Posts tagged ‘Central bank’

28/09/2016

Warning Sounded Over Chinese Economy – China Real Time Report – WSJ

What a contrast! See pair of articles – this on on China, the other on India, both from WSJ.

Recent stability in the Chinese economy masks deep-seated problems that threaten to rattle global markets in advance of a leadership change next year, according to a survey.

Ignoring these risks is shortsighted, said authors of the China Beige Book International, a quarterly survey that tracks the world’s second-largest economy.Data from the group’s third-quarter survey of 3,100 Chinese firms and 160 bankers point to some potential problems. New growth engines intended to shift the economy away from investment toward consumption-led growth are increasingly wobbly as corporate cash flow is squeezed and Beijing doubles down on traditional engines to stabilize output, the China Beige Book says.

“I’d find it earth-shatteringly surprising if we don’t have a significant problem between now and China’s leadership change” in the fall of 2017 when the 19th Party Congress convenes, said Leland Miller, China Beige Book’s president. “This is not a stable economy. It’s one that twists and turns and happens to end up at the same spot. There are real problems below the surface.”

Growth in China’s service industry, a cornerstone of its planned transition to a new and more sustainable economic model, weakened during the third quarter as financial services, private healthcare, telecommunications, media and other subsectors flagged, the group’s data showed. In retail, the apparel, luxury goods and food sectors slowed, it said, as online retailers continued to cannibalize brick-and-mortar sales.

Despite Beijing’s pledge to reduce excess Industrial capacity and pare debt, China remains heavily dependent on government spending to power traditional debt-fueled growth engines, the group said. Much of the economic momentum during the third quarter came from infrastructure, manufacturing, commodities and real estate and many of these sectors are in danger of losing momentum, it said.

While property sales remained strong in major cities, cash flow in the sector tightened and borrowing increased, a sign that investors should “think about getting off this train sooner rather than later,” the China Beige Book said.

“Deteriorating corporate finances and a rebalancing reversal seem a high price to pay for a quarter’s worth of stability,” the group added.

Economic and monetary authorities didn’t respond to requests for comment.

China roiled global markets last year when stocks plunged and Beijing intervened to prop them up. A few months later, it introduced a new currency system in which the yuan fell against the dollar, fueling concern that this would launch a destabilizing round of currency depreciations among rival trading nations. State spending and easy money policies since then have settled investor nerves.

China is expected to report third-quarter economic growth of around 6.7% next month, the level it posted in both the first and second quarters. Gauges such as industrial production and fixed-asset investment have been surprisingly robust over the past month.The trigger for another potential market jolt in the next few quarters could be the release of particularly weak Chinese service or retail data coinciding with a Federal Reserve interest rate rise or another global event, Mr. Miller said. “Right now, the markets are lulled to sleep,” he said. “People become used to the stable China narrative until they start looking more closely into the data.”

A report released Tuesday by the International Monetary Fund said China can reduce the negative impact on the global economy of its shift to slower but more sustainable growth by ending its use of targets to artificially prop up growth and by communicating its intentions clearly.

Other economists say they expect the Chinese economy to remain relative stable through the once-in-five-year leadership change, which is expected to be in October or November of 2017, as long as Beijing continues stimulating the economy enough to avoid a drop in growth. “I don’t think there’s going to be a crisis next year,” said Julian Evans-Pritchard, an economist with Capital Economics Pte. “But they often take their foot off the pedal too much, then tend to panic again and put it back on, creating a lag.”

The Bank for International Settlements warned last week that mounting leverage raises the risk of a financial crisis in China. The nation’s total debt, led by rising corporate obligations, is on target to reach 253% of gross domestic product by the end of 2016, a doubling over the past eight years, according to credit ratings agency Fitch Ratings Inc.

Third quarter China Beige Book data also pointed to areas of strength. The job market remains strong. The manufacturing outlook improved with new domestic and international factory orders picking up and deflationary pressure on industry ebbing.“It was not a disaster of a quarter,” Mr. Miller said. “But it’s a lot more negative than people think.”

