Euro area, USA, China, India, Russia - economic growth

Here we present the evolution of GDP per capita (OECD dataset) for Euro area, USA, China, India, and Russia. In Figure 1, instead of presenting real GDP levels, we normalize all time series to their respective values in 2008. Euro area is the looser in term of growth – real GDP has gained 17% since 1995 with the peak in 2007.  Moreover, it is about 4% below the 2007 level with a negative trend.  

It might be surprising for some readers that USA had the same evolution between 1995 and 2011 with some minor deviations, but definitely has been growing at a larger rate than Euro area since 2011. In 2013, U.S. was marginally above the 2007 level.

China and India are winners in growth rate, but still are far behind in terms of GDP per capita level. Russia is in a middle position in both graphs.

Figure 1. Real GDP per head for several countries and Euro area all normalized to their respective levels in 2008.

Figure 2. Real GDP per head for several countries and Euro area.

Oil, 2016, Russia, WWIII

We have posted on all items in the title of this post separately. Briefly, we predicted oil price to fall to $30 in 2016. Russia is the country critically dependent on oil price. The best real GDP projections for Russia with oil at $60 still include a few years of recession and high inflation. These economic phenomena are famous to punish the poorest part of population - retirees and unqualified personnel. This is the root electorate of United Russia - the current power. In the shade of low oil price and partly demoralized electorate, Russia runs into the 2016 legislative elections. This is kind of perfect storm when all possible negative factors come together and, by positive feedback, multiply damaging power. 

This could be extremely heavy burden just for the Russian society if not the Ukraine conflict. Not exaggerating the degree of internal protests initiated by socio-economic degradation we cannot exclude fierce suppression of any kind protest since the beginning of 2015. West will pour some oil (irony) into the internal and external conflicts ... and WWIII.  

I feel panic.

The price of steel and iron will be falling

In March 2014, we posted on the falling producer price of steel and iron in 2014. This prediction was right and the PPI of iron and steel has been falling from 238.0 (January 2014) to 225.7 (November 2014). The overall PPI has also dropped by 7.2 points since March.  Here we report that we foresee no general change in the declining trend. In 2015, we expect that the producer price index of iron and steel will experience further fall together with oil and many other commodities.  Moreover, the overall PPI will be also falling and dragging consumer prices down.

For price prediction of various commodities, our general approach is based on the presence of long-term sustainable (linear and nonlinear) trends in the evolution of the CPI and PPI in the United States [1, 2]. The difference between components of these indices is not a random one but is rather a predetermined process. Using these trends, one can predict consumer and producer price indices for select goods, services and commodities.

On Seeking Alpha, we first reported on the evolution of the producer price index (PPI) for iron and steel in July 2009. We compared our earlier prediction from 2008 with the actual evolution of the difference between the PPI of steel and iron and the headline PPI and made the following forecast:

“In the short run, one can expect a fast recovery of iron and steel prices to the level observed in January-March 2008, i.e. the index will reach the level 210 to 220. However, this recovery will not stretch into 2011, and the index of iron and steel will be declining in the long run to the level of 2001, as depicted in Figure 3. In other words, the period between 2008 and 2010 is characterized by very high volatility, which will fade away after 2011.”

Figure 1 in this post reproduces Figure 3 from the 2009 post, where the green line gives a prediction of the future evolution. Since 2009, we made several updates considering new data on both PPIs (June 2010, February 2012,  December 2012, August 2013). According to our long-term tradition, we revisit the previously predicted fall in the producer price index of steel and iron and formulate a preliminary hypothesis on the evolution in 2015-2016.  

Figure 2 displays the difference between the PPI and the index for iron and steel (BLS code 101) since 1985. Between 1985 and 2000, the curve fluctuates around the zero line, i.e. there was no linear trend in the absolute difference. The difference is characterized by a sharp decline between 2001 and 2008. Our main assumption described in the aforementioned post was absolutely right - the negative trend observed before 2008, after a short period of large fluctuations, started its transformation into a positive trend after 2010. In Figure 2, the (slightly updated according to actual data between 2009 and 2011) new trend is shown by green line. This trend suggests that the PPI grows faster than the index of steel and iron by approximately 2 units of index per year. This observation was valid between March and November 2014.

Figure 3 demonstrates the most recent period and confirms that our prediction for 2013 was correct – the difference fluctuates around the green line. As described in our previous post, the short-term growth in the price of iron and steel observed in November 2013 and January 2014 was a transient one (a fluctuation) and the difference returned to green line in the second quarter of 2014. 

We have to confirm our forecast that the difference will be growing fluctuating around the green line in 2015 and 2016. The price of iron and steel will be declining further before the difference reach ~10 to 20.  Investments is iron and steel related assets are likely not profitable. 

Figure 1. The prediction of steel and iron price made in 2009.

Figure 2. The difference of the PPI and the index of steel and iron for the period between January 1985 and November 2014. The green line was first introduced in 2008.

