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    Why China’s Shrinking Population Is a Problem for Everyone

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    China struggled for years to curtail its rapid population growth. Now that its population is declining, economists and others fear serious implications for China and countries around the world.Despite the rollback of China’s one-child policy, and even after more recent incentives urging families to have more children, China’s population is steadily shrinking — a momentous shift that will soon leave India as the world’s most populous nation and have broad rippling effects both domestically and globally.The change puts China on the same course of both aging and shrinking as many of its neighbors in Asia, but its path will have outsize effects not just on the regional economy, but on the world at large as well.Here’s why economists and others are alarmed by the developments.China’s shrinking work force could hobble the global economy.For years, China’s massive working-age population powered the global economic engine, supplying the factory workers whose cheap labor produced goods that were exported around the world.In the long run, a shortage of factory workers in China — driven by a better-educated work force and a shrinking population of young people — could raise costs for consumers outside China, potentially exacerbating inflation in countries like the United States that rely heavily on imported Chinese products. Facing rising labor costs in China, many companies have already begun shifting their manufacturing operations to lower-paying countries like Vietnam and Mexico.A shrinking population could also mean a decline in spending by Chinese consumers, threatening global brands dependent on sales of products to China, from Apple smartphones to Nike sneakers.A factory in Guangzhou. In the long run, a shortage of factory workers could raise costs for consumers outside of China.Gilles Sabrie for The New York TimesThe data is bad news for China’s crucial housing market.In the short term, a plunging birthrate poses a major threat to China’s real estate sector, which accounts for roughly a quarter of the country’s economic output. Population growth is a key driver of housing demand, and homeownership is the most important asset for many Chinese people. During widespread pandemic lockdowns that dampened consumer spending and export growth, China’s economy became even more dependent on the ailing housing sector.The government recently intervened to help distressed real estate developers, in an attempt to stem the fallout from its housing crisis.A housing development in Shanghai. Population growth is a key driver of housing demand, and a plunging birthrate poses a major threat to China’s real estate sector.Qilai Shen for The New York TimesChina’s shrinking work force may not be able to support its growing, aging population.With fewer working-age people in the long run, the government could struggle to sustain an enormous population that is growing older and living longer. A 2019 report by the Chinese Academy of Social Sciences predicted that the country’s main pension fund would run out of money by 2035, in part because of the shrinking work force.Economists have compared China’s demographic crisis to the one that stalled Japan’s economic boom in the 1990s.But China does not have the same resources as a country like Japan to provide a safety net for its aging population. Its households live on much lower incomes on average than in the U.S. and elsewhere. Many older Chinese residents rely on state pension payments as a key source of income during retirement.China also has some of the lowest retirement ages in the world, with most workers retiring by 60. The situation has put a tremendous strain not only on state pension funds, but also on the country’s hospital system.Older Chinese citizens exercising at a park in Beijing. With fewer working-age people, the government could struggle to sustain an enormous population that is both growing older and living longer.Gilles Sabrie for The New York TimesThe crisis has been decades in the making.China introduced the one-child policy in the late 1970s, arguing that it was necessary to keep population growth from reaching unsustainable levels. The government imposed onerous fines on most couples who had more than one child, and compelled hundreds of millions of Chinese women to have abortions. Many families favored boys over girls, often aborting baby girls or abandoning them at birth, resulting in a huge surplus of single men in the Chinese population.China announced the relaxing of the family size restrictions in 2013, but many demographic experts said the change had come too late to change the country’s population trajectory.The government’s efforts to incentivize a baby boom to solve the demographic crisis have failed to stabilize falling birthrates.Gilles Sabrie for The New York TimesThere are no easy fixes.The government’s efforts to start a baby boom to solve the demographic crisis — including offering cash handouts and easing the one-child policy to allow for three — have failed to stabilize falling birthrates. Educated Chinese women are increasingly delaying marriage and choosing not to have children, deterred by the high costs of housing and education.China has also been unwilling to loosen immigration rules to boost the population, and has historically issued relatively few green cards to replenish its shrinking work force.To address the labor shortage, China has been outsourcing low-skilled production to other countries in Asia, and adding more automation to its factories, hoping to rely more on artificial intelligence and technology sectors for future growth. More

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    Pressure Mounts on China to Offer Debt Relief to Poor Countries Facing Default

