(Bloomberg) — China’s recovery gained traction in March, showing the world’s second-largest economy is strengthening after stringent pandemic restrictions were dropped and Covid infection waves eased.
Charting the Global Economy: Recovery in China Gathers Pace
China’s economic recovery gathered pace in March, with gauges for manufacturing, services and construction activity remaining strong, boosting the outlook for growth this year.
South Korea’s construction deals fell by a record margin in the fourth quarter as the property market cooled with rising interest rates weakening demand and inflation fueling costs.
Underlying inflation in the euro area hit a fresh high, handing ammunition to ECB officials who say interest-rate increases aren’t over yet. The rise to 5.7% in March’s core price reading, which strips out volatile items like fuel and food costs, came alongside a record plunge in headline inflation to 6.9% from 8.5% in February.
While Sweden sits between France and Switzerland in a ranking of dollar billionaires, many poorer Swedes have seen the gap between the haves and the have-nots widen dramatically in recent times. At the heart of Sweden’s woes is a dysfunctional housing market, which has not only cemented social divides, but exacerbated them.
A key gauge of US inflation rose in February by less than expected and consumer spending stabilized, suggesting the Fed may be close to ending its most aggressive cycle of interest-rate hikes in decades. Excluding food and energy, the core personal consumption expenditures price index climbed 4.6%, matching the smallest annual increase since October 2021.
Banks reduced their borrowings from two Fed backstop lending facilities in the most recent week, a sign that liquidity demand may be stabilizing. US institutions had a combined $152.6 billion in outstanding borrowings in the week through March 29, compared with $163.9 billion the previous week.
The biggest banking scare since the 2008 financial crisis will ricochet through the economy for months as households and businesses find it harder to gain access to credit. That’s the scenario facing the US after the collapse of three regional lenders, and a giant global one, over an 11-day span, according to several economists.
South Africa and Ghana each lifted rates by more than expected, and Thailand signaled more tightening is on the horizon. Mexico slowed its pace of hikes while Hungary’s resisted government pressure to start monetary easing. Colombia increased rates to a 24-year high and Egypt went ahead with a jumbo hike.
Bank of Japan Governor Haruhiko Kuroda changed the course of global markets when he unleashed a $3.4 trillion firehose of Japanese cash on the investment world. Now Kazuo Ueda is likely to dismantle his legacy, setting the stage for a flow reversal that risks sending shockwaves through the global economy.
President Vladimir Putin’s drive to expand Russia’s armed forces is adding to labor shortages as his war in Ukraine draws hundreds of thousands of workers into the military from other sectors of the economy. The total number taken into service is likely to have exceeded half a million, according to Bloomberg’s Russia economist Alexander Isakov.
—With assistance from Ruth Carson, Enda Curran, Alexandra Harris, Sam Kim, Masaki Kondo, John Liu, Michael MacKenzie, Reade Pickert, Chris Reiter, Zoe Schneeweiss, Mark Sweetman, Craig Torres, Alexander Weber and Anton Wilen.
Strong job gains in US add to economic puzzle – BBC
Job creation in the US remained robust last month, despite rising prices and a sharp spike in borrowing costs weighing on the economy.
Employers added 339,000 jobs, but the unemployment rate rose to 3.7%, from April’s unusually low 3.4%.
Analysts have expected hiring to slow as the US central bank raises interest rates to try to rein in rising prices.
But payrolls have remained resilient, raising hopes the economy will avoid a painful recession, while also stirring debate about whether the Federal Reserve will have to take more aggressive action to bring inflation under control.
Inflation, the rate at which prices rise, was 4.9% in the US in April.
While that was the lowest in roughly two years, it remained more than double the 2% rate that the bank considers healthy.
Expectations of what Friday’s report might mean for interest rates in the months ahead were divided.
“This is the strangest employment report for some time,” said Ian Shepherdson of Pantheon Macroeconomics, pointing to the disconnect between the job gains and the rise in unemployment.
Some analysts said the widespread job gains in May, as hospitals, restaurants, bars and construction firms added workers, was a sign that the Fed will have to raise interest rates more.
The Labor Department also said job gains in April had been greater than previously estimated.
Others said the report included signs that should convince the bank to hold off, pointing to moderating wage gains. At 3.7%, the jobless rate was also the highest in seven months.
US President Joe Biden, who has been dogged by public pessimism over the economy, celebrated the figures, saying it was a “good day for the American economy and American workers”.
But others said the gains may not be sustainable.
Seema Shah, chief global strategist at Principal Asset Management, said the “blow out” job gains in May indicated that the “Fed’s job is not yet done”.
“The key question now is: can they wait until July or does this monster payrolls number trigger another burst of urgency?” she said.
