MarketLine Blog

Posts about Macroeconomics

Shinzo Abe reelected as tensions in Asia rise

MarketLine

Japan has in the past decade been hit by two major financial crises. The first one was the global financial crisis of 2008 and the second one came about following the Fukushima nuclear power plant disaster. The latter resulted in a nuclear meltdown and forced the Japanese government to immediately cease operations at all other nuclear power plants in the country, which together generated almost a third of all electricity consumed in Japan. As Japan increasingly relied on fossil fuel powered electricity in the aftermath of Fukushima, increased imports of… Read more

Macron labor law reforms: Overdue changes to French labor laws are much needed victory for business

MarketLine

The envisioned reforms are wide-ranging and are easily the most ambitious set of labor market reforms to have made it this far intact. Previously, all efforts have floundered under the weight of popular protest. Although productivity remains healthy in the domestic economy, business growth has been stymied by bad regulation which deters job creation, especially for small businesses nearing the 50th employee threshold which makes the employer subject to an alarmingly complex and costly set of regulations. Bodies representing small and medium businesses are pleased with the outcome, hailing them… Read more

No longer too big to jail: Imprisoning heir to Samsung can create change in chaebol culture

MarketLine

Efforts to solve problems emanating from corporate governance and culture within massive chaebols have gained fresh impetus from the conviction of Lee Jae-yong for bribery in a corruption scandal which was responsible for the impeachment of President Park earlier this year. For significant change in culture to occur and for forces seeking change to stand a reasonable chance of success, Mr. Lee must remain in prison rather than be subject to the pardons previous prison sentences handed to powerful businessmen have ended in. Pushed by a sizeable chunk of public… Read more

BoE interest rates: It is time for a raise

MarketLine

On June 15, the Monetary Policy Committee of the Bank of England decided once again to keep interest rates at the record low of 0.25%. However, the big news is that the unexpected 5-3 vote on that decision signals a change of a monetary policy, amid rising inflation that threatens households’ real income. This was no surprise as inflation in the UK economy reached 2.9% in May, keeping up its accelerated trend. In fact, this rate has surpassed the target rate of 2% set by the BoE, quicker than expected…. Read more

Sanctions against Qatar: The huge costs for a large exporter that also spread to the global economy

MarketLine

The ban of transportation of goods and citizens’ movements from and to Qatar, implemented by the most powerful Middle-Eastern countries (Saudi Arabia, UAE, Bahrain and Egypt) was a huge diplomatic shock that entails a series of economic effects. Indeed, it seems that politics are a force of impact for a small geographical country that is heavily engaged in global trade. Qatar, one of the richest countries in the world, with large trade surpluses based on gas and oil exports, will have to sustain the consequences of that dependence. Taking into… Read more

The New Silk Road: China’s Belt and Road plan the biggest infrastructure program ever

MarketLine

The Belt and Road initiative is China’s attempt to resurrect the Silk Road, the ancient path linking Europe and Asia. This modern version of the plan wants to unite multiple regions with a monumentally large infrastructure program that could consume close to $1tn by the time it is complete. Comprising roads, port projects, pipelines, trains, shipping lanes and economic zones, the plan stretches from the South Pacific Ocean to Central Europe. The aim on the surface is to boost trading and reinvigorate multiple economic regions. However when the plan is… Read more

UK General Election: Theresa May’s Call for Election on June 8 an Opportunistic Masterstroke

MarketLine

On June 23, 2016, the United Kingdom voted to leave the European Union, a historic result the likes of which has never been seen. On June 5, 1975 the UK voted overwhelmingly in favor of remaining in the EU (then called the European Community) and the thought of any member state actually leaving is a very recent phenomenon. Many point to the Great Recession of 2008-09 as the catalyst for the most recent wave of anti-EU sentiment but opposition to the EU has existed in the UK since it joined… Read more

IMF appeases US trade policy

MarketLine

The first conference held by the IMF since the economic policy of the United States underwent dramatic changes following the election victory of Donald Trump already shows strong signs of moving towards a position designed to appease the new president. Differences between previous statements and policies from the IMF and what is now being espoused point towards the dropping of the pledge occurring for political purposes. Indeed the language used by the German Finance Minister and that of the IMF shows a stark contrast between views on the matter. Whilst… Read more

Greek debt crisis: Why Grexit is not an option

MarketLine

It is actually proven that undoing a fatal mistake of relying on an overvalued currency does not correct matters. The no alternatives case for the Greek economy on staying in the single currency union is easy to realize after having a close look at its macroeconomic figures that reflect something of an economic collapse. In fact, the heavy reliance of the Greek economy on services and at the same time its lack of a national productive base  rule out the possibility of achieving growth through the adoption of a devalued… Read more

OPEC: Supply restriction amid global oil glut

MarketLine

OPEC, consisting of 13 oil-rich governments, is the only true cartel allowed, albeit grudgingly, to operate in today’s global economy and it wields considerable power. In 1973 Arab members imposed an oil embargo on the US during the Arab-Israeli war which tripled prices in a matter of months. Three times in recent history OPEC has stepped in to shore up the oil market, and each time prices rallied within days of action being taken. It is fair to say, therefore, that OPEC is a force to be reckoned with. Or… Read more

Brexit – the meaning of a messy divorce for the Euro area.

