Friday, June 8, 2018

Global Macroeconomic Snapshot June 2018

Free Trade under Attack
The decision of the American government to impose trade tariffs on goods from Canada, Mexico, and the European Union has caused an uproar and ignited plans of retaliation right away. The world has entered a trade world. Even more so like real wars, a trade war knows only losers. Economic nationalism has put the world into the Great Depression in the 1930s, when the United States imposed the infamous Smoot-Hawley Tariff on thousands of goods. The leaders of the world had learnt about this catastrophe and after World War II, the United States had acted as the leader in order to promote free trade around the globe.
The costs of protectionism are paid by the consumer. Protectionism means that goods become more expensive and that the quality falls. The apparent advantage of protecting the home industry vanishes because protectionism by one nation invites retaliation from the other nations. In the end, all are worse off.
When the United States complains about its trade deficit, it must notice the paradox that the U.S. economy has the highest degrees of international competitiveness. In many sectors, the United States operates at the forefront of technological progress. American companies are known world-wide and enjoy the highest valuations. Thus, what lies behind the new protectionism.
American industry has been at the top of industrial development and surpassed all other countries since the turn of the century. After World War I and World War II, the United States has taken gigantic leaps forward in establishing its leadership. This position has held until today. It is, therefore, somewhat a conundrum when the United States resorts to protectionism which is usually reserved to countries that are economically weak and suffer from a low degree of international competitiveness.
In order to understand what is going on, one must look at the world monetary order. With the inception of the Bretton Woods System, the U.S. dollar has become the international reserve currency. The demand for U.S. dollars outstrips by far the need to have dollars to buy American products. While there is quasi an unlimited demand for dollars because the American currency serves as a global means of payment, this constellation also means that the United States is the only country, which has almost no constraint on its trade deficit and consequently no barriers against accumulating excessive foreign debt.
Imbalances in foreign trade lead to structural changes in a country’s economy. In the case of the United States this means that the persistent current account deficits that have been in place since the early 1980s have led to crowding-out of a part of the U.S. manufacturing sector. This trend has also brought about a deterioration of the income distribution in the United States.

Global trade and the international monetary order
The American dilemma
While the high-tech sector has been flourishing, and consumer demand is booming, the U.S. manufacturing sector has been suffering and with that has also come a profound rise of income inequality. With the well-paid manufacturing jobs vanishing, the demand for top-qualified persons rose in the high-tech sector while at the same time employment has grown in the low-end service sector.
Few people recognize that the election victory of Donald Trump is the result of the effects of international trade on income distribution. The incumbent American President came to power with the promise of making America great again by way of revitalizing the lost manufacturing sector. Since being in power, Donald Trump keeps up to his promise.
In this perspective, the irritating actions of the President - such as getting out of the Paris Accord and cancelling the environmental restrictions on coal mining - make sense. It is the same with the recent imposition of tariffs on steel.
The dollar’s curse
Why does the United Sates have trade deficits when its economy is one of the most, maybe even the most competitive in the world? The answer is that the U.S. dollar is overvalued against almost any other currency. This overvaluation of the American currency is the immediate result of the use of the dollar as a global means of payments and consequently as an international reserve currency.
The monetary equivalent of the resource curse that afflicts some commodity exporters is the dollar curse that afflicts the United States. Both lead to an overvalued currency. In the case of the United States this leads to the situation that on the one hand, the United States suffers from persistently high trade deficits, while, on the other hand, it need not worry about its international payments capability because the country’s foreign debt is denominated in the home currency, i.e. in US-dollars.

Need of a new monetary order
Most economists agree that protectionism is not the solution to the dilemma. On the contrary, protectionism makes matters worse. What needs to be done is abandon the role of the U.S. dollar as the international reserve currency. For this to happen, one must establish a new kind of monetary order.
Different from the expectation, the new European currency could not play a role equivalent to the U.S. dollar. The share of the euro in the composition of international reserves has remained relatively low. Even less so does the Chinese yuan qualify as a substitute for the U.S. dollar. Constructing a new international monetary order remains the big challenge of our time.

