Economic Conditions and Trends

More stories

  • 125 Shares169 Views

    in Economy

    Russia’s Economy Is Increasingly Structured Around Its War in Ukraine

    by

    The nation’s finances have proven resilient, despite punishing sanctions, giving it leeway to pump money into its military machine.“Everything needed for the front,” Russia’s finance minister declared, echoing a Soviet slogan from World War II as he talked about the government’s latest spending plans.The government still calls its invasion of Ukraine a “special military operation,” but the new budget figures make clear that the economy is increasingly being restructured around war.Nearly a third of the country’s spending next year — roughly $109 billion — will be devoted to “national defense,” the government announced late last month, redirecting money that might otherwise have flowed to health care, education, roads and other sectors. More tellingly, 6 percent of the nation’s total output is being funneled toward Russia’s war machine, more than double what it was before the invasion.Since Russia sent soldiers across the border in February 2022, its economy has had to adapt to dramatic changes with astonishing speed. The European Union, its biggest trading partner, quickly broke economic relations, upending well-established supply chains and reliable sources of income from abroad. The United States used its financial might to freeze hundreds of billions of dollars in Russian assets and cut the country off from the global financial system.Nineteen months later, the economic picture is decidedly mixed. The Russian economy has proved to be much more resilient than many Western governments assumed after imposing a punishing string of sanctions.Moscow has found other buyers for its oil. It has pumped money into the economy at a rapid pace to finance its military machine, putting almost every available worker into a job and raising the size of weekly paychecks. Total output, which the Russian Central Bank estimates may rise as much as 2.5 percent this year, could outpace the European Union and possibly even the United States.Yet that is only part of the story. As Laura Solanko, a senior adviser at the Bank of Finland Institute for Economies in Transition, said: “When a country is at war, gross domestic product is a fairly poor measure of welfare.” Producing bullets adds to a country’s growth rate without necessarily improving the quality of life.The insistent demand for foreign currency — to pay for imported goods or provide a safe investment — has also caused the value of the ruble to sink at a precipitous pace. Last week, it fell to a symbolic break point of 100 to the dollar, further fueling inflation and raising anxiety levels among consumers.Shoppers buying meat at the central market in Rostov-on-Don, Russia, in 2021. Inflation in Russia has driven up the price of meat and other products since the start of the war in Ukraine.Sergey Ponomarev for The New York TimesThe spike in government spending and borrowing has seriously stressed an already overheated economy. The central bank rapidly raised interest rates to 13 percent over the summer, as annual inflation continued to climb. Higher rates, which make it more expensive for businesses to expand and consumers to buy on credit, is likely to slow growth.Consumers are also feeling the squeeze for daily purchases. “Dairy products, especially butter, meat and even bread have gone up in price,” said Lidia Adreevna as she shopped and examined prices at an Auchan supermarket in Moscow. She blamed the central bank.“Life changes,” she offered, “nothing stays forever, not love, or happiness.”Other pensioners at the store also spoke about increases in meat and poultry prices, something almost half of Russians have noticed in the past month, according to survey data from the Moscow-based Public Opinion Foundation published Friday. Respondents also noted increases in the price of medicine and construction materials.Moscow imposed a temporary ban on diesel and gasoline exports last month in an effort to ease shortages and slow rising energy prices, but the restrictions further reduced the amount of foreign currency coming into the country.The exodus of funds is so worrying that the government has warned of reinstating controls on money leaving the country.With a presidential election scheduled in March, President Vladimir V. Putin acknowledged last month that accelerating inflation fueled by a weakened ruble was a major cause of concern. Getting a handle on price increases may discourage the government from embarking on its usual pre-election social spending.Lower standards of living can be “uncomfortable even for an authoritarian government,” said Charles Lichfield, deputy director of the Atlantic Council’s Geoeconomics Center.Since Russia imports a wide range of goods — from telephones and washing machines to cars, medicine and coffee — he said a devalued ruble makes “it more difficult for consumers to buy what they’re used to buying.”A Karachi Port Trust security guard keeping watch over the Clyde Noble, a Russian crude oil tanker berthed at the Karachi Port in Pakistan in June. Pakistan received discounted Russian crude oil as part of a new deal between Islamabad and Moscow.Rehan Khan/EPA, via ShutterstockThe United States, the European Union and countries allied with Ukraine have doggedly tried to cripple Russia with sweeping sanctions.The impact was swift and sharp in the spring of 2022. The ruble tumbled, the central bank increased rates to 20 percent to attract investors, and the government imposed strict controls on capital to keep money inside the country.But the ruble has since bounced back and interest rates come down. Russia found eager buyers elsewhere for its oil, which was selling at vastly discounted prices; liquefied natural gas; and other raw materials. More recently, Russia has become adept at evading the $60 per barrel price cap on oil imposed by the Group of 7 nations as global oil prices have once again started to rise.China is among the nations that have stepped up to buy energy and sell goods to Russia that they previously might have exchanged with European nations. Trade with China rose at an annual rate of 32 percent in the first eight months of this year. Trade with India tripled in the first half of the year, and exports from Turkey rose nearly 89 percent over the same period.Meanwhile, the war is gobbling up other parts of Russia’s budget aside from direct military spending. An additional 9.2 percent of the budget is slated for “national security,” which includes law enforcement. There is money for injured soldiers and for families of those killed in battle, and for “integrating new regions,” a reference to occupied territory in Ukraine.Sergei Guriev, a Russian economist who fled the country in 2013 and is now provost at Sciences Po in Paris, said accurately assessing the Russian economy is difficult. The existing economic models were designed before the war and based on different assumptions, and the published budget figures are incomplete.What that means for Russian households on a daily basis is harder to discern.“Overall, it’s very hard to compare quality of life before and after the war,” Mr. Guriev said. “It’s hard to know what Russians think. People are afraid.”Valerie Hopkins More

