the last financial crisis, it seems unlikely that there will be failures of institutions that are so big and important that governments need to bail them out. The systemic institutions will survive. But that does not make life any easier for central banks. It is their job to tighten policy enough to cool inflation without causing seriously disruptive activity in financial markets. And it is looking increasingly difficult to do both.
— Anastasia☕️🥐
🤩3❤2
Financial markets. Part2: Financial markets enter a dangerous new phase.
Around the world, financial markets look increasingly distressed. The Treasury and Bank of England are forced to issue statements attempting to soothe markets. In Japan the government has intervened in foreign-exchange markets for the first time since 1998. In China the central bank has increased reserve requirements for foreign-exchange trading. At the heart of the turmoil is the relentless rise of the American dollar and global interest rates. There is little relief on the horizon.
Each market has its own idiosyncrasies. But all face a shared set of challenges. Most of the world’s currencies have weakened markedly against the dollar. The DXY, an index of the dollar’s worth against a basket of rich-world currencies, has climbed 18% this year. Persistent inflation in America and the simultaneous tightening of monetary policy are making markets febrile.
Just before the wild volatility of the past week, the Bank for International Settlements noted that financial conditions had turned, as central bankers’ commitments to interest-rate rises were priced in by markets and liquidity in the American government-bond market deteriorated. After a brief and modest uptick in August, global stocks have hit new lows for the year: the MSCI All Country World Index is down by 25% in 2022. Stress is clear elsewhere, too.
Volatility is expected by corporate treasurers, investors and finance ministries. Hedges are purchased and plans made accordingly. But conditions have now strayed far beyond expectations. Just a year ago, few forecasters predicted double-digit inflation in many parts of the world. When markets perform worse than anyone had previously expected, problems emerge and policymakers face a menu of bad options.
The Federal Reserve’s commitment to crushing inflation no matter the cost is clear. Jerome Powell, central bank's chairman, said the chances of a soft landing for the American economy were diminishing, but that the Fed was nevertheless committed to bringing down inflation.
Global growth expectations are receding quickly. In new forecasts the OECD club expects global GDP to rise by just 3% this year. In 2023 it expects growth of just 2.2%. As a result, commodity prices are falling. A weak world economy may also lead companies to start downgrading their profit forecasts. Rising interest rates have been painful for share prices; lower earnings would be, too.
A slowdown may not even bring about a weaker dollar. As investors head for the relative safety of the global reserve currency, the greenback often rises during downturns. For countries and companies around the world that is an ominous prospect.
— Anastasia🥑🥖
Around the world, financial markets look increasingly distressed. The Treasury and Bank of England are forced to issue statements attempting to soothe markets. In Japan the government has intervened in foreign-exchange markets for the first time since 1998. In China the central bank has increased reserve requirements for foreign-exchange trading. At the heart of the turmoil is the relentless rise of the American dollar and global interest rates. There is little relief on the horizon.
Each market has its own idiosyncrasies. But all face a shared set of challenges. Most of the world’s currencies have weakened markedly against the dollar. The DXY, an index of the dollar’s worth against a basket of rich-world currencies, has climbed 18% this year. Persistent inflation in America and the simultaneous tightening of monetary policy are making markets febrile.
Just before the wild volatility of the past week, the Bank for International Settlements noted that financial conditions had turned, as central bankers’ commitments to interest-rate rises were priced in by markets and liquidity in the American government-bond market deteriorated. After a brief and modest uptick in August, global stocks have hit new lows for the year: the MSCI All Country World Index is down by 25% in 2022. Stress is clear elsewhere, too.
Volatility is expected by corporate treasurers, investors and finance ministries. Hedges are purchased and plans made accordingly. But conditions have now strayed far beyond expectations. Just a year ago, few forecasters predicted double-digit inflation in many parts of the world. When markets perform worse than anyone had previously expected, problems emerge and policymakers face a menu of bad options.
The Federal Reserve’s commitment to crushing inflation no matter the cost is clear. Jerome Powell, central bank's chairman, said the chances of a soft landing for the American economy were diminishing, but that the Fed was nevertheless committed to bringing down inflation.
