GLOBAL ECONOMY FACES “DEBT TSUNAMI.” Government and corporate debt has grown by $15 trillion this year and will reach $277 trillion by 2021, which is about 365 percent of the world’s GDP, according to a study by the nonprofit International Institute of Finance (IIF).
The red ink is a “debt tsunami” threatening to limit economic growth for years into the future, the Financial Times commented.
Global debt stood at 320 percent of the world’s GDP at the end of 2019, the study noted.
From 2012 through 2015, global debt rose by $6 trillion, then added $52 trillion from 2016 through September 2020, driven in large part by attempts this year to rescue the world’s economy from the impact of pandemic-inspired shutdowns.
Among emerging economies, debt has risen 26 percentage points this year to 250 percent of their collective GDP, forcing increases in the amount these struggling countries must pay to service their loans.
Even though central banks have cut interest rates and made cheap loans since the pandemic and shutdowns began, emerging markets have seen their export markets collapse and internal tax collections shrink, making it even harder for them to repay loans.
Last week, Zambia became the sixth emerging economy to restructure or default on its sovereign debt this year, following Argentina, Belize, Ecuador, Lebanon, and Suriname.
Emerging markets are contracted to repay about $7 trillion in debt before 2022, the IIF estimates. Roughly 15 percent of that debt is denominated in dollars, exposing the countries to the risks that the dollar’s value might rise, making debts even more costly to repay.
TREND FORECAST: As debt levels rise and more countries default, precious metals and Bitcoin prices will rise as people seek safe-haven assets.
And, as economic conditions deteriorate in these failing nations, social unrest will escalate as people take to the streets to protest against rising crime, increased poverty, lower wages, government corruption, crime, and violence.
NEW LOCKDOWNS HAMMER EUROPE’S SERVICE SECTOR. Although Europe’s new wave of economic shutdowns that began last month is less severe than those last spring, they have hit the continent’s service economy almost as hard while sparing other sectors, analysts say.
IHS Markit’s Purchasing Managers Index (PMI) for Europe’s service sector fell in November from 46.9 to 41.3, compared to manufacturing’s PMI, which fell from 58.4 to 55.5.
Scores below 50 signal contraction; numbers above 50 indicate economic expansion, meaning that the continent’s manufacturing sector still sees growth ahead, although at a slower rate of increase.
Still smarting from the devastation of last spring’s shutdowns, service businesses cut more workers faster than manufacturing companies, which also are still shedding jobs, the indices showed.
The PMI for Europe’s economy overall slid from 50.0 in October to 45.1 in November, indicating the service sector’s slump could pull the continent back into an economic contraction.
Europe’s economy will contract 2.6 percent this quarter, Oxford Economics has predicted. The region’s productivity gained 12.6 percent in the third quarter, following an 11.8-percent crash in the second quarter.
TREND FORECAST: According to statista in 2018, small and medium-sized enterprises (SMEs) in the European Union employed over 94 million people, or approximately 66 percent of the workforce. They estimate that approximately 25.1 million SMEs in the European Union, with the vast majority micro-sized firms which only employed fewer than nine people.
For the European Union, the average value that SMEs contribute to the economy is around 56 percent.
Thus, we forecast there will be a steep winter economic decline followed by a spring/summer rebound that will appear relatively strong, but will prove temporary. The implications of the COVID War lockdowns on small businesses which dominate much of the European economy will prove devastating.
The dire evidence keeps mounting. According to a survey by Britain’s Office of National Statistics, one in seven had “little or no confidence” they would survive the next three months.
GERMAN BUSINESS LEADERS LOSE CONFIDENCE. Despite strong third-quarter growth, German business leaders are feeling less hopeful now about the German economy’s next six months.
The ifo Institute’s business climate index dipped from 92.5 in October to 90.7 in November, on trend with analysts’ expectations, even though the country’s third-quarter growth spurt was upgraded from 8.2 percent to 8.5 on 23 November.
Confidence shrank due to the renewed COVID pandemic across Europe, spurring politicians to impose new restrictions and lockdowns.
“A double-dip [recession] looks inevitable,” said ING economist Carsten Brzeski to the Financial Times. “The only upside is that more news about a vaccine and the timetable to roll it out should soon help bring back this optimism.”
Germany has lived under a one-month “lockdown lite” since 2 November, closing bars, gyms, theaters, and restaurants and shutting down domestic tourism. The shutdown will remain in place until December 20, when the government will determine whether to lift the strictures over the Christmas and New Year holidays.
CHINA CLAIMS TO HAVE ELIMINATED “EXTREME POVERTY.” With the certification of nine counties in remote, rural Guizhou province, China’s government claims to have eliminated “extreme poverty” everywhere inside its borders, a goal the Communist Party had set to achieve before 2021, the 100th anniversary of the party’s founding.
“Extreme poverty” was gauged against standards of education, health, income, shelter, and other basic human needs.
Since the early 1980s, a wave of capitalism in China has worsened inequalities, with urbanites gaining wealth while rural areas languished; often, the main source of income in rural villages has been to send family members to a city to find jobs and send money home.
