Archive for the ‘World Economy’ Category

InstaForex – Best Broker in Asia Pacific 2015

Friday, September 11th, 2015

We are pleased to announce that in the summer of 2015 our company earned an award as a provider of financial services in the international currency market. So we managed to win the top prize and prestigious title of the Best Broker in Asia Pacific 2015 at Shanghai Forex Expo 2015 in China.

Shanghai Forex Expo 2015 is a high­profile event in the finance industry. Among traditional participants there are traders, retail investors, institutional investors, brokerage companies, and their partners.

We are grateful to the exposition hosts and the jury of Shanghai 2015 Forex Expo who duly appreciated our performance.

Europe: between East and West

Monday, September 8th, 2014

1406735406_8f00dddd52b21747664c9ba9d18bf5e2Europe has got into a very difficult situation amid economic stand-off between Russia and the West. The bottom line is that it is not even the sanctions war; it is the struggle between the US and Russia to maintain or end the unipolar domination. So the issue is mostly about geopolitics that stems from historical realities and traditions. As for the European Union, it has become sandwiched between the US hysteria and Russia’s cold calculation.The US is ready to go far with its sanctions on Russia holding a shield of Europe in front of it. In its turn, Russia hits the diluted vassal bloc of the US.

Thus, it is Europe that suffers first casualties in terms of money. The US and EU sanctions prevent Russia from raising funds in the foreign capital markets with a maturity longer than 90 days. Indeed, this is a real blow to the Russian banking system and corporate sector. However, China develops its banking sector by leaps and bounds loosening control over its financial system and offering credits to other countries and major companies. So it is an affair of few months for Russia’s businesses and banks to turn to China for credits. Of course, China may raise its borrowing costs, but this country could well be a substitute of the western debt market.

Speaking about the Russian retaliatory sanctions against the EU, US, Norway, Australia, and Canada, the matter is much worse here. While the US, Australia, and Canada had almost nothing to lose, the wave of farmers’ protests has engulfed the EU. The European Union may lose from 6 to 10 billion euros in 2014 due to Russia’s foods import ban. This is a considerable amount given that the most export losses fall on Germany as well as on the weakened southern (Spain, Italy) and eastern (Lithuania, Latvia, Estonia, Poland, Hungary, Czech Republic, and Slovakia) countries of the EU. Finland, the country that has growing political and economic weight, also takes a hard hit to its exports. 1384194275_76Thus, Finnish Prime Minister Alexander Stubb has been the most cautious on ramping up the sanctions measures. “We have good relations with Russia, and, of course, we use them to our benefit,” said Stubb adding that Finland would seek compensation from the EU because of the impact of sanctions.

The Baltic countries are also worth mentioning. Lithuania may incur huge losses due to Russian retaliatory sanctions. It supplied up to 60% of its total meat and dairy exports to Russia. It would take Lithuania years to find an alternative market with the same level of demand. While searching for such a market, its GDP would decrease 6% annually, thus pushing the country to the deepest recession. On top of all this, Lithuania is set to adopt the euro on January 1, 2015. This could result in a collapse of its economic system and disappointment in European integration, which would be quite undesirable for the EU. In case this scenario unfolds, Washington would be presented a bill for that. But that is quite unlikely. The maximum that may happen is the European Union rejection of sanctions against Russia because of the fear of losing the Russian market, not only its food segment, but also the automotive, manufacturing, textile sectors, etc.

In this context, statements of the Chinese government about not supporting the US and EU sanctions make attempts of the latter to indulge in the US policy absolutely vain. Curry favoring with the US is quite widespread in the EU, but it remains unclear what price Europe is ready to pay for the opportunity to ‘play in the same sandpit’ with the US. Perhaps the limit is somewhere out there as 10 billion euros the EU lost seems to be more than enough. Maybe someday Europe will throw up this game.

imagesThere are an increasing number of politicians and people in power opposed to confrontation with Russia in the European Union. That means the EU is likely to move away from the geopolitical conflict between Russia and US. However, it is as well unlikely that it will move closer to Russia. Neutral position is most possible. For example France, Spain and other EU member countries with no superpower ambitions have already paid too much for current pro-American policy of the EU.

Being under political and economic pressure by the US and Russia from both sides, the European Union could start more active work on de-escalation of the conflict in Ukraine. However, the Ukrainian government got used to listen to mostly American orders, not German gentle tone. So all Europe can do is mince words to explain the US why EU countries do not want to take part in the sanctions war with Russia.

Meanwhile, Russia has its own dialogue with Ukraine, the EU and US. That gives Russia some room for manoeuvre. The EU cannot afford such a luxury yet.

