- This weekly roundup brings you the latest stories from the world of economics and finance.
- Top economic news: US hints at bigger interest rate hikes. China has set a low economic growth target in search of “stability.” Japan has narrowly avoided a recession.
1. The US Federal Reserve (Fed) indicates that a larger interest rate hike may be on the way
Chairman Jerome Powell has said the US Federal Reserve (Fed) will likely need to raise interest rates more than expected in response to recent strong economic data. He also told the Senate Banking Committee that the Fed is ready to take bigger steps if the “total” of incoming information suggests tougher measures are needed to control inflation. rice field.
Some of this unexpected strength may be due to warmer weather and other seasonal effects, but Powell said the Fed needs to do more to keep inflation in check. was meant to be used.
Currently, the Fed’s policy rate is in the range of 4.50-4.75%. Officials climbed to a peak of about 5.1% in December, but investors now expect that could be at least half a percentage point higher.
US inflation has eased from an annualized 9.1% in June to 6.4% in January, but Powell says it is still too high. “The process of getting inflation back to 2% is likely to be a long and difficult one,” he told the Senate Banking Committee, adding that “the social cost of failure is very high.”
Changes in US interest rates have ripple effects around the world. Because many countries that have pegged their currency to the dollar have changed their interest rates to match her Fed.
2. China prioritizes economic stability amid low growth expectations
China has reportedly set a 5% growth target this year as it seeks to “prioritize economic stability” after a turbulent 2022. financial timesThe target is the lowest in decades and below most economists’ expectations and could impact global growth.
It came about as President Xi Jinping secured an unprecedented third term.
The country’s GDP grew just 3% last year, falling short of the target of 5.5%, one of the worst performances in decades. The slowdown was the result of three years of COVID-19 restrictions, a crisis in the country’s vast real estate sector, a crackdown on private enterprises and weakening demand for China’s exports.
China annual GDP growth, %
Premier Li Keqiang stressed the need for economic stability and increased consumption after last year’s GDP decline. China’s annual consumer price inflation rate slowed to 1% in February. This is his lowest rate in a year and shows that consumers are acting cautiously.
“Recovery should be a priority,” Mr. Lee said. “Incomes for urban and rural residents must be increased through multiple channels. Spending on big-ticket goods must be stabilized and consumption of consumer services rebounded,” he said last year. has set a goal of creating about 12 million urban jobs this year, up from its target of at least 11 million.
economist “A demanding growth target will take the pressure off the economy to further stimulate” and prevent further accumulation of debt, it said. China’s local governments are facing a debt crisis. ReutersNoting that the government has set a fiscal deficit target of 3% of GDP this year, with a slight increase from 2022, Li said there were no plans for direct fiscal transfers to boost private consumption. increase.
The International Monetary Fund (IMF) expects China’s economy to grow at 5.2% this year. It also points to how a slowdown in China’s growth rate could drag down global growth. “A 1 percentage point increase in China’s growth rate would increase growth in the rest of the world by about 0.3 percentage points.”
3. News Brief: Economic Stories Around the World
Japan narrowly avoided a recession in Q4 2022, with GDP growth of just 0.1% following contraction in Q3. Real wages in January fell 4.1% year-on-year. It was the first sharp drop in almost nine years as the purchasing power of consumers in the world’s third-largest economy was squeezed by his four decades of high inflation. Wage developments are under scrutiny in the market as Bank of Japan officials say wage increases are essential to curtail accommodative monetary policy.
Eurozone retail sales were well below expectations in January compared to December and remained lower than 12 months ago, highlighting weak consumer demand and a broader economic slowdown. . Sales were up 0.3% month-on-month and down 2.3% year-on-year.
Sri Lanka is close to receiving a $2.9 billion bailout from the International Monetary Fund (IMF) after securing loan guarantees from China, India and all major bilateral creditors.
US President Joe Biden has unveiled plans to raise taxes on the wealthy and increase federal spending. His proposed budget would increase taxes on anyone earning $400,000 or more a year to cut the U.S. deficit by $3 trillion over the next decade.
The Bank of Canada left its main overnight rate unchanged at 4.50%, becoming the first major central bank to halt its tightening campaign in the face of an expected easing in high inflation.
Australia’s central bank could pause its aggressive rate hike cycle as early as April. With 10 rate hikes, the interest rate hike rate reached 3.6%, the highest level in 11 years.
The UK economy grew 0.3% in January after falling 0.5% in December. The British Chamber of Commerce also said the contraction of the UK economy this year has been weaker than expected, avoiding his two quarters of negative growth that signal a technological downturn.
South Africa’s economy contracted by 1.3% in the fourth quarter of 2022 compared to the previous three months. This is as gradual blackouts escalate, hitting sectors from agriculture to mining. Ratings agency S&P Global downgraded South Africa’s outlook from ‘positive’ to ‘stable’, citing infrastructure constraints and a severe power crisis.
A French food retailer will offer selected products at the “lowest possible price” for three months, in an agreement with France’s Finance Minister Bruno Le Maire. The discounts designed to enable them are expected to cost retailers “hundreds of millions of euros,” Le Maire said.
4. Financial and economic details of the agenda
According to UN Secretary-General Antonio Guterres, the global financial system needs major reforms. He says the system was created by wealthy countries for their own benefit and is highly unfair to the world’s least developed countries. As a result, he wants a “help revolution” to help these poor countries.
The Indonesian government’s food aid program used to provide rice sacks to villages, but people only received the full share 24% of the time. Since swapping this for a debit card system that allows him to buy equivalent amounts of food at local stores, a new survey shows that millions of Indonesians are 81% more likely than him to get the food they were due for. I now receive the full amount.
The outlook for the Asian economy this year is bright, according to the International Monetary Fund. But a delicate policy trade-off between controlling inflation and ensuring financial stability is needed, the report said.