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Influential Harvard Paper on Debt and Growth Riddled With Critical Flaws

The intellectual case for fiscal austerity came under fire on Tuesday when a study by academics at the University of Massachusetts found that economic growth is achievable even public debt is greater than 90 percent of GDP. The findings refute an influential 2010 pro-austerity study by Harvard economists Carmen Reinhart and Kenneth Rogoff, and renews the debate over deficit reduction policies being pursued in the eurozone and elsewhere.

South Korea Unveils $15.3bn Stimulus Plan

The South Korean government on Tuesday unveiled a 17.3 trillion won ($15.3 billion) stimulus plan to boost slowing growth in Asia’s fourth largest economy, which has been hit by a slowdown in exports and sluggish capital investment.

The extra budget includes 12 trillion won to cover a shortfall in revenues and an additional 5.3 trillion won in new spending, the finance ministry said in a statement yesterday.

Curse Of The Black Gold – How Oil Exporters Reach Financial Collapse: Gail Tverberg

Although oil often provides an abundance of riches to producing nations, declining production capabilities, coupled with the volatility of oil prices, can lead some exporters down a road to financial collapse. Egypt, Syria, Yemen and the former Soviet Union have – at one point or another – struggled to re-adjust their economies at times of lower production, while Venezuela now appears set to fall under the same trap.

China’s Local Government Debt Is “Out Of Control”, Warns Auditor

Local governments from provinces, cities, counties and villages across China could owe somewhere between $1.6-$3.2 trillion to banks and other debtors, said a senior Chinese auditor on Tuesday, warning that the debt problem was “out of control” and could spark a bigger financial crisis than the US housing market crash.

Growth in Africa to Outpace World Average

Economic growth in Sub-Saharan Africa is likely to reach 5 percent on average over the next three years, outpacing global growth, as a result of high commodity prices and strong consumer spending on the continent, said the World Bank on Monday.

In its latest edition of Africa’s Pulse, a twice-yearly analysis of issues shaping Africa’s economic prospects, the bank saw increased investment, high commodity prices and a pick-up in the global economy driving this expected growth surge in the world’s poorest continent.

Global Military Spending Falls For First Time In 15 Years: Study

Worldwide military spending declined by 0.5 percent last year to $1.75 trillion, according to data released by a Sweden-based security think-tank on Monday, reflecting major defence cuts in the U.S. and Western Europe, as a result of the global economic crisis that began in 2008.

According to the Stockholm International Peace Research Institute (SIPRI), the drop had been largely due to the U.S. ending its wars in Iraq and Afghanistan and cutting its contingency-operations budgets in 2012.

Will China Succeed In Its Self-Imposed Revolution?: Michael Pettis

In a system in which almost all the growth is driven by increases in investment, and in which an increasing share of investment is being wasted on factories, bridges, real estate, airports, and other projects that have little or no economic value, rising debt can be a very worrying problem since the ability to service that debt is rising much more slowly than the debt. But if Beijing wants an economic revolution without soaring debt, what exactly are they going to do?

China Economy Expands 7.7% in Q1

China’s economy grew just 7.7 percent in the first three months of the year, a surprise figure that came in below analyst expectations and raises concerns that the nation’s recovery is faltering.

The growth rate, announced by the National Bureau of Statistics on Monday, was weaker than the 8.0 percent that most economists were expecting.

Gross domestic product had rebounded to 7.9 percent growth in the final quarter of last year, ending a nearly two-year slowdown. China’s full-year annual growth of 7.8 percent in 2012, however, was the weakest since 1999.

Key Economic News to Watch This Week: April 15

The two-day Eurogroup meeting that began on Friday, where the region’s finance ministers discussed aid for Cyprus, Portugal and Ireland, could set the tone for the rest of the week. Also, nearly 100 major U.S. companies including Citigroup and Goldman Sachs are due to release their earnings reports this week.

Monday, April 15

The 18th session of the UN Committee for protection of the rights of migrant workers and their families takes place in Geneva.

Tuesday, April 16

China’s Reserves Hit $3.4 Trillion

China’s foreign currency reserves rose in the first quarter by $130 billion, reaching a record $3.4 trillion, approximately the size of Germany’s economy, as a result of massive capital inflows into the Chinese financial system.

Strong growth in foreign capital inflows marks a significant change from last year when money flowed out from China. The return of foreign funds accelerated the domestic lending, according to authorities in Beijing, with total new financing rising by 58 percent to 6.2 trillion yuan ($1 trillion) compared with the first three months of 2012.