Source: Warning Sounded Over Chinese Economy – China Real Time Report – WSJ

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01/09/2016

Indian manufacturing growth at 13-month high in August | Reuters

Indian factory activity expanded at its fastest pace since mid-2015 in August, helped by surging new orders, while only modest price increases should give the central bank scope to ease policy further, a survey showed.

The data will cheer policymakers after an official report on Wednesday showed Indian annual economic growth slowed in the April-June quarter to 7.1 percent, short of expectations for 7.6 percent in a Reuters poll.

The Nikkei/Markit Manufacturing Purchasing Managers Index rose to 52.6 in August from July’s 51.8, marking its eighth month above the 50 level that separates growth from contraction.

“Manufacturing PMI data show that the positive momentum seen at the beginning of the second semester has been carried over into August, with expansion rates for new work, buying levels and production accelerating further,” said Pollyanna De Lima, economist at survey compiler Markit.

The new orders sub-index, which takes into account both domestic and external demand, was 54.8 in August – its highest since December 2014 and indicating robust demand for Indian manufactured goods.

That pushed factories to increase production and the output sub-index climbed to a 12-month peak in August.But price growth lost momentum last month, with raw material costs increasing at their weakest rate in six months and output prices barely rising at all, suggesting consumer inflation could cool in coming months.

“In light of these numbers, the Reserve Bank of India has scope to loosen monetary policy in the upcoming meeting to further support economic growth in India,” De Lima said.On Oct. 4, the RBI is due to announce its first policy decision under newly-appointed governor Urjit Patel, who economists expect to broadly follow in outgoing chief Raghuram Rajan‘s footsteps.

Economists in a Reuters poll last month predicted the RBI would cut the repo rate by 25 basis points to 6.25 percent in the final three months of the year.

They see little steam left in the RBI’s current easing cycle, in which the policy repo rate has come down by 150 basis points since January 2015, to its lowest in more than five years.Consumer inflation in India was 6.07 percent in July, well above the RBI’s March 2017 medium-term target of 5 percent.

Source: Indian manufacturing growth at 13-month high in August | Reuters

12/08/2016

India’s ascent: Five opportunities for growth and transformation | McKinsey & Company

The country could create sustainable economic conditions in five ways, such as promoting acceptable living standards, improving the urban infrastructure, and unlocking the potential of women.

Twenty-five years ago, India embarked on a journey of economic liberalization, opening its doors to globalization and market forces. We, and the rest of the world, have watched as the investment and trade regime introduced in 1991 raised economic growth, increased consumer choice, and reduced poverty significantly.

Now, as uncertainties cloud the global economic picture, the International Monetary Fund has projected that India’s GDP will grow by 7.4 percent for 2016–17, making it the world’s fastest-growing large economy. India also compares favorably with other emerging markets in growth potential. (Exhibit 1).

The country offers an attractive long-term future powered largely by a consuming class that’s expected to more than triple, to 89 million households, by 2025.Exhibit 1

Liberalization has created new opportunities. The challenge for policy makers is to manage growth so that it creates the basis for sustainable economic performance. Although much work has been done, India’s transformation into a global economic force has yet to fully benefit all its citizens. There’s a massive unmet need for basic services, such as water and sanitation, energy, and health care, for example, while red tape makes it hard to do business. The government has begun to address many of these challenges, and the pace of change could accelerate in coming years as some initiatives gain scale.

From our vantage point, India has an exciting future. In the new McKinsey Global Institute report India’s ascent: Five opportunities for growth and transformation, we look at game-changing opportunities for the country’s economy and the implications for domestic businesses, multinational companies, and the government. The five areas we focus on by no means provide a comprehensive assessment of India’s prospects, but we believe they are among the most significant trends. Foreign and Indian businesses would do well to recognize these opportunities and reflect on how to exploit them.