  • 113 Shares199 Views

    in Economy

    Las Vegas Hospitality Workers Authorize Strike at Major Resorts

    by

    Unions representing 60,000 workers across Nevada have been in talks with the resorts since April. The vote is a crucial step toward a walkout.Hospitality workers in Las Vegas have voted overwhelmingly to authorize a strike against major resorts along the Strip, a critical step toward a walkout as the economically challenged city prepares for major sporting events in the months ahead.The authorization vote on Tuesday by members of Culinary Workers Union Local 226 and Bartenders Union Local 165, which collectively represent 60,000 workers across Nevada, was approved by 95 percent of those taking part, according to union officials.Although a vote is a forceful step, it does not guarantee that workers will strike before hashing out a new contract deal with the major resorts. Contracts for roughly 40,000 housekeepers, bartenders, cooks and food servers at MGM Resorts International, Caesars Entertainment and Wynn Resorts expired on Sept. 15, after being extended from a June deadline. Other workers remain on extended contracts that can be terminated at any time.The locals, which are affiliated with the union Unite Here, have been in negotiations with the resorts since April over demands that include higher wages, more safety protections and stronger recall rights so that workers have more ability to return to their jobs during a pandemic or an economic crisis. (Union officials have said there are about 20 percent fewer hospitality workers in the city than before the Covid pandemic.)The authorization vote was approved by 95 percent of those taking part, union officials said.Bridget Bennett for The New York Times“No one ever wants to go on strike,” said Ted Pappageorge, the head of Local 226. “But working-class folks and families have been left behind, especially since the pandemic.”In a statement, MGM Resorts said it was optimistic the two sides could come to an agreement.“We continue to have productive meetings with the union and believe both parties are committed to negotiating a contract that is good for everyone,” said the company.Wynn Resorts and Caesars Entertainment declined to comment on the vote. Negotiations continue next week between the union and the companies.The contract battle comes as the tourism-dependent state, where the rebound from the pandemic’s economic toll has been slower than in other regions, has hedged its bets on a big sports bump.In November, Formula 1 will arrive with the Las Vegas Grand Prix, an international event that is expected to draw hundreds of thousands of tourists. A few months later, the region will be the site of the Super Bowl.“No one ever wants to go on strike,” said Ted Pappageorge, the head of Culinary Workers Union Local 226. “But working-class folks and families have been left behind, especially since the pandemic.”Bridget Bennett for The New York TimesThe authorization vote also comes amid major labor battles nationwide.Thousands of members of the United Automobile Workers union have been on strike against the three major Detroit automakers for nearly two weeks. And while the Writers Guild of America recently reached a tentative agreement with major Hollywood studios after a monthslong walkout, contract talks with tens of thousands of striking actors are at an impasse.In Southern California, thousands of hotel workers with Unite Here Local 11 have staged several months of temporary strikes.The Culinary Union, which is a major base for Democrats in Nevada, a swing state, held a similar strike authorization vote in 2018 among 25,000 workers. A contract agreement with major hotels was reached before any strike occurred.For Chelsea MacDougall, who works as a gourmet food server at the Wynn Las Vegas, watching months of negotiations with few results has been frustrating. Inside an arena crowded with fellow union workers — some waving signs that read “One Job Should Be ENOUGH,” alluding to low pay — she voted to authorize a walkout.“This is our next show of force to companies,” said Ms. MacDougall, 36, who makes $11.57 an hour before tips. “The workers deserve a living wage.” More

  • 113 Shares129 Views

    in Economy

    U.S. and China Agree to New Economic Dialogue Format

    by

    The regular talks are intended to give both countries a venue to resolve differences.The United States and China have created a new structure for economic dialogue in an effort to improve communication between the world’s largest economies and stabilize a relationship that has become increasingly strained in recent years.The Treasury Department said on Friday that the United States and China had agreed to create economic and financial working groups that will hold regular meetings to discuss policy and exchange information. The announcement follows visits to Beijing by three of President Biden’s cabinet members over the summer that were intended to ease tensions over economic and geopolitical matters that has been festering for years between the two countries.The Treasury Department said that the new working groups would create “ongoing structured channels for frank and substantive discussions.” Treasury officials will report to Ms. Yellen, who traveled to Beijing in July. China’s representatives, from its ministry of finance and the People’s Bank of China, will report to Vice Premier He Lifeng.“These working groups will serve as important forums to communicate America’s interests and concerns; promote a healthy economic competition between our two countries with a level playing field for American workers and businesses; and advance cooperation on global challenges,” Ms. Yellen said in a statement.The U.S. and China still have major economic disagreements on tariffs, technology controls and investment restrictions. The Biden administration has been especially concerned recently about the treatment of American companies operating in China.The creation of a working group linking the Treasury Department directly with Chinese officials on economic and financial issues represents the revival of a decades-long approach to bilateral relations that was dismantled under former President Donald J. Trump.Congress took away the Treasury’s authority over trade relations in the 1970s, transferring that authority to the newly created Office of the United States Trade Representative, which was also made a cabinet agency. Congress acted after complaints from American industries and labor unions that Treasury and the State Department had been making trade concessions to other countries to win allies against the Soviet Union in the Cold War.Under former Presidents George W. Bush and Barack Obama, the Treasury led interagency negotiating teams in talks with China. Treasury’s leadership limited the influence of American trade officials, as a succession of Treasury secretaries assigned a high priority to economic policy coordination with China and to opening China’s financial markets to Wall Street firms.Mr. Trump dismantled the interagency working group system and said that each agency would negotiate separately with China. Vice Premier Liu He, the predecessor of Vice Premier He Lifeng in handling international economic policy, tried repeatedly to reach trade arrangements with then Treasury Secretary Steven T. Mnuchin, bypassing Robert E. Lighthizer, who was Mr. Trump’s trade representative.But Mr. Trump did not endorse those arrangements and instead backed Mr. Lighthizer, who ended up negotiating a limited trade agreement that was signed by both countries in January 2020, and remains in place.In August, Gina Raimondo, the commerce secretary, announced during her trip to Beijing and Shanghai that the United States and China agreed to hold regular conversations about commercial issues and restrictions on access to advanced technology.A senior Treasury official said that a consensus was reached during Ms. Yellen’s trip in July to form the groups, which are meant to allow both sides to voice concerns and look for ways to work together. The economic group will focus on challenges such as restructuring debt for low- and middle-income countries in distress, while the financial group will delve into topics like financial stability and sustainable finance.Ms. Yellen said on Friday that the new structure was an important step forward in the bilateral relationship.“It is vital that we talk, particularly when we disagree,” she said. More

