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Economy

2022’s unlikely economic winners

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In financial terms the past year has been bad for almost everyone. Inflation of 10% year-on-year across the rich world has slashed household incomes. Investors have lost out as global stockmarkets have plunged by 20%. Yet this poor aggregate performance hides wide differences: some countries have done pretty well.

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To assess these differences, The Economist has compiled data on five economic and financial indicators—gdp, inflation, inflation breadth, stockmarket performance and government debt—for 34 mostly rich countries. We have ranked each economy according to how well it has done on these measures, and created an overall score. The table overleaf shows the rankings. It includes some unexpected results.

For the first time in a while, the economic party is happening in the Mediterranean. Top of our list is Greece. Other countries that plumbed the economic depths in the early 2010s, including Portugal and Spain, also score highly. They are not the only pleasant surprises. Despite political chaos, Israel did well. Meanwhile, despite political stability, Germany is an underperformer. Two Baltic countries, Estonia and Latvia, which won plaudits in the 2010s for speedy reforms, come bottom.

gdp, usually the best measure of economic health, is our first indicator. Norway (helped by high oil prices) and Turkey (by a boom in sanctions-busting trade with Russia) have done better than most. The fallout from covid-19 also looms large. Thanks to strict lockdowns and a collapse in tourism, a year ago much of southern Europe was in dire straits, so the region was due a decent year. Visits to the Balearics recently rebounded beyond their pre-pandemic level. As your correspondent discovered on a recent trip to Ibiza, the island is so busy it is difficult to book a taxi or find a spot at a half-decent restaurant.

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Ireland probably had a strong year, though one not nearly as strong as gdp numbers suggest. The activities of big multinational companies, many registered there for tax purposes, have for years distorted the figures. By contrast, America’s gdp numbers are misleadingly weak: in recent quarters official statisticians have struggled to account for the impact of enormous stimulus packages.

More granular data fill in the picture. Our second measure is the change in the price level since the end of 2021. Away from the world’s attention, some countries have seen low inflation. In Switzerland consumer prices have risen by just 3%. The country’s central bank, helped along by a strong currency, responded rapidly to the rise in prices earlier this year. Countries which have non-Russian energy sources—such as Spain, which gets much of its gas from Algeria—have also done better than average. Those reliant on Vladimir Putin for fuel have truly suffered. In Latvia average consumer prices have risen by a fifth.

Our third measure also relates to inflation. It calculates the share of items in each country’s inflation basket where prices have risen by more than 2% in the past year. This provides an indication of how entrenched inflation is—and therefore hints at how quickly inflation will fall over the coming year. Some countries that suffer from high headline inflation have nonetheless been able to limit its breadth. In Italy, for instance, average consumer prices have risen by 11% this year, yet “only” two-thirds of its inflation basket has above-target inflation. Japanese inflation also looks like it may fade away. Britain is in more trouble. The price of every category in its basket is rising fast.

People’s sense of economic well-being does not just come from prices in the shops. They also look at the value of their pension pots and stock portfolios. In some countries it has been a terrible year for these sorts of investments. Share prices in both Germany and South Korea are down by nearly a fifth in 2022, double America’s decline. Swedish stocks have done even worse. Yet there are a few spots of strength. Norway’s stockmarket is up on the year. So is Britain’s, which is populated by the sort of dull, plodding companies that tend to be rewarded when economic times are tough. A fall in the value of the pound has also increased the value of foreign sales.

Our final measure concerns the change in net government debt as a share of gdp. In the short run ministers are able to paper over economic cracks by increasing spending or cutting taxes. However this can create more debt and thus the need to turn the fiscal screws in the future. Some governments have spent extravagantly to cope with the cost-of-living squeeze. Germany has allocated funds worth about 7% of gdp to help with sky-high energy costs, meaning its debt-to-gdp ratio has risen. Other countries have pulled back from the splurge, helping to right the fiscal ship. Assisted by high inflation, public debt in southern European countries seems to be on the way down.

Will the gap between 2022’s winners and losers persist in 2023? Before long southern Europe’s economic growth, weighed down by rapidly ageing populations and high debts, will surely fall back to the region’s usual less-than-stellar levels. And there are hopeful signs that in countries such as America and Britain high inflation may finally be easing, which would help them up the rankings.

Along other dimensions, differences are likely to persist, not least when it comes to those countries reliant on Mr Putin for their energy supplies. Against the odds, many managed to replenish their stores of natural gas before winter set in—but only by paying outrageous prices. With supplies now largely cut off, the coming year will be a lot more difficult. That will be a big concern in the Baltics, but less so on the other side of Europe. It is hard to worry about gas supplies while eating a giant plate of squid on an Ibicencan beach.

