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What Else the “Inequality Report” Says…

For the past week, it required a special effort to avoid news about the World Economic Forum (WEF) meetings in Davos, Switzerland. Among other important news, like Chinese President Xi Jinping’s defence of globalization, probably one of the most spectacular headlines of this years’ WEF was the inequality report, by the U.K. based think tank, Oxfam. You know, the “8 richest people holds as much wealth as the poorest half of the world” thing. The headline was so catchy that many missed even the second part of this sentence; the number at the left side of the equation was shrinking each year.

Even at the summary of the report, Oxfam points out to more findings that were really worth thinking about. Your good ol’ writer is trying to learn to create infographics these days, so summarizing these facts will be a good exercise.

We don’t want to talk much about the picture above. Afterall, since the beginning of history, there has been those who are rich and those who are poor. Anyways, we find some comfort in thinking that most of these rich people were probably hard-working individuals, probably possesing a superior quality. Of course, most of the heirs in the third finding are not included in this opinion.

For us, the more disturbing facts from the Oxfam Report is below. The rich is accumulating wealth faster than the poor. Worse, more often than not, the rich is getting richer on the poor’s expense.

Take this; average yearly income of a CEO of company in S&P500 was $22.6 million in the year 2014. What does he have to do to earn this? Maximize his or her company’s profits in a given period of time. Among other steps, we can easily assume that a CEO could do a lot to decrease the company’s labor costs. Be it depressing salary increases, extending work hours or cutting jobs at home and even moving the operation overseas for lower payrolls. Of course this last one benefits the foreign country, which would enjoy new employment opportunities. However, the low-wage workers probably do not get as much from the wealth generated by this process as the top executives, and maybe ordinary stock holders.

Nevertheless, the fruits of globalization seemed to be enough for all parties, until the 2008-crisis. However, since then, the lower 80-90% of the global citizens are struggling to float, while the rich keeps getting richer. Joseph Stiglitz argues that in the ‘recovery’ of 2009-2010, the top 1% of US income earners captured 93% of the income growth.

Now, the lower levels of income is becoming aware of this bizarre wealth distribution equilibrium. They are getting angry and they are looking for alternatives, which promise change. In fact, they have the voting power in their hand to do this, the ability to shock the system with the choices like Brexit or Mr. Donald Trump.

Anyway, the richest eight, with all their wealth and power, can hardly match 3.6 billion votes.

China Hits Growth Target For 2016 – No Surprises Here.

Trusting our 15 years experience about China, we never thought otherwise. National Bureau of Statistics has today announced that the economy had grown by 6,7% in 2016, meeting the governments’ target of 6,5-7%. This is the lowest level since 1990, when the economic effects of student protests a year earlier, which reached its’ climax at Tiananmen Square, were felt.

Looking at the details of GDP numbers, we can see that tertiary sector (services) and conumption expenditures continued to be the main engines of growth. On the other hand, the contribution of investment to overall growth figure kept declining, albeit marginally, while net exports made a negative contribution, for the sixth time in the last 8 years.

At the final three months of 2016, the GDP growth came at 6,8%, a slight improvement over 6,7%, which was the growth rate of the first three quarters. We have already expressed our expectations about a small improvement of growth, after the release of December PMI data. However, we see this improvement as a small uptick, rather than a broad-based turn around in Chinese economy. Meanwhile, we have to note that the lack of upwards revisions on market forecasts, after the PMI data, is quite interesting.

This week also saw the announement of December monthly figures. While industrial production and fixed asset investment (FAI) decreased marginally, retail sales beat market expectations. Other details set aside, we note that private sector FAI continued its’ gradual recovery, a factor which we see as an upside risk for 2017.

Housing data was another important release this week. Yearly increase in prices seems to have peaked in December, after reaching double digits in September and causing the authorities to unleash a fresh round of measures. Meanwhile, the increase in housing sales is slowing down, while growth in investments move sideways. To be honest, we haven’t analysed the latest trends in housing prices yet, thus we opt for looking over the housing sector for today. Anyways, the markets also fail to reach a clear idea about the sector: BNP expects a recovery in H1 2017, while Deutsche Bank foresees a weakening. Given the neat cyclical nature of housing prices, we can at least expect a slowing trend in yoy housing prices, for the first half of 2017.

We have left 2016 behind us… What will happen in 2017. Only one thing is for sure, the government will be doing its’ best to keep economy on track, before the big Communist Party meeting in 2017. In fact, the Central Economy Conference in late December has set containing risks under control, financial risks particularly, as one of primary policy objectives. As we have shown earlier, these risks are building up one another this time and simultaneuosly dealing with them will be really difficult. Still, we don’t expect a major crisis during year 2017 (only few does). On the other hand, our growth expectations will be the -0,1/+0,2 ppt range around the official target, which will be announced in early March.

 

*: NBS has only announced the figure for tertiary industry, so we have polarised 2015 numbers for primary and secondary industries.

Çin’de Büyüme Hükümet Hedefini Tutturdu – Şaşırdık mı..?