“Perhaps the report details, with the unemployment rate rising and average hourly earnings growth slowing, tilts the decision to July. But overall, this is not a labour market that is slowing – and if it’s not slowing, then inflation isn’t coming down to 2%.”
If the US central bank continues to raise interest rates, that would lead to higher borrowing costs for households and businesses seeking mortgages or other loans.
The expectation is that the economy will cool, easing pressures pushing up prices, as higher borrowing costs lead people to cut back on spending and businesses to delay expansions and other activities.
“By year-end, as the impact of Fed tightening feeds into the economy and corporates retrench, we expect a material weakening in job market conditions and an early-90s type economic recession,” said Hussain Mehdi, macro and investment strategist at HSBC Asset Management.
He added: “A delay to this process implies the risk of higher-for-longer rates, and a deeper downturn.”
Global fertility has collapsed, with profound economic consequences
In the roughly 250 years since the Industrial Revolution the world’s population, like its wealth, has exploded. Before the end of this century, however, the number of people on the planet could shrink for the first time since the Black Death. The root cause is not a surge in deaths, but a slump in births. Across much of the world the fertility rate, the average number of births per woman, is collapsing. Although the trend may be familiar, its extent and its consequences are not. Even as artificial intelligence (ai) leads to surging optimism in some quarters, the baby bust hangs over the future of the world economy.
In 2000 the world’s fertility rate was 2.7 births per woman, comfortably above the “replacement rate” of 2.1, at which a population is stable. Today it is 2.3 and falling. The largest 15 countries by GDP all have a fertility rate below the replacement rate. That includes America and much of the rich world, but also China and India, neither of which is rich but which together account for more than a third of the global population.
The result is that in much of the world the patter of tiny feet is being drowned out by the clatter of walking sticks. The prime examples of ageing countries are no longer just Japan and Italy but also include Brazil, Mexico and Thailand. By 2030 more than half the inhabitants of East and South-East Asia will be over 40. As the old die and are not fully replaced, populations are likely to shrink. Outside Africa, the world’s population is forecast to peak in the 2050s and end the century smaller than it is today. Even in Africa, the fertility rate is falling fast.
Whatever some environmentalists say, a shrinking population creates problems. The world is not close to full and the economic difficulties resulting from fewer young people are many. The obvious one is that it is getting harder to support the world’s pensioners. Retired folk draw on the output of the working-aged, either through the state, which levies taxes on workers to pay public pensions, or by cashing in savings to buy goods and services or because relatives provide care unpaid. But whereas the rich world currently has around three people between 20 and 64 years old for everyone over 65, by 2050 it will have less than two. The implications are higher taxes, later retirements, lower real returns for savers and, possibly, government budget crises.
Low ratios of workers to pensioners are only one problem stemming from collapsing fertility. As we explain this week, younger people have more of what psychologists call “fluid intelligence”, the ability to think creatively so as to solve problems in entirely new ways .
This youthful dynamism complements the accumulated knowledge of older workers. It also brings change. Patents filed by the youngest inventors are much more likely to cover breakthrough innovations. Older countries—and, it turns out, their young people—are less enterprising and less comfortable taking risks. Elderly electorates ossify politics, too. Because the old benefit less than the young when economies grow, they have proved less keen on pro-growth policies, especially housebuilding. Creative destruction is likely to be rarer in ageing societies, suppressing productivity growth in ways that compound into an enormous missed opportunity.
All things considered, it is tempting to cast low fertility rates as a crisis to be solved. Many of its underlying causes, though, are in themselves welcome. As people have become richer they have tended to have fewer children. Today they face different trade-offs between work and family, and these are mostly better ones. The populist conservatives who claim low fertility is a sign of society’s failure and call for a return to traditional family values are wrong. More choice is a good thing, and no one owes it to others to bring up children.
Liberals’ impulse to encourage more immigration is more noble. But it, too, is a misdiagnosis. Immigration in the rich world today is at a record high, helping individual countries tackle worker shortages. But the global nature of the fertility slump means that, by the middle of the century, the world is likely to face a dearth of young educated workers unless something changes.
What might that be? People often tell pollsters they want more children than they have. This gap between aspiration and reality could be in part because would-be parents—who, in effect, subsidise future childless pensioners—cannot afford to have more children, or because of other policy failures, such as housing shortages or inadequate fertility treatment. Yet even if these are fixed, economic development is still likely to lead to a fall in fertility below the replacement rate. Pro-family policies have a disappointing record. Singapore offers lavish grants, tax rebates and child-care subsidies—but has a fertility rate of 1.0.
