How Global Growth is Affected by Chinese Covid Policies

 

 Chinese economic activities have been greatly halted due to multiple factors. The Ukrainian War has has negatively affected the global economy, along with anti-inflationary high interest rates from central banks. One of the biggest factors must be the strict COVID-19 lockdown policies by the CCP. Manufacturing, production, construction, and services have all been slowed dramatically, as entire production plants have been evacuated due to the aforementioned coronavirus policies. As a result, China's economic growth has been projected to be at a multi-decade low.

One of the biggest stories currently has to do with major protests in Chinese cities as a result of the strict lockdowns enforced by the government. This in turn would worsen the Chinese economy. One of the biggest markets in China is the real estate market, which has also seen many different issues. The economic implications of China's economic downturn spreads far beyond just the borders of China. Maintaining lockdowns seem to only hurt China's economy, as it allows no room for production. Changing these policies may be required to help change the Chinese economy (as well as help the global economy). Protests may be effective long term to help create the change needed within the autocratic government. Only time will be able to tell though.

 

 

 

 

https://www.wsj.com/articles/covid-controls-hit-chinese-factories-adding-risks-to-global-growth-11669788260?mod=economy_lead_pos5

Pending Homes Fall 4.6% in October, Fifth Month of Decline

The country has seen drops in transactions, as high mortgage rates decrease demand. With high interest rate and inflation at 7.7%, the housing sector has been the most affected. The West region in particular dealt with high interest rates and expensive prices. Mortgages rates reached a 20 year high, that is hopefully the highest it will go. There has been a dip in the rates recently that gives hope that the market will soon start to welcome back home buyers.

https://www.usnews.com/news/economy/articles/2022-11-30/pending-homes-fall-4-6-in-october-fifth-month-of-decline

Jerome Powell to Slow Rate-Rise in December

     In recent news, Alicia Wallace wrote an article on CNN titled Smaller rate hikes are likely coming in December, says Fed Chair Powell. This article, written in correlation to words said by Jerome Powell at today's Economic Forum, discusses the much talked about pull-back on the pace the Fed has been rising interest rates over the past year. 

    Given the central bank's target of 2% inflation, we are a long ways from this as we have seen it peak at 9.1% during the summer and slow to 7.7% in the most recent CPI. During the forum, Powell stated "The time for moderating the pace of rate increases may come as soon as the December meeting," which indicates we might see a slowdown from the past four 0.75 point interest rate raises aimed to slow inflation. 

 

    Powell pointed out some promising developments within our economy such as the economies maintained unemployment rate and the recent news of another increase in jobs. Although we are still far away from the 2% inflation target, there are still positives to look at within our economy. 

 

    With the unprecedented actions we have seen since March within the central banks, Wallace points out that this sudden increase in rates can take months and even years to see change within the economy. As this is unheard of in the modern central banking era, we have still yet to see any eye-opening changes in inflation, which is why I believe Powell is looking at the option of a "lower and slower" rise in interest rates over a longer period. With the insights given by Wallace and statements said by Jerome Powell, I expect the Fed to increase interest rates by 0.50 points in December as opposed to the recent 0.75 rises in recent meetings. 

https://www.cnn.com/2022/11/30/economy/jerome-powell-speech-economy

U.S. Government to Backstop Mortgages Above $1 Million in High-Cost Areas

 

        The housing market has cooled off after the FEDs intervention by reducing the money supply which increases the interest rate. The high-interest rate has caused first-time home buyers not to qualify (interested in) to buy a home. The continuous appreciation of houses still attracts investors to the buying of houses. As explained in the article, Fannie Mac and Freddie Mac are enterprises sponsored by the U.S. government, are planning to approve support for Mortgages above $1 Million even though the loan limit is $647,200 in 2022 which is already set to increase to $726,200. These enterprises are interested in jumbo loans (loans that are above the loan limit) more than conforming loans (below the loan limit) because it brings about high-down payment and higher closing cost which attracts only rich clients. 

        The increase in jumbo loans will offset the FEDs' action in the past to cool off the housing market. This will not only cause an increase in the housing market but also serve as an investment tool for upper-class people in society, which will most definitely yield and grow spontaneously unless there is a housing market crash like in 2008. These in turn help to support investment and increase saving from the upper-class people of the society, which only helps to concentrate more of the wealth of the nation into already rich individuals. 

https://www.wsj.com/articles/u-s-government-to-backstop-mortgages-above-1-million-mark-for-first-time-11669740331?mod=economy_lead_story

How the Global Economic Outlook is being altered by the protests in China

     Yesterday, Patricia Cohen wrote an article for the New York Times entitled Chinese Unrest Over Lockdown Upends Global Economic Outlook. In this article, Cohen talks about the recent protests in China and how this is leading to global instability and how this friction so far away can impact our daily lives. 

