Article By: BiZnomics Research Team

USA Monetary Policy-Fed Dilemma

BiZnomics-Global-Out-front-03Federal Reserve Chair Jerome Powell mentioned that  US Monetary policy is “well positioned” to support the strong labor market, which is just now starting to benefit workers on the margins. He added that “the benefits of the long expansion are only now reaching many communities, and there is plenty of room to build on the impressive gains achieved so far,” a close look at the adjustments to employment data suggested the labor market may not have been as strong last year as previously thought, and thus we could once again witness a shift for lower interest rates. The September data released by the Bureau of Labor Statistics indicated a downward revision of the estimated job creation numbers. The agency said the economy added 170,000 jobs a month in the 12 months through March 2019, half a million fewer jobs than previously estimated. Powell in fact commenting on the job data numbers mentioned that “While this news did not dramatically alter our outlook, it pointed to an economy with somewhat less momentum than we had thought,”.

Germany Consumer Demand Shines

The mood among German consumers rose unexpectedly  heading into December, a survey showed this week that household spending will continue to prop up growth in Europe’s biggest economy at the end of the year. Record-high employment, inflation-busting pay hikes and historically low borrowing costs have turned household spending into a steady and reliable driver of growth in Germany, helping to cushion its export-dependent economy from trade problems. The consumer sentiment indicator, published by the Nuremberg-based GfK Institute and based on a survey of around 2,000 Germans, improved to 9.7 from 9.6 in November. A Reuter’s poll of analysts had predicted a stable reading. GfK said a subindex measuring economic expectations jumped as Germans became more optimistic about the growth outlook due to “tentative signs of easing” 

 

Australian economy continues to struggle

Wage growth in Australia looks to be stuck in the slow lane and it will take a sustained fall in unemployment to lift it to more economically desirable levels, a top central banker said on Tuesday. In a speech on employment and wages, Reserve Bank of Australia (RBA) Deputy Governor Guy Debelle said there was growing evidence that wage growth had become entrenched in a 2-3% range, down from the former 3-4% norm. This trend has been weighing on household incomes and spending, as well as dragging on the economy more broadly. “A gradual lift in wages growth would be a welcome development for the workforce and the economy,” said Debelle. “It is also needed for inflation to be sustainably within the 2–3% target range”. However, he held out little hope for acceleration any time soon, noting the bank’s liaison with firms showed 80% of companies expected steady wages growth and only 10% anticipated anything faster.” The more wages growth is entrenched in the 2s (2-3% range), the more likely it is that a sustained period of labour market tightness will be necessary to move away from that,” said Debelle. The central bank has cut interest rates three times since June, taking them to a record low of 0.75%, in part to try and drive unemployment down toward its goal of 4.5%.

China looks fragile

BiZnomics-Global-Out-frontOil prices slipped on Tuesday on concerns about economic growth and fuel demand as uncertainty remains about the ability of the United States and China, the world’s biggest oil users, to agree a preliminary deal to end their trade war. Brent crude futures were down 5 cents at $63.60, after rising 0.4% in the previous session. West Texas Intermediate crude futures fell 9 cents to $57.92, having risen 0.4% on Monday. Top trade negotiators from China and the United States held a phone call on Tuesday morning, China’s Commerce Ministry said, as the two sides try to hammer out a preliminary “phase one” deal in a trade war that has dragged on for 16 months.  “Oil traders remain hopeful a trade deal will get signed,” said Stephen Innes, chief Asia market strategist at AxiTrader. “Still, the lack of clarity around the tariff rollbacks, which is the key to economic growth and bullish for oil, continues to somewhat cloud sentiment. “China and the United States are “moving closer to agreeing” on a “phase one” trade deal, the Global Times – a tabloid run by the Chinese Communist Party’s official People’s Daily – reported earlier.

India Cuts Monetary Policy Rates for the six time

BiZnomics-Global-Out-front-01

The Reserve Bank of India will cut interest rates in December for the sixth time this year, and again before July, according to economists in a Reuters poll which forecast those reductions would either marginally boost the economy or have no impact. Currently the most aggressive major central bank in the world, the RBI has cut rates by 135 basis points this year to 5.15%, but inflation has remained low by historical standards and policymakers have barely moved the needle on growth. The Indian economy expanded 5.0% in the April-June quarter on a year earlier, its slowest annual pace since 2013, and was expected to grow 4.7% last quarter, according to the latest Reuters poll, taken Nov. 20-25.That was significantly lower than the 5.6% rate predicted in the last poll, and would mark six consecutive quarters of slowing growth, a first since 2012.

It also comes despite a recent series of fiscal stimulus from Prime Minister Narendra Modi’s government, which was re-elected in a landslide in May. “Further rate cuts are likely to have a limited impact on the economy as cost of borrowing is not the pressing issue. The lack of risk appetite and fragile sentiment are holding back fresh investment in the economy,” said Sakshi Gupta, senior India economist at HDFC Bank. “While further interest rate cuts would support growth at the margin, we need to see a turnaround in sentiment to restart the investment cycle.

Cont..

Subscribe the BiZnomics magazine for full article

Active Trade policy for economic development 0 173

Biznomics-active-trade-policy5

Professor W. D. Lakshman

Biznomics-active-trade-policy2Do countries with lower barriers to international trade experience faster growth? This has been one of the most vigorously debated questions in economics and political economy. Mainstream economics since Adam Smith strongly favours free or freer trade. In contrast, different strands of political economy have been critical of these views. Liberal trade has become a policy position pursued by international trade organizations like the GATT (and after 1995, the WTO), and by international financial institutions like the IMF and the World Bank. For many in this line of thinking free trade has become an ideology. Renato Ruggiero, the first Director-General of the WTO, writing in the last decade of the twentieth century, argued that liberalization had “the potential for eradicating global poverty in the early part of the next [twenty-first] century—a utopian notion even a few decades ago, but a real possibility today”. The free trade ideology has attracted traditional elites and economic bureaucracies in many developing countries as well.

