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Chinese economy continues to show signs of recovery – Yahoo Finance

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Bloomberg

Emerging Markets Brace for Rate Hikes With Debt at Records

(Bloomberg) — Alarm bells are starting to ring across emerging markets as countries brace for a new era of rising interest rates.After an unprecedented period of rate cuts to prop up economies shattered by Covid-19, Brazil is expected to raise rates this week and Nigeria and South Africa could follow soon, according to Bloomberg Economics. Russia already stopped easing earlier than expected and Indonesia may do the same.Behind the shift: Renewed optimism in the outlook for the world economy amid greater U.S. stimulus. That’s pushing up commodity-price inflation and global bond yields, while weighing on the currencies of developing nations as capital heads elsewhere.The turn in policy is likely to inflict the greatest pain on those economies that are still struggling to recover or whose debt burdens swelled during the pandemic. Moreover, the gains in consumer prices, including food costs, that will prompt the higher rates may exact the greatest toll on the world’s poorest.“The food-price story and the inflation story are important on the issue of inequality, in terms of a shock that has very unequal effects,” said Carmen Reinhart, the chief economist at the World Bank, said in an interview, citing Turkey and Nigeria as countries at risk. “What you may see are a series of rate hikes in emerging markets trying to deal with the effects of the currency slide and trying to limit the upside on inflation.”Investors are on guard. The MSCI Emerging Markets Index of currencies has dropped 0.5% in 2021 after climbing 3.3% last year. The Bloomberg Commodity Index has jumped 10%, with crude oil rebounding to its highest levels in almost two years.Rate increases are an issue for emerging markets because of a surge in pandemic-related borrowing. Total outstanding debt across the developing world rose to 250% of the countries’ combined gross domestic product last year as governments, companies and households globally raised $24 trillion to offset the fallout from the pandemic. The biggest increases were in China, Turkey, South Korea and the United Arab Emirates.What Bloomberg Economics Says…“The tide is turning for emerging-market central banks. Its timing is unfortunate — most emerging markets have yet to fully recover from the pandemic recession.”– Ziad Daoud, chief emerging markets economistClick here for the full reportAnd there’s little chance of borrowing loads easing any time soon. The Organisation for Economic Co-operation and Development and the International Monetary Fund are among those that have warned governments not to remove stimulus too soon. Moody’s Investors Service says it’s a dynamic that’s here to stay.“While asset prices and debt issuers’ market access have largely recovered from the shock, leverage metrics have shifted more permanently,” Colin Ellis, chief credit officer at the ratings company in London, and Anne Van Praagh, fixed-income managing director in New York, wrote in a report last week. “This is particularly evident for sovereigns, some of which have spent unprecedented sums to fight the pandemic and shore up economic activity.”Further complicating the outlook for emerging markets is they have typically been slower to roll out vaccines. Citigroup Inc. reckons such economies won’t form herd immunity until some point between the end of the third quarter of this year and the first half of 2022. Developed economies are seen doing so by the end of 2021.The first to change course will likely be Brazil. Policy makers are forecast to lift the benchmark rate by 50 basis to 2.5% when they meet Wednesday. Turkey’s central bank, which has already embarked on rate increases to shore up the lira and tame inflation, convenes the following day, with a 100 basis-point move in the cards. On Friday, Russia could signal tightening is imminent.Nigeria and Argentina could then raise their rates as soon as the second quarter, according to Bloomberg Economics. Market metrics show expectations are also building for policy tightening in India, South Korea, Malaysia and Thailand.“Given higher global rates and what is likely to be firming core inflation next year, we pull forward our forecasts for monetary policy normalization for most central banks to 2022, from late 2022 or 2023 earlier,” Goldman Sachs Group Inc. analysts wrote in a report Monday. “For RBI, the liquidity tightening this year could morph into a hiking cycle next year given the faster recovery path and high and sticky core inflation.”Some countries may still be in a better position to weather the storm than during the “taper tantrum” of 2013 when bets on cuts in U.S. stimulus triggered capital outflows and sudden gyrations in foreign-exchange markets. In emerging Asia, central banks have built up critical buffers, partly by adding $468 billion to their foreign reserves last year, the most in eight years.Yet higher rates will expose countries, such as Brazil and South Africa, that are ill-positioned to stabilize the debt they’ve run up in the past year, Sergi Lanau and Jonathan Fortun, economists at the Washington-based Institute of International Finance, said in a report last week.“Relative to developed markets, the room low rates afford emerging markets is more limited,” they wrote. “Higher interest rates would reduce fiscal space significantly. Only high-growth Asian emerging markets would be able to run primary deficits and still stabilize debt.”Among those most at risk are markets still heavily dependent on foreign-currency debt, such as Turkey, Kenya and Tunisia, William Jackson, chief emerging markets economist at Capital Economics in London, said in a report. Yet local-currency sovereign bond yields also have risen, hurting Latin American economies most, he said.Other emerging markets could be forced to put off their own fiscal measures following the passage of the $1.9 trillion U.S. stimulus plan, a danger underlined by Nomura Holdings Inc. more than a month ago.“Governments may be tempted to follow Janet Yellen’s clarion call to act big this year on fiscal policy, to continue to run large or even larger fiscal deficits,” Rob Subbaraman, head of global markets research at Nomura in Singapore, wrote in a recent report. “However, this would be a dangerous strategy.”The net interest burden of emerging-market governments is more than three times that of their developed-market counterparts, while emerging markets are both more inflation-prone and dependent on external financing, he said.In addition to South Africa, Nomura highlighted Egypt, Pakistan and India as markets where net interest payments on government debt surged from 2011 to 2020 as a share of output.(Updates with analyst comment in paragraph after Read More box, updates yield data in chart.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.

