Now it is looking like V for victory over recession - Times Online

Now it's looking like V for victory over recession - Times Online

Based on the evidence I have seen this month, it looks as though the world moved out of recession in the second quarter. When we see the evidence for this, in the third-quarter data, it is likely that many areas will have returned to close to trend growth.

Just as many people responded to my column of August 10 suggesting that I was seeing things through some hazy, rose-tinted lens, I expect that many will respond in the same manner this time. In my last piece, I dubbed this recent crisis the “Facebook Crisis”, its true distinguishing characteristic being lots more emotional and subjective judgments than during others. It is likely that, for a while, actual evidence of recovery will again be met by scorn from many quarters, not least because unemployment, which matters most to those affected, will be the last signal to turn.

Opinions about the crisis finishing are also likely to continue to vary by country. Some will escape — indeed, may already have escaped — less damaged than others. In this regard, the UK might be more challenged than some countries, although this might not be as insurmountable as people assume.

Look at the evidence. For a start, after the release of many countries’ second-quarter GDP accounts, the OECD, the club that includes all the main rich countries, estimates that GDP fell slightly, by 0.1 per cent in its area. They also suggest that GDP fell by 0.1 per cent in the narrower super-rich club of the G7 countries (although Canada doesn’t report its performance until today). For both groups, this is a vast improvement over recent quarters, reflecting some encouraging signs in the “older” countries that make up the narrow club. In particular, Japan, France and Germany all positively surprised, with Japan showing close to a 1 per cent quarterly gain, as exports and consumption both recovered. Within the larger developed countries, both the UK and US stood out as among the weaker, which, in view of the housing and banking-based nature of the crisis, is really what many would have expected.

Going beyond the G7 and the OECD, the reason I can say that the world moved out of recession (at least technically, as measured by positive or negative changes in GDP) is that China showed an extremely large bounce in the second quarter (Q2). The Chinese authorities reported a 7.9 per cent year-on-year increase in Q2 but, shown on the same basis as much of the developed world, ie quarterly change, the rise in China was even more impressive. On the same basis as the United States reports, which is quarter-to-quarter change annualised, we reckon that China rose by an astonishing 16.5 per cent in Q2. Even though they are “only” 7 per cent of the world total GDP, given how close to flat the leading economies were, a much smaller increase would be enough to turn the world positive. A number of other significant emerging economies also seem likely to have experienced positive growth in the quarter, such as Brazil and India, but we are yet to get the details.

What about the current quarter, Q4 and the future? Many are starting grudgingly to concede that the world is doing better, but it is fashionable to argue that any recovery will be very weak. Just as many argue that the infamous W-type pattern of a so-called double dip is possible. Well, frankly, anything is possible. But looking at the objective evidence, as opposed to the subjective and emotive, a V seems more likely now than a W. What is the evidence?

In my last piece, I showed a chart of our Goldman Sachs Financial Stress Index, the GS-FSI. It showed systemic financial stress back down to levels not seen since spring 2007, before the crisis erupted. We don’t have a new index level since my last article but the behaviour of most of the components continues to improve.

We use two other important leading indicators to monitor our forecasts. For more than 20 countries, we use Financial Conditions Indicators, so called FCIs, as lead indicators. While the exact construct varies for different countries, they typically include short and long-term interest rates, the latter often corporate bond yields (these two tend to take up 80-90 per cent of most indices), the exchange rate and a stock market indicator as a wealth effect variable. In many countries financial conditions tightened dramatically in late 2008 and continued to do so despite efforts by policymakers to stimulate their economies. Struggling banking systems and fears of systemic failure rendered policy, for a while, less effective than normal. However, partly because of the persistence of policymaking efforts, many FCIs have started to improve sharply, especially in the all-important United States. Historically, a 100-basis point move in our US index would equate, all else being equal, to a 1 per cent increase in US GDP within 12 months and a 0.6 per cent increase in global GDP. In 2008, our US index deteriorated, we believe, more than ever before, hence the collapse of global GDP. Now the US index has recovered more than 75 per cent of the tightening which suggests, all else being equal, that 75 per cent of what was lost should be recovered.

