A good weekend to everyone. For those who haven’t found the solution yet: there are two more parts to follow, both next week!

All the best of luck!

Boris

For those familiar with what we’re looking for, things are getting relatively obvious now, aren’t they?

Have a good weekend.

Boris

Someone extremely well-informed might find the solution today. Good luck!

Although this blog will be resting for three weeks as far as dull summaries of economic trends are concerned, no-one is even thinking about closing this space completely.

So you can look forward to an emerging market riddle in six parts, and the more people e-mail the correct answer to me the happier I’ll be. The answer, by the way, is one of the world’s most exciting neighbourhood sales concepts from the FMCG industry.

The riddle begins here. Enjoy!

In addition to the couple of troubles mentioned above, one might also think of slowing private demand growth in a number of countries around the world, given the need of governments to fix public finances after the huge economic stimulus measures that were launched during the downturn – and more often than not, that fixing process will take place through a combination of spending cuts and tax increases to directly burden consumers, not least including those who depend on state income support.

Highlighting its concerns about financial stability, the IMF reminds us of the fact that “progress toward global financial stability has recently experienced a setback” as doubts about the solidity of states like Greece have resulted in an erosion of “confidence in the soundness of banks in some euro area countries”, as the IMF puts it, “resulting in an increase in funding and liquidity stress in interbank markets because banks are less willing to lend to each other”.

According to the IMF, in an unfavourable scenario this could lead “to tighter lending conditions, declining business and consumer confidence, and abrupt changes in exchange rates”. And the organisation goes on to say: “Because of this uncertain backdrop, the overarching policy challenge is to restore financial market confidence without choking the recovery.” A difficult balancing act.

Summarising his main findings at the official release of the new forecast data, IMF chief economist Olivier Blanchard said: “While we remain cautiously optimistic about the pace of recovery, there are clearly dangers ahead. How Europe deals with fiscal and financial problems, how advanced countries proceed with fiscal consolidation, and how emerging market countries rebalance their economies, will determine the outcome.”

In other words, all of yesterday’s clairvoyance should be seen as a set of insecurity-laden forecasts, rather than being taken at face value, and they are nothing more than rough lines drawing a possible scenario while some hard-to-gauge risks have evolved beneath the surface.

Growth and recovery at very different speeds around the globe

Still, recovery is set to continue, the IMF says. Following a GDP contraction of 0.6% in real terms in 2009, the IMF has upped its 2010 forecast for the world economy by 0.4 percentage points to 4.6%, from 4.2% in April. For 2011, the forecast remains unchanged at 4.3%, which means the IMF expects the recovery to lose momentum next year as companies finish rebuilding inventory and economic stimulus packages in a number of countries run out.

In the advanced economies, recovery will be generally weak at 2.6% in 2010 and at 2.4% in 2011. But it is worth mentioning that growth prospects differ substantially within the group of advanced nations, with 3.3% growth expected for the US this year, but only 1.2% for the UK and 1.0% for the Euro area.

Among many other things, this means that the US economy will grow above pre-recession levels this year, which is great to see but which also needs to be put into perspective as very many growth impulses have come from public money while unemployment remains high and job creation low especially in the private sector.

Meanwhile, the Euro area appears extremely unlikely to return to pre-crisis levels until 2013. Within the Euro area, forecasts for key markets range from a weak 1.4% in Germany to continued contraction of -0.4% in Spain. At least we’re managing to beat Spain in this area. I’ll be back in a minute, just wiping off my last couple of tears. What a great team Spain were again this week!

Once again, global economic growth will be driven by the emerging and developing markets (in the IMF’s terminology, an “emerging market” is well on its way to wealth, whereas a “developing market” is a very poor country). This catch-all group of countries is expected to grow by 6.8% this year and by 6.4% next, again reflecting a certain loss of momentum in global growth in 2011.

Unsurprisingly, the big show again belongs to China (10.5% growth expected this year) and India (9.4%), although it is important to remember that both countries continue to move up from a pretty low level. But it is equally worth mentioning that “economic downturn” in these markets meant that even in 2009 their rapid economic growth continued at rates that we Westerners can only dream of, namely at 9.1% in China and at 5.7% in India. Clearly, Asia is where the music will be playing in the coming years.

Emerging Asia in general has been enjoying a greater-than-anticipated boost in both exports and domestic demand during the early months of 2010. This was largely due to (importing) companies around the world re-building inventory and consumers (of imported goods) in the Western hemisphere gradually regaining confidence in their personal income outlook.