Emerging economies
Stuck in the middle-income trap
The so-called middle-income trap has come back to haunt the emerging economies. A country finds itself in the middle-income when it falls into prolonged stagnation after its high-growth phase of the take-off and reaches the middle-income bracket, which currently is the range from more than 1,006 $ and under 3,955 $ of a per-capita income for the lower middle-income countries, and a range for more than 3,956 $ and under 12,235 $ for the upper middle-income countries. World bank studies found that only 13 countries out of 101 middle-income economies in 1960 became high income by 2008.
Brazil represents a case where entering the middle-income trap has resulted in a series of inadequate policies that have worsened the situation. The next big test case is how China will fare in the face of slower growth in the future.
Remaining stuck in the middle-income trap means that the country has not succeeded in changing its growth strategy from a cumulative and imitative model to a model of a competitive, entrepreneurial and innovative economy. Simple imitation of the advanced economies generates high returns only when the distance between the emerging economy and the advanced countries is large. When the distance to the leading economies narrows, imitation becomes less viable. As the certainty of imitation vanishes, the new trajectory requires trial and error, which implies much more sophisticated skills than the mere imitation of a mature technology under state control would necessitate.
When the take-off had come along with an expansion of state activity, the presumption often prevails that more state control instead of less would be the answer to respond to the slowdown. Yet the consequence of this policy is not economic growth but clientelism, corruption, and the misallocation of resources.
An unfavorable business climate discourages private business to wage riskier investment project that yield high returns. Because of the unfavorable business climate, mainly in standard production will be invested and consequently, productivity remains low.
It is so hard to get out of the middle-income trap because one must bring about a fundamental transformation in its economy. The country must change from a cumulative and imitative economy to an innovative economy. Instead of a top-down transformation, the economy needs to blossom from below. Such a transformation requires the liberalization of the regulatory and bureaucratic obstacles that gag entrepreneurial activity. Reducing the tax burden and eliminating the bureaucratic nightmare are essential. The state sector must abandon its ad hoc interventionism, which creates uncertainties, in favor of a policy that is limited to offer legal and institutional security, and that facilitates entrepreneurship.
Expansionary fiscal and monetary policies to get out of the middle-income trap only worsen the situation. These policies lead to imbalances between savings, investments, spending, and the exchange rate. Even worse gets the case when the government accrues budget deficits, which generate a reduction of the national rate of savings. With less savings available for private investment, such policies hamper the productivity gains and thus to obtain economic progress.
To achieve higher levels of productivity, governments must abandon state capitalism, which was chosen as the method for take-off. To get out of the middle-income trap, the emerging country must open its economy to the entrepreneurial capitalism of creative destruction.

Sunday, April 22, 2018

The Capital studies Group (CSG)

Sunday, April 15, 2018

Global Macroeconomic Snapshot April 2018

World Order under Assault
The post-world war II world order is under attack. Not by foreign enemies but from within. At the forefront of the destruction of this order are those countries which were most instrumental in establishing this order, with the United States and the United Kingdom in the first ranks.
With its vote for leaving the European Union, the United Kingdom has abandoned its support for one of the main institutions that came into existence after World War I besides NATO, the IMF and the GATT (now renamed to WTO in 1995).
A national economy exists within the framework of the nation’s politics, and a nation operates within the framework of its international relation and its strategic global position. When the international framework is changing, the national macroeconomic situation remains not untouched.
As of now, the first major negative impact of the shifts in the global framework is a heightened insecurity. The rising uncertainty impacts negatively on the propensity to invest. Even with the currently extremely low interest rate, investment has remained weak. As a consequence, the way out of the crisis of 2008 has been slow and weak.
The risk has emerged that the global economy will be tanking before a full recovery from the last recession has taken place.

Institutional change
The mutation of institutions is a common feature of human history. The problem is that sometimes, the old institutional framework crumbles before a new system has come into place. Along with that emerges the other problem that while the established leading power is waning, the new one has not yet attained its capacity of leadership.
This seems to be currently the case when the President of the United States is openly announcing the retreat of his country from major global institutions, while very few countries outside of China are inclined to accept a Chinese global leadership.
There was a time when the hopes were high that the European Union (EU) could work in tandem with the United States to provide an almost perfect mixture between hard and soft power and together with a primordial economic and financial global dominance. With the retreat of the United Kingdom from the EU, this option is off the table.
The United Nations Organization (UNO) with the International Monetary Fund (IMF) and the World Bank along with the World Trade Organization (WTO) could not live up the expectations at the time of their foundations. Now, even current financing of their maintenance confronts obstacles and when the United States challenges the authority of the WTO other countries will follow suit.

