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Consumer Credit Tightens & Demand for Commercial Real Estate Falls.
Renewable Energy In China A Boost For US Agriculture.
Here is what we will be getting into today:
Commercial Real Estate Demand Decreases: An Indicator of Recession Looming Ahead
Renewable Energy in China Boosts Demand for US Agricultural Goods.
Tackling Poverty in Nigeria: The Key to Long-Term Economic Stability.
Let's Get To It!
YouTube Channel: Eurodollar University
Title: Here comes the dreaded credit crunch.
Here are the key highlights:
The demand for commercial real estate has been decreasing since the middle of last year, as evidenced by the Senior Loan Officer Opinion Survey. Large banks and small banks have tightened lending standards since October, with ~39% of large banks and ~32% of small banks reporting such changes. In the same survey, almost ~50 percent of respondents report that demand for commercial real estate is falling.
Consumer credit and consumer lending standards are also seeing a dramatic fall-off, with ~28% of respondents reporting tightening standards and a willingness of banks to make consumer loans at a -12.5% rate compared to -6.8% in the fourth quarter of last year, +5.2% in the third quarter, and +18.6% last year's second quarter - all on par with April 2008 and Janet Yellen's observations at the time.
This trend is concerning as it points to a potential recessionary period looming ahead, with loan officers' willingness to make consumer loans at levels not seen since January 1991 or fourth quarter 2001 during the dot-com recession.
Developers and commercial real estate professionals have sensed a change in underlying economic fundamentals leading to a decrease in demand for both single-family houses and multi-family apartments.
The significant tightening of lending standards is already underway across both commercial real estate and consumer space. Businesses and consumers can take steps to protect themselves by managing debt and expenses, diversifying investments, and exploring alternative sources of funding. As well, despite the decrease in demand for commercial real estate, there may be opportunities for those who are able to take advantage of lower prices and interest rates to invest in the market.
Newsletter: Commodity Report
Title: China reaches Trump's agricultural trade target // US Farm income set to fall for first time since 2019 // Dont underestimate Chinas hunger for renewable energy.
Here are the key highlights:
Farmers in the United States plan to increase corn production in 2023 due to cost-efficient fertilizer and the need for a successful harvest after last year's drought. Early predictions and conversations with farmers indicate that despite concerns about soybeans, they still have confidence in corn, which is the largest crop in the US.
The USDA reported that American farm incomes are expected to decline this year for the first time since 2019 due to increased production costs, a reduction in direct government payments, and decreased cash prices for crops and livestock. Despite this, US agricultural exports have risen sharply since 2020, with China importing 88% more corn in 2022.
The increased production of corn could lead to a decrease in prices, benefiting consumers, while still providing farmers with a stable income from their increased production levels.
China's commitment to renewable energy could lead to an increase in demand for US agricultural goods, benefiting both farmers and consumers. China has plans to add 45-50 GW of coal-fired power generation capacity and 200 GW of renewable energy capacity this year.
Overall, the US agricultural industry appears to be headed down a positive path despite some short-term challenges, benefiting both farmers and consumers.
Newsletter: Analyst's Digest
Title: IMF comes to town.
Here are the key highlights:
The International Monetary Fund (IMF) recently concluded a meeting with Nigerian authorities in accordance with Article IV of the IMF Articles of Agreement. During the meeting, the IMF executive board made some recommendations for handling economic situations in Nigeria.
Nigeria has done a good job handling COVID-19, but inflation has been driven by global food and fertilizer prices and climate change on Nigerian agricultural output. To address these issues, the IMF recommended securitizing CBNs loans, harmonizing foreign exchange rates, removing fuel subsidy, and increasing tax rates to the ECOWAS average.
There is still one major problem that needs to be addressed: poverty.
Tax revenue in Nigeria has been historically low, clocking in at an average of 6% of GDP due to archaic systems and lack of incentives for compliance. Additionally, since most economic activity is informal, it is difficult to tax people who are not registered or tracked by the government.
The Central Bank has attempted to push a cashless policy to track activities better; however, this has proven difficult as simple Fintech solutions are too expensive for many Nigerians. Poverty must be addressed if Nigeria is going to have any hope of achieving economic stability.
The government needs to take steps to incentivize compliance with taxation while also making sure that Fintech solutions are accessible for all citizens regardless of income level. Additionally, they must focus on creating jobs and providing access to basic services such as health care and education so that people can lift themselves out of poverty. By doing so, not only will they be able to raise revenues but also create an environment where everyone can live a dignified life.
If poverty continues unchecked, it will be impossible for the IMF's recommended measures to succeed in creating long-term stability. It is therefore imperative that the government tackle this issue head-on if they want their efforts towards economic development to bear fruit in the future.
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