MacroVar monitors the global economy based on the analysis of financial and economic data of the 40 largest economies and financial markets.
Learn more on MacroVar basic macroeconomic model to analyze each country. Click any country to view a detailed analysis of the country's current economic and financial conditions. Global Manufacturing and Global Services are indexes published by JP Morgan.
Global Economic Model
The two most important economic indicators of the global economy are real economic growth expectations and inflation. MacroVar uses Global Manufacturing PMI New Orders to forecast Global economic growth expectations and Global Manufacturing PMI prices to forecast Global inflation expectations. An economy is healthy when it generates stable economic growth with low inflation. Policymakers of the three major economies namely the United States, Eurozone and China (government & central bank) use fiscal and monetary policy to inject liquidity during slowdowns (to solve weak economic growth) and withdraw liquidity from an overheating economy (to solve high inflation).
A country's economy is comprised of the public and private sector. The private sector is comprised of businesses and consumers. There are two types of businesses manufacturing, and services. A country's economy is also affected by the global economy since capital and products flow between countries.
Economic growth is measured by Real GDP which is the total income of a country in a year adjusted for inflation.
Inflation (CPI) measures the rate at which average price of products increases in a year.
Economic transactions are completed with either money or debt. The availability of credit is determined by the country's central bank. The degree to which debt is healthy for the economy depends on whether borrowed money is used productively to generate sufficient income to service the debt or not.
Economic Growth vs Inflation
An economy is healthy when it generates stable economic growth with low inflation and low unemployment.
Policymakers (government & central bank) use fiscal and monetary policy to inject liquidity during slowdowns (to solve weak economic growth) and withdraw liquidity from an overheating economy (to solve high inflation).
Excessive intervention in the economy may lead to loss of confidence in the country and a financial crisis. The degree of intervention depends on the country’s fundamentals. Read how to analyze an economy’s fundamentals.
Advanced Economic Model
Introduction: An economy is the sum of the transactions that make it up. A country’s economy is comprised of the public and private sector. The private sector is comprised of businesses and consumers. Learn more about the factors that determine which countries succeed and fail.
Economic Aim: A nation’s economy is healthy when it experiences stable economic growth with low inflation and low unemployment. Economic growth is measured by Real GDP and inflation by CPI, PPI. An economy is affected by its individual performance and its economic performance relative to the rest of the World (RoW).
Economic activity is driven by 1. Productivity growth (GDP growth 2% per year due knowledge increase), 2. the Long-term debt cycle (50-75 years), 3. the business cycle (5-8 years). Credit (promise to pay) is driven by the debt cycle. If credit is used to purchase productive resources, it helps economic growth and income. If credit is used for consumption it has no added value.
Money and Credit: Economic transactions are filled with either money or credit (promise to pay). The availability of credit is determined by the country’s central bank. Credit used to purchase productive resources generating sufficient income to service the debt, helps economic growth and income.
Country versus Rest of the World: A country’s finances consist of a simple income statement (revenue–expenses) and a balance sheet (assets–liabilities). Exports are imports are the main revenue and expense for countries. Uncompetitive economies have negative net income (imports higher than exports), which is financed by either savings (FX & Gold reserves) or rising debt (owed to exporters).
Debt: A nation’s debt is categorized as local currency debt and FX debt. Local debt is manageable since a country’s central bank can print money and repay it. FX debt is controlled by foreign central banks hence it is difficult to be repaid. For example. Turkey has US dollar denominated debt. Only the US central bank (the Federal Reserve), can print US dollars hence FX debt is out of Turkey’s control.
A country can control its debt by either: 1. Inflate it away, 2. Restructure, 3. Default. The US aims to keep nominal GDP growth above interest rates (kept low) to gradually reduce its debt.
Injections & Withdrawals
The government and central bank use fiscal and monetary policies to inject liquidity during slowdowns to boost growth and withdraw liquidity from an overheating economy to control rising inflation. The available policies and tools used during recessions are the following:
Monetary Policies (MP)
- 1. Reduce short-term interest rates > Boost Economic growth by 1. Raising Credit, Easing Debt service
- 2. Print money > purchase financial assets > force investors to take more risk & create wealth effect
- 3. Print Money > purchase new debt issued to finance Gov. deficits when no local or foreign investors
Fiscal Policies (FP)
Expansionary FP is when government spends more than tax received to boost economic growth. This is financed by issuing new debt financed by 1. domestic or foreign investors or 2. CB money printing
Currency vs Injections & Withdrawals and inflation
The degree of economic intervention depends on the country’s economic fundamentals, its currency status and credibility. Countries with reserve currencies or strong fundamentals are allowed by markets to intervene. However, when nations with weak economic fundamentals intervene heavily, confidence is lost, causing a capital flight out of the country, spiking inflation and interest rates which lead to a severe recession, political and social crisis.
Reserve vs Non-reserve currencies: Reserve currencies are used by countries and corporations to borrow funds, store wealth and for international transactions (buy commodities). They are considered low risk. The US dollar is the world’s largest reserve currency. The main advantage of reserve currency nations is their ability to borrow (issue debt) on their own currency. These countries have increased power to conduct monetary and fiscal policies to boost their economies. However, prolonged expansionary fiscal and monetary policies eventually lead to loss of confidence in these currencies as a store of value and potential inflationary crisis.
