Sunday, June 26, 2011

South Florida’s Global Trade Expands

The Miami Herald: South Florida's Global Impact Expands ; Brazil's Importance to South Florida's Economy ; Trade Through South Florida Ports Sets Records
The Business Journal: South Florida Global Trade Poised to Hit $100B
World City: U.S. Trade Tops $3 Trillion in 2010

The area of South Florida is not just known for its great beaches and tourist destinations, but it is also one of the main entrances into the United States for imports from Latin America and the world. South Florida is unique among the nation's customs districts in that about 60 percent of its total trade ($95.38 billion) is driven by exports, as compared to the national U.S. exports to imports ratio of 40 percent to exports and 60 percent to imports. The strength of South Florida’s export-driven economy illustrates the region's role in supplying the market demands of Latin America and the Caribbean.

The area’s top exports include aircrafts, precious scrap metal, cellular phones and equipment, and computers and computer parts. Its top imports include gold, non-crude oil, cellular phone equipment, and computer parts. In addition, $366 million worth of live crustaceans and $691 million worth of fresh-cut flowers came in through ports of South Florida.

The Miami Customs District, which includes airports and seaports from Palm Beach to Key West, set a record among customs districts for the greatest total trade, which reached $95.38 billion last year. Of this, exports totaled $58.8 billion and imports amounted to $36.6 billion. The trade total in this region is now well on its way to surpass, for the first time this year, the $100 billion figure. The area will be only the 11th Customs District in the country to do so.

The majority of the goods exported by South Florida are sent to countries in Latin America. In 2010, the area exported $11.9 billion to Brazil, $4.1 billion to Colombia, $4.07 billion to Venezuela, and significant amounts to other Latin American countries such as Costa Rica, Dominican Republic, Honduras, Chile and Mexico. South Florida also exports to European countries significantly, it exported $4.99 billion worth of goods to Switzerland in 2010.

Among South Florida’s top trading partners, Brazil is by far at the top of the list. In 2010, Florida’s export trade with Brazil increased by 27 percent from the previous year, to a record of $14.4 billion. Similarly, the area imported $1.47 billion from Brazil. This increase in trade is due to a 7.5 percent economic growth and the increasing consumer demand that Brazil is currently facing. Also, Brazilian tourists spend more money in South Florida than in any other part of the country. Thirty-five percent of real estate buyers in downtown Miami are Brazilians.

Likewise, many Asian companies are directly investing in South Florida. For instance, Hong Kong’s Swire Group recently announced a new construction project, Brickell CitiCentre, in downtown Miami, valued at $700 million. Genting Group, a Malaysian company, also plans to build a $3 billion resort called World Miami. These investments are expected to bring in more visitors and increase South Florida’s global trade as additional goods will be imported to satisfy the visitors’ demands.

Financial Uncertainty Continues in Greece


Since joining the eurozone in 2001, Greece has faced numerous financial difficulties. However, it was not until the global financial crisis struck in 2008 that the seriousness and magnitude of Greece's financial troubles was revealed. As of January 2011, all three credit-rating agencies had reduced Greek debt to junk status. Today, even though Greece has received €110 billion in bailout money from the EU and the IMF, economists around the world are predicting that Greece will inevitably default on its loans.

Although its national debt is currently 160% of its GDP, not everyone sees Greek default as inevitable. The Greek government has been scrambling to find ways to raise more money in order to avoid a default and to get a second bailout from the EU and IMF. Last Friday, Greek Prime Minister George Papandreou and the Greek parliament agreed to additional, and highly contested, spending cuts in order to meet the targets necessary in order to receive bailout money. However, to keep meeting these targets set by the EU and IMF, Greece still has to raise €600 million by the end of the year.

If Greece goes into default, the effects will spread far beyond Greece's boarders. Economists predict that a Greek default could also lead to default in Portugal and Ireland, two other eurozone countries who received large emergency loans following the 2008 financial crisis. Further, the risk of Greek default has lead to tension throughout the eurozone and has increased the instability of the euro itself. Germany, the nation that has most successfully weathered the economic downturn, is getting more and more infuriated by additional requests to lend money to Greece and other eurozone nations. Greek citizens are not happy with the deal they have been given from the EU and the IMF either, as protests continue amid the government putting into effect further austerity measures in an attempt to secure additional loans. Although widespread devastation could spread across much of Europe and the world if Greece defaults, leaders at the EU and IMF have been slow to agree to any solutions to address Greece's continued struggles.

Thursday, June 16, 2011

U.S. Economy Shows Slow Recovery

FT: Bernanke signals no new round of easing
FT: Wall Street Dips on Bernanke Speech
FRB: Speech by Bernanke on U.S Economic Outlook

On Tuesday, Chairman of the Federal Reserve, Ben Bernanke, announced that the economy of the United States is showing a slower than expected economic growth so far this year. In his speech, Mr. Bernanke stated that aggregate output, which is the sum of all the national income, increased at an annual rate of only 1.8% in the first quarter. The hamper in economic activity is partly due to the disruptions in the chain of supply caused by the earthquake and tsunami in Japan. Many goods that the United States imports from Japan such as cars and electronic goods were not produced and shipped due to the catastrophe. This disruption caused some U.S. companies to not receive their supplies for large amounts of time and thus significantly affected the production of these companies. Therefore, the decrease in national income is partly due to the fact that the U.S. market had less products to sell.

