It’s the (pandemic) economy – The Hill
The impact of the pandemic on the U.S. and global economy was catastrophic. Economic historian Adam Tooze characterized its impact as being “the swiftest and most comprehensive contraction of global economic activity ever.”
There are clearly other factors at work with regard to the economic problems confronting the U.S. and rest of the world, but it is safe to assume that the present economic conundrums would not exist without the pandemic. President Biden is being blamed for issues that are largely beyond his control and not of his making. Inflation is the primary focus of most Americans, who are concerned about rising prices for gasoline, consumer goods and utilities. FiveThirtyEight found that inflation has had a significant impact on Biden’s approval rating.
The discontent over inflation is accompanied by fear of recession as the Federal Reserve raises interest rates to respond to spiraling prices. The stock market has been volatile, plunging in reaction to concerns over an uncertain economy. Yet, unemployment is also historically low, and the American public is traveling again at pre-pandemic levels — a sign of consumer confidence.
Peter Goodman wrote in the New York Times about what has been termed a “force hiding in plain sight” — the economic shock of the pandemic. Goodman suggests that the present economic crisis is in reaction to the pandemic and has been exacerbated by Russia’s disastrous attack on Ukraine. He quotes University of Texas economist Julia Coronado as saying, “Pretty much everything in our lives has been disrupted by the pandemic, and then we layer on that a war in Ukraine.”
Supply and demand, which is fundamental to the cost of goods and services, were affected dramatically by the pandemic. People largely stayed at home. Jobs were lost and businesses were closed. Supply chains were disrupted. The nature of work and education changed. How people viewed their jobs and their future in the workforce was altered.
Lockdowns meant that the home became central to day-to-day lives, which altered patterns of consumption and how the economy functioned. For example, going to movies and restaurants was drastically curtailed, even halted. The restrictions of everyday life during the height of the pandemic had an impact on how people viewed their day-to-day activities. Working from home, another pandemic-related change, affects issues such as office space, public transportation and the functioning of businesses that no longer connect to the pre-pandemic economic reality of going into the office regularly.
Understanding the role that the pandemic has played in determining the present economic state in the U.S. and globally, as well as the economic future, is key to determining responses to present crises. Biden has been criticized for putting too much money into the economy and thereby increasing the likelihood of inflationary pressure with his American Rescue Plan, but the plan was literally a lifeline for millions of Americans — who, in turn, helped stabilize the economy.
In addition, the U.S. just joined 17 other nations in responding to supply chain issues via the Supply Chain Ministerial Forum. This effort is a good example of a response to the international dimension that the pandemic and related crises are having on the U.S. and the global economy.
Familiar tools such as the Fed’s raising of interest rates are being used to respond to the rise in inflation. There are risks to this approach, but the calculation is that it is a risk worth taking. The issue of placing political blame on the Fed chairman plays an important role in the argument of whether there will be support for the Fed in its effort to raise interest rates and stop inflation from careening out of control.
As economic writer and scholar Sebastian Mallaby recently pointed out in the Washington Post, “If (former President) Trump or a Trumpist wins in 2024, he or she will probably attack the Fed at the expense of growth and jobs, even though the best thing the Fed can do for the economy is to deliver stable prices. Vacancies on the Fed’s decision-making committee could be filled by hacks with no stomach for the short-term costs of containing inflation.”
The economy is fundamental to how people view their future, and how they view their future determines how they vote. This does not mean that tough analysis on economic policy choices is not warranted. It is, but if that analysis is to be sound it must include an honest assessment of the circumstances surrounding the present state of the economy. This is an existential issue, because, while the medical response to the pandemic has changed for the better as a result of innovations, the pandemic is far from over. It is also a safe bet that there will be future pandemics that will impact the daily lives of Americans.
The present economic crisis is not so much about inflation as it is about trusting and empowering political leaders to act responsibly in managing the economy under difficult and evolving circumstances. That trust must be based on facts and sound analysis and not on a faux populism buttressed by disinformation. There is too much at stake to do otherwise.
William Danvers is an adjunct professor at George Washington University’s Elliott School and worked on national security issues for the Clinton and Obama administrations.
UK economy avoids recession but businesses still wary
LONDON, March 31 (Reuters) – Britain’s economy avoided a recession as it grew in the final months of 2022, according to official data which showed a boost to households’ finances from state energy bill subsidies but falling investment by businesses.
With the economy still hobbled by high inflation and worries about a weak growth outlook, gross domestic product (GDP) increased by 0.1% between October and December after a preliminary estimate of no growth.
GDP in the third quarter was also revised to show a 0.1% contraction, a smaller fall than initially thought, the Office for National Statistics (ONS) said on Friday.
Two consecutive quarters of contraction would have represented a recession.
Despite the improvement, British economic output remained 0.6% below its level of late 2019, the only G7 economy not to have recovered from the COVID-19 pandemic.
“The latest release takes the UK a little further away from the recessionary danger zone although the report does not change the overall picture that the economy’s performance was lacklustre over the second half of 2022 as the cost of living crisis hit hard,” Investec economist Philip Shaw said.
The International Monetary Fund forecast in January that Britain would be the only Group of Seven major advanced economy to shrink in 2023, in large part because of an inflation rate that remains above 10%.
Since then, a string of economic data has come in stronger than expected by analysts.
