International Economic Growth:OECD Estimates for 2009

The OECD has released its estimates for growth in the major economies for 2009.  Robust growth of 6% to 8% is seen in China and India.  Less, but still good growth for Indonesia, while Russia, Brazil, and South Africa are less than robust, but still growing.  Australia and Turkey are growing, but even less than the others.

For most of Europe, the United States and New Zealand, it is recession.  Mexico, Spain and Scandinavia are expected to produce near zero growth.  Iceland, the tiny dark blue dot in the north Atlantic, is projected to have a -9.335% drop in GDP.

OECD Visualization of World Growth for 2009

The table below details the specifics of GDP projections for many countries.

 

Almost all of the largest economies and some of the smaller  ones, have growth stimulus packages in place or on the table.  This will help keep the recessions from going deeper in the red, especially if they all are implemented at roughly the same time.

If one country increases government spending is a stimulus program, then there will be an expected positive addition to GDP.  But, some of that growth will be exported to their trading partners.  For example, if the U.S. were to enact a stimulus program by itself, it would lose some of the growth to imports from Mexico, Canada and China.  But, if all four countries enact similar programs at the same time, there will be an even larger expansion in all countries.  The mathematics of this are somewhat complex, and they lack definitive precision.  But, the modeling that is used by economists are well tested over decades of experience.  Mr. Obama's economic team will be using this type of modeling in order to determine how large a stimulus is needed to grow our economy out of the recession.

One variable not tested in this type of modeling, however, is how the credit markets will accommodate simultaneous borrowing by many countries at the same time.  Is there enough world demand for debt to buy all the bonds that would be issued with the huge influx that would come from simultaneous borrowing?  I don't know the answer to this question, but it does seem to me to point to some limits on the ability of the world economy to engage in large-scale borrowing at the same time.

On the positive side, China is able to buy $2 trillion itself, out of current reserves.  If they stay positive in their trade balance, then they could buy even greater quantities next year.  There is still plenty of international credit available, even if the large banks are dried up for now.

Conservatives, Liberals and Progressives Speak on the new Stimulus Plan

Watch a well informed discussion of the new stimulus plan President-Elect Obama offered in his weekly radio (and YouTube) address.  George Stephanopoulos leads the discussion between George Will, Arianna Huffington, David Brooks and Robert Kuttner on the merits of the plan.

This is well worth the time if you want to see a well informed and civil discussion.  Every point of view is represented and debated--liberal, progressive and conservative.

Discussion of President Obama's Proposal on Stimulus Spending

In another interview, Paul Krugman, 2008 Nobel Prize winner in economics,  noted the need for a massive spending and employment program to get the economy away from the doorway of a major depression.  We are not there, he insisted, but we could get there without an immediate implementation of a plan to get people employed and money flowing again.

Mr. Krugman also emphasized that there are two crises happening at the same time: a financial crisis on Wall Street, where the American Banking system is breaking down, and another crisis on Main Street where breadwinners are losing their jobs, can't get loans and can't make their house payments.  So far, the Bush Administration has addressed only the Wall Street side of the problem.  Mr. Obama's plan goes a long way to begin a remedy of the second.  Mr. Krugman sees possibly another one and a half million additional jobs lost before Mr. Obama takes office.

Late breaking news on Sunday said that the Democrats in Congress would have a $700 billion stimulus plan ready for Mr. Obama's signature on the day he is sworn into office. 

President-Elect Obama's Stimulus Plan

Mr. Obama announced on Saturday a rough sketch of a major stimulus plan that would add several million new jobs to our faltering economy.  American workers will rebuild the nation's roads and bridges, modernize its schools and create more sources of alternative energy, creating 2.5 million jobs by 2011, Obama said in the weekly Democratic address, posted on his Web site.

"These aren't just steps to pull ourselves out of this immediate crisis," he said. "These are the long-term investments in our economic future that have been ignored for far too long."

To watch a video of Mr. Obama's Weekly Address to the Nation and to read the entire article:Click Here

Tim Geithner: The New Man at Treasury

A brief profile of Tim Geithner published last year at New York Times:

"If the brave new world of finance is daunting, the man in charge of it is not. With a boyish charm and a dry sense of humor, Mr. Geithner has taken advantage of the current calm waters of the financial markets to take an active stance, rallying Wall Street to peel apart the market of credit derivatives to try to understand its potential risks. . . .

To read the whole story, follow this link: to RayHendon.com

How Bad Can it Get?

