By Edward Hugh
So Which Are The Worst Affected Countries In The Present Crisis?
Obviously the simple answer to this question is "all of them", and in particular all those countries who are members of the OECD. Perhaps that is the feature which best defines what is happening this time round (and which separates our present problems from, say, the Asian crisis in 1998) since this is a crisis whose focus has been, and still is, in what are often termed "the advanced industrial" economies, even though some of these are now more services than manufacturing-industry driven. But, come-on, within that ever so long list - which includes each and every member of the OECD (and a goodly number of those who aren't) - whom exactly are going to be the worst affected?
I don't think I have made any secret on this blog that I think the principal focus of the present crisis is now situated in what Paul Krugman calls 'Europe's periphery' - by which I would mean Central and Eastern Europe, Southern Europe, Ireland and the UK. To that list I would simply add those economies who are largely export driven, and who thus suffer most directly from the sharp contraction in global trade.
In particular: Germany, Japan and China. My principal guess is that China is really going to be one of the worst case scenarios, and that consensus thinking still has some way to go in catching up with events here. Hong Kong based UOBKayHian have a Q4 estimate for year on year Chinese GDP growth of 6.3% for China, and I think few people other than professional macro economists and bank analysts (and far from all of these if truth be told) really realize what this means - it means the quarter on quarter rate of expansion was very low indeed, possibly verging on the negative.
I'm guessing, but it must have been somewhere in an annualized 0 to 2% range. This means we may well see quarter on quarter negative growth in 2009 in China, and that the possibility of a technical recession of two consecutive quarters of negative growth must be over 50% at this point. It wasn't so long ago that the consensus was saying that annual GDP growth, which was as high as 6%, would be tantamount to a recession!
Societe Generale economist Albert Edwards is one of those who has been drawing our attention to the rapid decline in China's GDP and he uses one very interesting "proxy" (an indicator which can serve as a rough and ready substitute for something else, in this case movement in GDP) - electricity output. If you look at the 3 month year-on-year moving average for electricity output in China (see chart below) you will see it is already falling, which means that (in all probability) China's GDP is falling, which is just wow!
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