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    Global Economy Shows Signs of Resilience Despite Lingering Threats

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    The International Monetary Fund upgraded its global growth forecast for 2023.The world economy is showing signs of resilience this year despite lingering inflation and a sluggish recovery in China, the International Monetary Fund said on Tuesday, raising the odds that a global recession could be avoided barring unexpected crises.The signs of optimism in the I.M.F.’s latest World Economic Outlook may also give global policymakers additional confidence that their efforts to contain inflation without causing serious economic damage are working. Global growth, however, remains meager by historical standards, and the fund’s economists warned that serious risks remained.“The global economy continues to gradually recover from the pandemic and Russia’s invasion of Ukraine, but it is not yet out of the woods,” Pierre-Olivier Gourinchas, the I.M.F.’s chief economist said a news conference on Tuesday.The I.M.F. raised its forecast for global growth this year to 3 percent, from 2.8 percent in its April projection. It predicted that global inflation would ease from 8.7 percent in 2022 to 6.8 percent this year and 5.2 percent in 2024, as the effects of higher interest rates filter throughout the world.The outlook was rosier in large part because financial markets — which had been roiled by the collapse of several large banks in the United States and Europe — have largely stabilized. Another big financial risk was averted in June when Congress acted to lift the U.S. government’s borrowing cap, ensuring that the world’s largest economy would continue to pay its bills on time.The new figures from the I.M.F. come as the Federal Reserve is widely expected to raise interest rates by a quarter point at its meeting this week, while keeping its future options open. The Fed has been aggressively raising rates to try to tamp down inflation, lifting them from near zero as recently as March 2022 to a range of 5 percent to 5.25 percent today. Policymakers have been trying to cool the economy without crushing it and held rates steady in June in order to assess how the U.S. economy was absorbing the higher borrowing costs that the Fed had already approved.As countries like the United States continue to grapple with inflation, the I.M.F. urged central banks to remain focused on restoring price stability and strengthening financial supervision.“Hopefully with inflation starting to recede, we have entered the final stage of the inflationary cycle that started in 2021,” Mr. Gourinchas said. “But hope is not a policy and the touchdown may prove quite difficult to execute.”He added: “It remains critical to avoid easing monetary policy until underlying inflation shows clear signs of sustained cooling.”Fed officials will release their July interest rate decision on Wednesday, followed by a news conference with Jerome H. Powell, the Fed chair. Policymakers had previously forecast that they might raise rates one more time in 2023 beyond the expected move this week. While investors doubt that they ultimately will make that final rate move, officials are likely to want to see more evidence that inflation is falling and the economy is cooling before committing in any direction.The I.M.F. said on Tuesday that it expected growth in the United States to slow from 2.1 percent last year to 1.8 percent in 2023 and 1 percent in 2024. It expects consumption, which has remained strong, to begin to wane in the coming months as Americans draw down their savings and interest rates increase further.Growth in the euro area is projected to be just 0.9 percent this year, dragged down by a contraction in Germany, the region’s largest economy, before picking up to 1.5 percent in 2024.European policymakers are still occupied by the struggle to slow down inflation. On Thursday, the European Central Bank is expected to raise interest rates for the 20 countries that use the euro currency to the highest level since 2000. But after a year of pushing up interest rates, policymakers at the central bank have been trying to shift the focus from how high rates will go to how long they may stay at levels intended to restrain the economy and stamp out domestic inflationary pressures generated by rising wages or corporate profits.Policymakers have raised rates as the economy has proved slightly more resilient than expected this year, supported by a strong labor market and lower energy prices. But the economic outlook is still relatively weak, and some analysts expect that the European Central Bank is close to halting interest rate increases amid signs that its restrictive policy stance is weighing on economic growth. On Monday, an index of economic activity in the eurozone dropped to its lowest level in eight months in July, as the manufacturing industry contracted further and the services sector slowed down.Next week, the Bank of England is expected to raise interest rates for a 14th consecutive time in an effort to force inflation down in Britain, where prices in June rose 7.9 percent from a year earlier.Britain has defied some expectations, including those of economists at the I.M.F., by avoiding a recession so far this year. But the country still faces a challenging set of economic factors: Inflation is proving stubbornly persistent in part because a tight labor market is pushing up wages, while households are growing increasingly concerned about the impact of high interest rates on their mortgages because the repayment rates tend to be reset every few years.A weaker-than-expected recovery in China, the world’s second-largest economy, is also weighing on global output. The I.M.F. pointed to a sharp contraction in the Chinese real estate sector, weak consumption and tepid consumer confidence as reasons to worry about China’s outlook.Official figures released this month showed that China’s economy slowed markedly in the spring from earlier in the year, as exports tumbled, a real estate slump deepened and some debt-ridden local governments had to cut spending after running low on money.Mr. Gourinchas said that measures that China has taken to restore confidence in the property sector are a positive step and suggested that targeted support for families to bolster confidence could strengthen consumption.Despite reasons for optimism, the I.M.F. report makes plain that the world economy is not in the clear.Russia’s war in Ukraine continues to pose a threat that could send global food and energy prices higher, and the fund noted that the recently terminated agreement that allowed Ukrainian grain to be exported could portend headwinds. The I.M.F. predicts that the termination of the agreement could lead grain prices to rise by as much as 15 percent.“The war in Ukraine could intensify, further raising food, fuel and fertilizer prices,” the report said. “The recent suspension of the Black Sea Grain Initiative is a concern in this regard.”It also reiterated its warning against allowing the war in Ukraine and other sources of geopolitical tension to further splinter the world economy.“Such developments could contribute to additional volatility in commodity prices and hamper multilateral cooperation on providing global public goods,” the I.M.F. said. More

