Tag: Economy

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European Central Bank says: Signs that the global economy is fragmenting into competing blocs

European Central Bank

Fear or Fact?

European Central Bank President Christine Lagarde on Friday 17th November 2023 reportedly said that Europe is now at a critical juncture, with deglobalization, demographics and decarbonization looming on the horizon.

Fragmentation

‘There are increasing signs that the global economy is fragmenting into competing blocs’, she said at the European Banking Congress, according to a transcript.

Focusing on Europe, she said that a continuous decline in the population of working age looks set to start as early as 2025, alongside climate disasters that are increasing every year.

Her answer to these shocks was that massive investment would be needed in a short space of time, requiring what she called a ‘generational effort‘.

Barriers

‘As new trade barriers appear, we will need to reassess supply chains and invest in new ones that are safer, more efficient and closer to home‘, Lagarde reportedly said.

‘As our societies age, we will need to deploy new technologies so that we can produce greater output with fewer workers. Digitalization will help. And as our climate warms, we will need to advance the green transition without any further delays‘.

Paving the way for AI?

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UK economy flatlines

UK flatlined

The U.K. economy flatlined in the third quarter, initial figures showed Friday 10th November 2023.

Gross domestic product (GDP) showed zero quarterly growth in the three months to the end of September 2023, following an increase of 0.2% in the previous quarter. In annual terms, the UK’s Q3 GDP was 0.6% higher than in the same period in 2022.

Services sector output dropped 0.1% on the quarter, but the decline was offset by a 0.1% increase in construction performance, while the production sector flatlined.

U.K. Chancellor of the Exchequer Jeremy Hunt said high inflation remains the ‘single greatest barrier to economic growth’ in the country, with the consumer price index remaining at 6.7% year-on-year in September 2023.

UK economy flatlines as inflation sticks at 6.7% year-on-year as at September 2023.

‘The best way to sustainably grow our economy right now is to stick to our plan and knock inflation on its head’, Hunt reportedly said.

It’s useful to know the government have a plan, even though they were very late to the inflation party! Guess they were sidetracked with all the other parties at No.10!

‘The Autumn Statement will focus on how we get the economy growing healthily again by unlocking investment, getting people back into work and reforming our public services so we can deliver the growth our country needs’.

Up until September 2023, the Bank of England (BoE) raised interest rates 14 consecutive times to try to influence the UK ‘product and service’ price climb.

Red flags

Interest rates are now at a 15-year high of 5.25%, and are expected to remain high for some time to come. Bank Governor Andrew Bailey reportedly said last week it was ‘much too early’ to be considering rate cuts.

Thank you Governor Baily – it so comforting and reassuring to know that the very people who missed the red inflation flags are still in charge of policy.

Transitory?

Remember, the BoE and others originally suggested inflation would be transitory – I suppose it is, if given years to move back down. What did you think was going to happen after all that borrowing and the country crawling back to work after the pandemic.

Nice job guys! Don’t forget to collect your paycheque on the way out!

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Moody’s cuts U.S. outlook to negative

U.S. credit rating stable to negative

Moody’s, a credit rating agency, lowered its ratings outlook on the United States to negative from stable.

This means that Moody’s sees a higher risk of a downgrade in the future, which could affect the borrowing costs and confidence of the U.S. government.

Moody’s actions

The main reasons for Moody’s action are the rising deficits and debt levels of the U.S., as well as the continued political polarization that hampers effective policymaking. Moody’s also cited the impact of the Covid-19 pandemic and the recent failures of some U.S. banks as factors that have worsened the environment for the U.S. government and the banking system in general.

Warning!

Moody’s warned that the U.S.’s deficits are likely to remain ‘very large’. It also warned that ‘continued political turmoil or polarization’ in Congress further increases the risk the U.S. will not be able to reach consensus on a fiscal plan to slow the decline in debt affordability‘.

Moody’s still maintains a triple ‘A’ (AAA) credit rating on the U.S. government debt, which is the highest possible rating, but warns of the challenges and uncertainties that the U.S. faces in restoring its fiscal strength and stability.

The ‘AAA‘ rating is at risk.

U.S. government on brink of shutdown, again

The federal government is on the brink of another shutdown, with just a week left for the Republican-led House, Democratic-led Senate and Biden White House to reach a breakthrough on funding.

U.S. debt is at an all-time high!

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Economist says escalating Israel-Hamas conflict increases risk of global contagion

Stocks drop

If the Israel-Hamas conflict further intensifies, the risks to the global economy are growing, economist Mohamed el-Erian reportedly said Monday 30th October 2023.

The impact on global markets was initially limited, as investors viewed the conflict as contained. However, the prospect of a regional spillover has added to a sense of unease.

‘The longer this conflict goes on, the more likely it will escalate. The higher the risk of escalation, the higher the risk of contagion to the rest of the world in terms of economics and finance’, el-Erian said.