Economic growth
Except for the United Kingdom, where the rate of economic growth fell from 2.3 per cent to 1.7 per cent, economic growth accelerated in the major economies from the fourth quarter of 2016 to the fourth quarter of 2017. In the United States, the economic growth rate went up from 1.9 per cent to 2.3 per cent. In the European Union, the economic growth rate rose from 2.1 per cent to 2.5 per cent, while in Japan, the rate increased from 1.1 per cent to 1.6 per cent.  
Price inflation
With the exception of Japan and the United Kingdom, the annual overall inflation rate tended to decline from January 2017 to January 2018. In the United State, the price inflation rate fell from 2.4 per cent to 1.8 per cent. The Euro Area experienced a sharp decline from an annual rate of 1.6 per cent to 0.9 per cent. In Japan, the rate rose noticeably from 0.4 per cent to 1.5 per cent. In the United Kingdom, the price inflation rate rose over the year from 1.6 in January 2016 to 2.3 per cent in January 2018.
Long-term interest rates
Interest rates in the industrial countries have remained low. In February 2018, the interest rate in the United States stood at 1.75 per cent, in the Euro Area, the rate was 0.92, and in Japan, the long-term annual interest rate was 1.5 per cent. In the United Kingdom, the long-term interest rate rose from 1.3 per cent in February 2017 to 1.6 per cent in February 2018.
Exchange rates
From February 2017 to February 2018, the exchange rate of the euro (dollars per euro) rose from 1.06 to 1.23 to the U.S.-dollar. In Japan, the yen strengthened from a rate of 113.1 to 108 yen per U.S.-dollar. The British pound rose from 1.35 dollars per pound to 1.40 dollars per pound.
Current Account
The United States continues having current account deficits, which only slightly fell from 2.4 per cent gross domestic product to a rate of 2.1 per cent. The Euro Area, along with Japan have persistently high surpluses with 4.3 per cent in the third quarter of 2017 of the Euro Area and of 4.5 per cent in the case of Japan.

Emerging Markets
PIIGS is a pejorative acronym that stands for a group of countries formed by Portugal, Ireland, Greece and Spain that was coined during the European debt crises to distinct the weaker European economies, particularly at the Southern flank of the European Union, from the stronger economies in the North. While these countries received extensive media coverage during the debt crisis in the years after 2010, it has almost gone unnoticed how a recovery of these counties has taken place.
As of January 2018, the annual economic growth rate of Portugal was 2.4 per cent down from its peak of 3 per cent in July 2017. Since January 2015 the unemployment rate has come down from 13.7 per cent to 8.1 per cent in January 2018. Nevertheless, at a level of over 120 per cent since 2012, the government debt situation remains precarious.
The Republic of Ireland has made the most impressive recovery from its debt crisis. After negative rates between five and ten per cent around 2010, Ireland has experienced a sharp recovery that lifted its annual economic growth rate up to around five per cent from 2011 to 2016. Since peak growth in January 2017 with an annual rate of eleven per cent, the rate of economic growth has come down to 1.5 per cent in January 2018. Since 2010, the country’s unemployment rate has fallen from over eight per cent to a current rate of 2.4 % while government debt fell from a rate of close to one hundred per cent during the debt crisis to a rate of 42.3 per cent to gross domestic product in 2017.
Different from Portugal and Ireland, the recovery of Greece has been weak and slow. After a negative rate of four per cent in 2012, Greece has recovered from negative economic growth but not yet achieved more than a zero-growth rate over the years from 2013 to 2018. Consequently, unemployment has remained high and fallen only from over 25 per cent in the period 2013 to 2016 to a current rate of slightly over twenty per cent. The debt situation of Greece is still very precarious with of public debt to gross domestic product of close to 180 per cent since 2011.
Spain has recovered fairly well from the debt crisis. From a negative growth rate of gross domestic product of four per cent in 2013, Spain’s economic growth rate has steadily risen to a rate of close to four per cent since 2013. As of December 2017, Spain’s annual growth rate stood at 3.1 per cent. Unemployment, however, is still high at over 16 per cent in January 2018, albeit it has come down considerably from a peak of 25 per cent in the years of the debt crisis. Despite the economic recovery, the debt coefficient of Spain has continued to rise from 39.5 per cent in 2008 to 99.4 per cent in 2016.