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Economy

Beijing At A Loss On What To Do About Its Economic Challenges? – Forbes

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China’s annual “Two Sessions” conference has for decades revealed the party agenda to the faithful. This year’s meeting offered them little, a startling development given China’s huge economic and financial challenges – a property crisis, export shortfalls, demographic decline, a loss of confidence among consumers and private business owners, and growing hostility in foreign capitals. More than ever, China needs Beijing to act, to point the way to future action. The failure to address this need at the Two Sessions suggests that China’s leadership has run out of ideas.

Most telling was the absence of the traditional press conference. Every Two Sessions meeting has included a space for China’s leadership to interact with both domestic and foreign media. The senior men in government were not always forthcoming at these exchanges, but their evasive answers at least pointed out publicly what matters they considered touchy or awkward. When this year’s press conference was cancelled, one can only conclude that the good and the great in the Forbidden City worry about being embarrassed.

The authorities did announce a real growth target for 2024. They set it at “around 5 percent.” In one respect, this information can only be described as bland. It was expected and is very close to last year’s pace. In another respect, however, it confesses failure of a sort. It is, after all, barely over half the real growth rate China averaged up until 2019. And with all the problems, it is not clear that China can even make that rate. Last year the economy had a tailwind from pandemic recovery. None of that is in play in 2024. Meanwhile, the authorities never explained how they intended to achieve the growth.

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Infrastructure spending was mentioned, one trillion yuan ($132.9 billion) worth of it. Infrastructure is China’s default form of economic stimulus. But little was said about how China would finance such spending. Local governments, the usual source of infrastructure financing, face huge debt overhangs, some so severe that they cannot even meet the public service needs of their populations. True, Beijing said it was ready to take the unusual step of issuing central government debt to finance the spending. But even that raises questions. The government already faces record high budget deficits. The emphasis on “ultra-long bonds” may hint at how difficult financial matters have become. Long maturities will delay the need to repay the debt and show that Beijing does not expect an immediate return from its spending.

Little was said about the property crisis with all its adverse economic and financial ramifications. Despite the need for bold action on this front, all Beijing has mustered so far are the “white lists” in which local governments compile a list of failing real estate projects for financing that the state-owned banks would review before advancing the funds. The amounts discussed so far, however, are tiny compared with the need, barely over 5 percent of Evergrande’s initial failure two and half years ago. Some weeks back, talk emerged about a plan for the government to take over some 30 percent of the housing market. Although such an action would have brought China other severe problems, it would have been big enough to disguise the property crisis. Nothing as bold or substantive as that got a hearing at the Two Sessions.

On China’s deflation problem, the authorities did indicate a target of 3 percent inflation for the year but said nothing about how they planned to achieve it. To be sure, deflation is more a symptom than a cause of the country’s challenges, which in part lie with inadequate demand for consumption and capital spending by private business, but neither did China’s leadership say much about these problems either. The only concrete suggestion was a promise by the People’s Bank of China (PBOC) to cut interest rates more than the bank already has. Given the lack of an economic response to past rate cuts, this promise hardly seems an adequate answer. In any case, as soon as the conference ended, the PBOC at its own meeting decided against another interest rate cut.

Talk did center on new growth engines for the economy, what the conference referred to as “new productive sources.” There was little new here. Renewable energy, advanced technology, and electric vehicles led the list. Like so much else offered at the Two Sessions, the talk was all aspirational. No one suggested how China planned to promote these areas beyond what is already being done. Given the sorry state of China’s economy, that is not enough.

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If the Two Sessions is supposed to announce a guide to China’s future, this year’s meeting missed its mission, especially in the face of China’s many economic and financial problems. Perhaps more complete and substantive guidance will emerge at next month’s politburo meeting, but given how the Two Sessions went, that seems unlikely. China’s leadership seems to have run out of ideas.

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U.S. economic growth for last quarter revised up slightly to healthy 3.4% annual rate

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The U.S. economy grew at a solid 3.4 per cent annual pace from October through December, the government said Thursday in an upgrade from its previous estimate. The government had previously estimated that the economy expanded at a 3.2 per cent rate last quarter.

The Commerce Department’s revised measure of the nation’s gross domestic product – the total output of goods and services – confirmed that the economy decelerated from its sizzling 4.9 per cent rate of expansion in the July-September quarter.

But last quarter’s growth was still a solid performance, coming in the face of higher interest rates and powered by growing consumer spending, exports and business investment in buildings and software. It marked the sixth straight quarter in which the economy has grown at an annual rate above 2 per cent.

