How will things go for the Greek economy in 2022? The uncertainties plaguing the entire world are enormous. One is the pandemic – and the Greek 2022 budget was drawn up on the assumption that the health crisis would ease. Another is inflation (whether transitory or not) and energy prices especially, as the US bridge breaking Russia’s exclusion of Europe from natural gas supplies is a quick but not permanent fix.
Moreover, given that an unprecedented 10-year economic slump has passed and it is still a relatively cheap country; that the value of land is relatively cheap; that there are trillions of dollars in the world looking for investments and that state aid to the Greek economy was proportionally the largest in Europe, Greece’s gross domestic product growth ought to be brisker. The rate of growth, meanwhile, is not as important as its quality: It is showing all the historical distortions reflected in low productivity, a large external deficit and high unemployment.
It is not enough to throw money into the market to correct these issues. Clear priorities and reforms at every level are needed. These do not exist and that is why, as Greek central banker Yannis Stournaras clearly explained last week, the strategic goal, which is Greece’s credit rating upgrade by early 2023, is at risk. The reforms recommended by Cypriot Nobel Laureate Sir Christopher Pissarides and economist Nikos Vettas were not implemented in the first two years of the administration, when Prime Minister Kyriakos Mitsotakis still had the support of a section of the political center against right-wing conservatism. Is there any chance they will be implemented now, in the middle of what is a prolonged pre-election period?
Snap polls are considered a given, but no one can say when they’ll take place. Concern about the result under a system of proportional representation, the impressive rise of center-left Movement for Change (KINAL) and the new rules for the expected runoff which require a very high percentage for an absolute majority, push back their possibility. Main opposition leader Alexis Tsipras’ call for early elections contributes to the same, as no prime minister wants to appear to have been dragged into elections by the opposition. If, however, the exact timing remains unknown, the consequences could be very negative now: There are too many indications that reforms have stalled, while populism makes its presence more pronounced.
After a 10-year debt crisis and a two-year Covid-19 crisis, society’s resilience is fading and a lot of anger has accumulated. Greek entrepreneurship is not at its best. A dynamic part is moving forward, but a very large part is lagging behind or collapsing, while competing players from richer countries are coming in with strong support (that was targeted, unlike in our country) from state capital. There are also many, many problems that remain unresolved, from non-performing loans to the slow justice system. If things are left as is, after two or three years of relative economic euphoria there is a real possibility of returning to weak growth rates of around 1.5% – which would not allow debt servicing.
China's economy grows 8.1% in 2021, slows in second half – Yahoo Canada Finance
BEIJING (AP) — Chinese leaders are under pressure to boost slumping economic growth while they try to contain coronavirus outbreaks ahead of next month’s Winter Olympics in Beijing.
The world’s second-largest economy grew by 8.1% last year, but activity fell abruptly in the second half as the ruling Communist Party forced China’s vast real estate industry to cut surging debt, official data showed Monday.
Growth sank to 4% over a year earlier in the final three months of the year, fueling expectations Beijing may need to cut interest rates or stimulate the economy with more spending on public works construction.
That slump is likely to worsen, leading to “more aggressive measures to boost growth,” Ting Lu and Jing Wang of Nomura said in a report.
On Monday, the Chinese central bank cut its interest rate for medium-term lending to commercial banks to the lowest level since early 2020, at the start of the coronavirus pandemic.
Asian stock markets ended the day mixed following the dual announcements. China’s benchmark Shanghai Composite Index gained 0.6% while the Hang Seng in Hong Kong lost 0.7%. The Nikkei 2225 in Tokyo rose 0.7%.
Lingering Chinese economic weakness has potential global repercussions, depressing demand for steel, consumer goods and other imports.
China rebounded quickly from the pandemic, but activity weakened last year as Beijing tightened controls on borrowing by real estate developers, triggering a slump in construction that supports millions of jobs. That made consumers nervous about spending and investors anxious about possible defaults by developers.
Consumer spending has suffered after authorities responded to virus outbreaks by blocking most access to cities including Tianjin, a port and manufacturing center near Beijing, and imposed travel controls in other areas.
Their “zero-COVID strategy” aims to keep the virus out of China by finding and isolating every infected person. That has helped to keep case numbers low but is depressing consumer activity and causing congestion in some ports.
The ruling party has stepped up enforcement ahead of the Feb. 4 start of the Winter Games, a prestige project. Athletes, reporters and officials at the Games are required to stay in sealed areas and avoid contact with outsiders.
Growth in consumer spending, the biggest driver of economic growth, fell to 1.7% over a year earlier in December from the previous month’s 3.9%.
“The prospect this year for consumer spending to rebound back to pre-pandemic levels has certainly dimmed,” David Chao of Invesco said in a report. “All eyes are on whether policymakers will evolve their zero-COVID pandemic policies.”
Officials have urged the public to stay where they are during the Lunar New Year holiday instead of visiting their hometowns. That will cut spending on travel, gifts and banquets during the country’s most important family holiday.
Forecasters have cut this year’s growth outlook to as low as 5% due to the debt crackdown and coronavirus.
“Downward pressure on growth will persist in 2022,” Tommy Wu of Oxford Economics said in a report.
