Author of the article:
Bloomberg News
Vince Golle and Molly Smith
(Bloomberg) — Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.
Federal Reserve officials this week embarked on a campaign of tighter monetary policy with the first increase in the U.S. benchmark interest rate since 2018 as inflationary pressures build.
The Bank of Japan is choosing a different course. Japanese central bankers opted to keep policy stimulative in order to support an economy still contending with the coronavirus.
Meantime, global inflationary pressures persist as Russia’s war in Ukraine drives up commodities costs.
Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy:
U.S.
The Fed kicked off a campaign of interest rate hikes that’s set to be the most aggressive since the mid-2000s. After raising rates by a quarter point and signaling six more increases this year, Fed Chair Jerome Powell told reporters that inflation is too high, the labor market is over-heated and price stability is a “pre-condition” for the central bank as it tackles the hottest price pressures in 40 years.
Prices paid to U.S. producers rose strongly in February on higher costs of goods. The producer price index for final demand increased 10% from February of last year and 0.8% from the prior month.
U.S. importers, straining under a tapped-out supply chain, are increasingly offering top dollar for long-term shipping contracts that may not even be honored as they try whatever it takes to guarantee the arrival of their products. The pandemic-driven boom in demand for goods pushed both contract and spot rates for shipping to records — getting merchandise from place to place costs about 11 times more than it did before the Covid-19 outbreak.
World
Russia is a commodities powerhouse, producing and exporting huge amounts of materials the world uses to build cars, transport people and goods, make bread and keep the lights on. Its invasion of Ukraine is constraining those crucial supplies — or threatening to — as it becomes increasingly isolated from the global economy, driving up prices in the process.
Russia’s oil output may slump by about a quarter next month, inflicting the biggest supply shock in decades as buyers shun the nation’s exports following its invasion of Ukraine, the International Energy Agency said. Russian oil production could plunge by 3 million barrels a day, further squeezing a world market already strained by the post-pandemic rebound in demand.
Europe
France’s central bank said the war in Ukraine is already affecting the economy and creating high uncertainty that makes it tricky to forecast how much inflation will accelerate, or the extent to which the recovery from the Covid pandemic will slow.
Asia
China’s surprisingly robust economic data for the first two months of this year sparked heated discussions among analysts struggling to reconcile the figures with underlying indicators showing a much weaker picture. Some of the strong headline numbers in the release by the National Bureau of Statistics are not supported by a detailed breakdown of the data, several economists have highlighted.
Bank of Japan Governor Haruhiko Kuroda doubled down on his commitment to continue with stimulus even if inflation continues to accelerate, in a rebuttal of the need to join a global wave of central banks normalizing policy. The BOJ left its interest rates and asset purchases unchanged and downgraded its assessment of the economy, citing the impact of Covid.
Emerging Markets
Central banks in five African nations will likely raise interest rates in the coming weeks to tame inflation pressures that threaten to become entrenched. Those in another seven are expected to keep borrowing costs on hold as they assess the impact of supply shocks caused by Russia’s war on Ukraine.
Argentina’s inflation accelerated in February at its fastest pace in nearly a year, surpassing forecasts and challenging the government’s targets for this year in its preliminary agreement with the International Monetary Fund.
©2022 Bloomberg L.P.
As Joe Biden this week hailed America’s booming economy as the strongest in the world during a reelection campaign tour of battleground-state Pennsylvania, global finance chiefs convening in Washington had a different message: cool it.
The push-back from central bank governors and finance ministers gathering for the International Monetary Fund-World Bank spring meetings highlight how the sting from a surging US economy — manifested through high interest rates and a strong dollar — is ricocheting around the world by forcing other currencies lower and complicating plans to bring down borrowing costs.
Canada’s Prime Minister Justin Trudeau and Finance Minister Chrystia Freeland hold the 2024-25 budget, on Parliament Hill in Ottawa, on April 16.Patrick Doyle/Reuters
Alex Whalen and Jake Fuss are analysts at the Fraser Institute.
