Economy

US economic growth is set to have slowed in the final quarter of 2022, as the Federal Reserve’s aggressive campaign to raise borrowing costs weighed more heavily on consumer spending and business activity.The world’s largest economy is forecast to have expanded 2.6 per cent on an annualised basis between September and December, according to consensus estimates compiled by Bloomberg. That would mark a slowdown from the 3.2 per cent increase registered in the third quarter but still a solid clip given the steps the US central bank has taken so far to damp demand.Since March, the Fed has raised its policy rate by more than 4 percentage points, repeatedly moving in 0.75 percentage point increments in a bid to catch up to inflation that proved far more intense than expected.The central bank is now preparing to deliver a quarter-point rate rise at its upcoming gathering next week as it determines how much more to unleash the economy now inflation appears to have peaked. Fed officials broadly back the federal funds rate eclipsing 5 per cent, and for that level to be maintained at least to the end of the year, suggesting further rate rises to come beyond the February decision.The latest GDP data, due to be released by the commerce department at 8:30am Eastern Time on Thursday, is set to bolster evidence the economy has proven more resilient than expected in the face of substantially higher borrowing costs, while also showing that the Fed’s actions are beginning to have a more notable effect.

Companies across the manufacturing and services sectors have already begun to cut costs, pulling back on new hiring plans and slashing hours for workers. Mass lay-offs have also swept through the technology sector. That has been accompanied by flagging consumer spending, which has helped to ease price pressures.Many economists expect the US to tip into a recession later this year as the unemployment rate rises from its current 3.5 per cent level to closer to 5 per cent. No Fed official has yet forecasted one, maintaining instead that a “soft landing” can still be achieved.The official arbiters of a recession, a group of economists at the National Bureau of Economic Research, characterise one as a “significant decline in economic activity that is spread across the economy and lasts more than a few months”. They typically look at a range of metrics including monthly jobs growth, consumer spending on goods and services, and industrial production.A debate raged last year as to whether the US economy was already in a recession, after registering two consecutive quarters of shrinking GDP in the first half of 2022. That has long been considered the common criteria for a “technical recession”. However at the time, top policymakers in the Biden administration and at the Federal Reserve said there was overwhelming evidence the US economy was strong. More

Beijing’s rapid dismantling of its Covid lockdowns — whose impact will become clear after the Chinese new year break, when the Tiger has handed over to the Rabbit — will undoubtedly be one of the economic events of 2023.Predicting the impact on world growth involves sorting through a tangle of contradictory effects. On the positive side, a surge in consumption will boost export demand elsewhere. On the negative, higher Chinese industrial production means more demand for fuel and particularly LNG, possibly reinflating the energy cost shock. In any case, if the reopening creates a new surge of cases and a healthcare crisis, it could be a drag rather than a boost to growth.The impact on globalisation and particularly the goods trading system is similarly unclear. The immediate thought is a positive one. Reopening could help unclog Chinese shipping and trucking routes, reducing strains in value chains. But the transition could be choppy, to say the least. Ports and factories are subject to the same reopening risks as for overall growth. Infected workers staying home won’t keep container terminals open, and in any case ports, which are capital rather than labour intensive, have been running relatively smoothly compared to much of the domestic economy.From the domestic demand side, China may run a big trade surplus but it is no longer just an export machine: with imports of $2.7tn in 2021 against the US’s $2.8tn, it’s the world’s second biggest goods importer. On the plus side, a big rise in consumption might add to global demand. On the downside, more container traffic could see a re-emergence of the strains in supply chains that started in 2020. The reopening comes at a time when that congestion is rapidly dissipating but not for the reasons anyone would want. Stratospheric freight rates and wait times for cargo ships collapsed in the first half of last year not because of higher efficiency in ports and shipping but because prospects for global growth and hence cargo traffic rapidly weakened.As it happens, China’s limited reopenings actually managed to worsen stress on supply chains last year because of increased infection rates among workers, but not by much. Economists at the New York Federal Reserve have created a composite index of supply chain pressure including delivery times and stocks of goods. Plummeting freight volumes meant the metric fell rapidly last year from a peak of 4.3 standard deviations above the historical average at the end of 2021 to 0.9 standard deviations in September. The index