As Libya’s National Transitional Council (NTC) begins to take over the reins of power in the country, attention is turning to a series of governance issues, and immediately, where the funds are to come for the stabilization and reconstruction of Libya’s infrastructure after months of conflict. With the Qadhafi regime entrenched and crumbling, the allegations […]
It’s looking more and more precarious to be a member of the cabinet in the Middle East and North Africa… at least in terms of job security. Along with new subsidies, public housing investment and public sector wage hikes, cabinet shuffles have emerged a primary tool for rulers to deflect criticism, signal a policy change (even if one is not forthcoming) and to stall for time. Last week both the Syrian and Kuwaiti cabinets resigned in the face of political pressure. This follows resignations in Jordan, Egypt (several), Tunisia and Lebanon, the latter because Hezbollah withdrew from the inactive parliament back in January.
The political situation throughout the Middle East and North Africa (MENA) is still in flux, with a rotating cast of countries carrying on “days of rage” and several regimes, including Libya’s, teetering. The overthrow of the Egyptian and Tunisian leaders has energized populations and opposition groups—leaders will no longer be able to rely solely on the old playbook of repression and subsidies. Regardless of how the political developments play out, all the regimes in the region have been challenged, and the populations will not be content with business as usual. In fact, many members of Tunisia’s caretaker government resigned this week as protesters demanded a government untainted by members of the old regime. In our latest MENA Focus, we consider what the recent political shake-up could mean for regional economies, their neighbors and their trading partners.
Overall, the economic and political outlook has become more clouded for the MENA region, even for the oil exporting nations that should stand to benefit from higher fuel prices, at least until demand destruction kicks in. As the chart below shows, demographic traits and unemployment levels contribute to this uncertainty to different degrees, depending on the country. Across the region, governments have responded with a mixture of reinforcing food subsidies, transfers to the population and, increasingly, more extensive use of force.
After struggling to gain momentum throughout most of the year, the Russian economy expanded by 4% y/y in 2010, well below its pre-crisis trend. Despite significant government support, the unwillingness of Russian banks to lend constrained the recovery, especially in fixed investment. However, by late 2010, Russian banks were enjoying something of a revival, as credit conditions improved throughout the year and asset quality slowly stabilized.
It’s a very big day for Qatar. As a long-time watcher of Russia and Qatar, among other hydrocarbon rich countries, the news that the countries will host consecutive world cups is really quite exciting. The decision is a leap of faith for FIFA, as the WSJ’s Matthew Futterman put it earlier today, as both countries still need a lot of infrastructure development. As David Roberts notes, Qatar is set to be even more in the spotlight, including in some ways it may not like. Though, these are after all events that are eight and twelve years in the future.
Extensive fiscal stimulus following the sharp economic downturn helped evaporate Russia’s budget surplus. In mid-2010, government officials announced a five-year, US$59 billion privatization program covering nearly 900 state-owned firms. While details are still scarce, the government plans to sell stakes in ten major firms by 2013, including the two Russian banking giants VTB and Sberbank, […]
Average wage settlement has far outpaced weak, below-trend economic growth, impairing productivity. South Africa’s unit labor costs had one of the largest increases in the world, a risk the IMF and OECD highlighted in recent reports. In the 2010 Article IV report, the IMF estimated a 16% increase in unit labor costs from 2007-09, driven by a near 11% increase in public sector wages. The increase in wages without a concurrent increase in labor productivity poses major upside risks to inflation, a concern of the South African Reserve Bank. Though wage increases fell slightly to 8.2% in 2010 from 9.3% the previous year, they far outpaced inflation, which eased to a 3.5% y/y pace by Q3 2010. As such, rising wages could counteract the other deflationary and disinflationary forces in the economy.
We pay particular attention to the purchases of China, Japan and other reserve accumulators. The most recent data from the U.S. Treasury, reflecting July purchases, suggest that Japan is closing in on China’s status as the largest foreign holder of Treasurys. China and Japan both have over US$800 billion in U.S. Treasurys and are by far the greatest foreign Treasury holders. They also have not insignificant stocks of agency debt. Chinese demand, at least through direct channels, has been waning, while Japan’s purchasing of Treasurys has crept up.
Yesterday was OPEC’s 50th birthday. The occasion is being met with celebration in Vienna, the host of the OPEC secretariat, and in OPEC capital cities (see FT beyond BRICS for more). Production still remains well below the 2008 peak, or even the average of 2006-8 (despite oil averaging around US$75 per barrel for most of the last year), but was inching up until mid-year and is currently at a price level where all but OPEC’s overspenders can balance their budgets. All in all, assume status quo of unchanged production at OPEC’s next meeting in October, as the prospects for oil demand growth cool along with the global economy. In the longer-term demand, particularly from EM Asia (and oil exporters themselves), should keep prices high.