While many expected President Donald Trump to be the star at this year’s Davos Conference he was upstaged by a predictable rival- China. The World Economic Forum’s conference in Davos, Switzerland is considered to be the premiere destination worldwide for economic policymakers. Everyone from kings to dictators attends the star studded speeches and at night- parties.
This year it is clear that the world’s continuing breakout star is China. Chinese representatives cut a deal with the current President of Brazil for road infrastructure development in underserved parts of the country. China also wooed the Prime Minister of Pakistan, Shahid Abbasi. Pakistan has been the recipient of massive amounts of foreign aid as the United States draws back from aiding the country. Pakistan will be key to China’s “New Silk Road” project which aims to create a superhighway from China to Europe.
Other former suitors of China have not been so lucky. Economic development ministers from the beleaguered country of Venezuela had issues with the length of their meeting with their Chinese counterparts. In addition, old stalwarts like Zimbabwe and Cuba appear to be moving closer to the American orbit- despite Trump.
While the attendees at Davos have no collective power to pass decisions at the conference they have massive amounts of power in their homelands. The importance of this cannot be understated- while Davos has been billed as an economic conference it has become the Olympics of international finance, trade and diplomacy. China making such a splash at the conference is something every finance minister on the planet will take note of.
The Trump administration has recently decided to levy tariffs on imports of solar modules to the United States. This cam after some module manufacturers in the United States complained that the cheap cost of foreign technology, often driven even lower due to government subsidies, were making it impossible for them to compete on such a lopsided playing field. The tariff tacks on 30% of the panels cost as it comes into the country in an attempt to give domestic manufacturers more of a chance to compete. Similar tariffs against washing machines were also put into place at the same time as the solar tariffs. The countries hit hardest by this decision include both China and South Korea. The United States already had tariffs against Chinese solar modules in place causing them to move many of their operations to nearby South Korea. This could ultimately lead to strained relationships between the United States and these two countries in a time when an alliance between the three is more important than ever. Some sources indicate that China and South Korea could take their claims to the World Trade Organization (WTO). The WTO would likely take years to make a ruling in the case however and given that the tariffs are only set for a four year time frame they may end up having little to no impact on the issue. Some fear that this could lead to an all out trade war which in the end would benefit no one and lead to economic decline for all countries involved. Only time will tell what the outcome of these economic decisions will be both at home and abroad.
The expectations for January job growth numbers were actually lower than what the real number turned out to be. As a matter of fact, the 200,000 jobs added in January was a strong enough month to bring the unemployment rate down just a nudge more. Even so, the market is not necessarily taking the news as some might expect.
Trading has been down in the triple digits the last few days. As of the time of this writing, the Dow Jones Industrial Average is down roughly another 250 points according to CNBC. This is despite all of the supposedly good news that has been out related to the economy as of late. It is perplexing to a lot of people to say the least, but others see it as an obvious sign that prices in the market have been too high for a long time.
The market has a funny way of deciding to go up or down when people least expect it. They always say that it is best to buy when everyone is fearful and sell when they are greedy. As of late it feels like greed has indeed taken over the market. Perhaps this is why people are starting to pull back on the investments that they had previous made without question.
It is a market that we all have to keep an eye on at this point. There could be more twists and turns to come.
Is it possible that another round of tax cuts is in the works from Congress? Not likely say most political observers, but that has not stopped the speculation following comments from President Donald Trump.
While the President was addressing Republican members of Congress, he made some comments that most are taking in a joking matter says CNBC. The President had suggested that there could be a second round of tax cuts by saying: “we will get em’ even lower”.
These comments were taken light-heartedly around the room. Everyone there understood the massive amount of work they just went through to get the first round of cuts to become a thing in the first place. With that in mind, there is not much appetite for more tax cuts at the moment. It is probably for the best that the party let the tax break that they just gave to nearly every American settle in to begin with.
