Brazil's recession will be long and recovery tepid

2015 ◽  
Keyword(s):  
Household Consumption ◽  
Fiscal Policies ◽  
Content Type ◽  
High Inflation ◽  
Industrial Performance ◽  
Investment Grade ◽  
Financial Transactions ◽  
Key Industries ◽  
The Impact ◽  
Deep Recession

Significance Poor industrial performance adds to a long list of woes for an economy facing a deep recession, with increasing unemployment, high inflation and the risk of losing its hard-won investment grade rating. The combination of political and fiscal crises, together with the impact of a major corruption scandal engulfing key industries, has sapped confidence and deprived the economy of much-needed investment. Household consumption, which accounts for some 63% of GDP, has been affected by growing unemployment and high indebtedness levels. Impacts Government moves to increase the tax burden are on the cards. A return of the financial transactions tax (CPMF) is likely. An increasingly isolated government could seek to revert to expansionary fiscal policies.

Macri's election challenges will mount in Argentina

2019 ◽  
Keyword(s):  
Public Sector ◽  
Presidential Election ◽  
Government Spending ◽  
Policy Uncertainty ◽  
Content Type ◽  
Welfare Spending ◽  
High Inflation ◽  
Primary Deficit ◽  
The Impact ◽  
Spending Cuts

Significance The IMF also approved an increase in social welfare spending to 0.3% of GDP from 0.2% in light of the impact of the economic slump and high inflation, implying a total of 60 billion pesos (1.5 billion dollars) this year. However, the Fund warned that meeting the zero primary deficit target for 2019 would “require further restraint in government spending”. Impacts Spending cuts could be achieved through greater efficiency, but this would imply unpopular public-sector job losses. The presidential election will go to a second round and is likely to be lost rather than won. Policy uncertainty will undermine investment this year.

New Uruguay government's COVID-19 boost will not last

2020 ◽  
Keyword(s):  
Public Spending ◽  
Local Elections ◽  
Fiscal Deficit ◽  
Content Type ◽  
Approval Ratings ◽  
Investment Grade ◽  
The Impact

Significance The contraction preceded the impact of the COVID-19 outbreak. The large inherited fiscal deficit and rising debt-to-GDP ratio are forcing the new government to take unpopular measures to strengthen public accounts. However, its apparent success in combating the pandemic has given it strong approval ratings that will help facilitate reforms. Impacts Reform plans will seek to maintain Uruguay’s investment grade rating. Rising poverty and unemployment may compromise efforts to cut public spending. Splits in the governing coalition may appear ahead of September's local elections.

The impact of market sectors and rating agencies on credit ratings: global evidence

2019 ◽  
Vol 20 (5) ◽  
pp. 389-410
Author(s):  
Kerstin Lopatta ◽  
Magdalena Tchikov ◽  
Finn Marten Körner
Keyword(s):  
Credit Risk ◽  
Credit Rating ◽  
Credit Ratings ◽  
Content Type ◽  
Rating Agencies ◽  
Credit Rating Agency ◽  
Rating Agency ◽  
Investment Grade ◽  
The Impact ◽  
Rating Downgrades

Purpose A credit rating, as a single indicator on one consistent scale, is designed as an objective and comparable measure within a credit rating agency (CRA). While research focuses mainly on the comparability of ratings between agencies, this paper additionally questions empirically how CRAs meet their promise of providing a consistent assessment of credit risk for issuers within and between market segments of the same agency. Design/methodology/approach Exhaustive and robust regression analyses are run to assess the impact of market sectors and rating agencies on credit ratings. The examinations consider the rating level, as well as rating downgrades as a further measure of empirical credit risk. Data stems from a large global sample of Bloomberg ratings from 11 market sectors for the period 2010-2018. Findings The analyses show differing effects of sectors and agencies on issuer ratings and downgrade probabilities. Empirical results on credit ratings and rating downgrades can then be attributed to investment grade and non-investment grade ratings. Originality/value The paper contributes to current finance research and practice by examining the credit rating differences between sectors and agencies and providing assistance to investors and other stakeholders, as well as researchers, how issuers’ sector and rating agency affiliations act as relative metrics.

