For decades, Germany was well known as a country with a relatively high productivity growth.
But the picture has changed: Germany’s productivity growth fell from 1,9% in 1995-2000 tot 1,4% for the period 2001-2006, the latter is slightly above the average of the overall performance of the Eurozone.
I don’t have the productivity rates of Belgium for those two periods, if anyone has them, please send them to me. Yet, I’m quite convinced the trend will be in the same line. 
The German productivity growth trend is opposite to the Brazilian one. Brazil’s productivity growth went up from 1,5% in the 80s to 2,5% currently. That last figure has remained relatively stable for the last 2 decades. 
The German productivity slowdown is, however, not only pronounced in an international perspective but also in historical perspective. Productivity growth was at rates of 2.5 per cent on average over 1985-1990 and on 2.9 per cent over 1990-1995. Of course, the German re-unification in itself boosted the growth rates. The decline from 2.5 to 1.4 per cent over 15 years, however, is alarming. The last years the superficial European financial newssources have been blinding us with the extraordinary German export performance. However, their competitiveness was mainly driven by massive wage restraints and is not at all due to productivity gains. The picture below is a little bit older but nevertheless intuitive. The bold pink magenta line is Germany... 
To all the people going on strike tomorrow in Belgium: look at the above charts and ask yourselves the question: how can Belgium as a country remain competitive? Most of the Belgian policies for expanding new sectors and stimulating innovation haven’t really delivered substantial results. Personally I don’t believe Europe will ever have longterm productivity gains above 2% again, in fact, I believe we might be in for decades of productivity gains well below 1,5%. This means that, just like Germany did, the only way for Belgium to remain competitive is massive wage restraints.
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Oct 5 2008
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Sep 2 2008
I just received the news that Chavez and Mbeki are signing a major, far-stretching energy deal (hat-tip to Vincent). I already wrote back in december that I suspect SA's next president Zuma to heavily incline to the extreme leftist Chavez. This is a very bad early signal of what will come under Zuma's command. Rest asssured the US and Europe are closely watching this evolution and surely not liking it.
"September 2, 2008 Venezuelan President Hugo Chavez and South African President Thabo Mbeki are expected to sign a strategic energy agreement during a two-day visit by Chavez to South Africa that began Sept. 1, South African commercial daily Business Day reported Sept. 2. Under the deal, South African energy firm PetroSA reportedly will receive oil from Venezuelan state firm Petroleos de Venezuela while exploring for natural gas off Venezuela and possibly acquiring oil production facilities in the country. PetroSA is also expected to promote the adoption of gas-to-liquid technology in Latin America." -
Aug 15 2008
Europe had a quarter of negative growth, another quarter like this and the Euro enters its first recession, which is likely to happen.
While the Japanese Real Estate market is crashing, the smarter US analysts are warning that there are HUGE shadow inventories of US foreclosed homes still to be released on the market; and meanwhile Greenspan wants you to believe that the US real estate market will stabalise from 2009 on... right. Expect this graph to go further downwards, drastically.
Today Chief Investment Strategist Richard Bernstein of Merrill Lynch stated:
"We believe that the investors seriously underestimate the extents of the credit crisis and the consequences of the deflation which will follow now".
I have written for the past half year on the deflation storms which are about to hit Europe and the United States.
Meanwhile in South Africa, Standard Bank has to rely on its offshore business to hit targets:
"Johannesburg - Standard Bank would offset the effects of lower-than-expected economic growth rate in South Africa with profits from its offshore businesses in Nigeria and China. One worrying sign for Standard Bank was the increasing problems the company was facing in its card division. The credit loss ratio in card debtors increased from 6.34% to 9.44% indicating that the consumer was becoming increasingly stretched." 9,44% credit loss ratio in amongst card debtors, ouch !! Meanwhile Mboweni decides to not raise interests above the current 12% rate. This is a strategic blunder. Yes, I know, the general tone is that he did good in not raising the rates, because ""… the alarming rate at which cars and houses had been repossessed should be a matter of concern to Mboweni and the MPC. " At the same time inflation keeps skyrocketing and will go from the current 11,6% to 13% by the third quarter. Yet, Mboweni keeps the repo at 12%. Read that again: inflation at 13% with a repo rate of 12%.
At the same time, South African banks are turning into vulture hawks. If you put down a deposit on a property and FNB reassessed your loan and denied you your bond causing you to lose your deposit, FNB says that you should thank them because in actual fact you probably were going to lose a lot more money later on. No, I didn't make this up, it's happening, on a wide scale.