ECB follows in Japan’s footsteps

Monday, July 7th, 2014

The European Central Bank cut its benchmark interest rates for banks implementing a long-term lending program. That was all the changes the ECB made at the latest meeting. It might seem not a big deal, but it is obvious that Mario Draghi has opted for the way his Japanese counterparts have been sticking too. Such a strategy will allow the European regulator to thoroughly evaluate the euro area’s prospects, the euro’s exchange rate, and steps to be taken. mario-picdragi

So, what exactly have Draghi done to encourage the economy of the bloc? Let’s see. The ECB brought down the main refinancing rate a little, to 0.15% from 0.25% previously. That suggests the regulator is not ready yet to rush into a hasty decision leaving room to maneuver. In the meantime, the deposit rate was reduced to minus 0.10% from 0%. It was the first time the ECB made up its mind to take the interest rate negative.

As for the 400 billion targeted lending program for banks, it implies that the ECB intends to improve the European lending market at any cost. However, despite the facelift the monetary policy got, the central bank realizes that deflation remains number one enemy for Europe’s economy. Extremely low inflation, sluggish corporate lending, and a strong euro – all that creates the conditions for the deflation to set in. Thus, the ECB Board of Directors headed by Mario Draghi should go beyond the introduction of countermeasures and policy correction at risk of this economic disaster. They should act drastically and immediately. Basically, the measures introduced on Friday ushered in the new stage, but they might not help to achieve the desirable outcome. But the ECB will be able to stall for time using them for sure.

An important point to remember is that some recognized analysts and financiers find fault for the latest steps the European regulator made. For instance, many conservative-minded experts are of the opinion that the negative deposit rate and soft lending will make money for the business sector even easier to get. Since the low-interest loans become more affordable, that might result in deflation. Europe is treading now the path of Japan lagging behind it by one or two steps. Eventually, Japan is going through the deflation now.

We have to admit that despite the deflation, the Japanese economy is still expanding. Apart from playing with the benchmark rates, Prime Minister of the Land of the Rising Sun Shinzo Abe has used other methods for unification and adaptation of the monetary policy to the economic needs. Some of the measures like the yen devaluation are considered to be seismic. However, “Abenomics” is taken on board now as not only politicians, but also ordinary people have come to realize the reasonableness of such a policy. The plan worked out and the industrial output together with export almost got back to the pre-crisis levels scored before the Fukushima disaster.

ekonomik_jpg_576x288_crop_q70But will Mario Draghi dare to go for it? That is an open question. It seems that the ECB chief prefers the Japanese scenario to the American one with its QE, thus alluding to the fact that ECB’s actions are rather predictable so far.

Anyway, the first steps are taken and it is better to watch for the consequences they might cause. As for the non-euro area states, especially the developing ones, they have got sort of a green light. The thing is that Mario Draghi gave a hint that Europe is ready to grant them low-interest loans with easy loan guarantees. That is a great chance for large business, including the Russian one, to seek for the funds needed for development. Besides, the ECB reported separately on the revision of the euro area’s GDP growth outlook for 2014-2016.

The central bank cut its forecast for this year to 1% from 1.2%. Meanwhile, it raised its projection for 2015 to 1.7% from 1.5% and kept in place the one for 2016 (1.8%). That means that the ECB is determined to win the war against the deflation by the end of this year or at least by the beginning of 2015. So, the regulator wants to sacrifice a whole year to get out of the deflation pit. Thus, a negative interest rate is likely to be introduced this year, maybe at the upcoming ECB meeting.

How crisis in Ukraine affects global economy in 2014

Monday, March 31st, 2014

It has been several months since the unrest in Ukraine started. The mercury is rising day by day. Nobody knows when the crisis will be over. World’s analysts and scientists are looking for the real reasons why the chaos ensued. The situation is considered from many different angles inevitably resulting in polar opinions .

Who benefits from crisis in Ukraine?original-1360309340

Jim Willie, the American newsletter writer and statistical analyst in marketing research, is of the opinion that the situation developing in Ukraine is nothing more than a struggle between the West and the East for the financial supremacy. “I believe what we got with Ukraine is an absolutely desperate situation where the U.S. government realizes we have to stop Ukraine from becoming a central transit point for energy pipelines in the fast developing Eurasian Trade Zone.  They need to stop the Eurasian Trade Zone because the United States and England are largely going to be excluded,” he wrote. Dr Willie, who has a PhD in statistics, thinks that “the manufactured crisis in Ukraine is an act of desperation by the United States.”

According to Dr Willie, if you look behind the curtain, you might realize that this is the third attack on the Russian Gazprom. “The first attack was veiled and it was Cyprus,” he continued. The second one was Syria. And now Ukraine, which became soft of bargaining chip. The Unites States and Europe believe that in case the gas pipeline valves are under their control, they will have control over the flows going to Romania, Poland, and Hungary.