Zaten 15 yıldır bu ülkeyi takip eden birisi olarak aksini de beklemiyorduk. Ulusal İstatistik Bürosu (NBS), bugün Çin ekonomisinin 2016 yılında %6,7 büyüyerek, hükümetin “%6,5-7 arası” şeklinde belirlemiş olduğu hedefi tutturduğunu açıkladı. Bu rakam, Tiananmen Meydanı protestosuyla zirveye ulaşan 1989 öğrenci olaylarının etkisinin hissedildiği 1990 yılından bu yana geçen 26 yıldaki en düşük büyüme hızı. 2017 yılı için de benzer bir büyüme seviyesi bekleniyor.

Büyümenin detaylarına baktığımız zaman üretim tarafında hizmet sektörünün, harcama tarafında ise tüketim harcamalarının ekonomiyi sürüklemeye devam ettiği görülüyor. Diğer yandan, yatırımların büyümeye katkısındaki düşüş –küçük olsa da- devam ederken, net ihracat da son 8 yılda altıncı defa büyümeye negatif katkı yapmış.

2016 yılının son çeyreğinde ise bir önceki yıla göre %6,8 büyüme gerçekleşti ki Aralık ayı PMI verilerini yorumlarken böyle bir tahminde bulunmuştuk. İlginçtir; piyasalar PMI verilerinin ardından %6,7’lik beklentilerini yukarı revize etmediler. Ancak 4. çeyrek büyüme verisini, yeni bir ekonomik canlanma döngüsü yerine küçük bir toparlanma olarak görüyoruz.

Bu hafta ayrıca Aralık ayı ekonomik verileri de açıklandı. Sanayi üretimi ve sabit yatırımların yıllık artış hızlarında hafif düşüş meydana gelirken, perakende satışlar beklentileri aşmayı başardı. Diğer detaylar bir yana, geçtiğimiz ay belirtmiş olduğumuz özel sektör yatırımlardaki toparlanmanın Ocak-Aralık döneminde biraz daha belirginleşmiş olduğunu görüyoruz. Link’i tıklamaya üşenenler için kısaca hatırlatalım; ÜFE’nin yeniden enflasyon bölgesine geçmesini, özel sektör bilançolarında bir rahatlama imkanı olarak değerlendirmiş ve 2017 yılı öngörülerimizde özel sektör yatırımlarının büyümede pozitif bir sürpriz yapabileceğini tahmin etmiştik.

Bu haftanın diğer bir önemli verisi de konut sektörüne aitti. Fiyat verileri, Eylül ayında yeniden çift haneye çıkan yıllık fiyat artışının tepe yaptığını gösteriyor. Diğer yandan konut satışları yavaşlarken, konut yatırımlarında yatay bir seyir var. Doğrusu bu konuya ait son eğilimleri tam olarak analiz edemediğimiz için boş ahkam kesmek istemiyoruz. Onun için müsaadenizle bu mevzuyu sonraya bırakalım. Zaten piyasanın da bu konuda kafası karışık; 2017 yılının ilk yarısı için Deutsche Bank konut piyasasında bir yavaşlama, BNP Paribas ise bir canlanma bekliyor. Ama en azından son derece muntazam döngülerle hareket eden konut fiyatlarının yılın ilk yarısı boyunca yavaşlayacağını tahmin edebiliriz.

2016 yılını tamamladık… Peki 2017’de ne olacak? Kesin olan tek bir şey varsa o da Komünist Parti’nin büyük toplantısının yapılacağı Ekim ayı öncesinde hükümet ekonominin rayından çıkmaması için büyük özen göstereceği. Nitekim, Aralık ayı sonunda yapılan Yıllık Ekonomi Çalıştayı’nda da özellikle finansal risklerin kontrol altına alınması politika önceliklerinden birisi olarak belirlendi. Daha önce gösterdiğimiz gibi, Çin’de bu defa riskler biraz fazla üst üste binmeye başladı ve bu nedenle ekonomi yönetimini bayağı yoğun günler bekliyor. Yine de 2017 yılında Çin’de ciddi bir ekonomik kriz çıkmasını beklemiyoruz. Bu çerçevede, mevcut durumda büyüme tahminimiz Mart ayı başında açıklanacak olan hedefinin etrafında -0,1/+0,2 puan aralığında olacaktır.

 

*: NBS sadece hizmet sektörünün GSYİH içerisindeki payını açıkladı. Diğer sektörlerin payları 2015 yılı verilerinin polarize edilmesiyle hesaplanmıştır.

The Irresistible Appeal of Predicting a Crisis in China

We have received an e-mail from a friend, which was the latest example of countless similar ones we have seen during the past few years. The attached graph argues that China’s property prices had “The Mother of All Bubbles”. Now, that’s a title that sells…

Since we have only seen the graph, but not the original report itself, we don’t know what the “best case” and the “worst case” meant. Anyways, this is not our concern right now. We want to object this “mother of bubbles” argument from two different points of view, about which we will write in the future: (1) It is very misleading to reach on a conclusion about China (in fact, about many countries), based on only one insulated data and (2) China should be treated as a special case, where the trends and data can easily dwarf other country examples.

