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Charting the Global Economy: UK Incomes Set for Record Drop

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(Bloomberg) — Britons are about to experience a record drop in disposable incomes as Chancellor of the Exchequer Jeremy Hunt raises taxes and cuts spending to clean up an economy already in recession.

The UK program represents the sharpest retrenchment in government spending since the austerity budgets set out after the global financial crisis. The measures come as the nation’s inflation rate hit a 41-year high of 11.1% in October, more than five times the central bank’s target.

In the US, retail sales advanced by the most in eight months, suggesting the economy got off to a good start in the fourth quarter. Meantime, activity in China weakened last month, and Chile’s economy contracted the most on a quarterly basis since the start of the pandemic.

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

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UK

Hunt targeted wealthy people and energy companies in a £55 billion ($65 billion) package of tax rises and spending cuts aimed at cleaning up the mess left by unprecedented shocks to the economy. The measures set out by the chancellor will contribute to a 7% drop in the disposable incomes of consumers over the next two years, the biggest squeeze on record, and will wipe out eight years of gains.

Energy bills drove UK inflation to a stronger-than-forecast 41-year high in October, adding to pressure on the government and Bank of England to act. The Consumer Prices Index increased 11.1% from a year ago, more than five times the central bank’s target.

US

US producer price growth stepped down in October by more than expected in the latest sign that inflationary pressures are beginning to ease. The data come on the heels of a smaller-than-expected monthly increase in the October consumer price index, which was welcomed as a sign that the fastest price increases in decades are finally be starting to ebb.

US retail sales posted the biggest increase in eight months in October, indicating demand for goods is broadly holding up despite decades-high inflation and a worsening economic outlook. The data suggest the economy got off to a good start in the fourth quarter, and may complicate the argument posed by several Federal Reserve officials pushing for a slower pace of interest-rate hikes in the coming months.

Port of New York and New Jersey kept its crown as the busiest in the US despite a slight drop in cargo movement as California’s top marine hubs continue to clear up backlogs and deal with uncertainty around dockworker labor talks.

Europe

Banks will return €296.3 billion ($308 billion) of cheap loans to the European Central Bank after their terms were toughened to help the battle against record inflation. The repayment represents just under 15% of the total outstanding amount of so-called TLTRO loans, which were used during the pandemic to keep credit flowing to households and businesses.

Economies in the European Union’s east slowed in the third quarter as consumers were hit by spiking energy costs triggered by Russia’s war in neighboring Ukraine and soaring interest rates. As the euro area tips into recession, eastern Europe has been particularly plagued by double-digit inflation, forcing central banks to embark on a rapid series of rate increases since last year.

Emerging & Frontier Markets

Uzbekistan ended decades of economic isolation at a time when ultra-low interest rates made it an appealing destination for foreign capital — all the while remaining heavily reliant on remittances from its workers in Russia. To keep up the momentum of an economy that’s already projected to be among the fastest growing among post-Soviet states, Uzbekistan will look to the sale of land and aims to raise about $1 billion next year by divesting state assets, Deputy Prime Minister Jamshid Kuchkarov, who also serves as minister of economic development, said in an interview.

Chile’s economy contracted the most on a quarterly basis since the start of the pandemic, pinning the nation on the brink of recession after both annual inflation and the interest rate hit multi-decade highs.

Asia

China’s economic activity weakened in October, putting pressure on Beijing to ramp up support after it took major steps in the past week to reduce the drag on consumers from Covid Zero policies and a property slump. Retail sales fell and industrial output growth weakened.

World

It’s been a miserable year for the global economy. But things can always get worse. An extreme downside scenario could wipe out some $5 trillion in global output, compared with more upbeat forecasts at the start of this year, according to Bloomberg Economics.

Rwanda’s central bank increased interest rates for the third time this year to the highest level since 2016 after roaring inflation led it to revise forecasts. Policymakers in Uruguay, Indonesia and the Philippines also raised rates.

–With assistance from Philip Aldrick, Andrew Atkinson, Saul Butera, Enda Curran, Nariman Gizitdinov, Marton Kasnyik, Maria Kolesnikova, Yujing Liu, Matthew Malinowski, James Mayger, Alex Morales, Tom Orlik (Economist), Reade Pickert, Augusta Saraiva, Piotr Skolimowski, Liza Tetley, Alexander Weber, Skylar Woodhouse and Lin Zhu.

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Mint issues black-ringed toonie in memory of Queen Elizabeth II

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The Royal Canadian Mint is issuing a new black-ringed toonie to honour Queen Elizabeth II.

The mint says the coin’s black outer ring is intended to evoke a “mourning armband” to honour the queen, who died in September after 70 years on the throne.

The mint says it will start to circulate nearly five million of the coins this month, and they will gradually appear as banks restock inventories.

Aside from the black ring, the mint says the coin retains the same design elements of the standard toonie.

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Four different images of the queen have graced Canadian coins since 1953, when she was crowned.

The core of the commemorative toonie will feature the same portrait of the queen that has been in circulation since 2003, with a polar bear design on the other side.

Queen Elizabeth II served as Canada’s head of state for seven decades and for millions of Canadians, she was the only monarch they had ever known,” Marie Lemay, president and CEO of the Royal Canadian Mint, wrote in a statement.

“Our special $2 circulation coin offers Canadians a way to remember her.”

The mint says it may produce more of the coins, depending on what it calls “marketplace needs”.

This report by The Canadian Press was first published Dec. 7, 2022.

