Posts Tagged ‘consumer spending’
Why China Is Going Into A Hard Landing This Year
This Thursday, March 22, The Guardian (of the UK) published a friendly email “debate” between Andrew Batson, of Gavekal Dragonomics, and me over whether China’s economy faces a “hard landing” in 2012 — with me arguing that it does, and Andrew that it doesn’t. You can read our exchange below, or access the original here.
Should China be bracing itself for a hard landing?
The China bears grow ever gloomier, while the bulls maintain their confidence. So will the world’s second largest economy see a hard landing in 2012 or can its leaders steer a steady course? Patrick Chovanec of Tsinghua University and Andrew Batson of Beijing-based consultancy Gavekal-Dragonomics debate.
Dear Andrew,
There really are two related but distinct things people have in mind when they talk about a “hard landing” for China. The first is a rapid deceleration of GDP growth – below, say, 7%. The second is some kind of financial crisis. I think we’re already seeing some signs of the first, and the second is a bigger risk than most people appreciate. For the past several years, most of China’s GDP growth has come from a massive investment boom fuelled by easy credit. Unless China sees a major increase in export demand – highly unlikely – or a huge shift towards domestic consumer spending – a lot easier said than done – the only way to hit 8-9% growth is to keep that investment boom going like gangbusters. The problem is, all that easy credit is generating bad debt and inflation.
The state banking system can brush bad debt under the rug, but the more bad debt gets rolled over, the less capital is available to fund new projects. The only way to keep the investment boom going is to dramatically expand credit. That would spark inflation and further distort the economy, which China’s leaders know they can’t do. They’ve painted themselves into a corner, and something has to give. Even though the money supply is expanding at a fairly generous rate it’s still not enough. That’s why real estate is collapsing and ambitious public works, like urban subways, are hobbled by lack of funds. Last year, out of China’s 9.2% real rate of GDP growth, five percentage points came from investment in fixed assets. If China builds all the roads, bridges, ports, airports, high-speed rail lines, condos, villas, etc this year that it built last year – an absolutely astounding amount of construction – but NO MORE, GDP growth would fall to just 4.2%. That’s a “hard landing” by anyone’s definition, and from what I can see, it’s already under way. Best, Patrick
Dear Patrick,
You are right to identify a crunch in investment as the main risk that could cause a sharp slowdown in GDP growth. It is true that about half of China’s economic output is investment, so if there is zero growth in investment then overall GDP growth will be cut sharply just as a matter of arithmetic.
The question is then whether investment growth in China is really going to go to zero, and here I do not think you have presented a convincing argument. Investment in China is not driven simply by the supply of loans from the state banking system, but also by the very strong demand for investment opportunities. China has an enormous urban housing shortage (on the order of 70m units), regional electricity shortages and one of the world’s most crowded railway systems – not to mention thousands of manufacturers busily automating to offset rising labour costs.
In short, there are plenty of things China can usefully invest in. Secondly, it is simply not true that investment is collapsing despite the best efforts of officials desperately trying to keep credit growth going. The investment cycle in China is clearly correcting after the huge stimulus in 2009-10: real growth in fixed asset investment slowed to 15% year-on-year in the last quarter of 2011, from a peak of over 40% growth in mid-2009. But this slowdown is happening precisely because the government is pulling back. The wave of new stimulus projects in 2009 was a one-time event that is not being repeated, and bank regulators have clamped down on credit growth because of worries about inflation and financial risk. Money supply growth has come down from a peak of nearly 30% year-on-year in mid-2009 to 12% in January 2011. In short, this looks to me like a cyclical downturn brought on by tighter monetary policy, and not a “hard landing” or crisis. Best, Andrew
Dear Andrew,
A developing country like China has plenty of things in which it could profitably invest. But I could name any number of countries, over the years, all at a lower development level than China, which nevertheless made wasteful investments and ended in trouble. We know already, from the collapse in the property market and the rising loan rollovers at banks, that many of the investments made over the past few years are not paying back. The last time China saw this kind of lending binge, in the 1990s, 35% of the loans ended up going bad. T
he problem isn’t China, it’s the inefficiency of its state-run banks and the state-run companies they lend to. I agree that some Chinese policymakers recognise this problem, and have tried to rein in runaway credit. But that led to two problems. First, the burden of tighter credit fell disproportionately on the private sector, the most productive part of the economy. Entrepreneurs paid exorbitant interest rates or got cut off entirely, while politically driven projects continued to get money on preferred terms.