Crucially, our FCI for China has exploded on the back of very aggressive Chinese monetary and fiscal stimulus and it stands more than six percentage points easier than last November. Not surprisingly, indicators sensitive to financial conditions have shown dramatic advances in recent months, with, perhaps, car sales the most powerful. In the UK, because of the important role played by the exchange rate as well as the actions of the Bank of England, UK financial conditions have also eased sharply and many sensitive indicators, including consumption, have shown a response.

The final indicator we use is our own proprietary Global Leading (economic) Indicator, the GLI. Based on some high-frequency reported data, such as US weekly job claims, South Korean exports and a number of business and consumer confidence surveys, it aims to predict changes in industrial production three to six months ahead, just like the OECD version. Ours is quicker and doesn’t include interest rates, the yield curve or equities, so can be used by asset allocators.

Since March, close to the time that developed stock markets bottomed, our GLI has shown a vigorous bounce and, indeed, for the past two months the monthly increases have been the sharpest we can find. The chart of the monthly changes, as you can see, looks pretty much like a V, not a W. Right now, it suggests a much stronger bounce in the world in the next six months than consensus and, along with other data, is why in our latest forecasts we predict that world GDP will recover by 4 per cent in 2010. This will include the UK because, despite all its challenges, it is an economy small and open enough to be greatly influenced by the rest of the world.

• Jim O’Neill is Chief Economist at Goldman Sachs


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Polaris to open two new golf courses before year end

Polaris World, developer of the Nicklaus Golf Trail circuit, is currently in the final phase of works on two new golf courses which will be opened in late 2009, designed by Nicklaus Design, and located in the resorts: Las Terrazas Best Golf and Alhama Best Golf.

Therefore, Polaris World will extend the current four courses and offer an improved range of golf in Spain and one of the best in Europe, thanks to a circuit that will host a total of 6 golf courses within a 25 kilometer radius. The exisiting courses are located in the resorts of Polaris World: La Torre Best Golf, El Valle Best Golf, Mar Menor and Hacienda Riquelme Best Golf Best Golf. The new golf courses of Las Terrazas and Alhama Best Golf will both have 18 holes par 72. Las Terrazas Golf Best is noted for its desert style, reminiscent of the Nicklaus designed golf course at Lake Las Vegas. The course is characterized by its undulating fairways and greens between desert dunes, with few bunkers and a great lake of some 6 acres. On the other hand, Alhama Best Golf has been specially designed by Jack Nicklaus himself and is highlighted by a sharp elevation changes and its 4 lakes.

Thanks to the addition of the two new golf courses, golf lovers can enjoy a different course every day of the week, leaving the last day to rest. Furthermore, to make your experience an unforgettable journey, Polaris World has two exclusive five-star hotels: InterContinental La Torre Golf Resort Murcia and InterContinental Mar Menor Golf Resort & Spa, offering a wide range of facilities and "luxury" services both in their suites, with a wide gastronomic offer in its areas of fitness, spa treatments, managed by the prestigious brand ESPA, among other highlights, in a unique environment.

All of the Nicklaus Golf Trail Polaris World courses have changing rooms, pro shop, golf lessons provided by professionals, among other services. In addition, the resorts offer a wide range of leisure and entertainment which to enjoy before and after the departure and accommodation options and restaurants.

In addition, guests of the apartments and InterContinental hotels located in the resorts of Polaris World (Mar Menor Golf Resort & Spa and La Torre Golf Resort Murcia) can use a free bus service to move to four golf courses operational and will shortly be open.

