My recent travels took me to old Europe — and reminded me that the rest of the world is, in many ways, still unprepared for changes set to hit the world economy — a world economy where the US trade deficit is shrinking, not growing, and the US is relying on world demand to support its growth — not the other way around. There is doubt about the timing of such a change, but the direction is pretty darn clear.

This poses real challenges for Germany, in particular. Exports are an amazingly high share of its GDP, and exports to the US are something like 3-4% of German GDP. That is not China, which exports 14% of its GDP to the US, but it is high for Europe. Moreover, domestic demand growth has been particularly anemic inside Germany.

I am not one who believes that “structural reform” is the answer for all problems: some structural reforms make sense, some don’t. And I am a bit reluctant to call on suggest that other countries should emulate all US economic policy practices, which often seems to be the gist of most calls for structural reform. I can think of few worse ideas than trying to copy the US health care system: the US spends more than other industrial countries (as % of GDP), and gets less (life expectancy is lower). I am not one who axiomatically wants Europe to embrace US big box retailing, let alone all US labor market practies — our real wage growth has not been all that impressive recently. I grew up in a “Wal-martized” Kansas, and lived for a time in Europe; shopping in Europe is a lot more fun than shopping in the local walmart.

But leave my personal preferences aside — I am not convinced that the standard set of structural reforms to European labor markets — reducing union bargaining leverage, making firing (and hiring) easier, scaling back the welfare state — will increase European demand, at least in the short-run. Cutting real wages in Europe might make Europe’s existing export industries more competitive, but it won’t necessary lead European consumers to consume more. I am not sure any gain in investment would offset the potential drag on consumption created by a radical change in Europe. Some reforms may well be worthwhile to address European social problems — reducing payroll taxes on new workers to spur hiring, for example, may be a good way to reduce youth unemployment. But the also may not spur european demand — and what the world needs above all is for Europe to pick up for the US as a source of global demand.

So from a global rebalancing point of view, I suspect it is better to focus on structural reforms that would obviously tend to increase consumption — expanded retail hours, for example. That would not require replacing small shops with big boxes; it only requires giving small shops the freedom to stay open longer. Making home equity loans and credit cards easier to get falls in that category as well: Europe could become a more American style consumer society without radically changing its social contract, or shifting the balance between labor and capital.

All these reforms would also tend to make demand more sensitive to interest rates — which would be a good thing if Europe ever decided to loosen monetary policy. After all, cutting interest rates would make the euro less attractive, and tend to reduce its value.

I was frankly surprised by the resistance to the use of monetary policy inside contintental europe. The argument that monetary policy does not have any real impact anyway — the classic Teutonic bundesbank argument — is hard to square with the impact of loose money on the US economy recently. Do Europeans think loose money had nothing to do with the rapid recent expansion of US consumer demand? That rising housing prices have not encouraged more consumption? Real interest rates should not be negative. Ever been to the US? Inflation (CPI) this year looks to be more than 3% — a lot more than the short-term interest rate!

Read more »

The 1985 Plaza accord sought to drive the dollar down; the 1987 Louvre sought to keep the dollar from falling further. There is growing talk of a new Plaza in the US — though not in the circles that count. Either a new Plaza or a new Louvre imply multilateral economic coordination, something this Administration does not like.

It would not take much to get the dollar to fall — foreign (Asian) central banks would just have to stop propping it up. The coordination in a new Plaza would come in two ways: less central bank intervention implies less cheap financing and a sharp rise in US interest rates unless the US takes offsetting steps, like a serious plan to reduce its fiscal deficit; a shrinking US trade deficit also implies the US won’t be supporting global demand, so others will need to pick up the slack.

To be honest, I think their might well need to be a third, more controversial, type of coordination as well. Without continued central bank financing during the adjustment process, the US could be forced to adjust too quickly. There might be need to reach agreement on which central banks will bear the burden of propping the dollar up during its orderly fall — though it is a bit hard to talk of sharing the burden of supporting a falling dollar when the dollar is currently being supported so strongly that it has not moved at at all against some key currencies! Right now there is a surplus of central bank support for the dollar in parts of Asia, not a deficit …

Still, it is important to remember that the US will not be able to go from $400-500 billion in central bank financing a year to a more normal number of $100 billion over night. The US needs to go on a diet, but putting the US on a starvation diet would not be good for the US, or the world.

