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Charting the Global Economy: ECB Joins Jumbo Rate-Hike Club – Yahoo Canada Finance

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The European Central Bank delivered an unprecedented three-quarter-point interest-rate hike this week, and another steep adjustment next month remains a distinct possibility in an escalating assault on rampant inflation.

Newly appointed UK Prime Minister Liz Truss laid out plans to rescue an economy in its worse state since the 1970s. On Thursday, Britons were shaken by news of the passing of Queen Elizabeth II.

In Asia, China’s economy showed more signs of weakening as export growth slowed, while Japanese households cut back on spending.

Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy:

Europe

The ECB hiked interest rates by a historic amount and President Christine Lagarde hinted it could do the same again as part of “several” future moves. A second 75 basis-points hike next month would match the two most-recent moves by the Federal Reserve, illustrating the more aggressive approach adopted by ECB officials of late as inflation in the 19-nation euro zone breaks record after record.

UK Prime Minister Truss, the self-styled “disruptor-in-chief” says she’s ready for unpopular decisions as she responds to the full-throttled cost-of-living crisis facing households and businesses. Both measures may upset markets over fears of stoking inflation.

European households will benefit from at least 376 billion euros ($375 billion) in government aid to stem whopping energy bills this winter, yet there’s a risk the smorgasbord of spending won’t bring enough relief. This winter will be grim across the continent. The UK, which already has the highest electricity costs in Europe, is set to see winter bills rocket by about 178%.

Asia

China’s export growth slowed more than expected in August and imports stagnated, a sign of a darkening global economic picture and weak domestic growth hit by Covid lockdowns and a property slump.

Taiwan’s consumer inflation cooled significantly in August, taking some of the pressure off the central bank as it tries to balance raising interest rates against the need to support the economy.

Japan’s households cut back on spending in July while real wages fell again amid a surge in virus cases and a steady increase in the cost of living, suggesting the country’s recovery path is still shaky.

US

Household net worth declined in the second quarter by the most on record as aggressive action by the Fed to tame rapid inflation sent stocks plunging. The $6.1 trillion drop pushed net worth down to $143.8 trillion, the lowest in a year.

The latest uptick in labor-force participation may not last long — the rate is projected to drop to 60.1% in 2031, compared to 61.7% in 2021, according to a report from the Bureau of Labor Statistics. That’d be the lowest since early 1973.

Emerging Markets

Russia may face a longer and deeper recession as the impact of US and European sanctions spreads, handicapping sectors that the country has relied on for years to power its economy, according to an internal report prepared for the government. Two of the three scenarios in the report show the contraction accelerating next year, with the economy returning to the prewar level only at the end of the decade or later.

Mexico’s annual inflation surged to the fastest pace since late 2000 in August even as US price growth begins to ease. Inflation has continued surging despite the central bank’s 10 straight rate hikes totaling 450 basis points since June last year.

World

China’s government data show foreign investment into the economy grew by almost a fifth this year, yet, a look below the 17.3% expansion in the first seven months of the year shows much of the investment into China actually comes from Hong Kong. Foreign companies are still putting new money into China, although the size and speed of that expansion is not as big as some of Beijing’s officials suggest.

As Wall Street firms order employees back to the office, the option of working from home remains more popular than ever all over the world, according to a new study. About one-third of US workers would quit or start looking for another job if told to return to the workplace five days a week, higher than the global average.

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Energy, inflation crises risk pushing big economies into recession, OECD says – Reuters

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PARIS, Sept 26 (Reuters) – Global economic growth is slowing more than was forecast a few months ago in the wake of Russia’s invasion of Ukraine, as energy and inflation crises risk snowballing into recessions in major economies, the OECD said on Monday.

While global growth this year was still expected at 3.0%, it is now projected to slow to 2.2% in 2023, revised down from a forecast in June of 2.8%, the Organisation for Economic Cooperation and Development said.

The Paris-based policy forum was particularly pessimistic about the outlook in Europe – the most directly exposed economy to the fallout from Russia’s war in Ukraine.

Global output next year is now projected to be $2.8 trillion lower than the OECD forecast before Russia attacked Ukraine – a loss of income worldwide equivalent in size to the French economy.