The President has been largely congratulatory of himself as of late. He has felt very good about how the tax situation worked its way through Congress, and now it seems like he doesn’t even mind throwing some jokes around about how he would like to do even another round of tax cuts if he is permitted to do so. Again, most are not taking this all that seriously. They understand that the political realities prevent this from really happening. Still, it is interesting to see a President who is so upbeat about the progress he has made thus far.
Many parts of the world have a booming economy. One way that economic growth is measured is by factory output. One indicator of factory output is the Purchasing Managers’ Index. According to this measurement, factory output looks good for the coming year, but not in all places.
The Euro Zone countries are showing good factory output. In fact, the entire Euro Zone is seeing the best factory output numbers since the 1990s.
Within the Euro Zone, some countries are doing better than others. Germany and Italy are seeing almost record numbers in factory growth. Both France and Spain have seen production increases that are well above expectations.
Not all is well in the European Union. The United Kingdom is not fairing as well as the other nations. Its rate of factory output growth is expected to be at least one percent below the Euro Zone nations. The entire British economy is expected to grow at a reduced rate in 2018 compared to growth in both 2016 and 2017. This may be due in part to the Brexit situation.
In Asia, factory output is going well, and it is expected to remain strong in both Taiwan and Japan. China is doing better than expected even though it is placing more controls on factories in regard to pollution and environmental controls.
The global economy does have one worry going into 2018. Uncertainty remains on the course that the Unites States will take in regard to protectionism. The imposition of tariffs may slow the economy if trade wars develop.
A newly released Reuters survey asked 19 global economists their opinions on the strength of Japan’s economy. According to this optimistic poll, Japan could soon enjoy its longest stretch of growth since the 1980s.
Financial experts who participated in this study agreed the fourth quarter results will most likely be positive. This would make 2017 October-December quarter the eighth quarter in a row in which the Japanese economy grew. Specifically, analysts predict Japan’s GDP to have risen by 0.9 percent in this quarter.
This 0.9 percent growth in the fourth quarter is significantly lower than the 2.5 percent growth in the third quarter. Economists, however, don’t believe this decrease is the signal of a downward trend.
The two strong points in this report include Japan’s domestic spending and exports. Amazingly, economists believe the private consumption rate will rise by 0.4 percent in the fourth quarter. That’s a massive jump after this number fell by 0.5 percent in the third quarter.
While all of these numbers are very encouraging, there are a few areas of caution economists noted in their survey. First, they showed how Japan could be hurt by its reliance on imports for products like smartphones, especially as oil prices rise. While this could be a major issue on Japan’s bottom line, most survey respondents believe Japan’s export market is robust enough to overcome this issue.
Another issue for the Japanese economy going forward is the risk of conflict with nearby North Korea. Lastly, survey respondents say Japan could be adversely affected if China falls into a recession.
Japan’s Cabinet Office will release the official fourth quarter results on February 14th.
Federal economists recently reported that job growth in January 2018 reached upwards of 200,000 jobs. The United States economy continues to make gains while the overall unemployment rate hovered around 4 percent for the year. Prior to these results professional economists expected somewhere in the realm of 180k jobs in January.
The United States has not seen unemployment levels this low since the very end of Bill Clinton’s presidential term in late 2000. The highest levels of unemployment we have seen hit roughly 11 percent in the dark months of 2009. Many in the political and economic sectors are worried less about employment than wages and underemployment. Many Americans can find jobs- but well paying jobs are still in short supply.
Professional economists and analysts have warned the public at large against judging the economy as a whole by this one number- many have argued that long term unemployment numbers are a much better way of analyzing how strong or weak an economy is. That does not stop politicians from using these numbers to attack their enemies or make themselves look better.
Current US President Donald Trump has boasted about his part in the job growth seen during the first year of his presidency. However, the numbers during his presidency are remarkably similar to those of the last years of the Barack Obama Presidency. This has led many to believe that he is simply continuing down the impressive path that President Obama set the country on. In 2016 the entire country added 2.2 million new jobs while 2017 saw 2.0 million.