stopped falling and levelled out over the past three months of the year, with New York Fed economists pointing at congestion driven by Chinese reopening as the reason.More infections, quite apart from the human cost, could push supply chain pressure higher. But as the New York Fed economists point out, previous supply disruptions to global trade from Covid were more damaging because they were happening everywhere at once. The reopening is China-specific. One of the effects of the pandemic and the rise in global political tensions has been a switch in multinationals’ sourcing to alternative production sites such as India and Vietnam, which don’t have the same lockdown problems.There remains the question of whether supply chain congestion is that much of a problem at all. The queues of ships waiting outside the US west coast ports in 2021 looked dramatic. But those ports were still handling record amounts of cargo, particularly durable consumer goods, and the snarl-ups didn’t stop global exports recovering from the Covid shock.Although overall consumption has softened, relative demand for durables remains high, meaning that demand-led congestion could conceivably reappear if Chinese consumption roars back. But so be it. China’s reopening, unless it causes serious human suffering and has to be reversed, is almost certainly a good thing for trade and globalisation. The rest of the world needs more export demand even at the risk of some disruption to supply chains. No one exactly wants the shipping congestion to return, but compared to the alternative of a global recession it’s not a bad problem to [email protected] More

Norway’s Yara International demerged from Norsk Hydro in 2004 and has become one of the world’s largest producers of nitrogen-based mineral fertilisers. But its chief executive, Svein Tore Holsether, has been warning about problems with supply — and the industry’s greenhouse gas emissions — for many years.Even before Russia’s invasion of Ukraine last year, global fertiliser supplies were being stretched by Covid shutdowns, labour shortages, Chinese consumption and general price volatility.Now, Holsether says the conflict is enabling Russian president Vladimir Putin to “weaponise” food, in the same way that he has weaponised gas supplies. But, here, he tells the FT’s Moral Money editor Simon Mundy how hydrogen made from renewable energy — along with US-style tax incentives — can offer a solution to these problems. Simon Mundy: Why are fertiliser and food so central to tackling climate change? Svein Tore Holsether: Thirty per cent of greenhouse gas emissions come from agriculture and food. So if you don’t fix food, we’re not going to be able to deliver on the Paris Agreement. And that’s something close to the heart for our company, as well as me as CEO. It was really a game-changer to be in Paris in 2015 — it was just three months into my time as CEO in the company. The board gave me a set of expectations about what we should focus on in our strategy, and I went to Paris together with the Norwegian Ministry of Foreign Affairs — there was sort of a group that came together. SM: So this is the Paris COP . . . STH: Yes, Paris COP . . . What I saw there really made a huge impact: the demonstrations, the intensity, the youth engagement . . . So I went back to the board after having been in Paris and said: “We have to think completely differently around the environment and food and our role in driving that.” So that was the kick-off of a really long year to change everything: from our mission, our vision, our values and also our strategy . . . building on the sustainable development goals. And it started with our purpose: why do we exist as a company? We took that back to the very start of our company, about 118 years ago now, 1905, when Europe was facing famine. Our founder, [Kristian] Birkeland, he was the one that came up with the breakthrough technology of getting nitrogen out of the air and turning it into fertiliser, which helped farming productivity. So that’s the start. Today, half of the world gets food because of fertiliser so it’s an important product but one that also has an impact on emissions. A coffee farmer at work in Kenya, where drought has hit agricultural production hard © Patrick Meinhardt/BloombergWe ended up with our mission being to responsibly feed the world and protect the planet. So it’s about the duality of providing enough food for everyone in the population, but at the same time doing that [in an] environmentally friendly [way]. So that was the start of the journey on the sustainability side for us, building on the legacy where we have reduced our emissions significantly: [by] 50 per cent compared to 2005. SM: Emissions from your operations?STH: Yes. We’ve taken all the low-hanging fruit; now it’s about the next step — and that’s changing technologies, whether it’s carbon capture and storage or moving to green hydrogen. And that is a journey that we cannot do alone. We need to do that with partners . . . through value-chain partnerships — so, looking at the totality of food production, all the way to the consumers. We’re working with governments to have incentives in place as well, so that, if there is no first-mover advantage, [we] at least try to avoid the first-mover disadvantage in this field. SM: On that question of eliminating first-mover disadvantage, what would you like to see from governments?

