Thursday, June 28, 2012

Global Economy

The slowdown in global economic growth has been mostly attributed to the recession in Europe. However, there are plenty of home-grown problems in other parts of the world that are contributing to the global slowdown. Here is some recent bad news coming out of China and Brazil that got my attention, along with the latest downbeat batch of global economic indicators:

(1) Cars for sale in China. The most alarming story appeared in the 6/25 FT and was titled, “China’s officials forced to sell luxury cars.” Things must be really bad if they have to auction off their Benzes and Bimmers. The problem is that the cooling property market has deprived local officials of land sales, which has been a major source of cash.

The increased supply of used cars is bound to depress new car sales in China. This is really bad news for European automakers. The article notes that about one in every five Audis in China--the German car’s biggest market--is owned by the government. “More egregious examples--of police driving Porsches, and even a Maserati with military plates--have also prompted Chinese citizens angry about official corruption to post pictures of the cars online. In publicising the auctions, the government is aiming to head off that anger--all the more important in a year when China embarks on a once-in-a-decade leadership transition.”

(2) Bad loans in Brazil. The 6/27 FT had an article titled “Brazil’s bad loans hit record high in May.” According to the central bank, Brazilian loans overdue by more than 90 days hit 6% last month, the highest since records began in 2000. “The central bank has slashed its benchmark interest rate by 400 basis points in less than 10 months to a record low of 8.5 per cent, in a move the government expected to spur growth. Despite this, banks have been reluctant to speed up lending because of the steady rise in non-performing loans.” New car sales dropped almost 10% y/y in May as rising defaults on car loans discouraged lenders from making new loans. In May, the government introduced a $10 billion stimulus package to revive car sales.

(3) More downbeat indicators. Forget about Germany decoupling from Europe’s recession by finding more export business elsewhere. German unemployment climbed in June for the fourth month this year. The impact began to be felt in October, when a 27-month drop in unemployment ended. UK house prices fell in June by 0.6% m/m and 1.5% y/y, the biggest such drop since August 2009. The European Commission said its overall measure of confidence in the euro zone fell for the third straight month to 89.9 from 90.5.

Today's Morning Briefing: European Vacation. (1) Another script for National Lampoon. (2) A guide book. (3) They invented the Trojan Horse. (4) More socialism in France. (5) Italians and Spaniards want some of Germans' AAA rating. (6) What is it about “Nein! No! Non!” that they don’t understand? (7) Another not-so-grand plan. (8) More used Benzes and Bimmers for sale in China. (9) The bad loans from Brazil. (10) A world of hurt. (11) Signs of life in US housing market. (12) Q2 earnings growth forecasts for the 10 S&P 500 sectors. (More for subscribers.)

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