The last week has seen little change in the overall economic situation now that the US Federal Reserve did not raise its interest rates. Public households are still under a lot of pressure around the world be it because of the European refugee crisis which forced Germany to abandon its balanced budget and forced it to take on an additional € 10 billion in debt, Saudi Arabia which cut its budget due to low oil prices or the USA which had especially its military spending cut as reported in the last edition of the Weekend Economic Glance.
Standard and Poor’s downgrades Ukraine’s credit rating to „selective default“
S&P was forced to cut the Ukrainian rating because Kiev started to restructure debts and has suspended payments on a number of liabilities. On September 23rd the country also failed to pay $ 500 Million in an overdue repayment. The difference between a selective default and full default is that Kiev is still paying the debt service on some of its credit obligations while missing others. The restructuring process of Kiev’s debt includes the issuance of ne bonds in exchange for old ones with the new bonds extending the repayment horizon up to the year 2019 with an outstanding payment amount that has been decreased by 20%. Kiev and Moscow are still at odds regarding a $ 3 billion loan. Russia did not participate in the restructuring process and insists on repayment according to schedule which is due in December. Meanwhile Kiev explained that the debt owed to Russia will be included in the restructuring process and wont be repaid any time soon. Moscow threatened to seize Ukrainian assets located on Russian soil in the event of a refusal to pay.
German minister for economic affairs suggests lifting of anti-Russian sanctions
Minister Sigmar Gabriel said on Thursday that the conflict in Ukraine should not be allowed to taint the relations between Germany and Russia to the point where both could no longer cooperate in situations like Syria. Gabriel therefore rejected long-term sanctions against Russia. “Everybody should be reasonable enough to know that you can’t keep sanctions intact on the one side and on the other side ask Russia to cooperate”, Gabriel was quoted by Frankfurter Allgemeine on Friday in Berlin. According to him, a new and better relationship between Moscow and Berlin starts with a gas pipeline (East Stream) and end with the lifting of sanctions. However, the EU has stated that a lifting of sanctions could only be possible if Russia would abide to the Minsk ceasefire agreement in eastern Ukraine.
China to introduce national pollution-trading system to cut global-warming
Chinese president XI Jinping just announced that China will introduce a pendant to the European emission-trading system in an effort to decrease CO2 emissions. The statement was made ahead of Jinping’s USA visit and should take the wind out of the sails of his critics. Additionally, Chinas initiative takes away the United States biggest excuse for not doing more in terms of climate protection. Now that the medias favourite whipping boy China has walked the walked it becomes high time for Obama to do the same if he doesn’t want to take Chinas place. Meanwhile India has announced that it would also plan to decrease its CO2 emissions by 35-40 percent putting further pressure on the US.
Low oil price putting a strain on Saudi Arabian wealth.
Due to the prevailing low prices on the market for crude oil Saudi Arabian finances have been in trouble for the first time since ever. The Saudi Minister of Finance announced that his ministry projected a fiscal shortfall of $39 billion this year. However, IMF and other institutions familiar with the topic expect the real number to be significantly higher. Saudi Arabia has already given up on the idea of purchasing high-speed trains or super modern football stadiums. The Saudi economy is almost solely relying on the export of oil. There is no significant industry besides the oil industry. Therefore, the prospect of oil prices remaining at around $50 a barrel frighten the leadership in Riyadh. A price of $100 a barrel would be needed in order to sustain its current spending habits. Some commentators even expect a public revolt should Saudi Arabia’s period of wealth be over, which would ultimately lead to the relief of command of the Saudi family and cease the age of aristocracy for the country. Oil prices are not expected to rise any time soon due to the global recession and a high supply of crude oil that is about to grow even higher with the lifting of Iranian sanctions and the continued exploration efforts in countries like Argentina.
Outlook: Russian president Vladimir Putin is going to hold a speech at the UN in New York on Monday. He is expected to meet Barrack Obama on the sidelines of the event and will most likely talk sanctions and Syria intervention. The European Central Bank is going to publish several financial statistics starting next Monday, which will be the focus of next weeks review. So far it can be said that the global decline in trade volume and the outflow of funds from stock market listed assets has continued and is likely to do so in the near future.