GDP Falls and Concern Rises

 The first quarter of 2022 showed a drop in GDP of 1.4%, as many have pointed out, this has been the worst that GDP has been since the start of the Covis-19 Pandemic. This is in spite of the 6.9% growth we saw in the fourth quarter of 2021, so what happened?

Well there were a lot of factors. In the previous quarter there was a sharp increase in producing inventory, helping boost GDP, but in the first quarter inventory investment actually slowed down. The article does not directly address why this might be, and then it goes on to list how consumer spending as increased as well as investment in R&D by businesses. However, later in the article it does mention that while consumption is up, consumers are purchasing more services than they are products (Travel and hospitality is specifically mentioned in the article). This implies that the inventory that got stocked up in late 2021, isn't being sold as quickly as firms thought. So naturally they're decreasing the amount that they're producing.

With consumption increasing, arguably the most worrying thing at the moment is inflation. Prices are still increasing and it seems that consumers are still buying regardless of what the price is. There is legitimate concern right now that the higher rate of consumption now will result in consumers having less buying power later in the year as prices don't appear to be coming down anytime soon.

Since inflation is such a serious concern right now, that is probably the reason that the Federal Reserve is still planning on raising interest rates despite the drop in GDP. Unfortunately the thing we know for sure is that the economy is going to be rocky in the near future no matter what the Federal Reserve decides.

https://www.wsj.com/articles/us-economy-gdp-growth-q1-11651108351

Tech Stocks Sink Again, Nasdaq Has Worst Month Since 2008

    Friday, the Dow Jones Industrial Average fell more than 900 points. This was influenced by the decline in technology stocks, which left the S&P 500 with the largest drop since the start of the corona virus. Following that Amazon had a major shift in their stocks and in there market causing them to have a loss of around 200 billion dollars off their market value. This left the S&P 500 with an 8.8% loss in the month of April.

    The Dow Jones Industrial Average and the S&P 500 are all included in the Nasdaq Composite, which is heavily weighed with the technology stocks. This means that the decline affected the Nasdaq Composite the most making it the worst loss in a month since October 2008, during the financial crisis. While the stock continues to plunge, we will continue the market sell-off in the economy.

https://www.usnews.com/news/business/articles/2022-04-29/asian-shares-jump-as-chinese-leaders-pledge-help-for-economy

https://www.forbes.com/sites/sergeiklebnikov/2022/04/29/nasdaq-posts-worst-month-since-2008-and-dow-plunges-900-points-market-sell-off-continues/?sh=43a8d4764f8c

Biden Potentially Forgiving Student Loan Debt

 President Joe Biden recently announced that he is looking to forgive all current student loan debt, valued at $1.6 trillion, the second largest debt held by Americans.  This would be incredibly beneficial for debt holders like myself and the millions of other students across the country, the recent pause on repayments by itself has saved Americans an estimated $5 billion a month on average.  A lot of Biden's supporters really empathize with this idea and Biden's team recognizes as well just how popular this idea is, it has evolved into one of the center pieces of his campaign for the future re-election.  We will see how this plays out, it could be very beneficial for Biden because he can easily secure many different groups of voters who support this but the inverse is also true, he could be scaring away potential voters who were on the fence between parties, especially those who tend to be more conservative.  The republicans will probably lobby whatever bill goes through congress so the best bet for debt cancellation is a slower more regulatory process, something that could bypass a lot of the legal challenges of this potential bill. 

https://www.cbsnews.com/news/biden-options-forgiving-student-loan-debt/ 

Rising Economic Fears

 The S&P 500 is heading for its worst monthly decline since March 2020. With interest rates and inflation rising this also raise concerns for consumer sentiment. A severe Covid lockdown in China and the invasion of Ukraine are adding to disruptions in the flow of goods across borders, contributing to rising food and energy prices, and threatening corporate profits. The index, down 5.4 percent for the month through Thursday, dropped another 2 percent by Friday afternoon. April was the third month of losses this year and stocks are now down more than 10 percent in 2022. Analysts say that Wall Street’s pessimism isn’t likely to end until the major concerns are resolved, and when that will happen seems impossible to know. What matters the most is the impact on consumers. Economists expect demand to slow as people face high prices and increased borrowing costs at the same time. "“The consumer is the main driver of the U.S. economy,” said Kathy Bostjancic, chief U.S. financial economist at Oxford Economics. “So how the consumer goes, so goes the economy.” Ms. Bostjancic said that as the Fed continues to raise rates this year and into next year, “we see more vulnerability for the consumer and risks of a consumer pullback rise.”:

