Free Markets, Free People
A post to update you on what is happening, economically around the world.
Manufacturing activity in China and across a wide swath of Asia slowed in May, heightening fears that the turmoil in Western economies is dragging down one of the few remaining engines of global growth.
Two purchasing managers indexes for China fell in May, briefly rattling investors Friday and stoking speculation Beijing may have to respond aggressively to support growth. Indonesia posted its first trade deficit in nearly two years, and South Korea’s exports, considered a bellwether for Asia, unexpectedly fell for a third straight month.
"The green shoots of recovery that we were seeing a month or so back are wilting away," said Rob Subbaraman, chief Asia economist at Nomura Securities. "The crisis in Europe is one reason; the other one is the China slowdown. But I think less appreciated is that the height of uncertainty about the outlook has caused Asian firms and multinationals in Asia to pause in their investments, and I think that’s the bigger factor right now."
China’s official PMI, based on government data, showed manufacturing continuing to grow but by the barest of margins, falling to 50.4 in May from 53.3 in April. A figure above 50 indicates expansion. An index produced by HSBC and Markit showed Chinese manufacturing was worse, falling to 48.4 in May from 49.3 a month earlier.
"We feel that in China a very powerful stimulus"—combining fiscal outlays and cuts to banks’ reserve requirement ratio—"is required to arrest the slowdown in growth," said Frederic Neumann, co-head of Asian economic research for HSBC. "These numbers today suggest this is coming sooner rather than later. If that stimulus is not delivered, then China is indeed looking at a hard landing."
Both the US’s non-recovery recovery and the Eurozone crisis are being blamed for this slowdown.
The economies of Asia, both the emerging markets and the more developed countries, are being hit by a double whammy of slowing domestic growth and the impact of the European debt crisis on Asian exports and finance.
Signs of distress are proliferating.
In India, the government reported Thursday growth in the first three months of the year at the slowest pace in the past nine years—up 5.3% from the year-earlier quarter, well below the 8% pace of recent years. "A gasping elephant," said Leif Lybecker Eskesen, HSBC’s chief India economist, in a note to investors.
In China Friday, an official gauge of manufacturing activity fell to a lower than expected level, which is likely to add to market concerns about China’s slowdown. China’s official Purchasing Managers Index fell to 50.4 in May, compared with 53.3 in April and lower than the median forecast of 51.5. A reading below 50 indicates contraction. The Ministry of Commerce, meanwhile, is blaming "worse-than-expected" economic performance in Europe for disappointing export data.
Early Friday, South Korea said its exports unexpectedly contracted for a third consecutive month in May compared with a year earlier. South Korea is the first country in Asia to release trade data for the month and is often a harbinger of regional trends.
Meanwhile in Europe, the UK’s manufacturing is reported as slumping with activity dropping to its lowest level in three years. The Eurozone jobless rate stands at 11%. Additionally the Eurozone crisis is now beginning to effect countries with close proximity and ties which are not a part of the Euro:
The euro zone’s deepening fiscal crisis continued to take its toll on some of the neighboring economies of central and eastern Europe in May, as surveys released Friday indicated manufacturing activity contracted again in May.
The countries in Europe’s center and east have close trade and financial ties with the euro zone, and some have seen demand for their exports weaken as the currency area’s economy has stalled, while western Europe banks have cut their lending to the region.
A double whammy. And, finally, within the Eurozone itself, companies are trying to prepare for the Greek withdrawal from the zone (and possibly Spain’s as well):
As European officials race to quell fears that Greece may exit the euro, many companies doing business in the troubled country are preparing for the worst.
Most executives, analysts and others agree on one thing: the impact of a Greek withdrawal from the euro zone is impossible to predict. That’s why multinational companies are rehearsing for any number of contingencies. They range from a paralysis in cross-border payments to a civil breakdown in Greece to a broader breakup of Europe’s common currency.
Retrieving their cash is among the companies’ gravest concerns. If Greece were to revert to its former currency, many companies fear that any euros left there would be converted into less-valuable drachmas. Should that happen, Greece is widely expected to impose capital controls to keep the remaining cash in the country.
Can you say “completely mess?”
Meanwhile, here, the business climate remains unsettled, hiring still isn’t showing any real turnaround and the economy continues to bang along the bottom (one assumes, it could drop again if the Euro crisis explodes) with no real trend upward.
James Fallows, at the Atlantic, is pretty sure President Obama’s Asian tour was much more successful than the media gives him credit for, and, in fact, entitles his piece “Manufactured Failure“. His premise? That the media covered the trip much more like a campaign swing and thus missed its real and more subtle significance – and success. His proof? A couple of reader comments.