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UK GDP grew in August 2023

GDP

U.K. Gross Domestic Product (GDP) grew by 0.2% in August, the Office for National Statistics (ONS) reported Thursday 12th October 2023, slightly recovering from a downwardly revised 0.6% contraction in July 2023.

Services output was the main contributor to growth in August 2023, adding 0.4% on the month to offset a fall in production output of 0.7% and a decline in construction output by 0.5%.

This data shows early signs of a cooldown in the labour market and thus, lower inflation further down the economic road.

Bank outlook

The data and outlook for the Bank of England (BoE) suggests that Bank rate increases do not have much upside from here and will most likely remain at current levels, but for a longer period.

The UK economy returning to growth in August 2023 has re-kindled expectations that interest rates will be left unchanged again in Novemeber 2023.

The economy grew marginally by 0.2% in August following a sharp fall in July 2023.

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India’s ‘massive expansion’ could play key role in global economic growth

India expands

Many economists stronly believe that India’s stellar economic trajectory alongside strong forecasts for some Southeast Asian countries will be important drivers for future global growth.

The next decade, could see Asia Pacific become the fastest growing region of the world economy. India, Indonesia, the Philippines and Vietnam will most likely be among the world’s fastest growing emerging markets over the next 10 years.

India’s economy grew 7.8% in the June quarter, marking the fastest pace of growth in a year.

The momentum in the Indian economy looks really strong at the moment, economists suggest. Some forecasts expect that India will surpass Japan to become the third largest economy by 2030, with the country’s GDP projected to rise from $3.5 trillion in 2022 to $7.3 trillion by 2030.

As a region, Asia-Pacific’s growth is expected to strengthen from 3.3% last year to 4.2% this year, according to economic projections.

Over the next decade, we expect that about 55% of the total increase in the world’s GDP will come from the Asia-Pacific region.

Where does this leave the U.S. and China?

Still, the U.S. will remain an important driver of the global economy, accounting for some 15% of the world’s growth over the next decade.

China will also still be pivotal in this growth story, contributing to about one-third of the total increase over the same period, analysts suggest. China’s recovery has been weaker than expected and the expected ‘growth momentum’ has wained.

China has been affected by a slew of economic data broadly missing expectations.

As a whole, analysts expect global growth to come in at 2.5% this year and next. But please bear in mind these are forecast and move regularly.

Ashoka Chakra – the Flag of India

The flag of India is a horizontal tricolour of saffron, white and green, with a navy blue wheel called the Ashoka Chakra in the centre. The flag was adopted on 22nd July 1947, after India gained independence from British rule.

It is based on the Swaraj flag, which was designed by Pingali Venkayya and modified by Mahatma Gandhi. The colours and symbols of the flag have different meanings and interpretations.

Saffron represents courage, sacrifice, Hinduism and Buddhism. White represents peace, truth, purity and other religions in India. Green represents faith, fertility, Islam and Sikhism.

The Ashoka Chakra represents the law of dharma, the cycle of life and death, and the ancient Indian emperor Ashoka who spread Buddhism across Asia.

India’s flag is also known as the Tiranga, which means ‘the tricolour’ in Hindi. The flag has a ratio of 2:3 and can only be made of khadi, a hand-spun cloth.

The flag code of India regulates the usage and display of the flag by the government and the public.

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UK debt, a perfect storm

UK Debt burden

Slow-Growing UK Faces Over £2.6 Trillion Debt Pile

£2,600,000,000,000 in debt

The amount the UK owes exceeds GDP for first time since 1961. Inflation-linked bonds mean the UK is paying more than its peers.

From the financial crisis to Russia’s invasion of Ukraine, the UK has borrowed and spent its way out of every jam. The bill for that is becoming a massive concern for the UK treasury and for the economy.

£2.6 trillion public debt

The UK’s public debt has soared by more than 40% to almost £2.6 trillion ($3.3 trillion) since the pandemic struck, leaving the country owing more than its entire annual economic output for the first time since 1961. A heavy reliance on index-linked bonds, at a time of high inflation, also means Britain will pay more to service the debt.

The high level of debt poses a risk to the UK’s credit rating, which could affect its borrowing costs and fiscal credibility. The three main credit-rating firms are due to update their assessments of the UK over the next four months in 2023, and some analysts are concerned that the UK could face a downgrade, especially after the U.S. lost its AAA status from Fitch. 

ONS data to March 2023

A downgrade could undermine Prime Minister Rishi Sunak’s effort to rebuild Britain’s fiscal reputation after his predecessor, Liz Truss, triggered a bond-market crash in 2022 by promising huge unfunded tax cuts.

Bond sell-off pressure

The pressure on the UK’s finances is also being compounded by a selloff in bonds amid aggressive rate hikes by the Bank of England to quell inflation. The yield on the 10-year benchmark this week rose above 4.70% to its highest since 2008. 