Russia was entangled in the conflict, which influenced its economy a lot. That influence is reckoned to be negative. The Ukrainian stand-off affected the Russian investment programs badly. In early March, the Russian market shrunk 12%, while the risky sovereign bonds yield inched up 11%. Russia’s industry will suffer greatly from Ukraine’s unrest. In the experts’ opinion, 1 out of 2 businesses will face the output decline in the nearest future. Ukraine’s government procurement will contract and take its toll on the local consumers.

35a5d30562e4a4a31c5ea6d26403f9e1Sanctions against Russia and their possible aftermath

The recent referendum in Crimea caused quite a stir. The U.S. authorities and representatives of the leading European countries have been discussing the imposition of sanctions against Russia, including the economic ones. These sanctions can backfire and have a negative impact on the countries which enacted them. For example, London might lose its Russian investors. For the last two years, the total volume of deals Russian companies stroke has been $180 billion and yielded handsome profit to London’s bankers, jurists etc. And thanks to the U.S. and EU efforts, the bottom could drop out of that fruitful collaboration soon.

The damage is inevitable since there are strong links established between the Russian Federation and the world’s financial system. Lots of Russian corporations are governmental or belong to the billionaires, who are bound up with President Putin. Thus, even targeted sanctions could harm the international business. Analysts stress that Russia-West trade turnover, including industrial and financial sector, is huge. The stricter sanctions will be, the greater damage will be incurred.IMF Photograph

Latvia’s market is the one to be in dire straits in case the sanctions against Russia are imposed. “Three industries feel pronounced impact. The first ones are the agricultural and food industries. Russia is our second partner in terms of exports size. 43% of Latvia’s exports to Russia are food and agricultural products. Energy is the second field. For example, in the supply of natural gas, we are completely dependent on Russia. The third sector is the transport sector as 70% of all transportations related to Russia, ” Latvia’s Economy Minister Vyacheslav Dombrowki said. The Federation of German Wholesalem Foreign Trade, and Services, the BGA, also expressed concerns about the loss the country’s economy could sustain as 6,200 German enterprises are engaged in trade with the Russian Federation. The overall volume of trades constituted €76 billion.

Paolo Scaroni, the head of Eni, the Italian energy company, is of the opinion that in case political tensions between the West and Russia heighten, the latter could reduce the amount of gas piped through Ukraine. So, Europe might face not only disruptions in the Russian gas supply, but also the gas prices hike. Italy, Austria, and Germany will suffer the supply disruptions first.

The gas production in Europe is falling steadily, so in case the European Union wants to reduce its dependence on the Russian fuel, the alliance should develop its shale resources and increase the use of nuclear and coal energy in the region, Mr Scaroni continued. The EU can also buy more LNG from the United States, but that, in the Eni president’s opinion, is rather expensive solution.

The U.S. is one of the few nations that pose the smallest risk to their economies imposing sanctions against Russia. The total turnover is about $27 billion. So, Washington acts accordingly as the negative impact on the American economy is minimum. Nevertheless, the chiefs of such U.S. companies as General Electric Co, Boeing Co. are apprehensive of such strict measures since they could evoke the appropriate response from the Russian authorities. 54 aircrafts of GE Capital Aviation Services, one of the General Electric Co. subsidiaries, are in Russia.

Boeing, in its turn, is afraid to lose the demand for its airliners. That is possible given that the global economic growth could slacken amid the tense geopolitical situation in the world. A study undertook by Ernst & Young revealed that the U.S. companies dealing with technology and financial field were accounted for the lion’s share of foreign investments to Russia last year. Their presence on the Russian market increased dramatically after the country entered the WTO in 2012.

As for the banking system, punitive sanctions can affect large financial institutions, which provide Russian energy and metallurgical companies with a line of credit. “Let’s suppose such a bank will decide to freeze this line of credit. Then, the companies that had previously invested the borrowed money in their business development and exports will get to looking for another bank. No doubt, the Western financial institutions are succeeded the most in that. But in this situation the Russian companies might turn to the Japanese, Chinese, and other banks,” Arnaud Leclerk, Limited Partner at Lombard Odier, said in the interview to news channel Russia-24. The banker stressed that might heighten the diversification of the Russian economy in a sense that the country will be able to turn away from the Western influence and strengthen cooperation with the East.

7911World economy in 2014

There is a growing concern about People’s Republic of China’s economic condition. Nevertheless, the GDP is expected to post 7.5% in 2014, while the inflation is projected to be 3.5%.  That was announced by China’s Prime Minister Li Keqiang at the annual National People’s Congress in March. The pace of the U.S. and EU markets’ recovery will show whether the Chinese economy will be able to post stronger growth. On the other hand, sharp economic growth might pose risk of financial bubbles and economic efficiency slump. Besides, that might lead to the environmental crisis. The threat to the environment is the major reason why the Chinese authorities speak out for the moderate economic growth.

The Liqomonics, the newly coined economic framework proposed by the premier, is aimed to provide the “moderate” GDP growth so that to save the Chinese economy from overheating.