MarketLine

The lending channel between many industries and banks in the Euro area has been far from normal since 2008. This factor puts Britain in a better position to negotiate Brexit next year. The Euro area will embark on a period of further unprecedented slowdown by detaching itself from the world’s fourth largest economy. Credit to industries coming from the banking sector is key for the region to grow as the single currency area has a bank-based model as opposed to a capital market model. Debt financing to companies is largely… Read more

Donald Trump: Incoming president likely to create bigger mess than his hair

MarketLine

Donald Trump’s policy detail is rather thin, but based on multiple and contradictory things he has said on the campaign trail, shrinking of the state via both reduced tax income and federal spending while promising to build a border wall and renovate infrastructure, protectionist stances on international trade agreements while promising a Brexit Britain a comprehensive deal, an expansion of dirty industries at the expense of environmental regulation, and undermined central bank independence. Donald Trump’s election to the Oval Office was considered one of the most divisive and bitter elections… Read more

Trump’s win is good news for US economy

MarketLine

Donald Trump’s whole mantra during his campaign (as evidenced by his rather natty headwear) has been to ‘Make America Great Again.’ In order to do this, he knows he must make the US competitive on the global stage. He has pledged to reduce taxes heavily for low and middle income Americans and also to make sure that the wealthy (including corporations) do not pay too much as that undermines jobs. This should help boost the currently questionable level of job creation and to increase spending power, which should in turn… Read more

An inconvenient truth about the euro area

MarketLine

The creation of the euro area was a mistake. Top ranks of business and political classes in Europe were expecting an explosion in trade and economic activity following the creation of the single currency area in 2002. The euro would lubricate the integration of the newly formed euro area. It would be possible to achieve higher levels of growth and long-term prosperity. Unfortunately, the real GDP of the euro area increased only by 1.8% per year between 2001 and 2006 and by merely 0.2% per year within the 2007 -2015… Read more

Uncertainty over political events trumps fundamentals as markets fall

MarketLine

On Thursday June 23, 2016 the UK went to the polls to decide on its future as a member of the European Union (EU). By a small margin, the country opted to leave and despite the fact that no steps to enact Article 50 have yet been taken by Theresa May and her government, speculation about an imminent implosion of the British economy has been rife, damaging the value of the Pound and serving as a rather convenient scapegoat for everything from companies’ poor performance to increased prices, to political… Read more

China’s banking industry: BIS scaremongering unwarranted but warning signs must be heeded

MarketLine

China’s economic growth has been slowing for a while now and while it remains healthy, there are concerns over the state of the country’s banking industry. Non-performing loan (NPL) rates have been increasing, with some of the country’s biggest banks seeing a surge in that particular metric. Bank of China and ICBC saw noticeable increases in their NPL rates during 2015, necessitating greater allowances for credit losses, while Agricultural Bank saw something of a surge from 1.54% to 2.39%, with the retail and wholesale industry the main cause for concern…. Read more

EU before Brexit – looking underneath the headlines

MarketLine

Data from eurostat puts the number of unemployment in the Euro area at 16 million in 2016, close to 10% of its population aged between 18 and 74 years of age. This is equivalent to the entire population of the Netherlands or 8 times the population of Paris. Clearly, the number of Europeans struggling on a daily basis is much higher than the official figure coming from the eurostat. This is because any person that works at least one hour per week is considered to be employed. The failure to consistently reduce… Read more

UK Economy – held back by euro area Treaty

MarketLine

The Maastricht Treaty has been slowly asphyxiating any possibility of sustained economic recovery in Britain. It has been partially responsible for the erratic recovery of manufacturing, production and construction industries. The Gross Domestic Product (GDP) of Britain peaked back at pre-crisis level in the second quarter of 2013 driven mainly by the growth of the services industry. This industry is 13 per cent larger in value compared to 2009 (figure below). Production, construction and manufacturing industries are on average 7% smaller than their pre-crisis levels. The majority of UK industries… Read more

British Economy – structurally damaged?

MarketLine

Large-scale lending has become a key component for the economic growth of Britain’s economy since the 1980s. It has aimed to incentivise British consumers to permanently increase their borrowing rates and consumption. This practice has boosted the profitability of the British financial system by an unimaginable scale. It has generated a permanent stream of cash flowing from consumers to the banking system based on the acquisition of mortgages and consumer credit to purchase durable and nondurable goods. It has also helped households to navigate through a prolonged period of house… Read more

A new dynamism for major European economies

MarketLine

The expansion of household debt in Europe in the 1980s, 1990s and 2000s was unprecedented by historical standards and the economic growth of European countries has become partially dependent on it. The numbers from the Bank of International Settlements (BIS) and Marketline analysis reveal that the outstanding credit from the banking system to European households increased more than 170%, in nominal values, from US$4tn in 1995 to more than US$ 11tn by the end of the 2000s. In the UK alone, household debt is running at US$2.4tn which represents an… Read more

Hero MotoCorp: Promising rise of future transnational manufacturer

MarketLine

Hero MotoCorp (HMC – formerly Hero Honda Motors), based in India, is one of the world’s largest motorcycle manufacturers and is setting itself up to expand globally following the dissolution of its partnership agreement with Honda Motor Co. Ltd. in 2010 and the expiration of licensing contracts for Honda technologies in 2014. The first stage of this expansion has been to target developing markets, an approach that indicates an intention to sell existing style products to similar markets in order to leverage the know-how that HMC has already developed, particularly… Read more

Greece – Another Case of Expansionary Austerity Failure

MarketLine

The public austerity program forced upon the Greek population by the European Commission, the European Central Bank, and the International Monetary Fund (Troika) has depressed the economy instead of leading to an economic expansion, under the mantra of “expansionary austerity” policies. Five years of austerity involved drastic reductions in public expenditure, public sector redundancies and tax increases in the context of the worst global contraction of more than 60 years. As the Greek Prime Minister, Yanis Varoufakis, explained in a recent article published on the Project Syndicate website, the hard-line… Read more