1. From poverty to empowerment:

Acceptable living standards for allThe trickle-down effect of economic liberalization has lifted millions of Indians from indigence in the past two decades. The official poverty rate declined from 45 percent of the population in 1994 to 22 percent in 2012, but this statistic defines only the most dismal situations. By our broader measure of minimum acceptable living standards—spanning nutrition, water, sanitation, energy, housing, education, and healthcare—we find that 56 percent of Indians lacked the basics in 2012.

The country will need to address these gaps to achieve its potential. The task is certainly within India’s capacity, but policy makers will have to promote an agenda emphasizing job creation, growth-oriented investment, farm-sector productivity, and innovative social programs that help the people who actually need them. The private sector has a substantial role to play both in creating and providing effective basic services.

2. Sustainable urbanization:

Building India’s growth enginesBy 2025, MGI estimates, India will have 69 cities with a population of more than one million each. Economic growth will center on them, and the biggest infrastructure building will take place there. The output of Indian cities will come to resemble that of cities in middle-income nations (Exhibit 2).

In 2030, for example, Mumbai’s economy, a mammoth market of $245 billion in consumption, will be bigger than Malaysia’s today. The next four cities by market size will each have annual consumption of $80 billion to $175 billion by 2030.Exhibit 2To achieve sustainable growth, these cities will have to become more livable places, offering clean air and water, reliable utilities, and extensive green spaces. India’s urban transformation represents a huge opportunity for domestic and international businesses that can provide capital, technology, and planning know-how, as well as the goods and services urban consumers demand.

3. Manufacturing for India, in India

Although India’s manufacturing sector has lagged behind China’s, there will be substantial opportunities to invest in value-creating businesses and to create jobs. India’s appeal to potential investors will be more than just its low-cost labor: manufacturers there are building competitive businesses to tap into the large and growing local market. Further reforms and public infrastructure investments could make it easier for all types of manufacturing businesses—foreign and Indian alike—to achieve scale and efficiency.

4. Riding the digital wave:

Harnessing technology for India’s growthTwelve powerful technologies will benefit India, helping to raise productivity, improving efficiency across major sectors of the economy, and radically altering the provision of services such as education and healthcare. These technologies could add $550 billion to $1 trillion a year of economic value in 2025, according to our analysis, potentially creating millions of well-paying, productive jobs (including positions for people with moderate levels of formal education) and helping millions of Indians to enjoy a decent standard of living.

5. Unlocking the potential of Indian women: If not now, when?

Our research suggests that women now contribute only 17 percent of India’s GDP and make up just 24 percent of the workforce, compared with 40 percent globally. In the coming decade, they will represent one of the largest potential economic forces in the country. If it matched the progress toward gender parity of the region’s fastest-improving country, we estimate that it could add $700 billion to its GDP in 2025. Movement toward closing the gender gap in education and in financial and digital inclusion has begun, but there is scope for further progress.


Public-sector efforts to address the five areas are under way. The government is attempting to improve the investment climate and accelerate job creation—India’s ranking on the World Economic Forum’s Global Competitiveness Report climbed to 55 in 2015–16, from 71 a year earlier. Officials are moving to make the government more efficient, using technology that can leapfrog traditional bottlenecks of a weak infrastructure. One billion Indian citizens, for example, are now registered under Aadhaar, the world’s largest digital-identity program and a potent platform for delivering benefits directly to the poor.

Realizing India’s promise will require national, state, and local leaders to adopt new approaches to governance and the provision of services. To meet the people’s aspirations, these officials will also need new capabilities. The requirements include private sector–style procurement and supply-chain expertise, deep technical skills for planning portfolios of infrastructure investments, and strong project-management capabilities to ensure that large capital projects finish on time and on budget. Training will be needed to help staff members use digital technologies to automate and reengineer processes, manage big data and advanced analytics, and improve interactions among citizens through digitized touchpoints, online-access platforms, portals, and messaging and payment platforms. The government could acquire these capabilities by adopting quality-oriented procurement policies and taking advantage of secondments from the private sector. For businesses, India represents a sizable market but will require a granular strategy and a locally focused operating model.