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    China’s Second-Quarter G.D.P. Shows Post-Covid Rebound Faltered

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    The NewsChina’s economy slowed markedly in the spring from earlier in the year, official numbers released on Monday showed, as exports tumbled, a real estate slump deepened and some debt-ridden local governments had to cut spending after running low on money.The new gross domestic product data for the second quarter — from April through June — underlined what has been apparent for weeks: China’s recovery after abandoning its extensive “zero Covid” measures will be harder to achieve than Beijing and many analysts had hoped.The NumbersCovid not only still hangs over China’s economy; it also skews some of its official data. The main G.D.P. number reported by Beijing on Monday, comparing this year with the same quarter last year, showed that the economy expanded 6.3 percent. But that reflected improvement from a sharp slowdown in 2022’s second quarter, a period when China’s largest city, Shanghai, was in a two-month lockdown. More

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    U.S. and China, by the Numbers

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    From movie theaters to military spending, here’s how one of the world’s most important economic relationships stacks up.China and the United States are locked in an increasingly intense rivalry when it comes to national security and economic competition, with American leaders frequently identifying China as their greatest long-term challenger.Yet the world’s two largest economies, which together represent 40 percent of the global output, remain integral partners in many ways. They sell and buy important products from each other, finance each other’s businesses, provide a home to millions of each other’s people, and create apps and movies for audiences in both countries.As Treasury Secretary Janet L. Yellen meets with top Chinese officials in Beijing this week, her challenge will be to navigate this multifaceted relationship, which ranges from conflict to cooperation. Here are some figures that illustrate the links between the two nations.Economic and military powerThe U.S. economy continues to outstrip China’s by dollar value: In 2022, Chinese gross domestic product was $18 trillion, compared with $25.5 trillion for the United States.But China’s population is more than four times America’s. And the economic picture looks different when adjusted for local prices: Based on purchasing power parity, China’s share of world G.D.P. is 18.9 percent, according to the International Monetary Fund, surpassing the United States at 15.4 percent.China has provided more than a trillion dollars for global infrastructure through its Belt and Road Initiative, which analysts see as an effort to project power around the world.The rapid growth and modernization of China’s military have sparked concerns in the United States. China has more naval vessels than the United States and more military personnel, with 2.5 million in 2019.But American armed forces are far better equipped, and the United States still spends more on defense than the next 10 countries combined — $877 billion in 2022, compared with $292 billion in reported spending by China.Trade relationsDespite the rising tensions, trade between the countries remains extremely strong. China is America’s third-largest trading partner, after Canada and Mexico.U.S. imports of goods and services from China hit a record $563.6 billion last year. But the share of U.S. imports that come from China has been falling, a sign of how some businesses are breaking off ties with China.China is also a major export market, with half of all soybeans that the United States sends abroad going to China. The U.S.-China Business Council estimated that U.S. exports to China supported nearly 1.1 million jobs in the United States in 2021.China dominates supply chains for both critical and everyday goods. It is the world’s largest producer of steel, solar panels, electronics, coal, plastics, buttons and car batteries, and it has quadrupled its car exports in just two years, becoming the world’s largest auto exporter through its growing clout in electric vehicles.The United States has steadily expanded sanctions against Chinese companies and organizations because of national security and human rights concerns, placing 721 Chinese companies, organizations and people on an “entity list” that restricts their ability to buy products from the United States, according to the Commerce Department.Financial and corporate tiesChina is one of America’s largest lenders and holds nearly $1 trillion of U.S. debt.Members of the S&P 500 index, which tracks the largest public companies in the United States, generate 7.6 percent of their revenue in mainland China, the biggest source of international sales by far, according to FactSet. The revenue that large U.S. firms derive from China is more than their revenue from the next three countries — Japan, Britain and Germany — combined.But the outlook for American companies doing business in China has turned grimmer. In the American Chamber of Commerce in China’s most recent survey of U.S. companies in China, 56 percent described their business as unprofitable in 2022, with some blaming China’s strict Covid-19 lockdown measures.Also in the survey, 46 percent of American companies thought that U.S.-China relations would deteriorate in 2023, while only 13 percent thought they would improve.Personal and cultural connectionsThe United States is home to nearly 2.4 million Chinese immigrants, making it the top destination for Chinese immigrants worldwide. Chinese immigrants in the United States are more than twice as likely as U.S.-born adults to have a graduate or professional degree.In the 2021-22 school year, 296,000 students from China attended U.S. institutions of higher learning, nearly a third of all international students in the United States.Roughly three in four Chinese Americans experienced racial discrimination in the previous 12 months, and 9 percent were physically intimidated or assaulted, according to a survey by Columbia University and the Committee of 100, a Chinese American leadership organization.Long considered a low-end manufacturer, China has become more of a source for innovation and cultural creation. TikTok, the popular social media app whose parent company is China’s ByteDance, says it has more than 150 million users in the United States.Last year, 20 American movies opened in China, and their box office total was roughly $673 million, according to Comscore. China had more than 80,000 movie screens by late 2021, compared with roughly 39,000 in the United States.Pandemic restrictions have made it much harder to travel between the countries. Air carriers are running only 24 flights a week between the United States and China, compared with about 350 before the pandemic.Sapna Maheshwari and Nicole Sperling contributed reporting. More

