U.S. investors puzzled
over disparate pieces of economic and world news last week. By the end of the
week, major U.S. markets had tumbled indicating investors didn’t like what
they’d seen.
Under new leadership,
the Bank of Japan (BOJ) announced an aggressive stimulus program that will inject
$1.4 trillion into its economy over the next two years. The effort is intended
to end decades of stagflation. Stagflation is a period of economic stagnation
characterized by rising inflation, higher unemployment, lackluster consumer
demand, and lack of growth in business activity. Shares in the Japanese market,
which closed before U.S. jobs numbers were announced, rose to almost a
five-year high.
Elsewhere in Asia,
escalating rhetoric from North Korea kept tensions high on the Korean Peninsula
and negatively affected investor sentiment.
In the U.S.,
economic news was largely disappointing and suggested a slowdown in the U.S.
economy may be ahead. Manufacturing and service numbers came in below
expectations, and a U.S. Department of Labor report showed far fewer jobs were
added last month than expected. On the positive side, a different report showed
unemployment had ticked lower, moving to 7.6 percent from 7.7 percent.
After hitting an
all-time high on Tuesday, the Standard & Poor’s 500 Index finished the week
down 1 percent. The Dow Jones Industrials and NASDAQ Indices also tumbled,
finishing the week down 0.1 percent and down 1.9 percent, respectively.
U.S. Treasury
markets benefitted from uncertainty about the strength of U.S. economic growth,
the outcome of the Japanese stimulus program, and the potential for violence in
Korea. The yield on 10-year U.S. Treasury notes fell to 1.7 percent.
There’s a new
bric in towN. You’ve probably heard
of the BRIC countries – Brazil, Russia, India, and China. The nickname was
created in 2001when Jim O’Neill, an economist and the future Chairman of
Goldman Sachs, used it to describe the countries of the world that would drive
future economic growth. He was right about the fact they would drive economic
growth. According to The Economist,
“The BRICS alone have been responsible for 55 percent of global growth since
the end of 2009. Dragged down by debt and austerity, the 23 countries that make
up the developed world contributed just 20 percent to that growth.”
You may have
noticed The Economist capitalized the
‘S’ in BRICS. That’s because South Africa recently joined the team. It’s the
smallest BRICS country with a population of just 50 million compared to more
than 1 billion for both China and India. South Africa’s GDP isn’t all that
impressive either. It ranks 28th in the world, according to The
Guardian, while China ranks 2nd, Brazil 6th, Russia 9th,
and India 10th. The statistical comparison begs the question: Why was
South Africa added to the list of the world’s powerful emerging countries?
According to The Economist, geographic inequity was
the driving force behind the new addition. The original BRICs did not include
any countries in Africa which currently is the world’s fastest growing
continent. Africa’s gross domestic product (GDP) growth is averaging about 6
percent a year, a pace that is expected to remain constant for another decade. Over
the decade ending in December 2012 Africa has seen:
- Foreign
direct investment more than tripled to $46 billion
- A 30 percent
increase in real income per person
- A 74 percent
decline in HIV infections
- A 30 percent
decline in malaria deaths
- Mobile
communications grow: now there are three mobile phones for every four
people
- A 10 percent
increase in life expectancy
- Steeply
falling infant mortality rates
- An increase
in secondary school enrollment
Africa is changing
so rapidly many believe the continent deserves to have a voice as an emerging
region of the world. How to give it that voice? The solution was to add South
Africa, the continent’s largest economy, to the BRICS.
Weekly Focus – Think
About It
“A
mind that is stretched by a new experience can never go back to its old
dimensions.”
--Oliver Wendell Holmes, Supreme Court Justice
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