And that’s it for today. If you’d like to see more figures, I suggest that you simply read the table below by clicking on the thumbnail.

By the way, all the latest IMF forecasts have been included in Planet Retail’s macroeconomic database this morning, along with the latest currency exchange rates, so all our retail-related market data are as up-to-date now as they can be.

Have a good weekend,

Boris

In addition, this very useful Online Financial Access Database (released just a couple of days ago) was also designed “to underpin research into the provision of financial services worldwide”, because “access to financial services is widely recognised as an important factor in economic development”. Thought so. Spot on!

Maya style cash dispenser in Mexico

In more detail, the IMF says that “this database will help researchers and policy-makers by broadening our understanding of the reach and impact of basic financial services provision around the world”, helping “identify knowledge gaps and appropriate policies for broadening financial access, and enable the authorities to monitor the effectiveness of policies over time”.

The IMF then goes on to explain that in its database, the reach of financial services is measured by bank branch network, availability of cash dispensers and by the spread of key financial instruments, such as loans and insurance.

The database contains annual data from around 140 countries (including all G20 countries) and covers the six-year period from 2004 to 2009. It will be updated on an annual basis, with the perspective on the financial services sector getting broader and broader over time.

Here’s a chart with some example data, showing how well supplied we are with cash dispensers in Western Europe. Of course, a country’s cash dispenser density is not a direct development indicator – for example the figures for the US and Russia stand out as remarkably low, but that’s mainly due to these countries’ huge size and low population densities. Ah, and Asia hasn’t been ignored in the chart, but the data availability from the region is quite weak at this point in time.

(As always, you can click on the chart to see a larger version of it.)

For any further details, just follow the orange link above and have fun digging on your own.

Have a good weekend, probably spiced with a few good football matches from South Africa!

Boris

In other words, we’ll pay more for our food going forward as global demand rises faster than agricultural output and productivity will take a decent bit of time to show any significant improvements.

That is, we’re going to pay more for our food if we’re lucky. Strictly speaking. Because there will also be more of those living in poor countries who will struggle to get enough food in the first place, especially in urban space where hardly anyone owns a garden.

It is thought that around the world, more than 1 billion people now live in a state of chronic malnutrition. That’s almost 15% of the world population – so all this is about much more than European families getting annoyed about higher supermarket bills.

Demand for food continues to be dynamic

To give away more detail, the annual Agricultural Outlook 2010-2019 report says that fast-growing populations and continued urbanisation in emerging markets combined with faster-than-expected economic growth there, and larger meals in increasing numbers of middle class households, will push up demand and prices for both food and energy.

The higher energy prices in turn will give another boost to food prices where agriculture is energy-intensive, or where fertilisers are involved. In the slightly dry words of the report, “underpinning agricultural prices is increasingly a higher cost structure particularly in regions where energy inputs are used intensively”.

Continued expansion of biofuel output – “often to meet government targets” – will create additional pressure, according to the report, especially on “wheat, coarse grains, vegetable oils and sugar”.

As a result of all this, in the next decade, the OECD and the FAO expect food prices to be higher than in the years before the extreme commodity price bubble of 2007 and 2008, as well as potentially subject to bouts of volatility.

Some examples of category upward revisions

Over the next ten years, the price of wheat, corn and other cereals is expected to be 15% to 40% higher than the average for the decade to 2006, in real terms. This compares with a significantly lower price increase forecast of 10% to 20% from just a year ago.

Along with these commodities, meat prices are also expected to go up, especially for beef. Price increases for poultry and pork will be limited, however, due to growing supply from Brazil and China, according to the report.

The report states: “Rises in livestock prices over the next 10 years are expected to be less marked on the whole, although world demand for meat is climbing faster than for other farm commodities as increasing wealth among some sections of the population in emerging economies alters dietary habits.”

(As always, you can click on the charts below to see larger versions.)

Meanwhile, vegetable oil is expected to be more than 40% more expensive in the next decade, compared with an expectation of a 30% increase last year. And dairy prices are forecast to climb 16% to 45%, compared with last year’s expectation of nothing more than “slightly higher” prices.

Although prices are unlikely to surge to 2007/08 record levels any time soon, the report warns: “If history is any guide, further episodes of strong price fluctuations in agricultural product prices cannot be ruled out nor can future short-lived crises.”

The long-term outlook is more positive

Despite the problems highlighted above, the OECD-FAO report claims that global agricultural output “remains on track with previous estimates to meet the 70% increase in world food production required to meet the market demand of estimated population levels in 2050”.