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    How Inflation and Interest Rates Vary Around the World

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    Prices are still rising too fast for comfort in many major economies, and policymakers across the globe are trying to wrestle them under control.From Melbourne to Manchester to Miami, people are struggling under the weight of hefty price increases for the things they buy each day.The worst spike in inflation that many advanced economies have seen in decades underscores the global forces driving prices higher, namely the disruptions set in motion by the coronavirus pandemic.The stakes are high for policymakers around the world, who are facing similar problems. To try to get inflation under control, central bankers have rapidly lifted interest rates, trying to slow their economies in hopes of cooling prices. More

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    Canada Offers Lesson in the Economic Toll of Climate Change

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    Wildfires are hurting many industries and could strain households across Canada, one of many countries reckoning with the impact of extreme weather.Canada’s wildfires have burned 20 million acres, blanketed Canadian and U.S. cities with smoke and raised health concerns on both sides of the border, with no end in sight. The toll on the Canadian economy is only beginning to sink in.The fires have upended oil and gas operations, reduced available timber harvests, dampened the tourism industry and imposed uncounted costs on the national health system.Those losses are emblematic of the pressure being felt more widely as countries around the world experience disaster after disaster caused by extreme weather, and they will only increase as the climate warms.What long seemed a faraway concern has snapped into sharp relief in recent years, as billowing smoke has suffused vast areas of North America, floods have washed away neighborhoods, and heat waves have strained power grids. That incurs billions of dollars in costs, and also has longer-reverberating consequences, such as insurers withdrawing from markets prone to hurricanes and fires.In some early studies of the economic impact of rising temperatures, Canada appeared to be better positioned than countries closer to the Equator; warming could allow for longer farming seasons and make more places attractive to live in as winters grow less harsh. But it is becoming clear that increasing volatility — ice storms followed by fires followed by intense rains and now hurricanes on the Atlantic Coast, uncommon so far north — wipes out any potential gains.“It’s come on faster than we thought, even informed people,” said Dave Sawyer, principal economist at the Canadian Climate Institute. “You couldn’t model this out if you tried. We’ve always been concerned about this escalation of damages, but seeing it happen is so stark.”Nonetheless, Mr. Sawyer and his colleagues did try to model it out. In a report last year, they calculated that climate-related costs would mount to 25 billion Canadian dollars in 2025, cutting economic growth in half. By midcentury, they forecast a loss of 500,000 jobs, mostly from excessive heat that lowers labor productivity and causes premature death. Then there are the increased costs to households, and higher taxes required to support government spending to repair the damage — especially in the north, where thawing permafrost is cracking roads and buildings.The recent fires have forced some lumber mills to idle. It’s not clear how widespread the damage will be to forest stocks.Jen Osborne for The New York TimesIt is too early to know the cost for the current fires, and several months of fire season remain. But the consulting firm Oxford Economics has forecast that it could knock between 0.3 and 0.6 percentage points off Canada’s economic growth in the third quarter — a big hit, especially since hiring in the country has already slowed and households have more debt and less savings than their neighbors to the south.“We already think we’re teetering into a downturn, and this would just make things worse,” said Tony Stillo, director of economics for Canada at Oxford. “If we were to see these fires really disrupt transportation corridors, disrupting power supply to large population centers, then you’re talking about even worse consequences.”Estimates of the overall economic drag are built on damage to particular industries, which vary with each disaster.The recent fires have left some lumber mills idle, for example, as workers have been evacuated. It’s not clear how widespread the damage will be to forest stocks, but provincial governments tend to reduce the amount of timber they allow to be harvested after large blazes, according to Derek Nighbor, chief executive of the Forest Products Association of Canada. Infestations of pine beetles, which have flared up as milder winter temperatures fail to kill off the pests, have curtailed logging in British Columbia.Although lumber prices have been depressed in recent months as higher interest rates have weighed on home construction, Canada is confronting a housing shortage as it works to bring in millions of new immigrants. Reduced availability of wood will make its housing problem more difficult to solve. “It’s safe to say there’s going to be a supply crunch in Canada as we work through this,” Mr. Nighbor said.The tourism industry is also being hit, as the fires erupted just as operators were going into the crucial summer season — sometimes far from the fires. Business plunged in the peninsula town of Tofino, a popular destination for whale watching off Vancouver Island, when its only highway access was cut off by a fire two hours away. The road has since reopened, but only one lane at a time, and drivers need to wait up to an hour to get through.Sabrina Donovan is the general manager of the Pacific Sands Beach Resort and the chair of Tofino’s local tourism promotion organization. She said that her hotel’s occupancy sank to about 20 percent from 85 percent in the course of June, and that few bookings were coming through for the rest of the year. Employers commonly house their staff during the summer, but after weeks without customers, many workers left for jobs elsewhere, making it difficult to maintain full service in the coming months.“This most recent fire has been pretty devastating for the majority of the community,” Ms. Donovan said, noting that the coast had never in her career had to deal with wildfires. “This is something we now have to be thinking about in the future.”The wildfires could depress spending when households are already strained.Jen Osborne for The New York TimesRegardless of the severity of any particular episode, the costs mount as disasters get closer to critical infrastructure and population centers. That is why the two most expensive years in recent history were 2013, when major flooding hit Calgary, and 2016, when the Fort McMurray fire wiped out 2,400 homes and businesses and hamstrung oil and gas production, the area’s main economic driver.This year, most of the burning has been in rural areas. While some oil drilling has been disrupted, the damage overall to the oil industry has been minor. The greater long-term threat to the industry is falling demand for fossil fuels, which could displace 312,000 to 450,000 workers in the next three decades, according to an analysis by TD Bank.But there is still a long, hot summer ahead. And the insurance industry is on alert, having watched the increasing damage in recent years with alarm. Before 2009, insured losses in Canada averaged around 450 million Canadian dollars a year, and now they routinely exceed $2 billion. Large reinsurers pulled back from the Canadian market after several crippling payouts, increasing prices for homeowners and businesses. That is not even counting the life insurance costs likely to be incurred by excessive heat and smoke-related respiratory ailments.Craig Stewart, vice president of federal affairs for the Insurance Bureau of Canada, said climate issues had become a primary concern for the organization over the past decade.The mounting cost of catastrophic events in CanadaPayouts including adjustment expenses by property and casualty insurers for disasters that total more than $30 million, in 2021 Canadian dollars.

