The global economy risks skidding back into recession just three years after emerging from the previous one, an International Monetary Fund report warned.
The fund expects the world economy to expand just 3.3% this year and 3.6% in 2013, as growth slows in nearly every major nation and political uncertainties threaten recoveries in the U.S. and euro zone. That is a revision downward of 0.2 percentage point for 2012 and 0.3 percentage point for 2013 from its July forecast. Under the IMF’s definition, global gross domestic product doesn’t have to shrink for the world to be in recession.
“No significant improvements appear in the offing,” the IMF said. The global economy grew 3.8% in 2011 and 5.1% in 2010.
(…) Now, its advice is far more complicated, counseling some overextended nations to cut their budgets, some to embark on politically difficult economic overhauls, and some, including Germany and the Netherlands, to aim for somewhat higher inflation rates to make struggling euro-zone countries more competitive.
MORE ON FREIGHT
Yesterday, I wrote about the weak U.S. rail carloads which rose 0.1% ex-coal, ex-grain MoM in September. For Q3 as a whole, carloads ex-coal and grain declined 0.6%.
Cass Information Systems just released its own September report:
Truck tonnage is higher than in 2011, but has been relatively flat for the last few months, even declining somewhat for LTL carriers.
This month’s 2.2 percent increase can be attributed, however, more to contingency planning for the anticipated International Longshoreman’s Association (ILA) dock workers strike than to a seasonal surge in shipping. With the ILA contract set to expire on September 30 and negotiations at a standstill, shippers using the East Coast and Gulf Coast ports put plans in place should the strike occur.
Experts predict California’s skyrocketing gasoline prices will start easing in the next few days, after an idled refinery resumed production and Gov. Jerry Brown ordered winter-blend gasoline earlier than usual.
Baghdad’s output set to double by 2020
Iraq would account for 45 per cent of the anticipated growth in global oil supply over the current decade.
If the IEA is right, Iraq’s supply surge could have far-reaching consequences for the geopolitics of oil and dramatically change the balance of power within Opec, the producers’ group. Iraq would overtake Iran and Venezuela to become the second most influential member of the cartel after Saudi Arabia. (…)
Iraq’s oil exports rose to 2.6m barrels a day in September, the highest in more than three decades. (…)
Under the IEA’s central scenario, Iraq would more than double exports to 6.1m b/d by 2020 and accumulate $200bn a year on average in revenues from oil exports to 2035. “It will emerge as an energy powerhouse in 20 years’ time,” Mr Birol said, with Iraq achieving a gross domestic product the size of Saudi Arabia’s today. (…)
German Industrial output drops 0.5% in August but steeper fall likely in September
Industrial output fell 0.5% in Germany in August following a 1.2% increase in July. Manufacturing output fell 0.5% after surging 1.5% in July, while the output of the construction sector slumped by 2.8%. Energy production helped limit the overall industrial decline,
Despite the downturn, industrial production is still up 0.8% in the three months to August compared to the previous three months, which is a much healthier picture of German industry in the summer months than the business surveys have indicated. Such a divergence between official data and the business surveys is unusual, especially as both the PMI and IFO surveys continue to track each other very closely.
Official data tend to eventually catch up with the messages from the surveys, so it seems likely that the trend in the official production data will deteriorate in coming months. This is already evident in the official data on orders, which showed demand for German goods falling much faster than expected in August, down 1.3% compared to July. Orders in the three months to August were down 1.7% on the previous three months, suggesting that demand weakened markedly in the third quarter. (Markit)
Region no longer immune from recessionary forces in Europe
European finance ministers made a fresh attempt to work out a plan for a single system of bank supervision, but chances of a breakthrough appeared slim.
The People’s Bank of China offered 265 billion yuan ($42.14 billion) worth of reverse repurchase agreements through its regular open market operations, adding to the 2.418 trillion yuan offered since late June.
PBOC Gov. Zhou Xiaochuan, in the latest edition of bimonthly China Finance magazine, said the economy faces “relatively big” pressure and that the bank will take more “preemptive, targeted and effective measures” while maintaining continuity and stability in monetary policy.
The comments were similar to comments made in August and echoed Premier Wen Jiabao’s call in September to maintain steady economic growth; but they somewhat supported market expectations of a pro-growth policy in the near term, traders said.
FOR BETTER OR FOR WORSE
Earnings season begins today and investors have been warned that it may be a bad one. Sufficiently brainwashed, investors succumb to earnings surprises. Here’s how!
New research by a team of neuroscientists at Emory University shows that business-school students investing in stocks who were confronted with negative earnings surprises experienced a steep drop in activity in the ventral striatum, an area of the brain that responds to rewards. (The investors learned about the stocks while their brains were monitored inside a giant magnetic scanner.)
The researchers found that what determines how an investor’s brain responds to an earnings report isn’t the size of the company’s gain or loss, but whether the gain or loss is better or worse than expected. That likely occurs regardless of whether the expectation is set by the Wall Street consensus or by an investor’s own worry number, says Jan Barton of Emory, one of the study’s authors.
So when investors expect a severe shortfall, anything better—even if it is still bad—will feel positive and surprising.