May 28, 2017

Draghi Signals Slight Optimism for Europe’s Prospects

“The picture seems to be better from all angles than it was a year ago,” Mr. Draghi said at a news conference after the E.C.B.’s decision to leave its benchmark interest rate unchanged at a record low of 0.5 percent.

Mr. Draghi was referring to questions about the euro zone’s integrity, though, and less to the immediate prospects for an end to recession and record unemployment.

The fragile state of the euro zone economy means that any decision to raise interest rates is still a long way off, Mr. Draghi indicated. Policy makers expect “the key E.C.B. interest rates to remain at present or lower levels for an extended period of time,” Mr. Draghi said, repeating a pledge he first made a month earlier.

In London on Thursday, Britain’s central bank, the Bank of England, also decided to hold interest rates steady.

The Bank of England held its interest rate at 0.5 percent, already a record low, and made no change to its program of economic stimulus, leaving the target at £375 billion, or about $570 billion. In Britain, which does not use the euro, the government had reported last week that the economy grew 0.6 percent in the second quarter from the previous quarter and that all main industries were reporting faster growth for the first time in three years.

For Mr. Draghi, it has been about a year since he defused fears of a euro zone breakup by promising to do “whatever it takes” to keep the common currency together. That expression of resolve helped check the euro zone’s decline, but was not enough to push the region onto a growth pathagain.

Asked to take stock of the state of the euro zone today, Mr. Draghi listed numerous improvements, including stronger exports from countries like Spain and Italy; lower market interest rates for government bonds; and progress by political leaders in reducing their deficits and improving economic performance.

“We are seeing possibly the first signs this significant improvement in confidence and interest rates is finding its way to the economy,” Mr. Draghi said.

But he took a more cautious view than many analysts of recent surveys of business sentiment, which have raised hopes that the euro zone economy could be emerging from recession. The surveys “tentatively confirm the expectation of a stabilization of economic activity at low levels,” Mr. Draghi said.

At least one analyst detected a nuanced shift in Mr. Draghi’s assessment.

“If there was any change at all, his description of economic prospects sounded slightly more optimistic,” Jörg Krämer, chief economist at Commerzbank in Frankfurt, said in a note to clients.

“Slightly” is the key word. Credit for businesses remains scarce, Mr. Draghi noted, and the labor market is weak. Unemployment in the euro zone was stuck at a record high of 12.1 percent in June, according to official data published Wednesday, though there was an infinitesimal decline in the total number of jobless people: 24,000 fewer people were out of work in May out of a total of 19 million.

Even if the euro zone economy does emerge from recession soon, economists say, growth will be weak and it will take years before joblessness in countries like Spain — where more than a quarter of the work force is unemployed — returns to tolerable levels.

With E.C.B. interest rates already at record lows, Mr. Draghi has in recent months been trying to use his powers of persuasion to talk down market rates and make credit more available to businesses and consumers. Last month, he broke with precedent by promising to keep rates low for an extended period. Before then, the E.C.B. had refused to offer so-called forward guidance.

Julia Werdigier contributed reporting from London.

Article source: http://www.nytimes.com/2013/08/02/business/global/european-central-bank-keeps-key-rate-at-0-5.html?partner=rss&emc=rss

European Central Bank Keeps Key Rate at 0.5%

“The picture seems to be better from all angles than it was a year ago,” Mr. Draghi said at a news conference after the E.C.B.’s decision to leave its benchmark interest rate unchanged at a record low of 0.5 percent.

Mr. Draghi was referring to questions about the euro zone’s integrity, though, and less to the immediate prospects for an end to recession and record unemployment.

The fragile state of the euro zone economy means that any decision to raise interest rates is still a long way off, Mr. Draghi indicated. Policy makers expect “the key E.C.B. interest rates to remain at present or lower levels for an extended period of time,” Mr. Draghi said, repeating a pledge he first made a month earlier.

In London on Thursday, Britain’s central bank, the Bank of England, also decided to hold interest rates steady.

The Bank of England held its interest rate at 0.5 percent, already a record low, and made no change to its program of economic stimulus, leaving the target at £375 billion, or about $570 billion. In Britain, which does not use the euro, the government had reported last week that the economy grew 0.6 percent in the second quarter from the previous quarter and that all main industries were reporting faster growth for the first time in three years.