Mboweni claims "``Food and oil price increases continue to cloud the inflation outlook, but there are tentative signs that these pressures may be moderating.'' The wording makes me smile: Food and oil price increases continue to cloud the inflation outlook, but there are tentative signs that these pressures may be moderating.
Well, I think Mboweni is wrong. "Prices will decrease when supply surpasses demand. And that will happen South Africa focuses now on expanding infrastructure and assist its people to be more productive. For this reason the government should now focus on the production side of the economy and increasing skills rather than simply placing money, in the form of social grants, in people's hands. When increased production is attained prices will be constrained, which will eventually also curb inflation." These are not my words, but a literal quote from this article. And the worst is, Mboweni will blind people, inflation will go down…well the CPI will go down…because the government plans to change the measurement of the consumer price index next year. The SA statistics office said on July 1st it will reduce the weighting of food in the CPI, which will lower the inflation rate… artificially (see Bloomberg).
Meanwhile, at the annual Rode conference on property in South Africa today "Johannesburg - House prices are expected to drop by between 10% and 15% in the next 12 months as rising interest rates and tougher credit-granting laws force buyers to tighten their purse strings, a property expert said on Thursday." Prices in Plettenberg Bay are taking a dive and when asked for the reason of selling, 18% of the people mention emigration, this figure is up from 7% 12 months ago.
Standard Bank posted a 7% rise in first-half normalised headline earnings per share (EPS) to 481,8 cents today, but said rising bad debts meant it could not give full-year guidance. When banks come with these messages you better brace yourselve for the storm, especially when you are in real estate business. One of the "saviours" of the housing market is supposed to be the Black Diamonds, the young black professionals who have been spending money like crazy the past few years. Only one problem though, they've been spending borrowed money (mainly via credit and store cards) and getting into a heap of debt, and now that debt is becoming overwhelming, read the details here.
Conclusion:
The monetary loosening of Mboweni worries me; of course it 'could' boost sentiment a little bit on a short term; but it will come at a very, very high price; if you lived in Brazil in the 70s and 90s, you know all about that.
Zimbabwe worries me.
And what worries me most (although there are some opportunities in it for the well connected) is the ongoing land reform in SA.
As I've been saying repeatedly: not just an ordinary global economical blip. -
Aug 13 2008
"Whatever the Central bank does, getting credit is very hard": the title of an excellent article in the Tijd yesterday, proving exactly my repeating point that we are in a deflationary market. Bloomberg also writesthat Money Market is `Plagued' by Libor that the Fed can't reduce, The Wall Street Journal writes that the European banks are tightening lending Standards; just read theJuly 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices and make your own conclusions on the size of the deflationary hurricanes coming your way.
Worse even, the Financial Times wrote that corporate debt default could hit 10%, more defaltion anybody? It's clear the next move of the US Fed will be... down ! Which is crazy of course; savers can then take their money and use it to buy another currency and take advantage of realistic interest rates (like on the Brazilian R$). Aw, that will be prevented by a global plan to prevent ANYONE from saving money. This takes us back to gold. As soon as commodity inflation is gone, then buying gold will be the only way to preserve funds.
Once again, this crisis is not just a cyclical crisis. We had a system for the last sixty years which precipitated the greates debt cycle in history. And now the Americanfed will address the greates deflationary cycle (wake up if you still have the inflation titles on your cornea) with the same remidy which started this crisis in the first place: cheap loans.
With the macro data of the last weeks, it's clear now that the G7 countries (the group of the major advanced economies including US, UK, Japan, Germany, France, Italy and Canada) are already in a recession or close to tipping into one. Other advanced economies or emerging markets (the rest of the Eurozone including Spain. Ireland the the other Euro members; New Zealand, Iceland, Estonia, Latvia and some other South-East Europe economies) are also very close to entering recession.
Yes, that includes Australia, the Australia Reserve Bank just announced it is "shocked" by the severity of the Australian economy slowdown. I previously wrote on Australia, but who would listen then? Associate Professor Steve Keen from the University of Western Sydney wrote last week "Brace youyrselves for recession" and that's exactly what I would recommend you to do.
And yes, meanwhile consumer spending in China and Brasil are still rising; even if inflation remains under control at around 6% in both countries. Yet, both China and Brazil need this growth. For example, a country like China - that even with a growth rate of 10% plus has officially thousands of riots and protests a year - needs to move 15 million poor rural farmers to the modern urban industrial sector with higher wages every year just to maintain the legitimacy of its regime; so for China a growth rate of 6% would be equivalent to a recessionary hard landing. This is why the IMF defines a global recession as a global growth rate below 2.5% as emerging market economies usually grow much faster (6%) than advanced economies where growth averages about 2%.
