Connect with us

Economy

Ides of March

Osama Rizvi

Published

on

U.S stocks, dollar’s strength and Fed’s interest rate hikes; we all have seen these keywords many times in the headlines of-late. Much has happened. $1 trillion dollar drained out from U.S. Stock markets. Dollar had a rough ride. Strengthened and then weakened. Janet Yellen handed over the position to Jay Powell as the new head of Federal Reserve Bank. Commodities were not immune especially due to headwinds in the realm of dollar. The markets seem plangent with whispers, arguments and discussions. Next month is going to be even noisier.

What were the important events? Consumer Price Index report was released in February,which showed an increase of 0.5 percent from last month. The annualized gain was 2.9 percent, fastest since 2011.Not to forget the Job’s Report (released first Friday of every month). Last month’s report, according to which U.S. added 200,000 jobs in the month of January, was very bullish and also one of the major reasons that caused the short-lived financial turmoil wiping of billions form the US stock market. Optimists euphemistically termed it as only a blip and a correction. But some took it as a warning. You decide.

The biggest event is going to be FOMC’s meeting (20th-21st March). The results, however, are expected. The Fed was already hawkish as we stepped into the New Year with an interest rate hike. What has changed? Nothing much. Instead of three, now there can be four interest rate hikes.

What are the concerns? The pace of these rate hikes. The level of inflation. That the U.S. economy might overheat. What’s fuelling these concerns? Read the above. Add to it the benevolent Trump administration cutting taxes and increasing spending.

What about the almighty dollar? Normally what happens is that under the explained scenario, increasing interest rates and growing economy, the dollar will strengthen. But it has been behaving incongruously. Why? There are many reasons. A podcast from Financial Times addressed the question in an incisive manner. The outlook for dollar remains bearish. Among other factors U.S. current account deficit and fiscal deficit remain “over-arching factors”. Albeit, Fed has been hawkish, as shown by its latest minutes of meeting, the fact that rate hikes have already been anticipated and dollar have appreciated significantly has shifted the focus from FOMC to what is ECB thinking these days. The podcast also mentioned that a shift of interest from U.S. equities, which are already mature and expensive, to European equities, considered underweight, is another factor that can contribute to a weakening dollar.

In simple words, one can say that on one side there is a concern for FOMC’s pace of increasing the interest rates which corresponds to the inflation level that in turn makes everyone panic. I think that caution that the recent stock market rout has introduced into the markets is a blessing. It is mostly when we are indifferent and haughty when a downturn takes us by storm. We should always be on our guard. These recent corrections were necessary. The best approach to tackle the markets in the coming month? One word: Caution.

Crude Oil: The story for Crude is more or less the same. However, a volatile dollar will definitely keep the markets interesting. U.S. shale production shows no signs of abating. Whispers of forming a Super group, in which Russia and Saudi Arabia will cement their camaraderie, are rife. We can expect oil prices to go up however not stay there. Many factors are at play that calls for a more practical approach to determine oil prices. The simple and logical argument can be that production cuts cannot be permanent solution to re-balance the market. Shale production is other side of the coin and we cannot ignore it. Even if the industry introduces some discipline in production and spending we should not expect that they’ll not take advantage of higher oil prices as a result of extension of the production cuts. This subsequently leads us again to that vicious circle we have always talked about.

Keyword for oil markets: Volatility.

Interesting times! Let’s stay in touch with the world.

Independent Economic Analyst, Writer and Editor. Contributes columns to different newspapers. He is a columnist for Oilprice.com, where he analyzes Crude Oil and markets. Also a sub-editor of an online business magazine and a Guest Editor in Modern Diplomacy. His interests range from Economic history to Classical literature.

Economy

Côte d’Ivoire: Robust growth under the looming threat of climate change impacts

MD Staff

Published

on

According to the Economic Update for Côte d’Ivoire, published today, the short- and medium-term outlook for the Ivorian economy remains positive. The economy is expected to maintain a steady trajectory, with GDP growth of 7 to 7.5% in the coming years. Titled “So Tomorrow Never Dies: Côte d’Ivoire and Climate Change,” the report highlights the urgent need to implement measures to ensure that climate change impacts do not imperil this economic progress and plunge millions of Ivorians into poverty.

