x Abu Dhabi, UAETuesday 23 January 2018

Bad news is old news

So now they tell us: the US has been in a recession for about a year now. So all that talk about it feeling like a recession? Turns out it was a recession.

So now they tell us: the US has been in a recession for about a year now. So all that talk about it feeling like a recession? Turns out it was a recession. Thus endeth last week's pause in the plunge on financial markets. The panic has resumed and the Fed is now suggesting it may push rates close to zero in its quest to jump-start growth. The good news is that Americans are starting to save. That's different from saying they're not spending - that's the bad news. But they are also now saving more of the money they earn. In the short run that could likely make the global recession more severe. American consumers drive the global economy. In the long-run though, it would help end the debt addiction and unsustainable imbalances that laid the groundwork for the present crisis and proved, er, unsustainable. This is the paradox of saving, at least in economies where consumers matter, like America's. In export-driven economies, like Australia's or Singapore's or the UAE's, consumers can spend all they want. It won't be enough to offset the slump in exports and the resulting pressure on job growth and wages. So sharp policymakers in Singapore have yet to lower the country's forced-savings rates and put more money in consumers' pockets. They clearly believe they should continue to save against the possibility of further job cuts. All eyes are on China, meanwhile, to see if it is pushing the renminbi lower after a sharp spike in the dollar/rmb rate. Pushing the yuan lower would represent a big gamble that there is enough export demand out there to offset the higher cost of imports that a lower RMB would create. In the UAE, there are no taxes to cut. But revaluing the currency upward might serve as one way to put money in people's pockets, by reducing import prices. Liberalization of import bottlenecks, improving competition, would be another good way to make life easier and prevent an outflux of residents as non-oil jobs disappear. Otherwise, increased government spending may be the only palliative. That's what the Saudis are doing. Despite falling oil prices, they plan to boost expenditures, meaning a lower surplus and, gulp, possibly a deficit if oil prices continue southward. There are signs that won't happen. Traders in Singapore say that oil supplies in Asia are so tight that a cold snap could push prices up dramatically. Indeed, arguments continue to percolate that there is an incipient rally coming for Asian emerging market stocks, based on the fact that their monetary easing is not being mute by de-leveraging and that base-level demand will prove stronger than US economic numbers may indicate. Funds are still flowing into China, despite outflows from other Asian markets. As this strategy unfolds, it is important to remember that a rally in emering markets stocks will not mean that their economies are proving resilient and vice versa - if their stocks don't rally, it doesn't mean their economies aren't resilient.