    Source: Insurance Bureau of CanadaBy The New York Times“Back in 2015, we sent our C.E.O. across the country to talk about the need to prepare for a different climate future,” Mr. Stewart said. “At the time, we had the Calgary floods two years before in the rear view mirror. We thought, ‘Oh, we’ll get another event in two to three years.’ We never could’ve imagined that we’re now seeing two or three catastrophic events in the country per year.”That’s why the industry pushed hard for the Canadian government to come up with a comprehensive adaptation strategy, which was released in late June. It recommends measures like investing in urban forests to reduce the health effects of heat waves and developing better flood maps that help people avoid building in vulnerable areas. Fire and forestry experts have called for the forest service, decimated by years of austerity, to be restored, and prescribed burns to be scaled up — all of which costs a lot of money.Mike Savage, the mayor of Halifax, doesn’t have to be convinced that the spending is necessary. His city was the largest to sustain fire losses this spring, with 151 homes burned. That calamity came on the heels of Hurricane Fiona last year, which submerged much of the coastline. Mr. Savage worries about the fate of the isthmus that connects Nova Scotia to New Brunswick, and the power systems that now peak in the hot summer instead of the frigid winter.“I certainly believe that when you invest in mitigation there’s a dramatic positive impact from those investments,” Mr. Savage said. “It’s going to be a challenging time. To think we got through this fire and say, ‘OK, that’s good, we’re done,’ that would be a little bit naïve.” More

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    At the Front Lines of the Inflation Fight, Uncertainty Reigns

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    Central bankers and economists gathered this week and, amid concerns about persistent inflation, wondered about all the things they still don’t know.When prices started to take off in multiple countries around the world about two years ago, the word most often associated with inflation was “transitory.” Today, the word is “persistence.”That was uttered repeatedly at the 10th annual conference of the European Central Bank this week in Sintra, Portugal.“It’s been surprising that inflation has been this persistent,” Jerome H. Powell, the chair of the Federal Reserve, said.“We have to be as persistent as inflation is persistent,” Christine Lagarde, the president of the European Central Bank, said.The latest inflation data in Britain “showed clear signs of persistence,” Andrew Bailey, the governor of the Bank of England, said.Policymakers from around the world gathered alongside academics and analysts to discuss monetary policy as they try to force inflation down. Collectively, they sent a single message: Interest rates will be high for awhile.Even though inflation is slowing, domestic price pressures remain strong in the United States and Europe. On Friday, data showed the inflation in the eurozone slowed to 5.5 percent, but core inflation, a measure of domestic price increases, rose. The challenge for policymakers is how to meet their targets of 2 percent inflation, without overdoing it and pushing their economies into recessions.It’s hard to judge when a turning point has been reached and policymakers have done enough, said Clare Lombardelli, the chief economist at the Organization for Economic Cooperation and Development and former chief economic adviser in the British Treasury. “We don’t yet know. We’re still seeing core inflation rising.” The tone of the conference was set on Monday night by Gita Gopinath, the first deputy managing director of the International Monetary Fund. In her speech, she said there was an “uncomfortable truth” that policymakers needed to hear. “Inflation is taking too long to get back to target.”Gita Gopinath, of the International Monetary Fund, said inflation was “taking too long” to come back down.Elizabeth Frantz/ReutersAnd so, she said, interest rates should be at levels that restrict the economy until core inflation is on a downward path. But Ms. Gopinath had another unsettling message to share: The world will probably face more shocks, more frequently.