Compared with the previous quarter, the way other major economies are measured, the Chinese economy grew 1.4% in the final three months of 2021. That was up from the previous quarter’s 0.2%.
Chinese exports, reported Friday, surged 29.9% in 2021 over the previous year despite a global shortage of semiconductors needed to make smartphones and other goods and power rationing imposed in major manufacturing areas.
Exporters benefited from reviving global demand while their foreign competitors were hampered by anti-virus controls. But economists say this year’s trade growth is likely to be weak and export volumes might shrink due to congestion at ports.
“With supply chains already stretched to capacity, last year’s boost from surging exports can’t be repeated,” Julian Evans-Pritchard of Capital Economics said in a report.
Auto sales fell for a seventh month in November, declining 9.1% from a year earlier, reflecting consumer reluctance to commit to big purchases.
Chinese leaders are trying to steer the economy to more sustainable growth based on domestic consumption instead of exports and investment and to reduce financial risk.
In mid-September, factories in some provinces were ordered to shut down to meet official targets for reducing energy use and energy intensity, or the amount used per unit of output.
One of the country’s biggest developers, Evergrande Group, is struggling to avoid defaulting on $310 billion owed to banks and bondholders. Smaller developers have collapsed or defaulted on debts after Beijing reduced the amount of borrowed money they can use.
Chinese officials have tried to reassure investors over the risks of wider problems, saying any impact on lending markets can be contained. Economists say a potential Evergrande default should have little effect on global markets.
National Bureau of Statistics (in Chinese): www.stats.gov.cn
Joe Mcdonald, The Associated Press
Omicron no match for US economy: Moody's – Investment Executive
“The backdrop of elevated inflation and a tight labour market strengthens the case for an earlier and faster normalization of monetary policy,” Moody’s said. “Indeed, notwithstanding the risks to growth posed by the Omicron surge, the Fed is well placed to move to a neutral monetary stance starting in March 2022, and we now expect three U.S. interest rate hikes this year, compared with our November expectation of none until 2023.”
Additionally, a recent shift in signals out of the Fed indicate “broad support” for both a rate hike in March and a normalization of its balance sheet soon after the rate increase cycle begins, Moody’s noted.
While Covid-19 infections have risen quickly in the U.S., creating added uncertainty, “the economy is on a solid expansionary path that the current virus surge is unlikely to derail,” the report noted.
Moody’s continues to expect that GDP will grow by 4.4% this year after rising by 5.4% in 2021.
“The surge in virus cases will no doubt dampen economic activity in pandemic-sensitive services industries in January but, as previous virus surges have shown, activity will rebound once the omicron wave begins to subside,” Moody’s said.
The report noted that latest epidemiological forecasts point to a peak in case counts by the end of the month, with hospitalizations and fatalities peaking in mid-February.
Inflation is expected to moderate this year, but Moody’s said there remains a good deal of uncertainty in inflation forecasts.
“We expect that the Fed will provide more concrete guidance at its next January meeting as to when and at what pace it will begin to raise the federal funds rate and reduce the size of its balance sheet,” it said.
The rating agency noted that it expects the Fed to take a “measured approach” to withdrawing stimulus and normalizing its balance sheet, given the elevated uncertainty in forecasts and a likely reluctance to move too quickly.
Ultimately though, the prospect of rate hikes and balance sheet normalization “will likely push both short-term rates and long-term yields upward,” Moody’s said.
“The effect of rising rates is likely to be transmitted to the real sector by curbing new lending for consumer goods, autos and homes. Small and mid-size firms, which tend to have shorter debt maturity profiles, will also be affected,” it said. “Lastly, higher interest rates will weigh on the valuations of risky assets.”
Firms see increasing labor shortages and wage pressures – Bank of Canada survey
Canadian firms see labor shortages intensifying and wage pressure increasing, with strong demand growth and supply chain constraints putting upward pressure on prices, a regular Bank of Canada survey said on Monday.
The central bank’s Business Outlook Survey Indicator reached its highest level on record in the fourth quarter, which was conducted before the Omicron coronavirus variant began spreading widely.
The data will play into the Bank of Canada’s calculations as it ponders when to raise rates. The bank, which has said it is paying close attention to wage inflation, is scheduled to make its next announcement on Jan 26.
Last October it said it could start raising rates as soon as April 2022, but some investors expect a hike this month. [BOCWATCH]
“The combination of strong demand and bottlenecks in supply is expected to put upward pressure on prices over the next year,” said the survey.
“In response to capacity pressures, most businesses across sectors and regions are set to increase investment and plan to raise wages to compete for workers and retain staff.”
Last month the central bank said slack in Canada’s economy has been substantially diminished.
Inflation expectations for the next two years continued to increase, with two-thirds of firms now expecting inflation to be above the central bank’s 1-3% control range over the next two years.
Most firms, in response to a special question, said they expected the currently elevated inflationary pressures to dissipate over time, with inflation returning to the 2% target over 1-3 years.
Canada’s annual inflation rate was at an 18-year high of 4.7% in November. The December data will be released on Wednesday, with analysts surveyed by Reuters expecting it to hit 4.8%.
The Canadian dollar was trading 0.4% higher at 1.2504 to the greenback, or 79.97 U.S. cents.
(Additional reporting by Fergal Smith in Toronto; Editing by Chizu Nomiyama)
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