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GLOBAL ECONOMY-China's economic wobbles cast long shadow for Asia – Yahoo Finance

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By Chen Lin and Cynthia Kim

SINGAPORE/SEOUL, Oct 19 (Reuters) – China’s economic setbacks have darkened the outlook for countries in its orbit, from South Korea to Thailand, as a sharp factory slowdown and trade bottlenecks in the world’s second-largest economy hit Asia on the supply as well as demand sides.

China’s gross domestic product faltered in the third quarter, data showed this week, with growth hitting its weakest in a year, hurt by power shortages, supply chain snags and a property market crisis.

For China’s trading partners, the slippage presents new risks to what is shaping up to be a bumpy global recovery from the pandemic slump.

“Yes, growth elsewhere, namely the U.S. and Europe, appears robust,” wrote Frederic Neumann, co-head of Asian economics research at HSBC. “But it is China that’s been the main engine for growth across the region – and as it sputters, Asian economies will lose much of their torque.”

HSBC analysis showed Asia-Pacific economies from South Korea to New Zealand far more correlated to changes in China’s growth than they were to changes in U.S. or European GDP.

For every percentage point China added to its growth, trade powerhouse South Korea reported about 0.7 of point of additional growth, the bank’s economists said.

South Korea was by far the most sensitive to changes in Chinese growth, according the analysis, followed by exporting nations Thailand and Taiwan.

An anticipated Chinese slowdown has already prompted Citi analysts to downgrade growth projections for economies in the region, including South Korea, Taiwan, Malaysia, Singapore and Vietnam.

A Reuters Corporate Survey last week showed a majority of Japanese firms were concerned that a slowdown in China, Japan’s largest trading partner, would affect their business.

The slowdown is being felt across most of China’s economy, from the retail to factory sectors, which posted its weakest output growth since the start of the pandemic.

China’s auto sales slumped 19.6% in September from a year earlier, industry data showed last week, falling for a fifth consecutive month amid a prolonged global shortage of semiconductors and the power crunch.

Similarly, sharp declines in new construction starts in China’s property market, due to a regulatory crackdown, loom as risks for exporters of raw materials, such as Australia.

Iron ore prices have nearly halved since hitting a record in mid-May, with demand hurt by China’s steel output curbs and the property slowdown.

Last week, mining giant Rio Tinto downgraded its 2021 iron ore shipments forecast, mostly due to tight labour market conditions in Australia, but it also warned of headwinds from China’s regulatory crackdown.

‘STAGFLATION’

Despite the risks from China, analysts say Asia will be able to prevent a precipitous collapse in domestic demand, as improved vaccination rates allow countries in the region to shake off COVID-19 restrictions.

Similarly, Chinese demand for some goods, such as fuel and food, remains firm. That means for now, central banks are unlikely to swerve from their general shift away from crisis era monetary settings.

Singapore last week tightened its monetary policy.

Beyond the broader demand shock, complications for economies in Asia and elsewhere could come from worsening supply-side problems in China, such as the power crunch.

So far, China’s manufacturers and exporters have yet to significantly pass on higher costs caused by supply shortages of everything from coal to semiconductors.

But analysts warn the situation around inflation is fluid.

While weaker demand could relieve pressure on prices, supply chain bottlenecks, if unresolved, could create a “stagflation” nightmare in which surging prices are accompanied by stagnant growth.

“I think it could potentially be a bit of a double whammy now. Because China is one of the economic engines for the region, any slowdown can affect the demand for regional goods and services,” said Selena Ling, head of treasury research and strategy at OCBC Bank.

“Secondly, the ongoing power crunch, in all likelihood, policymakers will prioritise home (use) for winter demand over industrial activity. So that could exacerbate global supply chain disruptions.”

(Additional reporting by Tetsushi Kajimoto, Kantaro Komiya and Leika Kihara in Tokyo; Orathai Sriring in Bangkok; and Tom Westbrook in Singapore; Writing by Sam Holmes; Editing by Raju Gopalakrishnan)

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Omicron could pose 'significant' threat to global economy, Yellen says – Reuters

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Dec 2 (Reuters) – The Omicron variant of COVID-19 could slow global economic growth by exacerbating supply chain problems and depressing demand, U.S. Treasury Secretary Janet Yellen told the Reuters Next conference on Thursday.

Yellen cited a great deal of uncertainty about the impact of the highly contagious variant, first detected in South Africa, given the severe U.S. economic slowdown caused by the emergence of the Delta variant of COVID-19 earlier this year.

“Hopefully it’s not something that’s going to slow economic growth significantly,” Yellen said, adding, “There’s a lot of uncertainty, but it could cause significant problems. We’re still evaluating that.”

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Yellen said the new strain of the coronavirus could exacerbate supply chain problems and boost inflation, but it could also depress demand and cause slower growth, which would ease some of the inflationary pressures.

The spread of Omicron has roiled financial markets and prompted governments around the world to tighten travel and workplace restrictions. The United States reported its first case of community transmission of the new variant on Thursday.