All talk of coordination is a bit theoretical when the Bush Administration has no interest in coordination, and its main policy initiative — partial social security privatization — implies a large increase in the budget deficit. But even if the US were to change its tune, it is not clear to me that the other main players in the world economy are ready to act.

Europe seems more interested in a new Louvre, not a new Plaza. The Europeans think the dollar has fallen more than enough, at least against their currencies. They would not mind a bit of dollar appreciation/ euro depreciation — even though there is not yet evidence that the dollar’s fall v. the euro has even started to bring about the needed adjustment in the US-eurozone bilateral trade balance, let alone the United States’ global trade balance (in part because the dollar’s fall v. the Euro has not led to rising interest rates — thank you Asia — and thus has not slowed US consumption/ investment growth). Many Europeans remain allergic to monetary stimulus, for reasons that elude me — more on this at another time. An ECB obsessed about missing its (too rigid) 2% inflation target (2% is both a target and a ceiling — apparently, inflation should be close to but not over 2% … ) hardly seems interested in cutting rates to stimulate European demand.

While Europe wants a Louvre, emerging Asia remains reluctant to agree to a Plaza. If Andy Xie’s view is at all typical (and I suspect it is), emerging Asia, and above all China, remains extremely reluctant to change its exchange rate parity. The renminbi-dollar peg has ushered in a golden age for Chinese industry. Even with a weak renminbi, China can now afford to buy IBM’s PC business. So why change? Rather, emerging Asia wants to find ways to cut into its reserve accumulation without changing the basic exchange rate peg. Xie suggests ending favorable tax treatment for Chinese exporters — makes sense to me, but that alone is not enough. China also rather clearly thinks the US should be doing a bit more to curb its appetite for borrowing — though, one presumes, not its appetite for Chinese goods (alas, it is hard to reduce one without reducing the other).

Read more »

Now that we have three of the four data points for 2004, it is worth trying to make a (well) informed guess about the end of the year current account deficit — and to peer into 2005. This post of chock full of numbers and is quite dense: My goal is to lay the basis for my subsequent, less quantitative, commentary.

2004. Quarterly current account deficits this year have been $147 billion, $164 billion, and $165 billion. Add another $165 for q4, and you get an annual deficit of $641 billion. That is probably too low. The October trade deficit was around $55.5 billion, and simple extrapolation based on current growth rates of imports and exports (adjusted for falling oil prices) suggests monthly trade deficits of $53 billion in November and $54.5 billion in December, for a quarterly deficit of $163 billion (v. $155 billion in q3).

Let’s adjust that down by $2 billion to $161 billion (Last December’s imports were quite high, making it harder to sustain current y/y growth rates). That adds $6 billion to the q4 current account deficit. Then assume that the outflow on transfers — which was unusually low in q3 because of unusually high transfers inflows: it seems US insurance companies had bought policies from European reinsurers that protected against hurricane losses — revert back to their q1 and q2 average of around $19.5 billion. That would lead to a $5 billion increase in the current account deficit, and results in a q4 current account deficit of $176 billion. The final tally: an annual 2004 deficit of around $650 billion (5.6% of GDP), with a trade balance of -606, an income balance is + 27, and a transfers balance of -73 billion.

For the record, that is a bit better than I estimated earlier in the year, largely because the “income” surplus now seems larger than initial q2 data suggested.

2005. Forecast out a $175 billion quarterly deficit for a full year and you get an annual current account deficit of $700 billion in 2005, or 5.9% of GDP. That translates into a trade deficit of $640 billion, an income balance of +20, and a transfers balance of -80 billion. One small point: keeping the quarterly trade deficit constant at q4 2004 levels is consistent with y/y import growth of 5% and y/y export growth of 4% — that kind of year over year growth is just what is needed to keep monthly exports at their end 2004 levels through the entire year (remember, December 2004 exports and imports are higher than January 2004 exports and imports). A $640 billion trade deficit also is consistent with say 8% import and export growth.

However, just forecasting out a continuation of the q4 2004 current account deficit is a bit optimistic. The income balance is likely to be zero or maybe slightly negative rather than positive. Rising short-term interest rates are already leading to rising US interest payments on its external debt stock and higher levels of debt and rising US interest rates are likely to soon overwhlem small increases in the returns on US assets abroad. The transfers deficit also is likely to grow a bit, maybe by $5 billion to $85 billion.

