Daily Sources 2/13

1. Brian Swint at Bloomberg reports that the European Union’s statistics office announced today that GDP in the Eurozone fell by 1.5% in the fourth quarter from the third. GDP in the fourth quarter fell at a rate of 1.2% from the fourth quarter in 2007, the only drop for a full year period on record since the inception of the monetary union.

"[European Central Bank] board members Lucas Papademos, Juergen Stark and Jose Manuel Gonzalez-Paramo as well as Spanish central bank Governor Angel Fernandez Ordonez and Belgian Governor Guy Quaden said this week that the Frankfurt-based bank may cut rates next month."

2. Edward Hugh at Fistful of Euros reports that official German statistics released today show a 2.1% contraction of German GDP in the fourth quarter.

"A 2.1% quarterly contraction, for those who are confused by the way we economists do things is equivalent to an 8.4% annualized rate of contraction, which is quite something (although in fairness some of this comes from Q3 when there was a big build up in inventories, which has now unwound)."

Hugh also posts that the Estonian Finance Ministry released data showing that the economy shrank by an year over year rate of 9.4% in the fourth quarter."The contraction was 4.2% quarter over quarter. That is 16.8% annualized." Analysts are calling the contraction the worst economic crisis in the history of the country since its independence in 1991. Hugh also posts that the Czech Statistical Bureau announced today that GDP dropped by 0.6% in the fourth quarter from the third. At an annual rate it grew by 1% in the fourth quarter. And in a final bit of bleak news from Hugh today, preliminary government estimates are that Italian GDP fell by a seasonally-adjusted rate of 1.8% from the third quarter to the fourth.

"Across 2008 as a whole, the Italian economy fell 0.9%, ISTAT said, the most pronounced decline recorded since 1993.The Italian economy officially fell into recession in the third quarter of 2008. And one more interesting detail, Italian GDP is now back at the same level it was in Q4 2005, and falling. This is pretty worrying, and even more so given there are quite a lot more people in Italy then there were in 2005."

And in another bit of frankly exhausting bad economic news, Eurointelligence reports that French industrial production was down 1.6% quarter over quarter in the fourth, 8.6% year over year.

3. The G7 meeting in Rome began today, and in that context Rebecca Wilder at News N Economics produced an analysis and set of illustrative graphs showing that G7 growth rates are falling across the board while unemployment soars across the board. Here is her graph of G7 economic performance:



Worth a look. Eurointelligence reports that France will seek greater controls over hedge funds in the meeting this weekend--while publicly accusing Berlin of protectionism.

4. Kevin Hamlin at Bloomberg reports the much ballyhooed news that a survey of economists conducted by the wire service produced a median expectation of growth of 6.6% in China in the second quarter following expansion of 6.3% in the first quarter of 2009.

"The value of new loans in January was more than double the record set a year earlier, according to figures released by the People’s Bank of China yesterday.

The lending multiplies the effect of the government’s spending in ways that wouldn’t be possible in the U.S. and Europe, where banks are burdened by toxic assets, said Dwyfor Evans, a strategist with State Street Global Markets in Hong Kong."

Analysts have also taken note of the surge in iron ore imports in China, possibly due to restocking needs, potentially due to the infrastructure spending Beijing announced in December. (The rebound in iron ore imports has been named the primary cause of the rebound in the Baltic Dry Index, an index of shipping which is considered by many economists to be a good indicator of global trade.) Juliet Ye at the China Journal also notes that vouchers which various cities have introduced are spurring some consumption.

"In Hangzhou, capital city of eastern Zhejiang province, civil servants are to get 5% to 10% of their salaries in the form of consumer vouchers, according to one report. The vouchers are intended to be spent at local shops. Unlike actual money, they can’t be deposited at the bank for a rainy day, forcing consumers to spend."

Apparently vouchers are at the center of a discussion in which policymakers are considering how best to goose consumption--and the fact that Beijing is beginning to consider a boost in consumption an important goal is encouraging, from the American perspective.

"Local governments say the results are encouraging. The municipal government of Chengdu said that almost all shopping vouchers have been consumed. In Hangzhou, over 44 million of the 100 million yuan coupons have so been used by Feb. 5, 13 days after delivery of the vouchers, according to the Southern Metro Daily newspaper. On Monday, Jiang Zengwei, China’s vice minister of commerce, said in a press conference that issuing shopping vouchers is a effective way to spur consumption."

Still, some are pessimistic about the extent to which a vouchers program can spur consumption. I have, on the other hand, seen somewhere an analysis showing that in the US food stamps have the largest multiplier effect in terms of stimulus, because they cannot be horded. That said, Yves Smith at Naked Capitalism was at some pains to throw cold water on the estimates in a post today.

"Consider some basics. China's economy is not as export dependent as many believe, but exports have made a significant contribution to growth. Commercial real estate development has been another big driver. Those two have gone into reverse.

Let's deal with the notion of "stimulus" making up for the slack. The famed half trillion dollar plus package announced some months ago was largely spending already budgeted and planned. Analyst views vary (and further input welcomed) but from what I have seen, only 1/6 to 1/3 was new spending, and most of that occurred in the second year of this two-year program."

She also notes that Michael Pettis, one of the more prominent China-watchers, is very skeptical about the loan growth numbers, who argues they are the result of bad lending practices driven by the desire to keep Beijing happy, and thus a credit bubble, likely to burst quickly given the current global economic situation.