Second, while Chinese regulators did succeed in reining in formal lending, banks and speculators – often working together – cooked up all kinds of ways around these constraints. Last year saw an explosion in off-the-books “shadow” banking, including the repackaging of questionable loans into risky investment products that were then marketed and sold to the general public. We’ve already seen people commit suicide or flee the country in a few cities, like Wenzhou, where this house of cards has taken a tumble, but the same practices are pervasive all across the country. There’s a greater risk of financial instability than most people realise. Best, Patrick
Dear Patrick,
Of course there are problems in the Chinese economy that need addressing. It is clearly true that China’s state-owned enterprises are less efficient than private-sector companies, and that private companies have real difficulty getting loans from the state banking system.
To the extent that China can fix this problem, it will only improve its prospects for future growth. While this inefficiency may well be a drag on China’s growth, is it such a burden that growth must come crashing to a halt this year? I think this is implausible. In the key industrial sector, corporate profit margins are now steady around 6%, the same level they have maintained for years. If Chinese companies were really burdened with lots of investments that “are not paying back,” shouldn’t they be losing money?
Similarly, housing sales are now falling mainly because the government has put in place policies that prevent many people from buying houses; this is hardly evidence that investments in housing are massively unprofitable. This does not mean there will not be bad loans resulting from the huge amount of stimulus lending. Clearly, China’s government has accepted some bad loans as a price it was willing to pay to keep growth going during the global financial crisis. (The “shadow” lending explosion took place in 2009 and 2010, and was curbed in 2011.) Banks and the government will have to work off the burden of these bad debts in coming years. All this is a good reason to expect China’s growth rate to be lower in the next few years than in the past few years. It is not a good reason to expect growth to collapse right now. Best, Andrew
Dear Andrew,
We both agree that China’s high rates of GDP growth, these past few years, have been mainly due to an investment boom and that an abrupt end to that boom could spell a sharp slowdown. We agree that the big surge in lending that propelled this boom has created a bad debt burden for banks. We also agree that Chinese regulators have now (as you put it) “clamped down on credit growth” and that investment growth has fallen off as a result. But while you see this as a deft (and ultimately successful) balancing act by Chinese policymakers, I see it more as a wild juggling act, an increasingly desperate effort to keep way too many balls in the air at once.
Real estate is a prime example. You credit the recent fall in the market to the government’s restrictions on multiple home purchases. If only it were that simple. Those curbs were put into place nearly two years ago and to the extent they worked at all, merely shifted speculative attention to (unrestricted) second and third tier cities. Developers kept expanding investment by 30% a year, piling up nearly a year’s worth of unsold inventory, confident that the government needed them – and would ultimately support them – to maintain growth. In the meantime, the central bank was reining in credit to counter rising inflation, including spiralling home prices. When developers finally ran out of financing options, they had to start dumping their unsold inventories to raise cash – and the market tanked.
Drop one ball and others follow. Land sales – which local governments are relying on to fund basic services, as well as repay their stimulus bank loans – are at a standstill, and some analysts expect private housing starts to fall by 20% this year. I wouldn’t take too much comfort in the reported profits of Chinese firms. Lehman, Bear Stearns, and AIG – not to mention Fannie and Freddie – were all rolling in profits as long as credit was cheap and property prices were rising. That’s the nature of boom/bust cycles: it’s easy to make money when they’re printing it, and nobody’s pressing to be paid back. But as Warren Buffett says, “It’s only when the tide goes out that you learn who’s been swimming naked.” Chinese companies I’ve been talking to, across many different industries, say they’ll count themselves lucky if they can just match last year’s sales in 2012. Sounds to me like the tide’s going out – and I’m betting there are a lot of folks in China who figured they’d never need a swimsuit. Best, Patrick
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See Also:
- China Isn’t Playing Fair, And Neither Should We
- China Is Hinting It Might Double Rare Earth Exports This Year
- How The Chinese Bond Market Quadrupled In Just One Year
A Huge Sign That The Economy Has Avoided Disaster
Over at The Bonddad Blog, the pseudonymous New Deal Democrat is out with the latest look at the weekly high-frequency data.
This part really stands out:
The ICSC reported that same store sales for the week ending March 17 rose +0.9% w/w, and also rose only +3.3% YoY. Johnson Redbook reported a 3.6% YoY gain. This week was the best week in over a month. The 14 day average of Gallup daily consumer spending rose to its highest springtime level in 4 years, after having been briefly negative YoY at the beginning of this month. Shoppertrak’s data for the beginning of the month was also belatedly reported as off -3.4% YoY.