No single report can capture all the changes taking place in the country, but we have tried here to identify the most significant trends. Foreign and Indian businesses should consider how their strategies will be influenced by them. Policy makers should focus on helping all stakeholders to capitalize on them. By any measure, the challenge is daunting, but success could give a historic boost to India’s economy.

Download the full report on which this article is based, India’s ascent: Five opportunities for growth and transformation (PDF–4.0MB).

Source: India’s ascent: Five opportunities for growth and transformation | McKinsey & Company

01/07/2016

India factory growth at 3-month high in June on strong demand | Reuters

Indian manufacturing activity edged up to a three-month high in June, driven by stronger demand, but firms barely raised prices, a private survey showed, leaving the door open for another rate cut by the central bank this year.

The Nikkei/Markit Manufacturing Purchasing Managers’ Index (PMI) rose to 51.7 in June from May’s 50.7, its sixth month above the 50 mark that separates growth from contraction after it fell below that level in December for the first time in more than two years.

“The domestic market continues to be the main growth driver, as the Indian economic upturn provides a steady stream of new business,” said Pollyanna De Lima, economist at Markit.

“There were also signs of an improvement in overseas markets, as new foreign orders rose. However, it looks as if lackluster global demand remains a headwind for Indian manufacturers.

“While retail inflation hit a near two-year high in May, the survey’s output prices sub-index fell to a three-month low of 50.1 in June versus 50.5 the previous month, as input costs rose at a weaker pace.

There was also broadly no change to manufacturing employment in India during June, the survey showed.

“This lack of inflationary pressures provides the Reserve Bank of India (RBI) with further leeway to boost economic growth through cutting its benchmark rate,” said De Lima.

According to a Reuters poll, RBI Governor Raghuram Rajan could deliver another rate cut before his term ends in September. After cutting rates in April, he has left the key interest rate unchanged at a five-year low of 6.50 percent.

However, at the June policy meeting he signalled another rate cut later in the year if monsoon rains were sufficient enough to dampen upward pressure on food prices.

Rains are expected to be above average this year which could keep prices in control and give the government room to focus on key economic reforms in tandem with low interest rates.

Source: India factory growth at 3-month high in June on strong demand | Reuters

29/06/2016

India approves rise in salaries, pension for govt employees – govt source | Reuters

India’s cabinet on Wednesday approved a proposal to revise up salaries and pensions for government employees, an official, privy to the decision, told reporters.

The official declined to be named or identified as he was not authorised to speak to the media.

The move is estimated to benefit nearly 10 million government employees.

Details were not immediately available ahead of a government briefing later.

Source: India approves rise in salaries, pension for govt employees – govt source | Reuters

24/06/2016

Two stumbles forward, one back | The Economist

LAST November, two days after India’s ruling party suffered a drubbing at local polls in the state of Bihar, the government unexpectedly opened a dozen new industries to foreign direct investment (FDI). A gushing official called it “the biggest path-breaking and the most radical changes in the FDI regime ever undertaken”.

On June 20th, two days after Raghuram Rajan, the respected governor of India’s central bank, abruptly announced that he would soon step down, the government covered its embarrassment with another impromptu salute to FDI. The slim package of enticements, amounting to a slight lowering of barriers in some of the same industries, has made India “the most open economy in the world for FDI,” said the office of Narendra Modi, the prime minister.

Hyperbole is not unexpected from a government keen to burnish its liberalising credentials. But it has not lived up to its cheery slogans (“Startup India”, “We Unobstacle”, “Minimum Government, Maximum Governance”). Two years after clinching a sweeping electoral mandate, and with the opposition in disarray, Mr Modi’s reform agenda should be in full swing. Instead, as with previous governments, his ill-focused initiatives have run up against India’s statist bureaucracy.