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    There was optimism at the spring meetings of the I.M.F. and World Bank that China will make concessions over restructuring its loans.WASHINGTON — China, under growing pressure from top international policymakers, appeared to indicate this week that it is ready to make concessions that would unlock a global effort to restructure hundreds of billions of dollars of debt owed by poor countries.China has lent more than $500 billion to developing countries through its lending program, making it one of the world’s largest creditors. Many of those countries, including several in Africa, have struggled economically in the wake of the pandemic and face the possibility of defaulting on their debt payments. Their problems have been compounded by rising interest rates and disruptions to supplies of food and energy as a result of Russia’s war in Ukraine.The United States, along with other Western nations, has been pressing China to allow some of those countries to restructure their debt and reduce the amount that they owe. But for more than two years, China has insisted that other creditors and multilateral lenders absorb financial losses as part of any restructuring, bogging down a critical loan relief process and threatening to push millions of people in developing countries deeper into poverty.A breakthrough would offer an economic lifeline to vulnerable nations at a time of sluggish growth and uncertain financial stability, and it would signal a renewed interest from China in economic diplomacy.Economists and development experts are watching carefully to determine if China is serious about easing the loan forgiveness logjam and if its talk will be followed by action. By some calculations, the world’s poor countries owe around $200 billion to wealthy nations, multilateral development banks and private creditors. Leaders of the world’s advanced economies have been grappling in recent months with how to avert financial crises in teetering markets such as Zambia, Sri Lanka and Ghana.Africa’s private and public external debt has increased more than fivefold over the last two decades to about $700 billion and Chinese lenders account for 12 percent of that total, according to Chatham House, the London policy institute. Researchers for the Debt Relief for Green and Inclusive Recovery Project estimated in a recent report that 61 emerging market and developing economies were facing debt distress, and that more than $800 billion in debt must be restructured.Leaders of the world’s advanced economies have been grappling in recent months with how to avert financial crises in teetering markets such as Sri Lanka.Dinuka Liyanawatte/Reuters“China is facing increasing pressure from every quarter, including from other emerging market economies, to play a more constructive role in the negotiations over debt restructuring,” said Eswar Prasad, a former head of the International Monetary Fund’s China division, who said China’s intransigence had left it “increasingly isolated.”There were indications this week that China was prepared to end that isolation as top economic officials from around the world convened at the spring meetings of the I.M.F. and World Bank. Participants expressed optimism that representatives from Beijing appeared to be ready to back off its insistence that multilateral lenders such as the World Bank, which provides low-interest loans and grants to poor countries, accept losses in the debt restructuring.“My sense from the current context is we’re moving on to new steps,” David Malpass, the departing World Bank president, said at a news conference on Thursday, pointing to “progress on equal burden sharing.”Kristalina Georgieva, the I.M.F.’s managing director, said she was “very encouraged” that a “common understanding” had been reached that could accelerate relief for countries such as Zambia, Ghana, Ethiopia and Sri Lanka.“I always say the proof of the pudding is in the eating,” Ms. Georgieva said.To restructure a country’s debt, creditors generally must agree to a combination of lowering the interest rate on the loan, extending the duration of the loan or writing off some of what is owed. China, which has faced an array of domestic economic challenges over the last three years, has been reluctant to take losses on debt and has pushed for other lenders, such as the World Bank, to incur losses.The urgency for a resolution was palpable among countries that are most in need of relief. Zambia defaulted in 2020 and has been trying to restructure $8.4 billion that it owes through a program established by the Group of 20 nations. It owes about $6 billion to Chinese lenders, and its total debt to foreign lenders is approaching $20 billion.On Friday, Ghana’s finance minister, Ken Ofori-Atta, lamented that 33 African nations were saddled with interest payments that approached or exceeded what their governments spent on health and education.Yuri Gripas for The New York Times“Zambia urgently needs debt relief,” Situmbeko Musokotwane, Zambia’s finance minister, told The New York Times. “Delay on debt restructuring puts our currency under pressure, excludes Zambia from capital markets and makes it difficult to attract much-needed foreign direct investment.”Ghana appealed to the Group of 20 nations this year for debt relief through a fledgling program known as the Common Framework after securing preliminary approval for a $3 billion loan from the I.M.F. That money is contingent on Ghana’s receiving assurances that it can restructure the approximately $30 billion that it owes to foreign lenders. Officials from Ghana have been meeting with their Chinese counterparts about restructuring the $2 billion that it owes China.On Friday, Ghana’s finance minister, Ken Ofori-Atta, lamented that 33 African nations were saddled with interest payments that approached or exceeded what their governments spent on health and education and expressed disappointment that advanced economies had been slow to act.“Honestly, it is disheartening to watch Africa struggle in this way, especially considering the potential loss of productivity over the next decade should African economies buckle under the weight of suffocating debts,” Mr. Ofori-Atta said at an Atlantic Council event on Friday.But it remains uncertain how far China is willing to go.Brad Setser, a senior fellow at the Council on Foreign Relations, said that it was not clear what financial terms Beijing would accept when restructuring debt but that it appeared to be taking a “positive step” that would remove “a financially unwarranted roadblock to any progress.”Treasury Secretary Janet Yellen at a farm in Zambia in January. She said this week that she would continue to press her Chinese counterparts to make the restructuring process work better.Fatima Hussein/Associated PressBut given the grinding pace of the talks, big investors in emerging markets are not counting on quick resolutions.“We are starting to see tokens of flexibility from China on their stance in sovereign debt restructuring, but complexities abound,” said Yacov Arnopolin, emerging markets portfolio manager at PIMCO. “Near term, we don’t expect a clear-cut solution on China’s willingness to take losses.”China’s reluctance has been another source of tension with the United States, which has expressed concern that Beijing’s onerous lending terms and refusal to renegotiate have amplified the financial problems that developing countries are facing. Treasury Secretary Janet L. Yellen said this week that she would continue to press her Chinese counterparts to improve the restructuring process but that she was encouraged that China had recently expressed a willingness to help Sri Lanka restructure its debt.People familiar with Chinese economic policymaking said domestic politics had made it hard for China to make difficult decisions last autumn and over the winter about accepting possible losses on its loans.In October, the Communist Party held its once-in-five-years national congress and chose a new team of senior party officials to work with Xi Jinping, the country’s top leader. Maneuvering then began to reshuffle the government’s senior ranks, which had been expected during the annual session of the National People’s Congress in early March, although some changes of financial policymakers were unexpectedly delayed.China is now ready to focus on addressing a wide range of economic issues, including international debt, the people said. However, Beijing still faces other challenges that may limit its willingness to bargain, including a commercial banking system that faces very heavy losses on loans to real estate developers and does not want to accept large losses on loans to developing countries at the same time.Chinese officials offered support for the debt relief initiatives in broad terms this week.Wang Wenbin, a spokesman for the Chinese Foreign Ministry, said on Friday that China had put forward a three-point proposal that included calling for the I.M.F. to more quickly share its debt sustainability assessments for countries that need relief, and for creditors to detail how they will carry out the restructurings on “comparable terms.”After a meeting in Washington between Yi Gang, China’s central bank governor, and Mr. Musokotwane of Zambia, the Chinese central bank released a brief statement.“They exchanged views on issues of common concern including bilateral financial cooperation,” it said.Keith Bradsher More

