IMF WEO/GFSR Analytical Chapters

The Autumn 2015 analytical chapters are:

WEO

Chapter 2. Where Are Commodity Exporters Headed? Output Growth in the Aftermath of the Commodity Boom

Chapter 3. Exchange Rates and Trade Flows: Disconnected?

GFSR

Chapter 2: Market Liquidity—Resilient or Fleeting?

Chapter 3: Corporate Leverage in Emerging Markets—A Concern?

 

 

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  1. Commodity Exporters?

    You have to distinguish between industrial raw materials – and unprocessed foodstuffs. A decline in the former group (carbonaceous fuels and metallic and non-metallic ores) will probably indicate a parallel decline in overall industrial (productive) activity – possibly related to an overall decline in final consumer demand for industrial products and services. Carbonaceous fuels have both industrial (inc. electricity generation) and transport (surface + air) uses. A reduction in their consumer costs may lead to (1) a parallel reduction in the prices of productive goods and services (lowish demand); or, (2) a simultaneous increase in the use of private and air transports. Mixed bag, as they say.

    One are of particular concern is the nett amount of crude oil that comes onto the global market. There are (approx) 33 major exporters. Their overall productions are declining (on an annual, percentage basis) whilst their internal consumptions are increasing (again, on an annual, percentage basis) – hence the nett amount of liquid carbonaceous fuels available for export is declining significantly. This is not a particular problem at present – due to the decline in global demand, but is has ‘future downside potential’, as they say.

    A related matter is that of the levels of investments – principally as credit, in the future production of carbonaceous fuels. These investments levels are declining – on an historic basis. Worse, some energy companies who are heavily indebted are having difficulty both at re-paying their existing debts (diminishing incomes)and raising new credit lines. Some have filed for bankruptcy. The relationship between crude oil supply production and consumer demand is somewhat precarious. Crude oil price needs to increase significantly (to above $80 bbl) to compensate producers and maintain their production plateau (not increasing that production level). Could income-strained consumers tolerate the consequent surge in energy and food production and transport costs – hence final prices? I doubt it.

    The steady trend in the decline in the wholesale prices of unprocessed foodstuffs is another matter entirely. This may be due to (1) a change in consumer demand (stagnant incomes); or, (2) increased levels of production: or, (3) some combo of both. Not a good omen for the Irish agri sector – which is requesting increased taxpayer-funded transfers to boost its agri sector incomes. Food price increases will eventually lead onto wage and salary increases. This matter bears close attention.

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