The Unassuming Economist

From the IMF’s latest report on UAE:

“A sharp deepening in the real estate downturn and weakening asset quality could constrain bank lending, which in turn could hold back the recovery.”

“Given the risk of spillovers from declining real estate prices, staff urged the CBU to resist calls for relaxing prudential limits on real estate lending. The authorities are preparing to develop a new bank resolution regime; in the meantime, staff encouraged the CBU to discuss contingency plans for banks in case of an abrupt tightening of financial conditions or other adverse shocks.”

On cross-country:

• Global Home Price Growth under Pressure – Fitch Ratings
• House Prices to Fall in Several APAC Markets in 2019 – Fitch Ratings

On the US:

• The Dream Revisited – Columbia University Press
• Supply Skepticism: Housing Supply and Affordability – NYU Furman Center
• In Lieu of Gifts, Please Make a Down Payment on Our New Home – Citylab
• Could High-Speed Rail Ease California’s Housing Crisis? See Japan. – Citylab
• More Housing Would Mean Cheaper Housing – Wall Street Journal
• California housing crisis podcast: Where’s the home building for the middle class? – Los Angeles Times
• AEI Housing Market Indicators release on October 2018 data – American Enterprise Institute
• Mortgage Risk Premiums during the Housing Bubble – The Journal of Real Estate Finance and Economics
• Big drop in US homebuilders’ shares could spell trouble – Financial Times
• Americans stopped buying homes in 2018, mortgage lenders are getting crushed, and an economic storm could be brewing – Business Insider
• Two Lawsuits Show What a Hot Mess California Housing Politics Is Right Now – Reason

On other countries:

• [China] Chinese Exiting U.S. Real Estate as Beijing Directs Money Back to Shore Up Economy – Wall Street Journal
• [India] Too slow for the urban march: Litigations and real estate market in Mumbai, India – Brookings
• [Lebanon] Lebanese Central Bank to Reinstate Subsidized Housing Loans – Bloomberg
• [New Zealand] New Zealand Vowed 100,000 New Homes to Ease Crunch. So Far It Has Built 47. – New York Times
• [Singapore] Singapore Is Seeing an Unprecedented Mortgage Slowdown – Bloomberg
• [United Kingdom] What goes up must come down: modelling the mortgage cycle – Bank of England
• [United Kingdom] London property transactions drop to decade low – Financial Times
• [United Kingdom] Call for rethink on UK planning rules for housing  – Financial Times

Photo by Aliis Sinisalu

From Conversable Economist:

“Twice a year the Congressional Budget Office publishes a “just the facts” overview of the federal budget picture and the US economy. The latest version is “The Budget andEconomic Outlook:2019 to 2029 (January 2019). Here, I’ll focus on the US budget deficit and debt.

Here’s the pattern of US federal government spending and revenues in the last 50 years. Average outlays during that time were 20.7% of GDP. Average revenues were 17.4% of GDP. Contrary to the widespread belief that US government spending and taxes have over time surged ever higher, to me the more obvious pattern here over the half-century is one of stability. Sure, government spending is higher and taxes are lower than the historical averages during the Great Recession. But during boom times like the late 1990s, taxes are above their historical average while spending is below. When President Trump took office early in 2017, US government spending and taxes were–whether for better or worse–almost bang on their long-run averages.

 

But under the surface, two changes are going on–one medium-term and one longer-term. The medium-term change is that the usual pattern over time has been that when the US economy is proceeding strongly, with sustained growth and a relatively low unemployment rate, the budget deficits are usually lower, or in the late 1990s even turned into surpluses. But at present, the trajectory is a relatively healthy economy but with larger-than-usual budget deficits.

This CBO figures shows that if one looks back at years when the unemployment rate was below 6%, the average budget deficit has been 1.5% of GDP. But although the current unemployment rate has been substantially below 6% for several years, the projected budget deficits for the next decade are projected at 4.4% of GDP.

Continue reading here.

From The Irish Times:

“The US economic expansion, now almost 10 years old, is within seven months of becoming the longest in history. However with stocks falling into bear market territory last month amid mounting fears regarding global growth, is a recession around the corner for the world’s biggest economy?

The year began with stocks enjoying a strong rebound while Merrill Lynch’s latest monthly fund manager survey shows only 14 per cent expect a global recession in 2019.

Still, the “overall judgment of financial markets is that recession is significantly more likely than not in the next two years”, warned Harvard professor and former treasury secretary Larry Summers earlier this month, citing bond market movements, softening commodity prices and widening credit spreads.

Globally, most equity markets have fallen into bear markets notes Goldman Sachs, and almost all have experienced double-digit corrections.

Bulls point out that while the stock market is meant to be a leading economic indicator that anticipates the future, it is far from omniscient and has, as Nobel economist Paul Samuelson once quipped, predicted nine of the last five recessions.

Still, there’s no shortage of concerned experts. Summers thinks there’s “better than a 50/50 chance” of a US recession in 2020. “It wouldn’t surprise me at all if we slipped into a recession real soon,” says Nobel economist Robert Shiller, who famously foresaw the popping of the late 1990s technology bubble as well as the US housing crash that ushered in the global financial crisis.

Economist polls

The US economy is expected to continue growing in 2019 but concerns are growing. There is a 40 per cent chance of a US recession in the next two years, according to a Reuters poll of economists last month. A more recent Bloomberg economist poll found a quarter expect a recession in the next 12 months – the highest number in seven years, and one that closely corresponds to economist polls conducted by CNBC and the Wall Street Journal.

(…)

Still, economists rarely see recessions coming. Only two of the 60 recessions recorded (in 77 countries) during the 1990s were predicted a year in advance, according to a 2008 paper by the International Monetary Fund’s (IMF) Prakash Loungani, and 40 were not spotted just seven months before onset. Forecasters are too slow to update their forecasts and are “also slow to absorb news about developments outside their own economies”, leaving the impression they are “chasing the data rather than being a step ahead of it”.

The IMF updated its analysis last year, but the conclusion was unchanged: forecasts are revised too slowly and while forecasters are “generally aware that recession years will be different from other years”, they miss the magnitude of the downturn until the year is almost over.”

Continue reading here.

From the IMF’s latest report on Senegal:

“This paper quantitatively assesses the macroeconomic and distributional impacts of fiscal consolidation in Senegal through value added tax (VAT), personal income tax (PIT), and corporate income tax (CIT). We analyze the trade-offs between growth and equity for each tax instrument. We find that VAT has the least efficiency cost in output and consumption but expands the rural-urban inequality gap because significant VAT tax incidence falls on the rural area. PIT is the most detrimental in terms of growth and inequality. CIT on the other hand, despite causing large efficiency loss, has better distributional implications by distributing the tax burden more evenly across regions. Much of the output and distributional costs can be mitigated by using the additional revenue for infrastructure investment and cash transfer.”