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MAY 2021

U.S. And Russian Economies Shrink, As China Invests Heavily In Infrastructure

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U.S. And Russian Economies Shrink, As China Invests Heavily In Infrastructure

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The U.S. economy shrunk 4.8% in the first quarter of 2020, this is the biggest slide since 2008 and the first time it has contracted at all since 2014.

This is a direct result of the need to close businesses to fight the spread of COVID-19, as well as the oil market crash.

Consumer spending, which had already begun to cool in the second half of 2019, fell at a 7.6% rate in the first quarter of 2020.

The second quarter is expected to be even worse, with analysts expecting a shrinking of the economy not seen since the 1940s. Bloomberg Economics has projected a 37% annualized contraction, but UniCredit is the most bearish with a 65% estimate.

“It’s kind of incredible when you think about the fact that the economy was running pretty much on a normal footing for over 80% of the first quarter,” Stephen Stanley, chief economist at Amherst Pierpont Securities LLC, said.

Early hopes for a rapid rebound have faded with most analysts assuming a jump in activity once the virus passes will be followed by a slower resumption of growth.

While two quarters of contraction is considered by most to constitute a recession, the official call in the U.S. is made by the Business Cycle Dating Committee, a panel of economists at the National Bureau of Economic Research.

Russia, too, is struggling, with analysts estimating a reduction in the income of Russian oil companies by $18–20 billion, or about 40%, due to a drop in oil prices and a decrease in production.

In April 2020, oil exports are moving towards: taking into account taxes, transportation costs and operating expenses, losses will amount to $6–8 per barrel. However, this will be a consequence of high duties on oil exports. In May oil exports will become barely profitable.

As of May 1st, analysts the export duty on oil after the spring collapse will drop by $45.2 and amount to $ 6.8 per ton. In April, it amounted to $52 per ton. At the same time, the duty on highly viscous oil will decrease to $1 from $5.2, for light oil products and oils – to $2, for dark – to $6.8.

International oil companies were initially trying to avoid reducing their production, by circumventing it through producing in countries such as Nigeria, but this also is beginning to prove impossible.

BP, Royal Dutch Shell, Total and Eni showed steady production growth with an additional bonus in the form of attracting investors through generous dividends. Now everything is different. Most likely, the major oil companies expect the largest drop in production in decades. BP will have to share the burden of cuts in Azerbaijan, and Kazakhstan is in difficult negotiations with Chevron, Exxon, Shell and Eni. The cuts will exacerbate the damage inflicted by NK on low oil prices and weak fuel sales.

It is not yet possible to determine the exact volumes of production reductions, as the largest oil companies and many countries continue to conduct difficult negotiations. They can reach a record hundreds of thousands of b/d per company, or 5-10% of their level of oil production.

In contrast, China appears to be handling the situation rather well. In 2020, it is expected that Chinese economy will grow, less than 2%, but it will not shrink.

The median estimate for 2020 full-year gross domestic product growth from 56 economists surveyed this month fell to 1.8% from 3.7% in March.

To help mitigate the coronavirus shocks, China will likely raise the annual quota for local government special bonds. The majority of analysts expect the government to sell between 3 trillion yuan ($424 billion) and 4 trillion-yuan worth of debt, higher than last year’s total of 2.15 trillion yuan.

Some economists expect a 4 trillion-yuan ($565 billion) issuance of special bonds, to be spent on infrastructure in an attempt to kick-start the economy.

Key infrastructure projects for 2020 include the build-out of the Sichuan-Tibet railway, a high-speed rail corridor along the Yangtze river and intercity connections in major city clusters. Elsewhere, special bonds are being used to fund toll-road projects from Gansu province in the north west to the rust-belt of Heilongjiang.

“It’s common practice that local governments artificially inflate anticipated revenues of infrastructure projects in order to get approval to issue special bonds,” said Tang Fengchi, a consultant on public-private partnerships to China’s Ministry of Finance. “Special bonds can solve the funding problems, but it is no solution to local governments’ inability to make scientific decisions.”

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17 comments

  1. Phoron says:

    Bridges made of structural chinesium…. good luck, Chiners.

    1. Wayne Nicholson says:

      At least the Chinese people are getting tangible assets from their ‘stimulus”. Western stimulus money is going right back into stock buybacks ….. a scam in which a company buys it’s own stock driving up the share price then give the company executive a bonus and the shareholders a dividend cheque for the “profit” they generated.

      When a countries ‘business cycle’ consists of stock fraud interspersed with periodic taxpayer bailouts it’s a sign that collapse is imminent.

  2. Neo Onh says:

    Just thought you should know that the russian pipe-laying ship Akademik Cherskiy is three (3) days away from Kaliningrad as we speak. Then it will be re-fitted and finish the building of Nord Stream 2 !!!

