1 Japan manufacturing slows sharply (Straits Times) Growth
in Japan's manufacturing activity slowed sharply in February as new export orders
contracted at the fastest pace in three years, a worrying sign that overseas
demand is deteriorating rapidly as China's economy slows, a preliminary survey
showed on Monday.
The Markit/Nikkei Flash Japan Manufacturing
Purchasing Managers Index (PMI) fell to 50.2 in February on a seasonally
adjusted basis from a final 52.3 in January. But it remained above the 50
threshold that separates contraction from expansion for the 10th consecutive
month.
The sub-index for new export orders fell to a preliminary
47.9 from 53.1 in January, which would indicate the biggest contraction since
February 2013 if confirmed in final data. Exports in January tumbled by the
most since the global financial crisis, in a clear indication that financial
market turmoil and slowing emerging market economies have eroded demand abroad.
Under pressure from faltering global demand, total
new orders from customers at home and overseas also changed direction and
contracted, while job creation cooled to a five-month low. Companies cut
selling prices for the third month in a row, and more sharply than in January,
likely reflecting both falling commodity prices and sluggish demand.
Japan's economy contracted more than expected in the
fourth quarter due to weak household spending and exports. While analysts
expect a moderate recovery this year, stagnant wages, depressed consumer prices
and faltering global growth have raised fresh doubts about Prime Minister
Shinzo Abe's cocktail of stimulus policies aimed at re-energising the economy
and quashing years of deflation.
2 Plunging oil forms alliance of enemies (Ian Black
& Terry Macalister in The Guardian) The Iranian endorsement of a plan by
its arch regional rival, Saudi Arabia, to stabilise global oil prices could be
seen as a diplomatic coup for Riyadh.
However, Tehran’s support for a production freeze
has not been driven by a new desire for political rapprochement as much as
acceptance of a greater enemy: collapsed commodity prices. The markets are
flooded in crude at a time when demand is faltering due to the slowdown in
expected growth from key importers such as China. Desperate times require
desperate measures.
Iran and Saudi Arabia are rival oil producers but
also bitter adversaries in regional politics. Short of a shooting war, tensions
could hardly get any worse at this particular moment. The Saudis severed
diplomatic relations with Iran in January following a mob attack on their
embassy in Tehran – a protest at the execution of a leading Shia cleric, Nimr
al-Nimr, in Saudi Arabia’s eastern province.
Despite this unpromising geopolitical backdrop, last
week there were positive moves towards an oil production deal. The price of
Brent blend crude soared 7.5% on Wednesday after Bijan Zanganeh, Iran’s oil
minister, came out of a two-hour meeting with some of his Opec counterparts to
approve a deal hatched by Saudi with non-Opec member Russia the day before.
Iran, which has the fourth-biggest oil reserves in
the world, had previously trumpeted its desire to vastly expand its output
following the lifting in January of western sanctions imposed over its nuclear
programme. It still remains unclear exactly what will happen now: the Saudis
and Russians said they would hold their output at January levels, but only if
other key players – including Iran – joined in.
However, the wider political and religious rivalry
between Saudi Arabia and Iran is unlikely to go away any time soon. Saudi
control of Mecca and the hajj pilgrimage gives it legitimacy in the Sunni
Muslim world, while Iran is a beacon for Shias everywhere. Arabs and Persians
have long memories of prejudice, though in modern times their animosity began
with the 1979 revolution and grew after the Iraq war in 2003.
3 How ‘black money’ saved India economy (Justin
Rowlatt on BBC) There is no question that India has the most positive economic
story on the planet. Buoyed by increased manufacturing output, India's economy
grew by 7.4% in the third quarter of 2015, the fastest growth of any major
country in the world. But there is a dark side to India's success, says one of
the country's most eminent economists.
Kaushik Basu, the chief economist of the World Bank,
says the nation's tradition of petty corruption helped India avoid the worst of
the banking crisis that has crippled most other large economies in the last few
years. It is an extraordinary claim for such an influential figure to make but,
as he says in his new book, An Economist in the Real World, "economics is
not a moral subject".
His argument is that the pervasive use of
"black money" - illegal cash, hidden from the tax authorities -
created a bulwark against a crisis in the banking sector. Let me explain. Back
in the last years of the noughties India's economy was looking just as frothy
as the rest of the world. The difference in India is that this "irrational
exuberance" did not end in disaster.
There was no subprime loans crisis to precipitate a
wider crisis throughout the banking sector. So the big question is why not. There
were some shrewd precautionary moves by India's central bank, concedes Mr Basu,
but he says one important answer is all that dirty money.
In most of the world the price you pay for a
property is pretty much the price listed in the window of the local realtor or
estate agent. Not in India. Here a significant part of almost all house
purchases are made in cash. And because the highest denomination note in India
is 1,000 rupees, ($15; £10) it isn't unusual for a buyer to turn up with -
literally - a suitcase full of used notes. The cash payment is what Indians
refer to as "black money".
It means the seller can avoid a hefty capital gains
tax bill. Buyers benefit too because the lower the declared value of the
property, the lower the property tax they will be obliged to pay. What it also
means is that Indians tend to have much smaller mortgages compared to the real
value of their properties than elsewhere in the world.
That's why when the crash came, the balance sheets
of global big banks collapsed along with property prices. But when prices fell
in India - and they did fall in 2008 and 2009 - most bank loans were still
comfortably within the value of the property. That's why India managed to avoid
the subprime crisis that did so much damage elsewhere.
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