UK debt higher than UK GDP March 2023

The UK bond market is among the developed world’s worst performers this year. The rise in yields could increase the cost of servicing the debt, which is already high due to the UK’s heavy reliance on index-linked bonds that adjust with inflation.

The UK’s economic growth is forecast to remain flat through next year, which limits the scope for reducing the debt through higher revenues or lower spending. The National Health Service is stretched to breaking point and the tax burden is already at a 70-year high. The ONS warned that debt could balloon to more than three times GDP over the next half century without action.

ONS data

According to the latest data from the Office for National Statistics (ONS), the UK’s gross domestic product (GDP) grew by 0.2% in the second quarter of 2023 (April to June), following a revised growth of 0.1% in the first quarter of 2023 (January to March). This means that the UK’s GDP growth rate for the whole year of 2023 is estimated to be 0.3%, which is lower than the previous forecast of 0.5%.

ONS data to March 2023

The main factors that contributed to the weak GDP growth in the second quarter were the slowdown in consumer spending, the decline in business investment, and the negative impact of the additional bank holiday in May due to the King’s Coronation. The services sector, which accounts for about 80% of the UK’s economy, grew by only 0.1% in the second quarter, while the production sector grew by 0.7%, and the construction sector fell by 0.2%.

Uncertain outlook in uncertain times

The outlook for the UK’s economy remains uncertain, as it faces several challenges such as high inflation, rising interest rates, a slowing global economy, and the ongoing effects of Brexit and the effects of the war in Ukraine. 

ONS data for EU countries

Some economists have warned that the UK faces a ‘very real risk’ of recession due to higher interest rates, which could dampen consumer and business confidence and increase the cost of servicing the debt. 

The OECD has projected that the UK’s GDP growth will improve moderately to 1.0% in 2024, but still remain below its pre-pandemic level.

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China cuts key interest rate as recovery falters post Covid

Interest rate

One-year loan rate to 3.45% from 3.55%

China’s central bank has cut one of its key interest rates for the second time in three months as the world’s second-largest economy struggles to bounce back from the pandemic.

The country’s post-Covid recovery has been hit by a property crisis, falling exports and weak consumer spending. In contrast, other major economies have raised rates to tackle high inflation. Raising interest rates to tackle inflation is likely creating a econmic problem all of its own for many contries caught in the inflation trap.

The PBOC last cut its one-year rate, on which most of China’s household and business loans are based, in June 2023 – demonstrating China’s commitment to reviving the economy. Economists had also expected the bank to lower its five-year loan rate, which the country’s mortgages are pegged to. However, this was unchanged at 4.2%. In a surprise move mid-August 2023, short and medium-term rates were also cut.

More stimulus

China will need a much bigger stimulus package to boost confidence to drive up consumption and growth. Without it, the economy is risking faltering into deflation which will make it even harder to recover. More rate cuts could be announced in conjunction with government spending, as well as targeted measures to help the property market.

China struggling to shake off the effect of the 2020 pandemic

Beijing is trying to restore confidence, but officials will also be mindful of the long-term implications of the policies may create. China’s economy has struggled to overcome several major issues in the wake of the pandemic, which saw much of the world shut down.

Property problems

Concerns with China’s property market still remain and were highlighted again when ongoing crisis-hit real estate giant Evergrande filed for bankruptcy protection in the U.S in August. The heavily-indebted company is attempting to arrange a multi-billion dollar deal with creditors.

Also, earlier this month, another of the country’s biggest property developers, Country Garden, warned that it could see a loss of up to $7.6bn (£6bn) for the first six months of the year. At the same time data showed China had slipped into deflation for the first time in more than two years. That was as the official consumer price index, a measure of inflation, fell by 0.3% last in July 2023 from a year earlier.

Exports, imports and youth employment figures

Official figures indicated that China’s imports and exports fell sharply in July 2023 as weaker global demand threatened the country’s recovery prospects.

China exports and imports slow July 2023

Beijing has also stopped releasing youth unemployment figures, which were seen by some as a key indication of the country’s slowdown. In June 2023, China’s jobless rate for 16 to 24-year-olds in urban areas climbed to a record high of more than 20%.

There is a serious ongoing message here of concern and worry for global stock markets, and not just from China – do we need to act now?

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UK economy grows June 2023

UK GDP up April - June 2023

U.K. economy beat expectations with 0.2% growth in the second quarter, boosted by household consumption and manufacturing output, the Office for National Statistics said Friday.

Economists had expected U.K. GDP to level off in the second quarter, after a surprise increase of 0.1% in the first quarter, as the Bank of England’s monetary policy tightening took effect and as persistent inflation began to slow consumer demand.

