Charting the Global Economy: ECB Boosts Rates; Fed, BOE on Deck - Bloomberg

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Charting the Global Economy: ECB Boosts Rates; Fed, BOE on Deck  Bloomberg
Charting the Global Economy: ECB Boosts Rates; Fed, BOE on Deck - Bloomberg
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Feds to release fall economic statement on Nov. 3 as economists worry about a recession - CBC News

Deputy Prime Minister Chrystia Freeland said Friday she will present the government's fall economic statement on Nov. 3 — the first chance for Canadians to get a closer look at Ottawa's books since the spring budget.

The statement comes during a time of rising interest rates and considerable economic uncertainty.

Finance Canada said the statement — which includes a look at the expected deficit and national debt for the coming year as well as details about new planned federal programs — will "provide information on the state of the Canadian economy within a challenging global environment and outline the government's plan to continue building an economy that works for everyone."

Freeland has toured the country warning Canadians that the coming months could get ugly as the Bank of Canada's rate hikes work their way through the economy, pushing up the cost of borrowing for individuals and businesses.

But there are early signals that Ottawa's fiscal health could be much better than previously thought, thanks to higher oil prices and a growth in personal and corporate taxes in this era of high inflation.

According to figures released Thursday through the Public Accounts of Canada, the government's fiscal ledger, the budget deficit for the 2021-22 fiscal year came in at $90.2 billion — substantially less than the $113.8-billion deficit Freeland projected in her April budget.

Risk of 'more severe global slowdown'

In an economic and fiscal outlook published earlier this month, the Parliamentary Budget Officer (PBO) forecast a budget deficit of $25.8 billion — or 0.9 per cent of GDP — for the 2022-23 fiscal year if the government pursues "status quo policy," which means no major new spending on programs. That is significantly smaller than the April budget's forecast of $52.8 billion.

But Yves Giroux, the PBO, said the central bank's rate hikes to tame inflation risk dumping Canada into a recession.

"With the synchronized tightening of monetary policy by major central banks around the world to reduce high inflation, there is a risk of a more severe global slowdown, which would negatively affect the Canadian economy and federal finances," Giroux said.

"We expect growth in the Canadian economy to slow considerably in the second half of 2022 as consumer spending downshifts and residential investment continues to decline. We project real GDP growth to remain weak through 2023 before rebounding somewhat in 2024," he said.

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Feds to release fall economic statement on Nov. 3 as economists worry about a recession - CBC News
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US Economy Shows Worst Is Yet to Come, With Cooling Just Starting - BNN Bloomberg

(Bloomberg) -- The US economy’s recent rebound is looking like a high-water mark for the expansion.

While government data on Thursday revealed US gross domestic product rose 2.6% at an annualized rate in the third quarter, that gain merely made up for the economy’s contraction during the first half of the year.

Total inflation-adjusted GDP last quarter was roughly the same as where it was at the end of 2021, and it may soon start deteriorating anew, with the Commerce Department report containing foreboding signs for the economy:

• Investment in residential housing plunged at an annual rate of about 26% -- a “monster” decline in the words of Citigroup Inc. economist Nathan Sheets and likely a response to the highest mortgage rates in two decades.
• Consumer spending, the engine of the economy, rose 1.4% from the previous three months, capping the weakest three quarters since the demand destruction of early 2020.
• Stripping trade and inventories out, final sales to domestic buyers showed an annualized growth rate of just 0.5%. That compares with an average of almost 2.6% over the five years before the pandemic.

“It’s very unusual to see that indicator basically stall outside of a recession period -- that’s telling,” said Sal Guatieri, a senior economist at BMO Capital Markets, referring to the final-demand indicator. “That means the US economy beneath the surface is losing steam.”

The underlying signs of weakness highlight the difficulty President Joe Biden and Democratic lawmakers have had in crafting a narrative that resonates with voters in the run-up to Nov. 8 congressional elections. While the job market continues to expand, inflation and surging interest rates are taking a toll, as evidenced in Thursday’s report.