For Mr. Draghi, it has been about a year since he defused fears of a euro zone breakup by promising to do “whatever it takes” to keep the common currency together. That expression of resolve helped check the euro zone’s decline, but was not enough to push the region onto a growth pathagain.

Asked to take stock of the state of the euro zone today, Mr. Draghi listed numerous improvements, including stronger exports from countries like Spain and Italy; lower market interest rates for government bonds; and progress by political leaders in reducing their deficits and improving economic performance.

“We are seeing possibly the first signs this significant improvement in confidence and interest rates is finding its way to the economy,” Mr. Draghi said.

But he took a more cautious view than many analysts of recent surveys of business sentiment, which have raised hopes that the euro zone economy could be emerging from recession. The surveys “tentatively confirm the expectation of a stabilization of economic activity at low levels,” Mr. Draghi said.

At least one analyst detected a nuanced shift in Mr. Draghi’s assessment.

“If there was any change at all, his description of economic prospects sounded slightly more optimistic,” Jörg Krämer, chief economist at Commerzbank in Frankfurt, said in a note to clients.

“Slightly” is the key word. Credit for businesses remains scarce, Mr. Draghi noted, and the labor market is weak. Unemployment in the euro zone was stuck at a record high of 12.1 percent in June, according to official data published Wednesday, though there was an infinitesimal decline in the total number of jobless people: 24,000 fewer people were out of work in May out of a total of 19 million.

Even if the euro zone economy does emerge from recession soon, economists say, growth will be weak and it will take years before joblessness in countries like Spain — where more than a quarter of the work force is unemployed — returns to tolerable levels.

With E.C.B. interest rates already at record lows, Mr. Draghi has in recent months been trying to use his powers of persuasion to talk down market rates and make credit more available to businesses and consumers. Last month, he broke with precedent by promising to keep rates low for an extended period. Before then, the E.C.B. had refused to offer so-called forward guidance.

Julia Werdigier contributed reporting from London.

Article source: http://www.nytimes.com/2013/08/02/business/global/european-central-bank-keeps-key-rate-at-0-5.html?partner=rss&emc=rss

Economix Blog: An Economic Primer for Spies

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Peter Boone is chairman of the charity Effective Intervention and a research associate at the Center for Economic Performance at the London School of Economics. He is also a director of Salute Capital Management Ltd. Simon Johnson is a professor at the M.I.T. Sloan School of Management and former chief economist at the International Monetary Fund.

Listening in on BlackBerry communications by world leaders at a Group of 20 summit meeting, as the British did in April 2009, does not seem like a great way to build international trust and economic cooperation. Writing up the operation in PowerPoint and bragging about it in writing – such documents always leak — was pure Monty Python.

Today’s Economist

Perspectives from expert contributors.

This week, disclosures suggest the American intelligence services may be up to broadly similar tricks – with reports that the United States has bugged the communications of European diplomats stationed in Washington. The Europeans are America’s allies, but also its competitors in important markets around the world. The goal seems to involve capturing some kind of economic secrets.

Most such espionage is a complete waste of time – and a good way to undermine relationships between countries. To help spies – and everyone else listening in on our phone calls – prioritize their use of scarce resources and do something constructive with their time, we offer this brief primer on where the intelligence services should focus their attention in the economic realm.

First, when, as in spring 2009, governments around the world want to engage in fiscal expansion, just get out of the way. Any one country’s fiscal expansion will bolster its economy in the short run, increasing imports and thus also helping trading partners. In addition, fiscal expansion will tend to cause the expanding country’s exchange rate to appreciate, as it implies interest rates that are higher than would otherwise be the case. Again, there will be little for other countries to complain about.

Countries tend to cooperate on fiscal expansions, for example in the face of global recession, and government leaders are happy to communicate their plans in public and in private. Spying on people in this environment is plain silly; just read any good newspaper’s financial news.

Second, on trade negotiations – the potential target of United States-European Union spying – it is generally better to rely on what the various sides are willing to say.

To be sure, it may be entertaining to hear, for example, what France’s allies think of its insistence on “cultural protections” for movies and the like. Intra-European negotiations could even make good reality TV show – of the new Norwegian variety (apparently very boring shows are a huge hit in Norway). But divisions among Europeans on any such issues are very much in the public domain. Again, just read the newspapers and relevant Web sites in French, German and as many other languages as you can manage.

