Economy
S&P: world economy at risk due to double whammy of inflation and geopolitics
Standard & Poor’s sees two world economies at risk:
- Structural inflationary pressures that require a stronger and prolonged central bank response in monetary policy;
- the protracted war between Russia and Ukraine, which exacerbates the ongoing energy crisis and increases risk aversion.
In its latest report titled “Global Credit Conditions Downside Scenario: Inflation, Geopolitics — A Double Threat to Our Baseline Scenario,” the rating agency developed a downside scenario based on a consistent set of negative projections presented for major areas of the economy between 2022 and 2025.
It’s a scenario that S&P estimates has “about a one in 3 chance” of materializing, and in which Europe would suffer the most. Also, the US economy is at risk. In 2023, growth in the euro currency area will be 90 basis points weaker than in the baseline scenario, and Germany could experience a prolonged recession, characterized by a 1.2 percentage point decline in growth in 2023 and 90 basis points in 2024. The S&P 500 would decline.
In this case, German inflation would be 1 to 2 percentage points higher than in the baseline scenario in 2023 and would gradually decline, remaining above target level until 2025.
In the U.S., the S&P scenario suggests that inflation would remain elevated even longer, prompting the Federal Reserve to continue raising the rate sharply, exacerbated by the decline in pandemic-related savings and the continued decline in consumer spending between mid-2023 and early 2024.
With the gradual rate hike, the macroeconomic picture in the U.S. also changes, where the S&P baseline scenario expects a shallow recession and the worst-case scenario expects it to deepen and last longer, leaving GDP in 2023 below our baseline forecast of a 0.1% contraction.
On the other hand, the combination of slowing external demand and weakening confidence will have a greater impact on countries such as South Korea and Taiwan, where exports play a more important role.
Earlier, we reported that JPMorgan talked about the “Armageddon Scenario”.
© Reuters. Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov/File Photo
MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.
The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.
Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.
“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.
Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.
“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.
The bank will next convene to set its benchmark rate on Feb. 16.
The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.
© Reuters. FILE PHOTO: Workers walk past an under-construction area with completed office towers in the background, in Shenzhen’s Qianhai new district, Guangdong province, China August 25, 2023. REUTERS/David Kirton/File Photo
SHANGHAI (Reuters) – China’s top planning body said on Saturday it had identified a second batch of public investment projects, including flood control and disaster relief programmes, under a bond issuance and investment plan announced in October to boost the economy.
With the latest tranche, China has now earmarked more than 800 billion yuan of its 1 trillion yuan ($140 billion) in additional government bond issuance in the fourth quarter, as it focuses on fiscal steps to shore up the flagging economy.
The National Development and Reform Commission (NDRC) said in a statement on Saturday it had identified 9,600 projects with planned investment of more than 560 billion yuan.
China’s economy, the world’s second largest, is struggling to regain its footing post-COVID-19 as policymakers grapple with tepid consumer demand, weak exports, falling foreign investment and a deepening real estate crisis.
The 1 trillion yuan in additional bond issuance will widen China’s 2023 budget deficit ratio to around 3.8 percent from 3 percent, the state-run Xinhua news agency has said.
“Construction of the projects will improve China’s flood control system, emergency response mechanism and disaster relief capabilities, and better protect people’s lives and property, so it is very significant,” the NDRC said.
The agency said it will coordinate with other government bodies to make sure that funds are allocated speedily for investment and that high standards of quality are maintained in project construction.
($1 = 7.1315 renminbi)
© Reuters. Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov/File Photo
MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.
The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.
Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.
“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.
Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.
“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.
The bank will next convene to set its benchmark rate on Feb. 16.
The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.
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