South Korea’s economy grew at its fastest pace in a decade in the second quarter on the back of robust exports and rebounding consumption, but the optimism was damped by a wave of Covid-19 infections.
Gross domestic product expanded 5.9 per cent from a year earlier in the April-June quarter, according to the Bank of Korea, partly owing to the low base effect from last year when the country was hit hard by the pandemic. Asia’s fourth-largest economy continued to exceed pre-crisis levels but momentum slowed, with GDP expanding 0.7 per cent from the previous quarter.
The economic recovery was underpinned by a jump in exports amid robust demand for semiconductors, cars and ships, surging 22.4 per cent year on year in the second quarter. Private consumption and government spending rose 3.5 per cent and 3.9 per cent, respectively, quarter on quarter.
But the latest surge in Covid-19 infections clouded South Korea’s economic outlook. Authorities have struggled to contain the country’s worst outbreak despite the government imposing its toughest restrictions since the start of the pandemic.
Daily cases have topped 1,000 since early July, driven by the highly transmissible Delta variant. Vaccines are also in short supply, as just one-third of the population has had at least one dose of vaccine.
“The high base for private consumption likely points to a meaningful deceleration in the third quarter, especially given the recent resurgence of new coronavirus cases and renewed tightening in social distancing measures,” said economists at Goldman Sachs.
The growth data are expected to add pressure on the central bank to start tightening monetary policy earlier than expected. The BoK has increasingly shifted its focus towards reducing financial risk as record-low interest rates fuelled speculation in property, stock and cryptocurrency markets, stoking concerns about asset bubbles.
Lee Ju-yeol, governor of the BoK, said this month that the central bank would discuss raising its benchmark interest rate at its next meeting in August, although the timing of a rate increase would hinge on the pandemic situation.
The central bank has said that fiscal stimulus should cushion the economic blow from virus restrictions. The parliament on Saturday passed the country’s second-largest extra budget bill worth almost Won35tn ($30bn) to provide cash handouts to the bottom 80 per cent of households by income.
“Provided the economy proves relatively resilient to the latest wave of the virus, as we expect, a rate hike from the Bank of Korea is still likely as soon as next month,” said Alex Holmes, an economist at Capital Economics, a research group.
That would make the BoK the first central bank in Asia to start normalising policy this year. The BoK expects the Korean economy to expand 4 per cent this year, rebounding from a 0.9 per cent contraction last year.
Separately, North and South Korea said on Tuesday that they had agreed to restore communications channels. The decision followed a more than two-year stalemate for Seoul’s efforts to engage Pyongyang and international diplomacy to denuclearise the isolated communist country.
Oil prices climb to highest in years as COVID recovery, power generators stoke demand
Oil prices hit their highest in years on Monday as demand continues its recovery from the COVID-19 pandemic, boosted by more custom from power generators turning away from expensive gas and coal to fuel oil and diesel.
Brent crude oil futures rose 87 cents, or 1%, to $85.73 a barrel by 0111 GMT, the highest price since October 2018.
US West Texas Intermediate (WTI) crude futures climbed $1.12, or 1.4%, to $83.40 a barrel, highest since October 2014.
Both contracts rose by at least 3% last week.
“Easing restrictions around the world are likely to help the recovery in fuel consumption,” analysts from ANZ bank said in a note on Monday.
“The jet fuel market was buoyed by news that the U.S. will open its borders to vaccinated foreign travellers next month. Similar moves in Australia and across Asia followed.”
They added that gas-to-oil switching for power generation alone could boost demand by as much as 450,000 barrels per day in the fourth quarter.
Still, supply could also increase from the United States, where energy firms last week added oil and natural gas rigs for a sixth week in a row as soaring crude prices prompted drillers to return to the wellpad.
The U.S. oil and gas rig count, an early indicator of future output, rose 10 to 543 in the week to Oct. 15, its highest since April 2020, energy services firm Baker Hughes Co said last week.
China’s economy, meanwhile, likely grew at the slowest pace in a year in the third quarter, hurt by power shortages, supply bottlenecks and sporadic COVID-19 outbreaks.
The world’s second-largest oil consumer issued a new batch of oil import quotas for independent refiners for 2021 that show total annual allowances were lower than last year, a first reduction of import permits since these firms were allowed into the market in 2015.
(Reporting by Jessica Jaganathan; Editing by Kenneth Maxwell)
Stop handing out free money (and other ideas for getting the economy back on track) | TheHill – The Hill
Supply chain shortages and inflation are hurting consumers and Democratic election prospects in 2022 and 2024. The Biden administration, no doubt aware of this possibility, is taking action to address the ill-effects of scarcity and higher prices. Recently, the administration mandated that the Port of Los Angeles remain open 24 hours a day so merchandise idling in shipping containers can be delivered faster to fill empty supermarket shelves and consumer shopping carts.
But this response may be coming too late, because shortages and inflation have created uncertainty in the minds of consumers that cannot be easily reduced.
While the administration has handled the COVID-19 pandemic well, it has been much less successful in dealing with the negative effects of the ensuing adjustments, including shortages, inflation, supply chain disruptions, high demand and uncertainty.
The widespread shortages were caused by sudden and rapid increases in consumer demand and by manufacturers and suppliers that were too slow or unable to respond swiftly.
Once supply chain disruptions are straightened out as manufacturers increase their production and distributers move their products faster, shortages are bound to ease, though some could linger.