It now looks like that, by the end of this year or early 2009, the global economy will enter a recession.
And you wonder why the Euro is doomed to keep falling? Simple: Whenever global liquidity tightens relatively speaking, it is very US$ supportive, just watch this interview with Marc Faber.
No, there's no easy solution to this crisis. We will need to understand again to stop believing the fairy tale of debt-leverage into unproductive investments and this will require a massive change of political structures, financial intermediation channels, savings and consumption habits, and economic incentives which challenge virtually every assumption made by at least two generations. Our kids will never forgive us for our naive debt-leveraged way of doing business. -
Jul 13 2008
The financial crisis enters the phase where the credit implosion will become visible. More than a year I've been warning now for the consequences of the levels of credit in Europe and the US.
Today more than a third (41%) of US workers are cutting back on utilities, nearly half have reduced food purchases (48.5%) and a large percentage are buying less clothing. The national survey of US workers, conducted May 12-14, 2008, also found that younger workers (between the ages of 18 to 29) are being hit the hardest by the economy and are the most desperate about their economic future. More than one third (34.3%) of young American workers say their financial situation has caused them to “feel hopelessness or despair about their economic future.” That compares with 28.8% of workers age 30 to 49, 23.5% of workers 50-64 and 17.9% of workers 65 or older. Nearly a third (31.4%) of workers report being occasionally kept awake at night because they worry they will not meet housing payments, credit cards, or other personal expenses, 36.8% of whom were between the ages of 18 and 29.
Meanwhile peak credit also reached Australia, where more than 50% of the Australian homes are loosing value. The situation is of such a kind that a wave of public school students is migrating to the public system; their parents simply can't afford private school any longer.
Meanwhie youngsters in Finnland can apply for credit by sending a text message and also in Sweden youngsters are spiralling into debt because of the same reason.
Peak credit has been reached. That final wave of consumer recklessness created the exact conditions required for its own destruction. The housing bubble orgy was the last hurrah. It is not coming back and there will be no bigger bubble to replace it. Consumers and banks have both been burnt, and now everything will change. -
May 13 2008
I wondered who followed my 2008 predictions and bought on the Bovespa and especially went into Rio Vale Doce and Petrobras. Ratings agency Standard & Poor's upgraded Brazil to investment grade two weeks ago, and Bovespa shares promptly surged thanks to the earlier-than-expected bump. The iShares MSCI Brazil Index, an exchange-traded fund that tracks Brazil's Bovespa index, rallied 8 percent on the day of the announcement and continues to climb this week. Petrobras profit for the last trimester was up 68% totaling a profit of already 6,9 billion R$ for this year.
Slowly and without great fanfare (the Belgian news rarely mentions Brazil at all), Brazil's economy has turned a big corner. Already a global power in agriculture and natural resources, Brazil has added a key ingredient that had long eluded it: a currency with staying power. In turn, that's helping unleash the greatest burst of prosperity the country has witnessed in three decades.
Gross domestic product grew 5.7 percent last year, up from 3.7 percent in 2006, and public debt as a percentage of GDP has been shrinking for five years. Brazilian stocks jumped 70 percent in the past year, while other hot emerging markets like China and India watched equities slump mightily. The Bovespa index is now at 70.000 and I see it further rising to 74.000 end of this year.
Risks remain however. The S&P upgrade will mean the real will even go higher. I'll sum up my expectation for the economies indicators in a next article, but as to the exchange rate, I expect the Real to end at 1,72 by end of 2008 and 1,8 by the end of 2009. Make your own bets how the dollar will behave against the Euro by the end of 2009...
The big question is however how Brazil could derail at the end of the commodity boom and a return to health for the US economy.
First, I don't believe the US is close to a recovery. The US (and many other parts in the world) are in for a huge real estate deflation, like the article in the Economsit states: the housing price-bust has a long way to go.
Secondly, some people claim commodity prices will come down sharply when the US economy starts to recover. This is utopic, commodities will not get back to their pre-2004 levels. At most the growth rythm will be lower or flattened. True, this could impact somewhat the speculations on Brazilian shares, it would however not impact the Brazilian economy. People tend to overestimate the importance of export for Brazil. Brazil is not Belgium, only 15% of the Brazilian GDP is composed of export. Also, analysis of past S&P upgrades shows that shares often fall following an investment-grade bump. Other nations like Mexico and Russia saw declines in the months following their upgrades. Still, Brazil's boost came earlier than expected, and that could help minimize some of the post-party hangover.