The economy expanded by 0.5% in June 2023, beating a forecast of 0.2% growth. It follows monthly GDP growth of 0.1% in May and 0.2% in April. However, the strength of the June rise was partially attributed to warm weather, as well as the additional public holiday in May to celebrate the coronation of King Charles III.

Better than expected

GDP was lifted by 1.6% growth in manufacturing and 0.7% in production in the second quarter, while services grew by 0.1%.

The Office for National Statistics (ONS) noted strong growth in household and government consumption in terms of expenditure. Both faced price pressures in the quarter, though this moderated from the previous three-month period.

UK GDP up in June 2023
Growth in June 2023 was stronger than expected at 0.5%

Growth in June 2023 was stronger than expected at 0.5%, showing a recovery when the economy lost one working day due to the national holiday in May. June’s warm weather also benefited the construction industry as well as pubs and restaurants. But the economy was impacted by strike action by NHS workers, doctors, railway unions and teachers. However, the figures for the three months and June in particular were better-than-expected.

What does it mean?

Gross Domestic Product (GDP) is one of the most important tools for looking at the health of the economy, and is watched closely by the government and businesses. If the figure is increasing, that means the economy is growing and people are doing more work and getting a little bit richer, on average.

But if GDP is falling, then the economy is shrinking which can be bad news for businesses. If GDP falls for two quarters in a row, it is typically defined as a recession.

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China’s exports take a dive!

China’s exports plunge

According to latest figures the country’s trade fell more sharply than expected in July 2023, as both global and domestic demand receded amid the pandemic and ongoing tensions with the United States.

China’s exports fell by 14.5% in July 2023 from a year ago, the biggest drop since February 2020, while imports dropped by 12.4%, according to Chinese data. This was much worse than the 5% decline in both exports and imports analysts were expecting.

Poor trade performance

Some of the reasons for the poor trade performance are the rising costs of raw materials, the global shortage of semiconductors, the Covid-19 outbreaks in some regions, and the U.S. sanctions on some Chinese companies. 

China’s trade with the U.S., its largest trading partner, fell in the first seven months of the year. The trade slump has added pressure on China to provide more support for the economy, which has lost momentum after a strong recovery in late 2020 and early 2021.

China’s trade drop July 2023 more than expected

China’s trade situation is also closely watched by other countries, as it reflects the health of the global economy and demand for goods. Some analysts have warned that China’s trade slowdown could signal a broader weakening of consumer spending in developed economies, which could lead to recessions later this year.  China’s trade data also has implications for inflation and monetary policy, as lower import prices could ease inflationary pressures and allow central banks to keep interest rates low.

China’s export to the U.S. and EU down

China’s exports to the U.S. plunged by 23.1% year-on-year in July 2023, while those to the European Union fell by 20.6%, CNBC analysis of customs data showed. Exports to the Association of Southeast Asian Nations fell by 21.4%, according to the data. Chinese imports of crude oil dropped by 20.8% in July from a year ago, while imports of integrated circuits fell by nearly 17%.

China’s imports from Russia fell by around 8% in July 2023 from a year ago, the data showed.

A slowdown in U.S. and other major economies’ growth has dragged down Chinese exports this year. Meanwhile, China’s domestic demand has remained subdued.

Growth areas

Among the few higher-value export categories that saw a significant increase in the first seven months of the year were: cars, refined oil, suitcases and bags. And for imports: paper pulp, coal products and edible vegetable oil were among the categories seeing significant growth in the January to July period from a year ago.

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It rains in the UK!

It rains in the UK!

Why are we so surprised when it rains in the UK?

Latest reports suggest that the number of people heading out to the shops fell for the first time in July in 14 years as the UK struggled with one of the wettest months on record.

Overall footfall was down by 0.3% (that doesn’t seem high to me) – in the first drop in July since 2009, latest reports suggest. High Streets were hit hardest but shopping centres and retail parks got a boost in visitor numbers.

Not all bad

Soft play areas and cinemas have enjoyed a business boost. Also holiday parks are taking last minute bookings as discounts are offered.

Aside from the rain, the rising cost of living and rail disruption were also behind the fall. Shoppers have been battling with one of the wettest Julys on record, according to provisional reports.

Don’t be too surprised when it rains in the UK

High Streets in coastal towns were especially hard hit, with footfall dropping 4.6%, as the rain kept people away from beaches.

July’s figures also appeared to demonstrate the harsh reality of the impact of interest rate rises on consumers, combined with rain and the continuing transport and rail turmoil traveller have to endure in the UK.

Moving on

Digressing from the real report here, which is the slowdown in UK shopping habits due to the rain – we ought to remember that in the South West there is a hose pipe ban. This ban has been in force since summer 2022! And, the UK looses excessive amounts of water through leaks.

Ironic isn’t it. All that rain and we just don’t store enough! How do other ‘hot’ countries manage? Anyway, at least we can go shopping, or not as the case may be!