  • 125 Shares189 Views

    in Economy

    Can Ghana’s Debt Trap of Crisis and Bailouts Be Stopped?

    by

    Emmanuel Cherry, the chief executive of an association of Ghanaian construction companies, sat in a cafe at the edge of Accra Children’s Park, near the derelict Ferris wheel and kiddie train, as he tallied up how much money government entities owe thousands of contractors.Before interest, he said, the back payments add up to 15 billion cedis, roughly $1.3 billion. “Most of the contractors are home,” Mr. Cherry said. Their workers have been laid off.Like many others in this West African country, the contractors have to wait in line for their money. Teacher trainees complain they are owed two months of back pay. Independent power producers that have warned of major blackouts are owed $1.58 billion.The government is essentially bankrupt. After defaulting on billions of dollars owed to foreign lenders in December, the administration of President Nana Akufo-Addo had no choice but to agree to a $3 billion loan from the lender of last resort, the International Monetary Fund.It was the 17th time Ghana has been compelled to turn to the fund since it gained independence in 1957.This latest crisis was partly prompted by the havoc of the coronavirus pandemic, Russia’s invasion of Ukraine, and higher food and fuel prices. But the tortuous cycle of crisis and bailout has plagued dozens of poor and middle-income countries throughout Africa, Latin America and Asia for decades.Joshua Teye, a teacher in Suhum, Ghana. The government’s fiscal crisis has cut investment in schools dangerously short.Francis Kokoroko for The New York TimesThese pitiless loops will be discussed at the latest United Nations General Assembly, which begins on Tuesday. The debt load for developing countries — now estimated to top $200 billion — threatens to upend economies and unravel painstaking gains in education, health care and incomes. But poor and low-income countries have struggled to gain sustained international attention.In Ghana, the I.M.F. laid out a detailed rescue plan to get the country back on its feet — reining in debt and spending, raising revenue and protecting the poorest — as Accra negotiates with foreign creditors.Still, a nagging question for Ghana and other emerging nations in debt persists: Why will this time be any different?The latest rescue plan outlined for Ghana addresses key problems, said Tsidi M. Tsikata, a senior fellow at the African Center for Economic Transformation in Accra. But so did many of the previous ones, he said, and still crises recurred.The last time Ghana turned to the fund was in 2015. Within three years, the country was on its way to paying back the loan, and was among the world’s fastest-growing economies. Ghana was held up as a model for the rest of Africa.Agricultural production was up, and major exports — cocoa, oil and gold — were rising. The country had invested in infrastructure and education, and had begun a cleanup of the banking industry, which was riddled with distressed lenders.Yet Accra is again desperately in need. The I.M.F. loan agreement, and the delivery of a $600,000 installment in May, have helped stabilize the economy, settle wild fluctuations in currency levels and restore a modicum of confidence. Inflation is still running above 40 percent but is down from its peak of 54 percent in January.Cocoa pods at a cocoa farm. Ghana’s economy is dependent on exports of raw materials like cocoa, oil and gold, which rise and fall wildly in price.Francis Kokoroko for The New York TimesDespite the I.M.F.’s blueprint, though, Mr. Tsikata, previously a division chief at the fund for three decades, said the chance that Ghana wouldn’t be in a similar position a few years down the road “rests on a wing and a prayer.”The effects of devastating climate change loom over the problem. Within the next decade, a United Nations analysis estimates, trillions of dollars in new financing will be needed to mitigate the impact on developing countries.In Ghana, the government owed $63.3 billion at the end of 2022 not just to foreign creditors but also to homegrown lenders — pension funds, insurance companies and local banks that believed the government was a safe investment. The situation was so unusual that the I.M.F. for the first time made settling this domestic debt a prerequisite for a bailout. A partial restructuring, which cut returns and extended the due dates, was completed in February. While the haircut may have been necessary, it undermined confidence in the banks.As for foreign lenders, there are thousands of private, semipublic and governmental creditors, including China, which have different objectives, loan arrangements and regulatory controls.The magnitude and type of debt means “this crisis is much deeper than the type of economic difficulties Ghana has faced in the past,” said Stéphane Roudet, the I.M.F.’s mission chief to Ghana.The dizzying proliferation of lenders now characterizes much of the debt burdening distressed countries around the globe — making it also more complex and difficult to resolve.“You don’t have six people in a room,” said Joseph E. Stiglitz, a Nobel Prize winner and a former chief economist at the World Bank. “You have a thousand people in a room.”Victoria Chrappah, a trader, recounts the unfavorable business climate, as fluctuating exchange rates affect prices of imported goods from China.Francis Kokoroko for The New York Times‘Last Year Was the Worst of All.’Outside Victoria Chrappah’s narrow stall in Makola Market, snaking lines of sellers hawked live chickens, toilet paper packs and electronic chargers from giant baskets balanced on their heads. As restructuring negotiations with foreign lenders continue, households and businesses are doing their best to cope. Ms. Chrappah has been selling imported bathmats, shower curtains and housewares for more than 20 years.