How Bad Can it Get?

My last blog on the economy was entitled: It’s Worse Than We Think. So what comes after, worse than we think? Worser is not a word, but it’s what comes to mind today when I see the latest employment and price data.

To continue reading, follow this  link to the complete article.

Report of the G-20 Meeting

Here is a link to the full text of the press release of the attendees: Press Release of G-20 Members

There were two agendas at the G-20 meeting on Saturday:

• Strengthen the world's economies and reduce the effect of the world-wide recession that is getting worse daily.
• Find a way to share the authority over the structure of the global financial system. Europe, Asia and Latin America are all clamoring for more say-so in how things work.

On the first agenda, that of working together to strengthen the world's economies, there is progress to report. All that could reasonably be expected from the Conference would be to reach agreement on what to do for the next meeting, and this was accomplished. They agreed to meet at the end of April, about 100 days after Mr. Obama assumes his duties as President of the United States, and take up a specific list of agenda items:

Stimulus spending

Interest rate cuts

IMF funding and lending to shore up currencies under attack

Regulatory oversight on banks and other financial institutions

Oversight on credit default swaps and credit rating agencies

Transparent accounting standards for all world-wide financial institutions

A Supervisory College to meet and discuss world banking developments

Limiting compensation for financial executives

There has been no agreement on the structure of any of these issues, but there is agreement that these are the items that will be worked on for the next meeting. It is a rich agenda, and one full of difficulties to resolve. Bank regulation, alone, poses a host of thorny issues that will test the ability of the G-20 to work together.

As of yet, there has been no agreement as to who will fund the IMF in its increased lending activities, which is essential to stop the excessive volatility of the currency markets. There are, generally, three nations that have the wherewithal to do this: Saudi Arabia, China and Japan. All three of these countries have huge reserves of foreign currencies (China as over $2 trillion), and they will be needed if the plunge in currency values of both emerging and developed markets is to stop. There will probably be much discussion on this issue before the next meeting.

As to the second agenda, the spreading of authority, there is little talk, so any analysis of this issue will have to be done by reading between the lines. The background for this agenda has its roots in the vast changes that have taken place in the world economy since the 1944 Bretton Woods Agreement . The United States probably produced at least half the GNP of the world when the meeting took place. It now accounts for about 25%. Also, the economic power has shifted from Western Europe and North America to be more dispersed over all continents. Asia has enormous economic power since the rise of China, India, South Korea, and Taiwan. Plus, there are a host of South East Asian economies that are growing fast and that are now fully integrated into the world's finance system. In addition Europe has not only recovered from the devastation of WWII, but has coalesced within the EEC, and Eastern Europe is taking off.

The first reading between the lines is the fact that it was the G-20 that was called into meeting rather than the G-7 or G-8. This reflects the reality of the new power dispersion. In times past, it would have been the top industrialized nations meeting at the behest of the U.S.

The second reading regards the desire to expand the powers and monies available to the IMF. This institution, which has contributed to world economic stability over the years, has been a virtual fiefdom of the United States. But the ousting by Europe last year of Mr. Bush's appointee to head the IMF set the tone for things to come. In my view, it would be beneficial to expand the membership and voting of the IMF, to include the emerging markets. If this step cannot be done, then continuing the G-20 as the major tool of international policy making would be an important step. Over time, the members will sort things out and determine where the consultative power lies.

Below is a list of the world's top 20 economies, measured in U.S. dollars for the year 2007. This is not the exact membership of the Group of 20, however.

The G-20 has added Saudi Arabia, South Africa and Argentina, and eliminated Spain, the Netherlands and Belgium. the European Union was also added as a single member.

The list goes a long way in explaining how things need to change in regulating the world's economies. Although the United States still dominates--no one else is even close, there are many new, major players on the list. China will probably soon replace Germany as the third largest economy, and Brazil has been gaining on Canada the last few years. Turkey is now growing fast, and Indonesia will likely pass Belgium before long. The new world order needs to reflect these realities.

The final analysis may reflect that the most significant part of the G-20 meeting of 2008 was that the G-20 meeting was called. If they did nothing else, the fact that all twenty of the members came and participated marks a boundary of recognition that things have changed. Managing the world's economies will no longer be confined to the top seven or eight nations of the world. Power has shifted to include the newer, faster growing economies.

Join me in welcoming Mr. Obama to the world of international economics and finance. I hope he puts a strong team together, soon. There is some heavy lifting ahead.