Biden himself hailed the release as showing that the economy “is continuing to power forward” and not in recession.

That’s not dissuading many from predicting one. McDonald’s Corp. Chief Executive Officer Chris Kempczinksi said Thursday he expects a mild-to-moderate recession in the US -- even though the company itself is doing fine and saw a pick-up in a key metric for sales in the country this month.

What Bloomberg Economics Says...

“A return to economic growth in the third quarter obscures continued signs of a slowdown in components that provide a cleaner signal of momentum... The Fed is likely to view the weaker components as intended consequences of its tighter monetary policy, and not as reasons to back off the tightening cycle just yet.”

-- Andrew Husby and Eliza Winger, economists

To read the full note, click here

Inflation-adjusted business investment advanced 3.7%, reflecting a robust increase in outlays for equipment and intellectual property products. At the same time, a separate report Thursday showed orders for non-defense capital goods, excluding aircraft -- a proxy for business investment -- dropped 0.7% in September, the most in more than a year.

“We expect third-quarter 2022 to mark the peak in quarterly growth, as the cumulative effect of tighter monetary policy begins to push growth below potential,” Morgan Stanley US economists led by Ellen Zentner wrote in a note. They expect fourth-quarter GDP will grow 0.8%.

One silver lining is that, given the magnitude of the contraction in construction, the headwinds to GDP growth from that part of the economy may ease going forward.

“I am skeptical this continues,” Neil Dutta, head of economics at Renaissance Macro Research, wrote in a note. He also flagged the support to growth last quarter from government spending. Money set to flow from last year’s infrastructure act and the more recent climate-spending legislation, combined with the firepower from “flush” state and local governments, means the government sector will help GDP next year. 

Read here how Caterpillar Inc. is seeing rising shipments of its machines

Thursday’s data did nothing to dissuade traders from expecting Federal Reserve Chair Jerome Powell and his colleagues from boosting interest rates by 75 basis points next week. Futures trading reflects expectations for a half-point increase at the following meeting, in December.

One measure of inflation included in the GDP data, the personal consumption expenditures price index, rose an annualized 4.2% in the third quarter, the slowest pace since the end of 2020. But it likely reflects a decline in trade prices and residential investment, Morgan Stanley’s team of economists said -- limiting its implications for the Fed.

Stripping out food and energy, the price index rose 4.5%. Monthly data for September will be released Friday.

How Executives See It

• “The macro-environment indications of a recession are certainly increasing.” -- John Greene, chief financial officer of Discover Financial Services, Oct. 25 earnings call
• “Short-term consumer sentiment and consumer demand are clearly reflective of a recessionary environment. While at the same time, input costs, which you would expect to come down in a recessionary environment, are still elevated.” -- Marc Bitzer, chief executive officer of Whirlpool Corp., Oct. 21 earnings call
• “We continue to believe that 2023 demand for air travel will be robust. We currently see no signs of demand slowing as we move into the new year.” -- Derek Kerr, CFO of American Airlines Group Inc., Oct. 20 earnings call

--With assistance from Vince Golle.

(Updates with comments on grounds for resilience, in third and fourth paragraphs under ‘Bloomberg Economics’ section.)

©2022 Bloomberg L.P.

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US Economy Shows Worst Is Yet to Come, With Cooling Just Starting - BNN Bloomberg
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French economy ekes out meagre growth in Q3, inflation hits record high - Reuters

PARIS, Oct 28 (Reuters) - France's economy eked out meagre growth in the third quarter as household spending stagnated and a sharp jump in inflation in October signalled headwinds looming in the final quarter of the year.

France's economy grew 0.2% in the July-September period, in line with market expectations, preliminary data from the INSEE official statistics agency showed.

Stubbornly high inflation, export weakness and risks to energy supply will weigh on the euro zone's second largest economy in the months ahead, analysts said, just as the European Central Bank jacks up rates to tame price rises.

Bank of France Governor Francois Villeroy de Galhau said he saw no reason to revise downwards his forecast for 2.6% GDP growth in 2022 but that there were clear signs of weakness in the eurozone as a whole.