Friday, April 6, 2018

Sunday, March 4, 2018

Global Macroeconomic Snapshot March 2018

The horror of protectionism
The U.S starts a trade war
On March 1, the President of United States, Donald Trump, fired the starting gun to a wave of protectionism. As soon as he announced to slap an import tariff of 10 % on imported aluminum and of 25 % on imported steel, America’s major trading partner, including the European Union, declared that they would not accept such a policy and were ready to retaliate. Trump, in return, threatened to widen his protectionist policy and expand his tariff policy on the import of cars.
Trump’s intervention comes at a time, when higher interest rate, inflation, and a widening budget deficit are in the making. Protectionism would the fourth horseman to complete the group of the apocalyptic riders. 
The U.S-administration blames ‘unfair’ trade practices as the reason for its policy. President Trump tweeted the day after his announcement to impose tariffs that “(o)ur Steel and Aluminum industries (and many others) have been decimated by decades of unfair trade and bad policy with countries from around the world. We must not let our country, companies and workers be taken advantage of any longer. We want free, fair and SMART TRADE!”
Protectionism would mean the end of a policy that has been in place among the industrialized countries and for a large part of the developing countries since the end of World War II. The spread of protectionism would not only be a shift of policies but a major change. 

Backgrounder on Trade
U.S. deficits
Curing trade deficits through mercantilist policies is recurring error of policies. It is true that the United States suffers from persistent trade deficit which in turn lead to the country’s high foreign debt. The United States has had a trade deficit since the early 1980s. In terms of the broader category of the current account, the balance of the United States has been negative since 1982. In 2006 the current account deficit in percent of America’s gross domestic product reached six percent and stands currently at 2.6 percent.
Current account deficits require corresponding capital imports. This way, the overall foreign debt of the United States to around eight trillion US-dollars in 2017.

Why tariffs don’t work
Economic theory shows that trade deficits reflect domestic imbalances of country between savings and investment. Insufficient domestic savings imply excessive consumption. In order to fill the gap and provide the funds for investment, the country must import capital from abroad.
Different from other countries, the United States has not yet faced a currency problem. In terms of its purchasing power the U.S.-dollar is overvalued against almost all other currencies of the world. A sufficient devaluation of the exchange rate has not taken place in the case of the United States because the U.S.-dollar still serves as the major international reserve currency. This allows the United States to borrow in their own currency. 

Economic Growth
Led by Vietnam with an annual growth rate of its gross domestic product of 7.46 percent in the third quarter of 2017, other high growth emerging market countries comprise Egypt (5.3 %) in the Middle East; Rwanda (4.9 %) and Nigeria (4.3 %) in Africa; and Ireland (4.2 %) and Moldavia (3.6 %) in Europe. Bolivia had a growth rate of 6.6 percent in the third quarter of 2017, yet this came after a contraction of 7.8 percent in the period before.

Price inflation
Venezuela leads the table with an annual inflation rate of 741 percent as of February 2017, followed by South Sudan with an annual rate of 117.7 percent as of December 2017. The Congo suffers from an inflation of almost sixty percent and Syria of over forty percent.
In the industrialized countries, inflation rates are very low. As of January and February 2018, both Japan and Germany register an annual inflation rate of 1.4 percent. The average of the European Union is 1.2 percent, and in the United States, the annual inflation rate in January 2018 was 2.1 percent.

In terms of unemployment, there are dramatic differences among the countries. Congo has an official unemployment rate of close to fifty percent, Namibia has a rate of thirty-four percent, while Gambia has close thirty percent. Low-unemployment comprise Qatar (0.2 %), Thailand (1.2 %), Vietnam (2.2 %) and Uganda (2.3 %).

Current Account
The situation concerning the current account balances is very uneven. Some countries have double digit current account surpluses, such as Singapore (19 %), Taiwan (13.4 %), Thailand (11.5 %), and Switzerland (11 %), while other countries suffer from extreme deficits of their current account balance in percent of gross domestic product such as Mozambique (-37.9 %), Libya (-37.8 %), the Republic of Congo (-24.2 %), and Niger (- 19.4 %).

Interest rates
The phenomenon of nominal negative interest rate persists in several countries, such as in Switzerland (-0.75 %), Denmark (-0.65 %), Sweden (-0.50 %), and Japan (-0.10 %).