Yellen, the former head of the Federal Reserve, also told the virtual global conference that she is ready to retire the word “transitory” to describe the current state of inflation plaguing the U.S. recovery from the COVID-19 pandemic, echoing comments from Fed Chair Jerome Powell earlier this week.

“I’m ready to retire the word transitory. I can agree that that hasn’t been an apt description of what we’re dealing with,” Yellen said.

Powell told lawmakers this week the word meant different things to different people, sowing some confusion, and it was a good time to explain more clearly what was meant. read more

STRONG ECONOMY

Treasury Secretary Janet Yellen pauses while testifying before a Senate Banking Committee hybrid hearing on oversight of the Treasury Department and the Federal Reserve on Capitol Hill in Washington, U.S., November 30, 2021. REUTERS/Elizabeth Frantz
Treasury Secretary Janet Yellen pauses while testifying before a Senate Banking Committee hybrid hearing on oversight of the Treasury Department and the Federal Reserve on Capitol Hill in Washington, U.S., November 30, 2021. REUTERS/Elizabeth Frantz

Yellen insisted that stimulus spending by the Biden administration early this year was not the major driver boosting consumer prices, which hit 31-year highs in October and are running at more than twice the Fed’s flexible inflation target of 2% annually. She blamed the surging prices mainly on supply chain issues and a mismatch between supply and demand.

Yellen said the $1.9 trillion American Rescue Plan passed by Congress earlier this year had helped vulnerable Americans get through the worst of the pandemic and fueled the strong U.S. economy.

While it may have contributed to inflation “somewhat,” she said the surge was largely due to the pandemic and the massive shift in consumption towards goods and away from services.

She said the Fed should keep a close eye on rising wages to avoid the kind of damaging and long-lasting “wage-price spiral” seen in the 1970s.

Yellen, who led the Fed from 2014 to 2018, said it was up to the U.S. central bank to decide what to do about interest rates, but noted that a strong U.S. economy, which would likely prompt rate hikes, is generally a good thing for the rest of the world. read more

President Joe Biden’s administration is working closely with the private sector to curb price increases, Yellen said, citing efforts to accelerate the loading of containers at ports and encourage domestic production of semiconductors.

She said lowering Trump-era tariffs on imported goods from China through a revived exclusion process could help ease some inflationary pressures, but would not be a “game-changer.” [nL1N2SN1M6]

While she is “open” to a visit to China to meet with government officials there on economic issues, Yellen said a trip is not currently on her agenda. But she said she would continue to engage with her Chinese counterpart, Vice Premier Liu He, on issues such as technology practices, securities markets and exchange rate practices as well as efforts to rebalance China’s economy toward consumer spending.

Yellen also told the Reuters Next audience that her mind is not yet made up on whether the Fed should create a digital dollar, following China and some other countries in developing central bank digital currencies.

She said the advantages and disadvantages of such a move needed to be weighed, including possible negative effects on the banking system, and that consensus among the Fed, the Biden administration and Congress was needed to proceed. read more

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Reporting by Alessandra Galloni, additional reporting by David Lawder, Andrea Shalal and Daniel Burns; Editing by Paul Simao

Our Standards: The Thomson Reuters Trust Principles.

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Dollar gains as Fed hawks circle before jobs report; Aussie slumps

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The dollar leapt against its more risk-sensitive Australian and New Zealand counterparts on Friday, ahead of key U.S. jobs data that could clear the path to earlier Federal Reserve interest rate hikes, even as Omicron uncertainties cloud the outlook.

Fed officials speaking on Thursday joined Chair Jerome Powell in striking hawkish stances, with San Francisco Fed President Mary Daly saying it may be time to “start crafting a plan” to raise rates to combat inflation, and Richmond Fed President Thomas Barkin throwing his support behind “normalising policy.”

Meanwhile, the continued spread of the Omicron COVID-19 variant globally buoyed havens like the dollar and yen and pressured riskier currencies. Omicron has quickly established itself as the dominant strain in South Africa, where it was first discovered last month, and has now been found in five U.S. states including Hawaii.

“G10 FX is very much risk-off” on “renewed jitters about the Omicron cases popping up in very distant parts of the U.S., and how we might have only seen the first phase of policy restrictions in response,” said Sean Callow, a currency strategist at Westpac in Sydney.

The dollar index, which measures the greenback against six major peers, gained 0.09% to 96.173, setting it up for a 0.11% advance for the week. That would be a sixth weekly gain, the longest stretch since January 2015.

“If you strip out the noise in the market at the moment, which is driven very much by uncertainties around Omicron, the dollar is in a fairly bullish cycle,” said Kyle Rodda, a market analyst at IG in Melbourne.

“That’s on the basis that clearly U.S. economic outperformance, especially within the developed world, is fairly entrenched for the time being, and we’re really pricing in that the Fed is going to increase the pace of the tapering programme in December and set up rate hikes well before the middle of next year.”

Money markets see high odds that the Fed will raise the target rate by a quarter point at its June meeting.

Powell reiterated in testimony to Congress on Wednesday that he and fellow policymakers will consider swifter action at their Dec. 14-15 meeting.

