Economic Outlook Dims for Russia; Slowing Seen for Europe, North America

An economic downturn in Russia is the latest bad news for major economies, as Europe and North America continue to face slowdowns, according to the OECD’s latest composite leading indicators (CLI) for June, 2008.

A month earlier, Russia and China had been the lone exceptions to the economic slowdown among the eleven major economies tracked by the organization. The CLI for the OECD area fell 0.6 point in June and was down 5.0% from the prior June.

China continued to show signs of expansion, unchanged from the prior month and up 0.8 point from a year earlier. Meanwhile, the CLI for Brazil was up 2.2 points and was up 1.4 points from the prior year.

Monthly (and annual) individual country figures were as follows:

US: -0.2 (-5.4)

Canada: -1.1 (-3.9)

UK: -0.8 (-4.8)

France:-0.9 (-5.1)

Germany: -0.9 (-5.4)

Italy: -0.7 (-4.5)

China: 0.0 (0.8)

Brazil: 2.2 (1.4)

Russia (for May, 2008): -1.2 (0.9)

India: (for May, 2008): -1.5 (-4.4)

 

Comments

[Brahm:]

Slowing in the BRIC countries is inevitable if there is slow down in the US and European Union. There is nothing that says, based on the fundamentals, that it should occur at the same time (rather same month) everywhere. However, in my view the slowdown in Russia may be more muted compared to that in China. Russia is less export dependent (outside energy and we can't do without Russian energy!), and it also has great scope to increase or maintain internal investment for internal consumption and infra-structure development.

If the US $ strengthens, then Chinese currency will appear to be weaker in terms of the rate vis-a-vis the US$ and Euro. This will result in more inflation in China, since China imports signgificant amounts of raw materials for its industry (re-exports of finshed goods), food for its urban classes, and luxury items for its upwardly mobile. Chinese exports may just slowdown under the thrust of its raw material and labour costs. As such, there is pressure from the rest of the world for China to let its currency appreciate.

Inflation is also bad for internal Chinese harmony where workers just get by because of the absence of collective bargaining or free lklabour movement. China is more afraid of internal stability and turbulence on account of inflation, than it is afraid of lower growth of its economy. Other fundamentals also are deterirating for China on a long rerm basis under the pressure of raw material and food costs.

There has been reports that multi-nationals are begining to look at other parts of the world for sourcing goods and investment in manufacturing, since the attrativeness of China is being seen to be eroding. Transportation and shipping costs are becoming more significant now due to the high price of oil. For example, it used to be that Chinese low and intermediate valued steel used to be feared in other parts of the world and the West. No more so! When the Chinese export these now, it is believed that they are not fully recouping the true cost of capital for these exports. High iron ore import costs, high transportation/shippin... costs back-and forth, and high import coking coal costs have to a large extent neutralized the advantages China had on labour costs. In similar way, in future China will face embedded disadvantages (vis-a-vis Brazil, India, Eastern Europe, or other developing/emerging economies) as a source of exports to the US and Europe.

The tumble of the Chinese markets in the last few weeks reflect these to some extent. I would be wary in over-investing in Chinese securities, until the fundamentals become more certain or favourable.

2008 Aug 11 04:39 PM

[notsosmart:]

they ,russia & china,are both still dictatorships.no place for my hard earned money.i have all to do to navigate thru the scammers,liars & crooks here.

2008 Aug 12 11:07 PM

[User 220706:]

As the economies of the U.S., Europe and Japan all contract, China's dependency on export manufacturing places it in a position of extreme vulnerability: www.globalsecuritieswa...

2008 Aug 22 04:22 PM