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    IMF Lowers Growth Outlook Amid Financial System Tremors

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    The International Monetary Fund says a painful slowdown, which could include a recession, has become a bigger risk for the global economy.WASHINGTON — The world economy faces the increasing risk of a painful slowdown amid worries about the global banking system and concerns that rising interest rates could force banks to curtail lending, the International Monetary Fund said on Tuesday.The warning follows weeks of turmoil in the global banking sector, which included two bank failures in the United States and UBS’s takeover of Credit Suisse, brokered by the Swiss government. Fears that bank runs would ripple through the financial system have abated in recent weeks, but concerns that additional bank failures and tightening lending standards could slow economic output around the world remain.In its latest World Economic Outlook report, the I.M.F. made a slight reduction to its growth forecast for 2023, lowering it to 2.8 percent, from 2.9 percent in January. Growth for the year is expected to be much slower than the I.M.F. predicted a year ago, when it projected output of 3.4 percent.Growth projections for Japan, Germany and India were all lowered since the start of the year, when the I.M.F. said a global recession would most likely be avoided.The I.M.F. and the World Bank have both raised alarms in recent weeks that the global economy is facing a period of extended stagnation. The I.M.F. expects growth to hover around 3 percent for the next five years, which is its weakest medium-term growth forecast since 1990.On Tuesday, the I.M.F. expressed optimism that a financial crisis could be averted, but it lamented that inflation was still elevated and that the global economy remained fragile, facing a “rocky” road ahead. It suggested that a so-called hard landing, which could entail economies around the world tipping into recession, was increasingly plausible.“A hard landing — particularly for advanced economies — has become a much larger risk,” the I.M.F. report said, adding, “The fog around the world economic outlook has thickened.”Pierre-Olivier Gourinchas, the I.M.F.’s chief economist, said hopes for stronger growth hinged partly on China’s reopening after strict Covid-19 regulations.How Hwee Young/EPA, via ShutterstockThe dimmer forecast comes as top economic officials from around the world are convening in Washington this week for the spring meetings of the I.M.F. and World Bank. The gathering is taking place at a moment of high uncertainty, with Russia’s war in Ukraine grinding on, prices around the world remaining stubbornly high and debt burdens in developing countries raising unease about the possibility of defaults.Treasury Secretary Janet L. Yellen is expected to meet with other international regulators this week to assess the state of the global financial system. On Tuesday, she expressed confidence in the U.S. banking system and the health of the economy, explaining that she continues to believe that the outlook is brighter than what many economists predicted last fall.“Here at home, the U.S. banking system remains sound, with strong capital and liquidity positions,” Ms. Yellen said during a news conference. “The global financial system also remains resilient due to the significant reforms that nations took after the financial crisis.”Ms. Yellen said she remained “vigilant” to the risks facing the economy, pointing to recent pressures on banking systems in the United States and Europe and the potential for more fallout from Russia’s war in Ukraine. She is not currently seeing evidence that credit is contracting, she added, but acknowledged that it was a possibility.“I’m not anticipating a downturn in the economy, although, of course, that remains a risk,” Ms. Yellen said.Treasury Secretary Janet Yellen expressed confidence on Tuesday in the strength of the U.S. economy but acknowledged that a downturn remained possible.Yuri Gripas for The New York TimesThe I.M.F. made a small upgrade to its projection for U.S. output, which is now expected to be 1.6 percent for 2023.Economists are still working to assess what effects the bank failures might have on the broader U.S. economy. Analysts at Goldman Sachs wrote in a research note this week that bank stress could reduce lending by as much as six percentage points and that small businesses, which rely heavily on small and midsize banks, could bear the brunt of tighter lending.The I.M.F. attributed the strain on the financial sector to banks with business models that relied heavily on a continuation of low interest rates and failed to adjust to the rapid pace of increases in the last year. Although it appears that the turbulence in the banking sector might be contained, the I.M.F. noted that investors and depositors remained highly sensitive to developments in the banking sector.Unrealized losses at banks could lead to a “plausible scenario” of additional shocks that could have a “potentially significant impact on the global economy” if credit conditions tighten further and businesses and households have an even harder time borrowing.“The risks are again heavily weighted to the downside and in large part because of the financial turmoil of the last month and a half,” Pierre-Olivier Gourinchas, the I.M.F.’s chief economist, said at a briefing ahead of the report’s release.In the most severe scenario, in which global credit conditions tighten sharply, the I.M.F. projected that global growth could slow to 1 percent this year.Mr. Gourinchas noted that the financial system was not the only cloud hanging over the global economy. Hopes for stronger growth have been hinging on China’s reopening after strict pandemic regulations, and changes to that policy could slow output and disrupt international commerce, he said. At the same time, Russia’s war in Ukraine continues to threaten the reliability of food and energy supply chains.Last month, the I.M.F. approved a $15.6 billion loan package for Ukraine, the first such financing program for a country involved in a major war.Emile Ducke for The New York TimesThe I.M.F. has been playing a leading role in trying to stabilize the Ukrainian economy, and last month it approved a $15.6 billion loan package for Ukraine, the first such financing program for a country involved in a major war. But despite the efforts by Western nations to buttress Ukraine and weaken Russia, the I.M.F. raised its outlook for the Russian economy, projecting it will grow 0.7 percent this year and 1.3 percent in 2024.The I.M.F. noted that Russia’s energy exports continued to be robust, allowing it to support its economy through government spending. The impact of efforts by the United States and Europe to cap the price of Russian oil at $60 a barrel remains unclear because global oil prices have been falling amid recession fears. I.M.F. officials said that because of lower oil prices, Russian oil was no longer trading at as much of a discount and that Russia had been successful at finding ways to circumvent the price cap.Even as it underscored the risks facing the global economy, the I.M.F. urged central banks to maintain their efforts to contain prices while standing ready to stabilize the financial system, noting that inflation is still too elevated relative to their targets.Despite the I.M.F.’s warnings about a hard landing, Ms. Yellen sought to open this week’s meetings with a note of optimism. She pointed to signs that inflation is diminishing and the resilience of the financial system as reasons for hope.“I wouldn’t overdo the negativism about the global economy,” Ms. Yellen said. “I think we should be more positive.”She added: “I think the outlook is reasonably bright.” More

