More Mining GFC triggers emerge

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A couple of reports today add to our lengthening list of possible Mining GFC triggers via FTAlphaville. From Moody’s:

We have changed our outlook for the Saudi Arabian banking system to negative, from stable. The change reflects the credit implications of our revised global oil price forecasts, which we expect to be lower for longer. It also captures new fiscal measures initiated in December by the Saudi government to tackle its rising budget deficit.

The negative view reflects our expectation that the economic slowdown driven by the plunge in global oil prices and by government spending cuts will weigh on the Saudi banking sector over the next 12-18 months, although we expect banks will remain resilient, given their strong risk metrics. While credit growth will slow, loan performance will soften, and liquidity will tighten, we nevertheless expect the banks to continue to generate solid profits and maintain high capital buffers.

…public-sector deposits placed with banks (time and savings deposits) fell by 5.7% in 2015, leading to an overall slowdown of net deposit inflows to around 1%, down from 12% in 2014.

Public-sector entities with excess liquidity will likely increase their absorption of additional sovereign debt issuances. In addition, we anticipate that the moderation in government spending and slowing economic growth will limit private-sector deposit growth over the outlook horizon, since (1) money supply to the private sector through large infrastructure projects will reduce and (2) corporate profits and savings will weaken. Indeed, between June and December 2015, private-sector deposits fell by 4%.

And from Standard Bank:

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Headline inflation moved up rapidly in Feb 16, reaching 11.4% y/y from 9.6% y/y in Jan 16. On a month-on-month basis, inflation leaped by 143 bps to 2.30% from 0.87% in Jan 16, placing it significantly above the 4-y average trend. This move was largely ascribed to significant pressures following from food, core and imported inflation.Given that inflation is now significantly outside the CBNs 6.0% – 9.0% target range, we suspect the Bank will show significant concern at the next MPC meeting on 21/22 Mar 16. That said, given that economic growth was extremely sluggish in 2015 we suspect that the committee will rather maintain status quo than push for tightening in monetary policy conditions, especially after easing in Nov 15.

And Exotix Partners::

The Nigeria economy is in the throes of a painful adjustment to the slump in oil prices, which has translated into weaker growth, (moderately) rising inflation, sustained balance of payments pressure, and accordingly, strict FX rationing.

The Nigerian Bureau of Statistics (NBS) recently published Q4 15 and full-year GDP figures confirming widespread fears of a slowdown, possibly even a recession. Headline growth came in at +2.11% yoy for Q4 15 and +2.79% yoy for 2015 as a whole – the weakest growth rates since 1999. Without seasonal adjustments to the data it’s impossible to know, but Nigeria may already be in recession. The pattern seen in Q4 15 was already pretty well established in the three quarters preceding it: agriculture was resilient (+3.48% yoy); industry is in recession (-3.04% yoy); and services, the bedrock of the economy, continue to slow (+3.69% yoy).

Among the key sub-sectors of the economy, the oil sector contracted by -8.28% yoy and is now in its fourth consecutive full-year decline; the food and beverage sector fell by -5.38% yoy; and construction dropped by -0.35% yoy. Relatively brighter spots included: cement +21.32% yoy; telecommunications +3.49% yoy; finance +6.62% yoy; and the all-important trade +4.69% yoy.

…The best way to think about oil, in our view, is as the economy’s working capital – not enough to make Nigeria rich on its own, but still necessary for its proper function. If we take the net present value of Nigeria’s 37bn barrels of oil at an assumed price of US$60/bbl and a production horizon of 40 years, it is only US$1,460/capita.

Another big move down in oil, which I still expect, will crystallise many such fears into solid commodity complex contagion.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.