China’s economic growth seems to have no end in sight. The Chinese economy expanded 6.8 percent annually in the last quarter of 2017, the same as in the previous three months. It is hard to believe, but the official inflation rate is 1.5 percent as the average over the past year until early 2018. With an unemployment rate of under four percent, China, so it seems, has a perfect macroeconomy. Since early 2017, China’s currency has experienced a slight appreciation from seven yuan per dollar in January 2017 to 6.2 yuan per dollar in March 2018.

China’s export performance is still strong. China’s rose 11.1 percent over the year up to January 2018. After an extreme surplus of 9.3 percent in 2008, China’s current account balance has stabilized around a surplus of two percent since 2011.

South Korea

The South Korean economy experienced negative growth of 0.2 percent on quarter in the quarter to December of 2017 compared to a 1.5 percent expansion in the previous period. It was South Korea’s first contraction of its gross domestic product in nine years. GDP Growth Rate in South Korea averaged 1.80 percent from 1960 until 2017, reaching an all-time high of 7.8 percent in the fourth quarter of 1970.

Argentina is on its way of recovery. The annual growth rate has reached 4.2 percent in the third quarter of 2017 after 2.7 per cent in the quarter before. However, the currency continues to weaken and has reached 20 pesos per dollar in March 2018. The inflation rate is still very high at 25 % and has not yet shown signs of falling more since it had come down from over forty percent in 2016. 

Brazil’ economy continues recovering. The annual growth rate of the gross domestic product in the fourth quarter of 2017 amounted to 2.1 percent, after a still negative growth rate at the end of 2016. The inflation rate is falling again. After having come down from around five percent in early 2017, the rate fell to less than two and a half percent in the middle of the year. As of January 2018, the country’s inflation rate now stands at 2.86 percent. Unemployment is still high. After falling from close to 14 percent in early 2017 to 11.8 percent by the end of the year, Brazil’s unemployment rate is up to 12.2 percent again in January 2018. 

In Venezuela, hyperinflation continuous, and poverty is on the rise. Even official data can no longer hide the disaster. The official inflation rate is 741 percent and the gross domestic product has shrunk by 18.7 percent in 2016. 

Sunday, January 21, 2018

Financial Market Snapshot January 2018

Top Macro Themes
United States in focus
U.S. government shutdown
At the first anniversary of the inauguration of Donald Trump as President of the United States, the U.S. government must confront a partial shutdown because Congress failed to lift the ceiling of public debt. Only so-called ‘essential services’ will be maintained, while about twenty percent of regular government spending is without funding. The dispute between the Democrats and the President’s Republican Party concerns immigration policy and the status of the children of illegal immigrants. For both parties, this is a high-stakes issue along with building a wall between the United States and Mexico.
Stock market boom
While the news coverage highlights the issue of immigration and a non-ending series of real and made-up scandals of the Trump government, it gets largely unnoticed how well the American economy is doing. Most impressive is the rise of the U.S. stock market since the election and since Trump’s inauguration. Since the election of Donald Trump, the stock market value of the American economy has grown by almost seven trillion U.S.-dollars to slightly over thirty trillion U.S.-dollars. On the one hand, this rise lifts the retirements accounts of many Americans, on the other hand, the wealth discrepancy augments because the superrich typically have their wealth in stocks.
European Union in doubt
While the political relations between Europe and the United States have deteriorated, the impulses from the American economy have also accelerated growth in Europe and here, too, stock markets have risen. In some places like Germany, stocks have reached new highs. As of now, no concrete protectionist measures have been taken. While Brexit negotiations move ahead very slowly, the United Kingdom and the rest of the countries of the European Union do not yet face concrete trade barriers. Expectations, however, that the separation cannot be stopped, lead to strategic re-orientation among businesses as it seems certain that the United Kingdom will no longer enjoy trade privileges when it leaves the European Union.
Global uncertainties
The positive mood can change anytime because of unforeseen events in the international arena. All institutions that characterize the post-World War II era are under fire, beginning with NATO and UNO to the role of the World Bank and the International Monetary Fund. China flexes it muscles and challenges the role of the United States, while the U.S. under Trump moves to a more isolationist position. This way, contradictions emerge because the U.S. government continues an active military involvement in many parts of the world and is in confrontations with Russia, Iran, and North Korea besides its numerous regional military engagements.