Another important factor in determining the speed of economic growth is the ability and readiness of households to spend. According to Bernanke, even though household incomes have increased due to a better job market, consumers have been cautious in spending due to the increase in food and energy prices, declining home values, restrictive credit markets, and a still-high level of unemployment.

Furthermore, another explanation for the slow growth of the economy is the fact that the real estate industry remains unstable. Although home prices and mortgage rates are at a historical low, many potential buyers are unable to purchase new homes due to strict loan guidelines that do not allow these buyers to qualify for home loans. Lenders have tightened up their lending practices, in part, because of the losses suffered during the subprime-mortgage crisis. These new guidelines are making it harder for some borrowers to obtain financing to purchase new homes. Also, house prices have fallen drastically. Many home owners cannot sell their homes for the price they initially paid and therefore are reluctant to sell.

Likewise, constraints on the demand for housing along with a large inventory of foreclosed properties has resulted in extremely low levels of constructions of new homes. The constructions industry plays a vital role in the growth of the economy because with each new construction project comes more employment opportunities. Construction also leads to the sale of more goods, products, and materials necessary to build. Thus, when there is no demand for new construction, the economy suffers as all these benefits that flow from constructions suddenly come to an end.

Tuesday, June 07, 2011

China Emerges as Latin America’s Biggest Trade Partner

FT: New Trade Routes: Latin America
FT: China demand drives road and rail traffic
China Daily: China to Increase Trade with Latin America

Over the past decade, Latin America has been hard at work focusing on infrastructure and promoting trade with some of the world’s fastest growing economies in an effort to shed the image of financial instability that marked the region in the 1990s. Fortunately, the effort has paid off as poverty is diminishing in many Latin America countries and the middle class is increasing, all largely in part due to the vast expansion of commodity-based trade.

One of Latin America’s biggest trade partners is China. The fast growth of the Chinese economy has increased demand for many Latin America commodities such as Argentine soya, Brazilian iron ore, Chilean copper, and Peruvian gold. Trade between Latin America and China has increased tremendously in the past ten years. For instance, in 1999, trade between the two regions totaled $8 billion. However, by 2009, this total had increased by sixteen times to $130 billion.

The Chinese government is especially supportive of the trade partnership as it encourages more Chinese businesses to invest in Brazil, Peru, and other Latin American countries in an effort to induce these countries to export more goods to China. Likewise, China has also signed free trade agreements with Chile, Peru, and Costa Rica, and is the largest importer of goods and services from Brazil and Chile. Out of all the Latin American countries, Brazil is by far the largest trading partner China has in the region. In 2010, the value of trade between the two countries increased by 47.5% from the year before, totaling $62.5 billion.

The main commodities China imports from Latin American countries include agricultural products, minerals, copper, and other raw materials. In turn, China exports electronic goods, machinery, garments, and shoes to Latin America. Equally important is that Latin America has become the second-largest destination for much of Chinese direct investment. Although, the majority of this investment goes only to certain countries such as Brazil, Peru, Venezuela, Mexico, and Argentina, the investment of Chinese companies is increasingly creating many business opportunities all throughout the Latin America region.

Wednesday, June 01, 2011

Banks in Hong Kong Told To Conduct Stress Tests

Bloomberg: Hong Kong Banks Told To Hold Stress Tests Assuming $89 Billion In Outflows
ChinaDaily: HKAB: Banks May Slow Credit Growth
FT: Hong Kong Tests Banks’ Ability To Survive Outflows
Market Watch: Hong Kong Banks Asked to Conduct Stress Tests

Hong Kong banks will conduct another stress test to see whether they could withstand capital outflows of HK$650 billion ($83.52 billion) in customer deposits. Since late 2008, the amount of deposits in Hong Kong banks has grown rapidly by HK$1.38 trillion ($177 billion). As liquidity is tightening and the United States may soon raise interest rates, the Hong Kong Monetary Authority (HKMA), the de facto central bank, requested banks to test whether they could survive if customers withdrew half of such new deposits in six to twelve months. “When the US ends its quantitative easing, monetary policy and global liquidity will tighten, and this may cause more fund outflows in Hong Kong,” said Paul Lee, an analyst at Haitong International Group.

The request for stress tests reflects the HKMA’s concerns about the health of Hong Kong banks as banks have rapidly expanded lending. Loans have grown by 30 percent from January to March this year. The loan growth has also driven the loan-to-deposit ratio up from 71 percent to 81.7 percent in a year since early 2010. In the case of smaller banks, the loan-to-deposit ratio has grown up to 90 to 100 percent. High interest rates in mainland China has contributed to the loan growth in Hong Kong banks as more Chinese firms have borrowed loans from Hong Kong banks at lower interest rates. The central bank in China has increased interest rates four times since last October in an attempt to control inflation and reduce loan growth. It also has raised reserve requirements eight times during the same period.

It is notable that recently, the portions of renminbi deposits and loans in US dollars in Hong Kong banks have surged, reflecting the expectation that the value of the renminbi will likely go up against the US dollar in the future. During the last two quarters, renminbi deposits have increased three times up to 452 billion yuan ($69 billion). Loans in foreign currency, mostly in US dollars, have increased by 54 percent during the first quarter this year.

The HKMA will receive the test results from banks in a month. While some predict that banks that fail the test will reduce lending, others say that the test results will not immediately change banks’ lending policy as the bank’s “risk management policy, regulatory requirements and the cost of capital of different banks” determines the banks' lending criteria.