Russia may be in default

 The sanctions placed on Russia since the start of the Ukriane conflict include the freezing of Russian assets outside of Russia. This consists of significant dollar reserves spread in banks across the world. Like most countries Russia has to make regular payment on bonds issued by the government. Since Russia is not allowed to access it's foreign assets many question whether they will be able to pay their dollar denominated bond obligations coming up in the near future. They could dip into domestic dollar reserves to make these payments which means less funding for the war in Ukraine, as the sanctions intended or could try to make payments in rubles which are unlikely to be accepted. If the government does default, the question of how and when bondholders get paid becomes very important.

https://www.reuters.com/world/europe/moodys-says-russia-may-be-default-dollar-bonds-2022-04-15/

How Companies are Adjusting to High Levels of Inflation

     As we all know inflation is currently running rampant in the United States economy. Rich countries are facing producer prices that have soared to their highest rates in the last 40 years. Companies are also facing supply chain issues along with a myriad of other problems. The obvious way companies could combat these rising prices and inflation is by raising their prices but it doesn't seem to be that simple. A very recent example would be Netflix, which, tried to raise their prices in the midst of a streaming war and the ending results didn't bode well for them as they saw huge strong price drops and a surge of membership cancellations. So, if raising prices is off the table of most companies they have to turn to other options. One of these other options is using a term called shrinkflation. What this means is that companies are shrinking the products they sell and trying to rebrand them in a cool way that seems fresh and trendy to consumers. The companies can brand the shrinkage as environmentally friendly and it becomes a win-win for companies and consumers.

https://www.economist.com/business/2022/04/30/the-weird-ways-companies-are-coping-with-inflation

US GDP Growth Drops in First Quarter

Surprising almost everyone, data showed that U.S. GDP actually decreased 1.4% during the first quarter of the year. Are we looking at a potential recession? Anything is possible, but there's more to the story than just a drop in growth. Using data from 2018 to 2021, economists found that six states were already facing lagging growth, with Hawaii and Alaska leading the pack. Hawaii in particular continues to face challenges from low tourism.

Some states, however, have excelled. Utah, Idaho, and Washington have all grown faster than the national GDP rate, partially due to the rise in remote work. Warmer states like Utah, Idaho, and Florida have seen bumps in GDP, but at the expense of states like Maryland and Connecticut. This, coupled with increased tax revenues in Utah and Idaho, have spurred further growth in the west.

https://www.economist.com/graphic-detail/2022/04/28/americas-economy-unexpectedly-contracts-in-the-first-quarter

Investment Banks Slash Expectations for China's Economic Oulook

Strict lockdowns throughout major cities in China are causing problems for China's economy right now, and is predicted to have negative consequences in the future. Many businesses have been shut down for the past month, which has supply issues within these cities and outside of them. These lockdowns have no foreseeable end, which makes it hard to have clear predictions for its effects. However, the most common prediction that has been made is that the year end GDP will be lower than was initially predicted. Initially, the official government target for GDP growth was 5.5%, but the new median production from investment firms shows GDP growth at 4.5%. It is also predicted that investment and demand for goods, homes and durable goods will fall, because of people in lockdown having lower incomes, and overall uncertainty. I think it will be interesting to see how much longer these lockdowns last, and what the total effect on China's economy, and on other countries. 

 https://www.cnbc.com/2022/04/26/investment-banks-slash-china-growth-outlook-one-puts-gdp-below-4percent.html

New research spells out the benefits of diverse supply chains

 Over the past several years manufacturing around world has created a complex system of supply chains. The global pandemic created massive issues within this due to higher demand of some products and extreme drop offs for others, which still has made problems for the current day. This has caused countries to try to manufacture more in house so that they're better equip for the future in case another issue occurs. Self sufficiency seems to be the answer for many of these issues, as 60% of the decline in imports in 2020 was due to lockdowns by trade partners. 