"That means resilient growth this year and at least a significant slowdown next year," Villeroy told a webcast hosted by financial site Boursorama.

Villeroy, who is also a European Central Bank member, said "substantial" progress had already been made in the ECB's bid to fight off a historic surge in inflation.

France has fared better than its neighbours in taming price rises thanks in part to early energy price caps and fuel subsidies, but economists have warned that its heavy spending on blanket protection for households is storing up pain for later.

After two consecutive months of slowing inflation in France that bucked the wider euro zone trend, consumer prices surged in October. Food prices were up 11.8% annually while energy prices soared 19.2%.

On an EU-harmonised basis, inflation rose 1.3% month-on-month, leaving the year-on-year rate at 7.1% -- nearly a full point higher than in September and surpassing a record high for France of 6.8% for hit in July.

The data came a day after the European Central Bank raised interest rates again, worried that rapid price growth is becoming entrenched. It lifted its deposit rate by a further 75 basis points to 1.5% - the highest rate since 2009.

The outlook for France, remained difficult with inventories likely to make a negative contribution to growth from the next quarter, ING analysts said.

"With investment at half-mast, risks to energy supply, persistently high inflation and an overall slowdown in demand for exports, it is difficult to expect a strong recovery in growth in the second half of 2023," ING said.

French President Emmanuel Macron this month in a newspaper interview cautioned policymakers against "demand destruction".

ECB President Christine Lagarde on Thursday pushed back on political criticism that rapid rate hikes threatened to push the euro zone into recession, arguing that her job was to get inflation under control.

Reporting by Richard Lough; additional reporting by Michel Rose Editing by Silvia Aloisi, Angus MacSwan, William Maclean

Our Standards: The Thomson Reuters Trust Principles.

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Southeast Asia internet economy forecast cut on economic headwinds - SaltWire PEI powered by The Guardian

By Chen Lin

SINGAPORE (Reuters) - Southeast Asia's internet economy is expected to be worth $330 billion by 2025, though this a downgrade from a previous forecast due to economic uncertainty and more pressure on tech companies to make a profit, an industry report said on Thursday.

The annual report, by Alphabet's Google, Singapore state investor Temasek Holdings and global business consultants Bain & Company, trimmed its forecast for 2025 from $363 billion in last year's report.

"Amidst global macroeconomic headwinds, reduced disposable income, sky-rocketing prices, and lower product availability, there is tapering of demand from Southeast Asia consumers," the trio said in a joint release.

The region of 11 countries is one of the world's fastest growing internet markets, due to a young population, widespread smartphone usage and urbanisation, and a growing middle class.

The report, which covers Indonesia, Thailand, Vietnam, Singapore, Malaysia, and the Philippines, is still upbeat on this year and sees the internet economy growing 20% to $200 billion, three years earlier than anticipated in an inaugural report in 2016.

All six countries are expected to post double-digit growth between now and 2025, with Vietnam having the fastest growing digital economy this year at 28%.

Indonesia, the region's most populous nation, saw its digital economy grow 22% to $77 billion this year, contributing to about 40% of Southeast Asia's total online spending.

On the tech investment front, while early-stage deals are continuing with strong momentum, late-stage deals are seeing "more pronounced dips" and a pause in plans to go public.

Global investors are getting increasingly cautious amid rising interest rates and plummeting stock valuations, the report said, with initial public offering prospects set to grind to a near halt for the next 12 to 18 months.

The digital financial services sector is expected to overtake e-commerce to become the region's top investment sector, with payments taking up the majority share of the deals.

In the first half of 2022, the sector saw a record funding of around $4 billion.

Meanwhile, Vietnam, Indonesia and Philippines are likely to attract more investors in the longer-term, the report said.

"Universally investors generally expect deal activity to recover from 2024 onwards," said Fock Wai Hoong, Deputy Head of Technology & Consumer and Southeast Asia at Temasek.

Venture capitalists had $15 billion on hand to sustain deals at year-end 2021, the report said.

