A World Bank report says that forest fires in Indonesia caused an economic loss of $5.2bn, which equals 0.5% of Indonesia’s GDP.

Farmers in Indonesia burn the agricultural land in the dry season to prepare it for cultivation. The smoke from these fires affects other people and even other countries.

The World Bank assessed the impact of the fires in the eight affected districts between June and October 2019. Officials said that the losses might be even greater as the fires had raged through November.

The report says,

The forest and land fires, as well as the resulting haze, led to significant negative economic impacts, estimated at $157mn indirect damage to assets and $ 5.0bn from affected economic activities.

Over 900,000 people suffered respiratory diseases and 12 national airports and hundreds of schools had to be closed in Indonesia, Malaysia, and Singapore due to the smoke from the fires. Indonesian officials are blaming El-Nino weather patterns for amplifying the health effects of the forest fires this year.

Over 942,000 hectares of forest and agricultural land were burned in Indonesia this year. Additionally, 44% of the land burned were peatlands; thus, carbon emissions from the fires were double that from fires in the Amazon jungle earlier this year.

Thus, El-Nino and the burning of a large peatland area have caused a perfect storm that has engulfed not only Indonesia but its neighboring countries as well.

The report explicitly states that the fires are human-made and this problem has existed since 1997, hinting that successive Indonesian governments have dragged their feet on the matter, which has led to the current crisis.

About 720 megatonnes of carbon dioxide were released into the atmosphere due to the forest fires in Indonesia between January and November this year, according to the European Centre for Medium-Range Weather Forecast.

As a result of the fires, the World Bank has cut Indonesia’s growth estimates by 0.09% in 2019 and 0.05% in 2020.

The World Bank report warns that the health effects from the fires could harm the global image of palm oil, the main commodity exported by Indonesia.

Residents of Morgantown city in West Virginia took out a rally in favor of marijuana decriminalization. The rally was started on the streets of Morgantown and ended at the city council. Members of the city council had been deliberating on the matter, and many of them remained unconvinced with regards to the benefits of marijuana. Officials of the council stated that a final decision on the matter should be made by February next year.

The residents who had gathered on Spruce Street raised the slogan, “Go green, keep it up, go green, keep it up go green.” While the rally was in progress, members of the council also spoke about the concerns with regards to marijuana legalization.

Rachel Fetty, Deputy Mayor, said,

There was a time when I believed that this weed could cure a wide variety of illnesses, however the newer data that I’m hearing is not promising, it’s not promising for some of the things we were hopeful that this drug would work for.

Rusty Williams, who is a patient advocate, spoke about the issue and went on to state that marijuana users should not be stigmatized. Williams said that cannabis that there is a propaganda against cannabis for “100 years” and that there is a perception that only “hippies” use it. He went on to say that many people from all walks of life have used marijuana for medical purposes and have had no negative effects at all.

Investors almost always look for cuts in the interest rate so that they are able to get capital at a cheaper rate and invest in the market. More often than not, it is something that has always been an expectation from investors, but it is unlikely that they are going to get their wish at each instance. However, over the past few months, there has been a widespread belief that the United States Federal Reserve is readying for a rate cut and much of that has been down to the statements from important officials.

In addition to key officials at that Federal Reserve, the chairman of the central bank Jerome Powell has also made statements that clearly point towards a cut in the interest rates. Needless to say, the stock markets reacted accordingly and went on a sustained upsurge. However, Alex Weber, the President of UBS and John Waldron, the Chief Operating Officer and President of Goldman Sachs, have sounded notes of caution. Weber stated that many traders might have misconstrued the comments from the Federal Reserve chairman and other officials. He said,

If you listen to some of the key decision makers like Charlie Evans if you listen to Jay Powell, there is no imminent rate cut. There is a likelihood, if further weakness, in the data evolves over the second half of the year that they might consider corrective action.