The research shows that even though countries may be believe self sufficiency is the answer, the real answer is to increase the variety of countries you import from. This way you can have products easily substituted if another supply chain issue arises in a similar way. 69% of the products in Europe and 80% of the products in the Western Hemisphere are produced in house. Being dependent on your own economy decreases the diversification of the global supply chain. If another big disruption were to cause a 25% drop in labor supply, this would decrease the total GDP of a country by more than 1%. It may be difficult to increase diversification but it can be started with FDI in infrastructure and lowering trade barriers. 

https://www.economist.com/finance-and-economics/2022/04/23/new-research-spells-out-the-benefits-of-diverse-supply-chains

How local Argentinians cope with galloping inflation, nearing 55%

 Argentina's inflation was estimated to be 55% in the past year, second only to Russia as being the highest in the world. However, compared to the rest of the world suffering inflation as a result of supply chain shocks due to the Ukraine war, Argentina's inflation is endemic to the nation. In the country's history, they have had inflation soaring to 3,000%. Locals have adopted approaches to make the best of their economy's bleak situation. Given that money no longer acts as a store of value, they use their pay-cheques as opposed to putting any money away in savings. They try to keep their money in USD as it is protected against inflation. Some even pay taxes late because their money will have less value, and given the level of corruption and lack of legislation, they are not afraid of any penalties for doing so. Another approach being used to take advantage of delaying payments, is paying in installments (even for essentials like groceries)- as interest on deferred payments is lower than inflation, and in some cases, no interest is charged. Most Americans are familiar with hoarding during crises (i.e the pandemic and the shortage of sanitizers and toilet paper), however, in Argentina, this is a daily practice as items will cost more within a month. Many people in Argentina have also had to cut back on their lifestyles and choices, some forced to give up meat since they can no longer afford it. Another interesting approach, and one that made headlines for Ukraine's government, is saving money in cryptocurrency. Citizens prefer the volatility of the cryptocurrency asset class to that of the Peso. 

https://www.wsj.com/articles/inflation-got-you-down-at-least-you-dont-live-in-argentina-11650898676

Pakistan's economy could follow suit with Sri Lanka soon

 Pakistan and Sri Lanka are countries that have suffered at the hands of long-term economic mismanagement and dynastic politics that have led to institutional corruption. Both countries have also taken massive debt from entering into long-term debt-funded projects with China, which is notorious for it's problematic loan agreements and high-interest rates. Other countries in the region, despite having larger economies (i.e Bangladesh), are significantly less exposed. Pakistan is facing an economic crisis similar to the one it faced in 2018, and only has 3 months of import cover, requiring IMF relief. The ground realities are similar to that of Sri Lanka leading up to the crisis. Galloping inflation, ruppee in free fall, worsening current account/fiscal deficit, and a Balance of Payments crisis. To make matters worse, the ousting of the current government has only polarised further, an already fractured polity and created a political crisis. The outgoing government left a jigsaw puzzle to solve, with double-digit inflation and a subsidy trap that violated the IMF agreement with fuel subsidies and announced subsidies for gasoline. The IMF demands that fuel subsidies offered by the previous government be withdrawn, which was costing the government almost 96 billion, which they can not finance. However, with a polarized political climate and elections around the corner- tough contractionary policies may not be popular with the public, which is already bearing the brunt of rising inflation.

https://theprint.in/opinion/chinas-debt-trap-diplomacy-played-role-in-pakistan-sri-lanka-crises-but-its-not-the-cause/908740/

U.S. Markets Tremble as Beijing Lockdowns and "Aggressive Fed" Spark Economic Fears

 We have recently seen struggles in the US Markets as Covid concerns continue to rise in China and the Fed has continued with their interest rate hikes. In major cities such as Shanghai, we have seen a significant increase in Covid cases, as they are experiencing the highest spread of cases since the beginning of the pandemic. Craig Botham, chief Chinese economist, is expecting a recession in China's economy as the government has doubled down on their Covid restrictions

Along with concerns in China, investors are also worried that the Fed may be pushing to far as Fed Chairman Jerome Powell has hinted at increasing short term interest rates by double the usual amount. As a result we have seen a sharp decline of the S&P 500 by 122 basis points and the Dow the down decreased 981 basis points.