“The solid performance of the Ivorian economy, which registered growth of almost 8% in 2017, is essentially due to the agricultural sector, which experienced positive climate conditions. The economy also benefited from a period of calm after the political and social instability of the first half of 2017 and from more favorable conditions on international markets,” said Jacques Morisset, Program Leader for Côte d’Ivoire and Lead Author of the report. “The Government also successfully managed its accounts, with a lower-than-expected deficit of 4.2% of GDP, while continuing its ambitious investment policy, partly financed by a judicious debt policy on financial markets.

However, the report notes that private sector activity slowed in 2017 compared with 2016 and especially 2015, which may curb the pace of growth of the Ivorian economy in the coming years. Against the backdrop of fiscal adjustment projected for 2018 and 2019, it is critical that the private sector remain dynamic and become the main driver of growth. This is particularly important in light of the uncertainty associated with the upcoming elections in 2020, which could prompt investors to adopt a wait-and-see approach.

As economic growth in Côte d’Ivoire relies in part on use of its natural resource base, the authors of the report devote a chapter to the impact of climate change on the economy. They raise an alarming point: the stock of natural resources is believed to have diminished by 26% between 1990 and 2014. Several visible phenomena attest to this degradation, such as deforestation, the depletion of water reserves, and coastal erosion. According to the Intergovernmental Panel on Climate Change (IPCC), climate change could reduce GDP across Africa by 2% to 4% by 2040 and by 10% to 25% by 2100. For Côte d’Ivoire, this would correspond to a loss of some CFAF 380 billion to 770 billion in 2040.

This report sounds an alarm in order to spark a rapid and collective wake-up call,” said Pierre Laporte, World Bank Country Director for Côte d’Ivoire. “Combating climate change will require prompt decisions and must become a priority for the country to maintain accelerated and sustainable growth over time.”

The report pays special attention to coastal erosion and to the cocoa sector, which represents one third of the country’s exports and directly affects over 5 million people. With 566 km of coast, Côte d’Ivoire now boasts a coastal population of almost 7.5 million people, who produce close to 80% of the national GDP. Two thirds of this coast is affected by coastal erosion, with severe consequences for the communities and the country’s economy.

The Ivorian Government, which is already aware of this challenge and has prepared a strategy to confront it, must expedite its implementation. This would have the two-fold effect of developing a “green” economy and creating new jobs.

Continue Reading

Economy

A future of work based on sustainable production and employment

Simel Esim

Published

on

On the first Saturday of July each year, the international community celebrates the International Day of Cooperatives. This year’s theme, Sustainable consumption and production of goods and services is timely, as the ILO works towards a future of work that is based on sustainable production and employment models.

As head of the ILO’s Cooperative Unit, I have witnessed firsthand the positive impact of cooperatives’ commitment to sustainable consumption and production.

In Northern Sri Lanka, for instance, after years of civil war, I saw how cooperatives helped build the resilience of local communities.

A rapid assessment at the start of the ILO’s Local Empowerment through Economic Development project (LEED) indicated that cooperatives were the only “stable” structures present in Northern Sri Lanka before, during, and after the conflict. Since 2010, the project has been supporting agriculture and fishery cooperatives by securing fair trade certification for their products and helping them establish market links.

I’ve also listened to inspiring stories from other parts of the world of how cooperatives have joined forces to contribute to sustainable consumption, production and decent work – often through cooperative-to-cooperative trade.

Some of these stories were shared at a recent meeting in Geneva of cooperative and ethical trade movements.

We heard how Kenyan producer cooperatives’ coffee has found its way on the shelves of Coop Denmark and how biological pineapples from a Togolese youth cooperative are being sold in retail cooperatives across Italy. We heard how consumer cooperatives in East Asia have developed organic and ecolabel products, while educating their members about the working conditions of producers and workers, as well as on reducing food waste and plastic consumption. We also shared ILO experiences in supporting constituents in the field.

The emerging consensus from the meeting was that cooperative-to-cooperative trade can help lower the costs of trade, while ensuring fairer prices and better incomes for cooperative members and their communities. Opportunities exist not only in agricultural supply chains, but also in ready-made garments and other sectors.

Cooperatives at both ends of the supply chain have been joining forces to shorten value chains, improve product traceability and adopt environmentally-friendly practices. At the ILO we have been working with our constituents to improve the social and environmental footprint of cooperatives around the world.

As the ILO continues to promote a future of work that is based on sustainable production and employment models, a priority for us in the coming years is to facilitate the development of linkages between ILO constituents and cooperatives. The aim is to encourage joint action towards responsible production and consumption practices, the advancement of green and circular economies and the promotion of decent work across supply chains.

