- Closer trade ties (huge increase in German exports to China).
- Similar views on economic policy (in 2008 financial crisis both countries found themselves on same side of post-crisis debates).
- Closer politically (German motivation is closer economic ties, China motivation is to counter-balance US).
- Happened after comments from Mario Draghi, the president of the European Central Bank (ECB).
- He hinted again that ECB might soon start a QE (Quantitative Easing) in an attempt to stimulate the eurozone economies.
- QE means lower euro interest rates hence smaller return on euro denominated assets.
- US & UK slight tightening (Fed + BoE expected to gently raise main lending rates).
- Europe continued loosening (ECB expected to keep rates down + try anything to prevent recession & deflation).
- Japan unsure (in midst of huge stimulus plan, but economy gyrating so markets unsure what path BoJ will pursue).
- No - oil price fall is damaging/painful but potential peace dividend with Farc will go a long way, economically, to offset this.
- Currency has fallen by 45%, share price of national energy company (Ecopetrol) has halved, current account deficit will widen (oil > 50% of exports) as will budget deficits (oil accounts for 17% of govt. revenues).
- But positive economic impact of ongoing peace talks with Farc guerrillas (aiming to end 50 years of insurgency, which often hit oil pipelines) is expected to offset economic negatives of oil-related slowdown.
- Bad for oil exporters (i.e. Russia + all OPEC countries - except maybe Saudi Arabia).
- Hurts capital intensive extractive businesses in the medium term.
- Benefits households immediately as cheaper petrol means more disposable income + lower shipping costs, hence good for consumption so, YES, good for global growth.
- 30% tax on purchases of foreign currency and more than doubling of interest rates to over 50%.
- Temporary ban on over-the-counter currency trades + increase in the level of compulsory foreign currency sales by exporters (from 30 to 50%).
- These controls effectively limit the exchangeability of the currency and are aimed at limiting contagion from the Russia crisis.
- Wait, what? Yes, as of 22 Jan 2015 you will need to PAY an interest rate of 0.25% on balances above a certain amount.
- This is an attempt to fight the huge upward pressure on the Swiss franc (as investors see it as a safe haven during the Russian crisis).
- This negative interest rate makes it less attractive to hold Swiss francs investments, and hence tempers the upward pressure on the currency.
- FX intervention in the spot market (US$4.6bn in reserves), i.e. buy roubles from anyone who is selling.
- Quantitative tightening, i.e. limit provision of rouble liquidity to the banking sector (opposite of Quantitative Easing).
- Additional interest rate rises and, as a final resort, some form of exchange controls.
- Because OPEC's leader, Saudi Arabia, has decided not to.
- Saudi Arabia is now prioritising its own long-term market share over short/medium-term revenue maxmisation.
- Oil production costs in US > those in OPEC countries, especially Saudi Arabia, so low oil price is bad for US oil (supply less likely to expand) and hence allows Saudi Arabia to maintain (or even increase) its market share.
- Saudi has built up huge excess capacity and has a very low extraction rate, hence has the ability to go it alone despite the wishes of other major OPEC members like Iran and other oil exporters like Russia (lower oil prices limit what Saudi believes are Russia and Iran's destructive geopolitical activities in the Middle East).
- Saudi has huge foreign exchange reserves hence a big cushion to lost oil revenues when oil price falls.
- Saudi putting national interests (maintaining market share and staying the world's top oil producer) ahead of OPEC interests (maximising oil revenues for all members).