This is concerning for consumer confidence as there is increased uncertainty in the market as we are still battling record high inflation. The war in Ukraine is still raging on creating significant uncertainty in many world markets as food and gas prices continue to rise. It will be interesting to see how China plans to manage their "Zero-Covid" strategy and how the effect of lockdowns will continue to effect world economies. I think there is significant concern in the US and we can expect to see increases in prices and may even experience some supply shortages as a result.

Source: https://www.cbsnews.com/news/stock-markets-down-china-lockdowns-fed-hikes-2022-04-25/

Economy, Markets in Crosshairs This Week as Fed’s New Anti-Inflation Stance Gathers Steam

Dow Jones suffered a 2.82% daily loss when the Federal Reserve Chairman, Jerome Powell, expressed that there would be a 50 basis point hike in interest rates that could be discussed at the central bank’s next meeting in May. This caused investors to be concerned about several things, such as the rising bond yields, slow corporate profits, inflation, and the war in Ukraine. The International Monetary Fund recently lowered the 2022 global growth forecast from 4.4% to 3.6%. The markets can rebound this week with corporate earnings reports from some companies like Apple, Amazon, and Microsoft. House prices are still increasing and jobless claims are decreasing, which shows that the economy is still strong. 

If the GDP report that comes out this week shows growth higher than the forecast of 1.1%, then the economy is not slowing down as much as expected from the 6.9% pace from the fourth quarter. According to some analysts, a repricing of stocks is currently happening due to the rising interest rates. The Fed meeting in May is expected to increase its interest rate hikes to the 50 basis point level. They are also expected to announce the start of a plan to decrease the $9 trillion balance sheet that occurred due to the COVID-19 pandemic. 

https://www.usnews.com/news/economy/articles/2022-04-25/economy-markets-in-crosshairs-this-week-as-feds-new-anti-inflation-stance-gathers-steam

Oil Shocks and Their Impact on Hawaii's Economy

Par Hawaii is the only oil refinery in all of Hawaii. The refinery converts crude oil into refined products which are then dispatched to the other islands to power cars, homes and planes. It is the beating heart of the state’s oil-dependent economy.

Due to the increase in oil prices as a result of the war in Ukraine, Hawaii's increased reliance on oil is putting pressure on the state's economy. Despite improving energy efficiency and progress in transitioning towards renewables, big obstacles remain. In the meantime, Hawaiians are not finding much relief from the energy crunch. 

Out of all the fifty states in the United States, no state is more reliant upon oil for commerce than Hawaii, counting for up to 85% of its energy needs as a state. The primary use for this oil comes in the form of jet fuel, as many of the important commodities and goods requested by the local businesses and populace require delivery via plane.

On top of this, up to a third of the oil used within Hawaii has historically been imported from Russia, meaning that the state most reliant upon oil has lost a significant portion of its reserves. While it does not have the highest gas price yet, (second only to California) its electricity costs per month have also skyrocketed, boasting the highest prices and rates in the country at the moment. 

If there is not a serious change in the supply chain in the next coming months, we could see a very dangerous situation unfold within Hawaii's economy, which could lead to some type of state of federal intervention, though only time will tell.

https://www.economist.com/united-states/hawaiis-oil-dependent-economy-is-being-battered-by-russias-war/21808955

Russia’s Attempt to Block Economic Data

 Vladimir Putin has ordered Russian authorities to stop publishing data on banks, oil and debt. Government debt, trade statistics, oil production, and more statistics will all be hidden from now on. Even Russian central banks have limited the data available to smaller banks in Russia as Putin takes the route of secrecy to protect his country from further Western sanctions,  which have proved to be effective. But, the secrecy of Russian economic data will be an added challenge for the U.S. to impose future sanctions, see Russian economic weak spots, and to analyze how the previous sanctions are affecting Russia. With Russia and Vladimir Putin scrambling to disarm Western sanctions, only time can tell if hiding data will ease future sanctions.

https://www.wsj.com/articles/russia-blocks-economic-data-hiding-effect-of-western-sanctions-11650677765