What worries me personally most is the exchange rate. FX is a beast, the Yuan is still seriously overvaluated and already since early 2006 I have the fear the Real is a bit overevaluated. My guts proved wrong. The Brazilian central bank has managed for more than 2 years to keep its currency neatly stable. Usually by intervening and buying up dollars (Brazil has now huge dollar reserves and even becaming a net creditor on it's balance sheets, this in sharp contrast to eg. South Africa).
And to keep the growth afloat the senate now has voted a plan to massively stimulate exports through subsidies in various sectors. More than 20 billion dollar will go into these subsidies. I agree with Miriam Leitao however (I'm her biggest fan) that this sector-oriented approach entails some dangers and that a general policy would be more beneficial to the country. -
May 13 2008
Remember my post on Voce Escolhe, the new Brazilian carrier of David Neeleman? The name of the new company has been decided: Azul.
Meanwhile Ocean Air is scrapping the routes of it's 6 Fokkers and putting 600 of its 1700 employees at the door, until they receive their 28 new Airbus planes in 2009. -
May 13 2008
The BRIC countries will use more energy than the developed countries by 2030. Belgium tries to prepare for the future with ridiculous projects like the biodiesel plant in Gent. Everyone knows by know that biodiesel from poppyseed oil is energy negative. Why else would biodiesel in Europe and the US be more expensive than petrol? The US is subsidizing biodiesel production with billions of dollars. Flexengines became a success in Brazil because 'alcool' at the pump is cheaper than 'gasolina'; as simpel as that. No way Europe or the US will be able to compete with the ethanol of Brazil.
Brazil already discovered the force -and challenges- of hydro (nearly all its electricity is coming from hydro), but the true unlocked potential in South Africa and Brazil is solar ! -
May 9 2008
On April 30th, Standard & Poors nominated Brazil Investment grade. Not a word on that fundamental event in the Belgian press, even though it's far from being a fait divers. Remember my December investment tip? From 59,9 at that time to 69,2 today, that's a 15,5% gain in less than 6 months; not taking into account the currency win. Expect the Bovespa to further rally now that Brazil is investment grade and the Brazilian IPO market to remain exteremely active. This coverage on BBC explains the underlying economical fundaments.
I truly enjoyed reading that Brazil's president Lula now critizes the AAA rating of the US, the man has a point of course.
Back to Belgium now, for only 3 weeks, on June 1st we're flying back to Sao Paulo. -
Apr 14 2008
Update April 18: Another oil field has been discovered outside the coast of Rio, which could contain 33 billion barrels (as a comparison, the whole US reserves total 21,8 billion barrels). This adds up the the below discoveries of 2007 and 2008 which already ranks Brazil on place before Venezuele when it comes to oil reserves.
I wrote before on the importance of the recent oil discoveries and the skills of Petrobras with regards to deepsea oil drilling. Tow days ago, the Washington post published an article which suggested that Brazil is to overtake Venezuela by 2013 with regards to oil production. To give youy some perspective to which level the recent discoveries are unique: Brazil didn't feature in the top12 countries with oil reserves less than a year ago.
And the news of discoveries doesn't stop. In November and December the Tupi & Jupiter massive fields were discovered and now Shell ad Galp discovered in zone BM-S-8 new fields and Repsol discovred new fields in zone BM-S-9. All fields are deeper than 5000m and require very costly platforms to drill them.
When i lived in Rio I was already impressed by the construction of the P-54 platform, which gas a capicity of 180.000 barrels of petrol a day and 6 million m3 of gas a day. It accomodates a crew of 160 persons, weights 73.000 ton and can dril 1400m deep.
With these new discoveries (between 5 and 30 109bbl), Brazil will pass to the 6th place in the ranking of countries with biggest reserves (just after the United Arab Emirates and just before Venezuela). Given the fact that Brazil doesn't consume a lot of petrol per capita (electricity comes suasi completely from hydroelectric, more than 5 million cars drive on ethanol and no need for central heating based on gas or petrol), this gives Brazil an enormous competitive edge.
Don't underestimate Brazil too much. I was already impressed reading this presentation from the Ministry of planning back in 2003, but with Lula's announcement to support a joint venture between Brazil and Mexico's state-run oil companies (Petrobras + Pemex), my eyes are all wide open. Mexico's crude oil output is in decline, which gives sense to Brazil's move.
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