Tag Archives: Emerging markets

Cisco’s Gloomy Forecast Shows NSA Effect Is Starting To Hit Home

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Cisco(s csco) has shocked financial analysts — who were expecting healthy growth — by predicting a 10 percent sales slump during the current quarter. There are a variety of reasons for this, but the standout one is the backlash in emerging markets against the activities of the U.S. signals intelligence agency, the NSA.

This shouldn’t have come as a surprise. Communications infrastructure is absolutely central to the surveillance scandal, and that’s Cisco’s business. An American networking firm was never going to come out of this mess well – and the whole infrastructure business is in a state of upheaval anyway — but the figures are sobering nonetheless.

In the last quarter, on which Cisco was reporting on Wednesday, the company saw a sudden 21 percent revenue drop in its top 5 emerging markets: 25 percent down in Brazil, 18 percent down in India, Mexico and China, and 30 percent down…

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IMF Update: The Recovery Continues (We Hope…)

The International Monetary Fund (IMF) is out with its first update on the global economy this year. Reading through the report, it seems like the IMF is trying to convince, primary themselves, that an economic recovery is just around the corner. The cold facts, however, don’t give any conclusive answer – the charts looks more like a flat-line on an EKG monitor.

“Financial stresses, however, are expected to remain elevated in the periphery of the euro area, where market participants are still concerned about sovereign and banking risk, the political feasibility of current and envisioned austerity measures, and the lack of a comprehensive solution.”

International Monetary Fund


Well, I don’t think anyone can blame the IMF for being uncertain about the world economic outlook. Most experts, including the US Federal Reserve, is. In its latest update, the IMF points to the fact that it is substantial differences in the economic conditions from region to region, and from nation to nation. The main message, however, seems to that the downside risks has increased since the last report in October 2010.

The report “World Economic Outlook Update – January 2011” was released at 3 AM (EDT) this morning.

At the moment it’s being dissected by economist and analysts, hunting for clues to what may be in store for them in the months to come.

I don’t think they will find much, thou. Looking at the projected development of the global economy in 2011 and 2012, it shows an almost totally flat line.

Here’s the report’s executive summary:

“The two-speed recovery continues. In advanced economies, activity has moderated less than expected, but growth remains subdued, unemployment is still high, and renewed stresses in the euro area periphery are contributing to downside risks. In many emerging economies, activity remains buoyant, inflation pressures are emerging, and there are now some signs of overheating, driven in part by strong capital inflows. Most developing countries, particularly in sub-Saharan Africa, are also growing strongly. Global output is projected to expand by 4½ percent in 2011 (Table 1 and Figure 1), an upward revision of about ¼ percentage point relative to the October 2010 World Economic Outlook (WEO). This reflects stronger-than-expected activity in the second half of 2010 as well as new policy initiatives in the United States that will boost activity this year. But downside risks to the recovery remain elevated. The most urgent requirements for robust recovery are comprehensive and rapid actions to overcome sovereign and financial troubles in the euro area and policies to redress fiscal imbalances and to repair and reform financial systems in advanced economies more generally. These need to be complemented with policies that keep overheating pressures in check and facilitate external re-balancing in key emerging economies.”

Now, let’s see:

  • “comprehensive and rapid actions”
  • “policies to redress fiscal imbalances”
  • “reform financial systems”
  • “keep overheating pressures in check”
  • “facilitate external re-balancing in key emerging economies”

I’m afraid the IMF is severely overestimating the European governments ability come up with, and agree on, common solutions.

And these recent economic indicators seems to be pointing in the wrong direction.

So, we better have a closer look at the IMF’s alternative scenario, which is pretty much the same as decried in their last report – WEO October 2010.

“The scenario—which is broadly similar to the one presented in the July 2010 WEO Update— assumes that a large shock followed by insufficiently rapid and strong policy action results in significant losses on securities and credit in the euro area periphery. This causes capital ratios to fall substantially in several countries, both in the periphery and the core.”

“Under such a scenario, European banks tighten lending conditions by a similar magnitude as during the collapse of Lehman Brothers in 2008. As a result, euro area growth is reduced by about 2½ percentage points relative to the baseline. Assuming that financial spillovers to the rest of the world are limited – with the increase in bank-lending tightness in the United States about half that in Europe – global growth in 2011 is lower by about 1 percentage point than in the baseline. But if financial contagion to the rest of the world is more severe – resulting in a spike in generalized risk aversion, a drying up of liquidity, and sharp falls in equity markets – the impact on global growth would be substantially larger, amplified by balance sheet weaknesses in other major advanced economies.”

Another Lehman-shock, hu?

Personally, I would not be surprised. Even the IMF has figured out that the financial sector is still in deep trouble, in spite of what the big-bank CEO’s might say.

“The risk of financial turmoil spreading from the periphery to the core of Europe is a by-product of continuing weakness among financial institutions in many of the region’s advanced economies, and a lack of transparency about their exposures. As a result, financial institutions and sovereigns are closely linked, with spillovers between the two sectors occurring in both directions. Although the periphery accounts for only a small portion of the euro area’s overall output and trade, substantial financial linkages with countries in the core, as well as financial spillovers through higher risk aversion and lower equity prices, could generate a slowdown in growth and demand that would hinder the global recovery. In particular, continued market pressures could result in serious funding pressures for major banks and sovereigns, increasing the likelihood that problems spill over to core countries. Figure 4 presents an alternative scenario that illustrates how larger spillovers can subtract from growth.”