To be fair, much of what has been done is useful. Corruption has been stemmed, at least at ministerial level. A vital bankruptcy law has been approved. Yet for all the evidence that Mr Modi’s team is doing a better job running the existing economic machinery, it has shown limited appetite for overhauling it.

Pessimists see Mr Rajan’s departure as evidence of a further wilting of ambition. After all, as a former chief economist of the IMF, he is an enthusiastic advocate of structural reform. Then again, at the central bank he has focused chiefly on bringing down inflation. Optimists hope he is being eased out because of his habit of speaking his mind, thereby occasionally contradicting the government line, rather than to pave the way for retrograde policies.

Thanks to a mix of lower oil prices and prudent fiscal policies (and perhaps also flawed statistics) the economy grew by 7.9% in the first quarter, compared with the same period the year before, the fastest pace among big economies. Ministers think further acceleration is possible.

That may prove difficult. India’s public-sector banks, which hold 70% of the industry’s assets, are stuffed with bad loans; the central bank reckons that some 17.7% are “stressed”. That Mr Rajan forced them to disclose this fact will not have endeared him to politically connected tycoons now being badgered to repay the banks. Bank shares rose after he said he was leaving, presumably in the hope that his successor will go easy on them. Rating agencies fret that they will still need recapitalising, blowing a hole in the government’s finances. In the meantime, credit to industry has all but ground to a halt.

India’s overweening bureaucracy is another drag on growth. Copious red-tape and poor infrastructure put India 130th out of 189 countries in the World Bank’s “Ease of doing business” rankings. Getting permits to build a warehouse in Mumbai involves 40 steps and costs more than 25% of its value, compared with less than 2% in rich countries. It takes 1,420 days, on average, to enforce a contract.

A slew of liberalising reforms in 1991, when India was in far worse shape than now, were left unfinished as the economy gradually recovered. Whereas product markets were freed from the “licence Raj”, which no longer dictates how much of what each factory can produce, inputs such as land, labour and capital are still heavily regulated. Having once sought to prise those open, the Modi government now encourages state governments to take the lead with their own reforms.

One result is that there is no proper market for land: businesses that want to set up shop are best off wooing state governments to provide some. Chief ministers with a presidential approach (a model Mr Modi espoused in his previous job running Gujarat) scurry around scouting for plots on behalf of the private sector in a manner that would have seemed familiar to the central planners of yore.

That India is pro-business but not necessarily pro-market is a frequent refrain. “The government wants to create jobs, not the environment in which job-creation flourishes,” says one investor. Special economic zones are set up as sops, sometimes to entice single companies. Even big foreign investors are essentially told what to do: Walmart can only open cash-and-carry stores closed to the general public, Amazon must sell mostly other merchants’ goods rather than its own, and so on.If businesses cannot get things done themselves, even the most energetic politician will struggle to set up enough factories to general public, Amazon must sell mostly other merchants’ goods rather than its own, and so on.

Source: Two stumbles forward, one back | The Economist

06/06/2016

Indian Firms Continue to Flounder in the Face of Fantastic Fundamentals – India Real Time – WSJ

India has the highest gross domestic product growth of any large economy; its chronic inflation problem seems under control and it has a relatively business-friendly prime minister. But its companies’ profits remain utterly unimpressive.

The latest round of quarterly results showed once again that whatever is happening with top-line GDP expansion isn’t trickling down to the bottom line.

The profit after tax at the 30 companies that make up the benchmark Sensex rose only 2.7% from a year earlier. That is better than the 9% decline a year ago but a slowdown compared  to the previous quarter.

For the full fiscal year ended March, Sensex company profit fell 1.6%–their worst performance in seven years. Official data showed last week that the economy grew 7.6% in the same period.

Profits were pummeled as Indian government-owned banks reported losses as they set aside huge amounts of money for bad loans.

