Hello. Today we take a look at the state of the Chinese economy, the Federal Reserve’s role in tackling climate change, and even dress up at the Met Ball.
The Chinese economy is in the midst of a mid-year stumble.
This was confirmed on Wednesday when data showed retail sales growth collapsed in August and industrial production and investment also slowed.
The big question: is this a setback to an otherwise healthy economic recovery, or is relentless regulatory crackdown wreaking havoc?
The answer: it’s a bit of both.
Unlike Europe or the United States, China is sticking to a Covid-zero strategy, which means it stops travel and other social activities as soon as a few cases of the virus appear in a region. That’s exactly what it did last month, causing a decline in activities like restaurants and a big part of the retail slowdown.
Another epidemic this month will continue to hold back consumers. Assuming authorities are successful in containing the latest infections, as they did last month, then shoppers should open their wallets and diners should resume their meals soon.
The other dynamic at play is more durable. China is undergoing regulatory upheaval on everything from idle teens to giant internet platforms to excessive debt in the real estate industry. And there is growing evidence that the real estate crackdown is starting to take its toll on the economy.
- Investment in construction contracted 3.2% in the eight months of the year compared to the same period in 2020
- Home sales by value fell 20% in August from the previous year, the biggest drop since the onset of the coronavirus
- New home prices in 70 cities, excluding state-subsidized housing, have increased at the slowest pace this year, and secondary market prices have fallen for the first time since February 2020
Higher mortgage rates, tighter rules for buying homes and measures to reduce excess borrowing by developers have all weighed on the market, while confidence in the sector has been shaken by the worsening market crisis. liquidity shortage at China Evergrande Group.
“So far, the markets have significantly underestimated the extent of the slowdown in growth,” said Lu Ting, chief economist for China at Nomura. Authorities will stick to their “short-term pain in order to seek long-term gains” approach, and will maintain real estate restrictions, he said.
With the real estate industry fueling demand for everything from glass and steel used in construction to household and electronics items that are purchased to fill newly purchased apartments, a long downturn would have implications for the global economy, not just for China.
Click onhere to read the full story.
The economic scene
The fight over who should lead the Federal Reserve over the next four years intensifies questions about whether the central bank is doing enough to help fight climate change.
Critics from the left have attacked President Jerome Powell for, among other things, acting too slowly to draw the Fed’s attention to the issue. Doubt is just what the central bank can achieve and whether the government should do more instead.
“This is not what we should be talking about in the discussion about the Fed chairmanship,” said Claudia Sahm, a former Fed economist and senior fellow at the Jain Family Institute. “It is nonsense to say that the most important institution in the fight against climate change is the Fed.”
Discover the full debate inthe story of Katia Dmitrieva and Christopher Condon.
The essential readings of the day
Click on the blue links to read one of the stories in full:
- Ephemeral team | US inflation data for August gave comfort to those at the Federal Reserve and elsewhere who say the price spikes caused by the reopening of the economy will soon subside. In the meantime, inflation has reached its highest level in addition tonine years in the UK
- Food inflation | Global food prices rose 33% in August compared to a year ago, with an increase in vegetable oil, grains and meat, according to new data. It is a concern for governments.Italy is already taking action to tackle gas prices.
- Lagarde interview | Speaking to Bloomberg Television, European Central Bank President Christine Lagarde said the new test for Europe is to make the changes necessary to stimulate its economy. She also said she expects to work part timeworking from home to survive the pandemic.
- Plan Argentina | The government is preparing a package of measures to increase household income and consumer spending after suffering a damaging defeat in the primary elections.
- Digital China | China’s central bank is promoting the use of its digital currency, rolling out pilot programs, and trying to get banks and tech companies to support its drive to increase adoption.
- African tariffs | Central bankers in eight key African countries are expected to leave borrowing costs unchanged this month to support their recovery.
Need to know research
The advent of fiat currencies (those that are not backed by a commodity like gold, but by the issuing government) has paved the way for faster inflation and growing debt, new Deutsche study finds Bank.
Since President Richard Nixon abandoned the gold standard in 1971, none of the 152 economies watched by Deutsche strategists have recorded average annual inflation below 2%. Only 45% saw it on average below 5%.
“With structural government deficits, skyrocketing debt and money printing now seemingly essential for the global economy and markets to stay afloat for most of the business cycle, policymakers are increasingly focusing on focus on this monetary framework and should not take for granted that fiat money will survive, ”Deutsche strategists said.
Fun yarn on dresses that look like the covers of economics books …
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