Sunday, July 3, 2016
Saudi GDP growth slows; Yen's surge may wipe out three years of stimulus; Anarchic global politics
1 Saudi GDP growth slows (Khaleej Times) Saudi Arabia's economy expanded at its slowest rate in three years during the first quarter of 2016 as low oil prices forced the government to cut spending and raise costs for industry, official data showed.
Some analysts said the data pointed to a risk of growth in the world's top oil exporter slowing to near zero this year, which would be its worst performance since the global financial crisis of 2009.
Gross domestic product, adjusted for inflation, grew 1.5 per cent from a year earlier between January and March, down from a revised growth rate of 1.8 per cent in the fourth quarter of 2015, the state statistics office said. It was the slowest growth since 0.3 per cent in the first quarter of 2013.
The oil sector expanded 5.1 per cent in the first quarter of this year as the world's biggest oil exporter increased its production of crude and exported more refined products. But the non-oil sector shrank 0.7 per cent, its worst performance in at least five years.
If the economy slows excessively, the government still has the option of spending more to stimulate growth; the central bank holds $573 billion of net foreign assets, and Riyadh has begun borrowing abroad this year to finance some expenditure.
But if it eases up on its austerity programme too much it may increase pressure on the Saudi riyal's peg against the US dollar, fuelling concern among some foreign investors about the long-term sustainability of its economy.
2 Yen’s surge may wipe out three years of stimulus (Straits Times) A dash for the relative safety of Japanese assets by domestic and foreign investors alike spurred the yen to a 17 per cent gain in 2016, its best first half of a year since 1995. The currency strengthened as far as 99.02 per US dollar last month for the first time since 2013, leaving it as the year's second best-performing major currency.
That's a concern for Japan's policy makers because it threatens to wipe out the effects of more than three years of central-bank stimulus, which a year ago sent the currency to its weakest level since 2002. Bank of Japan Governor Haruhiko Kuroda remains on the wrong side of his 2 percent inflation goal as a key measure of consumer prices fell for a third month in May.
Fragile global growth and a Federal Reserve that's now seems unlikely to raise rates until 2018 are also supporting Japan's currency. While speculation has mounted that the BOJ will expand stimulus at its policy meeting this month, analysts see limited scope for this to push down the yen. The adoption of a negative deposit rate this year failed to curb its gains - and may have contributed to its strength.
3 Anarchic global politics (Andrew Wainer in The Guardian) According to the realist school of political science, the global political system is essentially anarchic; there is no ultimate global legal authority. “Realists” see a world governed by the law of the jungle.
We have the United Nations, but it has limited enforcement power. The US sometimes assumes the role of global cop, but enforces global norms selectively. For those who grew up in the western middle-class, the world can seem a well-ordered environment where the rule-of-law prevails. But revelations from the Panama Papers pulled back the curtain on what can be a lawless international tax system, and one in which some western elites are deeply implicated.
The lack of a cohesive, comprehensive international tax system is an excellent example of the essential lawlessness of the global system. And illegality is only part of the problem. As President Obama said recently: “The problem is that a lot of this stuff is legal, not illegal.” The lack of a coherent global tax infrastructure allows some global elites to avoid paying taxes, without breaking the law. When there are Panama, Luxembourg, and Nevada-size holes in international tax law, there’s no need to act criminally.
The International Consortium of Investigative Journalists (ICIJ) state that Mossack Fonseca, the Panama-based firm at the center of the scandal, is hardly scorned by respectable society. ICIJ points out that “more than 500 banks, their subsidiaries and branches have worked with Mossack Fonseca since the 1970s to help clients manage offshore companies. UBS set up more than 1,100 offshore companies through Mossack Fonseca. HSBC and its affiliates created more than 2,300.”
While most of us get on with the dull but necessary job of filling out forms or visiting accountants during tax season, prime ministers, princes, and presidents in rich and poor nations fortify their off-shore companies and shift money to their preferred tax haven.
The good news is that, in spite of the volatile international context, ideas and campaigns on this subject are beginning to converge at last. Save the Children is part of this convergence committed to addressing IFFs. The recently launched Every Last Child campaign includes fair finance as a central component in reaching the world’s excluded and vulnerable children.
For its part, Save the Children is committed to making finance fairer so that the world’s vulnerable children are able to survive, thrive, and enjoy secure lives. The Panama Papers revealed that the weakness of the global tax infrastructure, but the outrage it sparked could lead global tax policy to be less like the “Wild West” and more like tax season.