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    California Economy Is on Edge After Tech Layoffs and Studio Cutbacks

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    As recession fears persist, the troubles in major industries have hurt tax revenues, turning the state’s $100 billion surplus into a deficit.California has often been at the country’s economic forefront. Now, as fears of a national recession continue to nag, the state is hoping not to lead the way there.While the California economy maintains its powerhouse status, outranking even those of most countries, the state’s most-powerful sectors — including tech companies and supply chain logistics — have struggled to keep their footing, pummeled by high interest rates, investor skittishness, labor strife and other turmoil.Even the weather hasn’t cooperated. Severe flooding throughout much of the winter, caused by atmospheric rivers, has left farming communities in the Central Valley devastated, causing hundreds of millions of dollars in crop losses.Thousands of Californians have been laid off in the last few months, the cost of living is increasingly astronomical, and Gov. Gavin Newsom revealed in January that the state faced a $22.5 billion deficit in the 2023-24 fiscal year — a plummet from the $100 billion surplus a year ago.“It’s an EKG,” Mr. Newsom said at the time, comparing a graph of the state’s revenue to the sharp spikes and drops of the heart’s electrical activity. “That sums up California’s tax structure. It sums up the boom-bust.”The structure, which relies in large part on taxing the incomes of the wealthiest Californians, often translates into dips when Silicon Valley and Wall Street are uneasy, as they are now. Alphabet, the parent company of Google, one of the state’s most prominent corporations, said in January that it was cutting 12,000 workers worldwide, and Silicon Valley Bank, a key lender to tech start-ups, collapsed last month, sending the federal government scrambling to limit the fallout.This has coincided with a drop in venture capital funding as rising interest rates and recession fears have led investors to become more risk-averse. That money, which declined 36 percent globally from 2021 to 2022, according to the management consulting firm Bain & Company, is critical to Silicon Valley’s ability to create jobs.“The tech sector is the workhorse of the state’s economy, it’s the backbone,” said Sung Won Sohn, a finance and economics professor at Loyola Marymount University. “These are high earners who might not be able to carry the state as much as they did in the past.”Gov. Gavin Newsom, center, said in January that the state faced a $22.5 billion deficit in the 2023-24 fiscal year, after a $100 billion surplus a year ago.Lipo Ching/EPA, via ShutterstockEntertainment, another pillar of California’s economy, has also been in retreat as studios adjust to new viewing habits. Disney, based in Burbank, announced in February that it would eliminate 7,000 jobs worldwide.In California alone, employment in the information sector, a category that includes technology and entertainment workers, declined by more than 16,000 from November to February, according to the latest Bureau of Labor Statistics data, which predates a recent wave of job cuts in March.A recent survey from the nonpartisan Public Policy Institute of California found widespread pessimism about the economy. Two-thirds of respondents said they expected bad economic times for the state in the next year, and a solid majority — 62 percent — said they felt the state was already in a recession.When Mr. Newsom announced the deficit earlier in the year, he vowed not to dip into the state’s $37 billion in reserves, and instead called for pauses in funding for child care and reduced funding for climate change initiatives. Joe Stephenshaw, director of the California Department of Finance, said in an interview that he and top economists had begun to spot points of concern — persistent inflation, higher interest rates and a turbulent stock market — on the state’s horizon during the second half of last year.“Those risks became realities,” said Mr. Stephenshaw, an appointee of the governor.He acknowledged that the problem was driven largely by declines in high earners’ incomes, including from market-based compensation, such as stock options and bonus payments. As activity slowed, he said, interest rates rose and stock prices fell.But the state’s problems aren’t limited to the tech industry.Cargo processing at the Port of Los Angeles in February was down 43 percent from the year before.Alex Welsh for The New York TimesCalifornia’s robust supply chain, which drives nearly a third of the state’s economy, has continued to buckle under stresses from the pandemic and an ongoing labor fight between longshoremen and port operators up and down the West Coast, which has prompted many shipping companies to rely instead on ports along the Gulf and East Coasts. Cargo processing at the Port of Los Angeles, a key entry point for shipments from Asia, was down 43 percent in February, compared with the year before.“The longer it drags on, the more cargo will be diverted,” said Geraldine Knatz, a professor of the practice of policy and engineering at the University of Southern California, who was executive director of the Port of Los Angeles from 2006 to 2014. Still, wherever the economic cycle is leading, California heads into it with some strengths. Although unemployment in February, at 4.3 percent, was higher than in most states, it was lower than the rate a year earlier. In the San Francisco and San Jose metropolitan areas, unemployment was below 3.5 percent, better than the national average.Over decades, California’s economy has historically seen the highest of highs and the lowest of lows, part of the state’s boom-bust history. During the recession of the early 1990s, largely driven by cuts to aerospace after the end of the Cold War, California was hit much harder than other parts of the country.Zeeshan Haque is looking for a job after losing his position as a software engineer at Google. “It’s just very competitive at this time because of so many layoffs,” he said.Mark Abramson for The New York TimesIn March, the U.C.L.A. Anderson Forecast, which provides economic analysis, released projections for both the nation and California, pointing to two possible scenarios — one in which a recession is avoided and another in which it occurs toward the end of this year.“Even in our recession scenario we have a mild recession,” said Jerry Nickelsburg, director of the Anderson Forecast.Regardless of which scenario pans out, California’s economy is likely to be better off than the national one, according to the report, which cited increased demand for software and defense goods, areas in which California is a leader. Mr. Nickelsburg also said the state’s rainy-day fund was healthy enough to withstand the decline in tax revenues. But that shortfall could complicate the speed at which Mr. Newsom can carry out some of his ambitious, progressive policies. In announcing the deficit, Mr. Newsom scaled back funding for climate proposals to $48 billion, from $54 billion.The fiscal outlook also casts a cloud over progressive proposals, widely supported by Democrats, who have a supermajority in the Legislature.A state panel that has been debating reparations for Black Californians is set to release its final report by midyear. Economists have projected that reparations could cost $800 billion to compensate for overpolicing, housing discrimination and disproportionate incarceration rates. Once the panel releases its report, it will be up to lawmakers in Sacramento to decide how much state revenue would support reparations — a concept that Mr. Newsom has endorsed.Through all this, one thing has remained constant: Many Californians say their biggest economic concern is housing costs.The median value for a single-family home in California is about $719,000 — up nearly 1 percent from last year, according to Zillow — and recent census data shows that some of the state’s biggest metro areas, including Los Angeles and San Francisco Counties, have continued to shrink. (In Texas, where many Californians have relocated, the median home value is about $289,000.)Still, some Californians remain optimistic.Zeeshan Haque, a former software engineer at Google, learned in January that he was being laid off. His last day was March 31.“It was out of nowhere and very abrupt,” said Mr. Haque, 32, who recently moved from the Bay Area to Los Angeles.He bought a $740,000 house in the city’s Chatsworth neighborhood in February and spent time focusing on renovations. But in recent weeks, he has begun to look for a new job. He recently updated his LinkedIn avatar to show the hashtag #opentowork and said he hoped to land a new job soon.“It’s just very competitive at this time because of so many layoffs,” he said.Ben Casselman More