Brief on the G-20 Conference Today in Washington

The emergency meeting of the Group of 20 this Saturday, November 15, was called because the world’s financial system is broken. The meeting was suggested by French President, Nicolas Sarkozy to President Bush. Although Mr. Bush did not want to take up the issues that will be brought up at the meeting, he agreed to host it at Mr. Sarkozy’s insistence.

The primary issue to be discussed will be helping the developed and emerging markets out of the deepening recession that the world now faces. But, included in the discussions will be proposals made by European and emerging market leaders to reform banking regulations that would prevent the kind of financial meltdown that started the downward spiral this year.

Mr. Bush has publicly warned about stifling economic growth by excessive regulation, while the European leaders and Brazil, specifically, are more prone to take a strong government hand when they see a larger public need.

This argument is ancient in origin, and there has never been a consensus about the exact amount of regulation that is needed in every situation. Don’t look for a resolution to this issue at the meeting today. Mr. Bush couldn’t do anything about it even if he wanted to, given his status as out-going President, and the discussions today will last only about five hours.

Another meeting is planned after Mr. Obama assumes the Presidency, and at that meeting, more detailed work can be done to help coordinate government efforts to stave off what threatens to be a major downturn in many of the world’s economies. America is just entering a recession now, and the prognosis is looking increasingly bad. Europe is already in a recession, lead by Germany, the world’s third largest economy. Almost all the emerging markets, with the exceptions of China and India, are in recession, and even China and India are experiencing significantly lower growth rates for 2009.

The following description from Economix of the NY Times will be helpful in understanding the structure of The Group of 20:

The Group of 20, or G-20, is an international body that meets to discuss economic issues. Some of the things members discuss are ways to expand (or at least stabilize) the international economy, to reform international economic financial institutions like the International Monetary Fund, and to coordinate economic and financial policies (like policies that reduce tax evasion)

Members – 19 countries with some of the world’s biggest industrial and emerging economies, plus the European Union – represent about 90 percent of the world’s gross national product, 80 percent of world trade (including trade within the European Union) and two-thirds of the global population. Member countries usually meet annually.

The annual meeting already took place last weekend in São Paulo, Brazil. This weekend’s meeting was not on the regular schedule and was arranged specifically to address concerns about the international financial crisis. It is unprecedented because heads of government will be attending.

The member countries are Argentina, Australia, Brazil, Britain, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey and the United States. The European Union is also a member, represented by the rotating council presidency and the European Central Bank.

The membership of the G-20 has not changed since it was established, and the organization says there are “no formal criteria for G-20 membership.” With the exceptions of Argentina, Saudi Arabia and South Africa, all of the member countries fall within the list of the top 20 biggest state G.D.P.’s in the world.

Usually, the attendees of the annual meetings are the finance ministers and central bank governors of the member countries, plus top leadership of the World Bank and the International Monetary Fund.

This is the first time that heads of governments will attend a G-20 meeting.

A number of economist and other leaders are hoping specific policy proposals will be discussed at this meeting, but the expectations for what can and will be accomplished in the next 24 hours are relatively low.

The last-minute nature of the meeting allowed for little preparation time. The meeting itself is also relatively short.

“I would be surprised if much happens,” said Edwin M. Truman, a senior fellow at the Peterson Institute who served as the assistant secretary of the Treasury for international affairs during the founding of the G-20. “When you think about it, it’s 20 people, and they’re all heads of government. They’ll meet tonight for dinner, informally, and then they’ll meet tomorrow for just five hours. That’s not a lot of time for everyone to talk.”

There is only so much that attendees at this event can commit to, anyway, since any major policy changes will likely have to be approved by leaders’ full governments back home. President Bush — as an outgoing president — would have an especially hard time committing to anything substantial. (Former Secretary of State Madeleine K. Albright, and former Representative Jim Leach will meet with representatives of G-20 nations on President-elect Barack Obama’s behalf this weekend.)

The smaller G-7 and G-8 have memberships of only the largest economies, which exclude, China, Brazil, India and Russia, to name a few, and there has been strong criticism leveled at these groups because they exclude far too many of the world’s economic powerhouses. Most would agree with this criticism, and for this reason, and bolstered by the enormous growth of the emerging countries, the G-20 will probably assume a much larger role in the future in discussions of global economic issues. We may be seeing the first emergence of this new role in today’s meeting.

I look for much more substance from the second meeting than this one, but this one is important as a necessary first step.