“There is a substantial risk that the more volatile supply shocks of the pandemic era will persist,” she said. Countries cutting global supply chains to shift production home or to existing trade partners would raise production costs. And they would be more vulnerable to future shocks because their concentrated production would give them less flexibility.The conversations in Sintra kept coming back to all the things economists don’t know, and the list was long: Inflation expectations are hard to decipher; energy markets are opaque; the speed that monetary policy affects the economy seems to be slowing; and there’s little guidance on how people and companies will react to large successive economic shocks.There were also plenty of mea culpas about the inaccuracy of past inflation forecasts.“Our understanding of inflation expectations is not a precise one,” Mr. Powell said. “The longer inflation remains high, the more risk there is that inflation will become entrenched in the economy. So the passage of time is not our friend here.”Meanwhile, there are signs that the impact of high interest rates will take longer to be felt in the economy than they used to. In Britain, the vast majority of mortgages have rates that are fixed for short periods and so reset every two or five years. A decade ago, it was more common to have mortgages that fluctuated with interest rates, so homeowners felt the impact of higher interest rates instantly. Because of this change, “history isn’t going to be a great guide,” Mr. Bailey said.Another poor guide has been prices in energy markets. The price of wholesale energy has been the driving force behind headline inflation rates, but rapid price changes have helped make inflation forecasts inaccurate. A panel session on energy markets reinforced economists’ concerns about how inadequately informed they are on something that is heavily influencing inflation, because of a lack of transparency in the industry. A chart on the mega-profits of commodity-trading houses last year left many in the room wide-eyed.A shopping district in central London. “Our understanding of inflation expectations is not a precise one,” said Jerome H. Powell, the chair of the Federal Reserve.Sam Bush for The New York TimesEconomists have been writing new economic models, trying to respond quickly to the fact that central banks have consistently underestimated inflation. But to some extent the damage has already been done, and among some policymakers there is a growing lack of trust in the forecasts. The fact that central bankers in the eurozone have agreed to be “data dependent” — making policy decisions based on the data available at each meeting, and not take predetermined actions — shows that “we don’t trust models enough now to base our decision, at least mostly, on the models,” said Pierre Wunsch, a member of the E.C.B.’s Governing Council and the head of Belgium’s central bank. “And that’s because we have been surprised for a year and a half.”Given all that central bankers do not know, the dominant mood at the conference was the need for a tough stance on inflation, with higher interest rates for longer. But not everyone agreed.Some argued that past rate increases would be enough to bring down inflation, and further increases would inflict unnecessary pain on businesses and households. But central bankers might feel compelled to act more aggressively to ward off attacks on their reputation and credibility, a vocal minority argued.“The odds are that they have already done too much,” said Erik Nielsen, an economist at UniCredit, said of the European Central Bank. This is probably happening because of the diminishing faith in forecasts, he said, which is putting the focus on past inflation data.“That’s like driving a car and somebody painted your front screen so you can’t look forward,” he said. “You can only look through the back window to see what inflation was last month. That probably ends with you in the ditch.” More