Economists in a Reuters poll estimate the United States created 530,000 new jobs last month, continuing a run of strong data.

The dollar was flat at 113.21 yen.

The euro was little changed at $1.12975, consolidating after its drop to an almost 17-month low at $1.1186 last week.

The Aussie dropped 0.26% to $0.7076, a fourth losing session, and earlier touched a 13-month low of $0.70625.

“We continue to expect near‑term AUD moves will be driven by Omicron and the risk remains a dip below $0.7000,” Commonwealth Bank of Australia strategist Joseph Capurso wrote in a report.

Both the European Central Bank and Reserve Bank of Australia, which decides policy on Tuesday, have stuck to dovish stances, pushing back against market bets that policymakers will be forced to bow to inflationary pressures.

New Zealand’s kiwi dollar fell 0.33% to $0.6795.

 

(Reporting by Kevin Buckland; Editing by Shri Navaratnam and Sam Holmes)

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Omicron could pose 'significant' threat to global economy, Yellen says – Financial Post

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Article content

The Omicron variant of COVID-19 could slow global economic growth by exacerbating supply chain problems and depressing demand, U.S. Treasury Secretary Janet Yellen told the Reuters Next conference on Thursday.

Yellen cited a great deal of uncertainty about the impact of the highly contagious variant, first detected in South Africa, given the severe U.S. economic slowdown caused by the emergence of the Delta variant of COVID-19 earlier this year.

“Hopefully it’s not something that’s going to slow economic growth significantly,” Yellen said, adding, “There’s a lot of uncertainty, but it could cause significant problems. We’re still evaluating that.”

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Yellen said the new strain of the coronavirus could exacerbate supply chain problems and boost inflation, but it could also depress demand and cause slower growth, which would ease some of the inflationary pressures.

The spread of Omicron has roiled financial markets and prompted governments around the world to tighten travel and workplace restrictions. The United States reported its first https://www.reuters.com/world/us-tightens-covid-19-travel-rules-countries-race-quell-omicron-threat-2021-12-01 case of community transmission of the new variant on Thursday.

Yellen, the former head of the Federal Reserve, also told the virtual global conference that she is ready to retire the word “transitory” to describe the current state of inflation plaguing the U.S. recovery from the COVID-19 pandemic, echoing comments https://www.reuters.com/markets/us/powell-yellen-head-congress-inflation-variant-risks-rise-2021-11-30 from Fed Chair Jerome Powell earlier this week.

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“I’m ready to retire the word transitory. I can agree that that hasn’t been an apt description of what we’re dealing with,” Yellen said.

Powell told lawmakers this week the word meant different things to different people, sowing some confusion, and it was a good time to explain more clearly what was meant.

STRONG ECONOMY

Yellen insisted that stimulus spending by the Biden administration early this year was not the major driver boosting consumer prices, which hit 31-year highs in October and are running at more than twice the Fed’s flexible inflation target of 2% annually. She blamed the surging prices mainly on supply chain issues and a mismatch between supply and demand.

Yellen said the $1.9 trillion American Rescue Plan passed by Congress earlier this year had helped vulnerable Americans get through the worst of the pandemic and fueled the strong U.S. economy.

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Article content

While it may have contributed to inflation “somewhat,” she said the surge was largely due to the pandemic and the massive shift in consumption towards goods and away from services.

She said the Fed should keep a close eye on rising wages to avoid the kind of damaging and long-lasting “wage-price spiral” seen in the 1970s.

Yellen, who led the Fed from 2014 to 2018, said it was up to the U.S. central bank to decide what to do about interest rates, but noted that a strong U.S. economy, which would likely prompt rate hikes, is generally a good thing for the rest of the world.

President Joe Biden’s administration is working closely with the private sector to curb price increases, Yellen said, citing efforts to accelerate the loading of containers at ports and encourage domestic production of semiconductors.

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Article content

She said lowering Trump-era tariffs on imported goods from China through a revived exclusion process could help ease some inflationary pressures https://www.reuters.com/markets/rates-bonds/yellen-says-cutting-some-tariffs-chinese-goods-could-ease-price-pressures-2021-12-02, but would not be a “game-changer.”

While she is “open” to a visit to China to meet with government officials there on economic issues, Yellen said a trip is not currently on her agenda. But she said she would continue to engage with her Chinese counterpart, Vice Premier Liu He, on issues such as technology practices, securities markets and exchange rate practices as well as efforts to rebalance China’s economy toward consumer spending.

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Article content

Yellen also told the Reuters Next audience that her mind is not yet made up https://www.reuters.com/markets/us/yellen-says-mind-not-made-up-us-central-bank-digital-currency-2021-12-02 on whether the Fed should create a digital dollar, following China and some other countries in developing central bank digital currencies.

She said the advantages and disadvantages of such a move needed to be weighed, including possible negative effects on the banking system, and that consensus among the Fed, the Biden administration and Congress was needed to proceed. (Reporting by Alessandra Galloni, additional reporting by David Lawder, Andrea Shalal and Daniel Burns; Editing by Paul Simao)

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