According to the experts’ estimates, on the whole, the world economy is set to develop steadily. The updated report of the International Monetary Fund reads that the global economy growth is expected to come in at 3.9%. The IMF upgraded its forecast for the first time in two years. However, Russian economic outlook was cut to 2%, while it was 3% in October. Russia’s GDP is projected to inch up 2.5%, RIA Novosti says.

The IMF’s economic forecast for the U.S. GDP was raised to 2.8%. Meanwhile, the outlooks for Indian and Brazilian economies were 7.5% and 2.3% respectively.

The euro zone is expected to boost by only 1%. The bloc has passed the turning point on the way to recovery from recession, the IMF said.

George Soros, the billionaire investor, gave rather disappointing outlook for the economy of the European Union. In his opinion, the EU will face the Japanese-style tough stagnation. And, the Old World may not go through it. “Now we see that the European economy is getting some oxygen. And I hope financial markets are breathing a sigh of relief. But what is facing Europe, unless there is more adequate change, is long period of stagnation. Nations can survive that way. Japan is trying to break out 24 years of stagnation, which Europe is just entering. The European Union is not a nation; it is incomplete association of nations. And, it may not survive 26 years of stagnation,” he stated.2000524226

So, the estimates at 2.4% for Great Britain look much more promising, especially against the background of the European prospects. The British financiers believe it is the new proof that government policy is effective.

As for the problems the developed countries might face, the deflation risk is the number one enemy, the IMF writes. Such powers like the U.S., Europe and Japan will do their best to avoid the low inflation level. That, together with high unemployment, will force the regulators to introduce rather strict stimulus. Moreover, experts warn that the lower inflation might cause the debt burden increase and interest rates hikes. Such a state of affairs is likely to hamper the economic growth.

2014 is successful for the global economy in general. Nevertheless, we should do not rule out the fluctuating raw materials cost and general political instability in the world, which can change the current situation drastically.

Old friends are best: Janet Yellen at Fed’s helm

Friday, February 14th, 2014

Janet Yellen’s appointment as a head of the US Federal Reserve System has brought no surprises. It was a matter of discussion during past several months. No disputes were seen among the voters, but now many experts try to predict further developments when Ms Yellen leads the central bank. The opinions are divided – some of experts support the new leader and some of them foresee negative consequences for further economic growth. One way or another, the woman with a great experience of life, in the economic field in particular, took the helm of the Fed.

Dženet-Jelin-FED-300x185Janet Yellen and the “quantitative easing” (QE) program are inseparable. Some experts say it was Ms Yellen who offered this crucial project. However, this program has already become a sticking point for many experts who are pessimistic about its continuation. The ascension of Yellen worsens this sentiment as she keeps saying that the stimulus measures will not be tapered until the economic conditions become better and the US economy shows steady growth.

It is only fair to add that the asset purchase program brought positive changes. For instance, the US stock market found the road back to positive territory, and the national currency started strengthening versus the European counterpart. Nonetheless, the situation should be viewed objectively. QE3 is gradually becoming a kind of a drug for the American economy, and the withdrawal of it will cause stagnation at all levels.

Even Janet Yellen understands the program cannot last forever as it will create grave risks for the financial stability. She believes it is very important not to go too far and keep it in proportion: QE is to be wound down not too early and not too late. The central bank has already started tapering, but it is still far away from the finish.

The new Fed’s head has emphasized earlier that the government has no certain plans on scaling back the quantitative easing. In other words, the vessel will drift across the ocean until it reaches the shore. The economic situation should be monitored daily. QE cannot be abandoned until there are clear signs of progress. So far, the economic growth pace has been vastly disappointing.

Undeniably, the current stock market dynamics is a bright sign, but a high unemployment rate raises fears around the health of the US economy. Janet Yellen will struggle hard with unemployment. The modest inflation causes concerns as well. And, according to the Fed’s Chairwoman, this is the major proof that it is too early to taper the stimulus measures.

Investors interested in the ultra-soft monetary policy strongly supported the nominee Yellen. Now they hope she will keep her word and maintain such an efficient tool of regulation. qe3

However, this medal has a reverse side. Yellen’s opponents say that the dovish policy of the central bank inflates the debt bubble in the world market that undoubtedly will affect the global economy.

In any case, Janet Yellen has only few options to act. Of course, she can announce an immediate trimming of the QE3 program, and the aftermath of this action is easy to predict. Any abrupt move has drastic consequences for the economy.

The other possibility is gradual scaling back of the stimulus, which will be followed by another similar project, and the economy will be able to see short-term improvements further.

For sure, Janet Yellen does not favor tough and radical steps. She is used to acting prudently, thoroughly estimating all probable consequences of every movement. “I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy,” Ms Yellen said. That means the Fed will not surprise the world community in the nearest future.