NOVEMBER 30, 2014
Syrzia Wins Greek Elections: HOW WIDELY WILL THE POLITICAL SWING BE FELT?
DUBAI COLLEGE
The Amazin’ Tale of Amazon
Deflation in the Eurozone:
In the UAE
REASON TO PANIC?
DC ECONOMICS SYRIZA WINS GREEK ELECTIONS In the last few days, political shockwaves have been sent across the EU, as the far left party, Syriza have formed a coalition with the independent Greeks, following the general election in the faltering economy. The main attraction that pulled such large numbers of the Greek electorate toward Syriza, was its anti-austerity stance and views to renegotiating the 427 billion euro’s worth of debt Greece owes following the 110 billion euro bailout from the European Union. This anti-austerity movement is what is concerning the policy makers in Brussels. So will a compromise be possible on either end, from Brussels or from the Syriza led government? Despite the radically differing views between the two parties, the coming months of inevitable negotiation may be more fruitful than rash assumptions might suggest. This is partly due to a mutual desire to keep Greece in the EU, as there is a fear that despite Greece making up only 2% of the euro zone economy, if Greece was the leave the European union, then this anti austerity feeling may spread through to other stuttering economies such as Ireland or Spain. Also, political reasons may force Syriza to compromise the Greek people who have suffered so much and continue to do so today with unemployment at around 25%; these people will not want to see months and possibly years of negotiations with no tangible settlement at the end of it, so Syriza may be forced to compromise slightly from its ideals of debt cancelation and a complete u-turn from the current austerity package, things Germany is not likely to be too eager to accept; Syriza would do this to try and appease the millions of Greeks who put Alexis Tsipras in office. Whatever the results of the negotiations to come, it is likely to be a turbulent few years for the EU, both politically and economically. Raahim Zafarullah
THE AMAZIN’ TALE OF AMAZON Back in the glory days of 2007, there was only one accepted online shopping website: eBay. I wouldn’t ever use it due to the ridiculous amounts of time it would take to deliver anything, and also because of the enormous shipping costs (at the age of 9, diapers were best purchased at a
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nearby Union Co-op). Fast forward 8 years and we have Amazon.com, the largest online shopping website in the World! But, like any firm of its size, one must question the ethics regarding such an influential player in the online shopping market being left uncontrolled. Just as Standard Oil had to have its power reduced way back in the 1900s, so too must Amazon.com, or so say its critics. But why is there a disliking of this seemingly good firm? Amazon.com started off as a company that sold books in the late 90s. Today, it’s the largest online book seller in the World. Some nifty deals with companies like DC Comics have led to the prices of their literature being far lower than any other distributor, and all of these books are available from the convenience of a tablet! From this perspective, Amazon seem like an amazing company; a benevolent, large firm with low, low prices! That is, until you look at how they treat their producers. In May last year, Hachette, a publisher for Amazon, didn’t want to cut the prices of their books, when selling them to Amazon. In an act of Financial Warfare, Amazon messed with the sales of Hachette’s products; for example, they delayed the distribution of their goods, and put up ostentatious adverts for other, cheaper publishers; a textbook example of how Monopsonies act irresponsibly. This type of blatant mudslinging pits publishers in a somewhat Hadean field of business, indeed, 3 firms have discontinued any links with Amazon since 2008, thinking that trying to advance as a business is a Sisyphean tasks under a giant like Amazon. This is one of the major qualms regarding Amazon; is it ethical to have such a large firm control producers so? So, Amazon; hero to consumers, worst nightmare to producers; a real economical marmite as it were. Opinions toward Amazon may differ, but one thing’s for sure: Amazon are only going to get bigger, whether this is for the better or for the worse is up to you, the reader, to decide. Aditya Prakash
DEFLATION IN THE EUROZONE People are suddenly panicking over the recent announcement that the Eurozone is officially in deflation; however this abrupt panic is perhaps the wrong reaction. Paul Krugman argues that the key to truly understanding Europe’s situation is to ignore “headline” numbers and concentrate on what really matters: core inflation - which excludes items that face volatile moments and eliminates any products that can have temporary price shocks as these shocks can diverge from the overall trend of inflation and thus distort the data. According to James Bullard from the Federal Reserve Bank of Saint Louis, Mo., headline inflation includes food and energy prices when calculating the cost of living for the average consumer. Core inflation does not incorporate these two factors, because they are considered quite volatile. Members of the Federal Reserve and most economists prefer to rely on core inflation numbers to give a truer picture of future inflation trends without complications. Some economists argue that headline inflation is the unit of measurement to go use, debating that it is foolish to
DUBAI COLLEGE
Recent News Headlines That Have Caught Our Eye… ‣ The EU has begun its program of quantitative easing in response to low growth and the threat of falling consumer prices. This is an ambitious program far exceeding the market expectations in both scale and duration. The supporters of QE hope that it will raise asset prices, increase liquidity and drive down the cost of credit. ‣ The International Monetary Fund (IMF) lowered its forecast for global growth by 0.3 percentage points for both 2015 and 2016, saying that low oil prices will not be enough to boost the world economy. ‣ President Obama announced proposals to increase capital taxation from 20% to 28% in order to fund a number of tax credits for the middle classes and free community college.
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DUBAI COLLEGE
remove food and energy components because they are huge factors in everyone’s budget. Advocates for the use of the core inflation metric argue that food and energy prices can fluctuate suddenly and drastically in reaction to unexpected events, such as natural disasters, war and other disruptions to the national supply and because of this, core inflation is believed to provide a cleaner and more stable insight into the underlying behavior of inflation. The graph beside shows how core inflation has stayed relatively stable whereas headline inflation varies with more volatility. In addition, core inflation is far below the ECB’s target, which is arguably too low anyway. Regardless, falling prices do not necessarily stifle consumer demand and ECB members agree that weaker oil prices should increase spending power. Although it is wrong not to panic, the Eurozone’s situation is not bad; the level of panic is unnecessary and hyperbolic. Shehryar Haris
IN THE UAE Dubai enters the top five ranked fastest growing economies as a result of growing trade and tourism. The Brookings Global MetroMonitor survey ranks the economic performance of the world’s largest 300 metropolitan economies over the period, based on growth in GDP per capita and employment rates. In other news, Dubai rents and prime property prices are set to fall 10% on average this year (after a 56% rise in the past 2 years) as a result of lack of affordability in the market and the fall in oil prices. The strong US Dollar, which is pegged to the Dirham, is deterring European and Russian buyers from investing in Dubai. House prices have risen 56% in the last 2 years so a fall in prices will be a good thing as it will make living more affordable. The International Monetary Fund has lowered its growth projection for the UAE in 2015, citing lower oil prices as the reason. The IMF anticipated that Abu Dhabi, which is highly dependant on oil revenues, is set to see an overall economic growth of three per cent while its non-oil economy is slated to grow 5.5 per cent in 2015. Meanwhile, Dubai’s economy is projected to grow by 4.5 per cent this year and 4.6 per cent in 2016, the fund said. The UAE’s lower growth forecast echoes a region-wide trend, with growth estimations down for all GCC countries due to the fall in oil prices. Economies that are dependent on oil exports, including Qatar, Iraq, Libya and Saudi Arabia, will be hit hardest by the more than 50 per cent decline in petroleum prices, the IMF said. The fund also noted that oil exporting countries in the Middle East are expected to experience a loss of $300 billion due to the plunge in oil prices. Ashna Gupta
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