- IMF warn of “fresh financial crisis”
- German exports fall 5.2%, largest slump since recession of 2009
- German imports also fall 3.1%
- Many sectors across German economy see unexpected declines in factory orders and industrial production
- UK Chief Financial Officers (CFOs) report sharp rise in uncertainty
- UK PMI has fallen to lowest level since April 2013
- Hope for the best but be prepared for less benign scenarios
IMF 2015 Global National Debt Map – IMF
The IMF have been growing more vocal in recent weeks about the possibility of another financial crisis and severe recession. The head of financial stability at the IMF, José Viñals has said that this outlook “does not rely on extreme assumptions at all”.
IMF head, Christine Lagarde has said that the slow down now being seen in China and other large emerging markets will cut economic growth globally back to levels last seen during the crisis of 2009.
Viñals added “If we don’t get it right we could set the clock back in terms of growth.”
In its financial stability report the IMF said:
“Shocks may originate in advanced or emerging markets and, combined with unaddressed system vulnerabilities, could lead to a global asset market disruption and a sudden drying up of market liquidity in many asset classes.”
Just this week, we covered the similar stark warning from the BIS, the central bank of central banks, who warned of “major fault lines” in the global financial system and a “global debt bubble“.
Right on cue yesterday figures out of “powerhouse” Germany show a dramatic and unexpected decline in economic activity. Imports and exports slumped in the month – with exports slumping 5.2% in August relative to the previous month. At the same time imports into Germany are also faltering with the most recent figures showing a decline of 3.1%.
Germany’s manufacturing industry, Europe’s biggest industry in the EU’s largest economy, is taking a hit from sharply slowing demand in emerging markets and developing markets.
It is believed that the turmoil being experienced by German flagship companies Volkswagen and Deutsche Bank and geopolitical uncertainty in the Ukraine and Middle East and tensions with Russia are contributing factors to the malaise.
The situation is more that just a crisis in confidence. Major chemical company BASF SE has announced a curb in spending and reduced profit and sales expectations going forward. Bloomberg also cite a German steel industry report which shows that “crude steel production fell almost four percent in September.”
Two major shipping companies who handle three quarters of containers into Hamburg have indicated that weaker trade with Russia and China has caused them to cut their 2015 earnings forecast.
Meanwhile in the UK, there are also signs of a sudden economic slowdown.
The purchasing managers index (PMI) in the UK as compiled by Markit has fallen to its lowest level since April 2013 at the height of the sovereign debt crisis.
Headline services PMI fell to 53.3 in September down from 55.6 in August. Their figures indicate that the UK economy is growing at 0.3% down more than 50% from the rate of growth in the second quarter.
“Weakness is spreading from the struggling manufacturing sector, hitting transport and other industrial-related services in particular. There are also signs that consumers have become more cautious and are pulling back on their leisure spending,” Chris Williamson, chief economist at Markit, said according to Reuters.
The Guardian report that service sector businesses ranging from those in finance to restaurants were experiencing salaries pressure while prices charged rose “marginally”. These companies also say that generation of new business was at its slowest pace since April 2013.
An earlier composite PMI from Germany fell as did those out of Italy and Spain. France’s composite reading was the only economy to buck the trend and rose marginally to 0.2 percent growth in the third quarter, according to Markit.
Another sign of the slowdown in the UK is a survey by Deloitte showing that the “chief financial officers (CFOs) of some of Britain’s biggest companies reported a sharp rise in uncertainty facing their businesses,” according to the Guardian.
Some 60% of those surveyed believed that the economic slowdown in China would have a negative impact on their business.
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The threat to growth highlighted by the IMF is a symptom of a system which remains very vulnerable and in a worst case scenario could implode as it did in 2008.
Alas today, there appears to be no new growth without new debt and with every sector of the global economy already choking on debt there are few options available to policy makers.
Many well placed analysts have warned that when the next crisis hits the inability of central banks to dramatically lower rates will result in unprecedented policy measures such as negative interest rates with the abolition of physical cash, bail-ins and aggressive debasement of currency in the form of QE.
Gold is the tried and tested historical safeguard against political, economic and monetary recklessness.
Investors should hope for the best while making preparations for less benign scenarios. This can be achieved by reducing leverage and speculation and having a healthy allocation to physical precious metals in the safest vaults in the world.
DAILY PRICESToday’s Gold Prices: USD 1151.50, EUR 1016.42 and GBP 749.01 per ounce.
Yesterday’s Gold Prices: USD 1143.30, EUR 1011.59 and GBP 745.31 per ounce.
(LBMA AM)
Gold in USD – 1 Week
Gold closed down $5.70 yesterday at $1139.90, ending with a loss of 0.5%. Silver lost $0.32 closing at $15.70, a loss of 2% for the day. Platinum gained $4 to $947.
Gold is ticking higher and touched a three-week high of $1,154 this morning and is headed for a 1.6% gain for the week. Minutes from the Federal Reserve’s last policy meeting showed the U.S. central bank was in no hurry to raise interest rates due to growing economic risks.
Silver is poised for a 3 percent weekly jump, after hitting a 3 and a 1/2-month high on Wednesday. Platinum is on track for a 4.6 percent gain for the week, its best weekly performance since October 2013, while palladium looked set to post its fifth straight weekly gain.
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