Archive for the ‘GDP’ category

Shifting powers impact future paths

April 5, 2014

Jurmala Turtle

There are some strong changes ongoing in the global arena that will influence the  business environment of tomorrow. I will discuss here some of those shortly. One  less spectacular change is that the European Union has been able to get the joint  area rectified from a long lasting downward path. The EU as a whole is  economically stable now although there are still huge differences between areas.  This means that Europeans are earning more than they are spending – the area is  not adding any debt but is able to save. This builds a strong basis for more positive  anticipations for the growth because 70% of EU’s economic activity happens  inside the EU. There are two questions for Europe: energy and defense forces.

Another change is that the USA is now independent of foreign energy sources. This has given a boost for the business in form of lower energy costs than in other parts of the world. On top of that the nation is also growing in number of inhabitants unlike Europe or Russia. The economic activity is growing and new jobs are created. The USA is less dependent on exports than other nations, so the growing economy will be a kind of self sustaining motor that will also attract foreign companies to invest in the USA. The lesser energy is imported to the US the better the foreign trade balance that might turn to positive in the years to come due to anticipated exports of gas. Maybe a bit surprising insight I have is that the USA must get Mexico and other nearby countries in the south stabilized so far that the neighbor country Mexico would get a strong growing middle class. This would have a huge impact for the growth and stability in the USA as well.

The third change is the weakening economic influence of China. The Asian giant is still growing at at a rate of 7 % p.a. However, China’s growth is not anymore coming from exports at large but more through growing consumption and imports. That will be the trend for coming years. Many local infrastructure projects have been financed by local “shadow banks” that have lent money to local governments bypassing regulations not to borrow from banks. On top of this the environmental conditions are very bad – the air, water and food quality is questionable at many places. There are many important projects to improve the situation that is a business opportunity for some western companies, but the time is flying and people must make individual decisions what they will do. There are also two other factors that concern me: there a plenty of empty buildings where no one is moving in, and the stock market values. The energy supply is also causing some headache for the future – in a way a similar question like the Europeans have.

The fourth change is coming from the political and military arena: Russia wants to play a stronger and harder than in the past. The economy of Russia, however, is not supporting this for longer periods unless the price of oil and gas would rise and/or some nature catastrophe would cut the USA off from the political and military arena. Russia needs an update of everything – now they are updating only their military. That will certainly put them stronger to the arena, but what can be gained at the end by that? At least this will force Europeans to build up stronger defense forces. Russia is the largest nation measured in inhabitants in Europe, but economically with a GDP of 2014,8 bn USD at the level of Italy. Per capital that looks then much worse for them. Russia is certainly a player also in Asia with their natural resources and military power. The Russian government wants to force foreign companies to invest into manufacturing in Russia by demanding local content of production value to be over 50%. This is valid for strategic fields like energy, military, motor vehicles etc. This might bring some positive activity into the country, but the government should make it sure that the companies can develop and grow on a long/term basis. When that can be guaranteed there would be some hope for a better future.  The currency value has dropped 30% since 2012 and will anyhow make it difficult for foreign companies to sell in Russia. For a long-term development of the country it would most likely be better to improve the living standard of its citizens and the infrastructure including roads, railroads, health care, etc.

There are more of this kind of interesting developments, but as a conclusion of these short comments I can say that the USA will keep on growing now and become economically healthier day by day, but must take care of its south neighbor Mexico; the EU is stabilizing economically and must start to build up its own military power – will that happen without a deeper political union under Nato or not will remain to be seen – my guess is that the EU will do it on its own anyhow; Russia will put more power behind its military and will push for south although they should develop their country and make sure that the middle class could grow and prosper; Chinese must invest in China and will have less growth than in the past, and they will use their foreign exchange reserves to buy more companies abroad to  ensure the access to the markets in the west and to the technology. The risk of trade barriers is now higher than in the past. However, the negotiations between the USA and EU might lead to a better situation in the future.

There is hope for economies to grow, but risks of man made troubles – looks very much like the human history…

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Even – Up or Down with the economies?

