Geo-Economics and Politics

What you need to know about the global economy this week

Top economy stories: German recession increasingly likely, warns Bundesbank; Eurozone activity contracts again in August; Inflation continues to bite across the globe.

Top economy stories: German recession increasingly likely, warns Bundesbank; Eurozone activity contracts again in August; Inflation continues to bite across the globe. Image: REUTERS/Stephane Mahe/Illustration/File Photo

Joe Myers
Writer, Forum Agenda
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  • This weekly round-up brings you the latest stories from the world of economics and finance.
  • Top economy stories: German recession increasingly likely, warns Bundesbank; Eurozone activity contracts again in August; Inflation continues to bite across the globe.

Economy stories from around the globe

China has further cut interest rates in an effort to stimulate growth in its economy. On 22 August, it cut its benchmark lending rate and its mortgage reference, following similar moves the week before.

China has also announced 19 new policies to boost economic growth, including more than 1 trillion yuan ($146 billion) in new funding.

British households are feeling "a sense of exasperation" about the surging cost of living which has pushed consumer sentiment to its lowest since at least 1974, according to the country's longest-running survey of household finances.

It comes as revised data shows the UK economy shrank at the highest level since 1709 in 2020 as a result of the COVID-19 pandemic.

Japanese inflation hit a more than 7-year high in July, driven by increases in the cost of fuel and raw materials.

The economic impact on Germany of Russia's invasion of Ukraine will last years, economist Marcel Fratzscher of the German Institute for Economic Research told Reuters, adding that it could cost 3 percentage points of growth this year.

Venezuela's economy grew 17% year-on-year in the first quarter of this year, the president of the central bank said on 23 August.

Singapore's key consumer price measure rose at its fastest pace in more than 13 years in July, official data showed on 23 August.

The Bank of Israel raised its benchmark interest rate on 22 August by 3/4 of a percentage point, its biggest hike in two decades.

South African inflation hit 7.8% in July compared to a year earlier and hit its highest since 2009.

Iceland's central bank has raised interest rates to a six-year high, increasing the 7-day term deposit rate by 75 basis points.

South Korea's central bank has also raised its key interest rate by a quarter-percentage point as well as significantly lifting inflation forecasts.

President Joe Biden has said the US government will forgive $10,000 in student loans for millions of former college students.

Have you read?

German recession increasingly likely, says Bundesbank

A recession in Germany is increasingly likely, the Bundesbank said in a monthly report on 22 August. The same report also warned that inflation is set to continue to rise in the Eurozone's biggest economy and could reach more than 10% this autumn.

Germany's industry is heavily exposed to Russian gas, making its economy particularly vulnerable to any cut-off in energy supplies.

"Declining economic output in the winter months has become much more likely," the central bank said. "The high degree of uncertainty over gas supplies this winter and the sharp price increases are likely to weigh heavily on households and companies."

High prices and a shortage of gas are already forcing Germany to curtail consumption, with energy-intensive sectors from metal to fertilizer suffering heavily. Energy prices are set to keep pushing inflation higher.

It comes as German exports beyond the EU fell by 7.6% month-on-month in July.

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Eurozone business activity contracted again in August

Business activity across the Eurozone contracted for a second straight month in August, a survey has shown this week. The cost of living crisis has forced consumers to cut spending, while supply chain challenges have hit manufacturers, Reuters reports.

S&P Global's flash Eurozone Composite Purchasing Managers' Index (PMI), seen as a good guide to overall economic health, fell to 49.2 in August from 49.9 in July.

A reading below 50 indicates a contraction and August's preliminary estimate was the lowest since February 2021.

"The continued decline in the PMIs in August suggests that a recession in the winter half-year is increasingly likely," said Christoph Weil at Commerzbank.

"Russia is supplying only a limited amount of gas, high inflation is tearing deep holes in the coffers of private households, companies are facing massive uncertainties - the economic outlook for the economy in the euro zone is bleak."

Some economics research to read this week

IMF data looks at crypto trading in Asia. Here's what it showed.

Asia's crypto trading global surge economy stories
Asia's crypto trading volume was a major source of the global surge in recent years. Image: IMF

NBER research associates explore the impact of the COVID-19 pandemic and income on life expectancy.

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A VoxEU column looks at the uptake of social benefits and explores how to reduce the challenge of low take-up.

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