STH: Now that it’s become clear that the Inflation Reduction Act (IRA) in the US is facilitating a very rapid green transition, I think it’s important in Europe that we just copy it. Unless we pick up speed in Europe, industries are going to lose out. We are already very much aware of the energy disadvantage that we have in Europe right now because of the war. But if on top of that we don’t have the same incentives to drive the green transition, we’re missing a tremendous business opportunity as well. European businesses were in the lead and in the best position to rapidly make this transition. Now, we see that the US is going to leapfrog us. SM: So, on the food and fertiliser side, were there particular provisions in the IRA that really struck you?STH: For us, hydrogen. In order to get nitrogen out of the air, you need hydrogen — and, today, we get that from natural gas. But you can also get [green hydrogen] from water through electrolysers. And the IRA has very specific provisions for incentivising the production of green hydrogen that go straight to the core of what we’re doing. It also has provisions for carbon capture and storage. What we’re doing in the Netherlands would have qualified for significant incentives in the US. But, in Europe, it doesn’t. SM: What are you doing in the Netherlands?STH: We are producing fertiliser in the Netherlands with carbon capture and storage. That’s the world’s first cross-border carbon capture and storage programme. It’s Yara’s largest fertiliser site, it is one of the largest emissions points in the Netherlands. And what we’re doing is using our technology to capture the carbon, liquefy it, put it on a ship, and then go to the North Sea, where — through a co-operation between Shell, Total and Equinor — they have storage of CO₂. That’s something that we are doing commercially. But, in the US, they’ve done the same thing but have a significant tax credit as a result of it. Yara’s fertiliser plant at Sluiskil in the Netherlands uses carbon capture and storage technologySM: You are still doing this project even though there is no tax credit. But would you say that there will be less activity in this space in Europe because of this lesser support?STH: Yes, absolutely — because these sites are also export sites. And how is it possible for Europe to compete with the US when they have an income and we have an expense and we have to ship the product to South America? These sites are dependent on being able to flex between northern and southern hemispheres so you keep [them] running all year long and then you export to the south. But the energy disadvantage and the incentive disadvantage are of a magnitude that really makes me worry about the future viability of this kind of production in Europe. That’s something we need to keep in mind in Europe: do we really want to risk our own fuel sovereignty and become dependent on other regions? We’ve seen the impact of exporting our energy production — like we did in connecting European infrastructure to Russia for cheap energy.

That worked well until it didn’t work anymore. Now, we pay the price of not being prepared. And we need to be very aware that, if you’re doing the same thing on food and fertiliser — delegating that to the other parts of the world — we could be in a very challenging position where we’re at risk of not having access to a product that represents half of all food production. SM: To play devil’s advocate, someone might say: “OK, so you’re not getting as much support to go down these new green routes, but you’re still producing lots of fertiliser so what’s the problem?” What would be your response to that?STH: Yes, it’s less of a problem for Yara because we are international. So we have a global network, we’re bringing in products from other parts of the world in order to optimise. But we’re still sounding the alarm on this because we see the impact on smaller sites and on businesses that do not have the same flexibility as us. European energy-intensive industry is suffering right now and there’s a need to decarbonise. If we’re not continuing to take that lead, then we’re losing important industry in Europe . . . European fertilisers have half the carbon footprint of the world average. Sacks of Yara fertiliser. CEO Svein Tore Holsether says the green transition will depend on government incentives © Patrick Meinhardt/BloombergSM: And why is that?STH: Many industries in Europe have been very focused on energy efficiency for a long time — and we’ve come far. Our sustainability focus has been in the business for a longer time — I think that’s the main thing. Also how we produce, and the competence levels throughout.SM: So it’s fundamentally the energy efficiency that’s meant Europe is greener in its fertiliser production. But, presumably, in the future, if you can roll out carbon capture, utilisation and storage . . . 