Before moving on, we want to strongly emphasize that we don’t argue China’s real estate sector has no risk or speculative price movements. There are some risks stemming from over-investment (in some areas) and rapid price increases (in some others like Shanghai). However, this is a long subject to be written in another post.

First of all, we object the argument that China had a property bubble, by only looking at the prices in Shanghai alone. Most comments about a bubble in China’s real estate sector uses megacities, like Beijing, Shanghai, Shenzen and Guangzhou, to support their argument. However, when we look at smaller cities, we can easily see that the prices did not go up that dramatically.

We have a confession here. We have chosen the Tier 2 and Tier 3(*) cities on purpose, among the ones with the lowest increases in property prices. This serves us well, in supporting our argument that “one or few observations does not explain all of China”. Anyways, does anyone reach a conclusion about the housing prices in the U.S., by only looking at New York?

Our second objection is built around our view that concluding to an asset bubble only based on the price is wrong. When we look at the graph, the sevenfold increase in Shanghai property prices in the past 15 years is indeed noteworthy. However, before reaching a conclusion about a bubble in a certain asset, a sensible economist should first look at the supply/demand conditions and whether these conditions justify the price movements. Let’s see, if we can assess the supply/demand conditions in Shanghai housing market. Our data misses few years of the price graph above from both ends, however, that would not affect our argument much.

First, the demand. The population of Shanghai had increased by 7 million (**) people between years 2003-14 and a 2015 study shows that average housing space per capita is around 24 squared-meters (m2). Thus we can easily calculate that only the population increase means 168 million m of new housing demand. Adding up other factors, like existing home owners’ demand for newer property, married couples leaving their parents’ homes to have their own, increased demand for larger houses as Shanghai citizens’ income grow(***) etc., besides speculative moves, the total space sold, during the same period, sums up to 275 million m2. Looking at the other side of supply/demand balance we calculate that in the same period, the total supply of new housing property was 242 million m2. That means, demand is more than supply, i.e. prices are naturally expected to increase.

The demand for housing in the biggest four cities is also mentioned by others. For example, this working paper by the IMF (2015), which conludes that housing stock has been decreasing particularly in the “Big Four”,  supports our argument about Shanghai, at least. We strongly recommend this paper, due to its’ emphasize on the difficulties of understanding China’s property market, as well as on price developments should not be considered individually.

As a result, we repeat that one should refrain from reaching conclusions about China by only picking certain individual examples. Furthermore, if we want to understand China, we should be prepared to come across some incredibly big numbers, which could look irrational at first sight.

 

(*): In China, the biggest cities are divided into three (sometimes four) “Tiers”, according to their size. However, even official documents do not clearly state which cities fall into which Tiers, nor how many cities in total are classified. Nevertheless, it is generally accepted that Beijing, Shanghai, Shenzen and Guangzhou are the “Big Four” cities that make up the 1st Tier.

(**) This is the official number, so it supposedly doesn’t count the immigrant workers, who are outside the “hukou” system.

(***): Real per capita GDP of Shanghai has inceased by 2,5 times (3,7 times, nominally) between years 2010-2014.

Who can match the FED..?

The Federal Reserve  has increased its’ policy rates for the second time… However,  the markets moved more by the signal that it might hike three times in 2017, instead of two. Of course, it would be quite abundant to write about this, after almost a month since the decision. Instead, we want to analyze which emerging market central banks could follow these rate hikes, in order to defend their currencies and prevent capital outflows.

FED’s rate hikes, in its’ essence, would cause long term U.S. rates to increase and pull funds out of emerging markets to flow towards the so-called safe havens. This implies that the emerging markets would need to take some steps, if they want to keep the capital in their countries. Otherwise, they face the risk of entering into a vicious cycle, characterised by currency depreciation, higher inflation and lower growth. Therefore, maybe the pre-requisite for our question at the title should be: “Who will have to follow the FED.?”

In order to answer this question, we can look at the emerging markets’ external funding needs. The first indicators that come to mind are current account balance and net international investment position. In this context, we plot these indicators for 16 emerging markets.

The green area in the graph above shows the countries, which enjoy surplusses in both CAB and NIIP. They are net creditors to the world, which supposedly means less dependence on short-term capital inflows, and so, more comfort in not matching FED hikes. On the other hand, the red area at the southwest covers the emerging markets, which depend on external funding, to keep their economies running smoothly. These can be said to be our main candidates that would have to follow the monetary tightening in the U.S. The graph suggests that Turkey and Colombia, being farthest from the center, would likely feel the most pressure to match FED hikes.

Of course, emerging market central bankers can also tap in their forex reserves to defend their currency against capital flows. Or, can they..?! The markets seem to know the answer with correlation coefficient, between short term external debt/fx reserves ratio and currency movements for the past two months, being 0,65 (excluding Mexico, due to being specifically targetted by Mr. Trump).

