The U.S. Treasury Department announced Friday it had formally established two new working groups to discuss China-U.S. economic and financial issues, a tentative sign that communication is improving between the two countries following a trip to Beijing by Treasury Secretary Janet L. Yellen this summer.
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Prospects for the world economy are growing bleaker as Russia’s war in Ukraine takes a toll on European businesses and consumers, China employs a heavy-handed approach toward Covid-19 and US financial conditions tighten, according to the Institute of International Finance.
Central banks around the world continue to boost interest rates to counter a surge in inflation. In the US, the closely watched consumer price index showed inflation remains well-elevated. The squeeze to household budgets is also being felt in the UK and France.
Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy:
The world economy will essentially flatline this year as Europe falls into recession, China slows sharply and US financial conditions tighten significantly, according to a new forecast from the IIF, which counts more than 450 financial-services firms as members. The group forecasts 2.2% global GDP growth this year, markedly lower than the International Monetary Fund estimate of 3.6% on a purchasing power parity basis.
The gasoline market is starting to run out of control — just like diesel before it. US buyers are already sucking in more supplies from Europe as the summer driving season — which increases demand — gets underway. Add to that a loss of so-called secondary feedstocks from Russia that are critical in the production of the road fuel.
Americans got little respite from inflation in April, as prices for a range of necessities and discretionary-spending categories continued to climb at some of the fastest-ever rates. While annual measures of consumer prices cooled slightly from March — signaling a peak that economists expected — the details painted a more troubling picture as monthly figures advanced more than forecast.
US homebuyers are increasingly turning to adjustable-rate mortgages as overall borrowing costs soar. ARMs — which carry variable interest rates that reset based on the market at predetermined times — accounted for 10.8% of total home-loan applications last week. That’s up from 3.1% of activity at the start of the year and is the largest share since 2008.
The French government pledged to increase social benefits and issue food vouchers to the poorest households as freshly re-elected President Emmanuel Macron seeks to avert panic over a cost-of-living crisis before legislative elections next month.
The UK economy unexpectedly contracted in March as the cost of living squeeze forced consumers to cut back on spending, throwing doubt on the Bank of England’s ability to keep hiking interest rates and piling pressure on Prime Minister Boris Johnson’s government to respond.
For many of Sweden’s highly indebted consumers, the Riksbank’s sudden interest-rate increase at the end of April marks the start of a new squeeze that officials have long fretted about.
China’s exports and imports struggled in April as worsening Covid outbreaks cut demand, undermined production and disrupted logistics in the world’s second-largest economy.
Japan’s household spending climbed in March for the first time in three months as virus restrictions were lifted across the nation, offering some support for private consumption at the end of a bruising quarter for the economy.
Malaysia’s central bank unexpectedly raised its benchmark interest rate in an effort to head off price pressures, while authorities in Argentina boosted borrowing costs for the fifth time this year.
Latin American central banks will likely extend their monetary tightening campaigns beyond what was originally expected after inflation surged past forecasts in April, with steep increases in food and fuel costs stinging policy makers.
South Africa is headed for a record year of power cuts if the rate of station breakdowns fails to improve, particularly at coal-fueled plants. Africa’s most industrialized nation was already on track to exceed the annual record for energy shed from controlled blackouts, a practice locally known as loadshedding that’s used to prevent the grid from a total collapse.
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US-China Relations Thaw With Groups to Discuss Economic, Financial Issues – Bloomberg
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U.S., China agree to forge new economic, financial dialogues
The working groups will hold regular direct meetings for “frank and substantive discussions on economic and financial policy matters,” the Treasury statement said. It added that the dialogues would also include and “exchange of information on macroeconomic and financial developments.”
The high-level meetings will be led by Yellen on the U.S. side. China’s economic czar, Vice Premier He Lifeng, will oversee the work led by different agencies in Beijing. U.S. Treasury officials will hold dialogues for the economic working group with Beijing’s Finance Ministry, while the financial talks will take place with representatives from China’s Central Bank.
The new dialogues are part of broader efforts by the White House to reestablish communication channels between Washington and Beijing on a range of geopolitical, security and economic matters following talks between President Biden and Chinese President Xi Jinping in Bali last year. Those efforts have been hampered by hot-button issues, including the discovery of a Chinese spy balloon over the continental United States in February and rolling U.S. trade restrictions aimed at limiting Beijing’s access to U.S. technology.
Nonetheless, the two sides have made strides this year. After abruptly canceling a visit over the spy balloon furor, Secretary of State Antony Blinken traveled to Beijing in June. Yellen’s visit in July was followed by Commerce Secretary Gina Raimondo’s in August, where she announced that the two sides had agreed to hold an official ongoing dialogue on commercial issues, beginning in early 2024, drawing in individuals from the private sector with the aim of resolving issues over U.S. commercial access to the Chinese market.
The new dialogues agreed to by Yellen and He appear to have a broader scope, but it is unclear how often the meetings will take place. In Friday’s statement, the Treasury Department said they would happen at a “regular cadence.” Chinese official media released a brief statement confirming the establishment of the working groups that was sparse on detail, but said the group plans to hold “regular and irregular” meetings.
“These Working Groups will serve as important forums to communicate America’s interests and concerns, promote a healthy economic competition between our two countries with a level playing field for American workers and businesses, and advance cooperation on global challenges,” said Yellen in a statement posted on X, the site formerly known as Twitter, on Friday following the Treasury Department announcement.
