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Charting the Global Economy: Growth in China Slows Significantly

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(Bloomberg) — Economic growth in China slowed significantly in 2022 from a year earlier as Covid-19 and the government’s response led to the second-weakest performance since the 1970s.

While economists expect activity to pick up steam this year, China is contending with near record-low consumer confidence, a property market in the doldrums and a shrinking population.

Meantime, at the World Economic Forum in Davos this week, central bankers warned against complacency about the fading of the global inflation shock, saying they’ll keep raising interest rates to ensure their job is done. In Japan, however, officials kept their main policy settings unchanged — a surprise to many that caused wide swings in financial markets.

In the UK, consumer prices eased for a second month in December, and a measure of US wholesale inflation fell by the most since the start of the pandemic. Price pressures in South Africa also eased at the end of the year to a seven-month low.

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

Asia

China’s economy proved more resilient than analysts forecast as a virus wave swept the nation, suggesting the worst of the slump may be over as a challenging recovery begins. While the 3% increase in gross domestic product last year was the second-slowest pace since the 1970s, fourth quarter and December data came in better than economists expected.

Bank of Japan Governor Haruhiko Kuroda looks set to end his tenure the same way he started it: sending yields careening in the world’s second-largest government bond market. Japan’s benchmark 10-year yield tumbled as much as 14 basis points Wednesday after the BOJ defied some expectations for another shift in policy. The size of the move matches the intraday drop on April 5, 2013, just after Kuroda initiated quantitative easing by pledging to double the monetary base.

India may have already surpassed China as the world’s most-populous nation in a milestone that adds urgency for Prime Minister Narendra Modi to create more jobs and ensure the country sustains its world-beating growth. China’s population started shrinking in 2022 for the first time in six decades, the latest milestone in a worsening demographic crisis for the world’s second-largest economy.

Europe

UK inflation dipped for a second month in December, boosting hopes that the worst cost-of-living crisis in a generation may be starting to ease. Consumer prices rose 10.5% from a year earlier, slower than November and down from a peak above 11% in October. Still, inflation is five times higher than the government’s 2% target.

Britain was in the grip of its worst industrial strife for more than 30 years even before the rail network and postal service ground to a halt over the festive period. Some 467,000 working days were lost to strikes in November, a 10-year high, after a wave of walkouts caused by the most severe cost-of-living crisis in a generation.

Investors’ sentiment for the German economy jumped to the highest level in almost a year, the latest evidence that confidence is building as a squeeze from soaring energy prices eases. Separately, Chancellor Olaf Scholz said he’s sure the country will avoid a recession this year, offering reassurance for Europe’s largest economy as it faces down Russia’s energy squeeze.

US

New US home construction declined for a fourth-straight month in December, wrapping up a disappointing year for an industry that saw annual housing starts fall for the first time since 2009. Separate data showed sales of previously owned US homes fell 17.8% last year, the biggest annual slide since 2008.

Retail sales fell last month by the most in a year and business equipment production slumped, raising concerns that the economy is losing momentum under the weight of tighter Federal Reserve policy.

Emerging Markets

South African inflation slowed to a seven-month low in December, though mounting price pressures including a sharp increase in electricity costs may force the central bank to keep interest rates higher for longer.

World

Angola’s central bank carried out the world’s biggest interest rate cut so far this year as it forecasts inflation to slow further. Policymakers in Belarus also cut, Indonesia hiked, while Japan, Malaysia, Norway and Turkey kept borrowing costs unchanged.

China’s reopening and the resilience of advanced economies provide hope for the world to weather 2023 even if some struggle to grow, according to a panel in Davos on the prospect of a recession. Against a backdrop of gloom within the business world and among forecasters as the World Economic Forum began, speakers at the Swiss resort congealed toward cautious optimism for the global outlook.

The slump in the world’s biggest asset class has spread from the housing market to commercial real estate, threatening to unleash waves of credit turmoil across the economy. Almost $175 billion of real estate credit is already distressed, according to data compiled by Bloomberg — about four times more than the next biggest industry.

–With assistance from Neil Callanan, Arne Delfs, John Liu, Yujing Liu, Prinesha Naidoo, Michael Nienaber, Tom Rees, Garfield Reynolds, Augusta Saraiva, Zoe Schneeweiss, Craig Stirling, Karthikeyan Sundaram, Alexander Weber, Lucy White and Lin Zhu.

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Bond correction coming: What an economist and an investor say about inflation – Financial Post

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Bond correction coming: What an economist and an investor say about inflation  Financial Post

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Freeland meets with provincial, territorial finance ministers in Toronto

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TORONTO — Deputy Prime Minister and Finance Minister Chrystia Freeland is hosting an in-person meeting Friday with the provincial and territorial finance ministers in Toronto to discuss issues including the current economic environment and the transition to a clean economy.

The meeting will focus on the economic situation both domestically and globally, according to a federal source with knowledge of the gathering, including discussions on how to provide incentives and supports to be competitive with the U.S.’s Inflation Reduction Act.

U.S. President Joe Biden’s Inflation Reduction Act includes electric-vehicle incentives that favour manufacturers in Canada and Mexico, as well as the U.S.

The incentives, which were already revised to include Canada and Mexico after originally focusing on the U.S., are now facing criticism from Europe about North American protectionism.

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The source, who spoke on the condition they not be named to discuss matters not yet made public said the ongoing challenges with health care in Canada will also come up at the meeting. More substantive discussions on that will be held next week when the prime minister meets with premiers on Feb. 7.