It’s hard to identify any evidence that gasoline prices have become a big problem, or really any problem. When multiple surveys show retail sales are at their highest levels in awhile in the face of all this, this is a very good sign.
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See Also:
- There’s No Correlation Between More Domestic Drilling And Lower Gas Prices
- STEPHEN ROACH: There’s Only A Shred Of Truth To Talks Of A Chinese Hard Landing
- BERNANKE: Back Off! The Fed Didn’t Cause The Housing Bubble
MAULDIN: Here’s Where All The Jobs Will Come From
“Six years into our global data collection effort, we may have already found the single most searing, clarifying, helpful, world-altering fact.
“What the whole world wants is a good job.
“This is one of the most important dsicoveries Gallup has ever made. At the very least, it needs to be considered in every policy, every law, every social initiative. All leaders – policy makers and lawmakers, presidents and prime ministers, parents, judges, priests, pastors, imams, teachers, managers and CEOs – need to consider it every day in everything they do.
“That is as simple and as straightforward an explanation of the data as I can give. Whether you and I were walking down the street in Khartoum, Cairo, Berlin, Lima, Los Angeles, Baghdad, or Istanbul, we would discover that the single most dominant thought on most people’s minds is about having a job.
“Humans used to desire love, money, food, shelter, safety, peace and freedom more than anything else. The last 30 years have changed us. Now people want to have a good job. This changes everything for world leaders. Everything they do – from waging war to building societies – will need to be in the context of the need for a good job.”
- From The Coming Jobs War, by Jim Clifton, Chairman and CEO of Gallup
Each month investors and politicians in countries all over the world obsess over the release of the monthly employment numbers. Even though these numbers are likely to be revised significantly from the original release, the markets can’t help responding to the variations from the expected number. Why the focus on numbers that are likely to be proven wrong in the coming years? Because the single most important factor in the direction of an economy is employment. Consumer spending, personal income, tax revenue, corporate profits, and a host of other variables all swing on rising and falling employment.
This week we begin a series of letters on employment. I have been researching the topic more than usual for the book I am writing with Bill Dunkelberg (the Chief Economist of the National Federation of Independent Businesses) on the entire employment issue. We will look at why employment is so critical. How are jobs created and what policies can be adopted to help foster more jobs? Should the US try and keep jobs that are going overseas, or develop whole new industries? Who exactly is the competition globally for jobs?
We will find that billions of jobs will disappear in the coming decades and even more will be created. There are today some 1.2 billion good jobs, but 1.8 billion people want them. Over the next 30 years the world economy will double and then almost double again. Where will the new jobs be and who will get them? What should you and you children be doing today to be sure that you have jobs in the future?
In order to try to answer these questions, we will start with a general view of the employment situation in the US. What has it looked like in the past and where is it going? Today, we will look at the direction of employment in the US and then focus on both what employment is likely to be in the next few years as well as the dynamics of the labor market. There is a lot to cover. (This letter might print a little longer, as there will be lots of charts.)
Getting Back to Full Employment
The headline unemployment rate is 8.3%, down from 10% only a couple years ago. But ten years ago it was less than half that, and at the beginning of the last decade it was less than 4%. 60 years ago it was less than 3%! Employment is a very volatile number, and as we have seen, it can rise substantially before and during a recession. The first graph we will look at is the unemployment rate, from the FRED database created by the St. Louis Federal Reserve.
Notice how much unemployment fell after the recession that followed World War II, during the ’60s, and then in the Reagan and Clinton years. What kept it from rising in the last decade less than after almost any previous recession, and what caused it to rise more following the recent recession than in any since WWII? We’ll look at that later, but for now let’s just get the lay of the land.
The last few months have seen good overall employment growth. January was revised up by 61,000 to 284,000 jobs created and February was 227,000. If we could keep that up it would mean 3 million new jobs this year. How likely is that to happen? Let’s look back over the last 20 years for evidence. The next table is from the Bureau of Labor Statistics (BLS) web site, a treasure trove of employment data. Then I will sum up the monthly numbers for you in the next table.
[Hundreds of thousands of jobs]
Notice that about half of the time in the 1990s we saw growth in the neighborhood of 3 million annual jobs. We only went above 2 million in three years this last decade, and the rise over 2 million in those years was entirely due to construction jobs, which have since plummeted by 25%. Does anyone expect construction to supply such growth in the next few years?