Next, we try to find which countries have the policy space to follow the FED. Here, we define the policy space as growth being above potential and inflation being above target. Therefore, it seems appropriate to compare economic growth to its’ potential and inflation rate to target, for year 2017. For the first part we take our sample countries’ annual growth rates from the IMF WEO Database, with forecasts until year 2021, and calculate potential growth rates with the help of HP filter. The workload for finding 2017 inflation targets was minimal, just googled it. Then we have used Bloomberg survey forecasts (*) to calculate growth and inflation gaps. Here are the results…

Similar to our previous graph, we have defined green and red areas. The countries in the red area would have minimum policy space for monetary tightening, since both their growth and inflation rates are under their potential and target levels respectively. We observe that only Chile and S. Korea fall in this area. However both countries are  close to the axes that define optimal growth or inflation, thus we choose not to directly label them as having ‘limited space’.

Conversely the green areas cover the countries, with expected growth rates above potential and inflation rates exceeding announced target. This combination apparently gives those countries enough space (in fact some necessity, independent from the FED) for monetary tightening. Here we exclude Brazil and Russia, which are suffering recessions, thus would be very cautious about hiking rates(**).

Maybe, the upper left quarter of the above graph, which includes Turkey, S. Africa, Colombia, Malaysia(***) and Mexico should also be painted red. These countries are expected suffer below-potential growth, coupled with above-target inflation, which means risk of stagflation. Therefore, the central banks in those emerging market economies are facing a policy dilemma about monetary tightening. Fortunately, here Robin can come to help Batman, in most of those countries.

In the countries, where inflation fighting central bankers fear hurting economic growth and find it difficult to raise policy rates, might get some help from the fiscal policy. In this case, governments can adapt expansionary policies and support growth, depending on their fiscal space. So, the final part of this post is dedicated to assess the fiscal spaces in our sample. The safe level of public debt/GDP ratio, which is deemed as strong fiscal position in emerging markets, has been accepted as being less than 60%, for the past decades. In fact, recent literature still confirms around this level. So, we assess the fiscal spaces in our sample, using a heat map approach. The table is easy to understand. The greener, the better.

 

We don’t go through each country to decide whether they should/could follow FED hikes, since the angles we had put in this post might differ from person to person or from country to country. Plus, we did not want to put more words in an already quite long post. Anyways, we will probably revisit the subject in the months to come and see which emerging markets have indeed followed the FED.

 

 

(*) Despite using IMF data for calculating potential growth rates, we decided not to use the Fund’s 2017 growth and inflation forecasts, since they were published in October 2016, and thus, did not include significant events after that, Trump’s presidency being the most noteworthy.

(**) In fact these recessions are so deep that they distort both countries’ data, carrying potential growth rates down to around 0.5%. Thus, even IMF’s 2017 growth forecasts, which are quite low (Brazil: 0,5%, Russia: 1,1%), become enough to calculate positive output gaps. More up-to-date Bloomberg surveys correct this bias a little, but it still fails to move Brazil or Russia to another region in the graph.

(***): Malaysia is not an inflation targetting country. Therefore, we have employed the expected increase in inflation, from year 2016 to year 2017.

December PMI’s Paint a Nice Picture…

The new year has started with a nice surprise for China, as Caixin Markit PMI data (private) handsomely beat expectations. Manufacturing PMI has recorded the biggest jump in almost four years, while the composite PMI, which aggregates manufacturing and service sectors has reached its’ highest level in the last 45 months. On the other hand, National Bureau of Statistics’ official PMIs has recorded marginal decreases for both sectors. We already know that official and private PMI data could move in opposite directions, for a given month. However, this can not hold the China PMI data back, from being quite succesful proxies for GDP growth.

Below, we can see that both PMI data points to a pick up in GDP growth data for the fourth quarter of 2016. However, we don’t think this pick up would go too far, particularly not as much as the private index suggests. That’s because it seems wise to be prudent, especially at a time which the global economy is flooded with uncertainties and risks. Moreover, we advise our readers against drawing conclusions about China, by looking at only one months’ outcome. Nevertheless, we can confidently say that GDP growth would increase a bit, compared to third quarter, and the governments’ target of 6,5%-7% growth for the whole year would be comfortably met.

Nowadays, anyone saying only positive words about China would not deemed credible. Thus, let’s see if there are negative details in the PMI. Both official and private PMI’s employment sub-indices suggest decreasing employment in manufacturing industry. Moreover, input prices seem to increasing steeper than PPI, which can be seen as an indication of manufacturers’ difficulties about reflecting higher costs in their prices. Since we expect the positive suprise of 2017 to come from private sector, we might follow this trend more closely in the coming months.

PMI Verileri Güzel Şeyler Söylüyor…

Caixin Markit (özel) PMI verilerinin Aralık ayı için piyasa beklentilerini ciddi şekilde aştığının açıklanmasıyla yeni yılın Çin için oldukça iyi başladını söyleyebiliriz. Markit’e göre, imalat sanayi PMI son 4 yılın en hızlı yükselişini kaydederken, imalat ve hizmet sektörlerinin bir araya getirildiği bileşik endeks ise son 45 ayın en yüksek seviyesine ulaştı. Ulusal İstatistik Bürosu (NBS) tarafından açıklanan resmî verilerde ise hem imalat hem de imalat dışı sektörlerdeki genişlemeler biraz hız kesti. Çin’de aynı ay için özel ve resmî PMI verilerinin farklı yönlerde hareket edebildiğini ama buna rağmen hem Çin hem de diğer ülkeler için PMI verisinin büyüme için ne kadar iyi bir öncü gösterge olduğundan daha önce bahsetmiştik.

