August 12, 2014

The Markets

During the dog days of summer, a triple dip – three melting scoops of frozen goodness perched precariously on a waffle cone – can be delicious. There are other kinds of triple dips that are a lot less welcome, though. Just look at Italy.

Last week, the Italian National Institute of Statistics released its preliminary estimate of productivity in the third largest Eurozone economy. It showed Italy’s economy contracted (again) during the second quarter of 2014. That puts Italy firmly in triple-dip territory, according to The Washington Post:

“The greatest trick the devil ever pulled was convincing Italy to join the euro. It hasn’t grown since. After its GDP fell 0.2 percent, Italy is stuck in a triple-dip recession. Yes, triple: its economy started shrinking in 2008, relapsed in 2011, and now again in 2014. Although, at this point, it’s probably more accurate to just call this a depression. After all, Italy’s economy has contracted 11 of the previous 12 quarters. It’s been enough to wipe out almost all its growth the past 14 years.”

Much of the rest of Europe is faring somewhat better than Italy, but growth is not robust. Reuters reported Germany’s economy, the largest in Europe, is expected to show stagnant growth during the second quarter of 2014 as the crisis in Ukraine and sanctions on Russia take their toll. German exports to Russia have fallen and German business leaders have said tens of thousands of jobs may be at risk.

All eyes will be on Europe during the next few weeks as second-quarter preliminary growth numbers are released. Experts may have their fingers crossed, hoping the unprecedented package of stimulus measures announced by the European Central Bank (ECB) a couple of months ago will offset the negative effects of geopolitical tensions. However, Bloomberg opined that policy changes often take a while to make a difference. In the meantime, European economies may be vulnerable to risks like geopolitical unrest in Ukraine and the Middle East.

Latin American Growth

Quick! What’s the fastest growing country in Latin America? Nope, it’s not Brazil. The gross domestic product (GDP) growth forecast for Brazil was lowered from 2.2 percent in January 2014 to 1.8 percent in June 2014, according to The Economist. That means Brazil is expected to grow more slowly than the United States this year.

It’s not Peru, “a country that has enjoyed Asian-style growth averaging 6.4 percent a year in 2003-13.” Peru’s growth has benefited from the country’s role as a major producer of gold and copper. During 2014, Peru dropped to second place in Latin America’s economic growth contest.

So, who’s in first? Here are a few hints:

  • It’s between Ecuador and Venezuela
  • It has a coastline on both the Pacific Ocean and the Caribbean Sea
  • It’s the second most bio diverse country in the world (In addition to having lots of butterflies, orchids, and amphibians, it has more bird species than Europe and North America combined.)
  • Americans of a certain age may remember it as the epicenter of the 1980s war on drugs (Think cartels and FARC guerillas.)

That’s right. Colombia’s economy is expected to deliver the fastest growth in Latin America during 2014 – and its vibrancy is unrelated to drugs. Like Peru, Colombia is a beneficiary of the commodity lottery. Its main exports are oil and coal whose prices have held up better than those of gold and copper in recent years. In addition, The Economist reported the country has benefited from a variety of reforms and development efforts.

Weekly Focus

“Positive anything is better than negative nothing.”
-Elbert Hubbard, American writer

Image by Mario Carvajal, used in accordance with the Creative Commons Share-Alike 3.0 Unported license.

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