1 Global economic malaise as the new normal (Nouriel
Roubini in The Guardian) The International Monetary Fund and others have
recently revised down their forecasts for global growth – yet again. Little
wonder: the world economy has few bright spots – and even those are dimming
rapidly.
Among advanced economies, the US has experienced two
quarters of growth averaging 1%. Further monetary easing has boosted a cyclical
recovery in the eurozone, though potential growth in most countries remains
well below 1%. In Japan, so-called Abenomics is running out of steam.
In the UK, uncertainty surrounding the June
referendum on continued EU membership is leading firms to keep hiring and
capital spending on hold. And other advanced economies – such as Canada,
Australia and Norway – face headwinds from low commodity prices.
Things are not much better in most emerging
economies. Among the five Brics countries, two (Brazil and Russia) are in
recession, one (South Africa) is barely growing, another (China) is
experiencing a sharp structural slowdown, and India is doing well only because
– in the words of its central bank governor, Raghuram Rajan – in the kingdom of
the blind, the one-eyed man is king.
Many other emerging markets have slowed since 2013
as well, owing to weak external conditions, economic fragility (stemming from
loose monetary, fiscal, and credit policies in the good years), and, often, a
move away from market-oriented reforms and toward variants of state capitalism.
The rise in income and wealth inequality exacerbates
the global saving glut, which is the counterpart of the global investment
slump. As income is redistributed from labour to capital, it flows from those
who have a higher marginal propensity to spend (low- and middle-income
households) to those who have a higher marginal propensity to save (high-income
households and corporations).
There are no easy political solutions to the
quandary. Unsustainably high debt should be reduced in a rapid and orderly
fashion to avoid a long and protracted (often a decade or longer) de-leveraging
process. But orderly debt-reduction mechanisms are not available for sovereign
countries and are difficult to implement within countries for households, firms,
and financial institutions.
Thus, for the time being, we are likely to remain in
what the IMF calls the “new mediocre”, Larry Summers calls “secular
stagnation”, and the Chinese call the “new normal”, But make no mistake: there
is nothing normal or healthy about economic performance that is increasing
inequality and, in many countries, leading to a populist backlash against
trade, globalisation, migration, technological innovation, and market-oriented
policies.
2 Saudi Binladin Group sacks 50,000, will pay
salaries (San Francisco Chronicle) Saudi Arabia's labor minister said some
employees of the Saudi Binladin Group will receive their salaries this month
and others soon thereafter.
Thousands of employees of the construction giant
have been holding rare protests over not being paid their salaries for up to
six months. Employees set fire to company buses Saturday to also protest a
large round of reported layoffs.
Construction firms in the Gulf have suffered from
delayed government spending on major projects. Labor Minister Mufrej al-Haqbani
said workers are protected under Saudi labor law and would receive overdue
salaries even if they are fired and issued exit visas.
Saudi newspapers have reported that the Saudi
Binladin Group terminated employment for at least 50,000 foreign workers and
was considering firing 12,000 Saudis. The group is one of the world's largest
construction firms. Founded in 1931 and headquartered in Jiddah, the firm has
been behind some of Saudi Arabia's most important projects, including roads,
tunnels, airports, universities and hotels.
The Binladin family has been close to Saudi Arabia's
ruling family for decades. Al-Qaida's late leader Osama bin Laden was a
renegade son of the construction firm's founder, Mohammed bin Laden, and was
disowned by the family in the 1990s.
3 Australia cuts rates to record low of 1.75%
(Straits Times) Australia's central bank has cut interest rates to an all-time
low of 1.75 per cent, the first easing in a year as it seeks to restrain a
rising currency and stave off the creeping curse of deflation.
The Reserve Bank of Australia's quarter-point cut
sent the local dollar down more than one US cent to US$0.7567 as markets
wagered a further move to 1.5 per cent was now likely. Australia is just the
latest in the Asian region to feel the chill of deflation as too many goods
chase too little demand. Singapore surprised many by easing last month, after
India, Taiwan, Indonesia, China, Japan and New Zealand.
Eight central banks globally have embarked on
entirely new stimulus cycles so far this year while the Bank of Japan and
European Central Bank have embraced sub-zero rates and expanded their
asset-buying campaigns. All this easing abroad has, in turn, boosted the
Australian dollar further than the RBA desired, hurting exports and tourism
while pushing down import prices and, hence, inflation.
While Australia is still struggling with the
unwinding of a massive mining boom, economic activity has been generally
favourable. Growth was a surprisingly brisk 3 per cent last year and
unemployment recently fell to a 30-month low of 5.7 per cent. The RBA had also
been reluctant to risk a debt-fuelled bubble in the housing market, though
tightened rules on investment lending have led to prices cooling in recent
months.
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