So even if the trade deficit stays at roughly the same level as in the fourth quarter of 2004, the US looks on track to run a current account deficit of at least $725 billion (6.1% of GDP).

Read more »

I missed the actual release, but it is worth noting that the “guts” of the October trade data are rather discouraging. Forget the headline number: we knew it would be bad because of oil. Look at what happened to non-oil imports and export growth. Export growth is still strong (y/y), at 12.8% or so. But export growth also seems to be slowing: the y/y increase was 14% in August, 13% in September, and 11% in October … the monthly data bounce around a bit, but the basic trend seems pretty clear.

Conversely, non-oil import growth if anything seems to be accelerating — year to date it is now almost 15% (14.7%), up from its YTD increase earlier in the year. That implies each new monthly data point is showing a stronger y/y increase … Imports from China are up 28% y/y; even imports from old Europe (eurozone) are up 12% y/y (not bad, given the fall in the dollar/ rise in euro in 2003). (Growth in US imports from the UK and Japan have lagged the overall market, as one, suspects has growth in US non-oil imports from Mexico).

All this is bad news — there is no evidence yet that the underlying expansion of the US trade deficit is close to turning around, even though the dollar fell substantially in 2003. To slow the expansion of the trade deficit, non-oil import growth simply has to slow. In 2004, it looks like US imports increased by $250 billion, providing an enormous impetus to the global economy — there is no way US exports can grow that fast, given our small (roughly $1 trillion) export base. Steve Roach, as usual, nicely laid out the harsh realities on Monday.

If oil stays at 40 or close to it, import growth of 6% and export growth of 9% would be consistent with a CONSTANT trade deficit. Right now, a slowing world economy looks likely to slow export growth to around 9% — with the lagged impact of dollar depreciation keeping export growth from slowing further. But unless something changes, import growth does not seem to be trending towards 6%. Rather the opposite …

One last point: Can we retire the argument that China’s rapid export growth is just due to the shift of production from other Asian economies to China? That argument appeared most recently on the oped page of Friday’s Wall Street Journal. The argument is based on the fact that between 2000 and 2003, overall US imports from the Asian Pacific region did not increase much. Rising imports from China were offset by falling imports from the Asian NICs. During this period of time, overall import growth was relatively flat too: overall goods imports only rose by $40 billion between 2000 and 2003. (Edited for clarity — Brad)

However, the facts have changed: US imports from China and the Asian NICs are now both growing strongly. In 2004, overall imports from the Asia Pacific region are set to rise by 17%, or by about $70 billion. That is faster than the overall rate of increase in all imports — 16% — and all the more impressive because the US is not importing oil from Asia(oil imports are likely to increase 30%). Imports from China are set to rise by over $40 billion, and to reach $190 billion — an amazing 28% y/y increase. But imports from the NICs and Japan are also rising — imports from the NICs are set to increase by $13 billion, or 14%. China’s export growth clearly stems from more than just the shift of production lines from Asian NICs to China. We don’t have all the data for 2004 yet, but we have ten months of data — the basic trend won’t change. Is it too much to expect people to use the latest data points in their analysis?

Read more »

My nominations.

The renminbi-dollar at 8.28 renminbi per dollar — a price that puts China’s per capita income at around, only a bit above Iraq’s per capita income.

The ten year US government treasury bond, which now yields roughly 4.25% ten year Treasury. US inflation this year was around 3%, a bit higher than most expected. The dollar fell against a range of currencies — and there are (legitimate) expectations that it will fall further. Are domestic investors being compensated for the risk of future inflation? Are foreign investors compensated for the risk of further depreciation? At least for foreign investors, the answer is clearly no.

The renminbi is too low; the ten Treasury is too high (therefore its yield is too low). The two are related, of course — the weak renminbi spawns reserve accumulation in China and all Asian economies that peg to the renminbi-dollar, and even countries that don’t peg often intervene to avoid seeing their currency appreciate against the renminbi-dollar. Those reserves and invested in US bonds, Treasuries as well as Agencies.

Unfortunately, both distorted prices are leading to potentially dangerous decisions.

First the ten year Treasury.