Rapid Inflation, Lower Employment: How the U.S. Pandemic Response Measures Up

 As the Fed is raising the interest rate, many expect that it will take a while for the inflation rate to come back to a normal level, because of the amount of spending the U.S. did during and after the covid-19 pandemic. Many consumers can feel the price increase in their day to day life, especially energy, like gas. The consumer price index has increased by 9.8 percent from March year earlier. Many economists think the package the U.S. government sent to its citizens during the pandemic was too large, and it is one of the primary contributors to the current inflation and rising prices. The current employment rate in the United States is 71.4%, just below 71.8% from this time last year. There are about 1.8 open jobs for every unemployed person in the U.S. , and wages are rising at the fastest pace in four decades, there is a very strong job market currently in the U.S.. The red hot job market could be a feeder for inflation, and the Fed will try to raise interest rates and use contractionary policies to try to slow down the economy, and bring supply and demand closer together.

Yellen Expects Biden to "Press" Congress For More Ukrainian Economic Aid

 Treasury Secretary Janet Yellen spoke during a news conference at the Treasury Department in Washington, Thursday, April 21, 2022. Yellen spoke on the $500 million economic aid package provided to Ukraine from the U.S. and acknowledged that it’s only a fraction of what the war-ravaged country will need and said the administration will seek more money from Congress. Yellen has said that Ukraine will get the aid needed, however Ukrainian officials estimate that could total $8 billion this month alone. That is no small sum of money. Ukrainian officials came to Washington this week seeking a $50 billion aid package from international allies as it braces for a massive financing shortfall over the coming months. Thinking of ways to fund the request, Yellen was noncommittal on whether the U.S. could use some of the hundreds of billions of dollars in foreign reserves from the Russian central bank, which the Biden administration and its allies have frozen. The size of the latest U.S. contribution and Yellen’s tentative comments on finding further economic aid underscore the challenges the administration faces in trying to help the Ukrainians survive the Russian onslaught, even as much of the world condemns Moscow’s actions.  

Germany at risk

 Recession on the doors

The German economy is about to go into recession if Russia-Ukraine continues. The country is expected to shrink at 2% if the Russia-Ukraine war does not stop. The recession would be because of the ban on Russian coal, oil, and gas which will restrict the power industry of Germany. Economists are trying to analyze the economic fall of Germany if the sanctions on Russia continue and there is a shortage of power resources in Germany because of the sanctions. Research institutes advising Germany said that there would be a loss of 220 billion-euros equal to 6.7% output decrease annually if the war continues and trade between Germany and Russia is restricted. The embargo on fossil fuels and surge on crude will increase the prices of coal and gas. The Bundesbank has said that any fluctuations in the financial market due to the war are not included in assessing the recession and the economic crisis can be stronger than what is expected if the war intensifies. The German central bank predicts that output will be 1.75% lower this year and inflation would be 1.5% higher this year. The economy of Germany is in the hands of the Russia-Ukraine war and the downfall percentage of the German economy heavily depends on the intensity of the war.

Sri Lanka’s Economy

 The economy of Sri Lanka is facing its worst economic crisis of all time. In these desperate times, the world bank has agreed to $300m to $600m over the next four months to help Sri Lank buy essential goods and services. Sri Lanka's finance minister Ali Sabri is in Washington Dc to negotiate a rescue package with the IMF. Many neighboring countries have extended their aid to Sri Lanka, India has promised to give $500m to buy fuel and additional $1bn aid from India is under progress. China has also extended their aid of $31m as emergency aid, and 5000 tonnes of rice, medicines, and raw materials. Despite all these aids, Sri Lanka is on the verge of declaring bankruptcy with $7bn out of its $25bn in foreign debt due for payment this year. There has been a shortage of food, medicines and raw materials for months in Sri Lanka. The sharp increase in fuel prices has increased the cost of transportation and prices of other goods and services. Due to the ongoing crisis, there are protests outside the president's office, demanding immediate resignation of the president and his family who are governing the country. Police opened fire on innocent protesters, who were protesting against the increasing prices of fuel, 1 person died and 13 were injured due to the shooting. The government condemned the act and has promised to start an inquiry of the incident. Many people blame China for the crisis, as the debt is accumulated because of the loan that Sri Lanka took from China to build projects but those projects never paid back. At this stage, it seems impossible for Sri Lanka to recover without any international aid.