STH: Yes, then, we can go even further in that. And it’s also about the type of fertiliser we produce in Europe: it’s a more nitrates-based versus urea commodity. That kind of fertiliser behaves better in the field, on the farm, as well. So you have less infield emissions. It’s a double hit for Europe . . . and triple for the planet. For Europe it’s not losing important industry and it’s [having] access to advanced fertiliser. For the planet, it’s not shutting down more environmentally friendly fertiliser production and moving that out of Europe. SM: What are the impacts of the [Ukraine] war and natural gas prices? What has that done to the fertiliser industry?STH: It’s a huge impact and for many reasons. Natural gas is the most important component in producing fertiliser in Europe and 40 per cent of the natural gas comes from Russia. If that is shut off, then it creates incredible volatility in the market and also production issues for all of us. We’ve been having to flex operations up and down throughout this period. That’s the indirect impact. The direct impact is that Russia is the world’s largest exporter of finished fertiliser and components to make fertiliser, like phosphate and potash. And, here, both Russia and Belarus are impacted by the same thing. For potash, 40 per cent of the world’s production is in Russia and Belarus — so that has an impact. And we also sourced a lot of our raw materials from Russia . . . even during the coldest part of the cold war these products came — the same with natural gas. Piles of phosphate granules at a storage unit in Russia, the world’s largest fertiliser exporter © Andrey Rudakov/BloombergNow, with the benefit of hindsight, at what point should we have changed it? Should we have done it in 2007, when we started to change how we talked about Russia? Or in 2008 with [Russia’s invasion of] Georgia? Or 2014, with [Russia’s annexation of] Crimea? It hasn’t been straightforward but, then, we get to a very sudden change. That changed all the logistics for classic production almost overnight, and that has created enormous volatility. SM: What’s been the impact of all this on European households?STH: Everyone has felt inflation across everything — from utility bills up to pretty much everything for households. SM: But, when we look at the fertiliser space, in particular, is that really a big contributor to the inflation?STH: It adds to it, and it makes food production more expensive. For farmers, it’s energy intensive to do farming. And they see it in the chemicals, they see it in seeds, everything is going up. And then [so are] food prices. But what is [simply] a cost issue in Europe is a question of [either] having food or not in other parts of the world. The number of people facing acute hunger has doubled from 2019. In 2019, it was 175mn. Now, it’s 350mn. SM: And, again, you would really link this closely with the fertiliser price?

STH: Yes — fertiliser but also food prices. Because Russia and Ukraine are food-producing superpowers as well, and you have impacts to the supply chains. This already started with Covid, where we saw there were fragile food systems — because we didn’t so much focus on producing kilos of crops rather than how robust [a supply chain] is if it’s put to the test. And we saw bottlenecks and impacts on the transportation. Then we had the huge impact of the invasion where one food superpower attacked another one — and that shifts supplies, significantly. And, on top of that again, you have climate. I was in Kenya in November together with some farmers. Coffee — at least, in that region — is a bit more resistant, so the coffee parts of their farms are doing well. But, also, they are planting maize as a staple food crop. But because of, first, drought, and, then, heavy rain, they have lost all their crops. Where there was supposed to be maize, there was nothing. And that’s a climate impact, so that plays into this. It is sort of a perfect storm for the whole food system right now: very challenging in Europe, of course, with higher prices; even worse in other parts of the world where a human being dies every four seconds as a result of hunger. Now we’re in 2023, it’s tragic and shouldn’t be like that. That should be a very strong reminder of the need to have a more robust food system — from a climate perspective, from a logistics perspective, but also from a political perspective. If you look at the role that we have allowed Russia to have in global food supply, we depend on them. How did that happen? What kind of weapon is that? And Putin is weaponising food. This is not only a war fought with military weapons, it’s with energy — we see that impact clearly here in Europe, but it’s having an impact to the global energy crisis as well. And he’s weaponising food and fertiliser. That is a major wake-up call . . . we cannot just slide back to that, even if there was peace tomorrow, or next month . . . how did we allow ourselves to be at the mercy of Putin for global food?