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    Global Economy May Be in a ‘Lost Decade,’ World Bank Warns

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    Adding to crises like the pandemic, recent stress in the banking system is a new threat to world growth, experts at the organization said.WASHINGTON — The World Bank warned on Monday that the coronavirus pandemic and Russia’s war in Ukraine had contributed to a decline in the global economy’s long-term growth potential, leading to what could be a “lost decade” that would mean more poverty and fewer resources to combat the impact of climate change.The warning comes as the world deals with overlapping crises — a pandemic that crippled economies and strained public health systems and Russia’s invasion of Ukraine, which disrupted global supply chains and hurt international trade ties. The threat of a more protracted slump coincides with new signs of stress in the world’s financial system as a series of banking crises threaten to undermine economic growth.The World Bank projected in a new report that average potential global output is poised to fall to a 30-year low of 2.2 percent per year between 2023 and 2030. That would be a sharp decline from 3.5 percent per year during the first decade of this century.The falloff will be even more pronounced for developing economies, which grew at an average annual rate of 6 percent from 2000 to 2010; that rate could decline to 4 percent this decade.“A lost decade could be in the making for the global economy,” said Indermit Gill, the World Bank’s chief economist and senior vice president for development economics. “The ongoing decline in potential growth has serious implications for the world’s ability to tackle the expanding array of challenges unique to our times — stubborn poverty, diverging incomes and climate change.”Officials at the World Bank said the “golden era” of development appeared to be coming to an end. They warned that policymakers would need to get more creative as they tried to address global challenges without being able to rely on the rapid economic expansions of countries such as China, which has long been an engine of worldwide growth.They suggested that international monetary and fiscal policy frameworks should be more closely aligned, and that world leaders needed to find ways to reduce trade costs and increase their labor force participation. A return to faster growth, they said, will not be easy.Kristalina Georgieva, the managing director of the International Monetary Fund, said on Sunday that “risks to financial stability have increased.”Jing Xu/Reuters“It will take a herculean collective policy effort to restore growth in the next decade to the average of the previous one,” the World Bank said in the report.The increasing frequency of global crises continues to weigh on output even as signs of an economic rebound emerge. Efforts by central banks to tame inflation by raising interest rates have fueled turmoil in the banking sector, leading to the failures of Silicon Valley Bank and Signature Bank in the United States this month and the rescue of Credit Suisse by UBS.Top economic officials have been watching to see if the strain on the banking system will become a significant economic headwind that could tip the United States into a recession.“It definitely brings us closer right now,” Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said of a recession on the CBS program “Face the Nation” on Sunday. “What’s unclear for us is how much of these banking stresses are leading to a widespread credit crunch.”Kristalina Georgieva, the managing director of the International Monetary Fund, said on Sunday that “risks to financial stability have increased” and that given high levels of uncertainty, policymakers must remain vigilant. She noted that the recent turmoil could have implications for the I.M.F.’s global economic outlook and financial stability report, which will be released in the next few weeks.“At a time of higher debt levels, the rapid transition from a prolonged period of low interest rates to much higher rates — necessary to fight inflation — inevitably generates stresses and vulnerabilities, as evidenced by recent developments in the banking sector in some advanced economies,” Ms. Georgieva said at the China Development Forum.The I.M.F. said in January that it believed a global recession could be avoided as growth began to rebound later this year. At the time, it projected that output would be more resilient than previously anticipated, and it upgraded its growth projections for 2023 and 2024, but it did warn that “financial stability risks remain elevated.”World Bank officials said that if the current banking turmoil spiraled into a financial crisis and recession, then global growth projections might be even weaker because of the associated losses of jobs and investment.“However you look at it, if the current situation gets worse and turns into a recession, especially a recession at the global level, that could have negative implications for long-term growth prospects,” said Ayhan Kose, director the World Bank’s Prospects Group and the lead author of the report. More

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    Support Grows to Have Russia Pay for Ukraine’s Rebuilding