Speaking about the major United States-European Union trade negotiations that loom, the E.U. commissioner for justice quite sensibly said this week,

We cannot negotiate over a big trans-Atlantic market if there is the slightest doubt that our partners are carrying out spying activities on the offices of our negotiators.

Developing global trade needs trust and cannot be sustained with subterfuge and coercion. This is the big lesson of the post-1945 world, a world shaped by American leadership and a general (not always perfect) sense of fair play.

Third, there is a perennially interesting set of questions regarding what various central banks will do next on monetary policy. Who will ease or tighten monetary policy is a big issue that moves markets – and keeps other parts of government, run by people seeking re-election, awake at night.

Any given expected moment of monetary easing (lower interest rates or more quantitative easing) tends to cause exchange-rate depreciation, which is good for the exports of the depreciating country – but not so good for trading partners.

Conversely, monetary tightening – all other things being equal – will tend to cause a strengthening of the exchange rate for the country with tightening policies. So United States government officials (and, for that matter, the Fed) might like to know if the European central bank will next ease or tighten. Such movements in the dollar-euro exchange rate can help or hurt the American economy (although reasonable people can differ on the precise mechanisms at work).

Spying on central banks would be informative, but more from a commercial perspective than for national security. Central bankers already share a great deal of sensitive information with one another, including at the highest level.

If non-central bankers learned about probable interest-rate movements, the temptation to trade on this information would be almost overwhelming, particularly for spies facing tighter budgets. It would also give governments a big and unfair advantage in dealing with market participants (e.g., on when to sell stakes in banks that have received capital injections or some other form of government rescue).

As James Bond remarks, somewhat sardonically, in his latest adventure, “Skyfall,” after meeting his new quartermaster and technology guru, who looks as if he just graduated from university, it is a “brave new world.” But just because you can hack into people’s private communications does not mean you learn anything from that exercise – or that it is helpful to your cause.

Study some economics instead.

Article source: http://economix.blogs.nytimes.com/2013/07/04/an-economic-primer-for-spies/?partner=rss&emc=rss

Europe Survey Says Growth Outlook ‘Bleak’ for 2013

Europe’s job crisis, which has left more than 25 million people without work, has stirred rising public hostility to the European Union and has severely strained the social fabric in hardest-hit members like Greece and Spain, where unemployment has soared to over 25 percent.

“The economic and employment outlook is bleak and has worsened in recent months and is not expected to improve in 2013,” the European Commission, the union’s executive arm, said in a statement accompanying the release of its Annual Growth Survey, a yearly report on Europe’s economic outlook.

“The E.U. is currently the only major region in the world where unemployment is still rising,” the statement said.

Younger workers have suffered the most, with nearly one in three young people now jobless in six European Union countries and more than half of them unemployed in two others.

Tackling the crisis, however, has been complicated by wide differences in economic performance and interests among the union’s 27 member states. In Austria and Germany, for example, unemployment stands at 4.4 percent and 5.4 percent, a fraction of the rate in Spain and Greece.

Yet Greece’s economic meltdown, according to Standard Poor’s, is more severe in “duration and scale” than the German depression that paved the way for Hitler’s rise to power in the early 1930s.

“After several years of weak growth, the crisis is having severe social consequences,” the growth survey warned, noting that European welfare systems had “cushioned some of the effects at first but the impact is now being felt across the board.”

Greece, struggling to bring down its crippling debts, contain widening misery and curb the appeal of political extremism, has been hit in recent months by waves of strikes and street protests amid widespread anger at a program of austerity demanded by its international lenders in return for bailout funds.

Spain has also been hit by protests, as well as a surge of pro-independence sentiment in Catalonia and a bout of national soul-searching following reports of suicides by people facing eviction from their homes because of unpaid debts.

In an effort to combat a “crisis of confidence” in the European project, José Manuel Barroso, president of the European Commission, and other senior officials on Wednesday announced measures aimed at reviving stalled momentum toward closer economic, monetary and ultimately political union.

Though largely a reworking of previously announced steps, the plan, called a “blueprint for a deep and genuine economic and monetary union,” includes proposals to help countries like Spain overhaul their labor markets and make other reforms deemed necessary for economic recovery.