5. Alexander Kwiatkowski at Bloomberg reports that OPEC has reduced its forecast for 2009 oil demand by 530 kb/d to 85.13 mb/d. It now predicts a decline in demand in 2009 from 2008 of 580 kb/d or 0.7%. OPEC's numbers are somewhat higher than the EIA and IEA's forecasts for 2009 which are both 84.7 mb/d. However, as Keith Johnson at Environmental Capital notes, OPEC sees new demand destruction coming from Asia as opposed to the developed world. This is especially interesting because OPEC is in a place to know as oil imports for the major economies in Asia are overwhelmingly dominated by Middle Eastern crudes. From OPEC's analysis:

"The Chinese economy is dependent on exports and the slowing world economy is imposing a large burden on Chinese industrial production, which is leading to less use of oil products, particularly diesel. Hence, China’s oil demand is forecast to show a growth of only 2.3% this year down from 4.9% last year, a loss of 210 thousand barrels per day."

6. The January data from the California port of Long Beach shows a 23% decline year over year in container traffic.



Long Beach is the second busiest port in the United States, the 15th busiest container cargo port in the world, and about 13% of total US container cargo passes through it. And in further evidence of a gloomy economic outlook, the port of Marseilles reported a 24% decline in overall traffic in January year over year:



(The graph somewhat confusingly labels 2008 data 2009, but I think demonstrates the point well enough.) Some of the decline in the port is due to strikes, first by the oil workers, and later by nearly all the transportation unions. Still, the numbers from both ports do seem to indicate a weak global economy.

7. Marc Santora at the New York Times reports that a suicide bomber blew herself up in a crowd of Shiite pilgrims south of Baghdad today.

"It was the latest in a series of attacks directed at Shiite pilgrims in recent days, which Iraqi and Western officials said were aimed at stoking sectarian violence."

8. Ethan Bronner at the New York Times reports that Hamas today told the media that an agreement for an 18-month long cease fire was just days away. A senior Israeli official told the journalist that nothing had been agreed upon yet, however.

"The new prospective accord, again being mediated by Egypt, is aimed at rebuilding Gaza after the war and involves both reconstruction and reconciliation between Hamas and the West Bank-based Palestinian Authority, according to Ismael Ridwan, a Hamas spokesman, who spoke by telephone after extensive talks between Egyptian and Hamas officials.

He said among the materials that would be allowed to flow into Gaza in the new arrangement were cement and steel, which Egypt would monitor. Those materials are desperately needed for rebuilding, but the agreement would not allow pipes, cables and chemicals that Israel fears could be used for bombs."

Clearly, Tel Eviv will be unlikely to make deals prior to the formation of a government.

9. In an especially interesting note, Eduard Gismatullin at Bloomberg reports that the CEO of Total, SA, Christophe de Margerie, told reporters in London today that the company plans to expand activities in Venezuela as opposed to Brazil. He said that there was plenty of competition in Brazil and that therefore Venezuela provides a better opportunity.

10. Platts reports that Indonesia has concluded a deal to supply LNG from 2011 to 2020 to the Japanese consortium of Kansai Electric, Osaka Gas, Kyushu Electric, Chubu Electric, Toho Gas and Nippon Steel. However, the contract would be for 3 million tonnes a year from 2011-15 and 2 million tonnes a year from 2016-2020. The current contract through 2011 was for 12 million tonnes a year at $8-9/MMBtu (~ $46.40-$52.20/b on a Btu basis.)

11. James Morgan at the BBC reports that global warming may reduce the number of fish in the oceans by as much as 50% by 2050 according to a report first published at a meeting of the American Association for the Advancement of Science today.

"Thirty-three nations in Africa, Asia and South America are highly vulnerable to the impact of climate change in fisheries, according to scientists from the World Fish Centre.

Of these, 19 were already classified by the United Nations as 'least developed' because of their particularly poor socioenomic conditions.

'Economically, people in the tropics and subtropics likely will suffer most, because fish are so important in their diets and because they have limited capacity to develop other sources of income and food,' said Edward Allison, director of policy, economics and social science at WorldFish. "

(h/t Yves Smith at Naked Capitalism.)

12. Walter Pincus and Joby Warrick at the Washington Post reports that the Director of US National Intelligence, Dennis C. Blair, told the Congress yesterday that the financial crisis is the primary near-term security threat facing the US.He said, "Roughly a quarter of the countries in the world have already experienced low-level instability such as government changes because of the current slowdown." He also indicated that were the financial crisis to continue for a year to two that the world would likely witness "high levels of violent extremism" as well as "regime-threatening instability."

"In answer to a question about whether he was shifting assets to cover the financial downturn, Blair said that by leading off with the economic situation he "was trying to act as your intelligence officer today, telling you what I thought the Senate ought to be caring about." He said he was not refocusing the intelligence community's basic collection and analytic work from traditional concerns such as terrorism, Afghanistan, Pakistan, Iran, North Korea, Russia and China."

Very informative article well-worth reading. I personally am heartened to read that the head of US intelligence has such a clear-headed approach to the analysis of the evolving global environment. That said, perhaps diverting assets to developing scenarios for how the financial crisis in a variety of nations critical to the national interest would be an especially reasonable and wise allocation of funds.

13. Justin Lahart, Timothy W. Martin and Janet Adamy at the Wall Street Journal report that the Commerce Department released data showing that consumer spending fell by the inflation-adjusted rate of 3.7% in the fourth quarter. Apparently a great deal of that reduction is coming out of food purchases:



14. Brian Blackstone at Real Time Economics reports that the latest Fed survey shows that average household worth declined "by 22.7% from 2007 until October 2008. The median, or midpoint, fell a more modest 17.8%, suggesting declines were centered among wealthier families."