SM: So are you saying the first and most important way of fixing this in the long term is green hydrogen?STH: That’s a very important part . . . We need to make that transition and an important element of that is green hydrogen, with a significant build-up of renewable energy. Then we can do two things at the same time: reduce emissions and reduce dependency on Russia for fossil fuels.SM: So are you pursuing green hydrogen yourselves? Or is that really something that is not part of your plan?STH: We do both, so we can produce green hydrogen and we can also source green hydrogen. That’s the beauty of the ammonia plants that we’re running. In essence, it has two steps. First, you produce hydrogen: with natural gas — we take out the carbon and that becomes CO₂. Then, we produce hydrogen in the next step. Or, we can just get green hydrogen straight into our facilities as well. So we do both. SM: So you do have your own electrolysers?STH: We’re building electrolysers. SM: That’s in the Netherlands?STH: It’s in Norway. In the Netherlands, we do carbon capture and storage. But we are doing a project together with Orsted, the Danish company, where they are producing green hydrogen and then we buy green hydrogen from them. So we are flexible. But our next step [is] an important business venture: that’s Yara clean ammonia.If you want to transport green hydrogen, you can do that short distances through pipelines but you cannot do it very long distances. SM: Why not?STH: Because, first, it’s very expensive to get the pipelines and we cannot do those long distances. Hydrogen isn’t only a light molecule; it’s the lightest there is — so it wears on the pipelines as well. So if you want to [move it long] distances, then you have to ship it, but hydrogen is so light that you need to cool it down to -253C to make it liquid. But if you add a nitrogen molecule, that nitrogen molecule holds three hydrogen molecules [in the form of ammonia] and holds it super tight. So it holds it together and it’s much more compressed — then you have much more energy per unit of volume and you can make it liquid at -33C instead. And here we have a shipping fleet that can transport ammonia from all across the world. SM: You have your own shipping fleets?STH: Yes, 12 ships ourselves. We are the largest ammonia trader in the world so, to take that hydrogen and move it over distances, we have a very interesting infrastructure to enable that — whether that is to use it as a shipping fuel or to help Japan on its journey to reduce coal consumption. For instance, you can use ammonia and substitute coal in coal-fired plants Sea green: the battery-powered Yara Birkeland, part of Yara’s fleet. The company says it is the world’s first autonomous and zero-emission container vesselSM: Yes, I saw they’d been doing that, is that gathering steam, the Japanese ammonia?STH: This is super interesting both for Japan but also for other parts of the world because it’s about utilising existing infrastructure and others being aware that these are massive ships. So, to the extent we can use infrastructure already there, we should do that. That’s the thinking in Japan, as well. They will do it first but it has an impact in other parts of the world, as well. SM: So if we look at the state of play in Europe, it hasn’t done as much perhaps as the US has done through the IRA. But it hasn’t done nothing. How would you assess Europe’s progress when it comes to hydrogen and ammonia?STH: Well, there are initial things that we need speed and clarity on, because it is quite a cumbersome process to apply for support [in Europe]. In the US . . . if you meet the requirements, then you know you have it. So it’s just some certainty around that.Then, in order to produce clean hydrogen, you need massive amounts of renewable energy — and the speed at which that is being rolled out is much too slow in Europe. In my own home country of Norway, it’s not moving

at a speed near what is needed. SM: So, fundamentally you’d want to see more tax credits? Or would you want to see more state-led investment?STH: Probably a combination, especially in the renewable energy space . . . There need to be incentives for first movers here to get this going. And then we need to tackle the climate crisis, as well. That’s what the US is perhaps understanding now: that if we delay this transition, the cost to deal with the climate crisis will increase exponentially. So, yes, it’s a lot of money but let’s do it now and get it done. And if companies make some money on that, fine — it’ll just make it even faster. In Europe, we take a different approach where it’s much more into the details and long processes to qualify. Businesses need to take these decisions