Global growth expectations are receding quickly. In new forecasts the OECD club expects global GDP to rise by just 3% this year. In 2023 it expects growth of just 2.2%. As a result, commodity prices are falling. A weak world economy may also lead companies to start downgrading their profit forecasts. Rising interest rates have been painful for share prices; lower earnings would be, too.
A slowdown may not even bring about a weaker dollar. As investors head for the relative safety of the global reserve currency, the greenback often rises during downturns. For countries and companies around the world that is an ominous prospect.
— Anastasia🥑🥖
🔥3😍2
Forwarded from Recession (Александра)
CHAOS in financial markets. What is coming next for the real economy?
The Federal Reserve began raising interest rates to battle inflation in America a full six months ago. The central bank’s latest policy meeting (September 21st) has been followed by dramatic moves in financial markets across the world. After the meeting, the central bank was “strongly intended” to bring down inflation, currently at 8.3%, to its target of 2%. This decision led to a sharp rise in government-bond yields and a fall in stock markets.
Higher rates in America have turbocharged the dollar. But strong dollar caused drama elsewhere. In Britain sterling took a breathtaking dive, short-term interest rates rose just as spectacularly. For instance, in heavily indebted Italy yields on ten-year sovereign bonds are not far off a worrying 5%.
Jolting currency movements have led to a spate of interventions: in Japan, the government intervened to prop up the yen and India’s central bank did the same for the rupee.
As for the global economy, in forecasts published on September 26th the OECD said that global GDP would rise by just 3% this year, down from the 4.5% it had expected in December.
Europe seems to suffer the most. The energy crisis has cast a long pall, and annual inflation is already above 9%. The European Central Bank has signaled that it intends to raise rates twice this year to keep inflation expectations in check. Doing so will only deepen the recession on the continent.
Speaking of America, the world’s largest economy has experienced an enviable boom in recent years. For now, though, there is little sign of a wider slowdown in the USA. However, underlying inflation, at an annual rate of 6.3%, is still considerably higher than the Federal Reserve would like. Meanwhile, the rest of the world will be anxiously waiting for what is to come…
-Aleksandra 🌿🌸
The Federal Reserve began raising interest rates to battle inflation in America a full six months ago. The central bank’s latest policy meeting (September 21st) has been followed by dramatic moves in financial markets across the world. After the meeting, the central bank was “strongly intended” to bring down inflation, currently at 8.3%, to its target of 2%. This decision led to a sharp rise in government-bond yields and a fall in stock markets.
Higher rates in America have turbocharged the dollar. But strong dollar caused drama elsewhere. In Britain sterling took a breathtaking dive, short-term interest rates rose just as spectacularly. For instance, in heavily indebted Italy yields on ten-year sovereign bonds are not far off a worrying 5%.
Jolting currency movements have led to a spate of interventions: in Japan, the government intervened to prop up the yen and India’s central bank did the same for the rupee.
As for the global economy, in forecasts published on September 26th the OECD said that global GDP would rise by just 3% this year, down from the 4.5% it had expected in December.
Europe seems to suffer the most. The energy crisis has cast a long pall, and annual inflation is already above 9%. The European Central Bank has signaled that it intends to raise rates twice this year to keep inflation expectations in check. Doing so will only deepen the recession on the continent.
Speaking of America, the world’s largest economy has experienced an enviable boom in recent years. For now, though, there is little sign of a wider slowdown in the USA. However, underlying inflation, at an annual rate of 6.3%, is still considerably higher than the Federal Reserve would like. Meanwhile, the rest of the world will be anxiously waiting for what is to come…
-Aleksandra 🌿🌸
❤4👍2😢1
The global economy is falling below expectations.
Markets are suffering more negative surprises than positive ones.
Markets hate uncertainty. Bad news, then, that by one measure the world economy is throwing up more nasty surprises for investors. Citigroup’s global economic-surprise index (CESI), which measures the degree to which macroeconomic data announcements beat or miss forecasts, has fallen into negative territory. As inflation has surged and consumer confidence has flagged, economic indicators are now failing to meet forecasters’ expectations.