Inadequate policies will deepen Mexico COVID-19 blow

2020 ◽  
Keyword(s):  
Unemployment Insurance ◽  
Mitigation Measures ◽  
Donald Trump ◽  
Content Type ◽  
Approval Ratings ◽  
Major Threat ◽  
Policy Responses ◽  
High Death ◽  
The Impact ◽  
Deep Recession

Significance A lack of testing may have led to an underestimation of infections, but with a population of 130 million, Mexico appears relatively unscathed by the pandemic so far. The virus nevertheless presents a major threat, exacerbated by the government’s reluctance to implement the drastic mitigation measures seen in other countries. Mexico is particularly vulnerable due to its proximity to the heavily affected United States and its economic reliance on oil and North American trade. Impacts Widespread informal working and a lack of unemployment insurance will amplify the impact of COVID-19 on the welfare of Mexico’s poorest. AMLO’s slow response may cause rifts with Washington, particularly if US President Donald Trump seeks electoral gains by attacking Mexico. A high death toll or deep recession could destroy AMLO’s public approval ratings if his policy responses are perceived as inadequate.

COVID-19 stretches weak Latin American health systems

2020 ◽  
Keyword(s):  
Latin America ◽  
Economic Impact ◽  
Health Systems ◽  
Latin American ◽  
Mortality Rates ◽  
Healthcare Systems ◽  
Content Type ◽  
Containment Measures ◽  
The Impact ◽  
Deep Recession

Subject Preparedness for COVID-19. Significance In two months since the first confirmed case in Latin America, COVID-19 has spread throughout the region and cases are rising rapidly. With a few exceptions, governments have responded with severe measures to contain the spread, including lockdowns and border closures. However, containing the impact of the disease will also depend critically on bolstering the region’s underprepared healthcare systems. Impacts Governments such as Brazil and Mexico could face a backlash if mortality rates dramatically exceed those of other countries. The economic impact of containment measures will be severe, and the region faces a deep recession. China’s geopolitical position in Latin America will benefit from the extensive assistance that it is providing.

The impact of capital shocks on M & A transactions

2016 ◽  
Vol 33 (1) ◽  
pp. 126-146 ◽  
Author(s):  
Hongchao Zeng ◽  
Ying Huang
Keyword(s):  
Financial Resources ◽  
Agency Conflicts ◽  
Difference In Differences ◽  
Exogenous Shock ◽  
Content Type ◽  
Post Shock ◽  
Matching Procedure ◽  
Investment Grade ◽  
And Control ◽  
The Impact

Purpose – This paper aims to examine whether an exogenous shock to the supply of financial capital mitigates agency conflicts between managers and shareholders and incentivizes managers to channel available financial resources into value-increasing acquisitions. Design/methodology/approach – The authors use a difference-in-differences approach to mitigate endogeneity concerns. To address the concern that substantial differences between the treatment and control groups may violate the parallel-trend assumption of the D-in-D approach, the authors use a propensity score-matching procedure and construct a matched sample for their empirical analysis. Findings – The authors find that below-investment-grade firms are significantly less likely to make acquisitions relative to unrated firms following the collapse of the junk bond market in 1989. Conditional on initiating a successful acquisition, below-investment-grade acquirers are less likely to acquire diversifying targets and public targets, but more likely to acquire subsidiary targets. In addition, below-investment-grade acquirers experience higher post-merger operating and stock performance for acquisitions initiated in the post-shock period. Originality/value – The authors demonstrate that capital shocks negatively impact managers’ propensity to make acquisitions, which are considered a well-established outlet for agency conflicts between managers and shareholders. In addition, managers who are subject to capital shocks tend to manage available financial resources more efficiently and make better acquisition decisions that lead to greater value creation.