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    Bank of England Raises Rates More Than Expected, as Inflation Persists

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    ‘We know this is hard,’ the central bank’s governor said, after increasing interest rates by a half point, to 5 percent.The Bank of England raised interest rates by half a percentage point on Thursday, a larger-than-expected move, as policymakers struggle to bring down Britain’s persistently high rate of inflation.The central bank’s rate-setting committee lifted rates for a 13th consecutive time, to 5 percent, the highest since early 2008. The move is likely to intensify fears about the depth of Britain’s cost-of-living crisis, as homeowners prepare for jumps in monthly repayments while millions of households are already struggling to pay higher energy and food bills.The action came a day after the latest inflation data underscored the bank’s challenge: Consumer prices rose 8.7 percent in May from a year earlier, the same as the previous month, instead of falling as economists had predicted.The Bank of England’s decision is in sharp contrast to some of its international peers. Last week, the Federal Reserve decided to hold interest rates steady, at a range of 5 to 5.25 percent, and the European Central Bank raised rates by a quarter point.“The economy is doing better than expected, but inflation is still too high and we’ve got to deal with it,” Andrew Bailey, the Bank of England governor, said in a statement on Thursday. “We know this is hard — many people with mortgages or loans will be understandably worried about what this means for them. But if we don’t raise rates now, it could be worse later.”Indeed, there is accumulating evidence that inflation will be harder to stamp out than previously expected. In the past week, data has shown that pay in Britain has increased faster than expected, inflation in the services sector has accelerated and food inflation is still near the highest level in more than 45 years.The scale of the surprises in the data, especially for wage growth and services inflation, suggested a half-point rate increase “was required,” the minutes of the committee’s meeting said.The data “indicated more persistence in the inflation process, against the background of a tight labor market and continued resilience in demand,” the minutes said.The Bank of England’s rate increases could end up outlasting the recent rate-raising periods of both the Fed and the European Central Bank. Fed officials paused after 10 consecutive increases, and after eurozone policymakers raised rates for an eighth consecutive time last week, analysts predicted there would only be one or two more increases.The British central bank has pushed through a dramatic tightening of monetary policy in the last year and a half, raising interest rates from near zero since December 2021, in order to restrain the economy. But as British inflation data continues to take policymakers and other economists by surprise, traders are betting that the bank will have to raise interest rates higher and for longer to get inflation down to the 2 percent target. Before the policy decision was announced, traders were betting interest rates would reach 6 percent by early next year.The persistent price pressures in Britain are causing turmoil in the mortgage market, because they raise expectations that the bank will need to increase rates further. Traders, betting that the Bank of England will continue raising rates, have pushed up yields on government bonds. As mortgage offers reflect those higher interest rates, homeowners are growing concerned about jumps in their monthly repayments. Recently, some lenders pulled mortgage deals, in response to the rapid changes in the market.On Thursday, the central bank said is was monitoring closely the impact of its “significant” increases in interest rates, noting that because more people have fixed-terms on their mortgages, the full impact of higher interest rates “will not be felt for some time.”About 80 percent of mortgage holders have fixed-rate terms now, compared to about a third a decade ago. By the end of the year, about 1.3 million households are expected to reach the end of their fixed-rate term by the end of the year, prompting a reset in the rate that applies to their loan, the Bank of England said last month. The average mortgage holder in that group will see their monthly interest payments increase by about 200 pounds ($255), or £2,400 over the course of a year, if their mortgage rate rises 3 percentage points, which is what mortgage quotes suggested last month, the bank said.Since then, rates have risen even higher. Last weekend, the average rate for a two-year fixed-rate mortgage hit 6 percent for the first time this year.The extra financial burden on mortgage payers compounds the stubborn cost-of-living crisis, as inflation has outpaced pay for the past year and a half. About two-thirds of adults in Britain said their cost of living had increased in June compared with a month ago, and almost all of them said it was because of the higher cost of grocery shopping, according to a survey by the Office for National Statistics.Two members of the nine-person committee, Swati Dhingra and Silvana Tenreyro, voted to hold interest rates flat at 4.5 percent, arguing that the impact of past rate increases were still working through the economy, and so the bank was at risk of tightening policy more than necessary. They also said there were forward-looking indicators that suggested inflation and wage growth would fall significantly.But they were outvoted by all seven of the other members who chose a half-point increase, concerned that the impact on domestic prices and wages from external shocks, such as the war in Ukraine, would take longer to fade than they did to emerge. They predicted that lower wholesale energy prices would bring down the headline rate of inflation later in the year, but services inflation, which is dominated by companies’ wage costs and reflect domestic price pressures, would be “broadly unchanged” in the short term.As prices in Britain have continued to rise faster than expected, and faster than in the United States and Western Europe, the Bank of England has come under increasing scrutiny. Last month, the central bank’s governing body decided to commission a “a broad review” into the institution’s “forecasting and related processes during times of significant uncertainty.” More