The low price of the ten year seems to have convinced US policy makers that government borrowing doesn’t matter. They no longer say deficits don’t matter — but they act as if they don’t. There is no way partial privatization of social security can go ahead without a surge in government borrowing, on-budget or off. We will see if the President is serious about cutting non-defense discretionary spending enough to cut the deficit in half — the required cuts are large, since there is not that much non-defense, non-homeland security discretionary spending — or if he is serious about making the Republican congress take the blame for over-spending (relatively to an unrealistic baseline).

All in all, low interest rates on long-term borrowing are leading our “debt” society to go ever deeper into debt, and to keep on spending more than we produce. In 2004, growing US imports added $280 billion in demand to the world economy — not a small sum. Our propensity to borrow — and our creditors willingness to indulge us at low rates — makes us the engine of global consumption.

Read more »

There are two groups of investors that are massively overweight US assets: the world’s central banks, who still hold most of their reserves in dollars, and US domestic savers. US residents keep the overwhelming majority of their assets at home.

The most recent TIC data report showed a fall in net financing for the US in October — the $48 billion in financing from the net sale of securities was less than the $55.5 billion trade deficit. There are, of course, other ways of financing a trade deficit — FDI, and bank lending notably. Still, the fall in net purchases of securities was rightly considered a bad sign by the markets (until they bounced back on the current account data).

Nouriel and I have focused on the risk that foreign central banks may become increasingly unwilling to provide the new financing the US needs to run a large current account deficit — remember, they have to keep on increasing their exposure to the US, not just hold on to their existing dollar assets, in order for the US to keep on consuming and importing at its current pace. But the current equilibrium could also come to an end if even a small number of US investors lost confidence in the dollar, and decided to shift a tiny share of their accumulated US assets abroad. That is what happened, on a very small scale, in October: the fall in net financing in the TIC report stemmed more from a rise in US purchases of foreign assets rather than a reduction in foreign purchases of US assets.

In October, foreigner investors bough $63 billion of US assets — more than enough to finance a $55.5 billion trade deficit. But rather than using the entire inflow to finance the trade deficit, the US in effect used the inflow of funds from abroad to finance the purchase of $15 billion in foreign assets– Euro denominated bonds, Asian stocks, you name it. That left only $48 billion to finance the trade deficit.

The “equilibrium” that provides the $55 billion plus in monthly financing the US needs could come unglued either if foreigners stop buying $60 billion plus of US dollar debt — something that would happen if the world’s central banks stopped buying dollars. But it also could come unglued if US residents decided they wanted to keep on buying $15 billion in foreign assets, or even increased the pace of their foreign purchases.

That could only be sustained if the US trade deficit fell, or foreigners — read foreign central banks — stepped up their financing to let Americans diversify their portfolio and hold more foreign stocks and bonds. Does the world really want to finance $50 billion plus (at least $600 billion a year) US trade deficits and $15 billion a month ($180-200 billion a year) in US capital flight? We will see …

One last point: the TIC data suggests that private investors abroad bought $49 billion in US assets, including $23 billion in “Agency” bonds, while foreign central banks bought $14 billion in US assets (and sold, in aggregate, almost a billion in Agency bonds). Put differently, netting out US purchases of foreign assets, the “private sector” provided the US with $34 billion in net financing, and central banks provided $14 billion in net financing.

Read more »

My harping on the fact that US economic policy now has to pass a global test is not simply meant to score rhetorical points. I suspect that the same folks who financed the expansion of the US current account deficit will end up having to finance a substantial chunk of the ongoing deficits that are associated with a gradual adjustment path.

As one market wag put it:

“Bush’s strong-dollar policy is, in practical terms, to maintain a pool of fools to buy it all the way down,” a fund manager was quoted by Bloomberg news agency as saying.”

The most likely “fools” are the same set of fools who are financing the United States now: the world’s central banks.

A 5% of GDP current account deficit is an improvement over what we have now, but it is still a big number, and implies lots of external borrowing. The US cannot suddenly go from say $450 billion plus in reserve financing (the actual number in 2003 was $440 billion, this year’s number could well be larger) to a more normal number of $100 billion without experiencing a lot of pain. Our friends in the private markets are not likely to extend new financing to the US as central banks withdraw their financing. They would rather wait until after the dollar has finished falling, and then snap up US assets on the cheap.