right now and that’s why we’re trying to communicate that right now. Let’s not try to come up with something completely different. What the US is doing is here to stay. So, the best thing we can do is to fund the elements and see how can we find a structure that resembles that in Europe. SM: Do you think Europe should be concerned about its food security?STH: Yes. Not near term . . . there will be a shortage and there will be a global auction for food — but Europe is a wealthy part of the world. But we need to think it through. If we’re not focused on producing the maximum amount of food within our planetary boundaries in Europe and we say that we’d rather pay more to get food into Europe, we’re buying that food away from someone else. And in terms of food and food security, when you have that, you see wars or mass migrations, extremism, all these things. SM: And the same would go for fertiliser, presumably. If you’re importing it because you can’t produce enough domestically?STH: Yes, it’s all connected. And that’s something that we need to be aware of. When we have some of the best farmers in the world, and some of the best businesses in the world, if we then choose to say “We’ll get someone else to do that on our behalf”, it sends a signal. And it’s the wrong signal. It creates other dependencies across the world — and for nations that cannot afford to speak up against what is happening in the world right now. More

TOKYO (Reuters) – Bank of Japan policymakers were divided on prospects for achieving their 2% inflation target with some warning that it could take time for wages to rise sustainably, a summary of opinions from their latest meeting showed on Thursday.The divergence in views highlight the challenge policymakers face in determining whether the recent cost-driven rise in inflation will shift to one backed by robust demand and higher wages – a prerequisite for raising ultra-low interest rates.At the January meeting, many board members agreed on the need to retain ultra-loose monetary policy to support the economy and help companies raise pay, the summary showed.While some in the nine-member board pointed to broadening price hikes and heightening prospects of wage increases, others said price growth will begin to slow as cost-push pressure eases, the summary showed.”Companies are becoming more keen on raising prices and wages. This could generate a positive cycle between the economy and prices, driven by increases in corporate profits,” one board member was quoted as saying.”Some firms are cautious about raising pay. It will take time for wages to rise sustainably, so macro-economic support is necessary,” another opinion showed.”Consumer inflation will likely slide back below 2%. At present, there is still some distance in achieving our price target,” according to a third opinion.At the Jan. 17-18 meeting, the BOJ maintained ultra-low interest rates but beefed up a monetary policy tool to prevent the 10-year bond yield from breaching a 0.5% cap set just a month ago.The central bank’s massive bond-buying to defend the yield cap has drawn criticism from market players as distorting the shape of the yield curve and draining market liquidity.The board’s debate, however, focused on the need to keep long-term interest rates low, the summary showed, suggesting the BOJ was in no rush to phase out its massive stimulus programme.”To encourage firms’ efforts to transform their businesses and hike wages sustainably, the BOJ must curb interest rates across the entire yield curve while paying attention to bond market function,” one of the board members said.The summary lists the opinions of the BOJ’s nine board members, but does not disclose who made them.Japan’s core consumer prices in December rose 4.0% from a year earlier, hitting a fresh 41-year high and keeping alive market expectations the BOJ could phase out ultra-low rates.BOJ Governor Haruhiko Kuroda, whose term ends in April, has stressed the need to maintain the loose policy settings until wages rise sufficiently, and help keep inflation sustainably around the bank’s 2% target. More