    These protests are caused by a fire in an apartment complex that occurred last week. In this fire, ten lives were lost. Many citizens point to China's three year COVID-19 lockdown as a potential factor in these deaths. Some believe that this protest could potentially lead to a larger resistance against China's top leader, Xi Jinping, who has come under fire for being an extremely strict leader. 

In many ways, China is known as the "global factory." Many companies turn to them to make the "best and the cheapest" products. If these protests continue, economists believe that we could see the slowed-down production and distribution of integrated circuits, machine parts, household appliances, and more. China is also the world's largest importer of petroleum, which is another reason why there is so much global worry surrounding these protests in China.

The energy crisis and vast amounts of inflation that the war in Ukraine has sparked. This is something that we have all felt when we fill up our cars with gas, or when we go grocery shopping. Cohen believes that the United States and Europe may be enticed to disengage from China and to quickly diversify their supply chains, much like how they were forced to when the war in Ukraine began earlier this year. As of right now though, John Kirby, the coordinator for strategic communications at the National Security Council, has issued a statement saying that "“We don’t see any particular impact right now to the supply chain.”

https://www.nytimes.com/2022/11/28/business/economy/china-unrest-global-economy.html

Mortgage Rates Decline After Most Recent CPI and PPI Data

    The most recent Consumer Price and Producer Price Index Reports have. revealed that the Fed's reduction of the money supply seems to be working as. CPI fell to 7.7% in October from 8.2% in September whilePPI. fell to 5.4%from 5.6%. The waning of inflation has led to a lower 30- year fixed mortgage rate as it averaged 6.61% this past week, a decrease from a 7.08% average a week ago. This data has led to home buyers locking in lower mortgage rates. At last week's average rate of 7.07%, a buyer purchasing a median priced home with a 20% down payment would pay roughly $2,280. At this week's rate of 6.61%, that would drop to $2,174. 

    While these CPI and PPI figures are positive signs for both the overall economy and home buyers at the moment, people remain uncertain as the volatility in mortgage rates seen throughout 2022 is expected to remain through the year. Surging inflation has caused many consumers to tighten their belts, which in turn has lowered demand for homes. As demand has decreased, the supply side of the housing market has been forced to adjust. Roughly 20% of homes listed for sale are seeing price cuts as sellers must adjust to a housing market with lower demand. The Fed has also announced that it has not wavered from raising interest rates until their target of 2% inflation has been reached, which will continue to give prospective home buyers pause as the Fed's rate hikes and mortgage rates are closely linked.

https://www.cnn.com/2022/11/17/homes/mortgage-rates-november-17/index.html

Globalized Supply Chain Brings More-Turbulent Food Prices

International turmoil has lead to food price highs.  Global food prices are 25% higher than they were prior to Covid in early 2020.  There have been significant transportation disruptions mainly due to the impacts of the war the in Ukraine and the pandemic.  Energy shortages have made it much more difficult to ship food around the world.  Supply chain issues as well as increasing fertilizer prices continue to hinder the food market.  Ukraine, one of the world's largest suppliers of grain and sunflower oil are unable to export their product.  With prices expected to become more volatile, the global food market continues to look more grim.   

US food suppliers and restaurants have been significantly affected by these rising costs.  US firms are having to spend substantially more to ship food domestically.  Following the pandemic, there is still port congestion and a shortage of containers for shipments.  For example, the cost of shipping a container from the port of Baltimore to Pennsylvania has tripled in cost to $4,500.  A decreased supply of truck drivers are contributing to these adding expenses.  However, the expense of importing ingredients from abroad is much more costly.  Restaurants across the country are unable to cover the costs of sourcing ingredients from abroad so they are forced to either alter menu items or switch to domestic ingredients.  It is evident that global supply chain issue continue to have grave affects on the US food market.  The Agriculture Department predicts US food prices to rise another 3% to 4% in 2023.  

https://www.wsj.com/articles/globalized-supply-chain-brings-more-turbulent-food-prices-11669557602?mod=economy_lead_story

data shows more confirmation that we are in a recession

 Speculation on wether we are in a recession or not or if we are headed toward one has been a conversation for a while now as a recession has now turned into something more subjective but Peter Schiff says that we are already in a recession. He says that because now that we have a positive Q3 that it gives people more of a reason to deny that we were or are in a recession but that we cannot forget the two negative GDP quarters. He says several reports that "scream" we are in a recession, the first is that the Kansas city manufacturing index came in at -6 and -7 the last two months and this means that there was a contraction in the manufacturing industry, Overall US industrial production is down .1%. He says the contraction numbers show us that even if we don't want to panic people into thinking we are in a recession show that we are. We have always measured a recession as two negative GDP quarters, but we had that and are now trying to change how we determine one becoming more and more subjective making it much harder to determine or come to a conclusion if one has occured or not. The Fed is trying to fight the inflation but it becomes harder for them when the manufacturing is contacting across the country. If it was expanding it would make it easier for the fed but he says that one thing that would make it an easier fight would be an "increase in the supply of goods" but all of the manufacturing numbers are going down so its making it much harder.