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    Although U.S. officials have cautioned against seizing Russia’s reserves in foreign banks, others say it’s “crazy” not to after Moscow’s war of aggression.When the World Bank released its latest damage assessment of war-torn Ukraine this week, it announced that the price of recovery and rebuilding had grown to $411 billion. What it didn’t say, though, was who would pay for it.To Ukraine, the answer seems obvious: Confiscate the roughly $300 billion in Russian Central Bank assets that Western banks have frozen since the invasion last year. As the war grinds on, the idea has gained supporters.The European Union has already declared its desire to use the Kremlin’s bankroll to pay for reconstruction in Ukraine. At the urging of a handful of Eastern European and Baltic nations, the bloc convened a working group last month to assess the possibility of grabbing that money as well as frozen assets owned by private individuals who have run afoul of European sanctions.“In principle, it is clear-cut: Russia must pay for the reconstruction of Ukraine,” said Sweden’s prime minister, Ulf Kristersson, who holds the presidency of the Council of the European Union.At the same time, he noted, turning that principle into practice is fraught. “This must be done in accordance with E.U. and international law, and there is currently no direct model for this,” Mr. Kristersson said.The working group, which has a two-year mandate, is scheduled to meet in Brussels next week.Other top officials, in the United States and elsewhere, have sounded more skeptical. After visiting Kyiv last month, Treasury Secretary Janet L. Yellen reiterated her warnings of formidable legal obstacles. The Swiss government declared that confiscating private Russian assets from banks would violate Switzerland’s Constitution as well as international agreements.The legal debate is just one skein in the tangle of moral, political and economic concerns that the potential seizure of Russia’s reserves poses.Departing a Mass in Lviv, Ukraine. Some U.S. officials worry about side effects from seizing assets in order to rebuild the country. Maciek Nabrdalik for The New York TimesMs. Yellen and others have argued that seizing Russia’s accounts could undermine faith in the dollar, the most widely used currency for the world’s trade and transactions. Foreign nations might be more reluctant to keep money in U.S. banks or make investments, fearing that it could be seized. At the same time, experts worry that such a move could put American and European assets held in other countries at higher risk of expropriation in the future if there is an international dispute.There are also concerns that seizure would erode faith in the system of international laws and agreements that Western governments have championed most vocally.But Russia’s pummeling of Ukraine’s infrastructure, charges of war crimes against President Vladimir V. Putin, and the difficulty of squeezing Russia economically when demand for its energy and other exports remains high have helped the idea gain ground.Also, there is the uncomfortable realization that the cost of rebuilding Ukraine once the war is over will far outstrip the amount that even wealthy allies like the United States and Europe may be willing to give.The United States, the European Union, Britain and other allies have funneled billions of dollars into Ukraine’s war effort, as well as tanks, missiles, ammunition, drones and other military equipment. And this week the International Monetary Fund approved its biggest loan yet — $15.6 billion — just to keep Ukraine’s battered economy afloat.But public support for continued funding is not inexhaustible.“If it’s difficult to get funding now for maintaining the infrastructure or housing, why is it going to be easier to get funding later?” asked Tymofiy Mylovanov, the president of the Kyiv School of Economics and a former government minister.It’s hard enough for Ukraine to get money and equipment “while we are being killed,” Mr. Mylovanov said. “Once we’re not being killed, we’ll have difficulty getting anything.”Laurence Tribe, a university professor of constitutional law at Harvard, has argued that a 1977 law, the International Emergency Economic Powers Act, gives the U.S. president the authority to confiscate sovereign Russian assets and repurpose them for Ukraine.The U.S. authorities previously seized Iraqi and Iranian assets and redirected them to compensate victims of violence, settle lawsuits or provide financial assistance.Mr. Tribe concedes that calculations about the ripple effect on the dollar or invested assets will ultimately matter more to policymakers than legal ones. But he finds those broader political concerns unpersuasive.“It’s crazy to argue that it’s more destabilizing to have assets seized than to have wars of aggression,” Mr. Tribe said in an interview on Friday. “The survival of the global economy is far more threatened by the way Russia behaved” than by any financial retaliation.And, he added, taking billions of dollars is much more meaningful either as a deterrent or punishment than bringing war crime charges.A destroyed garage in Hostomel, a Kyiv suburb. Prominent Americans like Laurence Tribe and Lawrence Summers argue that seizing Russian assets would be the right thing to do.Emile Ducke for The New York TimesOther prominent voices in the United States have endorsed the notion. Lawrence H. Summers, a former Treasury secretary; Robert B. Zoellick, a former president of the World Bank and U.S. trade representative; and Philip D. Zelikow, a historian at University of Virginia and a former State Department counselor, made their case this week in an opinion piece in The Washington Post.“Transferring frozen Russian reserves would be morally right, strategically wise and politically expedient,” they wrote.A few countries in addition to Ukraine have taken steps to pry loose foreign assets owned by Russian individuals and entities and use the money for reconstruction. In December, the Canadian government began the process of seizing $26 million owned by the Russian oligarch Roman Abramovich after passing a law easing the forfeiture of private Russian assets from individuals who are under sanctions.A federal judge in Manhattan gave the go-ahead last month to confiscate $5.4 million from another Russian businessman facing sanctions, Konstantin Malofeev. And Estonia is also seeking to pass legislation that would give the government there similar powers.But Mr. Tribe, Mr. Summers and others argue that the main focus should be not on seizing private assets, which would be legally much more complicated and time-consuming, but on the hundreds of billions owned by Russia’s central bank.Wherever the money comes from, the bill keeps growing. Over the past year, Ukraine’s economy has shrunk by a third. The war has pushed more than seven million people into poverty, the World Bank reported, and reversed 15 years of development progress. More

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    In Budget Talks, Biden Rejects Hard Choices of the Past

