Between the “no” in the Greek referendum and a sharp drop in oil and commodity prices, EM is starting the week on a bad note. Therefore, we think this is a week to be defensive. There has been limited contagion so far from Europe, in either FX or fixed income markets, but this can change quickly. MSCI EM is testing the March low, and it is on track to eventually test the December low.
India’s domestic and international economic choices have not always been the wisest.
At independence, India was determined to transcend the distorted pattern of economic integration with the world that two centuries of exploitative colonialism had engendered. However, in the process, it ended up effectively locking itself out of global trade and investment flows altogether—just at the time when advanced countries were tearing down their mercantilist tariff walls to make way for the liberal, post-war trading order.
China’s old model of growth produced the strongest, most resource-intensive economic growth the world has ever seen. However, the period in which China’s growth dominated world demand for energy and metals and lifted global commodities prices to unprecedented levels has ended. This is most decisive for commodities like coal, for which production or use has large negative effects on local and global environmental amenity.
One of the challenges facing African countries is that the global environment is rather unfriendly. This hampers their efforts to tap into global markets.
Additionally, African economies are hindered by them still depending heavily on external assistance. Domestic revenue mobilisation is substantially below potential and progress in this area is very slow.
There has been a chronic failure among economists to explain growth in Africa. The methods and analytical angles they have used to explain relative failure in Africa came in the 1990s, but these were unsuitable for explaining growth in the 1960s or growth since the 2000s.
The higher they rise, the harder they fall. No politician in post-Suharto Indonesia has risen higher and faster than Joko Widodo (Jokowi), whose win in the 2014 presidential elections was considered a breath of fresh air for a vibrant but corrupt democracy. The reality of his presidency, though, is not what civil society, foreign governments and investors were crossing their fingers. After eight months in office, Jokowi looks surprisingly conservative, out of touch, and out of his depth.
Three years ago this month, ECB President Draghi issued his now-famous pledge to do “whatever it takes” to save the euro. Indeed, it has done its part. The ECB has a negative deposit rate, something that even with a protracted fight against deflation, the Bank of Japan never tried. The Federal Reserve is said to have considered it but obviously chose not to do it.
For four straight months, Canada’s economy has experienced a slight decline. This has led many in the financial sector to question whether Canada may be entering another recession.
The markets remain off-kilter. The dollar has recouped a little of the ground lost yesterday. Reports in a Greek paper that Tsipras may be reconsidering Juncker’s proposal may prevent a deeper pullback in the euro, which found a bid near $1.1135 after approaching $1.1280 in yesterday’s spectacular reversal. Over the next two days, there are an estimated 3.3 bln euro options struck at $1.12 that are set to expire.
Nearly 15 years after embarking on its large-scale decentralisation initiative, Indonesia has decided to extend its efforts to the village level. Decentralising to the nearly 74,000 villages is intended to improve service delivery performance at the lowest administrative tier and reduce social inequality and poverty. However, the initiative is all money, with no clear plan.