Aşağıdaki grafikte hem özel hem de resmî endekslerin dördüncü çeyrek büyümesinde bir artışa işaret ettiğini görüyoruz. Yine de özellikle özel verinin ima ettiği kadar güçlü bir performans beklemek çok da doğru olmayabilir. Malum, dünya ekonomisinin her tarafından belirsizlik ve risk taştığı bu dönemde tedbirli olmakta fayda var. Ayrıca Çin’de tek aylık veriyle sevinmenin ya da üzülmenin sakıncalarını burada uzun uzun anlatmıştık. Yine de üçüncü çeyreğe göre büyümede bir hızlanma görülebileceğini ve 2016 yılının tamamı için hükümet hedefi olan %6,5-7 arası büyümenin tutturulduğunu söylemek yanlış olmaz.

Bu aralar Çin ile ilgili sadece iyi şeyler söyleyenlere pek itibar edilmiyor. Onun için PMI verilerindeki kötü ayrıntılara da dikkat çekelim. Hem resmî hem özel verilerin at kalemlerinde özellikle imalat sanayindeki istihdam düşüşü dikkat çekiyor. Ayrıca, girdi fiyatları alt kaleminin ÜFE’ye gire daha dik bir artış eğiliminde olması da üreticilerin maliyet artışlarını fiyat artışlarına yansıtamaması da iyi bir şey değil. 2017 yılı için ekonomideki olumlu sürprizi özel sektörden beklediğimiz için özellikle fiyatlama davranışlarını önümüzdeki aylarda daha yakından takip edebiliriz.

“Mommy, will we ever be rich.!?”

If you are interested in economics, you are probably familiar with the term “middle-income trap”. To refresh our memory, it argues that low-income countries could relatively easily move up to become a middle-income one, due to mainly cheap and unskilled labor force and demographic dividend. However, they face difficulties in carrying reforms, mainly those regarding productivity gains, which would help them to move higher, thus being trapped in middle-income category. After reading some articles arguing that the difference between emerging and advanced economies might never disappear, we have decided to explore the subject a little bit.

First, some definitions… There is no clear-cut rule about which countries are considered as advanced (or developed, or high-income) and which are emerging (or developing, or low&middle income) among different parties. For example IMF’s “emerging and developing economies” cover 152 countries, while the World Bank’s equivalent “low and middle income countries” means 139. In fact, even these specifications, especially “emerging” countries has started to be criticised recently. This year, the World Bank had announced that it would no longer use the terms “advanced” and “emerging” economies, since they were outdated.

Furthermore, we don’t have much indicators for measuring when an emerging market economy is promoted to “advanced” status. Among those few, the most accepted one can be said to be the World Bank’s “low”, “middle” and “high” income country groups. It assumes that high income countries were those with Gross National Income (GNI) per capita more than 6000$, in 1987 prices. The World Bank deflates this number each year with the average inflation rate of advanced economies (G5, until 2001 and G3, since then), carrying the high income threshold to 12475$, at 2015. For our first graph, we use the IMF’s inflation forecasts to extend this threshold until year 2021.

Since we have set our target to be rich (!), we can assess the emerging markets’ (upper high income group according to the World Bank) performance relative to this target, for the past 28 years. Looking at the next graph, this performance could be easily divided into two parts. During the first period covering 1987-2001, we see an almost horizontal movement, suggesting that the emerging markets were not so successful in closing the gap with advanced economies. However, after 2001, we see an impressive convergence, even the 2008 crisis fails to stop.

We can attribute this strong performance to several key factors, among others: (1) China’s accession to WTO in 2001 and then rapidly integrating herself to global trade, (2) the positive spillover of strong growth in advanced economies and (3) positive effect of price supercycle on commodity exporters, mainly the result of previous two factors.

However, as the positive effects of these factors slowly vanish, the convergence between emerging and advanced economies slow down and the emerging economies fail to close the gap with advanced countries in 2015, for the first time since 1999. Of course, the slow down in China, as well as recessions in Brazil and Russia, has a great role in this. Nevertheless,  the stalling of the convergence is disturbing, especially given the fact that the high income threshold had not grown (and even decreased marginally) in 2014 and 2015.

Yet, it does not make great sense to draw conclusions by looking at only one years’ outcome (anyways, your good old author always tends to see the glass half-full). We can still expect the convergence to continue, as development theory suggest that emerging markets could keep growing at a higher rate than advanced countries.  Let’s see if medium-term outlook confirm this… Here we employ the growth differences between country groups, in terms of per capita GNI rates by the World Bank and total GDP by the IMF. Our next graph confirms the story above until 2015; a sluggish performance until 2001, a fast convergence after that and, most recenlty, a sudden slowdown.

