1 Brazil in recession as GDP plunges 1.9% (San
Francisco Chronicle) The bottom seems to have fallen out of Brazil's economy,
with the government reporting that the gross domestic product plunged 1.9
percent in the second quarter alone, once again throwing the nation into a
technical recession. Brazil is the world’s seventh largest economy.
It's more bad news for President Dilma Rousseff, who
is fighting for her political life. Two-thirds of Brazilians polled say they
want to see her impeached because of a massive corruption scandal and what is
widely perceived as mishandling of the economy.
The drop was slightly larger than consensus
forecasts of private economists published by the Central Bank, and prompted
many to take an even gloomier view or prospects for the globe's seventh-largest
economy.
Like most Latin American nations, Brazil has been
hurt by the plunge in commodity prices and the slowdown in China, which has
been a big buyer of Brazil's soy, iron ore and other commodities. However,
Brazil's economy depends far less on trade than most nations in the region,
with exports and imports making up just 27 percent of GDP according to the
World Bank.
Brazil boomed for several years on the back of a
middle class that expanded by some 40 million people since 2003. Suddenly flush
with easy credit, they went on a sustained spending spree, upon which Brazil's
government built its economic model.
That spree started to sputter about three years ago
and is now officially dead. Many Brazilians are in debt over their heads and
are cutting spending severely. Household spending reported Friday fell 2.1
percent as compared to the previous quarter. Rising inflation, unemployment and
tightening personal credit have added to souring consumer confidence.
2 No, China economy is not on verge of collapse
(John Wong in Straits Times) The Chinese yuan, after ending its de facto peg to
the US dollar in 2005, has been steadily appreciating over the years. Just how
could its initial 1.9 per cent devaluation against the US dollar be dubbed
"sharp devaluation"? It was merely a small step primarily meant to
correct the yuan's exchange rate misalignment caused by China's weaker
macroeconomic fundamentals, including slower export growth and increasing
capital flight.
Even after a second, equally small devaluation, the
yuan has since depreciated only about 3.8 per cent against the US dollar while
it has since appreciated heavily against all major currencies: Up over 10 per
cent against the South Korean won and the euro, and almost 20 per cent against
the yen.
The Shanghai Stock Exchange is still a relatively
small market (only the fifth in the world), which is essentially not widely
open to foreign investors. It is therefore hard to understand how a single-day
market correction in Shanghai could have caused the Dow Jones to shed 1,000
points!
During the 1997 Asian financial crisis, as the
region's stock markets all plunged, Wall Street held its ground. This
eventually stabilised the global financial markets. Why not this time? Has the
US lost its former financial dominance? When China catches a cold, does the US
also sneeze?
As China is the world's second-largest economy
accounting for 13.4 per cent of global GDP (or 16 per cent by the purchasing
power parity measure), as compared with 22.5 per cent for the US economy, any
major slowdown in China's growth will therefore herald a potential global
slowdown.
China's economy experienced phenomenal growth of 9.8
per cent a year during 1979-2013. China's growth must come down after so many
years, due to the inevitable weakening of its major growth drivers or the
drying up of its sources of high growth. Put into proper perspective, China's
present "lower" growth is "low" only in its own context, as
its current 7 per cent level of growth is still remarkably high by any regional
or global standard, and certainly well above the average global economic growth
of 2.8 per cent for last year.
The critical thing right now is not to misinterpret
the fluctuations in the yuan and stock markets, which are just corrections to
overvaluations in the past, certainly not a signal that the Chinese economy is
about to collapse.
3 Challenges of doing business in India (Vikram
Barhat on BBC) Aside from recent stock market jitters, the World Bank pegs
India’s GDP growth at 7.5% for 2015. Much of India’s economy is driven by its
so-called “demographic dividend”: Nearly two-thirds of India’s 1.2 billion
population is under the age of 35, creating one of the largest consumer markets
in the world. It’s no surprise it’s attracting businesses the world over, keen
to access these new customers.
There’s no doubt there are many rich investment
opportunities in India, but they’re scattered over an obstacle course of opaque
rules and regulations. India has long struggled with endemic corruption and
it’s still a problem. Overt or implied demands ranging from small kickbacks,
called “baksheesh,” to large corporate “donations” can quickly frustrate
foreigners. India still ranks 85 among 175 countries on Transparency
International's Corruption Perception Index.
Paperwork and processing times are still a little
tedious even for Indians, according to a person familiar with the situation. It
takes an average of 30 days just to get a business officially registered, too
slow for entrepreneurs used to speedy processing in Canada (five days) or
Australia (2.5 days).
The flow of foreign direct investment in India has
long been hindered by a complex system of inscrutable regulations. Few things
have dented India’s appeal for foreign business people more than its arduous
tax laws. Critics argue that in addition to being out of sync with the global
norm, they’re draconian and, in some cases, amount to tax terrorism. India’s
highly publicised battles with local subsidiaries of foreign businesses —
Vodafone, Nokia, and more recently Nestle, for instance — have drawn media
attention and global scrutiny.
Cultural misunderstanding also plays a role in
almost every case of cross-border business failure. As a society, India is very
relationship focused. To complicate matters, it’s many countries within a
country. Compared to rival China, there’s plenty of room for infrastructure
growth in India, according to one person. There is a also a huge gap in the market
for skilled professionals. While India has around 487 million workers, more
than two-thirds of Indian employers are struggling to find employable workers.
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