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USA key rate hike will cause global economic earthquake

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The U.S. Federal Reserve (Fed) raised the USA key rate to 3-3.25 percent per year to moderate inflation. However, the decision would have an extremely negative impact on the global economy soon, causing a global upheaval, said columnist Sheng Wen for the China Global Times.

The Fed’s commitment to containing inflation to meet the bank’s stated goal of 2% by hiking the US rate hikes in a short span of 12 months is too radical, if not unrealistic, Sheng Wen assured.

“By raising the rate to 4.5 percent or even higher in a short period, the Fed will not only weaken its own U.S. economy and hurt a huge number of American companies and households, the move will also cause shock waves in other major economies around the world, causing a worldwide economic earthquake,” the columnist warns.

After the next increase in the key rate in the U.S., the central banks of the leading European countries are likely to follow suit. This factor could already lead to the risks of a global recession.

“To prevent the return of dollar-denominated assets to the U.S. due to a series of aggressive Fed rate hikes, other economies will also be forced to raise their interest rates. This is likely to cause a global recession that will cause hundreds of millions of people to lose their jobs,” Wen concluded.

Earlier, we reported that Euros in international currency rankings fell to a two-year low in August.

Economy

News US sanctions against Huawei: US suspends licenses to US companies to export technology to Huawei

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US sanctions against Huawei are expanding. The administration of U.S. President Joe Biden has stopped issuing licenses to U.S. companies to export technology to Huawei, the Financial Times reports.

According to the newspaper’s informed sources, the U.S. Department of Commerce has notified some companies that it will no longer issue licenses to export U.S. technology to Huawei.

Meanwhile, Bloomberg’s interlocutors reported that the Biden administration is considering a complete ban on the sale of U.S. technology to the Chinese telecommunications equipment giant. The agency notes that some officials in the Biden administration are in favor of banning all sales to Huawei, but a final decision has not yet been made.

According to knowledgeable sources, it is still unclear how soon the administration may pass a ban on all Huawei sales. According to some of them, the timing of the decision could coincide with the four-year anniversary of Huawei’s blacklisting. The impact of US sanctions on Huawei is quite serious. 

The U.S. Department of Commerce under former President Donald Trump blocked Huawei in May 2019 as a threat to national security. U.S. firms were prohibited from doing business with companies on the list without special permits.

Earlier we reported that the German economy shrank by 0.2% in Q4.

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Germany economy analysis: economy shrank by 0.2% in Q4

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Germany economy analysis

German economic analysis shows that German GDP fell by 0.2% in the fourth quarter of 2022 compared to the previous three months. according to preliminary data from the German Federal Statistical Office (Destatis). On an annualized basis, the economy grew by 1.1%, adjusted for the number of working days.

Analysts polled by Trading Economics on average expected no change in GDP in quarterly terms and growth of 1.3% in annual terms. At the same time, the German economy provided the country with stability, although the DAX index also fell in price due to recent events.

The main factors of the economic downturn were cuts in consumer spending and industrial production in October and December, said the report. Final data on changes in GDP in the fourth quarter will be published by Destatis on Feb. 24.

At the same time, the statistical office said that “due to the ongoing COVID-19 crisis and the situation in Ukraine, the data are subject to more uncertainty than usual. This points to the possibility of a stronger revision of the figures than initially announced.

According to revised data, German GDP rose 0.5% quarter-over-quarter and 1.3% year-over-year in the third quarter, both estimates up 0.1 percentage points.

Earlier, we reported that analysts predicted a decline in Chinese production.

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Analysts have predicted a drop in production in China. Why is production cheaper in China?

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According to a Reuters poll, manufacturing activity in China will fall at a slower pace in January than in December, with workers continuing to fall ill with the coronavirus after the government lifted austerity measures.Why is production cheaper in China?

The recurring wave of infections among the population has gone even faster than economists had expected, and so the disruption of production lines at factories continues. Even the Nikkei 225 Index has been affected.

Is China losing manufacturing

According to the average forecast of 25 economists, China’s official manufacturing PMI rose to 49.8 in January from 47.0 in December.

A reading above 50 indicates an increase in activity monthly and a reading below 50 indicates a contraction. The official manufacturing PMI, which focuses on large and state-owned companies, as well as a survey of the service sector, will be released Tuesday.

The National Bureau of Statistics pointed to the fact that after the “zero-tolerance” virus policy was lifted and the week-long Lunar New Year holiday that ended Friday, the COVID-19 infection among the labor force and seasonal plant closures are significantly affecting labor productivity this month.

China’s chief epidemiologist pointed out that 80% of people in China were infected with COVID-19 before the holidays, with the wave of infections moving through the country faster than economists expected and causing fewer disruptions.

However, China faces headwinds from demand, as Chinese export-oriented manufacturers are still seeing a shrinking order book amid fears of a recession. During the Lunar New Year holiday, consumption was up 12.2% year-on-year.

Earlier, we reported that demand in China’s smartphone market fell 13.2% year on year, to a ten-year low.

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