Ruth Gregory at Capital Economics said Friday’s figures showed high inflation had taken a slightly smaller toll than previously thought.
“But with around two-thirds of the drag on real activity from higher rates yet to be felt, we still think the economy will slip into a recession this year,” she said.
House prices slid in March at the fastest annual rate since the financial crisis, mortgage lender Nationwide said.
The Bank of England (BoE) last week raised interest rates for the 11th consecutive meeting and investors are split on the possibility of another increase in May.
Britain’s dominant services sector rose by 0.1%, boosted by a nearly 11% jump for travel agents, echoing other data which has pointed to a surge in demand for holidays.
Manufacturing grew by 0.5%, driven by the often erratic pharmaceutical sector, and construction grew by 1.3%.
Individuals’ savings were boosted by the government’s energy bill support scheme and households’ disposable income increased by 1.3% after four consecutive quarters of negative growth.
The BoE expects Britain’s economy to have contracted by 0.1% in the first three months of 2023 but it forecasts slight growth in the second quarter.
The outlook has improved thanks in large part to falling international energy prices and a strong jobs market.
But the picture could darken again if recent turmoil in the global banking sector leads to lenders reining in loans.
BUSINESS INVESTMENT FALLS
The data suggested businesses remained cautious. Business investment fell 0.2% in quarterly terms, a sharp downgrade from a first estimate of a 4.8% rise after changes to the way the ONS calculates seasonal adjustments.
Earlier on Friday, a survey painted a more upbeat picture for businesses.
Finance minister Jeremy Hunt this month announced new tax incentives to encourage companies to invest, although they were less generous than a previous scheme and came just as corporate tax is due to jump.
The ONS said Britain posted a shortfall in its current account in the fourth quarter of 2.5 billion pounds ($3.1 billion), or 0.4% of GDP.
Excluding volatile swings in precious metals, the shortfall fell to 3.3% of GDP from 4.2% in the third quarter.
The ONS said increased foreign earnings by companies, particularly in the energy sector, helped narrow the deficit.
Britain’s financial account surplus – which shows how the current account deficit was funded – comprised large net inflows of short-term, “hot” money. Foreign direct investment was negative in net terms for a sixth quarter running.
($1 = 0.8073 pounds)
Our Standards: The Thomson Reuters Trust Principles.
Canada’s economic growth resumed in January: StatCan
Statistics Canada says economic growth resumed in January following a small contraction in December.
The agency says real gross domestic product rose 0.5 per cent to start the year after contracting 0.1 per cent in the final month of 2022.
It also says that its initial estimate for February indicates growth continued with a gain of 0.3 per cent, though it cautioned the figure will be updated.
For January, the growth came as the wholesale trade, transportation and warehousing, and mining, quarrying and oil and gas extraction sectors all rebounded after falling in December.
Wholesale trade gained 1.8 per cent in January, helped by wholesalers of machinery, equipment and supplies, while the mining, quarrying and oil and gas extraction sector grew 1.1 per cent after falling 3.3 per cent in December.
The transportation and warehousing sector added 1.9 per cent in January, more than offsetting a drop of 1.1 per cent in December that was due in part to bad weather.
This report by The Canadian Press was first published March 31, 2023
China’s No. 2 leader says economy improved in March
BO’AO, China –
China’s new No. 2 leader said Thursday its economic recovery improved in March and tried to reassure foreign companies the country is committed to opening to the world.
Premier Li Qiang spoke before an international audience of businesspeople and politicians as the government tries to revive business and consumer confidence after anti-virus controls that isolated China were abruptly dropped in December.
The economy showed “encouraging momentum of rebounding” in January and February, Li said at the Boao Forum for Asia on the southern island of Hainan.
“The situation in March is even better,” Li said. He said consumption and investment picked up and “market expectations improved.”
Chinese retail sales rose 3.5% over a year earlier in January and February, recovering from December’s 1.8% contraction, government data showed earlier. Spending on restaurants rose 9.2%. Growth in investment in real estate and other fixed assets accelerated to 5.5% from December’s 5.1%.
Li’s audience included Prime Ministers Lee Hsien Loong of Singapore, Pedro Sanchez of Spain and Anwar Ibrahim of Malaysia and International Monetary Fund Managing Director Kristalina Georgieva.
A former Communist Party secretary for Shanghai, Li took office earlier this month in a once-a-decade change of government that installed loyalists of Chinese leader Xi Jinping to enforce his vision of tighter political control over the economy and society.
The premier sought to counter unease about growing state dominance in the economy and tension with the United States over security, technology and trade.
“No matter how the world situation may evolve, we will stay committed to reform, opening up and innovation-driven development,” Li said. “We welcome countries around the world to share in the opportunities and benefits that come with China’s development.”
Li called China a global “anchor of peace,” a statement that conflicts with the ruling Communist Party’s military buildup and menacing behavior toward Taiwan, Japan and other neighbours.
The military budget, the world’s second-largest after the United States, was increased this month for a 29th straight year. Xi’s government has stepped up efforts to intimidate Taiwan, which Beijing claims as part of its territory, by flying fighter jets and firing missiles into the sea near the self-ruled island democracy.
“To achieve greater success, chaos and conflict must not happen in Asia,” the premier said. “Otherwise, the future of Asia would be lost.”
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