Reopening the debate on the relationship among remittances, household consumption stability and economic growth in emerging markets

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Dimitar Eftimoski ◽  
Dushko Josheski
Keyword(s):  
Economic Growth ◽  
Generalized Method Of Moments ◽  
Recipient Country ◽  
Household Consumption ◽  
Finite Sample ◽  
Content Type ◽  
Consumption Volatility ◽  
Stabilizing Effect ◽  
The Impact ◽  
The Relationship

PurposeThe impact of remittances on household consumption stability and economic growth is not quite clear. This paper attempts to reopen the debate on the relationship among these three variables. The current remittance literature suggests that a decrease in household consumption volatility, induced by remittances, automatically leads to economic growth. This paper challenges these arguments by stating that, under certain circumstances, there is no automatic relationship among remittances, household consumption stability and growth.Design/methodology/approachThe authors approach the question from the perspective of emerging Central, Eastern and Southeastern European (CESEE) countries. The authors use the two-step system generalized method of moments (GMM) estimator with the Windmeijer (2005) finite-sample correction. To test the existence of the possible non-linear effects of remittances on household consumption stability and economic growth, the authors use threshold regressions.FindingsThe authors find that remittances significantly reduce household consumption volatility. They exhibit a consumption-smoothing effect on recipient households. This stabilizing effect happens not through the preventive role of remittances, but rather through their compensatory role. Remittances produce a weaker stabilizing effect on household consumption when the remittance to GDP ratio of the recipient country is above the estimated threshold level of 4.5%. The authors also find that there is a negatively significant and linear impact of remittances on growth. There is no evidence to suggest that remittances can foster productive investment and therefore promote economic growth in CESEE countries, which means that: (1) the remittances cannot be treated as a source of funds to invest in human and physical capital and (2) the remittances are compensatory rather than profit-oriented.Originality/valueAs far as the authors are aware, this is the first study that investigates the impact of remittances on both household consumption stability and economic growth simultaneously.

scholarly journals Will the Chinese economy be more volatile in the future? Insights from urban household survey data

2019 ◽  
Vol 15 (4) ◽  
pp. 790-808 ◽  
Author(s):  
Jian Yu ◽  
Xunpeng Shi ◽  
James Laurenceson
Keyword(s):  
Economic Growth ◽  
Decomposition Method ◽  
Household Consumption ◽  
Variance Decomposition ◽  
Chinese Government ◽  
Content Type ◽  
Consumption Volatility ◽  
Intertemporal Dynamics ◽  
Consumption Goods ◽  
The Impact

Purpose Consumption volatility is a key source of economic growth volatility; thus, it is an important factor in designing macroeconomic policy. The purpose of this paper is to investigate the factors that determine household consumption volatility, using urban household survey (UHS) data over the period 2002–2009 in 18 provinces in China. Design/methodology/approach Both a traditional variance decomposition method and an advanced variance decomposition method are used. Findings The traditional variance decomposition method suggests that heterogeneity of consumption goods is the key to analyze consumption volatility in China. Consumption of transportation makes the highest aggregate contribution and per-unit volatility in consumption volatility, whereas consumption of food makes the second highest aggregate contribution and the lowest per-unit volatility. Further investigation with the advanced variance decomposition method, which allows the authors to capture intertemporal dynamics and cross-household differences simultaneously, finds that the main factor determining the consumption volatility in China is intertemporal dynamics, rather than cross-household differences. Research limitations/implications Future research could fruitfully explore four issues. First, consumption upgrading has increased the volatility of China’s household consumption. How much will this affect economic growth in China under its “new normal” conditions, and how should the Chinese government respond? Second, differences between UHS data and aggregate data in the calculations of consumption risk sharing need to be investigated. Third, it is important to investigate the channels through which the Chinese government can enhance its ability to spread consumption risks and thus reduce consumer consumption volatility. Finally, further study could extend the current 18 provinces to a nation-wide sample and update the data beyond 2009 to estimate the impact of the global financial crisis. Practical implications The results suggest that when policy makers design macroeconomic policies to smooth consumption volatility, they should consider heterogeneity in household consumption goods, regional disparity and intertemporal dynamics simultaneously. Well-managed volatility of Chinese household consumption can contribute to a stable economic growth in China and the world. Social implications Well-managed volatility of Chinese household consumption can contribute to a stable economic growth in China and the world. Originality/value This paper fills this gap by using China’s UHS data to assess consumption volatility from the perspectives of heterogeneity in household consumption goods, cross-household differences and intertemporal dynamics. We make three contributions to the literature. The first contribution of this paper consists of demonstrating the contributions of heterogeneity in household consumption goods to consumption volatility. The second contribution consists of using the advanced variance decomposition method proposed by Crucini and Telmer (2012). This decomposition methodology allows the authors to examine whether household consumption volatility is due to cross-household differences or intertemporal dynamics. The third contribution is that this paper takes Chinese residents’ consumption fluctuations as the starting point to analyze the impact of consumption fluctuations on the future trend of China’s economy.