Then look at employment growth month by month and notice that putting together a long string of 250,000 new jobs a month has not been easy in the last 13 years. You can get 3-4 months with solid job growth … which is then followed by a falloff in job growth. For instance, in 2010 the entire year’s growth of 1 million jobs came in just three months. And last year two months (February and March) saw almost 500,000 jobs and half the year’s growth.
The 1990s were the years of growth in all sorts of technology areas, and a resulting strong economy.
How long will it take us to get back to 4% unemployment? First, let’s look at how many jobs we have lost.
We lost 10 million jobs peak to trough in the last recession. We are still down 7 million jobs from the high-water mark. But it is actually worse than that, because we need 125,000 new jobs each month just to keep up with population growth. That is 1.5 million jobs a year. IF we grew at 3 million jobs a year, it would still take over 4 years (until some time in 2016) to get back to the level of unemployment (4.5%) that we saw in 2007.
It will be even tougher in coming years, as we are watching government jobs fall steadily by around 15,000 each month, rather than adding 10,000 or so each month. Government jobs are down around 500,000 over the last three years. That is a big swing.
Who’s Participating in Employment?
The participation rate is the number of people who either have a job or are looking for one, as a percentage of the total population. Students and retirees, for example, are not considered as participating in the labor force. Nor are people on disability payments who are not looking for a job. Some 25% of the people who lost jobs since 2008 have applied for and received government disability checks. As an aside, we normally think of disability as something physical (back pain, etc.), but since 2008 43% of those getting approved for disability cited psychological reasons like stress. A rising percentage of them are white-collar workers. This is now costing us over $200 billion a year, which is almost 10% of total federal revenues. (I get it that individual people get very small checks, but there are now 10 million people on disability. And less than 1% a year either give up or lose their disability payments.)
The last month saw an increase in the civilian labor force (the people who are counted as either employed or looking for a job) by 476,000, which is a healthy rise. Most saw it as a positive sign that people had better expectations of finding a job and were therefore looking. And that is a good part of the reason. But remember that you have to have been looking for a job within the last four weeks to be counted as unemployed. We are now seeing an increasing number of people coming to the end of their employment benefits, which were extended to 99 weeks. There were over 100,000 more people who were no longer getting benefits in just one week in February. There is clear research and evidence that losing your benefits can be a real motivator to start looking for a job!
And that is one of the reasons (as I have written for years) that bringing the unemployment rate down is harder than merely adding jobs. Those who are not considered to be in the labor force will either be motivated to look for a job because of improved conditions or be forced to look for a job because their benefits run out. Either way, the participation rate rises, which means you need at least as many new jobs as new people entering the labor force, just to keep the unemployment level even.
I point out the mountain we face in getting back to a reasonable unemployment level, not to be negative but to highlight the importance of job creation. The engine of job growth in the US is small business and new business. If we want to see rising employment, we need to be figuring out how to create more entrepreneurs. Roadblocks need to be removed. The amount of paperwork (and the cost!) required to hire just one new employee can be daunting for a small business. All those reports don’t just magically fill themselves out. It takes time and money away from core business efforts to prepare them.
There are areas where new jobs will be created. The US has the opportunity to become energy self-sufficient by the end of the decade. That effort can create hundreds of thousands of direct jobs, with hundreds of thousands more created to service the people who are doing them. And those are jobs that pay well. We will explore various new industries that can supply jobs in the US (and in other countries as well).
4 Million New Jobs a Month!
Now let’s turn to something that I find encouraging. If I told you that there were 4 million new jobs created in January, most readers would want to know what I was drinking. But that is the reality we find in another report by the BLS, called the JOLTS report or Job Openings and Labor Turnover Survey. It comes out each month and reports on just what it says.
In January there were actually 4.1 million new hires in the US, according to the JOLTS report. Of course there were also 3.9 million “separations.” Separations can be voluntary (called quits), as in a person leaving a job to either go to or look for another job. Or they can be involuntary, as in layoffs and discharges. The quits rate can serve as a measure of workers’ willingness or ability to change jobs. It will surprise no one that quits are down by 1/3 in the last few years as fewer people quit without a job in hand. But layoffs are also down by a third from 2009, which is a clear sign of improvement in the job market.
And that brings us to the job openings. The good news is that job openings are up 50% from the bottom in 2009, but still off by 1 million jobs from 2007. The bad news is there is still only about 1 job for over 3 people who are looking.