 

The Canadian Press

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Japan’s Economy Shrank Less Over Summer Than First Thought

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(Bloomberg) — Japan’s economy took a smaller hit than first thought during a summer marked by a renewed Covid surge and a plunge in the yen, with a return to growth expected this quarter.

Gross domestic product shrank an annualized 0.8% in the three months to the end of September from the previous period, revised figures from the Cabinet Office showed Thursday. That was smaller than the 1.2% contraction first estimated and a 1% drop forecast by economists.

The revised figures showed that stronger exports reduced the heavy negative impact on trade from the yen drop, and that capital spending by firms held up.

A buildup of inventories also helped narrow the contraction of the economy, though that also suggests there wasn’t enough demand for the output of factories. The data also showed consumption was weaker than first thought during the summer Covid surge and inflation acceleration.

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Overall, the figures didn’t improve enough to eliminate concerns among policymakers over the resilience of the economy. Japan heads toward the end of the year and into 2023 with clouds darkening over the global outlook, and the possibility of recessions in key overseas markets.

“The weaker consumption worries me,” said Harumi Taguchi, principal economist at S&P Global Market Intelligence. “Spending hasn’t picked up much in the current quarter, either, probably because of inflation and another rise in Covid infections.”

What Bloomberg Economics Says…

“Details under the hood of Japan’s narrower third-quarter GDP contraction aren’t encouraging. A buildup in inventory that contributed to the upward revision will limit catch-up production in 4Q.”

— Yuki Masujima, economist

For the full report, click here

Prime Minister Fumio Kishida has already put together an economic stimulus package to cushion the impact of strengthening inflation that should offer more support for growth early next year. Analysts also expect the economy to have returned to expansion this quarter.

The Bank of Japan, meanwhile, is expected to keep interest rates unchanged at ultra-low levels during the last months of Governor Haruhiko Kuroda’s tenure.

Still, analysts are concerned about how the economy will weather a global slowdown prompted by tighter central bank police elsewhere in the world. Cautious moves by China to relax its virus restrictions offer one of the few points of optimism over the coming months.

“External demand is also be on the wane, as we saw in industrial production,” Taguchi said. “The situation may change if China lifts its zero Covid policy, but for now Europe and the US are bracing for the impact of an economic slowdown in the wake of interest rate hikes.”

Economists expect private sector spending and services consumption to support the economy this quarter. Pent-up demand held over from the summer Covid wave has already fueled consumer outlays, though the recent resurgence of infections will likely start to limit those gains. The government is widely expected to keep the country free of virus-related restrictions to maintain economic activities.

Inflation is growing as another concern for consumption and the recovery path. Japan’s price increases hit their fastest clip in 40 years in October, and the pace likely sped up further in November based on last month’s Tokyo data, a leading indicator for nationwide trends.

Kishida’s support package offers further relief from soaring energy costs with electricity bills set to get hefty subsidies from early next year.

Business spending didn’t get revised up as expected but still showed resilience in corporate sentiment despite a yen slide that prompted government intervention in currency markets. The plunge in the yen over the summer may give companies second thoughts about their business plans.

Still, the yen’s recent pullback may reassure businesses going ahead and should also have a favorable impact on net trade this quarter.

“Personally, I don’t think the capital investment will decrease that much,” said Toru Suehiro, chief economist at Daiwa Securities. “I think that capital investment will continue throughout next year due to pent-up demands.”

Another positive development is that Japan fully reopened its borders to tourists in October. That offers the prospect of renewed inbound spending by visitors attracted by cheaper travel expenses thanks to their relatively stronger currencies.

(Adds economist comment, more details)

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Key White House economic advisor says U.S. economy is slowing but resilient

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The U.S. economy is showing “continued resilience” despite a predictable slowdown, a top White House economic advisor said Wednesday.

National Economic Council Director Brian Deese said low rates of credit card delinquency and mortgage concerns point to resiliency in household balance sheets, while the labor market and the savings rate also indicate steadier growth. What’s more, he pointed to slowing inflation as a positive sign for healthier economic growth.

Markets are bracing for a 'Powell recession' that could be coming soon

“We need to see a transition to a more stable growth trajectory, but I think if you look at the key elements that you need as part of that, some easing on the inflation side … we’re starting to see some evidence in that direction,” Deese said Wednesday on CNBC’s “Squawk Box.”

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The November labor market report released Friday showed job growth was better than expected, as nonfarm payrolls increased by 263,000. The unemployment rate was 3.7%.

White House economic adviser Brian Deese speaks during a press briefing at the White House in Washington, March 31, 2022.

The Federal Reserve has steadily raised interest rates in an effort to bring down the highest inflation in 40 years, contributing to concerns about a coming recession. The improving labor market, combined with a 0.6% increase in average hourly earnings last month, also has put pressure on the central bank to continue raising rates.

The Fed’s benchmark overnight borrowing rate reached a target range of 3.75%-4% after six consecutive hikes this year. Major U.S. stock indexes have struggled this week, in part due to concerns of a slowing economy and expectations of more rate increases ahead.

The Fed is expected to hike rates again at its meeting next week.

Despite the concerns felt by investors, economic resilience will position the U.S. to become a center of “investment, productivity and innovation” over the next few years, Deese said.

“We were out in (Phoenix) yesterday with a set of CEOs who all underscored this, that even as we’re looking at this transition and navigating through this historically unique transition, the United States looks better as a prospect to invest, and that’s going to be a driver,” Deese said. “That’s going be where we get our innovation and our productive capacity, beyond the next month or two.”

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