Ten years after the global financial crisis, a debt-fuelled world economy is headed towards another crash, the IMF has warned. With the Rupee at a record low, unemployment at a 20-year high, and 78 of its largest corporations defaulting on massive debts, India’s rapidly emerging as the epicentre of a crisis that could dwarf 2008.
World economy at risk of another financial crash, says IMF
The world economy is at risk of another financial meltdown, following the failure of governments and regulators to push through all the reforms needed to protect the system from reckless behaviour, the International Monetary Fund has warned. With global debt levels well above those at the time of the last crash in 2008, the risk remains that unregulated parts of the financial system could trigger a global panic, the Washington-based lender of last resort said. In a separate analysis, as part of the IMF’s annual economic outlook, it warned that “large challenges loom for the global economy to prevent a second Great Depression”. It said the huge rise in borrowing by corporates and government at cheap interest rates had not shown up in higher levels of research and development or more general investment in infrastructure.
Italy is pushing Europe to the brink of another economic crisis – but its problems are nothing new
Italy represents a mortal threat to Europe’s financial stability, and the very future of the European single currency. Or, more acutely, Italy’s government led by Prime Minister Giuseppe Conte, and his deputy and interior minister, Matteo Salvini, wants some radical change in the way the EU is run, especially the euro and migration policy. The “crisis” in Italy, however, is nothing new. It has been going on, with varying degrees of intensity, since 2010. Overshadowed by the more serious problems in Greece, Italy was always the real worry. While Greece was small enough for Germany and the richer members of the eurozone to rescue, Italy – with an economy not far off the size of the UK’s – is just too big: too big to fail, and too big to save. Hence the panic. (Related: Greece Planning Bad Debt Bailout For Its Banks After Market Crash)
JP Morgan’s top quant warns next crisis to have flash crashes and social unrest not seen in 50 years
J.P. Morgan’s top quant, Marko Kolanovic, predicts a “Great Liquidity Crisis” will hit financial markets, marked by flash crashes in stock prices and social unrest. The trillion-dollar shift to passive investments, computerized trading strategies and electronic trading desks will exacerbate sudden, severe stock drops, Kolanovic said. Central banks will be forced to make unprecedented moves, including direct purchases of equities, or there could even be negative income taxes. Timing of when this next crisis will occur is uncertain but markets appear to be safe through the first half of 2019, he said.
Sensex, Nifty Post Worst Two-Day Fall Since Demonetisation
Indian equity benchmarks slumped for third day and rupee fell to record low of 74 per dollar after the Reserve Bank of India kept rates unchanged. The S&P BSE Sensex slumped 2.25 percent or 792 points to 34,376 and the NSE Nifty 50 Index dropped 2.7 percent or 283 points to 10,316. The Reserve Bank of India surprised markets by keeping interest rates unchanged, as it awaits for greater clarity on the evolving growth-inflation scenario in the economy. The Reserve Bank of India maintained the main repurchase rate at 6.5 percent, an outcome forecast by only nine of 49 economists surveyed by Bloomberg. (Related: India’s world-beating stock market run is over: Goldman Sachs)
The ‘Indian Flu’, or Why the Crash of the Economy Is Imminent
Prem Shankar Jha, The Wire
India’s economy is heading for a meltdown – 78 of the largest companies in the country are facing dissolution under the Indian Bankruptcy Code. Of them, 20 have already been declared insolvent and sent to the National Company Law Tribunal for dissolution. Another 30 companies, all in the power sector, are also facing the guillotine because the Allahabad high court has denied them more time to sort out their woes. The debt of these companies alone amounts to Rs 140,000 crore. Among them are three giant power plants, the 4,000 MW Coastal Gujarat Power of Tatas, Adani power, Mundra and Essar Power. Yet another 92 companies are on the chopping block because they are more than 180 days behind on their loan repayments. And as if that were not enough bad news, loan defaults by small companies have also doubled in the past year, signalling an imminent crisis in that sector as well.