The IMF forecasts, covering the 2016-2021 period, suggests some pick up in convergence between emerging and advanced economies. However, this pick up does not match the strong performance of 2000-2010 period. Moreover, we should note that the difference between the growth rates of per capita GDP (or GNI by the World Bank) would be lower, due to faster increase in population in emerging markets. As one would notice, the above graph supports this argument, with the convergence of per capita GNI mostly stays under that of total GDP growth.

In fact, we were already feeling the problem with emerging markets growth for the past years and this is the main reason that structural reforms were getting a permanent slot at the top of their agendas. However, these round of structural reforms are easier said than done.

The previous round of structural reforms, taken mostly during 1990’s and early 2000’s, were generally regulatory measures, which had transformed the institutions and the financial system and/or efforts, which helped building sound fiscal systems, etc. These reforms helped emerging markets to lay a solid ground and escape the 2008 crisis relatively unharmed.

However, this time the necessary structural reforms are generally related to productivity gains, like education, labor market or technological advances. These usually might require some short-term pains for longer term gains, which is not a pleasant preference for many governments. It is hard to find politicians, who would risk losing the next elections, in favor of a bright spot in future history books. Therefore, not many emerging market economies choose to adopt these reforms and, as a result, they get trapped  in middle-income category.

To summarize this long post, emerging markets are going through a difficult period. They need to be more productive, if they want to catch advanced countries sometime. However, it is not easy to take those steps, particularly at a global economic conjoncture, which is not supportive.

“I am sorry my dear child, we will stay poor for a while…”

China 2017 Outlook

The  most important parameter of the economic outlook this year would be the Communist Party Plenum. Due late October, it seems to be the last major chance for President Xi Jinping to consolidate his power. Moreover, the future government, which will take the power in 2022 and rule China for the following ten years, will largely be decided in this Plenum. Given such an important event, we believe the government will do its’ best to keep the growth on track and avoid any major policy shifts, which could possibly derail  the economy. In this context, we see a marginal overshooting of growth, due to macro-stimulus, as a probability and expect a growth rate between 6,4-6,7%, if the goverment adopts the neighborhood of 6,5%, which has been recommended recently by government think-tanks.

Under these circumstances we expect the fiscal policy to be expansionary, mainly via infrastructure investments. Indeed, the Ministry of Finance has announced that fiscal policy would be managed ‘proactively’, with emphasis on infrastructure spending and tax breaks, which is also positive for stimulating domestic demand. Meanwhile, we believe that SOE reform and local government deleveraging would continue, albeit very carefully not to cause any disruption in wider economy.

We join the growing number of analysts and the People’s Bank of China (PBOC) itself, about monetary policy is closer to tightening than easing. However, we think that the PBOC would try to wait until the growth target is safe, before considering hikes in interest rates and/or reserve requirement ratio. Therefore, we expect first tightening steps to be taken after late third quarter, if inflation rate dangerously rises above 3%. Until then, the PBOC is likely to manage the monetary policy, using open market liquidity tools.

Meanwhile, the PBOC will also have to deal with currency depreciation and capital outflows, at least until mid-year, when Donald Trump’s actual policies would likely start to shape. For the whole year, we expect CNY to lose some ground against the dollar, but not considerably more than dollars’ rise against other currencies.

We believe that the positive surprise in 2017 would come from private sector investment. The recent rise in commodity prices helped producer prices and industrial profits to start increasing, the former after a 4,5 year slump. Therefore, we expect some relief in corporate balance sheets and continuation of recent pick-up in non-state fixed investment (see figure), which might carry total fixed asset investment and thus, growth up.

Before assessing risks, we finally look at foreign trade. The ~8% depreciation of yuan in real effective terms would arguably support exports, which is already recovering gradually. However, we believe that a similar pick up in imports would dampen the effect of net exports on growth, which does not regularly record positive contribuiton in recent years anyway. Of course, any prediction regarding foreign trade could easily become worthless, depending on the actions of a blonde man across the Pacific.

International analysts are consistently pointing to risks in China and predicting crises for the past several years (high debt levels, real estate bubbles, stock market crash, capital outflows etc). Alas (!), none of them had materialised yet. We do not argue that China does not face any risks and we plan to write about them in the future . However, the government’s capacity to deal with them, which is somehow being consistently neglected, will likely to be disposed to fend off the risks, especially in the year of the Plenum. Here, we proudly cite Mr. Stephen Roach, who also thinks risks about China are overblown. On the other hand, we exclude risks related to Mr. Trump here, since they would likely require more effort from China, than internal risks would.

The bottomline is, we basically expect Chinese growth to move sideways in 2017, with macro policies generally managed with emphasis on stability.

 

 

Çin’de 2017 Ekonomik Görünümü ve Beklentiler

Efendim bugün ekonomi yazarları arasında adet olduğu üzere 2017 yılı için görünüm ve beklentilerimizi sizlerle paylaşıyoruz. Ayrıca büyük Çinli filozof Konfiçyus da bilgeliğiyle bizleri aydınlatıyor…

“Bir ulusun gücü kendi içindeki bütünlüğü sağlamasından kaynaklanır”.

