Daily Archives: June 8, 2011 @ 12:04 pm (Wednesday)

China GDP history

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This is year over year ‘real’ GDP growth.

Note the recurring first quarter spikes followed by dips, presumably due to front loading annual state spending and lending.

Not much of a spike this year, due to cutbacks in state spending/lending, but the reduced spending/lending that resulted in the reported growth was likewise front loaded for 2011.

Question now is what the traditional second half dip will look like.
Seems to me it could get pretty ugly.

Also, Japan’s earthquake looks to have weakened world growth more than originally expected. And it’s all probably path dependent, meaning growth simply resumes from the lower, post quake base, especially in light of their reluctance to increase their deficit spending.

Europe is also weakening due to self imposed austerity.

And the US is heck bent on doing same as both parties agree on the need for multi trillions of deficit reduction, while Fed policies continue to work to reduce govt. interest payments to the economy and continue to shift income from savers to bank net interest margins.

H2 is still looking hopeless to me, and also looking like we’re flying without a net.

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OPEC indecision of no consequence

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It doesn’t matter what OPEC decides with regard to increases.
The only ones with excess capacity, for all practical purposes, are Saudis.
The others have always pumped all they could and let the Saudis be the swing producer.

Historically, the hard part has been to get anyone other than the Saudis to cut production when the Saudis needed help to keep a floor under prices. Invariably the others would cheat and produce to capacity, letting the Saudis carry the burden of reduced sales.

In any case, the Saudis will continue to post their prices to their refiners and fill any and all orders at those posted prices.
And the rest of OPEC will likely keep producing at near max levels.

And most expect Lybia to be back on line in a few weeks or so, in which case Saudi production will ‘automatically’ fall back.

OPEC Talks Break Down, No Deal to Lift Oil Supply

June 8 (Reuters) — OPEC talks broke down on Wednesday without an agreement to raise output after Saudi Arabia failed to convince the cartel to lift production.

Secretary General Abdullah El-Badri said the effective decision was no change in policy and that OPEC hoped to meet again in three months time. No date has been set for another meeting.

“Unfortunately we are unable to reach a consensus to reduce or raise production,” El-Badri told reporters.

Gulf Arab delegates said Iran, Venezuela and Algeria refused to consider an output increase. Non Gulf delegates said Saudi Arabia had proposed an increase on top of April supplies that was too high for them to contemplate.

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Moody’s Analyst: Weak Growth, Fiscal Slips Could Lose UK ‘AAA’

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The wonder is how Moody’s keeps it’s prized credibility and Sarah Carlson her prized job.

Moody’s Analyst: Weak Growth, Fiscal Slips Could Lose UK ‘AAA’

Jun 8 (MNI) — The UK could lose its prized ‘Aaa’ credit rating if growth remains weak and the coalition government fails to meet its fiscal consolidation targets, a senior analyst at ratings agency Moody’s has told Market News International.

Sarah Carlson, VP-Senior Analyst at Moody’s, told MNI that weak growth and fiscal slippage could see the country’s ‘debt metrics’ deteriorate to a point that would trigger a downgrade.

“Although the weaker economic growth prospects in 2011 and 2012 do not directly cast doubt on the UK’s sovereign rating level, we believe that slower growth combined with weaker-than-expected fiscal consolidation efforts could cause the UK’s debt metrics to deteriorate to a point that would be inconsistent with a Aaa rating,” she said.

Carlson also said that due to their sheer size the UK’s austerity plans have a degree of ‘implementation risk’.

“As is true of any large fiscal consolidation effort, the government’s austerity plans entail some implementation risk. Moreover, a multi-year austerity programme of this magnitude is a political challenge,” she said.

Carlson’s comments come in a week of frenzied debate as to whether UK Chancellor of the Exchequer George Osborne’s fiscal consolidation plans are working.

At present, the government aims to close Britain’s structural deficit will by the end of 2014-15, slashing departmental budgets by almost stg100 billion over four years.

But a weaker-than-expected Q1 GDP outturn and a slew of disappointing economic data since then, has led several economists to question the wisdom of such a rapid deficit-reduction plan while others have said there is no other choice.

On Sunday, a group of leading economists led by Prof. Tony Atkinson of Oxford and centre-left pressure group Compass wrote a letter to the Observer newspaper questioning the wisdom of the current plan.

Carlson said that the government’s creation of a cross-departmental committee to monitor progress in public spending cuts could be useful in reinforcing commitment to consolidation.

“The creation of the Public Expenditure Cabinet Committee (PEX) – a cross-government spending committee that will monitor the progress of individual departments against their budget plans – has the potential to be a promising institutional change that could further bolster confidence in the government’s ability to follow through with its ambitious austerity programme.”

On Monday, a group of centre-right economists wrote a letter to the Telegraph newspaper which argued against relaxing austerity measures.

In its Article IV Consultation Report on the UK released Monday, the IMF said that there had been unexpected weaknesses in UK economy over the past few months but labelled the troubles temporary and advised the government to keep to its current deficit-reduction plan.

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