It is pretty clear that the central banks who financed the expansion of the US current account deficit recognize that it would neither be good for the US or for the world to put the US on a starvation diet overnight. But our official creditors also have every reason to want to be sure that they are providing interim financing to a country that is taking steps to correct its problems, not providing financing to a country that seems intent on making its short-term problems worse.

Put differently, our major creditors would rather provide $400 billion in financing next year to a country that is putting in place the policies needed to reduce its external deficit from $650 billion plus to $600, or $550 billion, and it taking steps to get its fiscal deficit under sustained control too (the deficit may fall to $350 billion on the back of strong growth and low interest rates next, year, but then it is on track to expand). The two, of course, are related. If the US fiscal deficit is falling on the back of very fast consumer led demand growth, the conditions that drive the fiscal deficit down also will drive the US external deficit up. There is less government dissavings (a smaller fiscal deficit), but also less personal savings.

What our creditors don’t particularly want to do is to provide $400 billion or more of reserve financing to a country whose current account deficit is set to expand, or a country that shows no signs of getting its fiscal deficit under control.

Read more »

I am going to be away from my desk next week, and don’t expect to be posting much — at least not until next Friday.

I’ll miss three key data releases:

The October trade data on Tuesday.

The October Treasury data on foreign purchases of long-term securities on Wednesday.

And the third quarter capital and current account data on Thursday.

I suspect that these releases will get a lot more than usual scrutiny in the financial markets, and in the market place of ideals. General Glut usually dissects the monthly trade data, for example.

Here is my quick advance take on what to look for the trade and balance of payments data releases — I have no clue what to expect in the Treasury capital inflows data.The trade data. I have a suspicion that the October monthly trade deficit will be a bit larger than the $51.6 billion September deficit. Why — Oil. We already know that oil import prices ticked up in October (they fell in November). And the September oil import volumes were quite low. Exhibit 17 (p. 25) of last month’s trade release tells you what you need to know — a fall in import volumes from 430 thousand barrels to around 390 thousand barrels knocked $1 billion off the September trade deficit.

Combine higher oil prices in October than in September with oil import volumes in line with the general trend for this year, and the October deficit should exceed the September deficit — a higher oil import bill alone might add $2 billion or so to the October deficit, with imports of say $17 billion in October v. $15 billion in September. Indeed, if oil import volumes return to the 425 thousand barrels range of August, a $18 billion oil imports bill is not out of the question. That would be a $3 billion increase.

Of course, any tick up in monthly trade deficit from oil could be offset by some unexpected changes in non-oil import and export growth. Or another unusually low oil import volume number might keep the deficit from going up. It is certainly no slam dunk, but the odds are that the trade deficit expanded in October on the back of higher oil prices.

I also would look carefully for any evidence that non-oil import growth is slowing from its current torrid pace. As long as non-oil imports are growing above 10% y/y, it almost impossible for exports to grow fast enough to reduce the trade deficit. The export numbers will show provide a new data point to help assess whether the lagged impact of dollar depreciation in 2003 (notably the large depreciation v. the Euro) will keep US export growth strong even as the global economy slows a bit, or whether a slowing global economy will trump the lagged impact of dollar depreciation.

The current account data is interesting not because of the data on the current account — the trade deficit drives the current account, and we already know the q3 trade deficit – but for the capital account data showing how the US is financing its current account deficit. Look in particular for any evidence that the US is once again starting to attract positive inflows of foreign direct investment, or whether outward US FDI continues to exceed inward US FDI. It would not be a complete surprise if inflows from foreign central banks played a smaller role financing the deficit in the third quarter than in the first half of the year: remember that the Japanese did not intervene at all, and the reported increase in official holdings of Treasuries was relatively subdued — $34 billion in q3 v. $54 billion in q2 and $95 billion in q1. The September TIC data showed $42.5 billion in central bank purchases of long-term securities in the third quarter — a number that would put amount of new financing from foreign central banks below the pace of q2 ($74 billion), let alone q1 ($128 billion). (data comes from this BEA publication)

Read more »

That’s the tag on p. C4 of the Wall Street Journal.

The smart money — and regular readers of this blog — know that this is real question is not whether central banks are, in aggregate, dumping dollars, but whether central banks are willing to keep on buying dollars and then to invest those dollars in dollar denominated securities.

Even with the change in the dollar/ euro, I suspect the US will have a substantial, $650 billion plus current account deficit next year — assuming US growth remains strong, the US fiscal deficit does not fall below $350 billion and oil is in the high 30s or low 40s.

