1 Emerging markets boom
may be over (Nouriel Roubini in The Guardian) During the last few years, a lot
of hype has been heaped on the Brics (Brazil Russia, India, China, and South
Africa). With their large populations and rapid growth, these countries, so the
argument goes, will soon become some of the largest economies in the world –
and, in the case of China, the largest of all by as early as 2020. But the
Brics, as well as many other emerging-market economies – have recently
experienced a sharp economic slowdown. So, is the honeymoon over?
Brazil's
GDP grew by only 1% last year, and may not grow by more than 2% this year.
Russia's economy may grow by barely 2% this year, with potential growth also at
around 3%, despite oil prices being around $100 a barrel. India had a couple of
years of strong growth recently (11.2% in 2010 and 7.7% in 2011) but slowed to
4% in 2012. China's economy grew by 10% a year for the last three decades, but
slowed to 7.8% last year and risks a hard landing. And South Africa grew by
only 2.5% last year and may not grow faster than 2% this year.
Many
other previously fast-growing emerging-market economies – for example, Turkey,
Argentina, Poland, Hungary, and many in Central and Eastern Europe – are
experiencing a similar slowdown. So, what is ailing the Brics and other
emerging markets?
First,
many of them thus tightened monetary policy in 2011, with consequences for
growth in 2012 that have carried over into this year. Second, the idea that
emerging-market economies could fully decouple from economic weakness in
advanced economies was far-fetched: recession in the eurozone, near-recession
in the UK and Japan in 2011-2012, and slow economic growth in the US were
always likely to affect emerging-market performance negatively. .
Third,
most Brics and a few other emerging markets have moved toward a variant of
state capitalism. This implies a slowdown in reforms that increase the private sector's
productivity and economic share, together with a greater economic role for
state-owned enterprises (and for state-owned banks in the allocation of credit
and savings), as well as resource nationalism, trade protectionism,
import-substitution industrialisation policies, and imposition of capital
controls.
Fourth,
the commodity super-cycle that helped Brazil, Russia, South Africa, and many other
commodity-exporting emerging markets may be over. The fifth, and most recent,
factor is the US Federal Reserve's signals that it might end its policy of
quantitative easing earlier than expected, and its hints of an eventual exit
from zero interest rates, both of which have caused turbulence in emerging
economies' financial markets.
Finally, while many
emerging-market economies tend to run current-account surpluses, a growing
number of them – including Turkey, South Africa, Brazil, and India – are
running deficits. And these deficits are now being financed in riskier ways:
more debt than equity; more short-term debt than long-term debt; more
foreign-currency debt than local-currency debt; and more financing from fickle
cross-border interbank flows.
2 India business
confidence drops (Will Davies in The Wall Street Journal) Indian companies became more pessimistic about the economy
in the April-June quarter, according to a survey by the New Delhi-based
Associated Chambers of Commerce and Industry in India, which called on the
government and the central bank to take action to boost confidence. The group
said 51% of respondents in its latest business confidence survey felt the
economic situation worsened in the quarter, while 30% said a fiscal stimulus
package would help build sentiment in the short-term.
The majority of the 200
business representatives surveyed from June 1 to July 25 said factors affecting
business performance included weak demand in India and overseas, poor
infrastructure, high cost of credit, rising prices of raw materials and wage
costs, Assocham said in a statement Sunday.
India’s economic growth
last fiscal year slowed to a decade-low of 5%. Investment in infrastructure
rose just 7.8%, about half the average annual rise since 1991. The government
says at least $1 trillion needs to be invested in new infrastructure over the
next five years. Foreign investment, meanwhile, tumbled to $25.3 billion from
$43.4 billion five years before.
3 Amazon adding 7,000 jobs (San Francisco Chronicle) Amazon
says it is adding 7,000 jobs in 13 states, beefing up staff at the warehouses
where it fills orders, and in its customer service division. The company
said it will add 5,000 full-time jobs at its US distribution centers, which
currently employ about 20,000 workers who pack and ship customer orders.
The
world's largest online retailer has been spending heavily on order fulfillment,
a strategy meant to help the business grow, but one that has also weighed on
profit margins. The company said last week that it lost money in the second
quarter, even as revenue increased.
The
company is also adding 2,000 jobs in customer service, including full-time,
part-time and seasonal. Amazon shares fell $5.91 to close at $306.10.
4 Britain’s Sangin mess
(Khaleej Times) In a rare
development, British soldiers are back in action in Afghanistan. The strange part is that they have been flown back to the
restive areas of Sangin to tackle insurgency. It is not known under what
mandate they have returned, and who sent in the requisition. Reports say that
local Afghan commanders requested foreign assistance in Sangin district, an
area British forces defended from the Taleban until 2010.
At
a time when the foreign forces stationed in Afghanistan are on the verge of
pulling back, and the withdrawal plan is supposed to be executed by the end of
next year, this new surge is baffling. Afghan President Hamid Karzai in a
detailed policy prescription, a couple of months ago, had said that coalition
troops would not be allowed to operate on Afghan territory, and solo drone
strikes conducted by Pentagon are an anti-thesis of understanding between Kabul
and its Western allies.
So
how come the return of British troops became a reality without the approval of
the president of the republic, and Britain studying at length as to what
necessitates its boys back in action? Secondly, it is strange that the Western
powers that had, of late, decided to broker a dialogue with the Taleban are so
wittingly ready to fight the militia and derail the new geopolitical
understanding. It is incumbent upon Kabul to make public the specific purpose
the British forces were called in, and what were the casualties. Karzai should
also make it clear as to what was the participatory role of the Afghan National
Army in the entire one-sided episode.
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