What that says is that the labor market in the US is still very dynamic and fluid, even with the high unemployment level. When 3% of the labor force changes jobs in any one month, that means there are companies hiring somewhere. And while 3% may sound high, the rate has been over 4% in the last ten years. And when 1.5% of the labor force voluntarily quits, that means they are either retiring or expect to find a new job.
The BLS has an item in its monthly labor report (the establishment survey) called the birth-death ratio. This is basically a number they use to estimate the number of net new businesses created each month. In times of rising employment, the survey of businesses misses new businesses (as a new business is obviously not on the call list). In some years, especially after a recession finishes, those new businesses can account for a large part of net new job creation.
But if we go back to the unemployment rate (the first chart in this letter), you have to ask yourself, why are we not creating new jobs like we did in the past? Why has job growth been sluggish for over a decade, especially if you take out the construction jobs in the middle of the last decade? Doing so makes job growth last decade look particularly bad in comparison with other recoveries in the previous 20 years (before 2000).
In coming letters we will look at what I think might be some of the reasons. But for now we will close with a quote from Jim Clifton, who I quoted at the beginning on the importance of creating jobs. Clifton and the Gallup organization have been surveying people about their jobs for decades, and Jim has been consulting on employment for at least that long. I find his book, The Coming Jobs War, to be very readable (and provocative) and to offer a lot of good ideas. I recommend it.
Where Will the Jobs Come From?
I came across this quote from an interview Jim did with Forbes, when he was asked the question, “What obstacles do leaders have when trying to create more jobs?“
“There are no real obstacles. Just wrong thinking, bad assumptions. When you build strategies and policies on wrong assumptions, the more you execute, the worse you make everything, which is what we are doing now. There are three wrong assumptions that cause all the current job creation attempts to not work.
1. “Innovation is not scarce. Entrepreneurship is scarce. We are spending billions and wasting years of conversations on innovation and it isn’t paying off. Great business people are more valuable and rarer than great ideas.
2. “America has about six million active businesses. Ninety-nine percent of them are small businesses. An incalculably huge mistake leaders are making now is spending time, money, strategies, and especially policies for those who need ‘help’ getting a job. A useful way to look at any citizen is this, ‘Can she herself create jobs or does she need a job created for her?’ We are spending all our time on the cart and doing little or nothing on the horse. We have our assumptions and futurism that backward. ‘The horse (small and medium business) stopped, so we fix the cart (jobs).’ If we change all our strategies and policies to favor the job creators (small and medium businesses) the horse and cart will get moving again. We have our compassion right, but the logic is staggeringly stupid.
3. “It is wrong thinking to imagine that Washington has solutions. Job creation is a city problem. There is great variation in job creation by city in the United States. San Francisco and the greater Valley keep pumping away while Detroit isn’t. Austin’s cart works while Albany’s doesn’t. Cities need to look inwardly and say, ‘What can I do to create great economic energy, to bring new customers for all existing companies and start-ups?’”
We will follow up on those thoughts in coming weeks.
Stockholm, Paris, San Francisco, and New York
I am off on Monday to Stockholm to speak at a conference for Swedbank, and then on to Paris for the weekend, to be with friends, attend the Global Interdependence Center conference on central banking, and enjoy one of the most beautiful cities in the world. It has been some time since I have been to the Louvre, and I hope to be able to enjoy a few of the exhibits. Then back for a week before I head for San Francisco for the Life Extension Conference and to meet with Pat Cox and other friends, and then on to New York, where I will speak Tuesday afternoon at the Bloomberg conference room for Investorside, a nonprofit group of independent trade research providers.
The Strategic Investment Conference I hold each year in California (along with my partners, the team at Altegris Investments) is sold out. We got a much larger venue this year but still sold out earlier than we ever have. I did tell you that we would, and sorry if you wanted to go.
I will also be speaking at the Casey Research Conference (“Recovery Reality Check”), near Miami April 26-29. There is a decided natural resource theme as well as more general investment topics, and quite a good line-up of speakers. You can learn more at http://www.caseyresearch.com/2012-spring-summit?ppref=JMD439EA0312A.
It is time to hit the send button. The Chinese translators are waiting and they have a deadline approaching quickly, as they must get into print in the Hong Kong Economic Journal on Monday morning. It is a darned quick turnaround and they have yet to miss a beat, although I am somewhat late from time to time. Have a great week.
Your thinking about where his kids will work analyst,
John Mauldin
John@FrontlineThoughts.com
Copyright 2012 John Mauldin. All Rights Reserved.
