Relevant and even prescient commentary on news, politics and the economy.

How do you get it right?…

Mike’s response to a short note from me I lifted and summarized from an advertisement/advice for investors on Brazil. Mike’s response below the fold:

Today, Brazil moved aggressively to ensure that the widening global financial crisis will not reach its shores, taking several measures to stimulate consumption and investment in the world’s seventh largest economy. Finance Minister Guido Mantega estimates that the moves will help Brazil’s GDP reach 5 percent next year.

The following will take effect immediately:

– Producers of 8,500 manufactured products will receive tax credits of up to 3% for sales abroad

– The IOF transaction tax will be eliminated on foreign purchases of Brazilian stocks (previously 2%) and on corporate bonds with maturities of more than four years (previously 6%)

– Stock receipts of Brazilian companies traded abroad, such as American Depositary Receipts (ADRs), will be cancelled

In fairness, Brazilian trade policy has often been poorly designed and managed even worse. When I was growing up there were 500% tariffs on imported electronic goods, the idea being to protect the burgeoning Brazilian electronics and computer industries. (Needless to say, it didn’t work.)

On the flip side, protection of aircraft has led to Embraer making some pretty good planes. Similarly, as I noted before (this isn’t exactly trade policy, but it is economic policy) actions by the Brazilian government in the late 1970s, 1980s and 1990s are responsible for the fact that a Brazilian can walk into a car dealership today and buy a tri-flex vehicle that runs on any combination of gasoline, ethanol or natural gas. I doubt Americans will be able to do the same thing before my 17 month old son is able to drive, and perhaps not for decades later.

The trick, I guess, is… how do you get it right? To come back to the US, how do you increase the ratio of Arpanets to Solyndras?

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Global slowdown underway – it’s more than the Japanese supply chain disruptions

by Rebecca Wilder

Global slowdown underway – it’s more than the Japanese supply chain disruptions

The global economic rebound is slowing markedly. With a tightening bias in emerging markets and a US recovery that continues to disappoint, external demand for any country that ‘needs it’ – those countries mired in fiscal austerity without monetary autonomy, i.e. euro area countries – is decelerating precipitously.

Exhibit 1: import demand for manufactured goods from 22.5% of the world (see chart at the end of this post) is slowing quickly, even contracting.

The chart illustrates the growth of import demand for manufactured goods from the US (12.8% of world import demand in 2011) and China (9.7% of world import demand in 2011) on a 3-month over 3-month annualized and seasonally adjusted basis. Spanning April through June 2011 compared to January through March 2011, US imports for manufactured goods slowed to a 4.9% annualized clip, while Chinese manufacturing imports contracted at a 22.9% annualized pace. US import demand growth peaked at 36.9% in March 2011 (again, on the same 3M/3M SAAR basis), while Chinese import demand growth peaked a bit earlier at 108.2% in January 2011.

One may argue that the sharp slowdown (US) and deceleration (China) of manufacturing imports is a product of supply chain disruptions stemming from the Japanese earthquake and ensuing tsunami. Let’s take a look.

Exhibit 2: Japanese distortions started to ease in April and May, leading global imports by roughly 1 month.

The chart above illustrates the dynamics of the Japanese industrial sector before and after the earthquake. Industrial production started to recover in April 2011 and hit a month/month peak of +6.2% growth in May. The sector has all but recovered, and should have been reflected in the US and Chinese import data as positive momentum by June- it hasn’t. In June, the seasonally adjusted import demand decelerated to a 0.6% pace in the US, while that in China contracted 4.3%.

In contrast, we saw the easing of supply chain disruptions in the US domestic industrial production stats. In the US (not shown, but you can get the IP data here), production of motor vehicles and parts fell 6.6% in April, which has improved sequentially through June (-2% M/M). This should be reflected in import demand (first chart), but the opposite’s occurred. In fact, import demand has worsened, while the supply chain disruptions improved. Better put: there’s weakness in global demand that is unrelated to Japanese supply chain disruptions.

Global growth is slowing – according to import demand of manufactured goods by the US and China, it’s slowing rather quickly. Where will this be felt? In Europe, of course. Germany derives near 50% of GDP from export demand, and imports roughly 45% of its goods and services from within the euro area (data here). The PIIGS countries – Portugal, Ireland, Italy, Greece, and Spain – necessitate strong external demand from the core countries (Germany and France) and from outside the euro area in order to successfully deleverage amid sharp fiscal retrenchment. Unless the German consumer really starts spending, the global industrial sector is unlikely to drive demand sufficiently enough in Europe.

Rebecca Wilder

Reference: dynamics of US and Chinese shares of world import demand


Crossposted at Newsneconomics

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