1 Global economic malaise as the new normal (Nouriel Roubini in The Guardian) The International Monetary Fund and others have recently revised down their forecasts for global growth – yet again. Little wonder: the world economy has few bright spots – and even those are dimming rapidly.
Among advanced economies, the US has experienced two quarters of growth averaging 1%. Further monetary easing has boosted a cyclical recovery in the eurozone, though potential growth in most countries remains well below 1%. In Japan, so-called Abenomics is running out of steam.
In the UK, uncertainty surrounding the June referendum on continued EU membership is leading firms to keep hiring and capital spending on hold. And other advanced economies – such as Canada, Australia and Norway – face headwinds from low commodity prices.
Things are not much better in most emerging economies. Among the five Brics countries, two (Brazil and Russia) are in recession, one (South Africa) is barely growing, another (China) is experiencing a sharp structural slowdown, and India is doing well only because – in the words of its central bank governor, Raghuram Rajan – in the kingdom of the blind, the one-eyed man is king.
Many other emerging markets have slowed since 2013 as well, owing to weak external conditions, economic fragility (stemming from loose monetary, fiscal, and credit policies in the good years), and, often, a move away from market-oriented reforms and toward variants of state capitalism.
The rise in income and wealth inequality exacerbates the global saving glut, which is the counterpart of the global investment slump. As income is redistributed from labour to capital, it flows from those who have a higher marginal propensity to spend (low- and middle-income households) to those who have a higher marginal propensity to save (high-income households and corporations).
There are no easy political solutions to the quandary. Unsustainably high debt should be reduced in a rapid and orderly fashion to avoid a long and protracted (often a decade or longer) de-leveraging process. But orderly debt-reduction mechanisms are not available for sovereign countries and are difficult to implement within countries for households, firms, and financial institutions.
Thus, for the time being, we are likely to remain in what the IMF calls the “new mediocre”, Larry Summers calls “secular stagnation”, and the Chinese call the “new normal”, But make no mistake: there is nothing normal or healthy about economic performance that is increasing inequality and, in many countries, leading to a populist backlash against trade, globalisation, migration, technological innovation, and market-oriented policies.
2 Saudi Binladin Group sacks 50,000, will pay salaries (San Francisco Chronicle) Saudi Arabia’s labor minister said some employees of the Saudi Binladin Group will receive their salaries this month and others soon thereafter.
Thousands of employees of the construction giant have been holding rare protests over not being paid their salaries for up to six months. Employees set fire to company buses Saturday to also protest a large round of reported layoffs.
Construction firms in the Gulf have suffered from delayed government spending on major projects. Labor Minister Mufrej al-Haqbani said workers are protected under Saudi labor law and would receive overdue salaries even if they are fired and issued exit visas.
Saudi newspapers have reported that the Saudi Binladin Group terminated employment for at least 50,000 foreign workers and was considering firing 12,000 Saudis. The group is one of the world’s largest construction firms. Founded in 1931 and headquartered in Jiddah, the firm has been behind some of Saudi Arabia’s most important projects, including roads, tunnels, airports, universities and hotels.
The Binladin family has been close to Saudi Arabia’s ruling family for decades. Al-Qaida’s late leader Osama bin Laden was a renegade son of the construction firm’s founder, Mohammed bin Laden, and was disowned by the family in the 1990s.
3 Australia cuts rates to record low of 1.75% (Straits Times) Australia’s central bank has cut interest rates to an all-time low of 1.75 per cent, the first easing in a year as it seeks to restrain a rising currency and stave off the creeping curse of deflation.
The Reserve Bank of Australia’s quarter-point cut sent the local dollar down more than one US cent to US$0.7567 as markets wagered a further move to 1.5 per cent was now likely. Australia is just the latest in the Asian region to feel the chill of deflation as too many goods chase too little demand. Singapore surprised many by easing last month, after India, Taiwan, Indonesia, China, Japan and New Zealand.
Eight central banks globally have embarked on entirely new stimulus cycles so far this year while the Bank of Japan and European Central Bank have embraced sub-zero rates and expanded their asset-buying campaigns. All this easing abroad has, in turn, boosted the Australian dollar further than the RBA desired, hurting exports and tourism while pushing down import prices and, hence, inflation.
While Australia is still struggling with the unwinding of a massive mining boom, economic activity has been generally favourable. Growth was a surprisingly brisk 3 per cent last year and unemployment recently fell to a 30-month low of 5.7 per cent. The RBA had also been reluctant to risk a debt-fuelled bubble in the housing market, though tightened rules on investment lending have led to prices cooling in recent months.