The World Economy Is Slowing More Than Expected, a New Forecast Shows – The New York Times
Economies around the world are slowing more than expected, as Russia’s war in Ukraine drives inflation and the cost of energy higher, forcing the Organization for Economic Cooperation and Development on Monday to scale back its projections for growth in the coming years.
Although it shied away from forecasting a global recession, the organization downgraded its outlook, maintaining its expectation that global economic growth would be a “modest” 3 percent this year, and an even weaker 2.2 percent next year, down from 2.8 percent a few months ago.
“The world is paying a very heavy price for Russia’s war of aggression against Ukraine,” said Mathias Cormann, the organization’s secretary general.
The organization lowered its growth forecast in virtually all of the 38 countries it represents, which include most of the word’s advanced economies. It projected growth of just 3.2 percent for China for this year and 4.7 percent for next year, one of the lowest rates for the country since the 1970s, said Álvaro Santos Pereira, the O.E.C.D.’s chief economist.
Comparing its current projection with one issued at the end of last year, a gap of about $2.8 trillion in foregone output for 2023 emerged, a figure that is roughly the size of the French economy. That represented the organization’s rough estimate of the economic toll the war is taking on the global economy.
“The global economy has lost momentum in the wake of Russia’s war of aggression in Ukraine, which is dragging down growth and putting additional upward pressure on inflation worldwide,” the report said.
Europe remains the most vulnerable region, with several countries facing the threat of a recession. Germany, the European Union’s largest economy, is projected to contract by 0.7 percent next year, after growing only 1.2 percent this year. Both France and Italy are forecast to see growth of less than 1 percent next year.
In the United States, projected growth was scaled back to 1.5 percent this year, from 2.5 percent forecast in June, and to 0.5 percent in 2023, down from 1.2 percent in the June report.
Soaring inflation, fueled by the high price of energy and food, is driving the slowdown and spreading to other goods and services, weighing heavily on households and businesses. The high cost of energy and the threat of gas shortages in Europe remain key risks, as countries head into winter with storage tanks nearly full, but with uncertainty about how long they will last.
“The risks are very much tilted to the downside,” Mr. Cormann warned.
Charting the Global Economy: Fed, BOE, SNB Push Ahead With Hikes
(Bloomberg) — The Federal Reserve, Bank of England and Swiss National Bank all proceeded with expected interest-rate increases this week, reinforcing their commitments to curb inflation despite turmoil in the banking sector.
Policymakers in the US and UK hiked by a quarter point while those in Switzerland opted for a half point. All three signaled more increases could be in store.
The UK was especially under pressure to tighten policy after a report earlier in the week showed consumer prices advanced 10.4% in February, surpassing all estimates in a Bloomberg survey and bucking economists’ expectation of a slowdown.
Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy:
Iceland’s central bank extended western Europe’s longest policy-tightening campaign with a full percentage-point increase, while the Philippine central bank shifted to a smaller hike. Norway, Taiwan and Nigeria also kept hiking. Officials in Turkey left rates unchanged, as did those in Brazil despite pressure from the government for looser policy.
The rush of layoffs that began late last year isn’t letting up, marking the worst start to a year since 2009, with nearly 52,000 jobs lost in one week in January alone. Since Oct. 1, executives across sectors have sacked almost half a million employees around the world, according to a comprehensive review of layoffs by Bloomberg News.
History remembers Paul Volcker as the slayer of inflation, and Ben Bernanke as the crisis firefighter. Jerome Powell is in danger of having to play both roles at once — or, what may be worse, to choose between them.
Powell and his colleagues are expecting a sharp dropoff in economic activity through the rest of 2023 — at least, that’s the implication from new economic projections they published this week.
Rent increases for US single-family homes eased for a ninth straight month in January, pushing the annual rate to the lowest since the spring of 2021, according to CoreLogic. All 20 major metro areas tracked by CoreLogic posted single-digit annual rent increases, for the first time since late 2020.
UK inflation accelerated unexpectedly in February for the first time in four months, keeping the BOE on course to raise interest rates. Food and non-alcoholic drink prices soared 18%, the fastest pace in 45 years, while core and services inflation also picked up.
Euro-zone economic growth continued to pick up in March, driven exclusively by the service sector as concerns over energy supplies recede. The overall rate of expansion rose to the highest level in 10 months, according to business surveys by S&P Global.
China’s population is emerging from a massive virus wave unleashed by the rapid reversal of Covid Zero in mid-December. People are planning trips, dining out and returning to shopping malls. Still, residents of the world’s second-biggest economy aren’t splashing out like they used to.
South Korea’s early trade data showed a deepening slump in exports as global demand for semiconductors remains weak and China’s reopening is yet to generate any boost.