https://schiffgold.com/peters-podcast/peter-schiff-more-economic-data-confirms-a-recession/

World Leaders Meet as Global Economy Faces Multiple Threats

 Ryan Stefancin:

World Leaders Meet as Global Economy Faces Multiple Threats

    One of the strongest vocal points in economic news today is the everyday change in inflation rates. Currently we have and inflation rate of 8.2%, which is important to recognize as concerning. However, there are other issues that concern the growth of the global, and U.S. economy. As we know there has been a large increase in price of oil/gas over the last year or so partially due to the conflict between Russia and Ukraine which limited the supply of oil. Hence an increase in prices of oil. It is important to understand that prices in any economy are larger dependent on the price of oil. If the price of oil is up, so are the prices of many other goods in the economy. In other words, the increase of the price of oil is one of many factors in the large rate of inflation in today's economy. President Biden attempts to combat this high price of oil through a broker agreement which would help markets escape debt. This would not only combat inflation and prices of oil but would also decrease the price of grains, rice and other staple food items that poorer countries tend to rely on. The federal reserve is also doing their part in terms of raising interest rates in order to lower the rate of inflation. 

    The current conflict between Russia and Ukraine are directly responsible for the economy downfall in not just the U.S. but in other parts of the world. Recently world leaders had met at the world Summit meeting where the worlds 20 leaders gather in effort to resolve conflicts such as this one. During the summit President Volodymyr Zelensky of Ukraine had reported that Ukraine would not pull its troops out and tame their resistance until their territory was fully restored. Vladimir Putin, President of Russia was not in attendance of this meeting. The opinions of the Chinese Foreign Ministry and China's leader, Xi Jinping state that "all countries should replace division with unity". Although not directly quoting the conflict between Russia and Ukraine, it is the understanding that he was referring to that directly. This resolve in conflict is seemingly important to China due to the strong partnership they have with Russia. It is noticeable in the most recent International Monetary Fund (I.M.F) data that suggests that China has grown at a rate of 3.2% in 2022 but is expected to only grow at a rate of 2.7% in 2023. Along with the decrease in china's numbers, it is apparent that Britain is currently in a recession based on new GDP reports. 

    It is very clear in this article that although there are a few major problems in many economies, that they all stem from the much larger issue of inflation. In this case, inflation is the fuse and the closer it gets to the bottom the more problems that arise with it. President Biden and the federal reserve are doing all they can in hopes to combat this and hopefully this diminishes the other issues in the economy concurrently. 

https://www.nytimes.com/2022/11/15/business/economy/world-leaders-meet-as-global-economy-faces-multiple-threats.html 

Economic Growth and Rising Emissions Don't Necessarily Go Hand in Hand

 Since the Industrial Revolution, economic growth has been accompanied by a rise in greenhouse gas emissions. Coal, oil, and natural gas all contributed to improving the economy and raising living standards, however, they also caused a significant rise in emissions. It has long been thought by experts that in order to reduce emissions, a "degrowth" in the economy was necessary. This, however, theory has been debunked among richer and highly industrialized countries. In the past decade, 33 countries have been reported to have successfully increase their GDP while simultaneously lowering their emissions. There are two main shifts that are believed to have caused this trend.

The first shift is the changing structures of economies. At the beginning of the Industrial Revolution and for centuries after, many countries' economies were manufacturing based. This means they relied heavily on the use of fossil fuels to fuel their growth which contributing to rising emissions. Many large, rich economies, like the US, have now switched to being service-based economies. Serviced base economies do not require the level of fossil fuels as manufacturing ones and this shift has contributed to a reduction in their emissions. 

The second shift is that, in general, imports are getting greener. China's export sector has been able to decarbonise itself at a faster rate than other economies. This then reduces the total carbon footprint of other economies like the US who import heavily from China.

The link between economic growth and rising emissions may have been broken for richer companies, it has not for poorer countries. Global emissions are still on the rise and further efforts still need to be made to minimize it.

From the article:

https://www.economist.com/leaders/2022/11/10/economic-growth-no-longer-requires-rising-emissions