• This weekly wrapper brings you the latest stories from the world of economics and finance.
  • Top economics stories: US raises interest rates; Investors signal concern in new survey; Countries continue response to rising inflation.

1. Top economics news from around the globe

Global financial conditions have reached their tightest since May 2009, according to a widely watched Goldman Sachs index, potentially signalling a world economic slowdown.

Stock market trading has remained closed on the Moscow Exchange this week, with the exception of some non-open-market transactions and transactions using the SPFI payment system.

Philippine Economic Planning Secretary Karl Chua has suggested the country could adopt a four-day work week to reduce costs – a move used during previous oil shocks.

Rising COVID-19 cases in China could disrupt disrupt global growth and supply chains, Bloomberg reports. Disruptions to exports could cause shortages, further driving up inflation internationally.

South Africa could bring in a gasoline price cap in response to rising oil prices. It could also ration the amount of fuel sold to drivers.

Saudi Arabia has reported GDP growth of 1.6% for the fourth quarter, compared with the previous three months. High oil prices have helped the country's recovery from the pandemic, with year-on-year growth hitting 6.7%.

Estonia's central bank has said that inflation could exceed 10% throughout this year and warned of the risks of recession as a result.

A monthly report from the Organization of Petroleum Exporting Countries (OPEC) has warned that the war in Ukraine risks increasing the surge in inflation across the globe, hitting oil demand and investment.

The International Monetary Fund has said that the war "may fundamentally alter the global economic and geopolitical order".

Prices for energy, grains, and metals have soared since the invasion of Ukraine, signalling that inflation rates are poised to accelerate.
The IMF has also warned of rising inflation.
Image: IMF

2. US Fed raises interest rates

The United States Federal Reserve has raised interest rates for the first time since 2018. It also laid out a plan to push borrowing costs to restrictive levels next year as it pivots away from tackling COVID-19 to dealing with the economic risks of inflation and the war in Ukraine.

Its Federal Open Market Committee kicked off the move to tighten monetary policy with a 0.25 percentage point increase in the target federal funds rate, lifting that key benchmark from its current near-zero level in a step that will ripple through a variety of other rates charged to consumers and businesses.

Most policy-makers now see the federal funds rate rising to between 1.75% and 2% by the end of 2022, the equivalent of a 0.25 percentage point rate rise at each of the Fed's six remaining policy meetings this year.

Rate increases work to slow inflation by curbing demand for expensive items such houses, cars or home improvement projects. This can slow economic growth but potentially also increase unemployment.

Brazil joined the United States in raising its key interest rate on Wednesday.

3. New survey shows investor concern

Investors are more concerned about the outlook for global growth than at any time since the financial crisis in 2008. Cash holdings have also hit a two-year high, according to a monthly fund manager survey by the Bank of America (BofA).

The majority of investors managing about $1 trillion in assets polled on 4-10 March now expect an equity bear market – one where prices fall – in 2022. Allocations to global equities have dropped to their lowest since May 2020.

Cash levels among investors have risen to nearly 6% while allocations to commodities have soared to a record 33%. Hedge funds' net exposure to stock markets is at its lowest since April 2020, according to the survey.

The most crowded trade is oil/commodities, the US investment bank said, with technology stocks and environmental, social and governance ranked second and third, respectively. Nearly half of the investors surveyed expect oil to produce the best returns in 2022.

The European edition of the monthly fund manager survey made for grim reading, with investors slashing their growth outlook for Europe in response to Russia's invasion of Ukraine.

A net 69% of respondents expect the European economy to weaken over the coming year, the highest share since 2011. The 81 percentage point swing from February's net 12% who still expected to see growth marks the biggest month-on-month drop since BofA's records began in 1994.

Economics research to read this week

A new study, released for Equal Pay Day in the US, looks at the gender pay gap in the United States.

What is the impact of job loss, and how does it vary across countries? New research looks to find out.

The rise in inflation of manufactured goods prices is caused by a combination of demand strength and supply constraints. A new column looks at how policy can react.

A US National Bureau of Economic Research working paper finds that gasoline prices have a larger effect on demand for electric vehicles than electricity prices in California.