In her opening remarks, Freeland said it’s essential for Canada to have its rightful place in the transition to a clean economy, calling it one of the biggest challenges of the moment.

We are in a situation with a lot of economic uncertainty globally, said Freeland, adding that later in the day, the ministers will have a discussion with Bank of Canada governor Tiff Macklem.

“I think that conversation with the governor will be useful and important for all of us,” she said.

Despite the need to address health care challenges, Canadian jobs and the transition to a clean economy, Freeland said the government recognizes it also has to contend with real fiscal constraints.

Freeland will hold a closing news conference at 3:30 p.m. local time.

The meeting comes at a tense time for many Canadian consumers, with inflation still running hot and interest rates much higher than they were a year ago.

The Bank of Canada raised its key interest rate again last week, bringing it to 4.5 per cent, but signalled it’s taking a pause to let the impact of its aggressive hiking cycle sink in.

The economy is showing signs of slowing, but inflation was still high at 6.3 per cent in December, with food prices in particular remaining elevated year over year.

Interest rates have put a damper on the housing market, sending prices and sales downward for months on end even as the cost of renting went up in 2022.

Meanwhile, the labour market has remained strong, with the unemployment rate nearing record lows in December at five per cent.

— With files from Nojoud Al Mallees in Ottawa and James McCarten in Washington

This report by The Canadian Press was first published Feb. 3, 2023.

 

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Pakistan PM warns of IMF bailout conditions

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Pakistan’s Prime Minister Shehbaz Sharif has said that the government will have to agree to International Monetary Fund (IMF) bailout conditions that are “beyond imagination”.

Sharif’s comments on Friday came after an IMF delegation landed in Pakistan this week for last-ditch talks to revive vital financial aid which has stalled for months.

The government has held out against tax rises and subsidy-slashing demanded by the IMF, fearful of a backlash before elections due in October.

“I will not go into the details but will only say that our economic challenge is unimaginable. The conditions we will have to agree to with the IMF are beyond imagination. But we will have to agree with the conditions,” Sharif said in televised comments.

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The global lender has set strict conditions before resuming the bailout programme for Pakistan, such as asking the government to allow a market-determined exchange rate for the local currency, ease fuel subsidies, and control circular debt in the power sector.

Pakistan’s economy has been in dire straits, stricken by a balance of payments crisis as it attempted to service high levels of external debt, amid political chaos and a deteriorating security situation. On Wednesday, year-on-year inflation had risen to a 48-year high leaving Pakistanis struggling to afford basic food items.

Before the IMF visit, Islamabad began to bow to pressure with the prospect of national bankruptcy looming and no friendly countries willing to offer less painful bailouts.

The government loosened controls on the rupee to rein in a rampant black market in US dollars, a step that caused the currency to plunge to a record low. Artificially cheap petrol prices have also been raised.

Letters of credit are no longer being issued, except for essential food and medicines, causing a backlog of thousands of shipping containers at a Karachi port stuffed with stock the country can no longer afford.

Sajid Amin, a senior official at the Sustainable Development Policy Institute, a research institute in Islamabad, said Sharif’s statement revealed the depth of the challenges facing the economy.

“Without any doubt, the economic situation is tough. Pakistan is facing multiple crises, including balance of payment crisis, political instability – issues which have delayed decision making from government,” he told Al Jazeera. Amin further said that the delays in the last few IMF reviews have led to increased uncertainty and panic in the market.

“Two of the major IMF conditions, market-determined exchange rate and petrol price increase, are majorly met already. The talks are now more focused on how to meet Pakistan’s circular debt target in the power sector. The fund has not accepted the government’s plan and has asked for a revised plan to deal with the circular debt problem,” he added.

Uzair Younus, director of the Pakistan Initiative at the Atlantic Council’s South Asia Center said that the major hurdle in the IMF negotiations seemed to be the scale and pace of actions required to reduce the fiscal deficit and circular debt. He noted that the IMF’s terms did not seem unreasonable, especially considering the number of times Pakistan has reneged on promises.

“A key issue that remains is the increase in electricity prices and a credible plan to reduce the circular debt. Pakistan has paused these increases for several months, citing floods and other challenges. The IMF wants a rapid increase in rates to reduce the circular deficit, but the government wants to stagger these increases,” the Washington, DC-based analyst told Al Jazeera.

It was no surprise that the IMF was not eager to agree to a staggered approach, given that Pakistan did not have much credibility left when it comes to following through on its agreements, Younus added.

Amin said that given the precarious economic situation in the country, the government must do whatever it takes to get the IMF on board.

“The government must understand, and I think it does understand to some extent, that inflationary pressure and other costs are much higher than the costs of IMF conditions. I think this statement, therefore, may be preparing ground and making people ready for tough measures that the government is going to take to meet the IMF conditions.”

The tumbling economy mirrored the country’s political chaos, with former Prime Minister Imran Khan heaping pressure on the governing coalition in his bid for early elections while his popularity remains high.

Khan, who was removed last year in a no-confidence motion, negotiated a multibillion-dollar loan package from the IMF in 2019.

But he reneged on promises to cut subsidies and market interventions that had cushioned the cost-of-living crisis, causing the programme to stall.

It has been a common pattern in Pakistan, where most people live in rural poverty, with more than two dozen IMF deals brokered and then broken over the decades.

 

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