Source: ILO

Continue Reading

Economy

Mongolia’s Growth Prospects Remain Positive but More Efficient Public Investment Needed

MD Staff

Published

on

Mongolia’s economic performance has improved dramatically with GDP growth increasing from 1.2 percent in 2016 to 5.1 percent in 2017 and 6.1 percent in the first quarter of 2018. While short- and medium-term economic prospects remain positive, Mongolia faces core structural vulnerabilities that hinder its potential, according to Mongolia Economic Update, the latest World Bank report on Mongolia’s economy launched here today. The report also highlights the importance of improving efficiency of its public investment programs given extensive consequences from the overambitious and unrealistic investment programs implemented in the past.

“Last year was a good year for Mongolia with favorable commodities prices and the successful implementation of the government’s economic recovery program,” said Dr. Jean-Pascal N. Nganou, World Bank Senior Economist for Mongolia and Team Leader of the report. “This resulted in improved fiscal and external balances, triggering a slight decline of the country’s public debt.

The recovery is expected to accelerate with a GDP growth rate averaging more than 6 percent between 2019 and 2020, driven by large foreign direct investments in mining. Other than agriculture, which was severely affected by harsh weather conditions during the winter, most major sectors including manufacturing, trade, and transport are expected to expand significantly. On the back of increasing exports and higher commodity prices, economic growth will continue to have a strong positive impact on government revenue, contributing to the reduction of the fiscal deficit.

The unemployment rate dropped to 7.3 percent in the last quarter of 2017, compared to 8.6 percent a year earlier. Still, it increased to 9.7 percent in the first quarter of this year, reflecting Mongolia’s highly seasonal employment patterns due to difficult working conditions in the winter, especially in construction, agriculture, and mining.

The report highlights possible short- and medium-term risks including political risks, regional instability, climate shocks, and natural disasters. The most critical risk identified is a sudden relaxation of the government’s commitment to full implementation of its economic adjustment program supported by development partners.

In addition, the economy remains vulnerable to fluctuations in global commodity prices and a productivity gap. The best long-term protection against these two vulnerabilities is the diversification of the Mongolian economy.

To create a strong buffer against economic vulnerabilities, the government and donors should give a high priority to economic diversification that helps counter the ups and downs of the mining sector. Investing in human capital and strengthening the country’s institutions are the best way to support diversification, together with sound investments in crucial infrastructure,” said James Anderson, World Bank Country Manager for Mongolia.

The report takes a closer look at public investment programs implemented over the past five years, which surged until 2015, contributing to large increases in public finance deficits and the public debt. Mongolia needs to review and reshape its public investment policies and decision-making processes to improve efficiency of public spending, including clear project selection and prioritization criteria, as well as proper maintenance of existing assets.

Continue Reading

Latest

Intelligence5 hours ago

Russian Hackers: The shadowy world of US and Gulf hacks just got murkier

The covert Qatar-United Arab Emirates cyberwar that helped spark the 13-month-old Gulf crisis that pits a Saudi-United Arab Emirates-led alliance...

Middle East6 hours ago

Risk of Decreased Relief Funding for Palestinian Refugees

The United Nations Relief and Works Agency (UNRWA) recognizes the current United States Department of State’s Secretary of State Rex...

Americas7 hours ago

Flip-Flops and Foreign Policy: How American Tourist Behavior Hinders U.S. National Security

Dear American tourist, When you are in great European cathedrals, palaces, and important historical sites, would it be possible for...

South Asia7 hours ago

India Ranked at Top as the Most Dangerous Country for Women

Thomson Reuters Foundation in its recent survey released on June 26, 2018 ranked India as the most dangerous country in...

Middle East8 hours ago

Iranian Terror Plot Motivated by Threat of Regime Change

Last month, Belgian authorities arrested a married couple of Iranian origin after it was discovered that they were in possession...

Newsdesk10 hours ago

New Satellite Data Reveals Progress: Global Gas Flaring Declined in 2017

New satellite data released today shows a significant decline in gas flaring at oil production sites around the world in...

Energy11 hours ago

Global energy investment in 2017 fails to keep up with energy security and sustainability goals

The electricity sector attracted the largest share of energy investments in 2017, sustained by robust spending on grids, exceeding the...

Trending

Copyright © 2018 Modern Diplomacy