Amid a federal budget riddled with red ink and tax hikes, the Trudeau government has increased capital gains taxes. The move will be disastrous for Canada’s growth prospects and its already-lagging investment climate, and to make matters worse, research suggests it won’t work as planned.
Currently, individuals and businesses who sell a capital asset in Canada incur capital gains taxes at a 50-per-cent inclusion rate, which means that 50 per cent of the gain in the asset’s value is subject to taxation at the individual or business’s marginal tax rate. The Trudeau government is raising this inclusion rate to 66.6 per cent for all businesses, trusts and individuals with capital gains over $250,000.
The problems with hiking capital gains taxes are numerous.
First, capital gains are taxed on a “realization” basis, which means the investor does not incur capital gains taxes until the asset is sold. According to empirical evidence, this creates a “lock-in” effect where investors have an incentive to keep their capital invested in a particular asset when they might otherwise sell.
For example, investors may delay selling capital assets because they anticipate a change in government and a reversal back to the previous inclusion rate. This means the Trudeau government is likely overestimating the potential revenue gains from its capital gains tax hike, given that individual investors will adjust the timing of their asset sales in response to the tax hike.
Second, the lock-in effect creates a drag on economic growth as it incentivizes investors to hold off selling their assets when they otherwise might, preventing capital from being deployed to its most productive use and therefore reducing growth.
Budget’s capital gains tax changes divide the small business community
And Canada’s growth prospects and investment climate have both been in decline. Canada currently faces the lowest growth prospects among all OECD countries in terms of GDP per person. Further, between 2014 and 2021, business investment (adjusted for inflation) in Canada declined by $43.7-billion. Hiking taxes on capital will make both pressing issues worse.
Contrary to the government’s framing – that this move only affects the wealthy – lagging business investment and slow growth affect all Canadians through lower incomes and living standards. Capital taxes are among the most economically damaging forms of taxation precisely because they reduce the incentive to innovate and invest. And while taxes on capital gains do raise revenue, the economic costs exceed the amount of tax collected.
Previous governments in Canada understood these facts. In the 2000 federal budget, then-finance minister Paul Martin said a “key factor contributing to the difficulty of raising capital by new startups is the fact that individuals who sell existing investments and reinvest in others must pay tax on any realized capital gains,” an explicit acknowledgment of the lock-in effect and costs of capital gains taxes. Further, that Liberal government reduced the capital gains inclusion rate, acknowledging the importance of a strong investment climate.
At a time when Canada badly needs to improve the incentives to invest, the Trudeau government’s 2024 budget has introduced a damaging tax hike. In delivering the budget, Finance Minister Chrystia Freeland said “Canada, a growing country, needs to make investments in our country and in Canadians right now.” Individuals and businesses across the country likely agree on the importance of investment. Hiking capital gains taxes will achieve the exact opposite effect.
Nigeria’s economy, which ranked as Africa’s largest in 2022, is set to slip to fourth place this year and Egypt, which held the top position in 2023, is projected to fall to second behind South Africa after a series of currency devaluations, International Monetary Fund forecasts show.
The IMF’s World Economic Outlook estimates Nigeria’s gross domestic product at $253 billion based on current prices this year, lagging energy-rich Algeria at $267 billion, Egypt at $348 billion and South Africa at $373 billion.
DJT Stock Rises. Trump Media CEO Alleges Potential Market Manipulation. – Barron's
Trump Media alerts Nasdaq to potential market manipulation from 'naked' short selling of DJT stock – CNBC
Collection of First Nations art stolen from Gordon Head home – Times Colonist
Private equity gears up for potential National Football League investments – Financial Times
DJT Stock Jumps. The Truth Social Owner Is Showing Stockholders How to Block Short Sellers. – Barron's
Type 2 diabetes is not one-size-fits-all: Subtypes affect complications and treatment options – The Conversation
Crafting the Painterly Art Style in Eternal Strands – IGN First – IGN
How the NHL moved the Arizona Coyotes to Salt Lake City – Sportsnet.ca