On the other hand, John Waldron was equally cautious about the present optimism in the market and actually stated that he is a bit worried about it all. He said, “The market is pricing in a fairly substantial set of moves by the Fed. I worry a little bit that the market is too optimistic about how much and how soon the Fed will move.” Considering the fact that the statements came from two of the top executives at the biggest investment banks in the world, traders would perhaps do well to listen to what they have to say. However, it remains to be seen whether this optimism proves to be misplaced or not.

Due to PG&E’s ‘rampant wrongdoing’ of not trimming trees which touch power lines and causing many wildfires recently, a federal Judge has asked the utility company to suspend issuing dividends to its stockholders till the company shows that it will not cause any more wildfires. Judge William Alsup who is presiding over this case overturned the objections raised by PG&E and also issued five new conditions for probations in the San Bruno gas explosion case in 2010.

Apart from banning issuing of dividends till the company complies with clearance rules, it should also be open to getting audited by a monitor appointed by the court and also document all the efforts it is undertaking to not risk another wildfire in the state of California.

PG&E cases in court:

The court order comes after it is widely believed that the company’s equipment has caused wildfire and gas pipeline explosion. In 2010, a gas pipeline burst in San Bruno, California which left 58 injured and killing 8 people. Another major disaster the company is being held liable for is the deadly and destructive wildfire in 2018 where 86 people were killed making it the deadliest in the history of California. PG&E later filed for bankruptcy on Jan 29 anticipating compensation.

Judge expresses his concern:

Judge Alsup was not greatly impressed by the company’s efforts in containing future wildfires and was also concerned about it giving away $4.5 billion as dividends instead of spending on trimming trees away from power lines and also the replacement of faulty equipment. The fires caused in 2017 and Camp Fire in 2018 was due to power lines touching trees and a failure of a worn out hook. The judge added that the company troubles are their own doing he said, “The company is facing a problem of your own making and you have to undo that problem and make it square with the people of California.”

Judge Alsup added new terms and said that the company has to implement them to mitigate wildfire in California. As per the new goals set, the company had to remove 375000 trees that are dead or hazardous from areas that are at high risk of wildfire in 2019. Till the new terms are not accomplished, the company will not be able to pay its shareholders until then.

The shares of the company on the NYSE fell by 2% on Tuesday and was at $17.66 as concerns of liabilities rose.

The manufacturing activity in Japan fell to its sharpest and lowest growth since 2016 as demand for the products fell both abroad and locally. As per the Purchasing Managers’ Index, PMI it was a little better than February but was still below the 50 point level which distinguishes from expansion and contraction.

What is PMI?

The Purchasing Managers Index is got from surveys conducted on private companies and is an indicator of the economy which is derived based on the data. A survey is conducted on up to 400 purchase managers from different domains of the manufacturing sector based on factors like new orders from clients, inventories, backlogs of orders, production, employment, and supplier delivery speed.

As per the March data, the new orders from customers both overseas and local fell and was the worst performance since 2016. The survey also indicated that companies had stopped hiring and resulted in the lowest job creation since November 2016. Additionally, the new orders and sales from its Chinese and Taiwan clients also fell.

Reasons for slow growth:

The PMI index for March was at 47 which is slightly above the minimum 46.9 and below the February data of 47.4. As per leading economist at IHS Markit Joe Hayes Japanese companies are in a tough situation due to global as well as local factors. PM Shinzo Abe due to the weak economic outlook and uncertainty has put off the hike of national sales tax to 10% from the existing 8% and also had to push the fiscal reforms on the back burner.

There is less demand locally and globally while the economic situation is not conducive either.

The US-China trade war is not just impacting China but also on Japan as most of the Chinese manufacturers obtained parts and other equipment from Japan. That has had a major impact on the demand from China. Other than China, Europe is the other leading overseas customer which is also in a downturn.

Economist Joe Hayes said ‘The likelihood of the negative trend in output being stymied anytime soon appears slim, with demand for goods from both domestic and international sources waning further. Asian goods producers face headwinds from slowing growth in Europe and China, while global trade risks are yet to be mitigated by a breakthrough in US-Sino relations’. He further added that the manufacturing companies due to this economic situation are ‘fiercely challenging’ due to slow growth.