scholarly journals Impact of removing industrial tariffs under the European–Vietnam free trade agreement

2019 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Le Trung Ngoc Phat ◽  
Nguyen Kim Hanh
Keyword(s):  
Social Welfare ◽  
Free Trade ◽  
Free Trade Agreement ◽  
Trade Agreement ◽  
Household Consumption ◽  
Industrial Sector ◽  
Cge Model ◽  
Content Type ◽  
Factors Of Production ◽  
The Impact

Purpose The purpose of this paper is to employ the computable general equilibrium (CGE) approach to examine how the European–Vietnam Free Trade Agreement (EVFTA) impacts on the Vietnamese economy in the case of the removal of industrial tariffs. Design/methodology/approach The authors construct a social accounting matrix based on the latest data of the Vietnam input-output Table for the year 2012 and then apply the CGE model to simulate the economic scenarios when the tariff rate of the industrial sector reduces to 0 percent. Findings The first simulation results demonstrate that the elimination of tariffs in the industrial sector will lead to a 9.13 percent increase in household consumption, together with an increase in the factors of production of the agricultural, industrial and service sectors by 9.61, 9.74 and 8.21 percent, respectively. The EVFTA also causes a deficit in the trade balance because the value of imports increases by 12.54 percent, while exports’ value slightly increases by 2.71 percent. Furthermore, there has been a drop of 2.29 percent in the total government income; nevertheless, social welfare witnesses a gain of 9.13 percent. The second scenario simulation draws crucial attention to policymakers that a small fluctuation in the production tax rate will cause a significant change in the economy. Practical implications The reduction of tariff in the industrial sector will increase the social welfare and strengthen the whole economy regarding the growth of household consumption, factors of production and trade value. On the unfavorable side, the EVFTA causes a national budget deficit and puts pressure on domestic production. This paper is a valuable reference for governments and policymakers when they decide to reduce tariffs or adjust production taxes once Vietnam integrates into the world economy. Originality/value This study differs from previous research works by utilizing a static CGE model to investigate the impact of removing the industrial tariff on the economy under EVFTA.

Does broadband infrastructure really affect consumption of rural households? – A quasi-natural experiment evidence from China

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Jianxiang Wan ◽  
Changteng Nie ◽  
Fan Zhang
Keyword(s):  
Social Development ◽  
Rural Areas ◽  
Natural Experiment ◽  
Rural Households ◽  
Pilot Project ◽  
Household Consumption ◽  
Rural Household ◽  
High Quality ◽  
Content Type ◽  
The Impact

PurposeAs an important public infrastructure, broadband has absorbed a large amount of investment in China. However, how and to what extent these investments affect economic and social development is largely unknown. The purpose of this paper is to analyze the impact of broadband infrastructure construction on consumption of rural households, using an exogenous policy shock introduced by the China's “Broadband Countryside” pilot project.Design/methodology/approachUsing the tracking sample data of China Household Financial Survey in 2013 and 2015, this study estimates the effect of broadband construction on rural household consumption and draws causality between them relying on a quasi-natural experiment based on an exogenous policy shock.FindingsThe difference-in-difference estimates show that broadband construction has significantly increased rural household consumption by 16.69%. This positive promotion effect is mainly achieved through mobile phone access to the Internet, while penetration of computer crowds out rural household consumption. Further research find that broadband construction has increased rural household consumption related to daily life and high-quality household consumption, but not statistically significant for the latter, and it has not helped to promote the consumption upgrading of rural households.Originality/valueThis study contributes to the understanding of the positive status of broadband infrastructure in economic and social development by analyzing the impact of broadband infrastructure construction on rural household consumption. This study expands the content of consumption to rural households, especially high-quality consumption and consumption upgrading in rural areas, which provides the possibility to further tap the consumption potential of rural market. The study is the first to explore how broadband infrastructure construction affects consumption of rural households using a quasi-natural experiment.

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