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Economy

U.S. economic growth for last quarter revised up slightly to healthy 3.4% annual rate

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The U.S. economy grew at a solid 3.4 per cent annual pace from October through December, the government said Thursday in an upgrade from its previous estimate. The government had previously estimated that the economy expanded at a 3.2 per cent rate last quarter.

The Commerce Department’s revised measure of the nation’s gross domestic product – the total output of goods and services – confirmed that the economy decelerated from its sizzling 4.9 per cent rate of expansion in the July-September quarter.

But last quarter’s growth was still a solid performance, coming in the face of higher interest rates and powered by growing consumer spending, exports and business investment in buildings and software. It marked the sixth straight quarter in which the economy has grown at an annual rate above 2 per cent.

For all of 2023, the U.S. economy – the world’s biggest – grew 2.5 per cent, up from 1.9 per cent in 2022. In the current January-March quarter, the economy is believed to be growing at a slower but still decent 2.1 per cent annual rate, according to a forecasting model issued by the Federal Reserve Bank of Atlanta.

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Thursday’s GDP report also suggested that inflation pressures were continuing to ease. The Federal Reserve’s favoured measure of prices – called the personal consumption expenditures price index – rose at a 1.8 per cent annual rate in the fourth quarter. That was down from 2.6 per cent in the third quarter, and it was the smallest rise since 2020, when COVID-19 triggered a recession and sent prices falling.

Stripping out volatile food and energy prices, so-called core inflation amounted to 2 per cent from October through December, unchanged from the third quarter.

The economy’s resilience over the past two years has repeatedly defied predictions that the ever-higher borrowing rates the Fed engineered to fight inflation would lead to waves of layoffs and probably a recession. Beginning in March 2022, the Fed jacked up its benchmark rate 11 times, to a 23-year high, making borrowing much more expensive for businesses and households.

Yet the economy has kept growing, and employers have kept hiring – at a robust average of 251,000 added jobs a month last year and 265,000 a month from December through February.

At the same time, inflation has steadily cooled: After peaking at 9.1 per cent in June 2022, it has dropped to 3.2 per cent, though it remains above the Fed’s 2 per cent target. The combination of sturdy growth and easing inflation has raised hopes that the Fed can manage to achieve a “soft landing” by fully conquering inflation without triggering a recession.

