Period: 5 – 11 December 2020
Top news story: There were two headlines this week.
- The first is the near-final and irrevocable failure of the EU-Britain talks on Brexit.
Based on the logic of the experts of the Mikhail Khazin Foundation, this is due to a huge degree of uncertainty about the future of the economy. To put it bluntly, any decision can be considered a grave mistake in a short time, leading to serious trouble for specific officials. However, the opposite option offers no particular benefit (a peculiarity of bureaucratic behaviour).
If this situation was predictable, serious excesses could be circumvented. But in today’s realities, the potential consequences for officials are so great that it is optimal not to make any decisions. Note that Brexit is only one concrete example, we believe that such cases will be more and more frequent. It is likely that, in the near future, a standard solution will be to forgo decision-making on a wide range of issues, including economic and social issues.
- The second piece of news is the record surplus of China's foreign trade balance.
It’s hard to give him an estimate, and we’ll still be looking into this, but we can assume that with living standards falling, cheap Chinese goods are gaining the upper hand in competition. If this hypothesis is correct, then we expect protective measures from many countries of the world – that is, the disintegration of the WTO will accelerate. It should be noted that even Joseph Biden, who is eagerly awaited in China, has stated that he will not quickly cancel Donald Trump's protective measures against China.
In other words, objective economic processes are proving themselves despite all attempts by political authorities to create a virtual reality of the recovery of the world economy. They should not be blamed (consumer fear only worsens the situation), but there is a large group of people (entrepreneurs are) for whom reliable information on the situation is essential. It is for them that this review is intended.
Britain’s GDP fell 8,2% a year in October after -8,4% in September – progress almost stalled:
United Kingdom GDP YoY
Canadian PMI in November, worst in half a year amid declining employment:
Canada Business Confidence
Small business optimism in the US in November is the weakest in three months:
United States Nfib Business Optimism Index
Japan Economy Watchers Index returned to recession in November:
Japan Economy Watchers Survey
The rise of crude oil stocks in the US last week was record since April. This may be due to the fall in production and/or the fall in exports, which in the US has been growing for the last year. We may come back to this topic.
United States Crude Oil Stocks Change
In November, China's trade surplus reached a record high of + $ 75,4 billion.
And in Britain in October, the largest foreign-trade deficit in 1,5 years:
Brazil’s CPI in November (+4,31% per year) is the highest in 1,5 years, mainly due to the rise of food prices (+15,9%), the worst in 17 years:
In China, the CPI fell by 0,6% per month – the lowest in six months:
As a result, the annual decline (-0,5%) was the worst since October 2009, partly due to the low base effect (a year ago there was epizootics of pigs, and the prices of pork and food as a whole soared). But, regardless of all these local circumstances, the downward trend in prices does not augur well for growth prospects.
In Germany, CPI was confirmed as -0,3% per year – the lowest since January 2015 and only 0,1% of the lowest since 1986:
Japan’s PPI in November is the weakest in six months:
Japan Producer Prices Change
Consumer credit in the US is weak (as opposed to mortgages):
United States Consumer Credit Change
In the US, jobless claims peaked since mid-September:
United States Initial Jobless Claims
The Central Bank of Canada left its monetary policy the same: QE continues. The Central Bank of Brazil has no change either. The ECB has left the rates in place, but has expanded the size and duration of the asset purchase and refinancing program.
Summary: A key stage in any crisis is when officials begin publicly to accept the worst-case scenarios for the development of the situation. In our case spoke (understandably) not «economic official» or even a representative of a specific country: it was UN Secretary-General António Manuel de Oliveira Guterres. He stated that the humanitarian crisis of 2020 caused by the COVID-19 pandemic, armed conflicts and climate change had become the largest since World War II.
Let us not focus on the epidemic, which is a critical factor that will allow individual officials to evade responsibility. The main thing is that it sounded - the largest crisis since World War II. In reality, it will be stronger than the crisis of 1930-32 that led to the Great Depression. However, not even experts believe this yet, because liberal economic theory cannot explain the processes under way.
We have this explanation (see M. Khazin, «Reminiscences of the Future», in English translation), and it shows that the crisis is only at the beginning. However, it is clear from Guterres’s statement that many politicians are beginning to understand where the situation is going and are gradually preparing their constituents to understand it. Of course, after first explaining that no one is to blame, this is a force majeure.
In reality, the crisis is the result of years of liberal policies to stimulate private demand through the issuance of the dollar. It is this fact that allows us to assess the scale of the recession and its consequences. And the specific development of economic processes we monitor in our reviews.