Non-reserve currency countries
Conversely, developing nations are not considered low risk hence their ability to borrow in their own currencies is limited. Their economic growth is dependent on foreign capital inflows denominated in foreign currencies like the US dollar. During periods of global economic growth, capital flows from developed markets into developing nations looking for higher returns. These economies and their corporations’ issue foreign debt to grow. However, during periods of weak global economic growth or financial stress, foreign capital flows (also called capital flight) back to developed countries causing an inability of countries and companies to repay their debt. Central banks gather foreign exchange reserves during growth periods to create a cushion against capital outflows.
A nation’s economy is vulnerable to economic weakness or financial stress when it experiences:
- Current account deficit: a current account deficit indicates an uncompetitive economy which relies on foreign capital to sustain its spending. Hence, is vulnerable to capital outflows
- Government deficit: a big government deficit indicates an economy relying or rising debt to finance its operations
- Debt/GDP: a high Debt/GDP pushes a nation to borrow large amounts to finance its debt, print money or default. Historically, Debt/GDP higher than 100% is a red warning for economies.
- Low or no foreign exchange reserves: Developing economies are vulnerable to capital flight since foreign exchange reserves provide a cushion against capital outflows
- High external debt: Nations are vulnerable to high external debts which may be caused by a sudden depreciation of their currency or rising foreign interest rates (due to foreign growth)
- Negative real interest rates: Lower interest rates than inflation, are not compensating lenders for holding a nation’s debt hence making nation’s currency vulnerable to capital outflows.
- A history of high inflation and negative total returns: Nations with bad history have lack of trust in value of their currency and debt
MacroVar Macroeonomic Indicators
MacroVar Global economic view monitors and presents the following variables for each of the 41 largest economies in the world:
- M. PMI, M/M, Y/Y, 12MA, PCTL: Manufacturing PMI, Month on Month % change, Year over Year % Change, Manufacturing PMI versus 12 Month Moving average, PMI value percentile over the last 5 years
- S. PMI: Services PMI value
- GDP, GDP Y/Y: The country's Gross Domestic Product measured in US dollars, GDP Year over Year (Annual Growth Rate)
- UE: Unemployment Rate
- CPI: Consumer Price Index
- CB: The interest rate set by the country's central bank.
- M2: M2 is the standard measure of the supply of Money in a country. MacroVar shows the annualized % change rate of the M2 money Supply.
- B/S: A country's central bank balance sheet tells us what the central banks open market operaitons have been additional to classic M2. MacroVar monitors the central bank's balance sheet annualized % change
- FX Res: Foreign exchange reserves held by a country's central bank to control the country's balance of payments, the value of its currency and to maintain confidence in its financial markets.
- S/D: Government Surplus/Deficit: MacroVar monitors countries' government surplus/deficits and presents them as a % of GDP.
- Debt: Government Debt: MacroVar monitors countries' government outstanding and presents them as a % of GDP.
- Ex. Debt: External Debt: External debt is the country's debt borrowed from foreign lenders. MacroVar monitors countries' government outstanding and presents them as a % of GDP.
- CA: Current Account: When a country's current account balance is negative (also known as running a deficit), the country is a net borrower from the rest of the world. MacroVar monitors countries' government outstanding and presents them as a % of GDP.
- Stocks: MacroVar presents the year on year % change of the country's local stock market.
- Bonds: MacroVar presents the year on year % change of the country's 10 year treasury bond.
- YC: Yield Curve: MacroVar presents the current value of the difference between the yield of the 10 year and the 2 year bond. This is a very important important indicator of a country's economic growth expectations
- FX: MacroVar presents the year on year % change of the country's foreign exchange rate versus the us dollar.
- CDS: MacroVar presents the year on year % change of the country's 5-year Credit Default Swap rate. This is an important indicator of a country's risk level.
- Business Confidence Indicators: US Manufacturing PMI (ISM), US Nop-Manufacturing PMI (NMI), University of Michigan Consumer Confidence (UMCSI), Economic Sentiment Indicators and their components for European countries, Building Permits, Housing Indices, Construction PMI, Economic Sentiment Indicators Subsector Data, ZEW, IFO
- Monetary/Liquidity Indicators: Core CPI (Core Inflation Rate), Producer Price Index (PPI), Real Yields (10Y-CPI, 2Y-CPI), Central Bank Hikes/Cuts trend, Credit Ratings, Gold Reserves
- Economic Indicators: Exports, Imports, Exports to US/China/Japan/Germany/France/Italy/UK, Capacity Utilization
- Financial Market Indicators: Yield Curves (2Y-CB, 5Y-CB, 10Y-CB, spread to US 10Y, spread to DE 10Y), MacroVar Momentum, Trend, Exhaustion quantitative indicators for Local Stock indices, ETF, Bonds, Commodities, Currencies, FX Implied Volatility, CDS Term Structure, US Swap Rates
- Global Breadth: Breadth is calculated based on 41 countries and markets. Breadth is calculated for: PMI Absolute (>50), PMI 5-year Percentile (>0), PMI 5-year Z-score (>0), M/M PMI (>0), 12M PMI (>0), Y/Y PMI (>0), # of contracting / expanding PMI countries, MYH: multi-year highs >= 2Y Highs, MMH: Multi-month highs >= 3M High, MML: Multi-month lows <= 3M low, MYL: multi-year lows <=2Y
- Models: 1. The MacroVar Economic Growth - Inflation model