Read more

Wikingowie w Roskilde

Legoland (wygrany wyścig straży pożarnych)

Safari Zoo w Givskud (bawół zatarasował przejazd)

W Danii mieszkaliśmy w Hasmark Strand, bez dostępu do interentu. Po powrocie do Polski przeczytałem komunikat grupy G20 i ze smutną satysfakcją stwierdziłem, że realizuje się scenariusz który przewiduję od dawna, czyli drugie dno globalnego spowolnienia spodowane kryzysem fisklanym. Od wielu miesięcy piszę o tym, że olbrzymie deficyty budżertowe są niebezpieczne i mogą doprowadzić do kolejnego kryzysu, podczas gdy MFW w kolejnych raportach podkreśla potrzebę podtrzymania eksapnsywenj polityki fisklanej (ciekawe co napiszą na jesieni). Coś się jednak musiało stać po kryzysie greckim, skoro w komunikacie po spotkaniu minsitrów finansów i banków centralnych grupy G20 napisano, że konsolidacja fiskalna ma najwyższy priorytet. Niestety jest już za późno i czekają nas turbulencje związane z kolejnymi obniżkami ratingów (przewiduję że Francja i Wielka Brytania stracą rating AAA w 2010 roku a USA w 2011 roku).

Ograniczenie wydatków i podwyżki podatków dokonywane w wielu krajach muszą doprowadzić do dwóch rzeczy: spowolnienia gospodarczego na skalę globalną i do strajków i protestów, w kolejnych miesiącach fala protestów przewali się przez Europę. Piszę o tym od kilku miesięcy, ale przypomnę, operacja Kasdandra dalej trwa i euro idzie na parytet w stosunku do dolara. Silne odwrócenie trendu nastąpi w 2011 roku, gdy USA stracą rating AAA na skutek braku odpowiedzialności fisklanej.

Mamy erę turbulencji. Co robić, jak żyć, pytał klasyk. Odpowiedź znajdziemy w Danii. Trzeba ograniczyć oczekiwania (zbyt wiele sobie nie obiecywać) i cieszyć się tym co mamy. Wzrost gospodarczy będzie wolniejszy niż się dzisiaj oczekuje, złoty słabszy, ceny akcji i stopy procentowe niższe. Ale jeżeli zachowamy pogodę ducha i dokonamy mądrych wyborów w 2011 roku, to już w w 2012 roku polska gospodarka może ruszyć z kopyta.

Hide it

Read more

Another book  I read this weekend was Jacques Attali “A brave history of the future”. Mr Attali is French economist and cofounder and first president of the European Bank of Reconstruction and Development. He tells a story of traveling “cores” which for some time – usually 50-150 years, become the center of the world, powerful, rich, innovative. He presents 9 episodes when cores were created, the last one in California. Then book presents a story showing USA loosing its dominance (after 2030) and world becoming a giant, borderless market ruled by hypernomads and insurance companies, with rapidly diminishing role of the state. Henry Kissinger called this book brilliant and provocative.

So you have two just released books with forecasts for 21st century. American CIA-related strategist predicts USA will rule the world, and French economist expects planetary war and planetary democracy to shape the new world, put end to USA dominance and create a global world powered by IT, widespread surveillance a run by hypernomads. But both books have common themes. Widespread and advanced technology is one, in one case USA will master it and use to its strategic advantage, in other book private companies use technology to take power from the state.

Friedman book is fun to read, clear, well explained, almost impossible to dismiss based on presented logic. Unfortunately the logic is partly false. It is based on the assumption, that past powers will become future powers (Turkey, Poland, Mexico were equal of even more powerful than todays global or regional powers in the past). The second logical mistake is that technological progress originates around military spending, and by definition USA spending dwarfs all others (indeed USA defense budget is 50% of global defense spending) so technological progress can be made only in USA (internet, space technology). But these days it is perfectly possible, that some maniac scientist will come up with a new energy formula in anyplace in the world, and the power of commercialization of innovation is highest in USA – true, but other countries can deliver as well. The third possible mistake is assumption that wars fought between countries will determine the future global order (because the always had). As you can see in the Attali book, there is another possibility perfectly plausible, when the masters of finance and innovation set the stage for the 21st century, and private armies become more powerful that state ones. So do not get to excited about Poland and Turkey becoming global powers and waging a war. Polish king Jan Sobieski the 3rd has fought the war against Turks and won the famous Viena battle, saving Europe from Turkich flood. This is unlikely to be repeated.