For all of 2023, the U.S. economy – the world’s biggest – grew 2.5 per cent, up from 1.9 per cent in 2022. In the current January-March quarter, the economy is believed to be growing at a slower but still decent 2.1 per cent annual rate, according to a forecasting model issued by the Federal Reserve Bank of Atlanta.

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Thursday’s GDP report also suggested that inflation pressures were continuing to ease. The Federal Reserve’s favoured measure of prices – called the personal consumption expenditures price index – rose at a 1.8 per cent annual rate in the fourth quarter. That was down from 2.6 per cent in the third quarter, and it was the smallest rise since 2020, when COVID-19 triggered a recession and sent prices falling.

Stripping out volatile food and energy prices, so-called core inflation amounted to 2 per cent from October through December, unchanged from the third quarter.

The economy’s resilience over the past two years has repeatedly defied predictions that the ever-higher borrowing rates the Fed engineered to fight inflation would lead to waves of layoffs and probably a recession. Beginning in March 2022, the Fed jacked up its benchmark rate 11 times, to a 23-year high, making borrowing much more expensive for businesses and households.

Yet the economy has kept growing, and employers have kept hiring – at a robust average of 251,000 added jobs a month last year and 265,000 a month from December through February.

At the same time, inflation has steadily cooled: After peaking at 9.1 per cent in June 2022, it has dropped to 3.2 per cent, though it remains above the Fed’s 2 per cent target. The combination of sturdy growth and easing inflation has raised hopes that the Fed can manage to achieve a “soft landing” by fully conquering inflation without triggering a recession.

Thursday’s report was the Commerce Department’s third and final estimate of fourth-quarter GDP growth. It will release its first estimate of January-March growth on April 25.

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Canadian economy starts the year on a rebound with 0.6 per cent growth in January

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The Canadian economy grew 0.6 per cent in January, the fastest growth rate in a year, while the economy likely expanded 0.4 per cent in February, Statistics Canada said Thursday.

The rate was higher than forecasted by economists, who were expecting GDP growth of 0.4 per cent in the month. December GDP was revised to a 0.1 per cent contraction from zero growth initially reported.

January’s rise, the fastest since the 0.7 per cent growth in January 2023, was helped by a rebound in educational services as public sector strikes ended in Quebec, Statistics Canada said.

WATCH | The Canadian economy grew more than expected in January: 

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Canada’s GDP increased 0.6% in January

41 minutes ago

Duration 2:20

The Canadian economy grew 0.6 per cent in January, the fastest growth rate in a year, while the economy likely expanded 0.4 per cent in February, Statistics Canada says.

“The more surprising news today was the advance estimate for February,” which suggested that underlying momentum in the economy accelerated further that month, wrote CIBC senior economist Andrew Grantham in a note.

Thursday’s data shows the Canadian economy started 2024 on a strong note after growth stalled in the second half of last year. GDP was flat or negative on a monthly basis in four of the last six months of 2023.

More time for BoC to assess

The strong rebound could allow the Bank of Canada more time to assess whether inflation is slowing sufficiently without risking a severe downturn, though the central bank has said it does not want to stay on hold longer than needed.

Because recent inflation figures have come in below the central bank’s expectations, “it appears that much of the growth we are seeing is coming from an easing of supply constraints rather than necessarily a pick-up in underlying demand,” wrote Grantham.

“As a result, we still see scope for a gradual reduction in interest rates starting in June.”

WATCH | Bank of Canada left interest rate unchanged earlier this month: 

Bank of Canada leaves interest rate unchanged, says it’s too soon to cut

22 days ago

Duration 1:56

The Bank of Canada held its key interest rate at 5 per cent on Wednesday, with governor Tiff Macklem saying it was too soon for cuts. CBC News speaks with an economist and a couple who might be forced to sell their home if interest rates don’t come down.

The central bank has maintained its key policy rate at a 22-year high of five per cent since July, but BoC governors in March agreed that conditions for rate cuts should materialize this year if the economy evolves in line with its projections.

The bank in January forecast a growth rate of 0.5 per cent in the first quarter, and Thursday’s data keeps the economy on a path of small growth in the first three months of 2024. The BoC will release new projections along with its rate announcement on April 10.

Growth in 18 out of 20 sectors

Growth in January was broad-based, with 18 of 20 sectors increasing in the month, StatsCan said. The agency said that real estate and the rental and leasing sectors grew for the third consecutive month, as activity at the offices of real estate agents and brokers drove the gain in January.

Overall, services-producing industries grew 0.7 per cent, while the goods-producing sector expanded 0.2 per cent.

In a preliminary estimate for February, StatsCan said GDP was likely up 0.4 per cent, helped by mining, quarrying, oil and gas extraction, manufacturing and the finance and insurance industries.

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