The global economy is ensnared in a convoluted situation: by analyzing these 5 themes that surfaced over the past week, you can comprehend the outstanding challenges and uncertainties.
A look at the latest economic events helps to understand why the global economy is under pressure.
The mixed signals of inflation; the hesitancy of central banks to confirm or begin rate cuts; the turbulence on the stock market with the swing of tech stocks; China’s difficult path to full recovery; US political and budgetary problems and uncertainty about the European recovery (with the French and British governments in focus) are just some of the obstacles to financial stability.
The past week, for example, has highlighted at least 5 crucial factors for photographing the international economic context. From these themes, we can understand why uncertainty has returned to the foreground.
1. Inflation and rates, chaos in Europe?
UK services inflation, which policymakers have been watching for signs of continued domestic price pressures, remained stable at 5.7% for the second consecutive month.
The persistence of the figure will further complicate the calculations before Governor Andrew Bailey announces the next BoE decision on August 1, even with headline inflation holding steady at the official 2% target.
Furthermore, Keir Starmer’s new Labor government suffered a double setback: June data showed that UK retail sales fell by 1.2%, more than expected, and that public debt has exceeded official forecasts.
The ECB, meanwhile, will reach its inflation target in 2025, according to its quarterly survey of professional analysts. The results were released after the Eurotower held interest rates at 4.25% without giving a clear signal on when it will ease monetary policy again. Market bets point towards two more cuts in 2024, even as officials begin to consider even a single move.
2. Setback in China
China’s growth unexpectedly slowed down, reaching its worst pace in five quarters.
The crisis in consumer spending has weakened the export boom, putting pressure on policymakers to step up economic support.
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3. US under pressure between data and chip war
US retail sales increased in June more than the last three months, a sign that consumers regained confidence at the end of the second quarter. The intersection of resilient demand data with declines in jobs or prices should lead to greater Fed conviction in easing rates. For now, new updates are awaited.
The Biden administration, facing pressure on China’s chip crackdown, has told allies it is considering resorting to tougher trade restrictions available if companies such as Tokyo Electron Ltd. and ASML Holding NV continue to give China access to advanced semiconductor technology. However, US companies believe that export restrictions to China have punished them unfairly.
4. Egypt-Russia, a new wheat alliance
The top wheat importer, Egypt, has made its biggest purchase in two years, another sign that falling grain prices is boosting demand.
The country’s state buyer booked 770,000 tonnes in a tender on Tuesday, the largest such deal since June 2022, according to data compiled by Bloomberg. Most of the supplies will come from Russia, the first time the world’s top exporter has dominated sales to Egypt in a tender for the new season.
5. Alarm from the IMF
The International Monetary Fund has warned that inflation in many major economies is cooling more slowly than expected, raising a potential risk to global growth from interest rates remaining "higher for even longer".
Despite these warnings, the IMF believes the global economy is still poised for a soft landing. Be careful, however, what could happen in the USA: high debt and unstable inflation, in addition to economic resilience, call for some precautions. The fund requires more taxes and greater prudence on the part of the Fed. A rate cut in September is not desired.
Original article published on Money.it Italy 2024-07-20 15:27:01. Original title: L’economia globale è un rebus, i motivi sono 5
