2016 started off as one of the worst years on record for the stock market. As investors scrambled around dreading that the bull market might be over, the Federal Reserve and Central Banks from the around have continued to pacify fears that despite the jerky start, economic indicators were positive.
The Federal Reserve incessantly refers to the unemployment numbers, which fell to 4.9 percent (the lowest in a decade), as proof that the economy is continuing to strengthen. But how true are the soothing words of the Central Banks as compared to the economic data?
Gold the Indicator
In the ancient days, gold was considered the medium of exchange but in more recent times, especially since the elimination of the gold standard, the precious metal has been seen as a commodity. The prices of commodities fluctuate with the overall demand and supply of the global economy. As the global economy decelerates, commodities fall in price. As of 2016, almost all commodities have dropped in value and leading that dramatic decline is oil. Despite the precipitous drop in commodity prices, one commodity that has not depreciated but rather increased in value is gold. Unlike other commodities, gold can fluidly transition between being a commodity, medium of currency or hedge against financial uncertainty. In the current fickle financial environment, gold has reasserted itself as a form of insurance against the unstable fiat currencies.
Unlike other commodities, gold can be seen as a vote of confidence for Central Banks around the world including the Federal Reserve. Gold has been up about 14% against the Dollar but roaring against other currencies like the Ruble, Yen, etc. The rise in the price of gold indicates that investors are flocking to the precious metal as means of indemnification. Thus, all the assortments of financial tools that the Central Banks have employed such as quantitative easing, negative interest rates, etc. have failed with respect to propping up the economy. Despite all the “positive” indications by the Federal Reserve, the economic numbers from around the world are indicating the world is or will be in a global recession.
The US, the world’s largest economy, has not been performing as well as the administration and Federal Reserve has claimed. Despite the stock market breaking records in the last several years, the fundamentals did not support it rather the Federal Reserve’s intervention via quantitative easing and interest rate reductions have helped create the artificial bull market. The largest misleading indicator is the unemployment rate, which is claimed to be at 4.9% but, in reality, is much higher. Some estimates put the unemployment numbers closer to recession/depression levels. In addition, today more than half of Americans are on a form of government assistance. The following data indicates a worsening economic situation:
- Exports were in decline in a year over year basis by 7%
- Factory orders have dropped for 14 consecutive months
- The Restaurant Performance Index, a monthly composite index that tracks the health and outlook of the restaurant industry, has dropped to the lowest level since 2008
- The Baltic Dry Index, a measure of the price of moving major raw materials by sea, fell below 300 for the first time. This signals a dramatic drop in global demand for raw materials since the index is a direct measure of demand for shipping capacity
- Orders for the Class 8 trucks have been almost cut in half on a year to year basis, which indicates demand for supplies has largely declined within the US
- Despite approaches to reduce production of oil by global producers, the price of oil has more or less stayed below $30 USD per barrel. This indicates the global economy has slowed down
- A large number of those employed in the US since the Great Recession was due to the boom in the Oil and Gas (O&G) industry. It is now reported that 67 O&G companies are filing for bankruptcy in the US and that 35% of all O&G companies around the world are at risk of becoming insolvent. This is in addition to the tens of thousands that have been laid off since the decline in oil prices
- The number of job cuts skyrocketed by 220% in the month of January
- Retail stores are shutting down at a stunning pace across the country
While the US numbers are looking bleak at best, the global data is not any better:
- Chinese exports have fallen by more than 11% on a year over year basis
- Chinese imports are even worse in January on year over year basis indicating a decline of almost 20% –This dramatic decline is part of a larger trend of Chinese imports declining now for 15 months in a row
- Indian exports plunged by almost 14% on a year over year basis
- Japanese exports have declined by almost 10% on a year over year basis while their imports have declined by almost 20%
- For the sixth time in six years, Japanese GDP growth has treaded negative territory
- The overall global stock market currently exhibits a bear market with about 20% of all global stock wealth being wiped out in the last year alone
Unfortunately for global investors, the continued intervention by Central Banks around the world, in the hopes of propping up the languishing economies, has caused the global economy to only worsen. Since the 2008 crash, the interest rates have been slashed by the Central Banks almost 640 times and more than 12 trillion dollars’ worth of assets have been purchased by them to no avail. Despite attempting to resolve the financial crash of 2008, governments did not eliminate the root cause of the problem but rather applied a bandage solution, which only worsened over time. Now it is all beginning to slowly unravel. All that is needed is a Black Swan event to bring the Central Banks to use the “R-word ” in describing the global economy.
A bio-based, reuse economy can feed the world and save the planet
Transforming pineapple skins into product packaging or using potato peels for fuel may sound far-fetched, but such innovations are gaining traction as it becomes clear that an economy based on cultivation and use of biomass can help tackle pollution and climate change, the United Nations agriculture agency said on Friday.
A sustainable bioeconomy, which uses biomass – organic materials, such as plants and animals and fish – as opposed to fossil resources to produce food and non-food goods “is foremost about nature and the people who take care of and produce biomass,” a senior UN Food and Agriculture Organization (FAO) official said at the 2018 Global Bioeconomy Summit in Berlin, Germany.
This means family farmers, forest people and fishers, who are also “holders of important knowledge on how to manage natural resources in a sustainable way,” she explained.
Maria Helena Semedo, FAO Deputy Director-General for Climate and Natural Resources, stressed how the agency not only works with member States and other partners across the conventional bioeconomy sectors – agriculture, forestry and fisheries – but also relevant technologies, such as biotechnology and information technology to serve agricultural sectors.
“We must foster internationally-coordinated efforts and ensure multi-stakeholder engagement at local, national and global levels,” she said, noting that this requires measurable targets, means to fulfil them and cost-effective ways to measure progress.