Jepp, we can see that….the banks will – under IMF’s alternative scenario – completely stop lending money.

Hey, Ben! May we have another QE, please?

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Here’s a copy of the report.

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Global Economic Growth Slows For 5th Month Running

The global economic recovery continues to lose momentum, according to Markit’s September Worldwide PMI Surveys. The global expansion has slowed down for five months in a row, ans is set to slow further in the final quarter of the year, meaning the probability of the global economy already being in a double-dip recession has risen significantlt – at least for the most vulnerable countries, the report shows.

“Financial market trends reflected the fact that governments are increasingly looking for ways to sustain economic recoveries.”

Chris Williamson


Markit’s PMI data indicated that global growth continued to cool in September. Global trade flows have dropped well below volumes seen earlier in the year and service sector growth has clearly failed to compensate in most developed economies. Worldwide employment trends meanwhile deteriorated close to stagnation.

“With many economies, especially in the developed world, saddled with persistent high unemployment and export demand weakening, the risks of a further slowdown in coming months have increased, Chris Williamson, director and chief economist at Markit says.

As a result, financial market trends reflected the fact that governments are increasingly looking for ways to sustain economic recoveries.

The report is put together of a series of analysis:

* Worldwide economic growth slows for fifth month running
The global economic recovery continues to lose momentum, according to September’s worldwide PMI™ surveys. What’s more, although the surveys provided some glimmers of hope that the recovery will not completely lose traction, the overwhelming view from the forward-looking data is that the global expansion looks set to slow further in the final quarter of the year, meaning the risk of double-dip recession has risen for the most vulnerable countries.

* Global trade flows grow at weakest rate for over a year
Worldwide export growth hit a 14-month low in September. Asia ex-Japan, which has led the global cycle, points to further slowing in trade flows in coming months, with exports from bellwethers Taiwan and South Korea falling sharply. Signs of some stabilisation are becoming evident, but the downshift in trade volumes since earlier in the year is likely to add to woes in countries tackling budget deficits. UK exports, for example, fell for the first time in over a year.

* Weak labour markets pose increased risks for economic recovery
The recovery continued to be characterised by disappointing job creation, which slowed to near-stagnation in September. Employment has even begun to fall again in some countries, and fell worldwide in the service sector. High unemployment looks set to subdue growth of domestic demand in developed economies in particular. This is a concern given the simultaneous deterioration in the global trade cycle.

* China’s manufacturing sector revives further in September, but faster growth brings surge in price pressures
The HSBC China Manufacturing PMI™, compiled by Markit, rose for the second month running, adding to signs that growth in the world’s second-largest economy is picking up again following a slowdown in the first half of the year. However, the survey also found price pressures to have risen sharply, fuelling worries that the authorities may seek to cool inflationary pressures. State-owned firms reported that selling price inflation had shown the largest jump since the survey began in 2004.

* Emerging market growth loses momentum in Q3
Despite the upturn in the manufacturing PMI for China, the HSBC Emerging Markets Index (EMI), compiled by Markit, showed that the emerging market economic recovery slowed for the second successive quarter. The latest increase in output was the weakest since Q2 2009, when emerging markets recovered from a two-quarter recession, and also fell below the average seen in the three years prior to the financial crisis.

* Euro zone recovery slows as renewed contraction is evident outside of French-German core
The growth trend is less clear cut in the Eurozone. Some resilience is still evident in France and Germany, but an increasing number of peripheral countries (including Greece, Spain and Ireland) appear to be sliding back into recession. Whether the strength of the core nations will be sufficient to sustain growth for the region as a whole remains unclear.

Markit’s Eurozone Retail PMI added to evidence of slower growth, with retail sales falling in the single currency area for second month running in September.

* UK growth slowed sharply in Q3 and outlook darkens
Economic growth slowed sharply in Q3, down to perhaps 0.4%-0.5% compared to the 1.2% surge seen in Q2, according to the PMIs. Signs of a return to payroll- and cost-cutting by private sector companies means even weaker growth is anticipated for Q4. PMI data relating to investment goods orders, for example, suggest that – after a much-lauded initial strong recovery earlier in the year – investment spending growth has already begun to wane.

*Japan’s woes intensify as manufacturing PMI signals renewed contraction
The Bank of Japan announced new stimulus measures as its economy took a further downward lurch in September. The latest PMIs showed the country’s service sector remaining in recession and the Manufacturing PMI showing the first deterioration in business conditions for 15 months. Job losses accelerated as firms grew worried about the outlook.

* PMIs signal looser monetary policy
Calls for renewed economic stimulus in the US and UK are supported by Markit’s PMI survey data, which show business conditions have turned down sharply since the spring. The Markit Eurozone PMI is meanwhile moving closer towards levels which in the past would have triggered a rate cut by the European Central Bank. With inflation below target, the ECB’s insistence that current policy is ‘appropriate’ is starting to look questionable.

Here’s a copy of the full report.

A free chart-based PowerPoint overview of Markit’s latest economic indicators is available for download.

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