Measures of economic surprises is a useful way to gauge market sentiment. When the economy is booming data releases will typically be better than analysts expected, boosting the CESI. During an economic downturn, economic statistics will fall below the consensus estimate, leading to negative surprises.
Chiara Scotti, an economist at the Federal Reserve, constructed her own surprise index based on six indicators: GDP, industrial production, employment, retail sales, manufacturing output and personal income. Ms Scotti found that positive economic surprises in America were associated with appreciation of the dollar relative to other currencies.
But the surprise index can be hard to interpret. The CESI includes both backward- and forward-looking macroeconomic indicators, and is weighted in favour of newer releases and those that tend to have the biggest impact on markets. Because the index reflects economic performance relative to expectations, it can be negative during expansions if forecasters are too optimistic, and positive during contractions if they are too gloomy. Coincident rather than causal relationships are relied on even if they have no consistency whatsoever.
— Anastasia🥞🍙
Markets are suffering more negative surprises than positive ones.
Markets hate uncertainty. Bad news, then, that by one measure the world economy is throwing up more nasty surprises for investors. Citigroup’s global economic-surprise index (CESI), which measures the degree to which macroeconomic data announcements beat or miss forecasts, has fallen into negative territory. As inflation has surged and consumer confidence has flagged, economic indicators are now failing to meet forecasters’ expectations.
Measures of economic surprises is a useful way to gauge market sentiment. When the economy is booming data releases will typically be better than analysts expected, boosting the CESI. During an economic downturn, economic statistics will fall below the consensus estimate, leading to negative surprises.
Chiara Scotti, an economist at the Federal Reserve, constructed her own surprise index based on six indicators: GDP, industrial production, employment, retail sales, manufacturing output and personal income. Ms Scotti found that positive economic surprises in America were associated with appreciation of the dollar relative to other currencies.
But the surprise index can be hard to interpret. The CESI includes both backward- and forward-looking macroeconomic indicators, and is weighted in favour of newer releases and those that tend to have the biggest impact on markets. Because the index reflects economic performance relative to expectations, it can be negative during expansions if forecasters are too optimistic, and positive during contractions if they are too gloomy. Coincident rather than causal relationships are relied on even if they have no consistency whatsoever.
— Anastasia🥞🍙
🔥4❤🔥2
Forwarded from sasha 🌸
Пост 2 от меня
EUROPE IS HEADING FOR RECESSION. How BAD will it play out? Its inflation shock is coinciding with an economic downturn.
Russia’s war on Ukraine, an uneven recovery from the covid-19 pandemic and a drought across much of the continent have conspired to create a severe energy crunch, high inflation, supply disruptions—and enormous uncertainty about Europe’s economic future. A recession is coming. How bad will it be? That depends on how the energy shock plays out, and how policymakers respond to it.
The European economy entered the crisis in a reasonably strong position. The labor market is still relatively healthy. Wage growth will probably pick up. Consumer confidence fell at the beginning of the war, but consumption didn’t slump. Yet things will look considerably gloomier in a few months for three reasons.
First, industry is under pressure.
The decline reflects a weakening global, and in particular Chinese, economy. The worst-affected industries will probably be east of the Rhine. Germany’s unhealthy reliance on Chinese buyers risks dragging down demand for goods across the Teutonic supply chain. Italian industry appears to be in free fall.
The second reason for gloom is that consumer spending on services will struggle to hold up the continent’s economy. Services are likely to stagnate over the coming months, with real estate and transport facing particularly severe difficulties.
Last, Europe will almost certainly see the energy shock coincide with rising interest rates.
All this suggests that the European economy is certain to enter a recession, led by Germany, Italy, and central and eastern Europe. Italy’s troubles and high debts could trigger jitters in Europe’s bond markets. European politicians have so far spent a lot of time thinking about how to respond to surging energy prices. They could soon have a broader crisis on their hands.
-Aleksandra🌿🌸
EUROPE IS HEADING FOR RECESSION. How BAD will it play out? Its inflation shock is coinciding with an economic downturn.