“Last year was the worst of all,” she said.Inflation surged, and the cedi lost more than half its value compared with the U.S. dollar — a blow to consumers and businesses when a country imports everything from medicine to cars. The Bank of Ghana jacked up interest rates to cope with inflation, hurting businesses and households that rely on short-term borrowing or want to invest. The benchmark rate is now 30 percent.Because of the rapidly depreciating currency, Ms. Chrappah explained, “you can sell in the morning at one price, and then you have to think of changing the price the following day.”Purchasing power as well as the value of savings has been halved. Doreen Adjetey, product manager for Dalex Swift, a finance company based in Accra, said a bottle of Tylenol to soothe her 19-month-old baby’s teething pain cost 50 cedis last year. Now it’s 110.A month’s worth of groceries cost more than 3,000 cedis compared with 1,000. Before, she and her husband had a comfortable monthly income of 10,000 cedis, worth about $2,000 when the exchange rate was 5 cedis to the dollar. At today’s rate, it’s worth $889.Joe Jackson, the director of business operations at Dalex, said default rates for small and medium-size enterprises “are through the roof,” jumping to 70 percent from 30 percent.The real estate and construction market has also tanked. “There’s been a drastic drop in the number of homes in the first-buyer segment of the market,” said Joseph Aidoo Jr., executive director of Devtraco Limited, a large real estate developer.Construction of an apartment complex in Accra. The real estate and construction market has suffered along with the rise in the cost of borrowing. Francis Kokoroko for The New York TimesWhen the pandemic struck in 2020, paralyzing economies, shrinking revenues and raising health care costs, fear of a global debt crisis mounted. Ghana, like many developing countries, had borrowed heavily, encouraged by years of low commercial rates.As the Federal Reserve and other central banks raised interest rates to combat inflation, developing countries’ external debt payments — priced in dollars or euros — unexpectedly ballooned at the same time that prices of imported food, fuel and fertilizer shot up.As Ghana’s foreign reserves skidded toward zero, the government began paying for refined oil imports directly with gold bought by the central bank.Even so, while the series of unfortunate global events may have supercharged Ghana’s debt crisis, they didn’t create it.The current government, like previous ones, spent much more than it collected in revenues. Taxes as a share of total output are also lower than the average across the rest of Africa.To make up the shortfall, the government kept borrowing, offering higher and higher interest rates to attract foreign lenders. And then it borrowed more to pay back the interest on previous loans. By the end of last year, interest payments on debt were gobbling up more than 70 percent of government revenues.“The government is bloated and inefficient,” said E. Gyimah-Boadi, the board chair of Afrobarometer, a research network. Half-completed schools, hospitals and other projects are abandoned when a new administration comes in. Corruption and mismanagement are also problems, several economists and business leaders in Ghana said.More fundamentally, Ghana’s economy is not set up to generate the kind of jobs and incomes needed for broad development and sustainable growth.“Ghana’s success story is real,” said Aurelien Kruse, the lead country economist in the Accra office of the World Bank. “Where it may have been a bit oversold,” though, is that “the fast growth has not been diversified.” The economy is primarily dependent on exports of raw materials like cocoa, oil and gold, which peak and swoop in price.Manufacturing accounts for a mere 10 percent of the country’s output — a decline from 2013. Without a thriving industrial sector to provide steady employment and produce exportable goods, Ghana has no other streams of revenue from abroad, which can build wealth and pay for needed imports.This model — the import of expensive goods and the export of cheap resources — characterized the colonial system.Senyo Hosi, executive chairman of Kleeve & Tove, an investment company based in Accra, said he had an agribusiness that produced rice in the Volta region and worked with more than 1,000 growers. He can’t do required upgrades to equipment, though, because 30 percent interest rates make borrowing impossible. “I stopped production,” he said.Delivery riders for an online food delivery app. Francis Kokoroko for The New York Times‘For Us It Means Shutdown.’As the global financial system struggles to restructure hundreds of billions of dollars in existing debt, the question of how to avoid the debt trap in the first place remains more urgent than ever. Large chunks of money are required to invest in desperately needed roads, technology, schools, clean energy and more. But dozens of countries lack the domestic savings needed to pay for them, and grants and low-cost loans from international institutions are scarce.Road works continue on sections of the National Route Six, a carriageway connecting Ghana’s capital to its second largest city, Kumasi.Francis Kokoroko for The New York Times“The fundamental issue is the need for financing,” said Brahima S. Coulibaly, a senior fellow at the Brookings Institution.So governments turn to international capital markets, where investors are foraging the world for high returns. Both political leaders and investors often look for short-term wins, whether in the next election or earnings call, said Martin Guzman, a former finance minister of Argentina who handled his country’s debt restructuring in 2020.This free flow of capital around the globe has resulted in a flood of financial crises. “Inequality is embedded in the international financial architecture,” a United Nations Global Crisis Response Group concluded in an analysis.Even worthy investments — and not all of them are — don’t always generate enough revenue to repay the loans. When bad times hit or foreign lenders get spooked, governments are left in the lurch. This process can be accelerated in Africa, where research has found there is an exaggerated perception of risk, which lowers credit ratings and raises financing costs.Without a safety cushion to fall back on, a small government cash crunch can turn into a disaster. Think of a household in a tough stretch that can’t cover next month’s rent and is evicted. Now instead of being a few hundred dollars in debt, the members of the household are homeless.“For us,” said Ken Ofori-Atta, Ghana’s finance minister, a credit downgrade “means shutdown.”Ghana’s finance minister, Ken Ofori-Atta, at his home in Accra: “For us, a credit downgrade means shutdown.”Francis Kokoroko for The New York TimesSeveral organizations have sketched out escape routes from the debt trap, including more low-cost lending from multilateral banks like the World Bank.Debt Justice, which advocates for debt forgiveness, along with many economists, argues that some of the $200 billion in debt must be erased. It has also called for governments and lenders to publicly reveal the amount and terms of loans, and what the money was used for so it can be better tracked and audited.Other research groups have looked at ways to stabilize the evolving African bond market and help governments survive short-term shortfalls as well as boom-and-bust swings in commodity prices.Mr. Ofori-Atta said he had “extreme confidence” that Ghana would have strong growth after it emerged from this debt tunnel.But the problem of finding manageable amounts of low-cost investment capital remains.Where does an African country — or any developing country — get the type of financing it needs to grow? Mr. Ofori-Atta asked.Before the cycle of debt crises is broken, that question will have to be answered. More

