Friday, February 19, 2016

Friday 02-19-16

Few fiscal, monetary policy moves left to fight global growth slowdown, Moody's warns

Risks to global growth have increased since November and world leaders have little left in their fiscal and monetary arsenals to mitigate the threat, Moody's has warned.
In its quarterly Global Macro Outlook 2016-17 report released Thursday, the ratings agency said that growth prospects were being hammered by China's slowdown, a slump in commodity prices and tighter financing conditions in some emerging markets.
This pain would outweigh factors helpful to growth, such as the loose monetary policy in Europe, Japan and the U.S., Moody's said.
The credit rating firm said gross domestic product growth across the Group of 20 was expected to match the 2.6 percent rate reached in 2015, while only a slight tick up to 2.9 percent was seen for 2017. This average figure for 2016, however, masked the decline in Moody's forecast range, which dropped 50 basis points at both the top and bottom end to sit at 2-3 percent.
Central banks, meanwhile, have limited room to battle the risks looming over growth, the report said.
"Where government budgets are hit by lower commodity prices and depreciating currencies fuel inflation, room to mitigate the downside risks is limited," according to the report. "In Europe and Japan, elevated government debt continues to constrain fiscal policy while the efficacy of multiple rounds of quantitative easing is already being tested."
The European Central Bank has set its key interest rates in negative territory for some time, and the Bank of Japan joined the club on January 29, which was read as a sign that the chance of Prime Minister Shinzo Abe's "three-arrowed" programsuccessfully stimulating the stagnant Japanese economy was running out.
Moody's said the BOJ's move would not be the hoped-for panacea for the country's struggle to achieve 2 percent inflation.The ratings agency called the underwhelming response of the Japanese economy and a tumbling yen "discouraging," and warned the central bank's ambitious inflation target would remain elusive.
As for the euro zone, the region's inability to inflate away debt will mean growth continued to be severely hampered by damaging leverage burdens, Moody's said.

Here's where the pain will be 

Moody's also cut its gross domestic product (GDP) growth forecasts for Saudi Arabia, Russia, Brazil and South Africa. Lower oil prices and fiscal tightening to contain government debt hit the Saudis and the Russians, while record-low business confidence levels were Brazil's weakness, Moody's said.
Capital outflows, reflecting a lack of confidence in President Jacob Zuma's government would hit South Africa's growth, the agency added.
"GDP will shrink again this year in Brazil and Russia, by 3 percent and 2.5 percent respectively, growth will fall to close to zero in South Africa and will be around 1.5 percent, the lowest in decades, in Saudi Arabia," Moody's said in a statement.
Russia and Saudi Arabia are suffering from the 70 percent drop in oil prices recorded over the past 18 months, so much so that this week the two major oil producers agreed to cooperate on freezing oil production, as long as other producers also took part.
If successful, it would be the first accord between OPEC and non-OPEC oil producers in 15 years, but the deal looks shaky given that deal needs the agreement of OPEC member Iran, which is reluctant to give up any share of the market just after U.S.-led sanctions were lifted in January.
Moody's forecasts 6.3 percent growth in China in 2016, down from 6.9 percent in 2015, but the 0.6 percentage point decline will feel worse that that on the rest of the world because the main slowdown will be in heavy industry sectors that were previously big importers, the agency warned.
China's growth fell to a 25-year low of 6.9 percent in 2015, according to official data. Some economists, however, are skeptical of Beijing's data, and say that the country's real growth rate was closer to 4 percent. Worries about China's economic slowdown has been one of the key drivers behind recent global stock market sell-offs.
Meanwhile, Indonesia would weather the commodity downturn relatively well, with Moody's forecasting GDP growth of just under 5 percent, powered by increases in real incomes and moderating inflation.
Marie Diron, senior vice president at Moody's Investor Service, told CNBC that "recent measures, aimed at really increasing investment, in particular, infrastructure, would really chime with that and give some room for the central bank to potentially ease monetary policy.
"So that really contrasts with other producers where policy space is much more constraint, and that's where the relatively favorable picture comes from."
Australia was another outlier, Moody's said, applauding the country's ability to offset mining job losses with a lift in employment in other sectors.
      
In the U.S., Moody's did not see interest rates approaching the much-discussed 2 percent level this year, given the lack of inflationary signals. The report predicts GDP for the country to be flat on 2015 at around 2.4 percent, hampered by weak capital expenditure and persistently low productivity growth.
And the gain that the euro area has enjoyed from lower commodities prices are being tempered by high debt in some sectors and the lack of clear outlook the European Central Bank's quantitative easing program, Moody's said.
The ratings agency cautioned that the main risk to its forecast included a "marked depreciation" in China's yuan, which would hit the profits of foreign companies that sold to China, cut the competitiveness of other emerging markets and fuel deflationary pressure in Japan and the euro zone.
The People's Bank of China (PBOC) shocked markets in August with a 2 percent devaluation in the currency and has since been accused of intermittently manipulating the yuan as it attempts an orderly decline in value.
      
