Today’s Picture



UK External Deficit Increases Further-Savings Fall

As a follow-up on this post, it could be noted that new numbers show that UK net borrowing from abroad rose further in the fourth quarter, to a new annual record of £71.1 billion, up from £60 billion in 2012 and just £22.4 billion in 2011.

In a related trend, the household savings rate fell to a new low of 5.1% in 2013, down from 7.3% in 2012.

Chicago’s Economics Named Sport Clubs

It just hit me that Chicago both have a sports club named “the bulls” (basket) and “the bears” (American football). That is rather funny considering the meaning of “bulls” and “bears” in economics.

Moreover, Chicago’s hockey team is named “blackhawks” and “hawk” is a third animal used in economics, but here in the context of what monetary policy you favor, rather than your view on how the economy and the markets will develop.

Now all that remains is that  baseball team changes its name from Cubs to Doves……

Finland’s Bad Luck Stricken Economy

Despite being fairly well run, Finland’s economy has performed relatively badly in recent years. While being in far better shape than Southern Europe, it has badly trailed for example Germany and Sweden.

Some people blame it on the euro, but that explanation doesn’t seem credible considering how many other euro area economies, including the aforementioned Germany, have been doing so good.

So why has it performed so badly? In two words: bad luck.

“Bad luck” can be defined as being disadvanteged by things one can’t control, and that is exactly what has happened to Finland.

First, the big drop in sales of traditional mobile phones and it’s replacement with so-called “smart phones”. For a long time, Nokia dominated the mobile phone market, and Finland earned a lot from it. At its peak  about a decade ago, Nokia alone was more than 3% of Finland’s GDP.

Then came the IPhone, and “smart phones” from other companies like Samsung. While Nokia did introduce “smartphones” too, they were rejected by most consumers and Nokia’s mobile phone dominance collapsed. Now Nokia is only a few tenths of a percent of Finland’s economy, so this alone directly subtracted 3% from Finland’s economy, indirectly probably more.

A partly related technological trend, the increasing digitalization, has reduced demand for paper, and so hit another key Finnish industry, it’s paper industry. This has hurt Sweden too, but not as much as Finland. as that industry’s relative importance was lower in Sweden.

And finally, over capacity in the global steel industry has hurt another key Finnish industry, the steel industry.

Now the conflict over Ukraine and Crimea between the US and EU is threatening to disrupt Finnish-Russian trade ties. That would hurt Finland’s economy a lot more than the average EU economy because Finland is a lot more depedendant than others on Russian energy supplies (mainly natural gas) and also because a lot higher percentage of Finnish exports go to Russia.

If the conflict over Ukraine and Crimea would escalate and outright trade restrictions would be implemented, then Finland would again be stricken by unusual bad luck.

EU-Russia Tensions Over Crimea Hurting Danish Pork Industry

As expected, EU sanctions against Russia have been limited to travel bans (and confiscating possible assets) against a limited number of individuals in Russia deemed responsible for Russia’s annexation of Crimea. No new restrictions on trade have been imposed and aren’t likely to be imposed unless Russia invades eastern Ukraine.

However, because of the tension between the EU and Russia there has been no end to the ban of imports of pork to Russia from the EU, that Russia imposed after swine flu was  found in Lithuania and Poland, something that is particularly costly to Denmark, one of the largest exporters of pork in the EU. In 2013, Denmark exported 131,000 tonnes of pork for a value of 2.1 billion kroner ( €280 million, $400 million).

The Danish government is so eager to solve the problem that it might now strike a unilateral deal with Russia to enable Danish pork exporters to resume exports to Russia (Normally trade rules and trade agreements are made at the EU level).

Interesting Statistics On Russia’s Trade

Here statistics over Russia’s trade with the U.S., the EU and Ukraine can be found:

In 2013, the EU accounted for 45 percent of Russia’s exports, two-thirds of which were natural gas and oil, according to World Trade Organization statistics. Last year, Russia imported $344 billion worth of products from Europe, with machinery ($53 billion) and vehicles ($38 billion) among the biggest import items. The EU supplies about one-third of Russia’s imports.

Ukraine last year sold about $15.75 billion worth of products to Russia – its largest market – with iron and steel and cereals its principal export items. Russia is also major source of Ukraine’s imports, accounting for $25.6 billion of Ukraine purchases, or just under a third of the country’s $77 billion total; the EU accounted for just slightly less.

By comparison, U.S. with Ukraine is negligible, just $2.9 billion in both directions last year