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    China’s Economic Rebound Hits a Wall, With ‘No Quick Fix’ to Revive It

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    Policymakers and investors expected China’s economy to rev up again after Beijing abruptly dropped Covid precautions, but recent data shows alarming signs of a slowdown.When China suddenly dismantled its lockdowns and other Covid precautions last December, officials in Beijing and many investors expected the economy to spring back to life.It has not worked out that way.Investment in China has stagnated this spring after a flurry of activity in late winter. Exports are shrinking. Fewer and fewer new housing projects are being started. Prices are falling. More than one in five young people is unemployed.China has tried many fixes over the last few years when its economy had flagged, like heavy borrowing to pay for roads and rail lines. And it spent huge sums on testing and quarantines during the pandemic. Extra stimulus spending now with borrowed money would spur a burst of activity but pose a difficult choice for policymakers already worried about the accumulated debt.“Authorities risk being behind the curve in stimulating the economy, but there’s no quick fix,” said Louise Loo, an economist specializing in China in the Singapore office of Oxford Economics.China needs to right its economy after closing itself off to the world for almost three years to battle Covid, a decision that prompted many companies to begin shifting their supply chains elsewhere. Xi Jinping, China’s leader, met on Monday with the secretary of state of the United States, Antony J. Blinken, in an attempt by the two nations to lower diplomatic tensions and clear the way for high-level economic talks in the weeks ahead. Such discussions could slow the recent proliferation of sanctions and counter measures.China’s halting economic recovery has seen only a few categories of spending grow robustly, like travel and restaurant meals. And those have increased in comparison with extremely low levels in spring 2022, when a two-month lockdown in Shanghai disrupted economic activity across large areas of central China.Fewer and fewer new housing projects are being started in China.Qilai Shen for The New York TimesThe economy has been particularly weak in recent weeks.“From April to May to now, the economy has experienced significant unexpected changes, to the point where some people believe that the initial judgments may have been overly optimistic,” Yin Yanlin, a former deputy director of the Chinese Communist Party’s top economic policymaking commission, said in a speech at an academic conference on Saturday.Chinese government officials have been dropping hints that an economic stimulus plan may be imminent.“In response to the changes in the economic situation, more forceful measures must be taken to enhance the momentum of development, optimize the economic structure, and promote the continuous recovery of the economy,” the country’s State Council, or cabinet, said after a meeting on Friday led by Li Qiang, the country’s new premier.China’s economic weakness holds benefits and dangers for the global economy. Consumer and producer prices have fallen for the past four months in China, putting a brake on inflation in the West by pushing down the cost of imports from China.Travel is one of only a few categories of spending that are growing this year.Qilai Shen for The New York TimesBut weak demand in China may exacerbate a global slowdown. Europe already dipped into a mild recession early this year. Rapid interest rate increases in the United States have prompted some investors to bet on a recession late this year there as well.Beijing has already taken some steps to revitalize economic growth. Tax breaks are being introduced for small businesses. Interest rates on bank deposits have been reduced to encourage households to spend more of their money instead of saving it. The latest government measure is expected on Tuesday, when the state-controlled banking system is likely to reduce slightly its benchmark interest rates for corporate loans and home mortgages.But many economists, inside and outside China, worry about the effectiveness of the new measures. Consumers