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What energy crisis? European industry is showing its ability to adapt

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This article is an on-site version of Martin Sandbo’s Free Lunch Handout. Participation over here Get our newsletter sent straight to your inbox every Thursday

The great economist Robert Solow famously quipped that he could see the IT revolution everywhere but in productivity statistics. Today I can see the energy crisis in Europe everywhere except for the industrial production figures.

After a year of high energy prices – in addition to the expensive gas for those industries that use it in the production process (as a feedstock) – don’t you expect the industry to suffer? Especially since we know that Europe managed to reduce gas consumption at least significantly In response to the gas weaponization of Russian President Vladimir Putin. And twice – especially since we have it I heard a lot of complaints About how European manufacturing has become uncompetitive and America will lure away the continent’s industrial base.

But take a look at the manufacturing scale Industrial production In the European Union and the Eurozone in the chart below. If you can find out how Putin crushed European industry (not for lack of trying), then let me know. The European Union as a whole has never produced more manufactured goods than it does today. The same is true of the eurozone, although its volumes have twice reached the same size before but only for a while (in late 2017 and spring 2008).

The volume of industrial production in manufacturing

If you look at certain countries, the numbers jump up and down a little bit from month to month, so no doubt you can find what appears to be a downward trend for a few months in some countries. But almost all EU countries increased their industrial production from September 2021 to September 2022 (the latest full figures), often by significant amounts. If they’ve been suffering from extraordinarily high energy prices this year, it’s a very relative struggle indeed.

Industrial production volume changed from September 2021 to September 2022

These are very approximate numbers, and do not provide precise insights into how factories in Europe are adapting. However, there are many country-level studies that look at the manufacturing sector more comprehensively. And they largely confirm the big picture that the industry is more powerful than it might seem.

The most shared work I’ve seen is in Germany. Last week, the Ifo Institute published a dossier Exploratory study It shows that among the 59 percent of industrial companies that use gas in the production process, 75 percent report that they have been able to reduce gas use without having to cut production. (I’ve reproduced a chart from the study below showing the distribution of responses.) Nearly 40 percent reported having room to maneuver to consume less gas without struggling with output. Since gas not used in production is gas that can be used for power generation, this amounts to a high degree of resilience to higher energy prices.

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Admittedly, a small minority of companies have warned that they may have to not only cut back but stop production altogether if they are to reduce gas use. And there are examples of plant closures – for gas-hungry ammonia, for example. But the big picture is more buoyant than one might think.

More detailed ideas along the same lines come from econometrics Gas consumption study By all economic sectors (small users, industrial users, power stations) from the Leibniz Information Center for Economics. The authors exclude external influences on gas use such as weather, and find that in response to higher prices since the fall of 2021, industrial and small users reduced consumption by significant amounts (up to 19 and 36 percent, respectively).

and Ben McWilliams, of the Bruegel think tank, Post numbers on Twitter It shows that while Italian industry recently used 24 percent less gas than the 2019-21 average, its industrial production has held up completely. make a Similar note about German industry.

whats the result? Europe fought the economic war better than it gives itself the credit. For war what it is. While Putin is trying to starve, freeze, and force the Ukrainian people into submission, he is attacking Europe economically for encouraging it to betray Ukrainians who are fighting for their way of life. But like so many of Russia’s battlefield failures, its economic strength is not as devastating as many might think. Liberal democratic capitalist economies are remarkably adaptable — not without effort, but because they have the economic and political resources, and the tools to use them, to resolutely absorb shocks.

It seems that the industrialists themselves realized that the blow was not as hard as they thought. Business leaders seem to be, too Breathe more easily Over weeks and months ago. So, perhaps, we should – but only a little bit, because if things go better than we fear, a little complacency is all it takes to kill her.

Other readings

news figures

  • she has Eurozone inflation peaked?

  • Economic Performance Center Research The new non-tariff barriers to trade (new cross-border regulatory requirements) that Brexit has caused are estimated to be costing the UK trade with the rest of Europe. The impact on food bills alone is £210 per household, on average.