Source: Indian Firms Continue to Flounder in the Face of Fantastic Fundamentals – India Real Time – WSJ

08/07/2015

Greece and China expose limits of ‘whatever it takes’ | Reuters

For a world so confident that central banks can solve almost all economic ills, the dramas unfolding in Greece and China are sobering.

“Whatever it takes,” Mario Draghi‘s 2012 assertion about what the ECB would do to save the euro, best captures the all-powerful, self-aware central bank activism that’s cosseted world markets since the banking and credit collapse hit eight years ago.

From the United States to Europe and Asia, financial markets have been cowed, then calmed and are now coddled by the limitless power of central banks to print new money to ward off systemic shocks and deflation.

But even if you believe central banks will do whatever it takes – to save the euro, stop the recession, create jobs, boost inflation, prop up the stock market and so on – it doesn’t necessarily mean it will always work.

Draghi himself merely pleaded for faith on that score three years ago when he added, “Believe me, it will be enough.”

Critically, given the direction of events in Athens, his celebrated epigraph was preceded by “Within our mandate…”

And so the prospect of the European Central Bank potentially presiding over, some say precipitating, the first national exit from a supposedly unbreakable currency union will inspire a rethink of the limits of Draghi’s phrase for all central banks.

Of course, the ECB does not want to push Greece out of the euro. But ‘whatever it takes’ may just not be enough to preserve the integrity of the 19-nation bloc if the ECB’s mandate prevents it from endlessly funneling emergency funding to insolvent Greek banks.

And as long as the Greek government is at loggerheads with its creditors, the central bank can’t wave a magic wand of monetary support without breaking its own rules.

The ECB continues to insist it will do all in its power to prevent contagion to other euro zone markets and there’s little doubt it will make good on that. But the problems stemming from a Greek exit are not of financial seepage but of political contagion to other euro electorates tiring of austerity. And that sort of contagion is beyond ECB control.

via Greece and China expose limits of ‘whatever it takes’ | Reuters.

19/04/2015

E-commerce boom spurs record demand for VRL Logistics IPO | Reuters

A $75-million market debut for Indian parcel delivery firm VRL Logistics Ltd IPO-VRLL.NS has encountered record demand, drawing bids for more than 70 times the number of shares on offer late last week, as investors bet on an e-commerce boom.

Subscription levels were the highest in nearly eight years, stock exchange data showed, roughly the highest since the global financial crisis hit.

Analysts said strong demand was helped by the successful listing of renewable energy firm INOX Wind (INWN.NS), which has lifted primary market sentiment, and growing demand for logistics services as Indians buy more online.

The sale received bids amounting to 74.26 times the number of shares on offer by the last day on Friday, stock exchange data showed.

via E-commerce boom spurs record demand for VRL Logistics IPO | Reuters.

09/04/2015

India’s Credit Outlook Gets Boost From Moody’s – India Real Time – WSJ

India has inched farther away from junk-bond status.

Moody’s Investors Service MCO +0.71% on Thursday changed its ratings outlook on Asia’s No. 3 economy to positive from stable, citing the “increasing probability that actions by policy makers will enhance the country’s economic strength.” But it maintained its Baa3 rating, one level above junk, saying the Indian economy is still heavily exposed to external and financial shocks. Moody’s has rated India at Baa3 since 2004.

The move is a vote of investor confidence in the economic management of Prime Minister Narendra Modi and Reserve Bank of India Gov. Raghuram Rajan. Standard & Poor’s raised its India outlook to stable last fall. Fitch Ratings has had a stable outlook on India since 2013.

All three of the big agencies currently assign Indian debt their lowest investment-grade ratings. They cite similar reasons. Inflation is high. The public sector—the federal government plus the states—is highly indebted. Infrastructure is sorely deficient. The banking system is burdened with bad assets.

“While policies are beginning to address each of these factors, the extent of likely improvements is as yet unclear,” Moody’s said Thursday.

via India’s Credit Outlook Gets Boost From Moody’s – India Real Time – WSJ.

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