The downgrades follow the crushing decline in oil prices, which have battered the country’s fiscal picture even as it continues to pump out petroleum at a steady clip.
The downward revision is the fourth straight cut in a year, putting world economic growth just a hair over last year’s 3.1% and only marginally above the 3% rate the IMF has previously considered a technical recession globally.
The oil-rich states in the Gulf Cooperation Council (GCC) region are likely to end up borrowing $285 billion to $390 billion through 2020 to contain budget shortfalls caused by lower oil prices, according to a new report.
Firms generated just enough operating profit to cover the interest expenses on their debt twice, down from almost six times in 2010, according to data compiled by Bloomberg going back to 1992 from non-financial companies traded in Shanghai and Shenzhen. Oil and gas corporates were the weakest at 0.24 times, followed by the metals and mining sector at 0.52.
Looming new debt sales also weighed on the bond market. The U.S. Treasury is scheduled to sell $24 billion of three-year notes Tuesday, $20 billion of 10-year notes Wednesday and $12 billion of 30-year bonds Thursday.
“More investors are adjusting their models for China’s SOE bonds because it is becoming increasingly clear that the government is not going to salvage everyone,” said Liu Dongliang, a senior analyst at China Merchants Bank Co. in Shenzhen.
Europe has never quite emerged from the debilitating debt crisis that erupted in 2010 in Greece before spreading across the eurozone, requiring massive German-led bailouts and sparking acrimony that nearly saw the single currency area implode.
Japan is heading for a full-blown solvency crisis as the country runs out of local investors and may ultimately be forced to inflate away its debt in a desperate end-game, one of the world’s most influential economists has warned.
A slowdown in U.S. growth could cause the bubble to pop, stressing the lower-quality companies that constitute almost half of the universe of speculative-grade bonds and loans. Investors that crowded into the debt could suffer massive losses, Caprio said in a phone interview. The same strategists put the probability of a U.S. recession this year at 23 percent, according to a March 3 note.
There’s growing evidence that the U.S. is flirting with a spike in corporate debt defaults — ones that may not rewrite history but could stretch beyond the much-publicized troubles for energy companies, Deutsche Bank analysts said in a research report issued Monday.
Prime Minister Narendra Modi is seeking lower interest rates to spur investment and help banks clean up piles of bad debt. While India is the world’s fastest-growing big economy, the slowdown in deposits is yet another sign that its expansion is far below potential.
Admitting that the regulator has been facing increasing pressure to control money outflows since the second half of last year amid yuan’s depreciation, Zhang said the SAFE would tighten loopholes with stronger supervision and data analysis.
Money poured out of the country for the 16th consecutive quarter in the final three months of 2015, the longest streak of quarterly outflows since the five years through September 1999, according to central bank data. An increase in South Africans investing abroad followed a gradual relaxation of exchange controls almost each year since 1995, about a year after Nelson Mandela’s African National Congress won the first all-race elections.
Economists say that China grew at its slowest pace since the financial crisis in the first quarter, highlighting continued downward pressure on the world’s second largest economy despite some tentative recent signs of stabilization.
The surging yen and slumping stocks are increasing pressure on the Bank of Japan to add to monetary stimulus, less than three months after Governor Haruhiko Kuroda bolstered his arsenal with a negative interest-rate.
“Denmark’s lower bound remains at minus 0.75 percent — we really don’t think it will go lower,” Pedersen said by phone. “It would require another central bank to show that it’s feasible to go below minus 0.75 percent if the Danish central bank were to go lower than that.”
“Under certain extreme circumstances—sharply deficient aggregate demand, exhausted monetary policy, and unwillingness of the legislature to use debt-financed fiscal policies—such programs may be the best available alternative. It would be premature to rule them out,” Bernanke writes.
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