En başta belirtmeliyiz ki 2017 yılında Çin ekonomik görünümü için en önemli parametrenin Ekim ayı sonunda yapılacak olan Komünist Parti Toplantısı olduğunu düşünüyoruz. Devlet Başkanı Xi Jinping’in gücünü daha da konsolide edebileceği büyük bir şans olan bu toplantıda ayrıca 2022’de görevi devralarak, Çin’i 10 yıl boyunca yönetecek kadrolar da büyük ölçüde şekillenecek. Böylesine önemli bir toplantı öncesinde hükümetin ekonomideki en büyük önceliği istikrar olacaktır. Bu nedenle ekonomi politikalarında -zorunlu kalınmadıkça- dramatik adımlar beklemiyoruz ki bu zorunluluklar da iç ya da dış şoklara bir cevap şeklinde ortaya çıkacaktır. Nitekim Aralık ayı ortasında yapılan Komünist Parti Ekonomi Çalıştayı’ndan da ekonomi politikalarının “ihtiyatlı ve istikrarlı” bir anlayışla yönetileceği sonucu çıktı. Yani bir anlamda Güven Sak hocamızın Türkiye için istediği sukûneti 2017 yılında Çin’de fazlasıyla göreceğimizi tahmin ediyoruz.

“1000 savaş arabalı bir ülkeyi yönetmek için şunlara dikkatle riayet edilmeli; ticaret, iyi niyet, harcamalarda idareli olmak, insan sevgisi ve bütün mevsimlerde herkese iş sağlanması”

Komünist parti için bu kadar önemli bir toplantının gerçekleşeceği 2017 yılında büyümenin, Mart ayında açıklanacak hedefin çok altında kalması hayal dahi edilemez. Bu nedenle büyüme oranının açıklanacak hedefe yakın ve hatta belki bir tık üzerinde gerçekleşmesini bekleyebiliriz. Son günlerde devlet adına çalışan düşünce kuruluşlarından, 2017 yılında %6.5 civarı bir büyüme hedefi konulmasını tavsiye eden açıklamalar geldi. Büyük ihtimalle bu hedef hükümet tarafından da benimsenecektir. Bu durumda bizim hiç bir ekonometrik modele dayanmayan büyüme tahminimiz %6.4-%6.7 arası oluyor. Hem bazen de ekonomiye sadece bir denklemler silsilesi olarak bakmamak gerekiyormuş. Dipnot: Consensus: %6.4, IMF: %6.2.

“Dikkatli olan nadiren hata yapar”.

Büyüme hedefinin tutturulması için maliye politikasında geçtiğimiz yıl başlayan ve altyapı yatırımlarına ağırlık veren genişlemeci politikaların devam etmesini bekliyoruz. Başta KİT reformu olmak üzere önemli yapısal alanlarda atılacak adımlar ise ekonomi ve büyüme üzerinde ciddi anlamda olumsuz bir etkiye mahal vermeyecek bir dikkatle yürütülecektir.

Para politikasında ise Çin Merkez Bankası’nın (PBOC) bir sonraki adımının parasal sıkılaşma yönünde olacağı yönünde son haftalarda giderek yayılan tahminlere katılıyoruz. Ancak beklenen parasal sıkılaşmanın yılın ilk yarısında (hatta yaz sonuna kadar) başlaması ihtimalini çok düşük buluyoruz. PBOC öncelikle büyümenin hedefe ulaşacağından emin olmak isteyecek ve bu gerçekleşene kadar para politikasını likidite araçlarıyla yönetmeye çalışacaktır. Eğer büyüme iyi gider ve enflasyon %3’ü tehlikeli bir şekilde aşarsa üçüncü çeyreğin sonundan itibaren zorunlu karşılık ve/veya faiz oranlarında artırımların başladığını görebiliriz.

Merkez Bankasının önündeki bir başka zorluk ise yuandaki düşüş ve sermaye çıkışları ile mücadele etmek olacak (ki yılın ilk aylarında buna biraz daha fazla önem verebilir). Efendim.? Kur tahmini mi.? Yok daha neler… Ama en azından yuanın dolar karşısında bir miktar değer kaybedeceğini ancak bu ‘bir miktar’ın doların diğer para birimleri karşısındaki yükselişi aşmaması için özen gösterileceğini söyleyebiliriz.

“Bir dağı yerinden oynatmak için küçük taşlardan başlarsın”.

