Date: November 13, 2018
A Strong U.S. Economy Will Boost Global Growth in 2019
Judging by recent headlines, the global economy is on a wild roller coaster that’s going mostly downhill. There are Brexit, trade wars, Italy’s fight with the European Union, renewed U.S. sanctions on Iran, a Chinese debt bomb, jittery stock markets, intermittent capital flight from developing nations, and more. The data tell a calmer and happier story. According to the International Monetary Fund, the global economy is on track to grow a healthy 3.7 percent in 2018. That’s exactly how fast it grew in 2017. The IMF’s forecast for 2019? Again, 3.7 percent. It’s a plateau, all right, but a high plateau—call it the Altiplano of economics. The contrast between the negative daily buzz and positive underlying conditions is sharpest in the U.S., where the expansion of the world’s largest economy has actually strengthened as it’s lengthened: Annualized growth rates in the two middle quarters of 2018 were 4.2 percent and 3.5 percent. In October alone, the economy generated 250,000 jobs. That kind of growth isn’t sustainable in a rich nation with a slow-growing workforce and lackluster productivity growth. Still, if the U.S. makes it past June without a recession, the uptrend will exceed 120 months. That would surpass the 1991-2001 expansion to become the longest since at least 1857, the beginning of records maintained by the National Bureau of Economic Research. So the outlook for 2019 is better than one might expect given the minicrises breaking out left and right. Strong growth in the U.S. isn’t only good for Americans; it’s good for workers in countries that produce goods and services for sale to the U.S. In fact, the U.S. is largely responsible for keeping global growth ticking along at an even pace despite the slowdown of many other major economies. On the other hand, the U.S. outperformance has downsides.
Greece May Free Its Banks From $47 Billion of Bad Debt
Greece’s central bank is working on a plan to help banks cut their bad debts in half, the latest effort to restore trust in the country’s financial system, two people with knowledge of the matter said. Under the proposal, Greek lenders would transfer about half of their deferred tax claims to a special purpose vehicle, which will then sell bonds and use the proceeds to buy some 42 billion euros ($47 billion) of bad loans from the lenders, according to the people, who asked not to be identified as the plan hasn’t been finalized yet. The Greek lenders’ tax claims currently account for most of their capital. As claims against the state, they were granted to offset losses suffered during the country’s debt restructuring. It’s unclear whether investors would have an appetite for the bonds backed by these claims. The FTSE/Athex banks index rose 6.1 percent at 2.45 p.m. in Athens, having climbed as much as 8 percent on the news, led by Eurobank Ergasias SA with a gain of up to 10 percent. The Bank of Greece’s plan differs from a proposal floated by the Hellenic Financial Stability Fund earlier this year, which envisaged creating a vehicle partly funded by hard cash chipped in by the state. The central bank has concerns that the HFSF’s proposal may have some drawbacks, while the money available would only suffice to unload some 15 billion euros of bad debt, much less than required. “It is an interesting proposal,” Eurobank Chief Executive Officer Fokion Karavias told reporters during an event the lender held in Thessaloniki on Tuesday. “It would be another weapon in our armory,” he added. Greek bank stocks have dropped by some 40 percent this year amid lingering doubts that they can deal with a mountain of bad debt lingering from the steepest recession in living memory. Adding to their woes, European supervisors have asked them to reduce their non-performing exposures by about 60 percent by the end of 2021, a target that may not be achieved without burning more capital than they currently hold.
China’s Housing Market Heading for ‘Year of Recession’, Says CICC
Bearish calls for China’s housing market, a key driver of the world’s second-largest economy, are multiplying as the government maintains home-purchase restrictions. CICC calls 2019 the “year of recession” for real estate, with sales to fall for the first time in five years. S&P said some developers could be dragged down in a sliding sector, calling their financing landscape “the most unfavorable in years.” The next data for 70 major cities will come on Thursday, after the government last month reported the first slowdown in property-price inflation in seven months. Officials are grappling with keeping housing affordable and reining in prices without imposing an excessive drag on the economy. “Home prices are seeing downward pressure in some cities, especially in tier-3/4 cities and suburban areas in tier-1/2 cities,” CICC analysts wrote. “More and more potential home buyers adopted a wait-and-see attitude.” China’s property market was dubbed the most important sector in the universe back in 2011 by a UBS Group AG economist because of its importance to China’s growth and thereby to global expansion.