Late addendum. Please find below why Poland has far lower odds than Turkey or Mexico to become the world power, unless we one day get a smart government and right policies are adopted. Chart below taken from OECD  publication on education in 2030 shows that Poland will face dramatic fall in the number of students in 2025, irrespectively of the analyzed scenario. Turkey and Mexico will be on the opposite side of the scale, please note that today all three countries have similar number of students (2.1-2.3 mln). China has some 35 mln students, just a small reminder.

Hide it

Read more

Economic theory does suggest that large country can effectively raise tariffs at the expense of other countries, see Wikipedia link which probably explains why China, USA, India, Indonesia, Russia and many others may wish to flirt with protectionism. There is vast literature explaining that trade has positive effects on incomes and standards of living, see old paper by Frankel and Romer for example and the largest living example is China, which successfully pursued export led growth model and reduced the extreme poverty by hundreds of millions, the only large and meaningful step towards fulfilling Millennium Development Goals, other parts of the world failed badly to reduce poverty, Sub-Saharan Africa is the stark example, despite receiving large aid from the World Bank and other donors.

Economic theory, evidence and experience suggets that if world falls into protectionsm trap it will be very difficult to avoid global recession. Recent International Herald Tribune article presents evidence that many Asian countries launched policies to protect their producers from foreign competition, a quote:

“In the last two weeks, Chinese officials have announced a series of measures to help exporters. State banks are being directed to lend more to them, particularly to small and medium-sized exporters. Government research funds are being set up. In Hong Kong, the chief executive plans to seek legislative approval by late January for the government to guarantee banks’ issuance of $12.9 billion worth of letters of credit for exports.

Particularly noteworthy have been Beijing’s steps to help labor-intensive sectors like garment production — industries from which China had been trying to wean itself as part of a move to climb the ladder of economic development toward higher-wage, more-skilled activities. Now China has become much more reluctant to relinquish the bottom rungs of the ladder to countries with even lower wages, like Vietnam, Indonesia and Bangladesh.For instance, China has been restoring export tax rebates for the textile sector that it had been phasing out. Municipal governments have also stopped raising the minimum wage, which had doubled over the last two years in some cities, reaching a peak of $146 a month in Shenzhen. “China will resort to tariff and trade policies to facilitate export of labor-intensive and core technology-supported industries,” said Li Yizhong, the minister of industry and information technology, at a conference on Dec. 19.” [...]

“The third most populous country in Asia after China and India, Indonesia is already acting to limit imports of garments, electronics, shoes, toys and food — five large categories in which Indonesian producers are struggling to compete with China.Starting in the new year, importers of these products will have to be registered with the government, use only five designated ports for their shipments, arrange for a detailed inspection of goods before they are loaded on a ship or plane bound for Indonesia and then have every single container exhaustively inspected on arrival by Indonesia’s notoriously slow customs bureaucracy. The plan, designed to comply with WTO rules, was adopted after heavy lobbying by Indonesian manufacturers and labor unions.”

It does not look good. Welcome to hell of protectionism in 2009. Knock, knock. Who’s there? Recession.

Update

Another example of protectionism – trains manufacture – FT article

Hide it

Read more

It turned out that 2008 outcomes were very far from my expectations. Until mid-2008 majority of my forecasts were “in-the-money” but then the financial crisis shock hit much stronger than anticipated and the world economy bubble popped. I still think that my 2008 forecasts are fundamentally correct and once the credit crisis shock wears out the fundamental processes will produce strong Asia, strong soft and hard commodities.

Forecasting 2009 is very difficult. On the one hand leading indicators suggest that we are about to experience a very severe global recession. US consumer sentiment and Japanese business sentiment are at lowest levels for decades, banks are planning to reduce credit supply even further in 2009, the world monetary policy is approaching the zero bound which leaves only exotic policy options for policy-makers, truly uncharted global waters. On the other hand world governments and central banks have already pumped more than 11 trillion dollars (including guarantees) to reduce the credit crisis impact on the world real economy and at some point in the future, when this money will start moving around the globe the growth recovery and inflation will emerge. So forecasting 2009 is really about timing of the turning point. Some economists see it in 2009 (second half), some in 2010, some expect 5-10 years of global stag-deflation.

Now my black cat (in reality Nelson is grey with black stripes) and my crystal ball are ready, let’s get those forecasts rolling. First global then Poland-specific.