The U.S. economy is also experiencing a modest annual inflation rate of 5.4 percent, caused by the trillions of dollars that the Treasury gave Americans in 2020 to spend to avert a pandemic-induced depression. Flush with this cash and what they had saved while sheltering in their homes during the pandemic, consumers quickly increased demand for most products and services. They became less price sensitive and pushed inflation higher. Still, though worrisome, an annual inflation rate of 5.4 percent is hardly runaway or stagflationary.
But the excess cash is tapering off. Without it, consumers will be forced to reduce their demand and thereby push most prices downward. As a result, future inflation won’t be as drastic or widespread, especially since the Federal Reserve Board is planning to reduce the money supply, which will dampen inflation.
But the uncertainty produced by the pandemic is likely to prevent people from getting back to normal and might foster some continued shortages and inflation.
Americans have been feeling confused and unsure about their future. Before the pandemic, they took stable prices and product availability for granted, knew the content and location of their jobs, woke up in the mornings to feed their kids and send them to school and were fairly content with their lives. Not anymore. Their world had changed, and the new one seems unfamiliar and scary to many. As a result, 4.3 millions have left the labor force since the onset of the pandemic.
What can the White House and Congress do to alleviate shortages, inflation and uncertainty? Here are four ideas.
1. Take measures to ease shortages. Mandating that the Port of Los Angeles work nonstop will increase some supplies, but it’s not enough. It should be followed by similar action in other ports. Likewise, factories should be instructed to increase production. Such measures are easy to take in the case of consumer staples but more difficult in the case of computer chips, as chips are part of a global industry, and increasing their production requires building large factories and investing billions of dollars.
2. Stop handing out free money to consumers. With less money to spend, demand and inflation will ease. Though Americans are no longer receiving government manna, many still have cash to spend, which will continue to exert some upward inflationary pressures.
3. Think again about the size, timing and spending schedule of infrastructure and Build Back Better initiatives. Pumping trillions of dollars into the economy could create a new round of inflation inflammation.
4. Reduce uncertainty. Unfortunately, policymakers lack the knowledge, skills and tools to address this effectively. What is desperately needed is trusted and steady leadership to assure Americans that their lives as consumers, employees, parents and human beings will be more certain again. Unless they can be made to feel more content with their lives, the economy may continue to sputter and keep a fuller economic recovery at bay.
Can these challenges be successfully addressed in the coming year or two? Maybe. The U.S. discovered and produced a life-saving vaccine against COVID-19 in record time and enacted policies that averted depression. Likewise, I expect shortages and inflation to subside and a sense of normalcy to rise. This, plus efforts to make consumers feel more confident, would put the country on a more prosperous path.
Avraham Shama is the former dean of the College of Business at the University of Texas – Pan American. He is a professor emeritus at the Anderson School of Management at the University of New Mexico. His book, “The Impact of Stagflation on Consumer Psychology,” was published by Praeger publishing.
Shekel surplus weighs down Palestinian economy – FRANCE 24
Issued on: 17/10/2021 – 05:06Modified: 17/10/2021 – 05:04
Ramallah (Palestinian Territories) (AFP)
Palestinian businesses flush with too much Israeli cash: it may not be the most talked about aspect of the occupation, but experts warn it is a growing concern for the Palestinian economy.
Palestinians in the West Bank use the Israeli shekel but, beyond that commonality, the two financial systems are dramatically different.
In Israel, as in many advanced economies, digital payments are rapidly growing, taking the place of transactions once done with bills and coins.
But in the West Bank, a territory under Israeli military occupation since 1967, cash is still king.
Tasir Freij, who owns a hardware store in Ramallah, told AFP he now has to pay a two percent commission to deposit paper money because his bank is reluctant to receive it.
“This is a crisis… and we are feeling its effects,” Freij told AFP.
Much of the paper money is brought in by the tens of thousands of Palestinians who work inside Israel or Jewish settlements in the West Bank, and who get their wages in cash.
Experts and business people say the buildup of hard currency risks stifling the Palestinian financial system.
Freij fretted that buying goods from abroad typically requires converting shekels into foreign currencies, especially dollars or euros, but the abundance of shekels in the market has forced him to accept painfully unfavourable rates.
– ‘Dumping ground’ –
The Palestinian Monetary Authority, which functions as the central bank in the West Bank, has warned that paper shekels are building up because it has no way to return the hard currency to Israel.
PMA governor Firas Melhem told AFP that the cash buildup was “a very worrying problem,” causing headaches for banks and businesses.
“If the problem is not resolved quickly, the Palestinian market will turn into a dumping ground for the shekel,” he added.
The shekel was established as the official currency in the Palestinian territories as a result of economic protocols known as the Paris agreements that followed the Oslo Accords between Israel and the Palestinian Territories.
Much has changed since those 1994 agreements.
As they lean more on digital transactions, Israel’s banks no longer want to reabsorb paper cash that accumulates in the West Bank but does not circulate rapidly through the Israeli economy.
The Bank of Israel cited security as another reason.
“We stress that uncontrolled cash transfers could be misused, especially for money laundering and terror funding, and would not be in compliance with international standards on the prohibition of money laundering and terror funding,” the bank told AFP in a statement.
– Solutions? –
Palestinian banks have tried to encourage customers to moderate their cash deposits, but that risks limiting the capital available to banks, which would lower their ability to offer loans.
The cash surplus predicament has fuelled renewed calls from some Palestinian experts in favour of ditching the shekel, either in favour of a unique Palestinian currency or that of another nation, including the Jordanian dinar, which also circulates in the West Bank.
The Palestinian Monetary Authority is also pushing the Bank of Israel to take back more hard currency.
But Melhem stressed that Palestinians also needed to “keep up with developments in financial technologies,” and move towards more cashless payments.
© 2021 AFP
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