The Australian economy has been in doldrums over the past few months as growth came to a virtual standstill and the Gross Domestic Product (GDP) left a lot to be desired. In such a situation, an interest rate cut from the central bank is one of the most effective ways to cheapen credit and stimulate economic activity. According to reports, the Central Bank of Australia could actually go for rate cuts even though a senior member of the bank stated that it is unlikely. The numbers paint a sorry picture for the Australian economy, which is worth $1.3 trillion and it is believed that rate cuts could be in the offing soon.

The actual figures illustrate the dismal state of the Australian economy over the past year. While the estimated GDP growth for 2018 was 2.5%, it grew at only 2.3%, and it is interesting to note that domestic economic activity nosedived during the latter half of the year. GDP rose by only 0.2% in the fourth quarter and by 0.3% in the quarter before that. The poor show also sent the Australian dollar into a meltdown. Many investors believe that the rate cuts are coming and that could also be a reason behind the fall in the Australian dollar.

Andrew Ticehurst, who is an economist at Nomura has prepared a report in which he has stated that rate cuts are likely. He stated, “We think rate cuts this year, while not guaranteed, are now more likely than not. We expect another round of material growth forecast reductions from the RBA [Reserve Bank of Australia] and see an increasing risk that inflation continues to fall short of the target band for an extended period.” In addition to that, JP Morgan and Australia’s own investment banking giant Macquarie have also stated that a rate cut is likely. However, the most telling indication that a rate cut is likely can be gleaned by having a look at the interest rate futures. According to reports, the probability of a rate is now 100%. On Tuesday, that probability stood at 86%.

The fall in the GDP in the third and fourth quarters in 2018 is an alarming development. The last time that the GDP fell in two back to back quarters was in 2006. Philip Lowe, Governor of the RBA, is, however, optimistic about the future of the Australian economy and did not sound as gloomy as one would expect. Prior to the publication of the GDP data, Lowe had said, “The adjustment in our housing market is manageable for the overall economy. It is unlikely to derail our economic expansion.” 

An increase in the government’s scrutiny of Chinese investments, especially in Silicon Valley has prevented many deals from taking place. In fact, many deals are not even being considered. After many years of growing ties between Silicon Valley and China, the United States tech capital finds itself caught between the rising tensions between Washington and Beijing. The trade wars between the world’s largest economies will establish who will get to create the next generation of communication technologies.

Michael Wessel who is a commissioner of the U.S.-China Economic and Security Review Commission said that China’s innovative efforts have been deep and broad. He also said that China plans on becoming the next global innovation leader and it is trying to achieve this by taking legal as well as illegal paths.

The charges filed against Huawei, a Chinese telecommunications company by the United States justice department has also caused a point of conflict. Huawei’s Chief Finance Officer faces extradition from Canada to the United States on fraud charges filed by the U.S. government. Last week, in Barcelona at the Mobile World Congress, Huawei and U.S. officials lobbied world leaders about whether the Chinese telecommunications company can be trusted or not.

The U.S. government has concerns about China and how it plans to attain technology dominance as per its Beijing’s Made in China 2025 plan. Other than subsidies for research, development and industry, the U.S. government believes that the plans include massive cyber hacking plans in order to force technology transfers, steal corporates and so on.

The U.S. government is looking at setting up new barriers as it believes that certain technologies like robotics and artificial intelligence are critical to national security.

According to Parag Khanna, the author of “The Future is Asian,” avoiding working with China will reduce the access that the U.S. has to information about what the country is up to. There is also a greater chance that China will find more reliable partners and thereby cut the U.S. out of the entire market.

Tim Draper, a venture capitalist in Silicon Valley, was among the first to invest in Baidu, a Chinese technology firm.  He says that both countries can benefit by having open communication without putting up barriers. Chinese technology firms are trying to build 5G networks across the world which offers Beijing opportunities for upping their game in electronic surveillance. The high stakes have made it impossible to predict how China and the U.S. will come to an understanding. Meanwhile, investors and entrepreneurs in Silicon Valley are reducing their cross border investments at the moment.