Kasım ayı ekonomik verilerini yorumlarken ÜFE’deki yıllık değişim oranının 4,5 yıl aradan sonra yeniden pozitif bölgeye geçmesini ve özel sektör yatırımlarında işaretleri görülen canlanmayı iyimserlik yaratan gelişmeler olarak göstermiştik. ÜFE’nin pozitif bölgeye geçmesinde etkili olan emtia fiyatlarındaki artış bu yıl ayrıca sanayi sektöründeki kârların da maden/rafineri sektörünün önderliğinde yeniden artmaya başlamasına neden oldu. Fiyat artışlarının diğer kalemlere yayılarak bilançolarda biraz rahatlama yaratacak olmasına dayanarak, 2017 yılındaki pozitif sürprizi sabit yatırımlarda görmeyi  bekliyoruz. Özel sektör yatırımları sayesinde sabit yatırımlardaki artış hızı yılın ikinci yarısında %8.5-9 aralığına yükselerek büyümeyi de yukarı taşıyabilir. Bu tahmine karşı öne sürülebilecek iki argümana (yüksek borç ve konut sektörü) karşı savunmamızı da hızlıca yapalım (1) hükümetin son aylarda giderek daha fazla önem verdiği borç seviyelerinin düşürülmesi çabaları daha çok KİT’ler ve yerel yönetimlere odaklanmış durumda, (2) yeniden ısınan konut sektörüne karşı alınmış olan önlemler 2014 yılı başındakiler kadar sert ve geniş tabanlı değil ve burada görülecek yavaşlama kamu yatırımları tarafından telafi edilebilecek düzeyde kalacaktır. (Borç ve konut sektörü hakkında daha geniş yazılar yazmanın zamanı geldi).

2017 yılında sanayi üretimi ve perakende satışların artış hızlarında ise büyümeye benzeyen, genelde yatay bir eğilim izlememiz muhtemel. Ancak zombi KİT’lerin kapanma/iflas tasfiye sürecine bağlı olumsuzluklar ve/veya finansal risklerin yayılmasıyla her iki göstergede de yavaşlama görebiliriz.

“Dans etmeyi bilmeyen adamın eline kılıç verilmez”.

Son olarak da dış ticarete bakalım. Yuanın son bir yıl içerisinde reel efektif bazda %7-8 değer kaybetmiş olması şüphesiz ihracatçılara yarayacak ve dolayısıyla iç piyasada üretim ve yatırımı destekleyecektir. Ancak ithalatın da ihracatla birlikte artış sürecine giriyor olması dış ticaret fazlasının büyümeye pozitif katkı yapmasını engelleyecektir (ki zaten son bir kaç yıldır net ihracat büyümeye çoğunlukla negatif katkı yapıyor).  Tabii dış ticaret üzerindeki bütün tahminler sarı saçlı bir adamın söyleyecekleri veya yapacaklarıyla tepe taklak olabilir.

“En zor şey karanlık bir odada siyah bir kedi bulmaya çalışmaktır, hele de ortada bir kedi yoksa”.

Risklere gelince yüksek borç seviyesinin bankacılık sektörüne yansımaya başlaması, konut sektörü ve sermaye çıkışları gibi bazı riskler var ancak bunların ekonomiyi rayından çıkarabilecek kadar büyümesine ihtimal vermiyorum ki yukarıda anlattığım gibi en azından 2017 yılında buna müsaade edilmeyecektir. Yalnız Donald Trump kaynaklı muhtemel şoklar ekonomi yönetimi için biraz daha zorlayıcı olacaktır.

Ha bir de; son günlerde küresel kamuoyunda Çin tahvil piyasalarındaki gelişmelerin 2017 için yeni ve büyük bir ekonomik risk olduğu savunuluyor. 2016 başında borsa ve döviz kuru riskinden bahsediliyordu; 2015 ortasında Shanghai borsası kelimenin tam anlamıyla çöktü ve PBOC mini-devalüasyonu oldukça başarısız yönetti; 2014 başında bankalar arası faizlerin yükselmesi kriz habercisi olarak görülüyordu ve “konut fiyatlarındaki köpük bir patlarsa” deniyordu vs… Tamam, “Çin için hiç bir risk yoktur” iddiasında değiliz ama özellikle son yıllarda neredeyse kesintisiz olarak beklenen büyük krizi göremeden de 15 yılı bitiriyoruz (*).

“Yazı bütün sözleri ifade edemez, sözler bütün fikirleri kapsayamaz”.

Özetleyecek olursak 2017 yılında Çin’de -muhtemel şokları saymazsak- sakin bir ekonomik görünüm bekliyoruz. Çünkü hükümet böyle istiyor…

 

(*) Yazıyı bitirdikten sonra fark ettim ki Stephen Roach gibi Çin konusunda dünyaca tanınmış bir uzman da bu ülkeye ait risklerin abartıldığına ilişkin benzer görüşler dile getirmiş. Bendeki keyfe değmeyin gitsin… Ayrıca FT’den Gavyn Davies de yaz aylarında bizimle aynı kampta yer alan bir şeyler yazmış. Hatta bu hafta içinde FT Lex’te çıkan bir yazıda da Çin’de en az 20 yıldır kriz beklendiğini, borç krizinin de 2009’dan bu yana büyük bir risk olarak gösterildiğini ama henüz bu beklentilerin gerçekleşmediği anlatılmış (üyelik gerektiriyor).

Aklıma şu doktora fıkrası geldi; tez konunuz ne kadar saçma olursa olsun, danışmanınız iyiyse sırtınız yere gelmez. 🙂

Şimdiden herkese mutlu yıllar…