Global Economic News
Financial/Economic Tsunami Hitting South Africa
Jan. 15 (EIRNS)The explosion of worthless financial paper in the world economy, and the collapse of production it has caused, are hitting Africa, notably South Africa, like a tsunami.
Manufacturing is collapsing. The physical volume of South African manufacturing declined in November by 4.4% compared to November 2007, or 12% when seasonally adjusted and annualized. Manufacturing is a major sector of the economy. It produces about 20% of the Gross Domestic Product, and represents about 15% of the employed labor force. Manufacturing exports yield about 40% of foreign exchange earnings. The decline has been abrupt; physical volume had grown by 15% in the second quarter, relative to the second quarter of 2007.
The prices of exported raw materials are falling sharply. The price of platinum, a major South African export that rivals gold in gross earnings, dropped by 43.5% during 2008. The gold price has held because, in a financial crisis, it is considered safe. But South African gold output in 2008 dropped 14% year on year, the largest drop since 1901, during the Anglo-Boer War.
The prices of diamonds, also important in South Africa, have fallen 30% since October. In neighboring Botswana, diamonds account for about 35% of GDP and 70-80% of export earnings. The copper price collapsed 61% from $8,000 per metric tonne to about $3,100 over the second half of 2008. In Zambia, copper exports account for about half of foreign exchange earnings.
Unemployment is rising fast. An estimated 64,000 jobs were lost in South Africa in the second half of 2008 (more than 0.5% of employment), on top of an existing unemployment rate of about 35%. Because each employed person supports 8 to 10 people, the 64,000 layoffs directly affect more than a half million. But layoffs have only begun.
The cost of a standardized market basket of basic foodstuffs increased by 22% during 2008.
The ratio of household debt to disposable income was 75% in the third quarter. New car sales in 2008 were down 24% compared to 2007; new commercial vehicle sales were down about 20%. New mortgages slumped by more than 50% from 2007.
Japan's Machine-Tool Industry in Free-Fall
Jan. 15 (EIRNS)The Japanese machine-tool sector, the largest in the world, which has been the driver of Japanese economic power in the post-war era, is in collapse. Japan produces about one-fifth of the world's machine tools, and is the second-largest consumer, after China. Japan's machine-tool orders fell by 71% in December over the previous year, according to the Japan Machine-Tool Builders Association. This was the largest drop in over 20 years, despite the stagnation of the economy in the 1990s.
Japan's machinery sector, the primary indicator of industrial capital investment in the short term, had a 16% decline in orders, double the rate that had been projected. This was the largest decline since the statistics have been monitored, in 1987.
German Economy Faltering, Bankers Too
Jan. 15 (EIRNS)A press conference held in Frankfurt on Jan. 14 by Norbert Raeth, of the Federal Statistics Office of Germany, drew attention internationally and got prominent coverage as far away as in China: Raeth said that the German economy shrank by 1.5-2% in Q4 2008, from Q3, in its worst contraction since German reunification in October 1990.
One of the central aspects of this decline is the development of the machine-building sector, which reported a net drop in new orders of 30% for November, as compared to November 2007. The drop is even 50% and above, in textiles, construction, and printing machines.
This situation, and the dismal report from Deutsche Bank yesterday, sent the Frankfurt stock market into a nosedive, just as Chancellor Angela Merkel was presenting her Stimulus II program the national parliament.
No Growth in Chinese Rail Transport
Jan. 13 (ERINS)China's Ministry of Railways yesterday warned that rail-cargo volume will stagnate in 2009. China's rail systems is among the world's three biggest, carrying 25% of all rail traffic. The Ministry said that it will try to increase passenger traffic to compensate for the non-growth of freight traffic, and is trying to promote cargo traffic in the Northeast, Northwest, and Southwest regions, as the previous "boom" areas of the South and Southeast coastal regions are being hit by the economic crisis. In 2008, Chinese trains carried 3.3 billion tons of cargo, and 1.46 billion passengers in 2008.
French Bank Oddo Sues UBS Luxembourg for Madoff Swindle
Jan. 14 (EIR)The French daily Libération reports on the growing anger among French investors on how they got swindled, via UBS and HSBC, in the Bernard Madoff swindle. As reported on Jan. 14, investors "got trapped by buying shares of the LuxAlpha (an open-ended fund called Sicav in Europe), managed by UBS Luxembourg, without knowing necessarily that their capital was reinvested in the Madoff Ponzi scheme."
The paper underlines that "feeder funds" deployed by Madoff to feed his pyramid, such as LuxAlpha, were "registered in financial places that respect confidentiality: the Cayman Islands, Bermuda, the Bahamas ... but which didn't offer all the protective guarantees" one expects from UBS or HSBC.
Therefore, says Libération, the number of legal complaints will grow against UBS Luxembourg which "lost" Eur1.4 billion in the Madoff scheme. Yesterday, the top French private bank Oddo announced it is starting a lawsuit to try to recover Eur30 million.