Category: Economics

Where is Japan on the Abenomics trajectory?

Where is Japan on the Abenomics trajectory?

  • Japan economy faces big structural problems after 20 years of recession, i.e. decreasing population, ageing society, slow investment and low productivity.
  • Abenomics = PM Abe's plan for sorting out the economy, and has "Three Arrows": [1] Fiscal stimulus, [2] Monetary easing and [3] Structural reforms (i.e. addressing government debt).
  • [1] and [2] have been fired with mixed results - now [3] needs to happen big-time if Japan wants to avoid either fiscal collapse or a drop in living standards over the next few decades.

Explain South Africa’s student protests?

  • Widespread protests against proposed higher tuition fees - President Zuma capitulates and agrees to a cap of fee increases.
  • Protests seen as barometer of broad dissatisfaction with post-Apartheid government's apparent failure to address economic inequalities.
  • Economic backdrop unsupportive: Growth still weak, unemployment high, fiscal deficit widening.

Main global consequences of China’s slowdown?

  • Depresses global commodity prices (i.e. China is a huge consumer of global commodities).
  • Which results in big swings of emerging market currencies (i.e. countries which export to China).
  • Which in turn makes it more difficult for the US Fed to raise interest rates (as it might provoke unwanted volatility in global markets, as investors leave emerging markets to seek higher and more stable returns in the US).

What’s holding France’s economy back?

What’s holding France’s economy back?

  • Growth weak 2015 and expected just slightly better 2016, despite benefits of cheap energy prices and weak euro.
  • Rigid labour market is the main problem.
  • Results in high structural unemployment, forces entrepreneurs to move to London, and keeps the country uncompetitive.

Snapshot of QE in Europe?

  • In very crude terms, when an economy slows, a central bank can try boost growth by lowering interest rates or by Quantitative Easing (QE), injecting cash (liquidity) into the economy (by buying bonds from the marketplace).
  • With interest rates super-low (and some even -ve), the ECB launched a massive QE programme in Jan '15, which involved buying EUR1.1tn of bonds from the marketplace, which is the same as a EUR1.1tn cash injection into the economy.
  • But China slowdown and uncertainty in emerging markets have created new growth concerns, so ECB considering expanding the QE program (next meeting in early December).

What is Monetary Policy?

  • Process by which the monetary authority (Central Bank) of a country or currency area, controls the supply of money.
  • The Central Bank usually targets an inflation rate or interest rate to maintain price stability and ensure trust in its currency.
  • Expansionary monetary policy is a recession-fighting tool, usually meaning increasing money supply faster than usual, typically by lowering interest rates.

What is the European Central Bank (ECB)?

  • Central bank for the euro.
  • Administers monetary policy of the Eurozone.
  • Primary objective is to maintain price stability within the Eurozone (i.e. prevent inflation and deflation).
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