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    The president has met Republican demands for debt reduction with a plan to trim deficits by taxing companies and the rich. Months after losing control of the House in 2010, President Barack Obama and his vice president, Joseph R. Biden Jr., released a budget proposal that bowed to Republican warnings about the need to rein in spending by promising a freeze in popular programs like education.Now president, Mr. Biden is confronting the same equation, with an emboldened new Republican majority in the House demanding deep spending cuts. But this time, Mr. Biden has made a sharp break from the past.His proposed budget does contain new steps to reduce deficits, but instead of talking about hard choices and freezing spending, Mr. Biden has pledged to defend popular federal programs from Republican attacks and instead rely almost exclusively on taxing corporations and high earners as the way to reduce the growth in the deficit by nearly $3 trillion over the next decade.The shifting strategy by Mr. Biden is rooted in his determination not to repeat political and economic mistakes from the Obama era, administration officials say privately. Economists now say economic mistakes from the Obama era slowed the recovery from the 2008 financial crisis. And publicly, officials point to polls to contend that voters side with the president on how to reduce deficits.“The American people are absolutely right that having the super-wealthy and special interests pay their fair share is the right way to reduce the deficit,” said Jesse Lee, a senior communications adviser to Mr. Biden’s National Economic Council.The budget fight is expected to drag out for months as both sides attempt to pin the blame on the other. Mr. Biden is attempting a different sort of budget triangulation from Mr. Obama’s plan, as he nods to concerns over the $31.4 trillion national debt but seeks to redefine the issue and turn conservatives’ longstanding antipathy toward tax increases into a negotiating and electoral weapon.“The Republicans have taken off the table making the wealthy and the well connected pay a little more to help reduce the national debt — that means they’re not really serious about the national debt,” Senator Elizabeth Warren, Democrat of Massachusetts, said in an interview.Understand Biden’s Budget ProposalPresident Biden proposed a $6.8 trillion budget that sought to increase spending on the military and social programs while also reducing future budget deficits.Recapturing a Centrist Identity: As he unveiled his proposal, Mr. Biden made curbing the budget gap one of his centerpiece promises. The move is part of a wider shift that sees the president speaking more to the concerns of the political middle.A Missing Plan for Social Security: Like the president’s previous budgets, his new proposal makes no mention of the program, which he promised to shore up during his 2020 campaign.N.Y. Transit Projects: President Biden’s budget plan routes about $1.2 billion to two of the biggest transit projects in New York City: the Second Avenue Subway extension and new train tunnels under the Hudson River.“Higher taxes aimed at billionaires and giant corporations that are hiding their money overseas would have very little effect on our economy, other than the ability to reduce the national debt or to invest more,” she said.House Republicans are refusing to raise a cap on the amount of debt the United States can have outstanding unless Mr. Biden agrees to large federal spending cuts, which could include slashing antipoverty programs and new measures meant to fight climate change. They say the current national debt load and new spending programs approved by the president are weighing on economic growth, partly by driving up borrowing costs for private businesses.They are trying to assemble their own budget proposal that can pass the House, likely centered on cuts to housing assistance, health care programs and other aid to the poor. In a caucus that fractures on key issues like how much to spend on the military and whether to raise retirement ages for Social Security and Medicare, members have found common purpose in skewering Mr. Biden’s fiscal plans.“After two years of economic failures, the American people desperately want results,” Representative Jason Smith of Missouri, the chairman of the Ways and Means Committee, said at the start of a hearing on Mr. Biden’s budget on Friday. “The budget before us today calls for $4.7 trillion in new taxes and sinks $6.9 trillion in new spending during a staggering debt crisis.”Mr. Biden has refused to negotiate directly over raising the debt limit but says he welcomes a conversation on the nation’s finances — on his own, populist terms.“What are they going to cut?” Mr. Biden mused to an audience in Philadelphia on Thursday, as he formally unveiled his budget and called on Republicans to follow suit..css-1v2n82w{max-width:600px;width:calc(100% – 40px);margin-top:20px;margin-bottom:25px;height:auto;margin-left:auto;margin-right:auto;font-family:nyt-franklin;color:var(–color-content-secondary,#363636);}@media only screen and (max-width:480px){.css-1v2n82w{margin-left:20px;margin-right:20px;}}@media only screen and (min-width:1024px){.css-1v2n82w{width:600px;}}.css-161d8zr{width:40px;margin-bottom:18px;text-align:left;margin-left:0;color:var(–color-content-primary,#121212);border:1px solid var(–color-content-primary,#121212);}@media only screen and (max-width:480px){.css-161d8zr{width:30px;margin-bottom:15px;}}.css-tjtq43{line-height:25px;}@media only screen and (max-width:480px){.css-tjtq43{line-height:24px;}}.css-x1k33h{font-family:nyt-cheltenham;font-size:19px;font-weight:700;line-height:25px;}.css-1hvpcve{font-size:17px;font-weight:300;line-height:25px;}.css-1hvpcve em{font-style:italic;}.css-1hvpcve strong{font-weight:bold;}.css-1hvpcve a{font-weight:500;color:var(–color-content-secondary,#363636);}.css-1c013uz{margin-top:18px;margin-bottom:22px;}@media only screen and (max-width:480px){.css-1c013uz{font-size:14px;margin-top:15px;margin-bottom:20px;}}.css-1c013uz a{color:var(–color-signal-editorial,#326891);-webkit-text-decoration:underline;text-decoration:underline;font-weight:500;font-size:16px;}@media only screen and (max-width:480px){.css-1c013uz a{font-size:13px;}}.css-1c013uz a:hover{-webkit-text-decoration:none;text-decoration:none;}How Times reporters cover politics. We rely on our journalists to be independent observers. So while Times staff members may vote, they are not allowed to endorse or campaign for candidates or political causes. This includes participating in marches or rallies in support of a movement or giving money to, or raising money for, any political candidate or election cause.Learn more about our process.“What about Medicaid? What about the Affordable Care Act? What about veterans’ benefits? What about law enforcement? What about aid to rural communities? What about support for our military?” he asked. “What will they make — how will they make these numbers add up?”This debate is happening in an economic moment that is very different from 2011, when Mr. Obama issued his budget for the 2012 fiscal year.At that time, the gross national debt was about $15.5 trillion, or just under three-quarters of what was the annual output of the American economy. But the economy was nowhere close to recovering from the 2009 recession. The unemployment rate was 9 percent. The economy was running well below what economists call its potential — the amount of goods and services it would be producing at what you might call optimal performance.Then-President Barack Obama speaking about his budget proposal in 2009, with Mr. Biden, his vice president. Mr. Obama bowed to Republican demands to reduce deficits.Doug Mills/The New York TimesProgressive economists pushed Mr. Obama to take advantage of low interest rates to continue running large deficits and pump more money into the economy. After losing the House, though, he bowed to Republican demands to reduce deficits and pivoted the other way. His budget proposed caps on government spending and urged Congress “to act now to secure and strengthen Social Security for future generations” by taking steps to shore up its finances.A bout of brinkmanship later in 2011 between House Republicans and Mr. Obama nearly ended with the United States defaulting on its debt, before Mr. Obama agreed to a set of caps on future spending increases in exchange for lifting the limit. That deal helped cut the deficit by nearly two-thirds before Mr. Obama left office.Many economists have concluded that those measures dragged out the time it took for the economy to finally run hot enough to generate sustained wage gains for workers.Today’s economy has run so hot that the Federal Reserve is trying to cool it down to tame high inflation. Unemployment is 3.6 percent, and companies are having trouble finding workers. Republicans blame Mr. Biden’s spending policies for stoking inflation and say his tax proposals would further burden people and business owners already struggling with high prices.Progressive economists disagree — increasingly saying there is little threat to growth from large tax increases on companies and high earners.Even with his proposed savings, Mr. Biden’s budget still foresees the gross national debt increasing by about $18 trillion through 2033, to just above $50 trillion, or 128 percent of gross domestic product. It projects deficits to average about 1.5 percent more, as a share of the economy, than Mr. Obama projected in his 2012 budget. Yet administration economists say that under their plans, “the economic burden of debt would remain low.”Some progressive groups criticized Mr. Biden last week for focusing at all on deficit reduction in the budget. Others welcomed his emphasis on raising taxes for businesses and people earning more than $400,000.Budget hawks urged Mr. Biden last week to propose more — and more immediate — deficit reduction. Such reductions would pull consumer spending power out of the economy faster by raising taxes or reducing federal expenditures, or both. Advocates of deficit reduction said that could help ease price growth in the economy.Jerome H. Powell, the Fed chairman, told lawmakers in the House and Senate last week that federal tax and spending policy was “not contributing to inflation” today. He was pressed on that view by Senator John Kennedy of Louisiana, a Republican on the Budget Committee.“It’s undeniable that the only way we’re going to get this sticky inflation down is to attack it on the monetary side, which you’re doing, and on the fiscal side, which means Congress has got to reduce the rate of growth of spending and reduce — reduce the rate of growth of debt accumulation,” Mr. Kennedy said.“Now I get that you don’t want to get in the middle of that fight,” he added. “But the more we help on the fiscal side, the fewer people you’re going to have to put out of work. Isn’t that a fact?”“It could work out that way,” Mr. Powell replied. More