Chinese officials have repeatedly said that it was unrealistic to expect a serious yuan depreciation but some big hedge fund managers have predicted a far heavier devaluation - and are betting on the drop - with Kyle Bass of Texas-based Hayman Capital forecasting 30 percent depreciation against the dollar.
Bass and others have also warned that China's banks cannot keep lending at their current pace because of looming bad debts; lending to government infrastructure programs has been key to propping up Chinese growth.
The PBOC, meanwhile, has been rebuked by the International Monetary Fund for its poor communication with markets on its yuan moves; the IMF had given China a show of support in November by agreeing to include the currency in its benchmark special drawing rights (SDR) currency basket, a move that required the yuan to be freely floating.
Other risks included rising geopolitical tensions that could increase risk-off sentiment and lead to volatility in financing, and the end to free movement of people within the European Union, the report said, which is a possible outcome of the area's migrant crisis.
 
Although some market players have claimed that the broad-based asset sell-off this year was divorced from healthy economic fundamentals, Moody's bleak global economic assessment follows the IMF's recent cuts to its global growth forecasts, as well as pessimistic comments from the Institute for International Finance and the Bank of International Settlements, among others.
 
 

Hungary Central Bank Stockpiles Guns, Bullets Citing Terror Risk

Hungary’s central bank, already facing criticism for a spending spree ranging from real estate to fine art, is now beefing up its security force, citing Europe’s migrant crisis and potential bomb threats among the reasons.
The National Bank of Hungary bought 200,000 rounds of live ammunition and 112 handguns for its security company, according to documents posted on a website for public procurements.
Additional protection is needed due to the rise of "international security risks" including bomb and terror threats and migration, central bank Governor Gyorgy Matolcsy said in a written response to a lawmaker who asked about the purchases, posted on Parliament’s website Feb. 17. The central bank’s assumption of the role of financial regulator and the related increase in the number of its properties also contributed to the need for further defenses, he said.
The security measures added to public scrutiny of the running of the bank, which under Matolcsy earmarked 200 billion forint ($718 million) to set up foundations to teach alternatives to what he called “outdated neoliberal” economics. Another $108 million fund used for buying fine art including a painting by Titian also drew criticism from opposition parties, as did a series of investments in office buildings and villas.
Matolcsy, an ally of Prime Minister Viktor Orban, has argued the central bank has the right to spend its profits, which have been boosted in recent years as the weaker forint increased the value of its foreign currency reserves. The central bank has traditionally paid its profit into the government budget, while taxpayers are required to cover any losses by the regulator.
 
http://www.bloomberg.com/news/articles/2016-02-18/hungary-central-bank-stockpiles-guns-bullets-citing-terror-risk
 

See Something Suspicious Online? Homeland Security Wants to Know About It

The Department of Homeland Security wants an extra $1 million next year to develop a public-service campaign designed to increase awareness of online threats. The new initiative will be modeled on the “If You See Something, Say Something” effort rolled out after the Sept. 11 attacks.
The new cyber PSA “will look to raise public and private sector awareness of cybersecurity and to emphasize the importance of cyber awareness and information safekeeping,” according to an explanation of the project in fiscal 2017 budget documents released last week.
DHS will work with state and local governments, law enforcement agencies, academic institutions and private sector companies as part of the campaign, according to budget documents.
The original “See Something, Say Something” first debuted in the New York City in 2002 in the aftermath of the 9/11 terror attacks to raise awareness of suspicious activity that could be related to terrorist activity. In 2010, DHS took the campaign nationwide, blanketing airports, train stations and public transportation networks with ads and announcements.
The cyber-focused campaign would be small to start. DHS is seeking just $1 million and one full-time employee to administer the program out of Homeland Security’s Office of Partnership and Engagement.
The proposed staffer would earn an approximate salary of $94,000 a year at the GS-13 or GS-14 level. The remaining funds would be spent on distributing materials, ad buys and other efforts related to the campaign.
Since 2004, DHS has sponsored National Cybersecurity Awareness Month in October to educate the public about safe online behavior. DHS rolled out a cybersecurity-focused public awareness campaign -- “Stop. Think. Connect.” -- in 2010, although it’s unclear how deeply that campaign has penetrated public awareness.
A report last summer from market research firm IDC recommended the U.S. government to beef up public-awareness campaigns around cybersecurity.
"The United States lacks a cybersecurity-focused culture," the report concluded, contrasting U.S. readiness with that of Israel, which has a “cultural mindset that is suspicious of unsolicited emails” and “is consistently mindful of security.”
Last week, the Obama administration rolled out a new Cybersecurity National Action Plan, which establishes a new public commission on cybersecurity and proposes billions in new funding to upgrade hard-to-secure legacy IT systems in use at federal agencies, among several other steps.
 
http://cdn.nextgov.com/nextgov/interstitial.html?v=2.1.1&rf=http%3A%2F%2Fwww.nextgov.com%2Fcybersecurity%2F2016%2F02%2Fhomeland-security-wants-see-something-say-something-campaign-internet%2F126008%2F

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