July 15, 2011

Let’s start with some numbers: the population in China 1,3 billions – India 1,2 bn – EU 0,5 bn – USA 0,3 bn – Brazil 0,19 bn – Russia 0,14 bn; GDP in China $ 10,1 trillions – India 4,1 trn – EU 14,8 trn – USA 14,7 trn – Brazil 2,2 trn – Russia 2,2 trn; Current Account Balance in China $ 272 billions – India neg. 27 bn – EU neg. 5 bn – USA neg. 561 bn – Brazil neg. 53 bn – Russia 69 bn. The trade (export+import) between the USA & EU is at $ 364 billions, USA & China $ 231 bn, and EU & China $ 263 bn. These figures tell us the fact we all know already, but it is good to see again, that the world trade with China is not in balance. Furthermore the business over the Atlantic is still very large – the USA and the EU should keep that in mind and try to keep it that way. Interestingly enough Brazil is exporting more to EU than to  the USA, and Mexico has a free trade agreement with EU.

The public debt is a huge issue in the USA (58,9% of GDP), but in very many other countries as well like Greece (144 % of GDP), Iceland (123,8% of GDP), Italy (118,1 % of GDP), and Belgium (98,6% of GDP) and many more. Who would think that Germany’s public debt is 78,8% of GDP?! Then there is the issue with the external debt and that looks also bad in Germany and France both with $ 4,7 trillions; Japan $ 2,4 trn; Italy and Ireland both with $ 2,2 trn, and Belgium $ 1,2 trn. The USA and EU have both around $ 13,9 trillions of external debt! This debt issue is huge and must get solved, too. There is lots of money in the world and more is getting printed every day, but are these nations ever going to pay their debt? I doubt that strongly. There will be the catch 22 issue with this – lenders have given too much credit and borrowers have taken too much on debt. Now the sums are so large that I think following will happen: the world trade must get stabilized and therefore exchange rates must get fixed (that would mean also revaluation of Chinese Yuan), countries in a deep debt must get an agreement to pay less interests and reduce the balances over a longer period of time. Otherwise there would be huge write offs on creditors’ side which would lead to a complete halt of world trade and  most likely into unfunctioning of the world’s financial system. Some will see that to be inevitable anyhow, but I strongly believe in the leadership in the political, economical, and the financial arena that steady healing masures in a cooperation are better than a huge crisis and a complete rebuilding of the systems we have in place today. I don’t like the way how rating companies would see reduction of interest rates or longer payment terms as defaults of any kind – certainly the capablity to pay is reduced, but not nullified. If financial institutions are not forced to write off their receivables then the default is only theoretical. I firmly want to build rather than destroy.

There are also other issues many countries must solve despite of the financial issues like agening population (30% of work force will retire over next 15 years in Europe, Russia’s populationis decreasing by 1 million per year, and there is a real estate and stock market bubble (my estimate 30% overvalued) in China. On top of this the inflation and higher interest rates have showed up. All this and other things like environmental issues keep the world busy in finding solutions for the future. Now is the time to think and then act! Will the world economy stay even, grow or fall into a new recession or even into a economic disaster is the question. I believe in a slow growth globally.

 

 

Super Bowl economy

January 28, 2011

Super Bowl XLV is the biggest single sporting event and will take place on February 6, 2011,  at Cowboys Stadium in Arlington, Texas, between Pittsburgh Steelers and Green Bay Packers. It will be a tough game with highs and lows. The better one shall win!

In the world economy it is getting to a super bowl of its own kind between the existing champion, the USA, and the rising rival China. The population in the US is around  302 million and in China  1,3 billon. The GDP in US runs at $ 13,800 billion and in China 2,700 billion USD. Divided by population we see that the GDP/person is at $ 45,9 thousand in the US and $ 3,1 thousand USD in China.

What should open the eyes, however, is the fact that the neighbors of the USA – Canada and Mexico have together 140 million inhabitants, GDP at $ 2,450 billion, and GDP/person at  $ 52,8 thousand USD. So, it makes sense for the USA to put these neighbors first. Also Brazil has $ 190 million inhabitants, GDP at $ 1,650 billion and $ 8,6 thousand per person. The Super Bowl in economy might get much more interesting when the USA put these countries to the top of the list.

Now I would like to serve a surprise: the old man Europe has as EU 500 million inhabitants, GDP at $ 17,900 billion USD and $ 36,9 thousands per person. The EU is a larger economy than the US! Even with some weak countries like Grece, Ireland and Portugal, this old Europe is still a good one. As a reminder – there are many states in the USA, which are having huge deficits!

As a final note and prediction to the Super Bowl – one will be the winner this year, but there will be a new game next year. This is valid in the business and world economy as well. I go for Pittsburgh Steelers.