  3. Swift Laggard II says:

    China cannot grow amidst a world wide depression. that is wishful thinking

    1. Ronald says:

      China is well positioned to grow, they have huge assets not wasted on military madness, a large population giving them a consumer engine of sustainable growth.
      They may gear down from 6 % to 2 %, but that will be enough to buy up substantial western assets, or pivotal positions.
      Such as in Iraq, to finally complete fresh water and electrical projects.

      1. Swift Laggard II says:

        China is a trading nation, that is how it generates wealth. when your customers have no money, they cannot buy from you. large population is an asset only when purchasing power is substantial, and internal market is not a combustion engine which you turn on and off at will

        1. Ronald says:

          China has more millionaire’s and billionaire’s than north America and Europe combined.
          180 million Chinese went on 2 week vacations or longer last year.
          They have money, and lots of it. You don’t travel much I guess.
          Their internal market at 2 % growth is just enough for them to repair so eco damage, pollution, plastic use, etc.

          1. Nick Nightingale says:

            And how exactly do you think China is where it’s at today?

            The NWO crew industrialized it while de-industrializing everyone else.

    2. Wayne Nicholson says:

      Of course they can …. they can’t increase trade with other countries but they have an internal market of over a billion people and they can do productive work at home like build infrastructure

      1. Swift Laggard II says:

        you think an internal market is an internal combustion engine which you just turn on by a switch?

        1. Wayne Nicholson says:

          Here’s what I believe. The Chinese are pragmatic. Instead of bailing out lenders because they gambled and lost again and corporations so they can go back to the fraudulent practice of buying back their own stock to make it appear that they are profitable without any real investment in their companies they put their people to work building infrastructure like ports highways and airports. People get an income and the country get assets that everyone can use.

          If you put money into consumers hands they spend it on food, rent and consumer goods …. in other words the real economy. Put money into the hands of bankers and investors it ends up in the financialized economy and if they’re lucky one or two consumers will get to clean their pools or groom their poodles.

  4. LR captain says:

    China needs transition to a consumer based economy it if wants to survive. But the central party is trying to push this away by massive printing and letting their currency fall in value, but rather than dump it through social welfare plans it gives out massive loans, now that US is using military force to stop African nations from getting loan form china. China needs to find another black hole for its extra printed money, infrastructure is not the worst opinion.

    1. Nick Nightingale says:

      China will be just fine.

      “In mid-1913 the United Kingdom became the first country to promote the use of the yuan in Europe. Germany, France, Switzerland and Luxembourg entered the competition through the installation of OCB to facilitate the use of the «people’s currency» (‘renminbi’). Nevertheless, none of these constituted a serious threat to the United Kingdom. The City of London has more than half of operations denominated in yuan in the European continent.”

      https://www.voltairenet.org/article189193.html

  5. Bobby Twoshoes says:

    Who would have guessed that tried and true beats shiny and new? Here’s my forecast; this will be spun into more red scare propaganda, western infrastructure will continue to fall apart and some western billionaires will get more taxpayer money for their part in it all.

  6. Ashok Varma says:

    In real terms India has a bigger economy than US. China is now number one by a wide margin and will grow faster as it has strong allies in Russia and Iran and global markets. The drop in oil is benefiting both China and India..

  7. cechas vodobenikov says:

    unsurprising—China did not submit to covid fascism….this impacts the USA the greatest…the huge reserves in Russia guarantee salaries during covid hysteria….the anxiety in the US likely has reached epidemic proportions—these status anxious money worshippers have increased their alcohol consumption by nearly 4 times since C19—it has decreased in Russia by half
    “as one digs deeper into the national character of amerikans one sees that they have sought the value of everything in this world according to the answer to a single question—how much money will it bring in?” Tocqueville …russians r contemptuous of those that worship money (dengi)…obvious—the slang word for money in Russia is kapusta (cabbage). and anyone that has lived in the US knows this—this all these alienated people speak about…as Lakoff wrote, “only amerikans transform money into time—they spend it, invest in it, waste it, budget it–they use time profitably”. and he observes that only amerikans (perhaps others in the anglosphere) use a business term to refer to their lovers—partner…I am curious amerikan: r u a junior partner or a silent partner?

    1. Nick Nightingale says:

      Smoke and mirrors. The NWO crew is modeling the world on China.

      https://vigilantcitizen.com/latestnews/the-true-agenda-of-the-who-a-new-world-order-modeled-after-china/

      The City that rules world finance has not backed the Yuan since 1913 for any reason. 1913 was also the year they set up the “Federal” Reserve.

      “In mid-1913 the United Kingdom became the first country to promote the use of the yuan in Europe. Germany, France, Switzerland and Luxembourg entered the competition through the installation of OCB to facilitate the use of the «people’s currency» (‘renminbi’). Nevertheless, none of these constituted a serious threat to the United Kingdom. The City of London has more than half of operations denominated in yuan in the European continent.”

      https://www.voltairenet.org/article189193.html

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