  • Global wages have fallen Nearly 1 percent year-on-year in the first half of 2022, labor’s share of global income declined and wages also did not keep pace with productivity growth at the global level.

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Economic

We need to pay more attention to skewed economic signals

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The writer is chair of Queen’s College, Cambridge and advisor to Allianz and Gramercy

Inflation was the dominant economic and financial issue of 2022 for most countries around the world, especially for advanced economies that have a consequential impact on the global economy and markets.

The effects have been seen in declining living standards, increasing inequality, increasing borrowing costs, stock and bond market losses, and occasional financial mishaps (fortunately small and so far contained).

In this new year, recession, both actual and feared, has joined inflation in the driving seat of the global economy and is likely to replace it. It’s a development that makes the global economy and investment portfolios subject to a wide range of possible outcomes — something that a growing number of bond investors seem to be aware of more than their equity counterparts.

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International Monetary Fund iYou will likely review soon Her economic growth forecasts again, predicting that “a third of the world will be hit by recession this year”. What is particularly notable to me about these worsening global prospects is not only that the world’s three major economic regions – China, the European Union and the United States – are slowing down together, but also that this is happening for different reasons.

In China, a chaotic exit from the wrong Covid-19 policy is undermining demand and causing more supply disruptions. Such headwinds to domestic and global economic well-being will continue as long as China fails to improve the coverage and effectiveness of its vaccination efforts. The strength and sustainability of the subsequent recovery will also require that the country more vigorously renew a growth model that can no longer rely on greater globalization.

The European Union continues to deal with energy supply disruptions as the Russian invasion of Ukraine continues. Strengthening inventory management and reorientation of energy supplies is well advanced in many countries. However, it is not yet sufficient to lift immediate constraints on growth, let alone resolve long-term structural headwinds.

The United States has the least problematic view. The headwinds to growth are due to the Fed’s struggle to contain inflation after mischaracterizing rate increases as fleeting and then initially being too timid to adjust monetary policy.

The Fed’s shift to an aggressive front-load of interest rate hikes came too late to prevent the spread of inflation in the services sector and wages. As such, inflation is likely to remain stubborn at around 4 percent, be less sensitive to interest rate policies and expose the economy to greater risk for accidents from additional policy errors that undermine growth.

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The uncertainties facing each of these three economic areas suggest that analysts should be more careful in reassuring us that recessionary pressures will be “short and shallow”. They need to be open, if only to avoid repeating the mistake of prematurely dismissing inflation as transient.

This is especially important because these diverse drivers of recessionary risk make financial fragility more threatening and policy shifts more difficult, including potentially Japan. Get out of interest rate control Policy. The range of possible outcomes is extraordinarily large.

On the one hand, a better policy response, including improving the supply response and protecting the most vulnerable populations, can counteract the global economic slowdown and, in the case of the United States, avert a recession.

On the other hand, additional policy errors and market turmoil can lead to self-reinforcing vicious cycles with rising inflation and rising interest rates, weakening credit and compressed earnings, and stressing market performance.

Judging by market prices, more bond investors are better understanding this, including by refusing to follow the Fed’s interest rate guidance this year. Instead of a sustainable path to higher rates for 2023, they believe recessionary pressures will lead to cuts later this year. If true, government bonds would provide the yield and potential for badly missed portfolio risk mitigation in 2022.

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However, parts of the stock market is still weakly bearish pricing. Reconciling these different scenarios is more important than investors. Without better alignment within markets and with policy signals, the positive economic and financial outcomes we all desire will be no less likely. They will also be challenged by the risk of more unpleasant outcomes at a time of less economic and human resilience.

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Macro hedge funds end 2022 higher, investors say, while many others take big losses By Reuters

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© Reuters. FILE PHOTO: Traders work on the trading floor of the New York Stock Exchange (NYSE) in New York City, US, January 5, 2023. REUTERS/Andrew Kelly

By Svea Herbst Baylis

NEW YORK (Reuters) – Some hedge funds betting on macroeconomic trends have boasted of double and even triple-digit gains for 2022, while other high-profile companies that have long been on technology stocks have suffered heavy losses in volatile markets, investors said.