That’s not to say he may not have a bit of a point as it concerns the media coverage, but on the substantive side he needs to explain this if everything went so swimmingly but, apparently, unnoticed by the press:
Barack Obama looked tired on Thursday, as he stood in the Blue House in Seoul, the official residence of the South Korean president. He also seemed irritable and even slightly forlorn. The CNN cameras had already been set up. But then Obama decided not to play along, and not to answer the question he had already been asked several times on his trip: what did he plan to take home with him? Instead, he simply said “thank you, guys,” and disappeared. David Axelrod, senior advisor to the president, fielded the journalists’ questions in the hallway of the Blue House instead, telling them that the public’s expectations had been “too high.”
The master of spin’s spin is the public’s expectation’s had been “too high”? Wow – I guess Axelrod missed all that subtlety, nuance and success as well.
Der Speigel, however, did seem to have a pretty good bead on the actual results. You remember how I said we should monitor the progress this “new” method of conduction foreign policy does in the world of realpolitik? Here’s how:
Interests, not emotions, dominate the world of realpolitik. The Asia trip revealed the limits of Washington’s new foreign policy: Although Obama did not lose face in China and Japan, he did appear to have lost some of his initial stature.
In Tokyo, the new center-left government even pulled out of its participation in a mission which saw the Japanese navy refueling US warships in the Indian Ocean as part of the Afghanistan campaign. In Beijing, Obama failed to achieve any important concessions whatsoever. There will be no binding commitments from China to reduce greenhouse gas emissions. A revaluation of the Chinese currency, which is kept artificially weak, has been postponed. Sanctions against Iran? Not a chance. Nuclear disarmament? Not an issue for the Chinese.
The White House did not even stand up for itself when it came to the question of human rights in China. The president, who had said only a few days earlier that freedom of expression is a universal right, was coerced into attending a joint press conference with Chinese President Hu Jintao, at which questions were forbidden. Former US President George W. Bush had always managed to avoid such press conferences.
How bad is the growing lack of respect? You have a German magazine which was an Obama booster criticizing his foreign policy and comparing Obama to George Bush and finding Obama wanting.
Somewhere pigs are flying. What isn’t flying, however, is this “new” era in US foreign policy.
Dana Milbank does a pre-emptive strike on possible criticism of Obama’s globe trotting during a time of domestic economic woe. He notes that the “normally querulous opposition” hasn’t said a word about the fact that he’s spent 12% of his presidency outside the country and has more trips planned before the end of the year – a record unsurpassed by any president.
Why no criticism per Milbank? Heh … why do you think?
Normally, Obama’s wanderlust would be a liability, because Americans care more about the economy than foreign affairs. But the normal rules don’t seem to apply this year, largely because Obama’s predecessor left the nation’s world standing in a shambles. While Republicans may be tempted to criticize Obama for being “intercontinental,” as Bush would have put it, “the ability to change the way America is viewed is powerful,” a senior Obama adviser said Thursday, “and they are afraid of looking petty.”
Polling by the Pew Research Center at the end of Bush’s presidency found that 70 percent of Americans thought the country had become less respected in the world (only 5 percent said “more respected”), and most of them thought the decline in standing was a major problem.
“Repairing our image overseas was an important consideration for the public,” said Andrew Kohut, the poll’s director. Americans have given Obama credit for a “dramatic improvement” in the nation’s standing, he said.
Here’s an alternative thought for Milbank to consider. The reason the “normally querulous opposition” isn’t saying much, and, in fact, is complaining he isn’t gone enough (fall of the Berlin wall) is when he’s gone he isn’t here mucking things up. Or more succinctly, it’s to their advantage to have him gone.
On a separate subject, my theory as to why he’s going so much has to do with his realization that he is in over his head and as his poll numbers and popularity sink here, he seeks a narcissistic boost elsewhere. One of the main reasons, as some have theorized, he didn’t go to Berlin is there wasn’t enough about him in the program. Of course that didn’t stop him from inserting a totally irrelevant fact that when the wall fell those there at the time wouldn’t have imagined the US would have a president of “African descent” in office in his two minutes speech. What that had to do with anything is beyond me but it is another indicator of how self-absorbed the man is. On his Asian swing, as with his other visits to foreign countries, he will indeed be the center of attention. And, of course, issuing apologies as for the US as is his want, he can’t help but be more popular than a predecessor who didn’t do that sort of thing.
Whether the new “standing” we supposedly enjoy means anything at all really isn’t explored in the Milbank column. Apparently if that new standing is based on contempt (and the popularity of a US leader who panders too it) rather than respect, that’s fine – just so the numbers are “better” than they were previously. Because that means all kinds of important things to America – like more jobs, a better economy, a resolution on Afghanistan and much, much more.