Friday, September 23, 2016

Eurozone growth at 20-month low; Helicopter money is back in the air; UPS tests drones for package delivery

1 Eurozone growth at 20-month low (Gulf News) Eurozone economic growth has slowed to its weakest pace since January 2015, a closely watched survey has shown. Data monitoring company IHS Markit said its September report was “disappointing,” with the underlying performance sluggish and the authorities needing to do more to bolster activity.

IHS Markit said its preliminary September Composite Purchasing Managers Index (PMI) for the Eurozone fell to 52.6 points from 52.9 points in August. The PMI measures companies’ readiness to spend on their business and so gives a good idea of how the underlying economy is performing. Any reading above 50 points indicates the economy is expanding.

Senior IHS Markit Economist Rob Dobson said the report showed the “Eurozone economy ended the third quarter on a disappointing note.” Underlying growth was sluggish at about 0.3 per cent for the quarter, Dobson said, and “it remains clear that the economic upturn is still fragile and failing to achieve any real traction.”

The Eurozone economy has been bumping along for years in a subdued recovery from the 2008 global crash and ensuing debt crisis. Governments adopted tough austerity policies to ease debt but that dampened growth, prompting the European Central Bank to step into the breach with massive stimulus programmes. The results so far have been disappointing, with the ECB under pressure to do more.

2 Helicopter money is back in the air (Robert Skidelsky in The Guardian) Fiscal policy is edging back into fashion, after years, if not decades, in purdah. The reason is simple: the incomplete recovery from the global crash of 2008.

Europe is the worst off in this regard: its GDP has hardly grown in the last four years, and GDP per capita is still less than it was in 2007. Moreover, growth forecasts are gloomy. Fiscal policy has been effectively disabled since 2010, as the slump saddled governments with unprecedented postwar deficits and steeply rising debt-to-GDP ratios. Austerity became the only game in town.

This left monetary policy the only available stimulus tool. The Bank of England and US Federal Reserve injected huge amounts of cash into their economies through quantitative easing (QE) – massive purchases of long-term government and corporate securities. In 2015, the ECB also started an asset-buying programme.

QE has not been a magic bullet. While it helped stop the slide into another Great Depression, successive injections of money have yielded diminishing returns. Moreover, QE has undesirable distributional consequences, because it gives money to those who already have it, and whose current spending is little influenced by having more.

The logic of current economic conditions implies that governments should be taking advantage of ultra-low interest rates to invest in infrastructure projects, which would both stimulate demand and improve the structure of the economy. The problem is the climate of expectations. As the Oxford economist John Muellbauer says, treasuries and central banks have been “hammering into the consciousness of the private sector the importance of reducing gross government debt relative to GDP”.

Helicopter money comes in two forms, which could (and should) be dropped together. The first is to put purchasing power directly into the hands of consumers – for example, by issuing each voter or citizen with smart cards worth $1,000 each.

Alternatively, helicopter money could be used to finance infrastructure spending. The advantage of such “monetary financing” is that such spending, while adding to the deficit and leading to a permanent increase in the money supply, would not increase the national debt, because the government would “owe” the money only to its own banker. This would eliminate the offsetting negative expectation of higher taxes. Like it or not, unconventional fiscal policy could well be the next game in town.

3 UPS tests drones for package delivery (San Francisco Chronicle) One of the world's largest package delivery companies is stepping up efforts to integrate drones into its system. UPS has partnered with robot-maker CyPhy Works to test the use of drones to make commercial deliveries to remote or difficult-to-access locations.

The companies began testing the drones when they launched one from the seaside town of Marblehead. The drone flew on a programmed route for 3 miles over the Atlantic Ocean to deliver an inhaler at Children's Island. "I thought it was fantastic," said John Dodero, UPS vice president for industrial engineering.

CyPhy Works founder Helen Greiner, who previously co-founded robot-maker iRobot, said the drone tests with UPS allow her company to gather engineering and cost information and then work with UPS to look at where drones can add the most value to UPS' extensive network.

Still, the robot-maker doesn't see drones replacing delivery trucks, bikes, buggies or gondolas anytime soon. "Drones aren't going to take the place of all delivery, but there are places where you have an emergency situation where the infrastructure is down, you want or need the package quickly — these are the areas where drones will be the best way to get a package to a location," Greiner said.

It's not all clear skies for drones, though. Newly revised federal aviation regulations don't permit commercial drones to fly over people not involved in their operations and require them to remain within line of sight of their operators at all times, effectively rendering commercial deliveries impossible.

But those restrictions aren't keeping drone-makers and their partners from racing to develop technology suitable for commercial deliveries while they work with regulators to tweak existing rules. Wal-Mart is testing drones it says will help it manage its warehouse inventory more efficiently, and is testing them for home delivery.

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