Xi saw the inequities as a threat to the party’s rule and directed massive spending on clinics, housing projects, schools, and even giving cash grants in poor regions.
Reducing poverty has been the greatest achievement of the market-oriented reforms China adopted in the late 1970s, the Communist Party has long said. The party claims that 70 percent of global poverty reduction in recent decades has been in China, where 700 million people are no longer desperately poor.
The average annual net income for residents of Guizhow is now about $1,750, the government’s announcement boasted.
International organizations have credited the Chinese government for making major strides in improving livings standards for much of its population.
A World Bank report earlier this year said that if an annual income of $5.50 a day, or about $2,000 a year, is applied as a uniform global benchmark, 27 percent of the world’s population is still mired in poverty.
Under that standard, “poverty in China is still sizeable and merits renewed effort,” the report said.
Hundreds of millions of Chinese have lived in dire poverty for thousands of years, so eradicating it marked “a Chinese miracle in human history,” the People’s Daily newspaper declared.
TREND FORECAST: While there is no way to independently verify the Chinese government’s claims, as per their new “dual circulation” policy whereby the nation will rely less on exports and more on building a self-sustaining economy, their “China First” policy will in turn benefit all sectors of the population.
FOREIGN INVESTORS RUSH INTO CHINA. Foreign direct investment in China rose in October for the seventh consecutive month, climbing 18 percent this year to the equivalent of $11.8 billion, according to a statement by China’s finance ministry.
China’s rapid recovery from the pandemic and economic shutdown amid a world still mired in the two crises has made China a “safe harbor,” commerce ministry official Zong Changqing said in a separate statement last month.
The influx of foreign money will support China’s “dual circulation” economic plan of building its domestic consumer economy while also powering its industrial expansion to sustain and expand its international trade.
Most of the investment from abroad was made in real estate, information technology, e-commerce, and manufacturers of consumer goods, according to an analysis by the French investment bank Nataxis.
“When you look at urbanization, the explosion of the Chinese middle class, the consumption spending that has evolved in China – foreign investors have consistently tried to find a way to invest in that mega theme,” George Agethen, senior vice-president of Canadian real estate firm Ivanhoe Cambridge, told the Financial Times.
In June, Agethen’s company added $400 million to the $2 billion it already had invested in China in recent years.
However, as foreign money flows in, China is ensuring that an abundance of its own money does not flow out – another facet of its dual circulation strategy.
In 2019, China’s outbound foreign investment totaled about $77 billion, less than half as much as in 2014, as it cut investments in its Belt and Road global development plan.
TREND FORECAST: Despite the coronavirus reportedly first breaking out in China – a nation of 1.4 billion people where some 1.25 million deaths are attributed to air pollution – to date, only 4,684 are listed by the government as virus victims.
Thus, as we have reported, the Chinese economy is fully opened with its manufacturing rebounding and while the nation continues to expand its market share in products and presence in regions around the world… making it difficult for the U.S. and other western countries to catch up.
As Gerald Celente has said, “The 20th century was the American Century, the 21st century will belong to China. The business of America is War, the Business of China is Business.”
CHINESE CURRENCY CONTINUES SURGE AGAINST THE DOLLAR. Since June, China’s renminbi, the country’s internal currency, has gained 8.4 percent against the dollar and is poised to post its best-ever six-month record against the buck.
Barring a reversal, by the end of November the currency is likely to best its record 7.1-percent six-month challenge to the greenback set in March 2008.
The renminbi has attracted investors because China dealt with the COVID virus quickly and its economic recovery has been swift, analysts agree.
“There is an appetite for China assets all over the world and I think that will continue,” a technical analyst at BNP Paribas Asset Management said in a Financial Times interview.
Any country not needing a vaccine to resurrect its economy has a competitive advantage, he said, which leaves China virtually alone among major economies.
China’s current bond yields are comfortably above 3 percent, while returns on European, Japanese, and U.S. securities are less than 1 percent. The U.S. and European central banks have pledged to not raise interest rates for at least another year.
In contrast, China’s economy needs no stimulus so interest rates there can rise.
Also, China’s roaring stock markets have lured foreign investors, who need to convert their currencies to renminbi in order to play.
TRENDPOST: Joe Biden’s looming presidency also bodes well for China’s economy, analysts say, as a Biden administration is not likely to pursue putting more tariffs on Chinese goods and other elements of the trade war that Donald Trump had imposed.
In additions, with the Chinese currency rising against the dollar, there is silence from Washington that they were purposely lowing the value of the yuan to increase exports, since their products could be bought more cheaply by countries with stronger currencies.
CHINA-AFRICA TRADE GROWS TWENTY-FOLD UNDER PACT. The Forum for China-Africa Cooperation is marking its 20th anniversary this year by celebrating the expansion of trade between the two entities from $10.8 billion in 2000 to $208.7 billion in 2019.
China has built about 3,600 miles of road and railways in Africa, more than 16 ports, 45 large-scale electric generating stations, 130 medical centers, and 170 schools.