Russia’s war on Ukraine, an uneven recovery from the covid-19 pandemic and a drought across much of the continent have conspired to create a severe energy crunch, high inflation, supply disruptions—and enormous uncertainty about Europe’s economic future. A recession is coming. How bad will it be? That depends on how the energy shock plays out, and how policymakers respond to it.
The European economy entered the crisis in a reasonably strong position. The labor market is still relatively healthy. Wage growth will probably pick up. Consumer confidence fell at the beginning of the war, but consumption didn’t slump. Yet things will look considerably gloomier in a few months for three reasons.
First, industry is under pressure.
The decline reflects a weakening global, and in particular Chinese, economy. The worst-affected industries will probably be east of the Rhine. Germany’s unhealthy reliance on Chinese buyers risks dragging down demand for goods across the Teutonic supply chain. Italian industry appears to be in free fall.
The second reason for gloom is that consumer spending on services will struggle to hold up the continent’s economy. Services are likely to stagnate over the coming months, with real estate and transport facing particularly severe difficulties.
Last, Europe will almost certainly see the energy shock coincide with rising interest rates.
All this suggests that the European economy is certain to enter a recession, led by Germany, Italy, and central and eastern Europe. Italy’s troubles and high debts could trigger jitters in Europe’s bond markets. European politicians have so far spent a lot of time thinking about how to respond to surging energy prices. They could soon have a broader crisis on their hands.
-Aleksandra🌿🌸
❤🔥4🤩3👍1
Forwarded from sasha 🌸
Пост 3
WHILE EUROPE FALLS INTO RECESSION, RUSSIA CLIMBES OUT
These days Russians do not have much to boast about. The economic war between Russia and the West is at a delicate moment. However, while Europe teeters on the brink of recession, Russia is emerging from one.
Western sanctions have wounded Russia’s long-term prospects. It has cut the economy’s growth potential by as much as half. Output of oil and gas is about 3% lower than before the invasion. In the first six months of the war between 250,000 and 500,000 Russians fled the country.
Mr. Putin’s recent decision to launch a partial mobilization has dealt a further economic blow. It provoked a small bank run and Russians pulled out $14bn-worth of ruble deposits in September. A further reduction in the labour force is worsening shortages, and thus compounding inflation. Headline inflation is sharply down from its peak, but price pressure in the labor-intensive services sector is worsening.
Despite these problems, the recession has now ended. The data suggest Russian activity is livelier than in other big European countries (see chart). Output in the car industry has bounced back. In dollar terms Russia’s monthly goods imports now certainly exceed last year’s average. Besides, the data compiled by Sberbank suggest Russia will be able to maintain its military spending.
Having avoided economic collapse, Mr Putin expects to double down, both abroad and at home.
-Aleksandra🌿🌸
WHILE EUROPE FALLS INTO RECESSION, RUSSIA CLIMBES OUT
These days Russians do not have much to boast about. The economic war between Russia and the West is at a delicate moment. However, while Europe teeters on the brink of recession, Russia is emerging from one.
Western sanctions have wounded Russia’s long-term prospects. It has cut the economy’s growth potential by as much as half. Output of oil and gas is about 3% lower than before the invasion. In the first six months of the war between 250,000 and 500,000 Russians fled the country.
Mr. Putin’s recent decision to launch a partial mobilization has dealt a further economic blow. It provoked a small bank run and Russians pulled out $14bn-worth of ruble deposits in September. A further reduction in the labour force is worsening shortages, and thus compounding inflation. Headline inflation is sharply down from its peak, but price pressure in the labor-intensive services sector is worsening.
Despite these problems, the recession has now ended. The data suggest Russian activity is livelier than in other big European countries (see chart). Output in the car industry has bounced back. In dollar terms Russia’s monthly goods imports now certainly exceed last year’s average. Besides, the data compiled by Sberbank suggest Russia will be able to maintain its military spending.
Having avoided economic collapse, Mr Putin expects to double down, both abroad and at home.
-Aleksandra🌿🌸
😢6👍1🤯1
Forwarded from sasha 🌸
Пост 4
What America’s NEXT RECESSION will look like? A mild DOWNTURN may be followed by a PAINFULLY prolonged recovery
For much of last year the Fed and investors believed that inflation would fade as the pandemic subsided. No one believes that now.