Global Scenario
Economic growth
Economic growth is strong in all major industrialized countries. From the third quarter of 2016 to the third quarter of 2017, the annual growth rate of the gross domestic product increased from 1.9 to 2.2 percent in the United States; from 2.0 to 2.3 in the Euro Area; and from 1.0 to 1.7 in Japan, while the gross rate in the United Kingdom continued to grow at a rate of 2.1 in this period as before. This economic expansion comes along with fixed capital investments. The rate of growth of gross fixed capital formation in the United States rose from 1.6 percent to 2.2 percent; from 2.0 to 3.0 percent in Japan; and from 1.6 to 3.3 percent in the United Kingdom.
Low and falling unemployment accompanies the strong economic growth in the industrialized countries. In the United States, the unemployment rate fell from 4.9 to 4.3 percent; in Japan from 3.0 to 2.8 percent; and in the United Kingdom from 4.8 percent to 4.2 percent. Except for Germany’s unemployment rate of 3.6 percent, the overall rate of unemployment in the Euro Area remains high although here, too, it has come down. 
Current Account
Not much changes have been taking place recently as to the external sector of the economies of the industrialized countries. The United States continues having current account deficits, although at a lower level of 2.1 percent of GDP by the third quarter of 2017. Japan increased its surplus from 3.6 percent to 4.3 percent in the third quarter of 2017 compared to the year before, while the current account surplus in the Euro Area rose from 3.6 percent to 4.3 percent. Exchange rates have been largely steady with the exception of the euro, whose exchange rate of against the U.S. dollar has been on the rise since the end of 2016.
Prices and Money
Apart from the United Kingdom, where the price inflation rate rose from 1.1 percent in November 2016 to 2.65 percent per year after, the price levels in the other industrialized countries have been relatively stable with a rise from 2.14 to 2.35 percent in the United States; from 0.02 to 0.03 percent in Japan, and a fall from 1.23 to 0.95 percent in the Euro Area. Except for the United Kingdom, where the growth rate of narrow money shrank drastically from 9.5 percent to 4.8 percent, the M1 growth rate declined moderately in the United States from 8.2 percent to 6.6 percent, and in Japan from 8.4 percent to 5.7 percent. In the Euro Area there was a slight expansion from 6.7 percent to 6.9 percent from November 2016 to November 2017.

Emerging Markets
Nobody seems to care as Venezuela runs to the bottom. Devastated by hyperinflation, the country has defaulted on some of its foreign debt. As foreign exchange reserves have fallen below ten billion US-dollar, the country faces the risk of no longer being able to import vital goods. The country’s balance of trade is negative, foreign funding has dried up, and reserves have dwindled. Since 2010, the Venezuelan currency has devalued from two bolivars to ten bolivars. Yet even at this rate, the Venezuelan bolivar is still overvalued.
Argentina has a new government, and the economy is slowly recovering. While the official inflation rate is still 25 percent annually, economic growth has picked up from the negative rates in 2016 and has reached an annual rate of 4.2 percent in the second half of 2017. Unemployment is still high but has come down from 9.3 percent in 2016 to 8.3 percent in July 2017. The Argentinean currency continues to weaken and has fallen from around 15 pesos in 2016 to close to 19 pesos per dollar.
Brazil is slowly recovering from its deep crisis. From a negative annual growth rate of 5.6 percent at the beginning of 2016, economic growth became positive in early 2017 but has recently fallen back again.  A series of severe political uncertainties weigh heavily on the economy. While real investment has remained weak, the stock market has risen drastically from a temporary low of 60 000 BOVESPA points in 2017 to 81 000 points in early 2018. From a high of close to 14 percent in March 2017, the unemployment rate has fallen to 12 percent by the end of the past year.
China’s economic growth goes on. Only slightly lower than in the past, the annual growth rate stands currently at 6.8 percent. From around seven yuan to the dollar in January 2017, the Chinese currency has slightly appreciated to 6.4 yuan to the dollar in January 2018. Chinese export performance remains strong. In December 2017, China’s trade surplus widened sharply to 55 billion US-dollars. China’s current account has stabilized around a surplus of about two percent of its gross domestic product. 
Russia suffers from severe sanctions imposed by the Western countries. Nevertheless, economic growth has somewhat recovered from a prolonged recession and reached positive territory in 2017. Since the beginning of last year, the unemployment rate has come down from 5.6 to 5.1 percent, while the inflation rate fell from five percent in January 2017 to 2.5 percent at the end of the year.