Regular high-level economic dialogues between Treasury officials and Beijing were mostly dismantled in 2017, when the Trump administration began implementing sweeping tariffs, trade restrictions and sanctions against Beijing — many of which have remained in place or been extended under the current administration.
Before Yellen’s visit in July, no U.S. treasury secretary had visited Beijing since 2019, when then-Secretary Steven Mnuchin and a team of negotiators conducted limited talks following a total breakdown in discussions months before.
While the new working groups signal a thawing in the economic relationship, communication between the two sides remains fragile. Beijing routinely expresses skepticism of U.S. commitments and has accused officials in Washington of failing to follow through on high-level discussions. Officials in Beijing maintain that the United States has arbitrarily broadened trade and economic restrictions to contain China’s economic growth under the guise of national and economic security.
Most recently, Beijing accused the United States of ongoing economic “bullying” after Biden in August signed an executive order to establish a screening mechanism for outbound investments and to restrict U.S. investment in advanced Chinese technologies, including semiconductors.
“President Biden committed to not seeking to ‘decouple’ from China or halt China’s economic development. We urge the U.S. to follow through on that commitment, stop politicizing, instrumentalizing and weaponizing tech and trade issues,” said Chinese Foreign Ministry spokesman Wang Wenbin following the August announcement.
Yellen and other U.S. officials have sought to push ahead with efforts to reopen channels of communication, while warning that the Biden administration will continue to take targeted actions to protect U.S. national security.
“It is vital that we talk, particularly when we disagree,” said Yellen in her statement on X on Friday.
Net zero: Will Rishi Sunak’s changes to climate policies save money?
LONDON — Amid growing international criticism, British Prime Minister Rishi Sunak has defended watering down key U.K. climate policies.
In a press conference Wednesday, Sunak announced a series of major U-turns on climate policies, including delaying by five years the target to ban sales of new gas and diesel cars — which will now come into force in 2035 rather than 2030 — and a nine-year delay on phasing out gas boilers, which will now come into force in 2035.
Sunak insisted he was not slowing down efforts to combat climate change. But his government’s own climate adviser called the prime minister’s assertion that the U.K. would still succeed in meeting its 2050 net-zero target “wishful thinking.”
Sunak said the changes were about being “pragmatic” and sparing the British public the “unacceptable cost” of net-zero commitments.
His home secretary, Suella Braverman, told the BBC that the Conservative government was “not going to save the planet by bankrupting British people.”
The government’s Climate Change Committee — independent advisers on cutting carbon emissions — estimates that meeting Britain’s legally binding goal of reaching net zero by 2050 will require an extra $61 billion of investment every year by 2030.
But the committee has said that once the savings from reduced use of fossil fuels are factored in, the overall resource cost of the transition to net zero will be less than 1% of GDP over the next 30 years. By 2044, the committee has said, breaching net zero should become cost-saving, as newer clean technologies are more efficient than those they are replacing.
Criticism at home and abroad
Sunak’s overhaul of his green targets has been met with criticism at home and internationally.
Former U.S. Vice President Al Gore described the changes as “shocking and disappointing” and “not what the world needs from the United Kingdom.”
Some in the prime minister’s own Conservative Party warned that the changes risk damaging Britain’s reputation as a global leader on the climate.
Sunak decided not to attend the United Nations Climate Summit in New York this week, making him the first British prime minister to miss a U.N. General Assembly in a decade.
Former Conservative minister Alok Sharma, who chaired the 2021 COP26 U.N. Climate Change Conference in Glasgow, told the BBC Wednesday’s announcement had been met with “consternation” from international colleagues.
“My concern is whether people now look to us and say, ‘Well, if the U.K. is starting to row back on some of these policies, maybe we should do the same,'” he said.
In the U.K., Sunak’s announcement prompted a backlash from climate activists, car manufacturers and the energy industry.
In a statement, U.K. Ford chair Lisa Brankin said, “Our business needs three things from the U.K. government: ambition, commitment and consistency. A relaxation of 2030 would undermine all three.”
And the chief executive of one of Britain’s largest energy suppliers, Eon UK, said the move was a “misstep on many levels.”
Sunak’s pivot occurs as extreme weather due to climate change is growing more frequent
Sunak said the announcement was part of his desire for a more “honest debate” about what reaching net zero will actually mean for the British public.
But he has come under criticism from the British media for claiming to scrap measures that some have pointed out never existed as formal government policy in the first place, such as taxing meat and requiring households to have seven different waste and recycling bins. (The government had previously said it wanted to standardize waste collection in England, although the plan was subsequently delayed and never became policy).
Political analysts say Sunak’s gamble marks a shift for the prime minister, who has spent his first year in office largely steadying the ship after the tumultuous governments of his predecessors Liz Truss and Boris Johnson. With a general election coming up next year, they say, Sunak has chosen net zero as a dividing line.
Sunak’s pivot away from more aggressive action on global warming occurs as extreme weather is becoming more frequent and more intense around the world, including the U.K., because of the effects of climate change. Scientists say this will continue as long as humans continue to emit planet-warming greenhouse gases.
In the U.K., temperatures hit 40 degrees Celsius (104 degrees Fahrenheit) for the first time on record in July 2022. The World Weather Attribution network says this would have been “basically impossible” without climate change.
During this week’s climate summit in New York, London Mayor Sadiq Khan said the capital faced what he called the “incredibly worrying” prospect of seeing 45-degree Celsius (113 degrees Fahrenheit) days in the “forseeable future.”
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