They’ll leave again

So it happened. Finally. The recession is over. The 0.3 % growth is considered as the end of it. Not so hurry. Cautious is also Mari Draghi who said that he is very, very cautious about prospects for growth and added that Syria situation could lead to some geopolitical risks. The rates remain record low. Bank of England identically let rates record low (0.5%) and continued in purchases of bond on the same peace (375 billion £).

Greece definitely must cut spending. As you know there are rumors that Greece will need another 10 billion euro bailout and Troika is starting to begreece_storm nervous. And you need not be surprised when you hear stories like this. Dimitris Reppas, former minister for administration was once caught whispering to a fellow minister on a stage: “When the troika is here, always say yes, yes. They’ll leave again.” One of the biggest tasks for the government is to decrease the number of public workers or stop subsidies to departments and more than 1000 organizations with no clear function. And Greece is full of them. One example is “Organization for Water Management in Certain Areas,” which has exactly one employee and no one really knows what he does.

On the 27th of August, the project of the pension reform was finally presented by the French government. In spite of the protests of the trade unions and the syndicates, contributions would rise by 0.3 points in 2017. The government needs 7.6 billion to cover the gap in the pension system. By applying this step of the reform, it hopes to gain 4.4 billion euros. It means another growth of the expenses for the employees and the firms. Olli Rehn, the European commissioner for economic and monetary affairs, warns France before the rise of the taxes and the contributions. It could severely threaten the economic growth, but also the rate of the employment. The IMF shares the same opinion. It considers that the fiscal pressure has reached its limits in France.

Another bead example could be seen in Poland which will transfer to the state many of the assets held by private pension funds, slashing public debt. Private funds within the state-guaranteed system would have their bond holdings transferred to a state pension vehicle, but keep their equity holdings. As usually the devil is in the detail and it looks like pension funds will lose a lot of flexibility in what they can invest.

How to play with political cards on global scale? Here is suitable example. Russia agreed to restructure Cyprus’ EUR 2.5 billion loan terms to a much more affordable 2.5% from 4.5 %. Why? It looks like Russia buys some influence in the area very close to Syria. Because consequently Cyprus´ Foreign Minister Ioannis Kasoulides assured that its territory won’t be used to launch military strikes against Syria.

Belong to the EU trade bloc or not to be a part? That was the question for Armenia. Surprisingly Armenian President Serzh Sargsyan has said he wants to join a trade and political union with Russia instead of an EU alternative. It is probably more political decision but frankly speaking to accept all trade conditions with EU would not be best choice too because of quite excessive regulatory environment.

We are probably heading into the state of multi reserve currencies world. China will very probably allow unfettered exchange of its yuan currency in its first free trade zone. If you still believe that economic data from China are correct you should read this. China’s National Bureau of Statistics announced that it had uncovered a serious case of faking of economic data by a county government in southwest China’s Yunnan Province. The government of the Yunnan province had forced local companies to report higher industrial outputs, resulting in artificially high economic figures. E.g. in 2012 Yunnan province reported CNY6.34 billion in output while audits showed only CNY 2.82 billion and in the first half of 2013, Yunnan published CNY 2.75 billion output while audits showed a mere CNY1.06 billion. China is a real economic wonderland.

Syria is still on the radar of all investors and media. Senate Foreign Relations Committee voted for limited authority for the president to use force in Syria. China and Russia is definitely against any intervention. So we will see what happens because UN approval is very unlikely. US jobs data were under expectations but unemployment rate decline to 7.3% from 7.4 %. I think that this data are not very supportive for tapering of the present FED´s policy but there is still possibility for this step. On the other hand Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said that FED should provide more stimuli to the economy, not less. So till September 17-18th FOMC meeting we cannot be sure. But my bet is that the FED will continue with the $85 billion in monthly bond buying program.

Matúš Pošvanc


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