Article source: http://www.nytimes.com/2012/11/29/world/europe/europe-survey-says-growth-outlook-bleak-for-2013.html?partner=rss&emc=rss

China’s Rapid Growth Doesn’t Ensure Stock Gains

As inflation and real estate prices have bubbled up in China, mutual funds that specialize in investing there have lately sputtered along like aging mopeds weaving through the throngs of Beijing. China funds lost an average of 2.2 percent in the second quarter, according to Morningstar, the fund tracker. An investor would have benefited more by holding stock mutual funds that invested in debt-addled Europe; those funds returned an average of 1.3 percent for the quarter.

Stretch the timeline to the last 12 months, and the comparisons are similar: China funds returned a healthy 23.5 percent, but those investing in slow-growing Europe fared even better, returning 36.5 percent.

The disparity between China’s economic performance — its gross domestic product has routinely grown about 10 percent a year over the last two decades — and its less-than-stellar stocks points to the perils of buying into a mutual fund that invests in a single country in the developing world. Simply put, fast growth is no guarantee of investment gains. China is annually moving millions of its people from the countryside to jobs in its growing cities. That’s been great for the Chinese economy but not necessarily for fund investors.

A study published in April by the Vanguard Group found no correlation between long-run economic growth, in real G.D.P. per capita, and long-run stock returns in emerging markets. “Investors are not compensated for investing on the basis of economic growth that is expected and therefore priced into financial markets,” the study said. China’s stock market fared especially poorly, returning almost nothing from 1993 through 2010, said Francis M. Kinniry Jr., a Vanguard principal and one of the authors.

Emerging markets tend to be more volatile than developed ones, and big declines can eat big gains. When news is good, these markets can soar, as China’s did in 2007, when the MSCI Broad China Index returned nearly 90 percent. But when the news is bad, they can plunge, as China’s market did the next year, when the index fell more than 50 percent. (If you had invested $1,000 in the index in that period, your money would have grown to $1,900, before expenses, by the end of the first year but would have shrunk to $950, before expenses, by the end of the second.)

Another reason that stock gains don’t necessarily track economic growth is that the goals of local companies can diverge, for extended periods, from those of fund investors. In China, as in many emerging markets, enterprises may plow money into projects aimed at expanding market share, regardless of the impact on their share prices. “Companies aren’t interested in rewarding minority investors,“ said Arthur R. Kroeber, managing director of GK Dragonomics in Beijing. “They’re interested in scaling up.“

On top of that, Chinese corporate governance can be lax, and accounting opaque. In searching for quality companies with good business models, said Nicholas Yeo, manager of the Aberdeen China Opportunities fund, “we do a lot of site visits to make sure the entrepreneur’s interests are aligned with the listed company.”

Investors in China funds face risks beyond poor returns. They can have difficulty even understanding what they are buying, as different funds define “China” differently. Some, like Mr. Yeo’s fund and the Guinness Atkinson China and Hong Kong fund, keep much of their shareholders’ money in companies listed in Hong Kong. Others also buy Taiwanese companies or multinationals with hefty Chinese operations. “Not all China funds are the same,” said William S. Rocco, a Morningstar fund analyst.

BESIDES understanding what you are getting with a China fund, you also should examine whether you really need one, Mr. Rocco said. “You’re not going to miss China’s growth if you have a well-balanced portfolio,” he said. Many international and emerging-markets funds include Chinese stocks, and American and European multinationals are increasingly generating profits in China, he said.

Jesper O. Madsen, manager of the Matthews China Dividend fund, counsels caution. “Anybody who looks at China needs to ask himself why he’s there,” Mr. Madsen said. Too often, retail investors pile into emerging countries after stock run-ups, losing sight of whether a particular market looks cheap or expensive based on its average price-to-earnings ratio. “If you overpay,” he added, “you won’t see good returns.”

For some people, investing isn’t just a way to increase wealth, but also a hobby. Even if they have a well-rounded portfolio, they want to make small bets on markets or sectors that they think will thrive.

If you are one of these, should recent news of Chinese inflation, which hit 5.5 percent in May, and the possibility of real estate bubbles in Beijing and Shanghai daunt you?

Several China-fund managers say the risks are real — but tolerable.

Article source: http://www.nytimes.com/2011/07/10/business/mutfund/chinas-growth-doesnt-ensure-mutual-fund-gains.html?partner=rss&emc=rss