Sunday, February 28, 2016

Setback for hardliners in Iran poll; Finland as the new 'sick man' of Europe; More downside pressure for oil

1 Setback for hardliners in Iran poll (Saeed Kamali Dehghan & Ian Black in The Guardian) Hardliners in Iran have been dealt a humiliating blow after reformist-backed candidates in Friday’s hard-fought elections appeared on course for a sweeping victory in Tehran, with a combination of moderates and independents sympathetic to President Hassan Rouhani leading in provinces.

A coalition of candidates supported by the reformists, dubbed “the list of hope”, is likely to take all of the capital’s 30 parliamentary seats, according to the latest tally released by the interior ministry, in surprising results seen as a strong vote of confidence in Rouhani’s moderate agenda. Mohammad Reza Aref, a committed reformist who has a degree from Stanford University in the US, is at the top of the list.

Preliminary results for the Assembly of Experts, which is responsible for appointing the next supreme leader, showed Ayatollah Akbar Hashemi Rafsanjani, a key Rouhani ally, leading the race. Elections to the assembly are usually a lacklustre event but have attracted huge attention this time because of the age of the current leader, 76-year-old Ayatollah Ali Khamenei.

Khamenei and Rafsanjani, a prominent pragmatist who was not allowed to run for president in 2013, have been at odds in recent years. Results may not be finalised until Tuesday but if they tally with the initial figures there will be a palpable change in the Iranian political landscape with moderates dominating the scene and hardliners being pushed back to the fringes.

As many as 20 women are expected to win parliamentary seats, a record for Iran. Among them is the reformist candidate Parvaneh Salahshori, who said in a recent foreign media interview that women should have a choice to wear the hijab. The issue is a taboo subject in the Islamic Republic.

The reformists’ victory is a credit to Mohammad Khatami, the former president seen as the ultimate leader of the country’s reformist movement. Khatami has faced huge restrictions on his movement and activities in recent years but is leading from behind the scenes. The Iranian media is banned from mentioning his name or publishing his photograph. Khatami released a video online early in the campaign period urging political activists to unite behind “the list of hope”.

2 Finland as the new ‘sick man’ of Europe (Andrew Walker on BBC) Is Finland now officially "the sick man of Europe"? That dismal description comes from the country's own Finance Minister, Alexander Stubb.

The broadest measure of that, GDP, is still about 7% below the high it reached at the end of 2007, just before the global financial crisis. Most, though not all, eurozone countries have got back to those earlier levels and a bit above. Even one country that was bailed out, Ireland, is among those relatively strong performers.

Finland's disappointing performance has also shown up in the unemployment figures, which rose from 6.2% of the workforce in early 2008 to 9.5% in the most recent figures. So who is to blame? The slightly flippant answer is: the late Steve Jobs, founder of Apple. But there is a serious point behind that - well two actually, although it's not the whole story of Finland's economic troubles.

In 2014 Mr Stubb, who was the prime minister at the time, told a newspaper that: "Steve Jobs took our jobs." What he meant was that Apple products had created serious challenges for two very important Finnish industries. One was forestry - in particular, paper. The other Apple-related casualty is Nokia, which incidentally began life as a paper producer in the 19th Century.

It's just one company, but a huge one that overshadowed a small economy. According to a report: "Its direct contribution accounts for 1/3 of the GDP decline and its shedding of employment for 1/5 of the reduction of total employment between 2008 and 2014."

So there you have it. Finland's economic troubles are due to Steve Jobs and the business he created. Well, no. There have been a few other things going on too. The collapse of the Soviet Union in the early 1990s hit Finnish exports. Russia's trade retaliation against the EU has also hit Finland, as it banned some EU imports.

Still, it's worth recalling that, as the OECD said in a recent assessment, "Finland enjoys a high level of income and well-being" and despite the rise in unemployment "social safety nets keep income inequality low". It's just that if Finland had adjusted better to all the shocks, incomes would probably be quite a bit higher.

3 More downside pressure for oil (Camille Accad in Khaleej Times) The price of Brent crude fell to the lowest monthly average in a decade in January, at $30.8 per barrel. Brent price averaged $52 last year and $99 in 2014. Oil supply outpaced demand in the last two years, but the market is expecting a tighter market in 2016. The consensus view is that oil prices will gradually bottom out from January's low, remaining below last year's level.

US Energy Information Administration forecasts Brent price to average $37.4 per barrel in 2016, reaching $43 by December. Market views are roughly aligned, as Brent futures contracts averaged $35 per barrel for 2016 as of last week. The market may be underestimating future supply and overestimating future demand, which would result in oil prices falling below EIA's forecast for a third consecutive year.

The IMF projects a recovery in economic growth, from 3.1 per cent year on year in 2015 to 3.4 per cent year on year this year. In our view, global demand will most likely decelerate, to around 2.8 per cent. The IMF expects US growth to rise slightly this year, but recent data suggest otherwise. Investment and consumption are sluggish, the industrial sector is contracting and the labor and property markets are showing early signs of a slowdown.

The IMF expects the euro zone and Japan to accelerate too, but these economies show no signs of strength. Moreover, China, the world's largest oil importer, will continue on its deceleration path this year due to its structural rebalancing. EIA and I expect oil demand growth to decelerate slightly from 1.5 per cent year on year in 2015 to 1.3 per cent this year. In our view, these growth estimates are too high.

The recent removal of sanctions on Iran and the return of Iraq's energy industry following years of devastating conflicts is driving a reemergence in their output. Russia, Saudi Arabia and Venezuela, who are producing near record highs, are ready to cap production at current levels, but the deal depends on the participation of Iran and Iraq, which is unlikely to happen.

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