BIGCAPITAL's Blog

March 29, 2011

Japanese reconstruction may boost GDP growth

Japanese reconstruction may boost GDP growth

Experts suggest the massive Japanese earthquake may push up the country’s gross domestic product (GDP) as a result of the reconstruction efforts but Japanese equities and insurers are likely to suffer.

A report from Citi expects reconstruction demand will materialise in the second half (H2) of 2011, eventually pushing up GDP.

“We estimate the net impact on GDP growth in 2011 at +0.2% to 0.3% points,” said Citi.

This supposition was supported by rating’s agency Moody’s.

“Reconstruction spending will likely prove to be a very effective and justifiable fiscal stimulus. Such expenditure will likely offset the economic impact from immediate losses in production and demand,” it said.

February 23, 2011

Inflation Building, Fed Should Back Off: LaVorgna

Filed under: Uncategorized — bigcapital @ 12:22 am
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Inflation Building, Fed Should Back Off: LaVorgna

As government economists and Fed apologists continue to dismiss inflation pressures, the fear that easy money and commodity pressures are about to come home to roost is building.

While Michael Pento at Euro Pacific Capital and a handful of others have been pounding the table about inflation ever since the Federal Reserve began quantitative easing, the sentiment is beginning to spread.

The latest on board is Joe LaVorgna, chief US economist at Deutsche Bank, who warns in a note sent to clients Friday that “inflation pressures are inflating.”

The threat is two-pronged: On one hand this week’s producer and consumer price numbers show pressures are building in the crude, or initial, price pipeline that will spread to intermediate and finished products in the months ahead.

On the other hand is “energy inflation contagion,” in which surging prices in that space “have shown a significant capacity to breed inflation contagion among related categories and have destabilized inflation expectations.”

Taking both threats into consideration, LaVorgna posits that the Fed should reconsider completing the entire $600 billion of Treasury buys it has planned for the second leg of QE.

Unless the brakes are put on, LaVorgna argues that core finished PPI prices will increase at an annualized 4 percent rate, and he concedes that if his calculations are wrong they are on the low side.

Finally, he warns against the pervasive mindset that commodity price increases will not cause so-called “pass-through” costs into the broader economy. The rise in CPI and PPI comes as manufacturing activity and capacity are rising, as opposed to the last bout of commodity-induced inflation when the economy was shrinking.

An excerpt from the LaVorgna note:

“We believe the rise in commodity prices is significant, because it is occurring alongside robust factory activity and a general strengthening in underlying domestic demand—a crucial difference from the 2008 run-up in commodities, when the factory sector was shrinking and demand was slowing. Therefore, monetary policymakers should be cognizant of the pipeline pressure brewing in the PPI.

“The risk is that an overstay of aggressively accommodative monetary policy could lead to even larger gains in retail goods prices down the road—the Catch 22 of Fed folks worried that higher commodities will crimp demand. Rather it is ample demand that is pushing commodities higher. Consequently, as long as monetary policy remains extraordinarily accommodative, thereby further boosting demand, we expect these trends to persist if not become more durable.”

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October 13, 2010

Korea’s PPP per capita global ranking is 22nd

Korea’s PPP per capita global ranking is 22nd

KOREAN GDP

The nation is closing the gap with Japan on this measurement

Korea’s per capita purchasing power is expected to reach $29,790 this year, placing it 22nd in the world, a report by the International Monetary Fund (IMF) said yesterday.

This year’s purchasing power parity (PPP) is up $1,852 from the comparable figure tallied for 2009, the economic outlook report said. This places the country just behind France and Japan, whose per capita spending power is expected to reach $34,092 and $33,828, respectively. Korea’s PPP this year is also larger than the country’s nominal per capita gross domestic product (GDP) that may hit $20,164 in 2010.

The PPP index is used to gauge actual living standards by measuring purchasing power of people in different countries on the assumption that living costs and currency exchange rates are equal around the world.

The figure may be larger or smaller than the per capita GDP because of differences in consumer prices, various services and utility costs. Besides South Korea, 10 other countries, including Taiwan, Singapore, the Czech Republic and Portugal, had PPP numbers exceeding their respective GDP.

The latest IMF report, meanwhile, showed Luxembourg, Singapore and Norway to have the highest per capita PPP in the world this year, trailed by the United States.

Luxembourg’s PPP could top $80,000, with Singapore and Norway surpassing the $57,000 and $52,000 marks, respectively.

Countries such as Spain, Italy, Israel and Greece may have marginally lower per capita PPPs compared to Korea.

The findings said Korea’s PPP numbers will continue to grow steadily to reach $38,767 in 2015, which could further narrow the gap with Japan, whose per capita PPP may hit $40,195 then.

Korea’s spending power is forecast to reach over $38,000 by 2015, narrowing the gap with Japan, whose figure is expected to be just over $40,000.

The Ministry of Strategy and Finance says the reason for the large difference between the PPP and the per capita GDP is because of the exchange rate and the comparatively cheaper public utility charges in Korea.

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