Thursday’s report was the Commerce Department’s third and final estimate of fourth-quarter GDP growth. It will release its first estimate of January-March growth on April 25.

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Economy

Canadian economy starts the year on a rebound with 0.6 per cent growth in January – CBC.ca

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The Canadian economy grew 0.6 per cent in January, the fastest growth rate in a year, while the economy likely expanded 0.4 per cent in February, Statistics Canada said Thursday.

The rate was higher than forecasted by economists, who were expecting GDP growth of 0.4 per cent in the month. December GDP was revised to a 0.1 per cent contraction from zero growth initially reported.

January’s rise, the fastest since the 0.7 per cent growth in January 2023, was helped by a rebound in educational services as public sector strikes ended in Quebec, Statistics Canada said.

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WATCH | The Canadian economy grew more than expected in January: 

Canada’s GDP increased 0.6% in January

41 minutes ago

Duration 2:20

The Canadian economy grew 0.6 per cent in January, the fastest growth rate in a year, while the economy likely expanded 0.4 per cent in February, Statistics Canada says.

“The more surprising news today was the advance estimate for February,” which suggested that underlying momentum in the economy accelerated further that month, wrote CIBC senior economist Andrew Grantham in a note.

Thursday’s data shows the Canadian economy started 2024 on a strong note after growth stalled in the second half of last year. GDP was flat or negative on a monthly basis in four of the last six months of 2023.

More time for BoC to assess

The strong rebound could allow the Bank of Canada more time to assess whether inflation is slowing sufficiently without risking a severe downturn, though the central bank has said it does not want to stay on hold longer than needed.

Because recent inflation figures have come in below the central bank’s expectations, “it appears that much of the growth we are seeing is coming from an easing of supply constraints rather than necessarily a pick-up in underlying demand,” wrote Grantham.

“As a result, we still see scope for a gradual reduction in interest rates starting in June.”

WATCH | Bank of Canada left interest rate unchanged earlier this month: 

Bank of Canada leaves interest rate unchanged, says it’s too soon to cut

22 days ago

Duration 1:56

The Bank of Canada held its key interest rate at 5 per cent on Wednesday, with governor Tiff Macklem saying it was too soon for cuts. CBC News speaks with an economist and a couple who might be forced to sell their home if interest rates don’t come down.

The central bank has maintained its key policy rate at a 22-year high of five per cent since July, but BoC governors in March agreed that conditions for rate cuts should materialize this year if the economy evolves in line with its projections.

The bank in January forecast a growth rate of 0.5 per cent in the first quarter, and Thursday’s data keeps the economy on a path of small growth in the first three months of 2024. The BoC will release new projections along with its rate announcement on April 10.

Growth in 18 out of 20 sectors

Growth in January was broad-based, with 18 of 20 sectors increasing in the month, StatsCan said. The agency said that real estate and the rental and leasing sectors grew for the third consecutive month, as activity at the offices of real estate agents and brokers drove the gain in January.

Overall, services-producing industries grew 0.7 per cent, while the goods-producing sector expanded 0.2 per cent.

In a preliminary estimate for February, StatsCan said GDP was likely up 0.4 per cent, helped by mining, quarrying, oil and gas extraction, manufacturing and the finance and insurance industries.

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Yellen Sounds Alarm on China ‘Global Domination’ Industrial Push – Bloomberg

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US Treasury Secretary Janet Yellen slammed China’s use of subsidies to give its manufacturers in key new industries a competitive advantage, at the cost of distorting the global economy, and said she plans to press China on the issue in an upcoming visit.

“There is no country in the world that subsidizes its preferred, or priority, industries as heavily as China does,” Yellen said in an interview with MSNBC Wednesday — highlighting “massive” aid to electric-car, battery and solar producers. “China’s desire is to really have global domination of these industries.”

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