Figure 3. Same as in Figure 2 for the period between January 2005 and November 2014. Green line predicts the evolution of the difference after 2009.

Who recovered best after 2008?

Total economy database gives an opportunity to compare how different countries recovered after the 2008-2009 crisis

Just take a look and find the country of interest. This is GDP per head in 1990 US dollars. Notice the biggest european economies (except Germany) are still below their 2007 level.  All BRICS are above their 2007 levels. 

Country	2007	2013	Diff, $
Albania	4647	5669	1022
Algeria	3533	3701	168
Angola	1445	1695	250
Argentina	9785	10962	1178
Armenia	10888	11975	1087
Australia	25460	27761	2302
Austria	24235	25038	803
Azerbaijan	7183	9131	1949
Bahrain	4805	5072	267
Bangladesh	1124	1463	339
Barbados	9538	8995	-543
Belarus	11421	15027	3605
Belgium	23497	23875	378
Bolivia	2831	3397	567
Bosnia/Herzegovina	7808	8169	361
Brazil	6246	6969	723
Bulgaria	8921	9724	803
Burkina Faso	1152	1378	225
Cambodia	2281	2862	581
Cameroon	1164	1271	106
Canada	25300	25754	454
Chile	12779	15368	2589
China	5728	9307	3578
Colombia	6690	7842	1152
Costa Rica	7890	8527	637
Côte d'Ivoire	1172	1269	97
Croatia	8662	7858	-804
Cyprus	13863	11603	-2260
Czech Republic	13061	13307	245
Denmark	25060	23741	-1320
Dominican Republic	4778	5725	947
DR Congo	241	293	51
Ecuador	4706	5560	854
Egypt	3847	4265	418
Estonia	22108	22375	266
Ethiopia	772	1135	362
Finland	24651	23755	-896
France	22202	21636	-566
Georgia	5842	7263	1421
Germany	20486	21624	1138
Ghana	1686	2408	722
Greece	15905	12099	-3805
Guatemala	4442	4658	216
Hong Kong	28913	32727	3814
Hungary	8735	8391	-344
Iceland	26778	24646	-2132
India	2810	3803	994
Indonesia	4156	5455	1299
Iran	6054	6194	140
Iraq	1711	2152	441
Ireland	26994	23413	-3580
Israel	18407	20686	2279
Italy	19855	17793	-2061
Jamaica	3891	3555	-336
Japan	22406	22709	303
Jordan	5213	6078	864
Kazakhstan	10420	12802	2382
Kenya	1135	1229	94
Kuwait	9553	8909	-643
Kyrgyz Republic	2757	3268	511
Latvia	14754	13898	-856
Lithuania	11403	11740	338
Luxembourg	40011	37000	-3011
Macedonia	3951	4360	409
Madagascar	712	664	-48
Malawi	628	748	120
Malaysia	9588	11189	1601
Mali	999	1028	29
Malta	13730	14628	897
Mexico	7972	8180	207
Moldova	3701	4715	1015
Morocco	3623	4411	789
Mozambique	2296	2998	702
Myanmar	2843	4326	1483
Netherlands	24756	23789	-968
New Zealand	19458	19895	437
Niger	480	565	85
Nigeria	1657	2112	455
Norway	28513	29594	1081
Oman	8434	10650	2216
Pakistan	2382	2620	238
Peru	4950	6370	1421
Philippines	2829	3384	555
Poland	9684	11619	1935
Portugal	14631	13318	-1314
Qatar	10782	12992	2210
Romania	11238	11879	641
Russian Federation	8585	9526	941
Saudi Arabia	10898	13896	2998
Senegal	1479	1547	68
Serbia & Montenegro	3609	3907	298
Singapore	27874	31464	3591
Slovak Republic	13235	14586	1351
Slovenia	18033	16739	-1294
South Africa	4914	5612	698
South Korea	20075	23527	3451
Spain	17872	16014	-1858
Sri Lanka	4652	6416	1764
St. Lucia	4057	4124	67
Sudan	3042	2976	-66
Sweden	25503	26796	1293
Switzerland	25025	25359	334
Syria	7527	8086	558
Taiwan	21470	24903	3433
Tajikistan	1474	1853	379
Tanzania	716	898	182
Thailand	8795	10115	1320
Trinidad & Tobago	24317	24292	-25
Tunisia	5911	6466	555
Turkey	8303	9178	875
Turkmenistan	3448	6117	2670
Uganda	1025	1192	167
Ukraine	4882	4870	-12
United Arab Emirates	13720	12549	-1171
United Kingdom	25590	24267	-1323
United States	31974	32236	262
Uruguay	9512	12837	3325
Uzbekistan	4851	7349	2497
Venezuela	10289	10489	200
Vietnam	2697	3518	821
Yemen	2970	2772	-198
Zambia	714	886	172
Zimbabwe	800	812	12