BENGALURU (Reuters) – Global economic growth is forecast to barely clear 2% this year, according to a Reuters poll of economists who said the greater risk was a further downgrade to their view, at odds with widespread optimism in markets since the start of the year. Falling energy prices, a slowdown in inflation in most economies from multi-decade highs, an unexpectedly resilient euro zone economy and China’s economic reopening have led traders to speculate the downturn will be more mild.That has driven MSCI’s all-country world index of shares up nearly 20% from October lows, hitting a five-month closing high on Tuesday, despite the greater risk that central banks will keep interest rates higher for longer rather than cut them.But economists as a whole were much less upbeat, paring back growth forecasts for this year and next from 2.3% and 3.0%, respectively, in an October 2022 poll to 2.1% and 2.8%, respectively. Their more dour mood flew in the face of some notable upgrades by banks in recent weeks. The 2023 growth forecast is well behind an International Monetary Fund forecast of 2.7% that was issued in October and is due to be updated next week. The latest Reuters polls of more than 500 economists covering 45 economies were taken Jan. 5-25.More than two-thirds of respondents, 130 of 195, said the greater risk to their world growth outlook was that it would be even slower than what they currently expect.Much will depend on how much success the world’s major central banks can claim from roughly a year’s worth of historically aggressive interest rate hikes that are not over yet. The full impact of rate hikes can take a year or more to show up in economies. “The market continues to price for a dream scenario of inflation having peaked, then coming down sharply, but not overshooting to the downside,” said market strategists at Rabobank, based on relatively good news in data released in the first weeks of this year. “However … the range of scenarios ahead is truly broad, and yet the market seems to have settled for a happy median that seems the least likely to transpire.” GRAPHIC: Reuters poll graphic on the global growth outlook (https://fingfx.thomsonreuters.com/gfx/polling/zdvxdrzrjvx/Reuters%20poll%20graphic%20on%20the%20global%20growth%20outlook.PNG) Consensus gross domestic product growth forecasts for 2023 for more than 80% of economies surveyed were downgraded from the October poll.Inflation predictions for this year in nearly 80% of economies surveyed, 35 of 45, were upgraded from the October poll, suggesting the bias was for global central banks to maintain a tighter monetary policy for an extended period of time.At the same time, unemployment rates were not expected to climb much from relatively low levels. That suggests central banks have no room to even consider lowering rates any time soon. Nearly all major central banks were expected to hold interest rates steady through the end of this year, a conclusion also at odds with rate futures, which expect easing in the fourth quarter.The European Central Bank, the U.S. Federal Reserve and the Bank of England were expected to hike rates at each of their next two policy meetings and then hold them steady.While the ECB was expected to deliver larger 50-basis-point hikes, the Fed was forecast to go for smaller 25-basis-point rate rises.The BoE was forecast to lift its Bank Rate by 50 basis points on Feb. 2 to 4.00% and then deliver a quarter-percentage-point hike in March before pausing.”We see good reasons to believe that the global economy still has a tough year ahead,” economists at Citigroup (NYSE:C) said.”High inflation and tight monetary policy look likely to plague the outlook, and we wouldn’t be surprised to see renewed tightening in global financial conditions in coming months.” GRAPHIC: Reuters poll graphic on the key global central bank interest rates (https://fingfx.thomsonreuters.com/gfx/polling/znpnbzrzmpl/Reuters%20poll%20graphic%20on%20the%20key%20global%20central%20bank%20interest%20rates.PNG) When asked to list the biggest threat to global economic growth in 2023, more than 85% of economists, 171 of 196, were split nearly evenly between tighter monetary policy (90) and persistently higher inflation (81). Fifteen pointed to the Russia-Ukraine war, eight nodded to an asset price correction, one said a resurgence of COVID-19, and one said weaker-than-expected labour markets.(For other stories from the Reuters global economic poll:) More

Investing.com – A stronger economy in China is often a key ingredient for global growth. But as China prepares to flex its economic muscles following several years of slumber under Covid duress, some are warning that this time is different.As China reopens for business, the “positive spillover to the rest of the world will not be on par with history, as global aggregate demand is slowing down as a result of widespread monetary tightening,” Morgan Stanley said in a note on Wednesday, estimating global economic growth to slow to 2.6% this year from an expected 3.0% in 2022.It isn’t puzzling to see why China, the world’s second largest economy, has a heavy hand in the global economy. Accounting for a nearly fifth of global growth last year, China boasts a stake that is well ahead of its closest rivals. The U.S. made up about 13.5% of global growth last year, India 9.3%, and