The Indian GDP fell to lower than the expected growth rate of 6.6% in the fourth quarter October-December which is the lowest in the last 5 quarters due to poor growth in the manufacturing and farming sector. The growth estimate for the fiscal year ending on March 31 has been reduced to less than 7% from the earlier estimated growth rate of 7.2% which is the least growth it has seen in the last five years.

How are the other sectors faring?

With the GDP for the financial year 2019, now at Rs 190.54 lakh crore compared to 188.41 lakh crore, the government can achieve the GDP target for FY 19, even with the fiscal deficit being at 121.5%. Analysts believe that it signals that the economy is slowing down and if the government has to attain 7% growth in FY19, it has to have fourth-quarter growth of 6.5% which looks achievable only if the exports grow at a great rate else achieving 7% will be challenging.

The problem for the Modi government in attaining 7% growth for FY19 is that many core infrastructure industries reported a decline of 1.8% which is its lowest in 19 months. The electricity sector also posted a negative growth of 0.4% in January which is its lowest in 71 months. The farming sector saw a reduced growth from 4.2% to 2.7%. The tourism sector also saw a decrease of 6.8% in business this year. The data released by the Central Statistics office CSO showed that consumer spending decreased and was at 8.4% compared to 9.9% last quarter.

Retains the fastest growing economy tag:

Despite the third and the fourth quarter rate lower than the estimated value of 7% in the previous quarter and 8% in the April-June period, it fared much better than China. China recorded a 6.4% growth till December 2018 thus retaining the tag as the fastest growing major economy in the world. But yet, it is not great news for the Prime Minister Narendra Modi as the country heads to a general election this May. He is facing tremendous pressure from the opposition parties on the decline in farming and also lack of employment opportunities.

There was some good news for the Modi government as the CSO data predicts that there will be growth in the Agriculture and manufacturing sector. For now, all eyes now on the RBI if they are going to reduce the interest rates in April after reducing 25 basis points off its benchmark rate in February.

India’s Gross Domestic Product (GDP) growth rate in Q3 which ended on 31^st December 2018 has stood at 6.6 percent; the information is according to recent government data which was released on Thursday. The growth rate is at a 5-quarter low. It is the slowest growth rate ever since the quarter that ended in September 2017. The GDP growth rate is lower than the economist’s estimation. As per Reuters poll, the news agency mentions that they had assumed to GDP growth rate to be around 6.9 percent. The assumption was based on more than 55 economists, who voted on the poll held from February 19 to 25; the average prediction was of 6.9 percent GDP growth rate.

Ministry of Statistics addressed in a statement that, the GDP growth rate for the current fiscal year 2018-2019 has been assumed to 7 percent in comparison to the year 2017 to 2018 which was at 7.2 percent.

As per the data released by the government, the GDP growth estimation for the previous quarter of July to September has been reconsidered from 7.1 percent to 7.0 percent. The third quarter growth rate for the current financial year has noticed a considerable fall of 8 percent from April to June 2018.

The GDP growth rate was at 7 percent a year ago, higher than the Q3 growth rate and there is a decline in the GDP rate from 7.2 percent in 2018-2019, which was released recently, Central Statistics Office stated.

Meanwhile, India is overtaking China to maintain the tag of world’s fastest growing economy. China’s economic rate was up at 6.4 percent during its third quarter.

Economists have suggested that the slowdown in GDP may direct the Central Bank of India to another rate cut during its policy review in April.

L&T Finance Holdings group chief economist, Rupa Rege Nisture stated that she had assumed the overall GDP growth for the fiscal year 2019 should be reconsidered and reviewed downwards because of the farm sector that had suffered a lot due to uneven rainfall, drained reservoirs in agricultural states and their negative effect on the cultivation of food grains. The GDP data has managed to correctly hold on to these events.

In January, the Central Statistical Office (CSO) in its first advance estimation had predicted that the Indian economy may grow to 7.2 percent for FY19.

CSO mentioned that Gross Domestic Product at Constant Prices (2011-2012) for the year 2018-2019 is most likely to achieve Rs 141 lakh crore which will be against the GDP’s First Revised Estimate for the year 2017-2018 of Rs 131.80 lakh crore, that data was published on 31^st January 2019.