  • 125 Shares179 Views

    in Economy

    What Retail Sales and Other Data Say About China’s Economy

    by

    Consumers are spending a little more, but apartment prices and the pace of construction keep falling.China’s trains, planes, stores and beaches were a little fuller last month than a year ago, and the pace of activity picked up at factories, particularly those making mobile phones and semiconductors.A batch of numbers released on Friday by China’s National Bureau of Statistics showed a modest improvement in the country’s overall retail sales and industrial production during August. A series of small steps taken by the government over the summer, including two rounds of interest rate cuts, seems to be yielding a slightly better-than-expected improvement in the country’s economy.“The national economy has accelerated its recovery, production and supply have increased steadily, market demand has gradually improved,” Fu Linghui, China’s director of national economic statistics, said at a news conference.But many foreign economists were more guarded.“Some may be of the view that China’s economy has already bottomed out, but we remain cautious,” said a research note from Nomura, a Japanese bank.Real estate remains a persistent risk.The broad troubles of China’s real estate sector continue to cast a long shadow over the country’s economic prospects. Property investment plummeted nearly a fifth in August from the same month a year ago, an even steeper decline than in July.Construction sites around China appear visibly less busy, although activity has not stopped entirely and tower cranes still dot the skyline.Construction of new apartment towers has faltered because of falling apartment prices.Based on data released on Friday for prices of new apartments in 70 large and medium-sized cities across China, Goldman Sachs calculated that prices were falling in August at a seasonally adjusted annual rate of 2.9 percent, compared with 2.6 percent in July.Construction sites around China appear visibly less busy, although activity has not stopped entirely and construction cranes still dot the skyline.Qilai Shen for The New York TimesThe statistics for new apartments considerably understate the speed and extent of price declines, however, as local governments have put heavy pressure on developers not to cut prices.Prices of existing homes in 100 cities across China fell an average of 14 percent by early August from their peak two years earlier, according to the Beike Research Institute, a Tianjin research firm. Rents have fallen 5 percent.Construction and related activities, including public works projects, make up at least a quarter of the Chinese economy. The government has tried to offset the plunge in apartment construction by demanding that already deeply indebted local and provincial governments undertake a debt-fueled wave of large projects, including new subways, municipal water systems, highways, public parks, high-speed rail lines and other infrastructure.Banks are being squeezed.Loans that China’s banks have made to property developers, dozens of which have defaulted on debt payments, are in trouble. So are loans to local governments and their financial affiliates involved in real estate. Banks are allowed to demand immediate repayment if work on a construction project has stopped, but they are reluctant to do so. Demand for new real estate loans remains weak.The central bank, the People’s Bank of China, announced on Thursday that it was freeing banks to set aside smaller reserves and start extending more credit. The move was widely seen as intended to accommodate an upcoming large batch of bond issuance by local and provincial governments to pay for their infrastructure projects.Investment in fixed assets was held back by property woes.Overall investment in what are known as fixed assets was up 3.2 percent for the first eight months of this year compared to the same months last year — infrastructure spending plus some manufacturing investment offset the property nosedive. The pace through August represented a slowdown from 3.4 percent the prior month.The value of China’s industrial production, a proxy for the activity of factories, rose 4.5 percent in August from a year ago.Agence France-Presse — Getty ImagesThe production of semiconductors rose 21.1 percent in August from a year earlier. The government has more heavily subsidized chip-making as the United States has restricted the export to China of a few of the highest-speed computer chips and of the gear to manufacture them.The value of China’s industrial production, a proxy for the activity of factories, rose 4.5 percent in August from a year ago after adjusting for considerable deflation in wholesale prices for factory goods over the past year. The increase had been 3.7 percent in July.Consumers are changing how they spend.Retail sales were up 4.6 percent in August from the same month last year, as rising energy prices likely pushed up retail sales, Nomura said.A main reason that retail sales rebounded was because a year ago, people in China were still living under stringent “zero Covid” measures that restricted their activity.Beer and wine production dropped from a year ago while output rose for bottled water, carried by many Chinese people during outdoor activities, and production of fruit and vegetable juices climbed sharply. More