My 2009 forecasts

• Crisis and recession.

All large industrialized countries will be in recession, with US facing the biggest output drop among large economies amid largest past excesses. Hard economic data will be very gloom for the entire 2009, but leading indicators will begin to flash a possibility of mild recovery here and there in 2010. But I do not expect a linear sequencing, there will be premature hopes and continued negative surprises, which will be reflected in major stock exchanges performance. Brace for continued rollercoaster rise, but this time around there will be both, sharp ups and downs. Global inflation will remain very low, dangerously low in some places in 2009, before it shows its ugly face again in 2010, 2011 at the latest.

• Obama xiānsheng (先生,which is Chinese for Mr, Sir)

In line with IMF and Paul Krugman recommendations new US administration will embark on a massive spending plan, worth much more than one trillion dollars. On the international arena we will see a major breakthrough regarding US international initiatives. US will no longer act and the global policeman, or global policy agenda setter. It will become global policy agenda facilitator, bringing new global players together, and most notably China. There will be few dangerous places in the world in 2009, think of Palestine and Jewish-Arab conflict, or India-Pakistan affair. This sets the stage for more intense terrorist activities, which may constrain US president foreign policy options.

• Protectionism

With global growth faltering politicians in many countries will embark on protectionist path (import tariff on cars in Russia, broad import tariffs in Ukraine, import tariffs on steel in India already imposed in 2008). This will be very dangerous and can lead to a prolonged global recession. Combating protectionism will require major international diplomatic effort and understanding that free trade is one of the most important global public goods.

• New Bretton Woods / New G??

2009 will possibly become a milestone in forming new global governance structure, although the process will be long and last years if not a full decade. IMF will not be endorsed as a global stability supervisor unless major governance changes take place and BRIC countries receive more voting power. It is also unsustainable to have all head offices (IMF and World Bank) in Washington. With videoconferencing broadly available there is now room to relocate IMF/WB head offices to Europe and Asia. Such a move could indeed increase the odds of transforming outdated Bretton Woods governance model into a new one, that reflects 21^st century power structure. Consequently the old G7/G8 group should be replaced by new G8, with European Union having one seat. First informal meetings in such company may already take place in 2009.

• Dollar

In 2009 dollar will begin its long term journey, once travelled by the British pound in early 20^th century.

• Climate change

2008 was a relatively good year, with relatively few climate disasters (UPDATE: according to Munich Re report 2008 was a terrible year regarding natural catastrophes, taking away some 220,000 lives, despite the fall in overall number of disasters by 22 percent to 750). However there is strong rising long-term trend of climate disasters, and if 2009 is just an average year we will see much more adverse climate than in 2008. This will speed up climate change politics, with US joining EU efforts to reduce greenhouse gasses emissions. Carbon emission rights trading will become the next big market and despite global investment recession, investments in renewable energy will go up and then will soar in 2010 with returning high energy prices.

• Commodity prices and Russia

2009 will be a recession year so commodity prices will remain low, reducing investment in traditional energy (oil in particular). With global energy demand recovering in 2010 this capacity constraints will begin to bite and oil prices will rise, possibly sharply. I think that this rise will take place in 2010, if recession is longer than in 2011. In such scenario Russia will continue to experience capital flight in 2009 and one cannot rule out that it will lose most of its 450bn currency reserves and will need IMF help again (or a loan from China?). 1998 déjà vu.

• European Union / Euroland

Scary times. With Germany shrinking as much as 3 percent in some scenarios European Union and Euroland will face a once in a lifetime test, a survival test when it comes to European solidarity.  While Iceland, Denmark and even UK sends smoke signals to join using shortcuts, the real question is how European politicians will behave when truly hard times come, when deep recession and unemployment bite. We have already seen Berlusconi “buy Italian” campaign. 2009 will witness Mr Populist vs. Mr Economist, 12-round, heavyweight fight.

• Poland’s strategy

By now ruling politicians understood that economic misery will last longer than one year and that 2010 may be more difficult than 2009. Prime Minister Tusk will run for president in 2010, so economic gloom may severely inhibit his chances to replace Kaczynski at country top post. It bodes well for government anti-crisis activity, as always when political incentives are right then economic and reform miracles can happen. So expect rapid implementation of government anti-crisis plan, with a lot of help offered for firms which will be deprived from access to bank credit. However, with fiscal picture rapidly deteriorating  Poland will likely delay its decision to join ERM2.