The Reserve Bank of India (RBI) had predicted the GDP growth rate to be at 7.4 percent in this current year, 2018-19. This GDP slowdown had led the RBI to cut the important interest rates and to modify their policy stance to neutral so as to push for expansion ahead of sharp inflation fall.

The RBI has estimated the GDP growth rate for the next financial year to be between the level of 7.2 to 7.4 percent in the first half and in Q3 GDP growth rate to be around 7.5 percent.

The GDP at constant prices for quarter one is at 8 percent and for quarter two is at 7 percent, the Central Statistics Office mentioned in a statement.

In January of 2018, growth rate of 8 core sectors has slowed down to 1.8 percent because of decline in the output of crude oil, electricity and refinery products. While in January 2018, eight infrastructure sectors such as, fertilizers, cement, electricity, crude oil, coal, natural gas, steel and refinery products had increased by 6.2 percent, as per the government data that was released on Thursday.

However, in January, the production of refinery products was down by 2.6 percent, crude oil by 4.3 percent and electricity by 0.4 percent.

During the time of Narendra Modi’s government, the highest GDP growth rate was at 9.2 percent which was noticed in January to March quarter of 2018, and the lowest GDP was registered at 5.6 percent in the later quarter of July to September of FY18.

Meanwhile, the next projection of GDP growth rate for the March quarter and the yearly assumption will be on 31 May, 2019; for the year 2018-2019.

Economist’s Analysis

There are few sectors that may record a growth rate of more than 7 percent namely, defence, public administration, construction and other services like, electricity, gas, manufacturing, water supply and other utility services and real estate, financial and professional services.

The Royal Bank of Scotland (RBS) has reported profits of £1.62 billion for the year ending 2018. The year on year profit growth has been over 200% from £752 million in the preceding year. The Bank has revealed a near £1 billion windfall for the taxpayer.

This is the bank’s second consecutive year yielding profits, and its performance allows it to pay a more than expected dividend, with £977 million returning to the treasury. This is the first time since 2007 that the RBS has posted profits for two years in a row.

He further added that the bank is also announcing an intention to pay back more capital to shareholders, and claimed that £1 billion is about to be returned to the UK taxpayers for 2018.

The RBS will be paying a final ordinary dividend of 3.5p per share and a 7.5p special dividend. Ross McEwan, chief executive officer of RBS, said in a statement that this was a positive performance in times of economic and political uncertainty, commending the bottom-line profits than doubled from what the bank achieved in the preceding year. Apart from the profit figures, the annual report published by the RBS also showed that the pay package of McEwan from £3.5 million in 2017 to £3.6 million in 2018.

He further added that the bank is also announcing an intention to pay back more capital to shareholders and claimed that £1 billion is about to be returned to the UK taxpayers for 2018. McEwan said that they are very well positioned to support the UK economy accompanied by strong capital and liquidity levels. He also said that the total banks lending to business and commercial clients crossed the £100 billion mark at the end of 2018.

However, McEwan has warned against a no deal Brexit. In a recent interview, he opined that uncertainty over Brexit was hitting investments, and urged politicians to come up with a conclusion as early as possible. He stated that larger businesses have been pausing investments in the UK for the last few quarters. This might adversely affect small businesses who cater to the large ones, ultimately trickling down jobs and money that comes into the economy. He expressed his concerns on the approaching deadline of March end and felt that certainty over the big fallout is extremely crucial for business.

Nonetheless, the RBS has declared that it would pay £355 million as bonuses to staff. Past week RBS acquired shareholder approval to buy back shares of up to £1.5 billion value from the Treasury. The move aims to accelerate the privatization process by buying back 4.99% of the government’s stake per year. Currently, the British Government owns 62.4% shares in the RBS. As on today, the bank’s stock is trading around 240p per share, which is far less than 502p that the government paid as a bailout (£45b) during the peak of the 2008 financial crisis.

The Treasury plans to sell its stake in the RBS by 2024, with expected losses amounting to billions.