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    Debt Default Would Cripple U.S. Economy, New Analysis Warns

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    As President Biden prepares to release his latest budget proposal, a top economist warned lawmakers that Republicans’ refusal to raise the nation’s borrowing cap could put millions out of work.WASHINGTON — The U.S. economy could quickly shed a million jobs and fall into recession if lawmakers fail to raise the nation’s borrowing limit before the federal government exhausts its ability to pay its bills on time, the chief economist of Moody’s Analytics, Mark Zandi, warned a Senate panel on Tuesday.The damage could spiral to seven million jobs lost and a 2008-style financial crisis in the event of a prolonged breach of the debt limit, in which House Republicans refuse for months to join Democrats in voting to raise the cap, Mr. Zandi and his colleagues Cristian deRitis and Bernard Yaros wrote in an analysis prepared for the Senate Banking Committee’s Subcommittee on Economic Policy.Senator Elizabeth Warren, Democrat of Massachusetts, held the subcommittee hearing on the debt limit, and its economic and financial consequences, at a moment of fiscal brinkmanship. House Republicans are demanding deep spending cuts from President Biden in exchange for voting to raise the debt limit, which caps how much money the government can borrow.That debate is likely to escalate when Mr. Biden releases his latest budget proposal on Thursday. The president is expected to propose reducing America’s reliance on borrowed money by raising taxes on high earners and corporations. But he almost certainly will not match the level of spending cuts that will satisfy Republican demands to balance the budget in a decade.The report also warns of stark economic damage if Mr. Biden, in an attempt to avert a default, agrees to those demands. In that scenario, the “dramatic” spending cuts that would be needed to balance the budget would push the economy into recession in 2024, cost the economy 2.6 million jobs and effectively destroy a year’s worth of economic growth over the next decade, Mr. Zandi and his colleagues wrote.The U.S. economy could quickly shed a million jobs and fall into recession if lawmakers fail to raise the nation’s borrowing limit.Michelle V. Agins/The New York Times“The only real option,” Mr. Zandi said in an interview before his testimony, “is for lawmakers to come to terms and increase the debt limit in a timely way. Any other scenario results in significant economic damage.”Understand the U.S. Debt CeilingCard 1 of 5What is the debt ceiling? More