Unleashing the potential of the world’s poor would ease the shortage of educated young workers without more births. Two-thirds of Chinese children live in the countryside and attend mostly dreadful schools; the same fraction of 25- to 34-year-olds in India have not completed upper secondary education. Africa’s pool of young people will continue to grow for decades. Boosting their skills is desirable in itself, and might also cast more young migrants as innovators in otherwise-stagnant economies. Yet encouraging development is hard—and the sooner places get rich, the sooner they get old.
Eventually, therefore, the world will have to make do with fewer youngsters—and perhaps with a shrinking population. With that in mind, recent advances in ai could not have come at a better time. An über-productive AI-infused economy might find it easy to support a greater number of retired people. Eventually ai may be able to generate ideas by itself, reducing the need for human intelligence. Combined with robotics, ai may also make caring for the elderly less labour-intensive. Such innovations will certainly be in high demand.
If technology does allow humanity to overcome the baby bust, it will fit the historical pattern. Unexpected productivity advances meant that demographic time-bombs, such as the mass starvation predicted by Thomas Malthus in the 18th century, failed to detonate. Fewer babies means less human genius. But that might be a problem human genius can fix. ■
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Canadian GDP growth beats StatCan forecast in Q1 2023 – CTV News
The Canadian economy grew faster than expected in the first three months of the year and likely expanded again in April, fuelling speculation that the Bank of Canada will raise interest rates again.
Statistics Canada reported Wednesday real gross domestic product grew at an annualized rate of 3.1 per cent in the first quarter of 2023.
That growth beat out the federal agency’s own forecast of 2.5 per cent for the quarter. A preliminary estimate suggests the economy expanded by 0.2 per cent in April after remaining flat in March.
The Canadian economy has managed to continue outperforming expectations, despite the Bank of Canada hoping high interest rates would cause a more profound pullback by consumers and businesses.
“It is a little surprising the resilience, I would say, of the Canadian consumer … just given the amount of interest rate hikes that had been put in place over the course of the previous year,” said Dawn Desjardins, chief economist at Deloitte.
The Bank of Canada’s key interest rate sits at 4.5 per cent — the highest it’s been since 2007.
The ongoing resilience in the economy is raising the odds of another rate hike, economists say, as the Bank of Canada heads toward its upcoming interest rate decision next week.
“The run of sturdy data undoubtedly raises the odds that the Bank of Canada needs to go back to the well of rate hikes, and even puts some chance on a move as early as next week’s policy decision,” BMO chief economist Douglas Porter said in a client note.
But Porter, along with other commercial bank economists, say that the central bank may delay the decision to raise rates again until the summer.
“However, given the uncertain backdrop and the possibility that inflation took a big step down in May, the Bank of Canada could opt to remain patient for a bit longer and signal that it’s open to hiking in July if the strength persists.”
The federal agency says growth in exports and household spending helped spur growth in the first quarter.
Meanwhile, slower inventory accumulations as well as declines in household investment and business investment in machinery and equipment weighed on growth.
The household spending figures show spending up on both goods and services in the first three months of the year, after minimal growth in the previous two quarters.
However, Statistics Canada noted that disposable income fell for the first time since the fourth quarter of 2021. The federal agency says disposable income declined by one per cent, largely due to the expiration of government measures aimed at helping people cope with inflation.
The combination of higher spending and lower income has pushed down the household saving rate.
Economists have been struggling to get a read on the economy as data has proven to be volatile. Desjardins says converging forces, from the COVID-19 pandemic to changing demographics to population growth, are to blame.
“There are a lot of things that are changing within the economy. And it does make it very challenging to really zero in on what is that one factor that is driving this growth, or is going to be the one that’s going to drive us into a much slower growth trajectory,” Desjardins said.
Forecasters were previously expecting the Bank of Canada’s aggressive rate-hiking cycle, which began in March 2022, to push the economy into a recession as early as the end of 2022.
Those predictions have turned out to be too pessimistic, but economists like Desjardins are still counting on a slowdown this year.
“I do think that households are going to start to feel the squeeze,” she said.
How bad the squeeze will be will depend on how hard the labour market is hit, Desjardins said. So far, the jobs market has kept its steam as the unemployment rate hovers at five per cent, just above the all-time record-low of 4.9 per cent.
The central bank paused its rate-hiking cycle earlier this year to account for the lag that typically exists between changes to interest rates and the effects on the economy.
But the central bank’s governor, Tiff Macklem, has signalled that the bank is still trying to figure out if interest rates are high enough to quash inflation.
The headline inflation rate ticked up slightly to 4.4 per cent in April, remaining well above the central bank’s two per cent target. It’s still expected to decline further this year, but economists and the Bank of Canada worry the journey back to two per cent inflation may take longer than they would hope for.
This report by The Canadian Press was first published May 31, 2023
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