Thursday, March 28, 2024 | Ramadan 17, 1445 H
broken clouds
weather
OMAN
23°C / 23°C
EDITOR IN CHIEF- ABDULLAH BIN SALIM AL SHUEILI

Global economy: Nice start to the year; pity about the rest of it

918428
918428
minus
plus

LONDON: The world economy has begun the year in fine form. America is cruising along, China is growing faster than expected, Britain is muffling the Brexit downdraft. Even the usually lagging euro zone is perky. Pity about what lies ahead. Almost every major economy’s data releases these days seem to follow a similar pattern. First, they are generally positive — either better than previously or only a little weaker. Then, policymakers and economists come out and say there are too many uncertainties ahead to know whether it will continue or crumble.


“Geopolitical risks are mounting and increasingly catching market attention in such fashion as to risk overshadowing most other developments,” Canada’s Scotiabank told its clients.


The risks are primarily political. How will US President Donald Trump’s “America First” protectionist talk translate into policy — Will Brexit finally come back to bite Britain by cutting off commercial growth and breeding inflation.


For the euro zone, meanwhile, the risks are existential. Elections in France, Italy, Germany and the Netherlands could result in anti-euro political parties gaining significant ground or even taking office. And Greece’s hold on its place in the currency union remains flimsy.


In the past week the extra money investors demand to buy French bonds rather than German ones jumped — much of it because of a comment by an official of the far-right National Front that it would put leaving the euro at the heart of its economic platform.


Polls suggest National Front candidate Marine Le Pen will not win the presidency — but after the Trump and Brexit surprises last year nothing can be ruled out.


Other risks are more Keynesian, revolving around whether years of stimulus from central banks in the form of asset-buying and negligible interest rates are finally producing inflation, which in turn will stop consumers from buying, slowing economic growth. Economics can be very much a game of whack-a-mole.


UP NEXT:  The coming week may well be dominated by China, which returns from a holiday with a large slate of data, including the services purchasing managers index, foreign reserves data and possibly trade figures.


China grew a faster-than-expected 6.8 per cent in the fourth quarter, boosted by higher government spending and record bank lending.


But the economy still faces headwinds from a cooling housing market and possible protectionist measures from the United States.


The foreign exchange reserves, meanwhile, are on the verge of falling below $3 trillion, although the pace of declines could be slowed by capital controls and the dollar’s retreat.


China is being cautious. It raised a number of policy rates on Friday against what Deutsche Bank described as a dilemma.


“Policy needs to be tightened for financial stability considerations, but (the central bank) wants to control the pace and magnitude so that ... the tightening does not trigger disruptive adjustments (bubble burst), and ... does not jeopardise the stabilising growth outlook,” it said.


In the euro zone, there will be German, French, Spanish and Italian industrial production data. All are expected to show growth.


Germany’s volatile factory orders may be under particular scrutiny. They fell 2.5 per cent month-on-month in November, a plunge from a 5 per cent rise the month before.


Economists expect a bounce back.


Meanwhile, a wish-you-were-a-fly-on-the wall moment occurs on Thursday when European Central Bank President Mario Draghi goes to Berlin for talks on the euro zone economy with German Chancellor Angela Merkel.— Reuters


SHARE ARTICLE
arrow up
home icon