The Market Correction Might Be Just Starting Due to the IL&FS Domino
Indian companies have enjoyed non-stop liquidity in recent times. Fund flows from domestic investors have been at record levels. With so much liquidity and chasing growth opportunities and PSU banks in the bad loans crisis, non-banking financial companies (NBFCs) stepped in and started borrowing short-term to lend long-term. They succeeded in growing fast and grabbing a lot of market share. But now, with IL&FS defaulting, investors will be reluctant to lend to NBFCs. Once liquidity dries up, these NBFCs will find it difficult to finance their business. Their costs for borrowing fresh funds will increase. This will badly impact their profitability. Corporates too, will find it difficult to raise money from NBFCs. Funding for infrastructure will take a hit. A slowdown in infrastructure growth means poor connectivity and slower pace of development of non-metro cities. IL&FS has consolidated debts of close to Rs 1 trillion. Of which it has defaulted on close to Rs 10 billion. Imagine the domino effect if it can’t pay the balance. (Related: ‘Perfect storm’ may hit D-Street in 6 weeks, can sink stocks)
Scandals, Bad Debts at India Banks Threaten Economic Outlook
Scandals, bad debts, ATM cash shortages–India’s banking system has experienced them all in recent months and the bad run is starting to have repercussions for both the broader economy and Prime Minister Narendra Modi. India’s nearly $1.7 trillion formal banking sector is coping with $210 billion of soured or problem loans, and some regional banks have been ensnared in fraud scandals. Yet some roots of the issue may lie in Modi’s 2016 decision to take high-denominated cash out of circulation in a bid to curtail India’s vast and unreported black economy and crack down on illicit financial transactions. The move initially caused economic mayhem and the disruptive shocks to cash in circulation continue to linger.
Rate Of Unemployment In India Highest In 20 Years: Report
The biggest new challenge facing India’s policymakers and administrators is rapidly rising unemployment, says a report released on Tuesday by the Centre for Sustainable Employment of the Azim Premji University. “Unemployment levels have been steadily rising, and after several years of staying around 2-3%, the headline rate of unemployment reached 5% in 2015, with youth unemployment being a very high 16%,” the State of Working India 2018 (SWI) report said. “This rate of unemployment is the highest seen in India in at least the last 20 years,” the report added. This shortage of jobs is compounded by depressed wages, with 82% of men and 92% of women earning less than Rs 10,000 per month. (VIEW/DOWNLOAD: State of Working India Report 2018)
Demonetisation Destroyed 3.5 Million Jobs, Labour Force & Women Worst Affected: CMIE Chief
Centre for Monitoring Indian Economy (CMIE) chief executive Mahesh Vyas said on Friday that at least 3.5 million people lost their jobs after the Narendra Modi government banned Rs 500 and Rs 1000 currency notes in November, 2016. Citing a survey done by CMIE which covers around 1.72 lakh households across the country, Vyas stated thatthe labour force and women were the worst affected by demonetisation. “The story could be anywhere in between, that the initial shock was to the tune of 12.7 million, then it came down to 3.5 million or maybe there was some other factor behind it. But this was an opportunity that came by and since the survey were being held continuously and demonetisation happened in between… we see an impact on employment,” Vyas said during a discussion on employment organised at the India International Centre.
Here’s why the Indian rupee may fall below 75 per dollar soon
On a slippery slope since 2018 began, the Indian rupee closed at its weakest level, 73.34 per dollar, yesterday (Oct.03)—and opened even lower at 73.78 today. It has already shed 15% this year, making it one of Asia’s worst-performing currencies. Weighed down by global pressures—trade wars and rising crude prices—the rupee may hit 75 per dollar if the tough times continue, believe analysts. “There is a downward bias and the rupee can even fall to Rs75,” Sajal Gupta, head of forex and rates at Edelweiss Securities, told Quartz. Singapore’s DBS Bank concurs. “If the panic in emerging markets continues and the domestic situation remains worrisome, then I wouldn’t be surprised if it reaches the 75 mark,” said a currency trader with domestic brokerage house Motilal Oswal, requesting anonymity. And given its recent performance, their fears may not be unfounded. (Related: Let the market decide where the rupee goes: RBI Governor Urjit Patel)
At least 23,000 dollar-millionaires have left India since 2014: Report
Prime Minister Narendra Modi stormed to power in 2014 promising to bring back illegal wealth stashed abroad. While he has not had much success in that direction, his government’s crackdown on black money has reportedly seen nearly 23,000 dollar millionaires leave India. According to data compiled by Ruchir Sharma, head of emerging markets and chief global strategist at Morgan Stanley Investment Management, and his team, 2.1% of India’s rich left the country in 2017 alone, compared to 1.3% for France and 1.1% for China. In fact, India has lost the highest percentage of high net worth individuals (HNWI) – those with net assets of more than $1 million – to migration since 2014.
India facing ‘economic crisis’ due to huge oil imports: Transport minister
The Economic Times
Union minister Nitin Gadkari Thursday said the country is facing lot of “economic crisis” due to crude oil imports and need to reduce imports and increase exports. India is the third largest importer of crude oil and rising international oil prices are inflating domestic transport fuel costs in a strong demand environment. Brent, the benchmark for more than half the world’s oil, is trading at a four-year high of over USD 84 per barrel.