Japan just 3.4%, according to data from the World Economics Research, London.History shows that when China enjoys an acceleration in economic growth, imports from the rest of the world and global trade gather pace, underpinning the global economy.But this time is different. And it has COVID’s fingerprints all over it.Several years of harsh Covid lockdowns and restrictions under Beijing’s “zero COVID” policy, forced many Chinese to stay home and sock away rather than spend their extra income, ushering in record savings growth.Renminbi deposits held by Chinese households grew in 2022 by a record Rmb17.8tn ($2.6 trillion), up markedly from Rmb9.9tn in 2021, according to Data from the People’s Bank of China.Armed with a wave of cash, Chinese consumers are expected loosen their purse strings and spend lavishly on services that were shuttered during the pandemic era. The coming services-led rather than goods-led acceleration in growth will likely skew growth in China inward rather than outward. This isn’t good news for those pinning their hopes on a China-infused boost to global growth.”Our China team now sees an earlier and stronger growth recovery lifting 2023 GDP growth to 5.7%, {Morgan Stanley said, though added that as “services are less tradable than goods, we should expect a lower beta on global trade.” Others, however, have been more constructive somewhat on the reopening boost to the global economy. “As the second-largest economy in the world, accelerating Chinese household and investment spending will help put a floor under global trade at a time when demand in the West is faltering,” said Frederic Neumann, chief Asia economist at HSBC Holdings (NYSE:HSBC), according to Bloomberg.Still, the tightening of monetary policy by global central banks — that is weighing on the world economy — will also curb the positive boost, albeit limited, from a recovery in China.  Pointing to “one of the most aggressive monetary policy tightening cycles in recent history,” the World Bank recently warned that “global growth has slowed to the extent that the global economy is perilously close to falling into recession.” More

OTTAWA (Reuters) -Bank of Canada Governor Tiff Macklem on Wednesday said he was focused on whether interest rates would need to go higher and was not even considering a cut, pushing back against traders betting that the central bank will move lower as soon as October.Macklem made his remarks in an interview with Reuters after earlier announcing a rate hike and saying the central bank would pause to see how the economy was reacting to tightening. The announced pause hardened bets for a rate cut. Before the rate decision, money markets had been pricing in about 40 basis points of easing in the second half of the year. They now see nearly 50 basis points of cuts. “As things start to get more back to normal, at some point, yes, we probably will be thinking about some modest cuts in interest rates,” Macklem said.”But inflation is still over 6%. We’re not talking about cuts. We’re not even thinking about cuts … the question really we’re asking ourselves is, ‘Have we done enough?’ We’re pausing to assess whether we’ve done enough,” Macklem said.The bank has lifted rates at a record pace of 425 basis points in 10 months to tame inflation, which peaked at 8.1% and slowed to 6.3% in December. But it is still more than three times the central bank’s 2% target.The rapid rise in rates has cooled the economy, but a tight labor market risks causing spiraling wage growth and reigniting inflation. The central bank has said repeatedly it wants to raise rates enough to slow an overheated economy, but not so much that it will drive it into a deep recession.”The bar is higher than it was last time for a further rate hikes,” Macklem said.The biggest near-term risk is if the rapid reopening of the Chinese economy caused global commodity and oil prices to increase, which would push up global inflation, Macklem said.Another key factor for the bank is whether inflation for the prices of services – which are less affected by higher rates – remains stubbornly high as 2023 progresses, making it harder to pull down the overall rate.If services prices are sticky, “you’re not going to see inflation come down as we forecast and yes, in that case, we probably will need to do more,” said Macklem, speaking at the bank’s Ottawa headquarters.Macklem, however, made clear the central bank would take as much time as needed to judge the effectiveness of the cumulative increase in rates and think carefully about the next steps.The bank says inflation should fall to 3% later this year and down to 2% by the end of the next year, while making clear there are upside risks to the outlook. More