How might it play out? A better way to think about a recession, if it comes, is to look at America as it is today. Consider three different facets: the real economy, the financial system, and the central bank. All three, working in concert, suggest that a recession would be relatively mild.
Let’s start with the real economy. The general population is on a sound financial footing. Overall, Americans have excess savings of about $2trn (9% of GDP) compared with before covid. Moreover, in any recession one big concern is how many people will lose their jobs. A rise in unemployment seems more economically necessary today, to relieve some of the upward pressure on wages. In practice, though, the labor market is unlikely to adjust so smoothly. For instance, it now seems to require more vacancies to get to the same unemployment rates as in the past.
How well fortified is the financial system? Prudential regulations have pushed risky activities into darker corners of the financial system. Emblematic of the new kind of danger are collateralized loan obligations (clos). These are created by syndicating loans, pooling them, and then dividing them into securities with different ratings depending on their payment profiles.
The final factor is monetary policy.
It seems a fair bet that rates will go quite a bit higher. A simple rule of thumb, which combines the Fed’s desired real rate of interest and expected inflation, suggests even higher nominal rates may be needed.
There are limits to how bad things might get. In a pessimistic scenario—where a recession collides with higher input costs and rising interest rates—about 6% of speculative-grade corporate bonds will go into default next year. There’s an optimistic view: much of the work of taming inflation can be done by resetting expectations at a lower level. The real economy would then not need to bear the weight of the adjustment. That, in turn, would make for a lighter recession.
Why worry, then? Well, the political consequences may be dramatic. A mild recession in 2023 could put paid to Joe Biden’s beleaguered presidency, perhaps helping usher Donald Trump back into the White House.
Given the strengths of the economy today the next downturn ought to be mild. But even a mild recession must be followed by an upturn for the economy to return to full health. The chances are that America would face a painfully slow recovery.
-Aleksandra🌿🌸
What America’s NEXT RECESSION will look like? A mild DOWNTURN may be followed by a PAINFULLY prolonged recovery
For much of last year the Fed and investors believed that inflation would fade as the pandemic subsided. No one believes that now.
How might it play out? A better way to think about a recession, if it comes, is to look at America as it is today. Consider three different facets: the real economy, the financial system, and the central bank. All three, working in concert, suggest that a recession would be relatively mild.
Let’s start with the real economy. The general population is on a sound financial footing. Overall, Americans have excess savings of about $2trn (9% of GDP) compared with before covid. Moreover, in any recession one big concern is how many people will lose their jobs. A rise in unemployment seems more economically necessary today, to relieve some of the upward pressure on wages. In practice, though, the labor market is unlikely to adjust so smoothly. For instance, it now seems to require more vacancies to get to the same unemployment rates as in the past.
How well fortified is the financial system? Prudential regulations have pushed risky activities into darker corners of the financial system. Emblematic of the new kind of danger are collateralized loan obligations (clos). These are created by syndicating loans, pooling them, and then dividing them into securities with different ratings depending on their payment profiles.
The final factor is monetary policy.
It seems a fair bet that rates will go quite a bit higher. A simple rule of thumb, which combines the Fed’s desired real rate of interest and expected inflation, suggests even higher nominal rates may be needed.
There are limits to how bad things might get. In a pessimistic scenario—where a recession collides with higher input costs and rising interest rates—about 6% of speculative-grade corporate bonds will go into default next year. There’s an optimistic view: much of the work of taming inflation can be done by resetting expectations at a lower level. The real economy would then not need to bear the weight of the adjustment. That, in turn, would make for a lighter recession.
Why worry, then? Well, the political consequences may be dramatic. A mild recession in 2023 could put paid to Joe Biden’s beleaguered presidency, perhaps helping usher Donald Trump back into the White House.
Given the strengths of the economy today the next downturn ought to be mild. But even a mild recession must be followed by an upturn for the economy to return to full health. The chances are that America would face a painfully slow recovery.
-Aleksandra🌿🌸
❤🔥6🔥4👍2
Forwarded from sasha 🌸
Пост 5
Why investors are increasingly WORRIED about RECESSION in America?
