Fox Business -- China in a Real-Estate-Fueled Bubble? Roubini Global Economics Senior Analyst Rachel Ziemba weighs in on China's economy. (Click for Video 5:20)

At a time when policy makers worldwide are contemplating the proper exit policies after aggressive monetary easing and fiscal expansion in 2009, Kuwait is embarking on its own path, stepping up expansionary fiscal and monetary policy. In 2009, Kuwait’s policy response, especially on the fiscal side was very modest and even a drag on growth. Kuwait’s rather subdued policy intervention, exacerbated by political uncertainties. failed to offset its economic contraction in 2009. Led by the oil sector whose output shrank along with production cuts, RGE forecast that growth contracted by about 1.5-2%, but some financial institutions put as large as 5.5%.  As we noted in most recent RGE outlook, Kuwait seems destined to underperform most of the GCC and the Middle East more broadly, growing well below trend, even as oil output gradually increases and government investment provides a boost.  

Today’s report that China’s holdings of Treasurys slipped to US$889 billion in January 2010 surely added grist to the fire surrounding the heightened tensions in the pivotal bilateral relationship.  These tensions are coming to a head in U.S. and Chinese legislative sessions and imply that coming weeks and months may be filled with more posturing as we wend our way to a series of bilateral and multilateral meetings.  Policy makers from both countries are starting to draw lines in the sand and it remains to be seen how far they will go to defend these lines. This posturing, if it is posturing, could be counterproductive in the long-term. Both sides are sorting out how strong their hands are...More on this to come from us later this week.

The Abu Dhabi Investment Authority (ADIA), among the largest sovereign funds, released its first annual report today. The report, which confirms information already mediated through the press, comes with a brand new website and some interesting information on the investment strategy and the different sub investment groups. The primary message seems to be to stress the fund’s role as a global citizen - after all the title is “prudent global growth”– to demystify the fund and to reduce strategic concerns foreign investors might have about its investments.  It does seems to be yet another example of the Santiago principles at work. At the beginning of the report, ADIA declares that its internal review deems that it has complied with these voluntary principles. However, the disclosures only go so far.

During his recent visit to Sub-Saharan Africa, IMF chief Dominique Strauss-Kahn penned a piece Africa is Back which exudes optimism of an economically brighter sound future for the region, which has been emerging from recession.  Kahn stopped by South Africa, Kenya and Zambia where he met members from the business, political and academic communities to evaluate the effects of the global financial crisis on the continent. Kahn stressed that sound economic policies adopted by African nations, including countercyclical monetary and fiscal policies have helped them buffer the effects of the crisis and it is these policies that will ensure stronger growth in the future. Stable domestic governance will underscore the African growth trajectory.  He argued that unlike other crises this time Africa’s recovery is not lagging global recovery but is occurring almost at the same pace.

The province of Alberta, released its revised guidelines for energy sector royalties.  The review, which will be followed by implementation guidelines in a few months seems to respond to some of the recent concerns that the province’s new royalty regime, first announced in 2007, remained too stringent and were discouraging investment in the sector, particularly the conventional oil and gas. Natural gas production in Canada has been particularly hard hit of late as ample supply in the U.S. from the development of shale gas, record inventory levels and lower consumer and industrial demand have weighed on North American natural gas prices, reducing the incentives to invest.

Check out all of the RGE Analysis and EconoMonitor contributions that were published this past week at roubini.com.

RGE Analysis: [Available only to RGE clients]

The Eurozone’s ‘Bay of PIIGS’ by Arnab Das, Elisa Parisi-Capone, Natalia Gurushina, Katharina Jungen and Jennifer Kapila Greece is the frontline of the battle to restore eurozone (EZ) fiscal solvency and discipline, improve and better align structural policies, reduce EZ divergences and sustain the euro. The battle encompasses Portugal, Ireland, Italy, Greece and Spain—grouped together as the “PIIGS” because they are at risk from the housing bust, the financial crisis or the ensuing deleveraging. RGE ranks 16 EZ members by domestic and external vulnerability, following the methodology in Gros/Mayer (2010). Their external index shows that Greece, Portugal, Ireland, Italy and Spain are the most vulnerable to external shocks, in that order. Applied to the domestic market, our analysis shows that Spain, Ireland, Portugal and Italy are most vulnerable on the home front (like unemployment and productivity).

EXECUTIVE SUMMARY

Each day in recent weeks has brought new evidence of troubles in the once stalwart “trans-Atlantic relationship,” the outdated misnomer for ties between Washington and its major Western European partners: Britain, France, Germany and more recently, the European Union. Disputes and slights – some real, some imagined – have led to speculation about a drift in a relationship that dominated (and indeed founded) most of the global institutions of the second half of the 20th century. While few see any evidence of an actual rivalry between the two sides, it’s possible that the combined damage to the relationship caused by the 2003 Iraq War and then the global financial crisis in 2008 has altered the way the major players view each other. In particular, hopes that maturing EU institutions could simplify this relationship so far remain unfulfilled. Ties between various individual European states and Washington vary greatly, with Poland and the Baltic states on the warm end and an increasingly disgruntled Turkey and bellicose Russia on the other.

CNBC -- Arun Motianey, director of fixed-income strategy for Roubini Global Economics and author of the recently released SuperCycles: The New Economic Force Transforming Global Markets and Investment Strategy (McGraw-Hill), says the supercycles feature periods of commodity booms followed by busts, and the U.S. economy is on the verge of an inflationary period that will generate a sharp rise in prices. (Click for Video [8:06] and report).

Last week, Nouriel Roubini released an analysis exclusively for RGE clients. While maintaining his core projection of protracted U-shaped growth in the United States, Roubini argued that the risks of a double-dip recession in the United States are rising. The following content is excerpted from that analysis, the full version of which is still available just for clients on Roubini.com.

V, U and W

A slew of poor economic data over the past two weeks suggests that the U.S. economy is headed for a U-shaped recovery—at best—in 2010. The macro news, including data on consumer confidence, home sales, construction and employment, actually suggests a significant downside risk even to the anemic levels of growth which RGE forecast for H1. The U.S. faces continued challenges in H2—particularly as historic levels of fiscal stimulus fade—and appears far too close to the tipping point of a double-dip recession.