Biznomics-active-trade-policy3

 

The free trade policy prescription is based on the theory of comparative advantages developed by a long series of well-known economists starting from David Ricardo of the nineteenth century. (Ha-Joon Chang in our issue of May-June 2019 presents a lucid explanation of the fundamentals of comparative advantages theory). In reality however, international trading has never been free.  During the period of European colonialism, foreign trade was controlled by the imperial powers and a few large and powerful trading companies. Colonial territories were opened up for foreign trade using imperial power. Countries that could not be brought under direct colonial rule (e.g. Japan and Thailand in Asia) were compelled to open up for foreign trade through unequal treaties which they were forced into signing. Foreign trade in colonies and countries brought under unequal treaties was seriously disadvantageous to the territories concerned.

 

Biznomics-active-trade-policy3

After World War II and in the era of decolonization, there was the US domination of world trade matters. The currently prevailing pattern of international division of labour and the rules of the game governing international trade are being governed and managed by the set of international institutions referred to earlier, working according to dictates of the US-led bloc of Western powers. Various global forces operate in support of these institutions – the ideological commitment to free trade, bribery and corruption unleashed by MNC-led international capital, and numerous political pressures, occasionally backed up by military power of dominant nations.

Foreign trade has been described as an engine of growth (implying causality) or at least as a handmaiden of growth (implying concurrent movement). Countries which have experienced export-led or outward-oriented growth processes are cited in support of growth-engine or growth-handmaiden hypotheses.  Mainstream theory however ignores inward-oriented import substitution activities which often pioneered the economic growth processes of the countries concerned. The export-led characteristic developed later once production capacities were developed through import substitution. Historically, in the initiation, sustenance and guidance of both these growth processes – import substitution and export orientation – active trade policy has played a crucial and critical role. The effective policy stance here has never been free trade, passively leaving trade flows to global market forces. In effective trade policy stances there were always complex and dynamic combinations of openness and restrictiveness.

Biznomics-active-trade-policy4

A point of great significance in trade policy discussion is that every process of development, taking place over time and space, is unavoidably uneven from one region to another at the country level and across different countries at the global level. As development processes take place at different rates in different countries, some regions and countries have achieved development earlier than the others. In this process, the “developing countries” always have got themselves stuck in a “late development” syndrome, subjecting them to more disadvantage than advantage. The “one suit fits all” type of development policies advocated in different versions of neoliberal packages, are hardly likely to meet the development challenges of all developing countries. This point comes out strongly in the extensive trade policy debates in development theory and practice.

Cont..

Subscribe the BiZnomics magazine for full article

 

 

SL Enters the global map as best travel destination Comments Off on SL Enters the global map as best travel destination 216

Sri Lanka with its unique blend of diverse culture, bio diversity and friendly people enters the global map as The Best Travel destination and retains its proud identity despite recent setback following 4/21 destruction of life and property. The Lonely Planet – the best-selling magazine featured Sri Lanka in 2019 – 10 years after a sustained upbeat in tourism nearly three decades after ending conflict in 2009.

Sri Lanka - Lonely PlanetThe country that was torn by war has entertained 2.4 million tourists by the end of 2018 benefiting nearly 300,000 direct and indirect employment and livelihoods,. A large number of them being small and medium entrepreneurs engaged in supply chain activities, investments in the development of leisure facilities, transport and logistics, urban and rural property development. This sector also accounted for USD 4.2 billion in foreign exchange earnings marginally lower than the country’s single largest industrial export income of USD 5.3 billion from textile and garment exports. In 2009, this now buoyant industry accounted for a mere USD 349 million.

The Lonely Planet ranked Sri Lanka as a top country to visit in 2019, stating “Already notable to intrepid travellers for its mix of religions and cultures, its timeless temples, its rich and accessible wildlife, its growing surf scene and its people who defy all odds by their welcome and friendliness after decades of civil conflict, this is a country revived.” The Lonely Planet recognises new highways and railroads help connecting critical areas of the country. It has also recognized that Sri Lanka’s tourism industry is developing properties around the island with more international hospitality brands.

Tourist interest in beaches are expanding to places like Tangalle, and going beyond popular places like Unawatuna and Weligama. Another attraction highlighted in the best-selling Lonely Planet Magazine is the train between Nanuoya and Ella passing through the hill country area beautified with the lavishness of tea plantation and natural environment. The ancient ruins of Anuradhapura with a wider attraction to the sacred Ruwanweliseya Stupa built in 140BC during which time Buddhism had flourished to its peak. The country’s history is enriched with leaders so devoted to empowering the island by Buddhist philosophy and culture with massive stupas and temples.

Lonely-Planet--02Economically the culture was supported by agriculture with amazing engineering talents to create its agricultural infrastructure with tanks and canals. The Sacred Temple of the Tooth is the holy place protecting the Tooth Relic of Load Buddha which is another attraction for visiting tourists. Both Anuradhapura and Kandy are two of the most holy places visited by many Sri Lankans as well. Showcasing the cultural extravaganzas every August the Trustees of Tooth of the Temple of the Tooth hold the Kandy Essla Perahera. Peradeniya Botanical Garden – the largest and oldest botanical garden in the country introduces the glamour to make Kandy which has been around for several 100 years as a tourist city.

The Eastern Tourism corridor spanning from Yala to Kuchchaveli through Pasikuda and Arugam bay is well known for the best waves in Sri Lanka. Surfing enthusiasts enjoy this area from April to October.

Subscribe to BiZnomics magazine for full article