Singapore’s core inflation, a key barometer for the central bank, kept its 14-year-high pace in February as officials weigh fresh threats to the global economy amid the Federal Reserve’s resolve to stay the course on tightening.
Sri Lanka clinched a $3 billion bailout loan from the International Monetary Fund after six months of negotiations. Now comes the harder part: getting a debt restructuring agreement and seeing through monetary policy and tax reforms.
—With assistance from Mathieu Benhamou, Ruchi Bhatia, Matthew Boesler, Libby Cherry, Jo Constantz, Jennah Haque, Jinshan Hong, Michelle Jamrisko, Sam Kim, Phil Kuntz, Karen Leigh, Rich Miller, Tom Rees, Zoe Schneeweiss, Naomi Tajitsu, Alex Tanzi, Kevin Varley, Alexander Weber and Karl Lester M. Yap.
Euro-Area Economy Strengthens More on Service-Sector Surge – Financial Post
(Bloomberg) — Euro-zone economic growth continued to pick up in March, driven exclusively by the service sector as concerns over energy supplies recede.
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.
“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.
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.
“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.)
Economy headed into a ‘Bermuda Triangle’ financial crisis: Nouriel Roubini
- The economy is headed into a “Bermuda Triangle” of risk, economist Nouriel Roubini warned.
- Roubini pointed to three stressors facing the US economy.
- He sounded the alarm for a stagflationary debt crisis and a severe recession to hit the US.
In a recent interview on the McKinsey Global Institute’s “Forward Thinking” podcast, the top economist warned that the economy was risking another financial crisis as central bankers continue to tighten monetary policy.
Federal Reserve officials raised interest rates another 25 basis-points this week, and have hiked rates 475 basis-points over the last year to control inflation. That marks one of the most aggressive Fed tightening cycles in history, and could place the economy under three different kinds of stress, Roubini warned.
First, high interest rates could easily overtighten the economy into a recession, experts say, which reduces income for households and corporations.
Second, high interest rates means firms are battling higher costs of borrowing and waning liquidity, which weighs on asset prices. Last year, US stocks plunged 20% amid the Fed’s rate hikes, with warnings from other market commentators of an even steeper crash in equities this year.
Finally, high interest rates are pressuring the mountain of debt, both private and public, that was amassed during the years of low rates, Roubini said. He pointed to bankrupt “zombies”, which include households, corporations, and governments.
“It’s got like, a Bermuda Triangle. You have a hit to your income, to your asset values, and then to the burden of financing your liabilities. And then you end up in a situation of distress if you’re a highly leveraged household or business firm. And when many of them are having these problems, then you have a systemic household debt crisis like ,” he warned.
Roubini, one of the experts who called the 2008 subprime mortgage crisis, has repeatedly sounded the alarm for another crisis to strike the US economy. The scenario he envisions combines the worst aspects of 70s-style stagflation with something like the 2008 crisis, with a severe recession, stubborn inflation, and mounting debt levels bludgeoning economic growth.
He and other top economists have criticized the Fed’s aggressive rate hiking regime over the last year, and some experts have called central bankers to stop raising interest rates entirely out of fear of “breaking” something in the financial system.
Signs of stress are mounting, the most recent being the failure of Silicon Valley Bank. But pausing interest rates could panic investors and lead to a resurgence of inflation, meaning central bankers are powerless no matter what they do with rates, Roubini has said previously.
Rubbish fashion: street art costumes of Kinshasa – in pictures – The Guardian
Private-sector investment brings touch of Hollywood to southern Manitoba town – Winnipeg Sun
Montreal artist won’t change puppet that community groups say looks like blackface
Silver investment demand jumped 12% in 2019
Iran anticipates renewed protests amid social media shutdown
Search for life on Mars accelerates as new bodies of water found below planet’s surface
Investment24 hours ago
Here’s how much money you’d have if you invested $1,000 in Nike 10 years ago
Art24 hours ago
Gagosian’s DALL-E–Enabled Art Exhibition Throws Us Headfirst into the Uncanny Valley
News6 hours ago
Canadian park among world’s most beautiful: Big 7 Travel
Business6 hours ago
Windsor-Essex brewers lament impact of looming 6.3% alcohol tax
News21 hours ago
Calling for closer Canada-U.S. ties, Biden says ‘our destinies are intertwined and they’re inseparable’
Investment5 hours ago
Investing isn’t free. But here’s why 20% of investors think it is
News20 hours ago
Canada extends support for those fleeing Russia’s illegal and unjustifiable invasion of Ukraine
Real eState22 hours ago
The mystery of a tiny Toronto laneway that sparked a historical real estate drama