With innovation playing a key role in the bio sector, she said, all the knowledge – traditional and new – should be equally shared and supported.
Feeding the world, saving the planet
Although there is enough food being produced to feed the planet, often due to a lack of access, estimates show that some 815 million people are chronically undernourished.
“Bioeconomy can improve access to food, such as through additional income from the sale of bio-products,” said Ms. Semedo.
She also noted its potential contribution to addressing climate change, albeit with a warning against oversimplification.
“Just because a product is bio does not mean it is good for climate change, it depends on how it is produced, and in particular on much and what type of energy is used in the process,” she explained.
FAO has a longstanding and wide experience in supporting family farmers and other small-scale biomass producers and businesses.
Ms. Semedo, told the summit that with the support of Germany, FAO, together with an international working group, is currently developing sustainable bioeconomy guidelines.
Some 25 cases from around the world have already been identified to serve as successful bioeconomy examples to develop good practices.
A group of women fishers in Zanzibar are producing cosmetics from algae – opening up a whole new market with sought-after niche products; in Malaysia, a Government programme supports community-based bioeconomy; and in Colombia, a community is transforming pineapple skins into biodegradable packaging and honey into royal jelly – and these are just a few examples of a bioeconomy in action.
“Together, let’s harness the development for sustainable bioeconomy for all and leave no one behind,” concluded Ms. Semedo.
Belarus: Strengthening Foundations for Sustainable Recovery
The speed of economic recovery has accelerated in early 2018, but the foundations for solid growth need to be strengthened, says the latest World Bank Economic Update on Belarus.
The economic outlook remains challenging due to external financing needs and unaddressed domestic structural bottlenecks. Improved household consumption and investment activity, along with a gradual increase in exports, will help the economy to grow, but unlikely above three percent per annum over the medium term.
“The only way for ordinary Belarusians to have better incomes in the long run is to increase productivity, which requires structural change. While macroeconomic adjustment has brought stability, only structural change will bring solid growth to the country,” said Alex Kremer, World Bank Country Manager for Belarus. “Inflation has hit a record low in Belarus, driving the costs of domestic borrowing down. However, real wages are now again outpacing productivity, with the risks of worsening cost competitiveness and generating cost-push inflation.”
A Special Topic Note of the World Bank Economic Update follows the findings of the latest World Bank report, The Changing Wealth of Nations 2018, which measures national wealth, composed of produced, natural, and human capital, and net foreign assets. Economic development comes from a country’s wealth, especially from human capital – skills and knowledge.
“Belarus has a good composition of wealth for an upper middle-income country. The per capita level of human capital exceeds both Moldova and Ukraine. However, the accumulation of physical capital has coincided with a deterioration in the country’s net foreign asset position,” noted Kiryl Haiduk, World Bank Economist. “Belarus needs to rely less on foreign borrowing and strengthen the domestic financial system, export more, and strengthen economic institutions that improve the efficiency of available physical and human capital.”
Since the Republic of Belarus joined the World Bank in 1992, lending commitments to the country have totaled US$1.7 billion. In addition, grant financing totaling US$31 million has been provided, including to programs involving civil society partners. The active investment lending portfolio financed by the World Bank in Belarus includes eight operations totaling US$790 million.
Economic Growth in Africa Rebounds, But Not Fast Enough
Sub-Saharan Africa’s growth is projected to reach 3.1 percent in 2018, and to average 3.6 percent in 2019–20, says Africa’s Pulse, a bi-annual analysis of the state of African economies conducted by the World Bank, released today.
The growth forecasts are premised on expectations that oil and metals prices will remain stable, and that governments in the region will implement reforms to address macroeconomic imbalances and boost investment.
“Growth has rebounded in Sub-Saharan Africa, but not fast enough. We are still far from pre-crisis growth levels,” said Albert G. Zeufack, World Bank Chief Economist for the Africa Region. “African Governments must speed up and deepen macroeconomic and structural reforms to achieve high and sustained levels of growth.”
The moderate pace of economic expansion reflects the gradual pick-up in growth in the region’s three largest economies, Nigeria, Angola and South Africa. Elsewhere, economic activity will pick up in some metals exporters, as mining production and investment rise. Among non-resource intensive countries, solid growth, supported by infrastructure investment, will continue in the West African Economic and Monetary Union (WAEMU), led by Côte d’Ivoire and Senegal. Growth prospects have strengthened in most of East Africa, owing to improving agriculture sector growth following droughts and a rebound in private sector credit growth; in Ethiopia, growth will remain high, as government-led infrastructure investment continues.
“For many African countries, the economic recovery is vulnerable to fluctuations in commodity prices and production,” said Punam Chuhan-Pole, World Bank Lead Economist and the author of the report. “This underscores the need for countries to build resilience by pushing diversification strategies to the top of the policy agenda.”
Public debt relative to GDP is rising in the region, and the composition of debt has changed, as countries have shifted away from traditional concessional sources of financing toward more market-based ones. Higher debt burdens and the increasing exposure to market risks raise concerns about debt sustainability: 18 countries were classified at high-risk of debt distress in March 2018, compared with eight in 2013.
“By fully embracing technology and leveraging innovation, Africa can boost productivity across and within sectors, and accelerate growth,” said Zeufack.
This issue of Africa’s Pulse has a special focus on the role of innovation in accelerating electrification in Sub-Saharan Africa, and its implications of achieving inclusive economic growth and poverty reduction. The report finds that achieving universal electrification in Sub-Saharan Africa will require a combination of solutions involving the national grid, as well as “mini-grids” and “micro-grids” serving small concentrations of electricity users, and off-grid home-scale systems. Improving regulation of the electricity sector and better management of utilities remain key to success.
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