Listing some countries that will help to meet the growing demand, the report authors say that “Brazil is by far the fastest growing agricultural producer, with output expected to rise by more than 40% between now and 2019. Production growth is also expected to be well above 20% in China, India, the Russian Federation and Ukraine.”

However, growing agricultural output – largely thanks to more productive cultivation methods – will not be enough, the report warns, saying that “a well functioning, rules-based trading system will be crucial to fair competition and to ensure that food can move from surplus to deficit production areas.”

In order to help the creation of such a “well functioning” trading system, FAO Director-General Jacques Diouf highlighted the importance of more comprehensive integration of emerging markets in global talks, saying their “role and contribution to global policy issues” was “critical”. He added: “Policy discussions must be global in scope, and we need to improve the framework for such exchange of views.”

Much work to do then in little time.

Sooner or later, policy makers’ main focus will have to shift away from the post-recessionary troubles, and closer to the very essential issues of food supply and agricultural productivity, as well as the long-neglected issue of a global trade system that will work for everyone, even for the poorest countries.

To begin with, the US continues to be the world’s largest economy by far, accounting for 24% of global economic output. Its GDP is 2.7 times bigger than what runner-up nation China will generate this year. We may not always be aware of it, but the US alone accounts for almost one quarter of the world economy, even though it has just 4.5% of the world population!

Within the US economy, consumer spending accounts for just under 70% of total output. Which in turns means that the US consumer is in charge of 22% of the world economy. It’s no surprise, therefore, that US job market data are followed with great interest all over the world, not least in countries with export industries that directly depend on sales to the US market, such as China. In addition, US job market developments are also followed by businesses that depend on exports into markets that sell to China, such as Japanese and German suppliers of manufacturing technology. The global downturn of 2008/09 has exposed these interdependencies very clearly.

In short, the US consumer continues to be one of the key engines of the global economy. And even though the world’s emerging markets with their growing middle classes especially in Asia and Latin America keep catching up, this gap-closing process will take decades rather than just a few years, so the US will keep its central role for quite a while.

Fed chief predicts slow job market recovery

Last week, public attention was once again drawn to the US job market by a statement from Ben Bernanke, the chief of the Federal Reserve (the US central bank). Speaking to the House Budget Committee, Bernanke said that while the US economy should continue to grow both this year and next, growth was likely to be too weak to sort out the job market quickly.

Ben Bernanke, Chairman of the US Federal Reserve Fed since 2006.

Bernanke’s statement came less than a week after an official labour market update had disappointed some euphoric expectations. So, what did it say?

The latest official data: creeping in the right direction

At first glance, the preliminary May figures don’t look too bad, with a still-high unemployment rate of 9.7% coming down from 9.9% in April. The US economy added 431,000 jobs in May, corresponding to the biggest gain in jobs in 10 years. Wonderful, lovely, one might think.

However, when looking at it from a larger perspective, it becomes clear that the job market is not out of the woods at all, with the unemployment rate doubling since pre-crisis 2007 and roughly stagnating at around 10% since August 2009.

(As always, you can click on the chart to see a larger version of it.)

In addition, 95% of the new jobs created in May (411,000 out of 431,000) were nothing but temporary census-related positions sponsored by the government, which means that a) they are going to disappear again in the foreseeable future, and b) private sector job growth continues to be weak. In fact, rather than hiring new staff in the current economic environment, private employers tend to carefully extend the working hours of their current teams.

Meanwhile, in America’s troubled construction sector, another 35,000 jobs were lost in May. This new wave of redundancies essentially offset gains in the industry recorded in March and April.

The notoriously nervous financial markets reacted to these figures with great disappointment. Not because things are moving in the wrong direction – that is not the case. Some sort of recovery is clearly taking place with the US economy now showing year-on-year growth for three straight quarters.

However, the latest job market figures suggest that the way back to pre-crisis levels will be long and rocky. As Bernanke put it: “My best guess is we’ll have a continued recovery, but it won’t feel terrific.” And he warned that high unemployment could depress consumer spending in the long term.

The news could be worse, and things are improving. But a job market can’t be fixed overnight.

Anything you’d like to add? Just shout. And have a good week.

Boris

Price: EUR3.99

Fun factor: 9/10

Wow thing: actually creates echo across half the neighbourhood

Main advantage: helps to improve relations with young & fun neighbours

Main disadvantage: sows conflict with all other neighbours, underground passengers, office colleagues etc

Half-life period: negotiable (via social consensus)