1 Fear grows about 2008 repeat (Phillip Inman in The
Guardian) Fears that the global economy could be heading for a repeat of the
2008 financial crash have sent shockwaves through financial markets – prompting
a rush to safe havens by investors.
Oil prices fell to a fresh 12-year low on Wednesday
and metal prices tumbled in response to warnings that China’s slowdown could
derail the global recovery at a time when central banks, which came to the
rescue in the credit crunch, have only limited firepower.
The FTSE 100 was gripped by panic selling,
especially of mining and oil companies that have been hit hard by the global
slowdown in manufacturing and trade. Earlier this week, China recorded the
slowest rate of economic growth for 25 years. In New York, shares on the Dow
Jones Industrial Average closed 249 points down (1.56%), while Brent crude
dropped to $27.78 a barrel – down by about 70% from its summer 2014 level of
$115 a barrel.
Stock markets in Russia, Brazil and Saudi Arabia
also dived as concerns mounted that countries already badly hit by the fall in
oil prices could be forced to dip further into reserves to prevent an economic
crisis. Global equities have had their worst start to a year on record.
William White, a former chief economist of the Bank
for International Settlements (BIS), the central bankers club, warned that
central bankers had “used up all their ammunition. The situation is worse than
it was in 2007. Our macroeconomic ammunition to fight downturns is essentially
all used up. Debts have continued to build up over the last eight years and
they have reached such levels in every part of the world that they have become
a potent cause for mischief”.
2 UK car manufacturing at 10-year high (BBC) Car
manufacturing in the UK has hit a 10-year high, with more vehicles exported
than ever before, according to the industry's trade group. The Society of Motor
Manufacturers and Traders said almost 1.6 million cars were built in 2015, up
3.9% on 2014.
Nearly four out of five cars were exported, up by
2.7% on 2014, despite falls in sales to China and Russia. But this was offset
by economic recovery in Europe, where demand for UK-built cars increased by 11%
in 2015.
SMMT chief executive Mike Hawes: "Despite export
challenges in some key markets such as Russia and China, foreign demand for
British-built cars has been strong, reaching record export levels in the past
year. Europe is our biggest trading partner and the UK's membership of the
European Union is vital for the automotive sector in order to secure future
growth and jobs."
3 China’s responsibility is no more just domestic (Mohamed
A. El-Erian in Gulf News) For years, China’s government sought to broaden
equity ownership, thereby providing more Chinese citizens with a stake in a
successful transition to a market economy. But, like the US’ effort to expand
home ownership in the years preceding the 2008 crisis, Chinese policies went
too far, creating a financially unsustainable situation that implied the
possibility of major price declines and dislocations.
As a result, the adjustment challenge has grown
dramatically. With Chinese companies no longer able to sell a rapidly
increasing volume of products abroad and support further expansion of
productive capacity, the economy has lost some important growth, employment,
and wage engines. The resulting economic slowdown has undermined the
government’s capacity to maintain inflated asset prices and avoid pockets of
credit distress.
In an effort to limit the detrimental impact of all
this on citizens’ wellbeing, Chinese officials have been guiding the currency
lower. A surprise devaluation last August has been followed by a number of
lower daily fixes in the onshore exchange rate, all intended to make Chinese
goods more attractive abroad, while accelerating import substitution at home.
But in pursuing its domestic objectives, China risks
inadvertently amplifying global financial instability. Specifically, markets
worry that renminbi devaluation could “steal” growth from other countries,
including those that have far more foreign debt and far less robust financial
cushions than China, which maintains ample international reserves.
This concern speaks to the even more challenging
balancing act that China must perform as it seeks to play the role in global
economic governance that its economic weight warrants. After all, China is now
the world’s second-largest economy (and, by some non-market measures, the
largest).
There will come a time when China’s domestic and
international responsibilities will again be relatively well aligned. But that
time is not now; and, given the country’s tricky ongoing structural transition,
it probably will not come anytime soon.
In the meantime, it seems likely that China will
continue to feel compelled to place its domestic obligations first, but in a
nuanced way aimed at avoiding large disruptive tipping points for the global
economy. Whether that will be enough to avoid disorderly outcomes, however, is
not totally assured.
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