Economy
BoE's Saunders says economy might have more spare capacity than thought – The Guardian
By Andy Bruce and William Schomberg
LONDON (Reuters) – Britain’s economy may have more room to bounce back from the COVID-19 pandemic before it generates excess inflation than the Bank of England predicted last month, one of its policymakers said, signalling no rush to start reining back on stimulus.
Michael Saunders said the recovery from last year’s 10% slump might be quicker than the BoE’s central forecasts, made in early February. Those forecasts include a 5% recovery in 2021 as the country races ahead with coronavirus vaccinations.
But that did not automatically mean inflation pressure will surge too, the rate-setter said in a speech on Friday.
It was reasonable to think slack in Britain’s economy – the output gap – was “much greater” than the BoE assumed last month, Saunders said, citing a rising jobless rate and surveys that show many companies are working below capacity.
“My hunch, taking account of a somewhat more optimistic assessment of the outlook for potential output, is that it will take longer to close the output gap than forecast,” he said.
The risk posed by an incomplete recovery with a persistent output gap was greater than a scenario in which the gap closes quickly and generates inflation, Saunders said.
This meant that “risk management considerations” might be needed when weighing up how much stimulus the economy needs.
Saunders’ comments put him broadly in the centre of the range of views among the nine members of the Monetary Policy Committee and contrast with those of Chief Economist Andy Haldane, who has warned of an inflation “tiger”.
Saunders said the unemployment rate would be a good future benchmark in judging the extent to which the output gap is closing.
“In my view, a jobless rate of well above 5% (the February … forecast for Q1-2022 was 5.7%) would almost certainly indicate that we are some way from closing the output gap sustainably,” he said.
Officials are debating how the BoE might eventually unwind some of the stimulus it has pumped into the economy, first to offset the global financial crisis and more recently to tackle the COVID-19 pandemic.
Saunders said the BoE’s record-low interest rates might not need to rise as high as 1.5% before the central bank starts to bring down the size of its 895 billion pound bond-buying scheme.
“There are arguments to set a slightly lower threshold on the grounds that … a slightly negative policy rate will be in the toolkit, whereas it wasn’t previously,” he said in answer to an audience question.
(Reporting by William Schomberg and Andy Bruce; Editing by Catherine Evans)
Economy
China Wants Everyone to Trade In Their Old Cars, Fridges to Help Save Its Economy – Bloomberg
China’s world-beating electric vehicle industry, at the heart of growing trade tensions with the US and Europe, is set to receive a big boost from the government’s latest effort to accelerate growth.
That’s one takeaway from what Beijing has revealed about its plan for incentives that will encourage Chinese businesses and households to adopt cleaner technologies. It’s widely expected to be one of this year’s main stimulus programs, though question-marks remain — including how much the government will spend.
Economy
German Business Outlook Hits One-Year High as Economy Heals – BNN Bloomberg
(Bloomberg) — German business sentiment improved to its highest level in a year — reinforcing recent signs that Europe’s largest economy is exiting two years of struggles.
An expectations gauge by the Ifo institute rose to 89.9. in April from a revised 87.7 the previous month. That exceeds the 88.9 median forecast in a Bloomberg survey. A measure of current conditions also advanced.
“Sentiment has improved at companies in Germany,” Ifo President Clemens Fuest said. “Companies were more satisfied with their current business. Their expectations also brightened. The economy is stabilizing, especially thanks to service providers.”
A stronger global economy and the prospect of looser monetary policy in the euro zone are helping drag Germany out of the malaise that set in following Russia’s attack on Ukraine. European Central Bank President Christine Lagarde said last week that the country may have “turned the corner,” while Chancellor Olaf Scholz has also expressed optimism, citing record employment and retreating inflation.
There’s been a particular shift in the data in recent weeks, with the Bundesbank now estimating that output rose in the first quarter, having only a month ago foreseen a contraction that would have ushered in a first recession since the pandemic.
Even so, the start of the year “didn’t go great,” according to Fuest.
“What we’re seeing at the moment confirms the forecasts, which are saying that growth will be weak in Germany, but at least it won’t be negative,” he told Bloomberg Television. “So this is the stabilization we expected. It’s not a complete recovery. But at least it’s a start.”
Monthly purchasing managers’ surveys for April brought more cheer this week as Germany returned to expansion for the first time since June 2023. Weak spots remain, however — notably in industry, which is still mired in a slump that’s being offset by a surge in services activity.
“We see an improving worldwide economy,” Fuest said. “But this doesn’t seem to reach German manufacturing, which is puzzling in a way.”
Germany, which was the only Group of Seven economy to shrink last year and has been weighing on the wider region, helped private-sector output in the 20-nation euro area strengthen this month, S&P Global said.
–With assistance from Joel Rinneby, Kristian Siedenburg and Francine Lacqua.
(Updates with more comments from Fuest starting in sixth paragraph.)
©2024 Bloomberg L.P.
Economy
Parallel economy: How Russia is defying the West’s boycott
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When Moscow resident Zoya, 62, was planning a trip to Italy to visit her daughter last August, she saw the perfect opportunity to buy the Apple Watch she had long dreamed of owning.
Officially, Apple does not sell its products in Russia.
The California-based tech giant was one of the first companies to announce it would exit the country in response to Russian President Vladimir Putin’s full-scale invasion of Ukraine on February 24, 2022.
But the week before her trip, Zoya made a surprise discovery while browsing Yandex.Market, one of several Russian answers to Amazon, where she regularly shops.
Not only was the Apple Watch available for sale on the website, it was cheaper than in Italy.
Zoya bought the watch without a moment’s delay.
The serial code on the watch that was delivered to her home confirmed that it was manufactured by Apple in 2022 and intended for sale in the United States.
“In the store, they explained to me that these are genuine Apple products entering Russia through parallel imports,” Zoya, who asked to be only referred to by her first name, told Al Jazeera.
“I thought it was much easier to buy online than searching for a store in an unfamiliar country.”
Nearly 1,400 companies, including many of the most internationally recognisable brands, have since February 2022 announced that they would cease or dial back their operations in Russia in protest of Moscow’s military aggression against Ukraine.
But two years after the invasion, many of these companies’ products are still widely sold in Russia, in many cases in violation of Western-led sanctions, a months-long investigation by Al Jazeera has found.
Aided by the Russian government’s legalisation of parallel imports, Russian businesses have established a network of alternative supply chains to import restricted goods through third countries.
The companies that make the products have been either unwilling or unable to clamp down on these unofficial distribution networks.
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