Financial and Monetary Systems

Central banks' rate push a risk to growth, and other economy stories to read this week

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Economy. Federal Reserve Chairman Jerome Powell holds a news conference in Washington, U.S.

Top economy stories: Central banks' push for higher rates could hamper growth; China's post-COVID recovery losing steam; and more. Image: REUTERS/Kevin Lamarque

Gabi Thesing
Senior 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: Central banks' push for higher rates could hamper growth; China's post-COVID recovery losing steam; Japan exports grow unexpectedly.

1. Central banks' rate rises threaten economic growth

The world's major central banks are still doubling down on inflation and will continue to hike interest rates, raising the risk of throttling economic growth, Reuters reports.

The US Federal Reserve said its tightening cycle may not be over yet even after 10 increases. Meanwhile, the European Central Bank lifted borrowing costs to the highest level in 22 years, with policymakers saying inflation is still too high and they may need to raise rates again.

The Bank of England is battling unrelenting price increases and is widely expected to implement its 14th consecutive hike this month. This is after data showed wage growth soared and employment also jumped in the three months to April.

The risk is that the fight to crush the worst inflation in a generation will hobble economic growth and force major policy U-turns, analysts say.

Central banks collectively now seem to think that higher rates are still warranted even if their economies are softening or are already in recession,” said Charles Hepworth investment director at GAM Investments according to Bloomberg News. “Policy mistakes could well be the unintended results," he added.

So far nine developed economies have raised rates by a combined 3,615 basis points in this cycle, with Japan the outlier.

Major central banks' interest rate tightening cycles since 2021.
The major central banks are likely to continue raising rates, analysts say. Image: Refinitiv Datastream, Reuters, Vincent Flasseur

2. China's post-COVID recovery losing steam

Data showing that China's post-COVID recovery is slowing has prompted four investment banks to cut their 2023 growth forecasts.

UBS, Standard Chartered, Bank of America and JPMorgan now expect the world's second-largest economy to expand between 5.2% and 5.7% this year, down from an earlier estimate range of 5.7% to 6.3%.

Industrial output and retail sales growth in May missed forecasts, adding to pressure that policymakers will need to do more to shore up growth and stimulate demand at home.

China's central bank cut some key interest rates on 13 June for the first time in nearly a year, with expectations of more to come.

3. News in brief: Stories on the economy from around the world

Fewer UK businesses are expecting to raise prices next month. According to the Office for National Statistics, 17% of companies currently trading are set to increase prices in the coming month, down from 17.7% the previous month.

Japan's exports grew unexpectedly in May on robust car sales, though the rate of expansion has slowed as demand was hurt by global inflation pressures, according to Ministry of Finance data.

Japan exports grow unexpectedly on car sales.
Car sales unexpectedly pushed up exports. Image: Refinitiv Datastream, Reuters

Sri Lanka's economy shrank 11.5% in the first three months of 2023, as high inflation and interest rates crushed demand, according to the country's Census and Statistics Department.

Taming inflation will be slow and protracted for India, with the 4% inflation target likely to be met only over the medium term, Reserve Bank of India Governor Shaktikanta Das said at a speech in London on 13 June.

The German economy Europe's biggestwill shrink this year and inflation stay above 2%, at least through 2025, the Bundesbank said, revising earlier projections. The country's central bank now sees the economy contracting by 0.3% this year, returning to 1.2% growth next year and 1.3% in 2025.

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The Brazilian economy will grow at least 2% this year, ''maybe even more", President Luiz Inacio Lula da Silva said on 15 June. These positive comments echo upbeat forecasts from his economic team after a better-than-expected performance in the first quarter when it expanded 1.9%.

Ghana's economy is showing signs of stabilization, with cooling inflation, an increase in international reserves and a less volatile exchange rate, the International Monetary Fund (IMF) said on 15 June following a week-long visit to the country.

4. More on finance and the economy on Agenda

Governments confront difficult policy choices as they try to shield their people from record food prices and soaring energy costs driven higher by the war in Ukraine, according to the IMF. One way to do this is to allow international prices to pass through to domestic prices while providing targeted support to those who need it most, its experts say.

China's middle-class and affluent consumer population will increase by 80 million by 2030. To leverage this opportunity, businesses need to understand more about these consumers and what shapes their preferences, an analysis by Boston Consulting Group shows.

So-called green minerals are key to the energy transition required to meet the Paris Agreement. Experts urge Africa to leverage its perceived green mineral wealth wisely, and explain that a more radical lens is needed to better appreciate the opportunities and risks this presents for the continent.

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Financial and Monetary SystemsGeo-Economics and Politics
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Contents
1. Central banks' rate rises threaten economic growth2. China's post-COVID recovery losing steam3. News in brief: Stories on the economy from around the world4. More on finance and the economy on Agenda

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