Rokos Capital, run by Chris Rokos and one of a handful of so-called global macro companies, gained 51% last year. Fund investors this week, who asked not to be identified, said Brevan Howard Asset Management, the company where Rokos once worked, posted a gain of 20.14% and Caxton Associates returned 16.73%.

Haider Capital Management’s Haider Jupiter Fund rose 193%, an investor said.

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Data from hedge fund research showed that many macro managers have avoided crumbling stock markets that have been rocked by rapid interest rate increases and geopolitical turmoil, including the war in Ukraine, to rank among the best performers in the hedge fund industry. The company’s macro index rose 14.2% while the general index of hedge funds fell 4.25%, its first loss since 2018.

Equity hedge funds, where the bulk of the industry’s roughly $3.7 trillion in assets are invested, fared worse with a loss of 10.4%, according to HFR data. And while that beat the broader stock market’s loss of 19.4%, some high-profile funds posted even bigger losses.

Tiger Global Management lost 56% while Whale Rock Capital Management ended the year with a 43% loss and Maverick Capital lost 23%. Coatue Management ended 2022 with a loss of 19%.

But not all companies that bet on technology stocks suffered. John Thaler JAT Capital finished the year with a 3.7% gain after fees after a 33% increase in 2021 and a 46% gain in 2020.

Sculptor Capital Management (NYSE::), where founder Dan Och is fighting the company’s current CEO in court over his salary increase, posted a 13% drop.

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David Einhorn’s Greenlight Capital, which bet that Elon Musk would be forced to buy Twitter, ended the year up 37% while Rick Sandler’s Eminence Capital rose 7%.

A number of so-called multi-manager companies where teams of portfolio managers bet on a variety of sectors also boast positive returns and have been able to deliver on their promise that hedge funds can deliver better returns in distressed markets.

Balyasny’s Atlas Fund (NYSE: Enhanced) gained 9.7%, while Point72 Asset Management gained 10%. Millennium Management gained 12% while Carlson Capital ended the year with a 7% gain.

Representatives for the companies either did not respond to requests for comment or declined to comment.

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German automakers point to easing supply chain problems

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Sales at BMW and Mercedes-Benz jumped in the final months of 2022 as the German premium auto brands indicated supply chain problems plaguing the industry were abating.

Automakers around the world have experienced parts shortages since the pandemic, especially semiconductors, leaving many of them with large fleets of incomplete vehicles that can’t be delivered to customers.

BMW and Mercedes each said their full-year vehicle deliveries fell last year by 4.8 percent and 1 percent, respectively, due to Suppliers Bottlenecks as well as lockdowns in China and the war in Ukraine.

But supply pressures eased in the last quarter of the year, as BMW recorded a 10.6 percent jump in sales, with 651,798 vehicles delivered, and Mercedes fulfilling 540,800 orders, up 17 percent from the same period in 2022.

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BMW He said the main effects of supply chain bottlenecks and continued lockdowns were felt in the first six months of the year, adding that “sales were steadily picking up in the second half.”

Mercedes boss Ula Kallenius told the Financial Times last week that the list of problems in the auto supply chain was declining, but added that long waits for cars would continue into 2023.

“One chip is enough to be vital [ . . .] Missing, and then you can’t finish the car, even if you have everything else.

Both brands recorded strong sales growth electric car. Mercedes, which last week announced a plan to build 10,000 charging docks, said EV shipments grew 124 percent to 117,800 last year compared with its predecessor.

Similarly, BMW reported strong growth in electric vehicle sales, with deliveries of fully electric vehicles doubling last year to 215,755.

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Analysts at Bank of America said that sales of electric vehicles, including hybrid cars, reached a historic peak last November, with 1.1 million units sold. They attributed this largely to the upcoming phase-out of customer subsidies in Germany.

Participate in Mercedes BMW and BMW prices held steady Tuesday morning as investors priced in an image of an improving showing.

Rolls-Royce, a subsidiary of BMW, announced Monday that sales have hit a 119-year record, driven by strong demand in the United States, its largest market.

The luxury brand has been largely unaffected by the semiconductor pressure, mainly because it makes relatively few compounds and therefore needs fewer chips.

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