Friday, 9 January 2009

Finnish Manufacturing Activity In Free Fall

Some coud argue that the media has been spreading bad news about the economy, maybe even exagerating the problem. But It seems, according to the data published by Statistics Finland, that the indicators are all pointing to the red. The data keep coming , getting from bad to worse.

The metal industry has seen its orders falling by almost 50%, I think this is a record deterioration. The manufacturing as a whole is contracting a record pace.

Obviously another important factor is the amount of temporary layoffs locally and worldwide (car industry for example) that has occurred during that period which undoubtedly has an impact on output.


andrew said...

is this a temporary effect from the september/october commercial paper crisis or does it mean more than this? China for example is still saying they hope for 8% growth but have inventory overhang to work thru for next 2 months.

Anybody have any idea??

HousingFinland said...

I think this is a change attitude from banks and companies exactly after the fall of Lehman and the break of the credit market : banks and company holding on cash, reducing cost, reducing capacity and delaying or canceling orders.

One has to take into account that during the same period last year the data was still strong, so the effect is even more spectacular.

The same ca be seen in car registration data that is hard to analyze since the government highly visible hand went to messing up with the market by playing with car tax. So I wouldn't be surprised to see really really bad car registration for January and February relative to last year when the measure took effect...

Andrew said...

yes but you have to factor in that in september/october finance became more or less impossible and now it is much easier. If you ignore that then you may be far too pessimistic. Particularly when so much money is now being spend on projects - 586B USD in the next 2 years to improve chinese life for example from an internal point of view.

HousingFinland said...

"586B USD in the next 2 years to improve chinese life for example from an internal point of view."

I'm not sure if it's about improving the life of Chinese, or if it's more about avoiding social disturbance and putting into question the regime in place (which I think is not democratically elected)

So I don't know how the Chinese government (or put the middle east in the same bag) could overcome the collapse of the global aggregate demand. People are saving worldwide and slowed or reduced their consumptions due to the systemic collapse of the global economy.

So in the short term, non democratically elected government will try to fight hard to keep their position (here I'm talking about communist regimes or dictatorial one such as the one in the middle east which were supported by elevated oil price and right-hawk governments).

At the moment, I do not see a reason or any ground to be optimistic in term of the economical outlook.

However, I'm optimistic that the measure that has been taken by governments and policy makers in Europe, UK and the US will pass through at some point - but not this year, next year if we are lucky but 2011, should maybe be better in economical term. We shall see how this are done.

I don't think it's a 2 month freeze of the credit market that is causing the current turmoil, but more about the leverage, the crazy leverage taking by many institution and households during the past 20 years or so.

Andrew said...


I wrote this out last week and it might interest you if you are not aware of it these rates and ratios?

better to copy it to email i think to read the links.

"After years of crazy growth China is finally slowing down. But we also have to note that this is what china wanted to happen at least until very very recently.

Bank of China raised interest rates 6 times thru 2007 and raised bank reserve requirements 10 times thru 2007 and 5 times thru 2008 and only began easing on 16th of September 2008.

"The government announced on Nov. 9 that it would adopt "active" fiscal and "moderately loose" monetary policies, a transition from earlier "prudent" fiscal and "tight" monetary policies aimed at curbing inflation and averting economic overheating. "

I found this chinese article and a comment after it (in the comments)

"In the first half of 2008, China's economy was at the verge of over heating. Inflation was getting out of control. Thanks to the crisis created by the US, growth and inflation had reach a managible level. China came close in reducing growth to 8% and inflation to 4%.
With material cost at a managible level, China is in great position to enhence its development without concern about over heating or run away inflation.
The economic crisis also help China to restructure at a faster speed and the reduction in export and foreign investment dependency will help China in the long run.
To me, the effect of the present economic crisis on China is not all bad. "

From what i can see the central bank of china is taking this kind of view also.

"November exports declined year-on-year by 2.2percent, the first monthly decline since June 2001."

"Yi, vice governor of the People's Bank of China (PBOC), said his assessment is based on the balance sheets of residents, enterprises, the financial sector and the government, which are all in a "healthy" state. "

"Yi maintained, however, that GDP growth would be about 8 percent next year."

Zhou Xiaochuan, PBOC governor, said the country needs to expand domestic consumption at the same time as it increases investment, to achieve the goal of spurring domestic demand."

Maybe China is behind the curve on interest rates but it has quite a bit of room for further cuts.

Below is a list of the dates for previous policy changes.

one-year RMB benchmark loan rate
Rates increased

? 1995 5.31
Oct. 29, 2004, 5.58
28 April 2006 5.85
23 August 2006 6.12
March 17 2007 to 6.39
May 22 2007 to 6.57
Jul 21 2007 6.84
August 21, 2007 to 7.02
Sept 14 2007 to 7.29
dec 21 2007 7.47

Rates lowered
Sept 16th 2008 to 7.2
? 6.93
October 29 2008 6.66
? 6.58
Nov 26 2008 5.58
Dec 23rd 2008 to 5.31%


Reserve requirement ratios increased

General financial institutions %

Jan.15, 2007 9.5
Feb.25, 2007 10
Apr. 5, 2007 10.5
Apr.29, 2007 11
May 18, 2007 11.5
Jul. 30, 2007 12
Sep. 7, 2007 12.5
Oct.13, 2007 13
Nov.12, 2007 13.5
Dec.12, 2007 14.5
Jan 25, 2008, 15.
increase 2 15.5
increase 3 16.0
increase 4 16.5
June 15th 2008 17.0
June 25th 2008 17.5 record high

Reserve requirement ratios decreased
September 16 16.5 but not for main banks. Banks in areas hit by the devastating May 12 earthquake will have their ratio cut by 2 percentage points.
Oct 13 17 for big banks 16 for others
November 26 15.5 not big banks
December 5th -1% for big banks or -2%
December 25th 13.5?/15? "

HousingFinland said...

It's all fine but it seems clear the the Chinese central bank is impotent into solving the issues it faces which are out of his control.

It's nothing to do with internal's all about external demand. I don't think interest rates or reserve requirement ratio can bring any cure in the short term.

At the end China is taken hostage by the external demand that has collapsed end of 2008. Until we see the measure taken by central banks in the US, UK, EU, Australia taking effect, they will be probably no chance of recovery on the Chinese side.

During 1990, the GDP growth dropped to around 5%, so this time you could assume that will reach that level at some point or lower since we have a global recession - now it will be short live but will bring a short period of instability that the regime will have to deal with - a bit like Tiananmen protest in 1989.

I think they reached a peak in 2007 with about 11% GDP growth..possibly from now the GDP decline has started, I don't think China will ever go back to double digit growth - there was a catch up effect that has now all but disappeared although they will most probably have growth far greater than developed country.

Andrew said...

Interest rates:

China 5.31 (down from 7.41 beginning only in September)

NZ 5.0 (down from 8.25 beginning only in July)

Aus 4.25 (down from 7.25% begining only in sept)

Chinese retail sales up 20%
Chinese construction investment/spending up 20%

Chinese food inflation 5.9%

NZ inflation 5.4?%

House prices softening in Aus up in some areas like NSW (Sydney)

Down about 6% in NZ

NZD commodity price index is still about same as may 08 due to falling NZD

Milk cheese plunging. Fish rocketing upwards. (Asian diet changes due to milk contamination deaths???)

Either way i am not yet the bear you are! Yet. :-)

Rui said...

China has already saved communist, now China is going to save also capitalist.

HousingFinland said...


Interesting article showing how Madof can be applied to China on treasuries trap :