Conflicting economic data leads to confusion
Ahead of the referendum, signs the economy is improving are juxtaposed with data indicating a turnaround may be a way off, making for plenty of confusion. But with growing distress for financing on the rise, the exchange rate has plateaued, and stocks are behaving as if things are moving in the opposite direction.
February’s industrial production figures indicate a slowdown, despite the government’s incentives. Registered car figures in the same month contracted by 49.5 percent compared with January. The current-account deficit for the first two months of the year jumped to $5.28 billion, compared with the same period last year. In other words, inflation and unemployment have started to negatively a ffect the calculation of growth. This has prompted the Finance Ministry to extend sales tax breaks until the end of October.
One recent development seems especially odd. Stocks, led by shares in banks, rose sharply at the beginning of last week but are now simpering, offering a conflicting outlook with other indicators.
How will this conflict be resolved? If the problem of financing continues to grow, the ten- dency for risk aversion will strengthen, and negative trends would become more defined. If the financing problem eases, there may be temporary relief. Whether the result will be “yes” or “no,” the outcome of the referendum would not be effective beyond the very short term.
The U.S. Federal Reserve’s plans to reduce the balance sheet means that, regardless of interest rate movements, financing problems and risk aversion will grow. This is bad news for emerging economies, which have a reputation for vulnerability. This situation may have stressed those who wanted to reduce their risks and could make these improvements a reason to go bargain hunting. Back at home, the endless measures to address growing the financing problem may have destructive mid-term side effects.
While despairing over external problems, the struggle to overcome mounting financing problems at home and raise living standards threatens to devour opportunities for a better economic future for the sake of saving the day. These kinds of choices would most probably hurt public services and the financial sector.