  • 88 Shares179 Views

    in Economy

    Eurozone Inflation Holds Steady at 5.3 Percent

    by

    The NewsConsumer prices in the eurozone rose 5.3 percent in August compared with a year earlier, sticking at the same pace as the previous month and defying economists’ expectations for a slowdown, according to an initial estimate by the statistics agency of the European Union.While inflation has slowed materially from its peak of above 10 percent in October last year, there are signs that some inflationary pressures are persistent, even as bloc’s economy weakens. Food inflation was again the largest contributor to the headline rate, rising 9.8 percent from a year earlier on average across the 20 countries that use the euro currency.Inflation was also given some upward momentum by a jump in energy costs, which rose 3.2 percent in August from the previous month.Core inflation, which strips out food and energy prices, and is used as a gauge of domestic price pressures, slowed to 5.3 percent, from 5.5 percent in July.By Country: Higher energy prices add to inflation pressures in the region’s largest economies.In some of the eurozone’s largest economies, rebounding energy prices offset slowing food inflation. The annual rate of inflation accelerated to 5.7 percent in France and to 2.4 percent in Spain this month.In Spain, inflation had fallen below 2 percent, the European Central Bank’s target, in June, but has since climbed back above it.Inflation in Germany, Europe’s largest economy, was 6.4 percent in August, slowing only slightly from the previous month, as household energy and motor fuel costs increased.What’s Next: The European Central Bank weighs another rate increase.The acceleration of inflation in some of the region’s largest economies arrives two weeks before the European Central Bank’s next policy meeting. As analysts parse the data, the question is whether the reports are troubling enough to persuade policymakers to raise interest rates again at their mid-September meeting. The central bank has raised rates nine consecutive times, by 4.25 percentage points in about a year, and there is growing evidence that higher rates are restraining the economy, particularly as lending declines.Last month, Christine Lagarde, the president of the central bank, said she and her colleagues had “an open mind” about the decision in September and subsequent meetings. Policymakers are trying to strike a balance between raising rates enough to stamp out high inflation, while not causing unnecessary economic pain.“We might hike, and we might hold,” she said. “And what is decided in September is not definitive; it may vary from one meeting to the other.”On Thursday, before the eurozone data was released, Isabel Schnabel, a member of the bank’s executive board, said that “underlying price pressures remain stubbornly high, with domestic factors now being the main drivers of inflation in the euro area.” This meant a “sufficiently restrictive” policy stance was needed to return inflation to the bank’s 2 percent target “in a timely manner,” she added. More

  • 163 Shares199 Views

    in Economy

    Factories May Be Leaving China, but Trade Ties Are Stronger Than They Seem

    by

    The United States is trying to lessen its dependence on Chinese goods, but research is showing how tough it is to truly alter global supply chains.The United States has spent the past five years pushing to reduce its reliance on China for computer chips, solar panels and various consumer imports amid growing concern over Beijing’s security threats, human rights record and dominance of critical industries.But even as policymakers and corporate executives look for ways to cut ties with China, a growing body of evidence suggests that the world’s largest economies remain deeply intertwined as Chinese products make their way to America through other countries. New and forthcoming economic papers call into question whether the United States has actually lessened its reliance on China — and what a recent reshuffling of trade relationships means for the global economy and American consumers.Changes to global manufacturing and supply chains are still unfolding, as both punishing tariffs imposed by the administration of former President Donald J. Trump and tougher restrictions on the sale of technology to China imposed by the Biden administration play out.The key architect of the latest restrictions — Gina Raimondo, the commerce secretary — is meeting with top Chinese officials in Beijing and Shanghai this week, a visit that underscores the challenge facing the United States as it seeks to reduce how much it depends on China when the countries’ economies share so many ties.These reworked trade rules, along with other economic changes, have caused China’s share of imports into the United States to fall as the share of imports from other low-cost countries like Vietnam and Mexico have climbed. The Biden administration has also pumped up incentives for producing semiconductors, electric cars and solar panels domestically, and manufacturing construction in the United States has been rising quickly.Commerce Secretary Gina Raimondo met with Chinese officials in Beijing on Monday.Pool photo by Andy Wong, Getty ImagesBut new research discussed at the Federal Reserve Bank of Kansas City’s annual conference at Jackson Hole in Wyoming on Saturday found that while global trade patterns have reshuffled, American supply chains have remained very reliant on Chinese production — just not as directly.In their paper, the economists Laura Alfaro at Harvard Business School and Davin Chor at the Tuck School of Business at Dartmouth wrote that China’s share of U.S. imports fell to about 17 percent in 2022 after peaking at about 22 percent in 2017, as the country accounted for a smaller share of America’s imports in categories like machinery, footwear and telephone sets. As that happened, places like Vietnam gained ground — supplying the United States with more apparel and textiles — while neighbors like Mexico began sending more car parts, glass, iron and steel.American Imports Shift Away From ChinaChange in the share of U.S. imports coming from each area between 2017 and 2022

    .dw-chart-subhed {
    line-height: 1;
    margin-bottom: 6px;
    font-family: nyt-franklin;
    color: #121212;
    font-size: 15px;
    font-weight: 700;
    }

