Monday, July 29, 2013

Emerging markets boom may be over; India business confidence drops; Amazon adding 7,000 jobs; Britain's Sangin mess

1 Emerging markets boom may be over (Nouriel Roubini in The Guardian) During the last few years, a lot of hype has been heaped on the Brics (Brazil Russia, India, China, and South Africa). With their large populations and rapid growth, these countries, so the argument goes, will soon become some of the largest economies in the world – and, in the case of China, the largest of all by as early as 2020. But the Brics, as well as many other emerging-market economies – have recently experienced a sharp economic slowdown. So, is the honeymoon over?

Brazil's GDP grew by only 1% last year, and may not grow by more than 2% this year. Russia's economy may grow by barely 2% this year, with potential growth also at around 3%, despite oil prices being around $100 a barrel. India had a couple of years of strong growth recently (11.2% in 2010 and 7.7% in 2011) but slowed to 4% in 2012. China's economy grew by 10% a year for the last three decades, but slowed to 7.8% last year and risks a hard landing. And South Africa grew by only 2.5% last year and may not grow faster than 2% this year.

Many other previously fast-growing emerging-market economies – for example, Turkey, Argentina, Poland, Hungary, and many in Central and Eastern Europe – are experiencing a similar slowdown. So, what is ailing the Brics and other emerging markets?

First, many of them thus tightened monetary policy in 2011, with consequences for growth in 2012 that have carried over into this year. Second, the idea that emerging-market economies could fully decouple from economic weakness in advanced economies was far-fetched: recession in the eurozone, near-recession in the UK and Japan in 2011-2012, and slow economic growth in the US were always likely to affect emerging-market performance negatively.  .

Third, most Brics and a few other emerging markets have moved toward a variant of state capitalism. This implies a slowdown in reforms that increase the private sector's productivity and economic share, together with a greater economic role for state-owned enterprises (and for state-owned banks in the allocation of credit and savings), as well as resource nationalism, trade protectionism, import-substitution industrialisation policies, and imposition of capital controls.

Fourth, the commodity super-cycle that helped Brazil, Russia, South Africa, and many other commodity-exporting emerging markets may be over. The fifth, and most recent, factor is the US Federal Reserve's signals that it might end its policy of quantitative easing earlier than expected, and its hints of an eventual exit from zero interest rates, both of which have caused turbulence in emerging economies' financial markets.

Finally, while many emerging-market economies tend to run current-account surpluses, a growing number of them – including Turkey, South Africa, Brazil, and India – are running deficits. And these deficits are now being financed in riskier ways: more debt than equity; more short-term debt than long-term debt; more foreign-currency debt than local-currency debt; and more financing from fickle cross-border interbank flows.

2 India business confidence drops (Will Davies in The Wall Street Journal) Indian companies became more pessimistic about the economy in the April-June quarter, according to a survey by the New Delhi-based Associated Chambers of Commerce and Industry in India, which called on the government and the central bank to take action to boost confidence. The group said 51% of respondents in its latest business confidence survey felt the economic situation worsened in the quarter, while 30% said a fiscal stimulus package would help build sentiment in the short-term.

The majority of the 200 business representatives surveyed from June 1 to July 25 said factors affecting business performance included weak demand in India and overseas, poor infrastructure, high cost of credit, rising prices of raw materials and wage costs, Assocham said in a statement Sunday.

India’s economic growth last fiscal year slowed to a decade-low of 5%. Investment in infrastructure rose just 7.8%, about half the average annual rise since 1991. The government says at least $1 trillion needs to be invested in new infrastructure over the next five years. Foreign investment, meanwhile, tumbled to $25.3 billion from $43.4 billion five years before.

3 Amazon adding 7,000 jobs (San Francisco Chronicle) Amazon says it is adding 7,000 jobs in 13 states, beefing up staff at the warehouses where it fills orders, and in its customer service division. The company said it will add 5,000 full-time jobs at its US distribution centers, which currently employ about 20,000 workers who pack and ship customer orders.

The world's largest online retailer has been spending heavily on order fulfillment, a strategy meant to help the business grow, but one that has also weighed on profit margins. The company said last week that it lost money in the second quarter, even as revenue increased.

The company is also adding 2,000 jobs in customer service, including full-time, part-time and seasonal. Amazon shares fell $5.91 to close at $306.10.

4 Britain’s Sangin mess (Khaleej Times) In a rare development, British soldiers are back in action in Afghanistan. The strange part is that they have been flown back to the restive areas of Sangin to tackle insurgency. It is not known under what mandate they have returned, and who sent in the requisition. Reports say that local Afghan commanders requested foreign assistance in Sangin district, an area British forces defended from the Taleban until 2010.

At a time when the foreign forces stationed in Afghanistan are on the verge of pulling back, and the withdrawal plan is supposed to be executed by the end of next year, this new surge is baffling. Afghan President Hamid Karzai in a detailed policy prescription, a couple of months ago, had said that coalition troops would not be allowed to operate on Afghan territory, and solo drone strikes conducted by Pentagon are an anti-thesis of understanding between Kabul and its Western allies.


So how come the return of British troops became a reality without the approval of the president of the republic, and Britain studying at length as to what necessitates its boys back in action? Secondly, it is strange that the Western powers that had, of late, decided to broker a dialogue with the Taleban are so wittingly ready to fight the militia and derail the new geopolitical understanding. It is incumbent upon Kabul to make public the specific purpose the British forces were called in, and what were the casualties. Karzai should also make it clear as to what was the participatory role of the Afghan National Army in the entire one-sided episode.

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