China’s non-direct investments in Africa also have grown a hundred-fold during the period, reaching $49.1 billion.
Although China has scaled back its African investments since 2017 as its own economy began to slow, many of its building projects there are continuing.
Under the pact, China imports more than 5,000 products from the continent either duty-free or under other favorable terms and is negotiating additional deals.
TRENDPOST: By building Africa’s economic and social infrastructure, China expects to cultivate economies on the continent that eventually will become profitable trading partners. In the new decade, the value of trade between China and African nations could exceed that of trade between China and the U.S.
Also, while we do not know what is going on behind the scenes, China has not overtly interposed itself into African nations’ internal political affairs or development plans.
By leaving countries to chart their own political and economic paths, China is ingratiating itself with those countries’ leaderships and giving the population no reason to resent it. Instead, China will be identified in these countries as a generous friend, not a heavy hand.
CANADIAN GOVERNMENT PROPOSES $100 BILLION STIMULUS. Canada’s governing Liberal Party has proposed $20 billion in stimulus spending in each of its next five fiscal years to jump-start the country’s economy, which is still mired in the aftermath of the COVID pandemic and national economic shutdown.
The new plan will take effect after a vaccine is distributed and “when the virus is under control and our economy is ready for new growth,” economics minister Chrystia Freeland said in a 30 November statement in the House of Commons.
“Spending roughly three to four percent of GDP, over three years, our government will make carefully judged, targeted and meaningful investments to create jobs and boost growth,” she said.
The recovery plan is intended to make Canada’s economy more green, inclusive, innovative, and competitive, she noted, highlighting initiatives in childcare, early childhood education, job training, and renewable energy programs.
The government is also proposing a grant of up to $1,200 for each child under six for low and middle-income families.
Although Canada has rung up a $381-billion deficit so far this year, the additional $100 billion is highly affordable now because interest rates are low and Canada has a record of strong economic performance, Freeland contended.
The risks of not spurring the economy outweigh those of adding more debt, she argued.
Freeland said the government will track factors such as the employment rate and total hours worked to determine when the stimulus spending can be ended.
“We are all tired,” she added. “But we also know vaccines, and a better day, are coming. To get to that day, we must first help each other get through the winter.”
Opposition Conservative Party members denounced the plan, saying it focuses on spending money and driving up debt rather than creating an economic and tax structure that would foster growth.
Canada’s national debt will reach $1 trillion within a few weeks, noted Aaron Wudrick, director of the Canadian Taxpayers Federation. He called on the government to present a credible plan to control federal spending as part of next year’s budget.
TREND FORECAST: Stimulus plans will temporarily, but only artificially boost economic growth. And, the higher the debt level of the nation rises, the deeper the value of the nation’s currency will sink.
INDIA SINKS INTO RECESSION. India’s economy contracted 7.4 percent in this year’s third quarter, following a 24-percent implosion in the second quarter.
Two consecutive quarters of negative growth is the technical definition of a recession.
Although many in India saw the third quarter’s lesser loss as an indication of progress, others found little hope in it.
The third quarter’s number is “a body blow to India’s economy” and “sets back progress, especially in poverty reduction, that has been achieved in previous years through high growth,” Cornell University economist Eswar Prasad told the Financial Times.
“India’s inability to control the virus has taken a severe toll on growth that will set the economy back for years to come,” he said.
India slammed its economy shut for 21 days on 24 March when the COVID virus numbered only a few hundred cases there, then extended the lockdown into June as the virus raged, infecting an estimated 25 to 50 percent of the population.
The shutdown erased as many as 100 million jobs and dropped tens of millions of the country’s 1.4 billion people into dire poverty, according to various analysts.
Although the virus was uncontrolled, India’s low rate of fatalities – roughly 140,000 as of last week, about half that of the U.S., which has a quarter of India’s population – persuaded the government to reopen the economy.
Since then, rail freight traffic and sales of consumer durable goods, such as electronics and appliances, have risen sharply. Manufacturing eked out a 0.6-percent gain in the third quarter.
However, the government’s financial straits will limit its ability to help the private sector recover.
TREND FORECAST: As we go to press, an estimated 300,000 Indian farmers are marching from the states of Punjab and Haryana to Delhi, setting up camps that block entry to the city… in what they say is a “decisive battle” in their fight against agriculture laws they say will destroy livelihoods.
As we reported in early January, with the Indian economy in its seventh consecutive quarter of contraction, protests were mounting against the government of Prime Minister Narendra Modi were escalating.
Also, in January we reported on the demonstrations spreading throughout India as millions of Indian citizens continued the two months-long protests against the passage of the Citizenship Amendment Act, spearheaded by Mr. Modi’s ruling Hindu nationalist party, which grants citizenship to religious minorities – except Muslims – from neighboring countries.
In response, these demonstrations were suddenly halted when the Prime Minister suddenly locked down the entire nation in March in his fight to win the COVID War.
As economic conditions continue to decline, demonstrations will escalate and India’s military/police forces will violently clamp down on protesters.