Financing that deficit at current exchange rates (vis a vis Asia) and current interest rates required $440 billion of net central bank purchases of dollar assets in 2003, a comparable amount in 2004 (we don’t have the final data, but some indicators suggest that if anything the pace of central bank financing has if anything picked up slightly), and no doubt a similar amount of new central bank financing in 2005 and 2006 — unless something radical changes.

In that context, some smaller central banks can shift out of dollars into euros at the margins so long as the really big players are continuing to accumulate dollar assets. Dow Jones reporting (relayed to me by reader Marcel) suggest that the People’s Bank of China accumulated $20 billion of reserves in the month of October. That has yet to be confirmed on the PBoC’s web page, but let’s assume its true. If those reserves are mostly going into dollars, that is a lot of new money that at least one central bank is investing in various parts of the US bond market …

Put differently, $20 billion from China would single handedly finance a third of a $60 billion monthly current account deficit (a $720 billion annual deficit), or 40% of a $50 billion monthly current account deficit ($600 billion annual current account deficit). Alternatively, the $20 billion in new financing from China could be letting other central banks reduce their dollar holdings by $5 billion a month and still provide the US with $15 billion a month —

Yields on Latin American bonds have not been this low for a long time. It is hard to believe that Brazil’s 20 year dollar bond trades at a yield of only 8%, and most long-term Brazilian bonds are in the 8-9% range. Brazil’s economy is growing strongly this year, but its gross debt is still quite large.

The broad rally in Latin bonds means the cash flow that Argentina put on the table in the summer is now judged to be worth a lot more by the market than it was some time ago. That is good for Argentina, and increases the chances Argentina will put its default behind it, and complete the biggest restructuring of emerging market bonds ever. The gap between Argentina’s offer and the market price has closed — even though the actual amounts Argentina is offering to pay have not changed much since the summer. JP Morgan reports that the implied discount rate (yield) on Argentina’s new bonds is around 10.25%, 150 basis points (1.5%) above the yield on a comparable Brazilian bond. Back in the summer, the expected discount rate was closer to 12%.

A warning: this post is not only long but not about the dollar or the US. At least in theory, I know more about sovereign debt restructuring than I do about currency markets … so I want to work in a bit more emerging market commentary into the blog, but no doubt this post will not be of interest to many.

My advice to Argentina is simple. Do the deal now, and if you cannot do it now, do it as soon as you can, even if it costs a bit more — not because it is good for bond investors, but because it is good for Argentina. Back in 2001, before its default, Argentina promised investors a yield of over 15% or so to convince them to defer payments. That was a stupid deal — Argentina had too much debt, and could not afford to pay such a high rate to defer payments. Now, after its default, investors seem willing to discount Argentina’s future cash flows at a rate of close to 10%. In a debt exchange, a country effectively sells new debt to retire its old debt, and right now is a good time for any emerging economy, even one if default, to be selling debt.

More unsolicited advice for Argentina: don’t be penny wise and pound foolish. You have cash on hand right now, cash that could be used to provide that little extra something that could generate a high level of participation in the exchange. There is a sense in the market that the rally in emerging market bonds (and thus the value of Argentina’s existing offer) has reduced the prospects that Argentina will sweeten its offer. Maybe. But I think Argentina’s interest — properly defined, though perhaps not as defined by Argentina’s president — is still to put a bit more on the table at the last minute. An offer that clearly is a bit above the bonds have traded for the past year or so (@ 30 cents on the dollar) might generate much higher than expected participation, and save Argentina legal expenses down the road (Sorry, Cleary).

President Kirchner can still take credit for negotiating hard, for getting substantial relief for Argentina and for timing the market almost perfectly. Argentina won big by waiting until now to do a deal. Kirchner should be able to make that case domestically — he should not take much political heat if he improves the deal at the margins.

Argentina’s sound fiscal policies deserve some of the credit for Argentina’s potential low exit yields. “Populist” Kirchner does not sweet talk the international bond market, but he has delivered fiscal results that — after an exchange — should allow Argentina to make real payments on its new bonds. Argentina refused a primary surplus of more than 3% in negotiations with the IMF, and then went out and ran a primary surplus that looks to be more than 5% of GDP.

Read more »