    Percentage points
    Source: Analysis of Comtrade data by Laura Alfaro and Davin ChorBy The New York TimesThat would seem to be a sign that the United States is lessening its reliance on China. But there’s a hitch: Both Mexico and Vietnam have themselves been importing more products from China, and Chinese direct investment into those countries has surged, indicating that Chinese firms are setting up more factories there.The trends suggest that firms may simply be moving the last steps in their lengthy supply chains out of China, and that some companies are using countries like Vietnam or Mexico as staging areas to send goods that are still partly or largely made in China into the United States.While proponents of decoupling argue that any move away from China may be a good thing, the reshuffling appears to have other consequences. The paper finds that shifting supply chains are also associated with higher prices for goods.A drop of five percentage points in the share of imports coming from China may have pushed prices on Vietnamese imports up 9.8 percent and Mexican imports up 3.2 percent, based on the authors’ calculations. While more research is needed, the effect could be slightly contributing to consumer inflation, they say.“That is our first caution — this is likely to have cost effects — and the second caution is that it is unlikely to diminish dependence” on China, Ms. Alfaro said in an interview.The research echoes findings from a forthcoming paper by Caroline Freund of the University of California, San Diego, and economists at the World Bank and International Monetary Fund, which examined how trade in specific imports from China had changed since Mr. Trump began imposing tariffs on them.That paper found that tariffs had a substantial impact on trade, reducing U.S. imports of the goods that were subject to the levies, even as the absolute value of U.S. trade with China continued to rise.The countries that were able to capture the market share lost by China were those that already specialized in making the products that were subject to tariffs, like electronics or chemicals, as well as countries that were deeply integrated into China’s supply chains and had a lot of trade back and forth with China, Ms. Freund said. They included Vietnam, Mexico and Taiwan.“They’re also increasing imports from China, precisely in those products that they’re exporting to the U.S.,” she said.Higher import tariffs have not deterred the influx of cars from China.Agence France-Presse — Getty ImagesPresident Biden added tougher restrictions to electric car manufacturers in China.Agence France-Presse — Getty ImagesWhat this all means for efforts to bring manufacturing back to the United States is unclear. The researchers come to different conclusions about how much that trend is occurring.Still, both sets of researchers — as well as other economists at Jackson Hole, the Fed’s most closely watched annual conference — pushed back on the idea that these supply-chain shifts meant that global trade overall was retrenching, or that the world was becoming less interconnected.The pandemic, Russia’s invasion of Ukraine, and tensions between the United States and China have prompted some analysts to speculate that the world may turning away from globalization, but economists say that trend is not really borne out in the data.“We don’t see de-globalization at a macro level,” Ngozi Okonjo-Iweala, the director general of the World Trade Organization, said during a panel at the Jackson Hole symposium. But she pointed to what she characterized as a worrying change in expectations.“Rhetoric on de-globalization is taking hold, and that feeds into the political tensions and then into the policymaking,” she said. “My fear is that rhetoric might turn into reality and we might see this shift in investment patterns.”Others at Jackson Hole warned of other consequences, such as product shortages.A move toward production domestically or in only closely allied countries could “imply new supply constraints, especially if trade fragmentation accelerates before the domestic supply base has been rebuilt,” Christine Lagarde, the head of the European Central Bank, said in a speech on Friday.Global supply chains tend to change slowly, because it takes time for companies to plan, invest in and construct new factories. Economists are continuing to track current changes to global sourcing.Given growing geopolitical tensions with China as well as more recent troubles in the country’s economy, further shifts in global supply chains may be unavoidable.One question for economists now, Ms. Alfaro said, is whether the economic benefits from moving factories back to the United States or other friendly countries — like innovation in the U.S. manufacturing sector — will ultimately outweigh the costs of the strategy, for example, the higher prices paid by consumers.And separately, Ms. Freund said she believed the costs of reshoring had been “really under considered” by the government and others.The typical narrative was that “we’re going to bring it all back and we’re going to have all these jobs and it’s all going to be hunky-dory, but, in fact, it’s going to be extremely costly to do that,” she said. “Part of the reason we had such low inflation in the past was because we were bringing in lower-cost goods and improving productivity through globalization.” More

  • 113 Shares129 Views

    in Economy

    What China’s Economic Woes May Mean for the U.S.

    by

    The fallout is probably limited — and there may be some upside for American interests.The news about China’s economy over the past few weeks has been daunting, to put it mildly.The country’s growth has fallen from its usual brisk 8 percent annual pace to more like 3 percent. Real estate companies are imploding after a decade of overbuilding. And China’s citizens, frustrated by lengthy coronavirus lockdowns and losing confidence in the government, haven’t been able to consume their way out of the country’s pandemic-era malaise.If the world’s second-largest economy is stumbling so badly, what does that mean for the biggest?Short answer: At the moment, the implications for the United States are probably minor, given China’s limited role as a customer for American goods and the minor connections between the countries’ financial systems.In a note published Thursday, Wells Fargo simulated a “hard landing” scenario for China in which output over the next three years would be 12.5 percent smaller than previous growth rates would achieve — similar to the impact of a slump from 1989 to 1991. Even under those conditions, the U.S. economy would shave only 0.1 percent off its inflation-adjusted growth in 2024, and 0.2 percent in 2025.That could change, however, if China’s current shakiness deepens into a collapse that drags down an already slowing global economy.“It doesn’t necessarily help things, but I don’t think it’s a major factor in determining the outlook in the next six months,” Neil Shearing, the chief economist at Capital Economics Group, an analysis and consulting firm, said in a recent webinar. “Unless the outlook for China becomes substantially worse.”A potential balm for inflation, but a threat to factories.When considering the economic relationship between the two countries, it’s important to recognize that the United States has played some role in China’s troubles.The United States is well past a boom in consumption during the pandemic that pulled in $536.8 billion worth of imports from China in 2022. This year, with home offices and patios stuffed full of furniture and electronics, Americans are spending their money on cruises and Taylor Swift tickets instead. That lowers demand for goods from Chinese factories — which had already been weakened by a swath of tariffs that former President Donald J. Trump started and the Biden administration has largely kept in place.How Much America Buys From (and Sells to) ChinaMonthly goods imports have fallen since a pandemic-era boom.