(Reporting by Chen Lin in Singapore; Editing by Ed Davies)

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Green services can help make the circular economy a reality - World Economic Forum

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Global economy approaching a recession, central banks unchained: Reuters poll - Reuters

• Summary

• https://tmsnrt.rs/3Fdk0dE
• https://tmsnrt.rs/3N1qRJf

BENGALURU, Oct 26 (Reuters) - The global economy is approaching a recession as economists polled by Reuters once again cut growth forecasts for key economies while central banks keep raising interest rates to bring down persistently-high inflation.

One bright spot is that most major economies already in a recession or heading into one are starting with relatively low unemployment compared with previous downturns. Indeed the latest poll expects the smallest gap between growth rates and joblessness in at least four decades.

But while that might deaden the intensity of recessions - most respondents say it will be short and shallow in key economies - that may also keep inflation elevated for longer than most currently expect.

A majority of the top global central banks are over two-thirds of the way to the expected terminal interest rate, but with inflation still much higher than their mandates, the risk is those rate expectations are too low.

After being late to call the inflation problem, global central banks have spent most of this year frontloading rate hikes to catch up. Most economists and central banks are of the view there will be little work left to do next year.

Michael Every, global strategist at Rabobank, said "risk of a global recession" is what everyone's talking about and has become mainstream in forecasts. "I think that's pretty much a no-brainer when you look at the trend in all the key economies."

Looking at the low jobless rate is problematic, Every said, because it is a lagging indicator and "the longer it stays stronger the more central banks will feel that they can continue to hike rates."

Reuters Poll - Terminal rate outlook

Of the 22 central banks polled this time, only six were expected to hit their inflation targets by the end of next year. That was a downgrade from July surveys, where two-thirds of 18 were expected to hit their respective targets by then.

Analysts at Deutsche Bank wrote: "...history never repeats exactly, but since inflation forecasting has generally been so poor over the last 18 months, it's worth us asking what normally happens when inflation breaches these thresholds. The answer is that it's normally quite sticky."

In the meantime global equity and bond markets are in disarray while the U.S. dollar is at a multi-decade peak in foreign exchange markets based on U.S. rate expectations.

A strong 70% majority of economists, 179 of 257, said chances of a sharp rise in unemployment over the coming year were low to very low, underscoring how widespread the view is among forecasters that it won't be a devastating recession.

Global growth is forecast to slow to 2.3% in 2023 from an expected 2.9% this year, followed by a rebound to 3.0% in 2024, according to Reuters polls of economists covering 47 key economies taken Sept. 26-Oct. 25.

Those were all downgrades from polls taken in July.

Reuters Poll - Economic outlook of major economies

Over 70% of economists, 173 of 242, said the cost of living crisis in the economies they cover would worsen over the next six months. The remaining 64 expected it to improve.

While the inflation cycle is global in nature, made worse by a sudden surge in energy prices after Russia invaded Ukraine on Feb. 24, much will depend on how far the U.S. Federal Reserve was likely to push rates higher.

The Fed is expected to go for a fourth consecutive 75 basis points interest rate hike on Nov. 2, and economists say it shouldn't pause until inflation falls to around half its current level.

China, the world's second largest economy, was expected to grow 3.2% in 2022, far below the official target of around 5.5% and also well below pre-pandemic growth rates.

Excluding the meagre 2.2% expansion after the initial COVID-19 hit in 2020, that would be the worst performance since 1976.

India's economy was also forecast to grow well below its potential over the next two years with medians showing 6.9% growth in the 2022-23 fiscal year and 6.1% next year.

The euro zone economy was expected to grow 3.0% this year but flatline in 2023 before expanding 1.5% in 2024.

(For other stories from the Reuters global economic poll:)

Reporting by Hari Kishan; Polling, analysis and reporting by the Reuters Polls team in Bengaluru and bureaus in Buenos Aires, Johannesburg, London, Istanbul, Shanghai, and Tokyo; editing by Jonathan Oatis

Our Standards: The Thomson Reuters Trust Principles.

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