• Poland’s growth outlook

My central forecast is 2- growth in 2009, and 1+ growth in 2010, conditional on government acting quickly and decisively. Exports and investments will decline in 2009, and private consumption will slow, despite tax cuts. Consequently government spending will have to go up, geare towards building hard and knowledge infrastructure, very needed and long overdue investment in the country future. If done well may keep Tusk as prime candidate for president, if done badly may cost him political future.

• Poland’s politics in 2009

While European Parliament elections in 2009 (4-7 June) will be a political non-event in Poland, I see a large likelihood that some important political processes will begin in 2009 and accelerate in 2010 before presidential elections. Firstly, the young generation (people who started their adult professional life after 1989) will have a stronger voice in Polish politics. Will they form their own party and score well in 2010 (president elections) and 2011 (parliament elections), it is still a tough call. But three things indicate that it can happen: (1) economic gloom and doom in 2010 will make people unhappy about the ruling party; (2) Obama way of winning, using internet and social networking shows that young, open minded, globally-minded generation can and should replace older layer, which is busy fighting yesterday wars that nobody understands.  Thirdly look at the following questions. Why after 20 years of reforms Poland is a laggard in global competiveness ranking, it fell last year from 68th to 76th place. Why after 20 years of reforms we still do have decent roads and railway tracks? Why Poland scientific output places us next to Albania at times when knowledge and innovation determine country future standard of living. Why at times when internet access is key to success, Poland has the highest digital exclusion rates in Europe? The why list is very, very long.

Who can do it? One obvious candidate to lead young generation is Rafal Dutkiewicz, president of Wroclaw. Lech Kaczynski has catapulted himself from Warsaw president to Poland’s top job, so it can be done. But Polska XXI was a false start, new opening cannot be done with old pricks. So unless Dutkiewicz rethinks his strategy, he is no challenge to Tusk.

To sum up, we face a very challenging year, globally and in Poland. I listed above many known unknowns, there are also many unknown unknowns, regarding war, politics, disruptive innovations, social developments. I wish all my blog readers to do well in such a challenging environment. The best personal strategy for 2009 is to avoid excessive financial risk and invest in one’s intellectual capital. Happy New Year.

Your comments on my 2009 forecasts are warmly welcome.

Update:

Here is a link to Financial Times 2009 predictions.

And here is a link to Nouriel Roubini 2009  predictions.

And here is a link to Dani Rodrik 2009 predictions, one about China draws attention.

Hide it

Read more

Considering this overall evidence it is clear why the UK, Australia and New Zealand achieved a relatively soft landing of the economy in spite of a relative hard landing of their housing market. The US instead is much more likely to experience a twin hard landing: that of housing is already and clearly occurring; that of the broader economy is well underway and very likely to lead to a recession by early 2007…”.

I would agree that this time around we should worry more for reasons mentioned by Nouriel Roubini plus:

• US consumer is a consumer of the last resort, so expectations that her confidence might erode will create global adverse expectations, which cannot be said in the case of NZ, UK or AUS.
• Keep in mind well known estimates in Kennedy, Greenspan (equity extraction raised US consumer spending by 425bn annually on average in 2001-2004 compared with 177 bn in preceding four years) and results by Fed economist Lansing. His simple model which delivers 89% R², says that one should expect an increase of US consumer saving when ratio of housing wealth to income falls, unless at the same time equity wealth goes up enough or long term rate go down enough. While corporate profits share in world GDP went up, and it is a clear structural change induced by globalization, which at the same time reduced the workers bragining power (see Freeman’s great doubling), this will probably not be enough to convince investors that stock indices should test new highs when housing market is tanking at the same time. So in order to encourage US consumer to maintain (unsustainbable in the long run) low savings would be a sizeable decline in long-term interest rates in the US. Is it feasible, markets and time will bring the answer, but I do share Lansing concern:

“…The decline in the U.S. personal saving rate and the dearth of internal saving raise concerns for the future. In coming decades, a growing fraction of U.S. workers will pass their peak earning years and approach retirement. In preparation, aging workers should be building their nest eggs and paying down debt. Instead, many of today’s workers are saving almost nothing and taking on large amounts of adjustable-rate debt with payments programmed to rise with the level of interest rates. Failure to boost saving in the years ahead may lead to some painful adjustments in the future when many of today’s workers could face difficulties maintaining their desired lifestyle in retirement … “.

• So the US consumer should save more for her own sake, and the housing slowdown should speed up this decision.

Hide it