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Euro-Area Economy Strengthens More on Service-Sector Surge – Financial Post

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(Bloomberg) — Euro-zone economic growth continued to pick up in March, driven exclusively by the service sector as concerns over energy supplies recede.

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The overall rate of expansion rose to the highest level in 10 months, according to business surveys by S&P Global. Manufacturing output broadly stagnated, however, only supported by a backlog of orders as demand continued to fall.

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“Growth has been buoyed since the lows of late last year as recession fears and energy market worries fade, inflation pressures ease and the unprecedented supply chain delays seen during the pandemic are replaced with record improvements to supplier delivery times,” said Chris Williamson, an economist at S&P Global.

Sentiment in Europe has been improving as it became clear that the region would avoid worst-case scenarios for access to natural gas predicted after Russia cut off supplies to the bloc. Recent turmoil in the banking sector has cast some doubt on how the global economy will develop, though European officials have sounded confident that the sector can withstand any fallout.

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While activity improved in both Germany and France, the strongest performance came in the rest of the 20-nation euro area.

What Bloomberg Economic Says…

“The euro-area composite PMI survey for March suggests the economy is beginning to emerge from a period of stagnation and holding up well under the weight of higher interest rates. While monetary policy works with long and variable lags and choppy waters may still lie ahead, the resilience of the economy should allow the hawks at the European Central Bank to succeed in pushing for more interest rate increases”

—David Powell, economist. For full analysis, click here

Inflation is still running far above the European Central Bank’s 2% target, however, with underlying data becoming the key focus for policymakers. While price gains continued to moderate in March, they remain elevated by historical standards, according to S&P Global.

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“Such stubborn inflationary pressures, fueled primarily by the service sector and rising wage costs, will be a concern to policymakers and suggests that more work may be needed in terms of bringing inflation down to target,” Williamson said.

The jobs market also remained resilient. Employment growth reached a nine-month high, with acceleration seen especially in services in line with rising demand.

Firms’ confidence in the business outlook dipped, though it remained well above levels seen in late 2022. That could be linked to concerns over uncertainty caused by banking-sector stress and the impact of further increases in interest rates, S&P Global said.

The composite PMI reading for the UK edged lower to 52.2 in March from 53.1 the previous month, suggesting the economy has avoided a recession for now. British companies are the most confident they’ve been since the start of Russia’s invasion of Ukraine.

Data earlier revealed activity in Japan’s services sector edged up to the strongest in almost a decade as the return of Chinese tourists boosted demand. The US number due later on Friday is expected to be below 50.

—With assistance from Mark Evans, Joel Rinneby, Tom Rees and Zoe Schneeweiss.

(Updates with UK PMI data in 10th paragraph.)

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Business, consumer sentiment subdued as economy slows, Bank of Canada surveys find – Toronto Star

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The Bank of Canada says business and consumer sentiment remained subdued during the second quarter of the year even as the country saw its first interest rate cut in years.

The central bank’s survey of consumers released Monday shows financial stress remained high over the spring and Canadians’ outlook for the future economy was “pessimistic.”

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Peru’s Economy Beats Expectations Again as Recovery Gains Steam

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(Bloomberg) — Peru’s economy expanded more than expected for the second straight month in May, cementing its recovery from a recession last year.

The economic activity index, a proxy for gross domestic product, rose 5% from a year prior, the national statistics agency reported on Monday. It matched the highest forecast in a Bloomberg survey of analysts that had a 4.4% median estimate.

The reading was in line with forecasts from both the central bank and the finance ministry, which see the economy growing around 3% in 2024. That outlook represents a turnaround from last year, when gross domestic product contracted 0.6% due to social turmoil and bad weather. Peru’s recovery has also eased pressure on the central bank to slash rates faster.

Growth in May was boosted by a more than 300% surge in fishing, which had been heavily disrupted by the El Nino weather pattern last year. Peru is a top supplier of fish meal worldwide, most notably of anchovy.

 

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How AI’s Rapid Growth Threatens Energy Industry, Economy, and Climate

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The growth of Artificial Intelligence has come on so strong and so fast that it threatens to destabilize the energy industry, the economy, and the climate.

Last week, Google stated that its carbon emissions have skyrocketed by a whopping 48 percent over the last five years. “AI-powered services involve considerably more computer power – and so electricity – than standard online activity, prompting a series of warnings about the technology’s environmental impact,” the BBC reported Thursday. Indeed, a recent study from scientists at Cornell University finds that generative AI systems like ChatGPT use up to 33 times more energy than computers running task-specific software. Furthermore, each AI-powered internet query consumes about ten times more energy than traditional internet searches. 

This runaway increase in power consumption as AI picks up speed poses a direct threat to the tech sector’s ability to make good on its decarbonization promises. While Google hasn’t budged from its net-zero by 2030 goals, the company has admitted that “as we further integrate AI into our products, reducing emissions may be challenging.”

Altogether, the global AI sector is expected to be responsible for 3.5 percent of the world’s electricity consumption by 2030. In the United States, data centers alone could consume a whopping 9 percent of electricity generation by 2030. That represents a two-fold increase of current levels. That punishing growth rate will have major implications for national energy security, not to mention the economy.

“When you look at the numbers, it is staggering,” Jason Shaw, chairman of the Georgia Public Service Commission, an electricity regulator, told the Washington Post back in March. “It makes you scratch your head and wonder how we ended up in this situation. How were the projections that far off? This has created a challenge like we have never seen before.”

Together, AI and electric vehicles are expected to add 290 terawatt hours of electricity demand to the United States energy grid by the end of the decade according to projections by Rystad Energy. By 2030, these two sectors alone will consume an equivalent amount of energy to the entire nation of Turkey – the world’s 18th largest economy.

All this means that the country has to add a whole lot of energy production capacity at a breakneck pace, or the United States risks running out of energy altogether. “This growth is a race against time to expand power generation without overwhelming electricity systems to the point of stress,” said Rystad analyst Surya Hendry.

And the American public can expect to bear a whole lot of that burden in the form of ballooning energy bills. Furthermore, there’s nothing that the average consumer can do to stop it, as it’s not a consumer behavior issue so much as a tech sector issue. Electricity prices are already on the rise, and growth rates aren’t going to slow down any time soon according to projections from the Bank of America Institute, a think tank that crunches proprietary data to provide economic insights. In the bigger picture, industry insiders have warned that if the nation can’t produce enough energy to keep up with these ballooning demands, they risk hindering economic growth. 

No one is more aware of this power crunch than Big Tech. CNBC reports that heavy hitters like Amazon, Alphabet, Microsoft, and Meta, are all begging for increased energy as they continue to add data centers to the grid, often at a gigawatt of electricity a pop. In order to fill this massive and increasing supply gap, many tech bigwigs are calling for an increase in nuclear energy deployment and nuclear fusion research, as it is a proven zero-carbon technology capable of producing large volumes of baseload power, avoiding many of the technological and bureaucratic pitfalls associated with renewables.

The reality, however, is that no single power source can save the United States from the crushing weight of its own technological ambitions. Feeding the insatiable hunger of AI, EVs, and related sectors will likely require additional extraction and exploration of fossil fuels in a business-as-usual scenario. And this is a huge problem.

However, AI could be the solution as well as the problem. It could be employed in ‘smart grids’ to ensure efficiency and reduce emissions. However, this would require restraint that the tech sector isn’t exactly famous for. The Department of Energy has warned that this approach could cause more harm than good if applied ‘naively.’

By Haley Zaremba for Oilprice.com

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