Spain's property market: Tricks and mortar | The Economist

Spain's property market: Tricks and mortar The Economist

SPANISH banks have been doing their best to shield themselves from the bursting of the country’s property bubble. By buying properties before the loans on them go bad, lenders can mask their worst bets. Restructuring loans has the same effect. Help is now at hand from an unlikely source: the normally sober Bank of Spain. In July the central bank circulated guidance that relaxed provisioning rules on risky mortgages.
The change makes some sense. Until now, banks have had to make provision for the full value of high-risk loans—those above 80% of the property’s value—after two years of arrears. That was far too demanding, since property values rarely fall to zero. Under the new rules, they only have to allow for the difference between the value of the loan and 70% of the property’s market value.
Yet the timing is terrible, mainly because the move follows heavy lobbying from the banks. The Bank of Spain maintains that the net effect on the system will be neutral since it is also tightening rules for bad consumer loans. But the impression is that Spain’s central bank—one of the few to emerge from the crisis in credit—has moved the goalposts to help banks deal with the onslaught of bad property loans.
For Spain’s two largest banks, Banco Santander and BBVA, which have diversified abroad and reported decent second-quarter results this week, the new guidance will probably have only a marginal effect. But it will be a boon to smaller lenders with greater exposure to risky loans. Iñigo Vega, an analyst at Iberian Equities, estimates that the new rules would relieve banks of the need to make provisions of about €22 billion ($31 billion) in coming months (assuming non-performing loans reach 8% by the end of 2010). To put that into context, Spain’s savings banks, which are heavily exposed to developers, are expected to make profits of only €16 billion before provisions this year.
The new accounting guidelines will help Spanish lenders smooth out the effects of the property bust over time. But the risk is that the problems are merely postponed. The ratio of bad loans to the total, property included, has tripled to 4.6% over the past 12 months as unemployment appears to head inexorably towards 20%.
The true picture is worse still. Commercial banks have bought about €10 billion in debt-for-property swaps, according to UBS. Spain’s savings banks do not disclose the figure. Assume it is similar to their commercial peers and reclassify all these property purchases as bad loans, and then the non-performing loan ratio would be 5.7% (before any further adjustments for loan restructuring). Deferring losses to mañana doesn't change the extent of the difficulties facing Spain’s financial system.

Polaris Worlds' La Torre to host Davis Cup Semi's

The Davis Cup semi-final between holding champions Spain and Israel, scheduled to take place between the 16th and 20th September will be held at the La Torre Golf Resort, one of the Polaris World flagship resorts.

The celebration of the semi-final culminates in weeks of negotiations with the Spanish tennis Federation and finally received the go-ahead this weekend after a final tour of the installations at La Torre.

The presence of 12.000 spectators each day will be expected at the event to cheer on the Spanish Armada against Israel, with the world's media also expected.

Whilst staying, visitors will also be able to enjoy the golf available and stay at the luxurious 5***** Hotel Intercontinental.

Latest Euribor News and Mortgages in Spain

Euribor (12 months), the interest rate normally used to calculate mortgage payments in Spain, fell to an all time record low of 1.41% in July, down from the previous record low of 1.61% in May. Euribor is now 73.8% lower than it was this time last year, when it hit a high of 5.393%, leading to significant savings for mortgage borrowers on annually resetting mortgages.
Thanks to the latest drop in Euribor, the average borrower can expect to save around 300 Euros per month, or more than 3,500 Euros per year, on mortgages that reset now.
The Euribor rate has been following down base rates set by the European Central Bank. These started falling in October last year, when they were lowered from 4.25% to 3.75%, and now stand at just 1%. The relentless recent fall in Euribor suggests that the market might be expecting further cuts in base rates.
Mortgages fuel the property market, so activity in the mortgage market is an important indicator for the property market. The latest figures from the National Institute of Statistics (INE) reveal that mortgage activity is still significantly down on last year, but may have turned a corner in May as key figures started to improve on a monthly basis.
The number of new residential mortgages signed in May fell by 23% to 57,614 compared to the same month last year, but rose by 15% on a monthly basis. The average mortgage value in May fell 14% to 121,120 Euros year on year, but rose 5% month on month. Overall new mortgage lending was 7 billion Euros, 33% less than a year before, but 20% higher than April.
The average interest rate agreed for new mortgages in May was 4.6%, 11% lower in percentage terms than a year ago, and 2.2% lower than the preceding month.
96% were variable rate mortgages, the remainder fixed rate.
With thanks to Spanish Property Insight