12/31/14

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.


12/29/14

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.

12/28/14

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

The mean income gap between white males and black females grows during the democratic presidencies

Two days ago, we compared the mean income evolution of the white and black population and demonstrated that the difference did not change mu...