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See Also:
- Here’s Everything You Need To Know Ahead Of Today’s Big Jobs Report
- Housing Simply Cannot Recover If Employment Is Trending Down
- Now Even The Hardest-Hit Housing Market In America Is Seeing Unemployment Improving
Why UBS Just Cranked Up Its Q1 2012 Growth Forecast
From UBS’ Maury N. Harris:
The surge in payrolls in January provides further evidence that a virtuous cycle of economic activity is beginning to take hold. We have increased our outlook for Q1 2012 real GDP growth to 2.3% from 1.5%.
This is a function of increased consumer spending emanating from pent-up demand and a better labor market and credit conditions. It also reflects expectations that Federal government spending will rebound after plunging in Q4 2011. Risks remain: Europe has n.ot been “solved”. Faster growth and the recent rapid decline in labor force participation have caused us to revised down our estimate for the unemployment rate by year-end: we now expect a 7.9% rate versus our previous estimate of 8.6%.
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See Also:
- Are Swiss Watch Sales Showing That The Economy’s Rolling Over?
- Guess Which Country Is Driving Global Demand These Days
- Some Ominous Jobs News Courtesy Of Gallup…
Indonesia Just Got Its Investment-Grade Credit Rating Back
For some time, economists had argued that Russia — which just had its ratings outlook downgraded by Fitch — be removed from the BRICs classification and be replaced by Indonesia. Early last year we made the case for Indonesia.
Lately, some are suggesting that Indonesia replace India, which had a terrible run last year.
These arguments in favor of Indonesia aren’t without merit. Despite its inflation woes, the country has a strong labor market which could drive consumer spending. Also, business confidence is high. Going into 2012 Deutsche Bank economists expect the country to grow 6.3%.
Now, Moody’s has upgraded Indonesia’s sovereign rating to Baa3, from Ba1.
Indonesia’s upgrade was based on the resilience of its economy to external shocks, its policy buffers to address financial vulnerabilities, a healthier banking system and government financial metrics in line with Baa peers. From the release:
Indonesia’s cyclical resilience to large external shocks points to sustainably high trend growth over the medium term. A more favorable assessment of Indonesia’s economic strength is underpinned by gains in investment spending, improved prospects for infrastructure development following key policy reforms, and a well-managed financial system.
In addition, robust growth has been accompanied by the continued health of its external payments position, supported by increasingly large flows of foreign direct investment, while inflationary expectations are becoming better anchored at a more stable and historically lower level.
Prudent fiscal management has contained budget deficits at very low levels and has reduced the government’s debt burden as a share of GDP.
As a result, Indonesia’s fiscal ratios now surpass many of its higher-rated peers, providing more fiscal headroom to respond to economic shocks. It has also reduced risk perceptions, enabling the government to access international funding markets even during periods of heightened risk aversion.
Policy buffers, including the central bank’s large stock of foreign exchange reserves and the government’s bond stabilization framework, have been recently deployed and remain ample as significant lines of defense against destabilizing capital outflows. In addition, the banking sector does not pose immediate or significant contingent risks to the government’s balance sheet, thereby raising fiscal headroom and added scope to policy responsiveness to future shocks.
Issues related to governance and a fundamental assessment of institutional strength remain a concern in regard to a further improvement in Indonesia’s credit fundamentals. In addition, continued progress on targeted subsidy reform would be credit positive.
The stable outlook also reflects the expectation of continued policy flexibility and the adept management of risks stemming from global financial market volatility, based in turn on the tepid recovery in the US and the ongoing sovereign debt stress apparent in the euro zone.
Indonesia’s long-term foreign currency (FC) bond ceiling was also raised to Baa2 from Baa3, while the long-term FC deposit ceiling was aligned with the government bond rating at Baa3. In addition, the short-term FC bond and deposit ceilings were upgraded to P-3. The outlook for these ceilings is stable. These ceilings act as a cap on ratings that can be assigned to the FC obligations of other entities domiciled in the country.
The local currency bond and deposit ceilings were also upgraded to A3 from Baa1.
Don’t Miss: Emerging Markets – This Is What Will Happen In 2012 >
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See Also:
- Jim O’Neill: China Will Contribute More To Global Growth This Decade Than The US And Europe Combined
- UH-OH: Consumer Credit Defaults Are On The Rise
- Here’s A Look At Spain’s Unemployment Rate Versus The Rest Of The Developed World