are hoarding cash and investors are wary of putting money into China’s companies. Private investment has actually declined so far this year compared with 2022. Housing remains in crisis, with developers borrowing more to pay existing debts and to complete existing projects, even as China already suffers from an oversupply of homes.Consumers have remained wary in part because the housing market, a source of wealth, is in a precarious state.Qilai Shen for The New York TimesChina’s housing market stands at the heart of its troubles. Construction has accounted for as much as a quarter of China’s economic output. But would-be homeowners have been put off as developers have defaulted on their debts and failed to finish apartments buyers had paid for in advance.Housing construction has fallen nearly 23 percent in the first five months of the year, compared with the same months last year. That suggests the real estate sector has further to fall in the coming months.Chen Leiqian, a 27-year-old marketer in Beijing, started looking for an apartment with her boyfriend in 2021 after five years of dating. But they then decided to stay put in a rental apartment when they married.“Housing prices across the country are falling, and the economy is very bad — there are just too many unstable elements,” Ms. Chen said.Two-thirds of Ms. Chen’s co-workers in her department at an online tutoring company were laid off after China cracked down on the for-profit, private education industry in 2021. She also had a friend who could no longer pay a mortgage after losing a job in the tech sector, and lost the home in foreclosure.The caution of middle-class families like Ms. Chen’s may pose the biggest dilemma for policymakers as they search for an effective formula for another round of economic stimulus.“You can throw money on people but if they are not confident, they will not spend,” said Alicia Garcia-Herrero, the chief economist for Asia-Pacific at Natixis, a French bank.As households struggle to pay their debts and refrain from big-ticket purchases, spending on restaurant meals is growing.Qilai Shen for The New York TimesHouseholds are not alone in struggling to pay their debts — so are local governments, which has limited their ability to step up infrastructure spending.The government is wary of starting another credit binge of the sort seen in 2009, during the global financial collapse, and in 2016, after China’s stock market plunged the preceding year.Although the sagging real estate sector has hurt demand inside China, exports have been flat this year and actually declined in May. The weakness of China’s normally powerful exports is particularly noteworthy because Beijing has allowed its currency, the renminbi, to lose about 7 percent of its value against the dollar since mid-January. A weaker renminbi makes Chinese exports more competitive in foreign markets.More exports help create jobs and could compensate for the otherwise slack domestic economy. But it’s not clear how much China will be able to count on exports to help as some of China’s biggest trading partners have moved some purchases to other countries in Asia.In the United States, the Trump administration imposed tariffs on a wide range of Chinese industrial goods, making it more expensive for American companies to buy from China. Then President Biden persuaded Congress last year to authorize broad subsidies for American production in categories like electric cars and solar panels. China’s exports to the United States were down 18.2 percent last month compared with May last year.The United States has enacted subsidies for American production of electric cars, trying to counter China’s exports. Qilai Shen for The New York TimesNow as China considers how to reinforce the economy, it must contend with a loss of confidence among consumers.Charles Wang runs a small travel company with eight employees in Zhangjiakou, in northern China. His business has almost fully rebounded after the pandemic but he has no plans to invest in expansion.“Our economy is actually going down, and everyone doesn’t have so much time and willingness to spend,” Mr. Wang said. “It’s because people just don’t want to spend money — everyone is afraid again, even the rich.”Li You More