Period: 7 – 13 november 2020
Top news story: Today’s headline news is not formally economic, but clearly political – it’s the US vote count. The key economic element in this case will be the answer to the question: Donald Trump’s policy and Joseph Biden’s policy – how do they differ in substance? The Mikhail Khazin Foundation for Economic Research presented its views on the day before the elections. It should be understood, however, that similar studies based on the initial data on the onset of the structural crisis of the world and the American economy are hardly seen.
The main issue therefore remains the state of financial markets. Markets have risen amid the announcement of Biden’s victory, but have stalled in recent days. It cannot be excluded that if Biden’s victory is not confirmed (it seems unlikely, but from the point of view of the law at the time of writing this review, it is possible), negative economic developments (which, as we see below, continue) could cause the same market collapse, that scares everyone so much.
The technical analysis gives the following picture: it is clear that the potential decline will not occur fully in 2021, but will be longer. However, in the future, public opinion is at odds with the analysis. In terms of analysis, a sharp decline will occur if Biden wins, while public opinion is expressed that the opposite will happen.
This is entirely logical, because public opinion is shaped by the media, and the vast majority of them are controlled by the US financial elite (or, as Trump called them, «international financiers»), which supports Biden. In any case, according to our analysis, even the collapse of the financial markets, provided Trump wins, will allow maintaining control of the US. This conflict, coupled with the likely mismatch of overall expectations with reality, could lead to serious managerial and psychological problems in the world economy.
Saudi Arabia’s GDP fell by 4,2% a year in the third quarter – the fifth consecutive negative – this time after a sharp increase in VAT (from 5% to 15%).
Britain’s GDP grew 15,5% per quarter after -19,8% in the second quarter. The annual decline decreased from -21,5% to -9,6%. In September, progress stalled – only +1,1% per month and -8,4% per year after 2,2% and -9,3% in August.
Eurozone GDP has the most positive performance: 12,6% per quarter after -11,8%. And -4,4% per year after -14,8%.
It should be noted that in this case the impact of the huge emissions of the first half of the year on GDP was not thoroughly studied. The reality may not be as optimistic. Even then, recovery is not possible.
Industrial production in France grew by 1,4% per month in September, but the annual decline was almost the same (-6,0% after -6,4% in August).
In Italy, the output of the industry returned to a negative monthly value (-5.6%), with the result that the annual fall in steel was stronger between -0.3% and -5.1%.
The same is true for the Euro Area as a whole: -0,4% per month and -6,8% per year after 0,6% and -6,7% in August. These figures call into question real GDP growth, in line with the observation just above.
In Britain, output grew by 0,5% a month, and fell by 6,3% a year after -6,4% a month earlier.
“Net” machine building orders in Japan fell 4,4% per month and 11,5% per year in September, after +0,2% and -15,2% in August. Machine and equipment orders fell 2,1% per month and 5,9% per year in October, and remain at 1980/1990 levels.
The ZEW Economic Sentiment Index in Germany fell to a 7-month trough in November, as in the Euro Area as a whole:
Britain’s foreign trade deficit in September was the worst in six months:
India’s trade deficit peaked in seven months:
Inflation in Mexico peaked in May 2019, and in India in May 2014, indicating depressed national economies.
China’s PPI has stagnated, -2.1% per annum, while consumer inflation (CPI) has suddenly dropped by 0,3% per month (5-month trough), with annual growth (0,5%), the worst since October 2009:
In Japan, the PPI worsened in October to -2.1% per year, a 5-month trough and close to 4,5-year-old. Germany’s CPI weakened for the second consecutive month to its worst since January 2015 (-0.2% per year). And in France, since spring 2016 (0,0% per year).
The overall inflation rate in these countries also does not give rise to optimistic expectations for economic growth, as the case of Germany shows:
In the US, the CPI fell to 0,0% per month and 1,2% per year, with the PPI rising to 0,3% per month. Annual growth increased to 0,5%, the highest since February:
Unfortunately, it is absolutely impossible to determine from official statistics the real contribution to this growth of the colossal stimulating programmes of the first half of the year. So again, optimism is hardly appropriate.
Yields on 10-year US government bonds are highest since March:
While the US Economic Sentiment Index from IBD/TIPP returned to stagnation in November, which seems to be a more adequate representation:
Employment in Britain has been declining for 6 consecutive months, causing unemployment to skyrocket to a 4-year peak:
Summary: The overall picture has not changed in recent weeks. The local recovery from Biden’s victory in the US presidential election has stalled somewhat, and the overall economic situation, both in the world and in the US, seems rather difficult. We believe that a structural crisis has begun and that the recession will continue for quite a long time. Alternative, more optimistic views are more common, but not objectively based.
In fact, an objective assessment of economic performance suggests that much of the stimulus is concentrated in the financial sector, which categorically refuses to transfer money into the real sector. As a result, the economy is stagnating and the standard of living of the population is declining. There are two ways out of this situation: either drastically reduce the overall credit burden on the economy (as shown in our models described in the book «Reminiscence of the Future») or dramatically increase emission support.
The second option would sooner or later trigger a sharp inflationary spike and a collapse of financial markets. The first option also implies a collapse of markets, but from a lower position. We think that in such a situation, the sooner the collapse begins, the better, but it is a step that is scary for any politician. For this reason, it seems to us that the injection of emission assets into the financial markets will continue, although some money will go to the citizens in the form of partial compensation for the declining standard of living.