America’s stock market has been unpredictable this year whether prices will end the week up or down. Thus far it has (just) avoided the 20% peak-to-trough decline that is the informal definition of a bear market. But there are signs that America’s markets are entering a new, more worrying phase. In recent weeks share prices have kept falling, even as bond yields have dropped back. This combination points to fears of recession. Investors are already worried that corporate profits are under threat.
Slower growth is one element of a textbook profit squeeze. A consequence of the mostly stable cost base of big businesses is that, when sales rise or fall, profits rise and fall by a lot more. This effect boosted profits considerably last year, but as GDP slows it goes into reverse. The other element of a profit squeeze is higher costs. A variety of bottlenecks have pushed up the prices of key inputs, notably energy. But the main worry is wages. The jobs market in America is tight. Pay rises have become more generous consequently.
Since the start of the year, bond yields have risen sharply; mortgage rates have surged; spreads on corporate bonds have widened; the dollar has climbed; and share prices have slumped.
Inflation pressures would keep building. But as things stand, interest rates may not have to go quite as high as they otherwise might have.
-Aleksandra🌿🌸
Why investors are increasingly WORRIED about RECESSION in America?
America’s stock market has been unpredictable this year whether prices will end the week up or down. Thus far it has (just) avoided the 20% peak-to-trough decline that is the informal definition of a bear market. But there are signs that America’s markets are entering a new, more worrying phase. In recent weeks share prices have kept falling, even as bond yields have dropped back. This combination points to fears of recession. Investors are already worried that corporate profits are under threat.
Slower growth is one element of a textbook profit squeeze. A consequence of the mostly stable cost base of big businesses is that, when sales rise or fall, profits rise and fall by a lot more. This effect boosted profits considerably last year, but as GDP slows it goes into reverse. The other element of a profit squeeze is higher costs. A variety of bottlenecks have pushed up the prices of key inputs, notably energy. But the main worry is wages. The jobs market in America is tight. Pay rises have become more generous consequently.
Since the start of the year, bond yields have risen sharply; mortgage rates have surged; spreads on corporate bonds have widened; the dollar has climbed; and share prices have slumped.
Inflation pressures would keep building. But as things stand, interest rates may not have to go quite as high as they otherwise might have.
-Aleksandra🌿🌸
🔥5👍3❤2🤩2
Forwarded from sasha 🌸
Пост 6
CREATIVE ECONOMICS. What’s that? Does it even exist?
When global leaders think about which industries can fuel economic growth, the arts are often overlooked. We've been conditioned to think of the arts as a nice thing to have, but not really as having a place at the economic growth and security table. However, putting culture and arts on the economic agenda is an incredibly important milestone.
The argument is that films, and other works of arts, can promote economic growth and attract tourism dollars in two keyways by bringing production work topic and more importantly, by promoting a country and its unique cultural assets to the world.
The late great American hero, Congressman John Lewis, understood this when he said, “without dance, without drama, without photography, the civil rights movement would have been like a bird without wings”. Now, imagine how much more effective music, films and arts would be if artists had good paying jobs and the government supported them. Arts and culture and all of their forms are indispensable for a country's economic and democratic growth.
-Aleksandra🌿🌸
CREATIVE ECONOMICS. What’s that? Does it even exist?
When global leaders think about which industries can fuel economic growth, the arts are often overlooked. We've been conditioned to think of the arts as a nice thing to have, but not really as having a place at the economic growth and security table. However, putting culture and arts on the economic agenda is an incredibly important milestone.
The argument is that films, and other works of arts, can promote economic growth and attract tourism dollars in two keyways by bringing production work topic and more importantly, by promoting a country and its unique cultural assets to the world.
The late great American hero, Congressman John Lewis, understood this when he said, “without dance, without drama, without photography, the civil rights movement would have been like a bird without wings”. Now, imagine how much more effective music, films and arts would be if artists had good paying jobs and the government supported them. Arts and culture and all of their forms are indispensable for a country's economic and democratic growth.
-Aleksandra🌿🌸
🔥8❤2🥰2👍1😍1