“The global economy has lost momentum in the wake of Russia’s unprovoked, unjustifiable and illegal war of aggression against Ukraine. GDP growth has stalled in many economies and economic indicators point to an extended slowdown,” OECD Secretary-General Mathias Cormann said in a statement.

The OECD projected euro zone economic growth would slow from 3.1% this year to only 0.3% in 2023, which implies the 19-nation shared currency bloc would spend at least part of the year in a recession, defined as two straight quarters of contraction.

That marked a dramatic downgrade from the OECD’s last economic outlook in June, when it had forecast the euro zone’s economy would grow 1.6% next year.

The OECD was particularly gloomy about Germany’s Russian-gas dependent economy, forecasting it would contract 0.7% next year, slashed from a June estimate for 1.7% growth.

The OECD warned that further disruptions to energy supplies would hit growth and boost inflation, especially in Europe where they could knock activity back another 1.25 percentage points and boost inflation by 1.5 percentage points, pushing many countries into recession for the full year of 2023.

“Monetary policy will need to continue to tighten in most major economies to tame inflation durably,” Cormann told a news conference, adding that targeted fiscal stimulus from governments was also key to restoring consumer and business confidence.

“It’s critical that monetary and fiscal policy work hand in hand”, he said.

Though far less dependent on imported energy than Europe, the United States was seen skidding into a downturn as the U.S. Federal Reserve jacks up interest rates to get a handle on inflation.

The OECD forecast that the world’s biggest economy would slow from 1.5% growth this year to only 0.5% next year, down from June forecasts for 2.5% in 2022 and 1.2% in 2023.

Meanwhile, China’s strict measures to control the spread of COVID-19 this year meant that its economy was set to grow only 3.2% this year and 4.7% next year, whereas the OECD had previously expected 4.4% in 2022 and 4.9% in 2023.

Despite the fast deteriorating outlook for major economies, the OECD said further rate hikes were needed to fight inflation, forecasting most major central banks’ policy rates would top 4% next year.

With many governments increasing support packages to help households and businesses cope with high inflation, the OECD said such measures should target those most in need and be temporary to keep down their cost and not further burden high post-COVID debts.

Reporting by Leigh Thomas, additional reporting by Tassilo Hummel; editing by Richard Lough, William Maclean

Our Standards: The Thomson Reuters Trust Principles.

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What's Happening in The World Economy: The Pound's Slump – Bloomberg

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What’s Happening in The World Economy: The Pound’s Slump  Bloomberg



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China’s Economy ‘Dismal,’ Will See No Growth, New Report – Forbes

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Communist China under premier Xi Jinping is wilting fast.

The economy, already under pressure so far this year, looks set to get even worse, according to a recent report from London-based consulting firm Capital Economics.

Capital kicks off with the following blistering assessment of the situation:

  • “The financial world’s focus on a generational surge in inflation in advanced economies is stealing attention from a generational slowdown in China that is arguably of much greater importance for the long-term global outlook.”

In other words, ignore China’s economic worsening quagmire at your peril.

Already we know that China’s steel production is falling, down 5.7% in the year through August, according to the World Steel Association. That country has long been the world’s largest producer of steel so the decline is meaningful on a global scale.

Worse still, only two of the top global producers performed worse over the same period: Russia and Turkey. Both are economic basket cases.

The hits keep on coming. Exports from Korea to China fell during the first three weeks on September, the Capital report says. At the same time, Korean exports to the U.S. grew.

  • This may be a sign that global demand for the consumer goods that China produces – and to which Korea provides inputs earlier in the production chain – is softening,” the Capital report states. My emphasis.

Put simply, retail customers globally are pulling back and thats already hurting China.

Monthly data for August show declining retail sales inside China as well and Capital expects further declines in September.

When the experts put all this together the outlook is bleak.

  • “We recently lowered our forecast for this year’s officially-reported GDP growth rate to 3% from 4% – the government’s 5.5% target set in March has been quietly abandoned – but in reality don’t expect the Chinese economy to grow at all.”

Put another way, China’s growth under Xi likely dropped to zero from regular double-digit gains.

It’s not the sort of achievement most leaders want.

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