    Source: Census BureauBy The New York TimesFor years, China’s leaders have said they want to rely more on the country’s households to drive economic growth. But they have taken few steps to support domestic consumption, such as shoring up safety net programs, which would persuade residents to spend more of the money they now save in case of emergencies.That’s why some are concerned that China could again fall back on encouraging exports to foster growth. Such a strategy might succeed since the Chinese currency, the renminbi, is very weak against the dollar, and it’s possible to evade tariffs on most items by assembling Chinese parts in other countries — like Vietnam and Mexico.An export surge would have countervailing effects. It could lower prices for consumer goods, which — along with falling Chinese demand for commodities like gasoline and iron ore — would help lower inflation in the United States. At the same time, it could counteract efforts to resuscitate American manufacturing, raising the political temperature as the presidential election approaches.“My fear is that an export-based Chinese recovery will run up against a world that is reluctant to become ever more dependent on China for manufactures, and that becomes a source of tension,” said Brad Setser, a senior fellow at the Council on Foreign Relations.And what about goods flowing the other way, from the United States to China? It’s not a huge volume — China accounted for only 7.5 percent of U.S. exports in 2022. American businesses have long sought to further develop the Chinese market, especially for agricultural products such as pork and rice, but success has been underwhelming. In 2018, the Trump administration negotiated a compact under which China would buy billions more dollars in products from U.S. farmers.Those targets were never met. With appetite fading in China, they may never be. That could mean lower food prices globally, but farmers would be hurt.“If their demand for corn and soybeans is rising, that’s good for everybody who produces corn and soybeans around the world,” said Roger Cryan, the chief economist with the American Farm Bureau Federation. “It is something to be concerned about down the road.”Insulation for American institutions and investors.So much for general trade dynamics. But the U.S. economy is composed of millions of companies with particular concerns, and some may have more to worry about as China’s economy flounders.Tesla, for example, had made inroads in the Chinese market, but its sales there have tumbled in recent months in the face of tough competition from local brands with lower-cost models. Apple generates about 20 percent of its revenue in China, which could also take a hit as residents choose cheaper products.American banks that do business globally have noted slowing growth; Citigroup’s chief executive, Jane Fraser, said on the company’s second-quarter earnings call that China had been its “biggest disappointment.”Chinese tourists also pour money into U.S. cities when they visit, which they might do less of going forward. Glenn Fogel, the chief executive of Booking Holdings — which includes travel websites such as Booking.com and Priceline — said in his earnings call that their outbound business from China had been anemic.“I don’t expect a recovery in China for us for some time, significant time probably,” Mr. Fogel said.Those effects, however, are likely to be muted. Even if the economic picture darkens, the American and Chinese banking systems are separate enough to insulate U.S. institutions and investors, aside from the few who might have invested in property developers like Evergrande or Country Garden.“There aren’t realistic channels for financial contagion from China to the U.S.,” Dr. Setser said. While China’s central bank may hold off on buying U.S. Treasury bonds, he noted, any impact on the overall market could be contained. “There’s no real scenario where China disrupts the bond market in a way that the Fed cannot offset.”On the contrary, there may be some upside for American companies if Chinese investors, lacking domestic opportunities, move more of their money into the United States. China’s direct investment in U.S. assets is relatively low and could face new obstacles as states seek to erect barriers to Chinese purchases of U.S. real estate and commercial enterprises. But places that welcome it could benefit.“Given that the U.S. seems to be doing relatively well, you could have money coming to the U.S., both in search of higher yield and in search of safety,” said Eswar Prasad, a professor of trade policy at Cornell University.The wild card of geopolitics.Aside from any direct financial and economic spillovers, it’s worthwhile to consider whether a faltering China meaningfully alters geopolitical dynamics and American interests.Washington has long fretted that a China-dominated trading bloc could limit market access for American companies by setting rules that, for example, contain weak protections for intellectual property. Such a trade agreement came into force in early 2022 after the United States abandoned its push to form the Trans-Pacific Partnership.But if China appears less mighty, it may lose its attractiveness in a fracturing world. Countries that eagerly took loans from China for large infrastructure projects may turn back toward international lending institutions like the World Bank, despite their more stringent requirements.“The fact that the Chinese economy is seen as being in a rough spot, in addition to more aggressive outreach in Asia and elsewhere by the Biden administration, that has shifted the balance a little bit,” Dr. Prasad said.Could China’s economic condition affect its willingness to undertake any military adventures, such as an invasion of Taiwan? While the Communist Party leadership might seek to stir up patriotic spirits through such an attack, Dr. Prasad thinks a shaky economy would in fact make the use of military force less likely, given the resources required to sustain that kind of engagement.One thing to keep in mind: While China appears to be going through a rough patch, the outlook is uncertain. There’s a debate in think-tank circles about whether the country’s economic structure will be durable over the longer term or fundamentally unsound.Heiwai Tang, an economics professor at HKU Business School in Hong Kong, said it would be unwise to consider China the next Japan, on the brink of prolonged stagnation.“I remain optimistic that the government is still very agile and should be responsive to a potential crisis,” Dr. Tang said. “They know what to do. It’s just a matter of time before they come to some kind of consensus to do something.”Ana Swanson More