Experts are giving the European Central Bank (ECB) credit for a boom in manufacturing jobs across the 19 nations of the Eurozone. The IHS Markit reports not only growth, but “robust growth” in all 19 countries.
Even the deeply troubled economy of Greece is enjoying renewed economic generation. It wasn’t long ago that Greece’s 30% reduction in economic output threatened the entire European Economic Union. Another troubled economy, that of Italy, is enjoying new vigor.
One action taken by the ECB said to have spurred the boom was its recent decision to cut interest rates to zero. It also began to print money, taking a cue from the U.S. Federal Reserve, which did the same. The Bank of England also opted to print cash, bolstering the U.K.’s post-Brexit economic outlook.
Growth across the Eurozone is at a 20-year high, said Chris Williamson who IHS Markit chief business economist. New orders for manufactured goods has exploded to “record levels,” he said.
Factories need to churn out a lot of stuff for the simple reason that demand has increased dramatically. There are some worries on this front, however. While more goods are being sold, costs are also rising sparking a fear of future inflation. Part of the reason for that is the recent recovery of the oil market. World price for crude oil is slowly climbing out of a historic low. Oil prices tanked in 2014.
In the meantime, Eurozone businesses are enjoying increased exports to China, the United States, Canada, other European nations and Japan.
Low unemployment while productivity increases in parts Europe.
Since 2008, parts of Europe has been characterized by high unemployment. This has led to unprecedented low-interest rates and stalling of productivity.However, the situation is changing. Since the year 2014, unemployment has been declining, and employment has been on the rise.The tourism, hospitality, information, and communications are among some of the growth areas.Countries such as Switzerland, the Czech Republic, and Germany indicate that there is productivity on the rise again. Large regions, especially in these countries, show medium or low unemployment.For the first time in decades, the greater parts of western Europe is experiencing low unemployment rates.These rates go as low as 3.5%. The areas with low unemployment are bordered by regions with medium unemployment rates 3.5%-5%. Labour in most parts of Europe is becoming scarce. This situation is brought about by the fact that unemployment in countries with a vast labor force such as Poland is also experiencing declining unemployment.One of the reasons for the difference in unemployment in Germany and France is due to the appalling fertility rate of Germany.
In Germany as well as the Czech Republic inflation is relatively low and stable.According to the most recent data, it was found out that wages begin to increase while the profits seem to be declining a bit.This causes the reversing of the decline in labor share.However, in the low unemployment countries, labor productivity appears to be increasing again. In countries like the Netherlands and Germany have ‘beggar thy laborers’ micro-economic policy.This is accompanied by pro-cyclical macroeconomic policies. These are high flexibility wage restraint policies that have existed for years. Indeed the world is changing, and labor is regaining its dignity again. The fact that labor is about actual people with real families and actual bills is becoming undeniable.
There’s been a long talk about unequal trade relations between the United States and China. It’s been a subject of many political campaigns, including the latest one where Donald Trump has promised to do something about it. Yet, in 2017, the American trade deficit with China has hit a record $275 billion, CNBC reports.
China is doing very well exporting and it has surpluses with many other countries. Last year, the total Chinese trade surplus was $422 billion. And China now wants to expand it with the Silk Road initiative.
President Trump claims China pursues unfair trade practices. And he is pretty much right about it. When it comes to intellectual property, for example, it is copied and used freely in China. The Chinese government has also banned Google, YouTube, and Facebook in China. Not only so it can better control dissent in the Middle Kingdom, but also to let China-based companies to take space Facebook and the likes would otherwise occupy.
When it comes to trade denominated in dollars, Chinese exports have risen by 7.9 percent in 2017, while imports have grown by 15.9 percent the same year. Still, the surplus is huge.
There was a big drop in trade between China and North Korea, but it was due to politics. Last year, imports from North Korea have dropped by over 80 percent, while exports decreased by 23 percent.