Monday, September 22, 2014

China & Peru Now Point To Recession?

Recently China has been in the news re their huge debts, new QEs, real estate overbuilding and other signs that they may be on the verge of recession.  Chin has also stopped importing the massive amounts of copper and iron ore that they had been importing for years.

Australia has started shutting down some iron ore mines.  Zero Hedge recently reported that iron ore prices have sunk to a very low $80 per tonne.

Peru has for the first time arrived at the edge (or worse) of recession.  The below chart comes from the INEI (Peru's economic statistics agency):

peru_gdp_july_2014.gif (538×253)

I found this at Otto Rock's interesting blog on Latin America and mining (especially Peru), here is the link to the article with the chart:

Note how close to zero Peru's growth has been in the past four months or so.  Otto comments that this news is being "spun" as good news, but..., if you account for the fact that governments often lie, then you might infer that Peru may have entered recession.  Otto's blog ( is quite irreverent, but is really more interest to people in mining or involved with Peru.

If Peru HAS entered recession, that would be the first time since the mild one in 2008-2009 (mild for Peru).

Another indicator that Peru may be slowing down is the recent performance of our own bearing business there.

Year Expr1001
2007 $543,000
2008 $610,000
2009 $597,000
2010 $620,000
2011 $607,000
2012 $759,000
2013 $874,000

(figures rounded)

Some of the above lower 2014 sales figures (6% lower) we can explain away by noting that some of our best selling pieces have not been available, but Peru's slowing economy is a factor.  Many of our customers are telling us that business is slower.

Lower commodity prices (which hint at lower Chinese demand) also affect Peru as a major exporter of copper and other metals.  Gold production is likely to decline this year as well, as Peru's production at their huge Yanacocha mine is going down faster than production from mines gearing up.  Lower export volumes at lower prices, this is known in economics as "deterioration terms of trade", which is not good for an export economy.

* * *

In addition to the well known facts of China's risks (eg, credit bubble, "ghost" cities, bad demographics), there are some new tidbits of information:

-- Zero Hedge and others have been reporting a new giant QE in China...

-- A recent surveys of Chinese billionaires shows some 40% are considering leaving...

-- A LOT of Chinese money has arrived (and still coming) buying US real estate...

-- Alibaba has just IPO'd...  The largest IPO ever.  A typical sign of a top...

The Alibaba IPO may be significant in that it is typical of OUR country slowing as well as any Chinese themselves cashing out by buying US real estate.

Mish (Michael Shedlock) often comments on important financial issues out of China, often he cites respected Chinese observer Michael Pettis:

Pettis has his own blog, mostly on China (where he teaches and writes):

The Telegraph out of the UK has coverage of China that is usually better than that of the US media, although only a percentage is financial news:

* * *

And it is not just Peru and China.  Brazil entered recession recently (probably due at least in part to lower commodity exports).  Europe and Japan are teetering...:

Spain and France are both in Mish's latest (France apparently now is recession).

Abe's "Abenomics" (deficit spending witgh help of the Bank of Japan's new QE).

The above remarks include nothing about the arguably recessionary conditions in the USA (if we ever recovered from 2008/2009).

1 comment:

  1. Bob,
    As usual you have done a great job in analyzing World Issues. Things are beginning to unravel, once again. Great job.


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