Speaking at a press conference on the second day of his visit to the Chinese capital, Chalmers stated that Australia’s relationship with its biggest trading partner had “a lot at stake.”

He said, “We are very pleased to see these additional steps being signalled by the Chinese government in order to boost economic activity and boost growth here in China.”

“What happens here and what is decided here has big consequences for our own economy, our own workers and businesses and investors, and for our country more broadly,” he explained.

Beijing revealed several initiatives meant to put the second-biggest economy in the world back on track while also acknowledging “problems” with it.

Chalmers made his first trip to Beijing as Australia’s treasurer in seven years.

Under the leadership of a new Canberra government, trade relations between the two nations have steadily improved.

As they recovered from a savage economic spat in which Beijing imposed trade barriers worth billions of dollars on Australian coal, timber, barley, beef, and rock lobster, Chinese Premier Li Qiang declared in June that relations were “on the right track.”

Now, the majority of these have been disassembled. However, lingering disagreements continue, ranging from the Pacific’s diplomatic squabbles to China’s continued detention of a writer critical of the government.

Meanwhile, the Australian economy experienced a strong recovery following the COVID-19 pandemic. But as the population ages and the environment changes, inflation has increased and fiscal pressures are approaching.

Rebuilding fiscal buffers through tax exemption reductions and increased public spending efficiency in areas like health is necessary, while monetary policy should stay tight until underlying inflation is manifestly on course to reach the central bank target.

The post Australia’s treasurer says China stimulus could boost growth down under appeared first on International Finance.

Even though paying less for gas may be beneficial, the market impact goes beyond just decreased consumer pricing. The global economy is affected in a rippling manner by changes in oil prices. One of the biggest casualties is the oil industry itself. The stakeholders’ profit margins go down significantly as they sell their products for less money, resulting in job losses, output decrease or possibly bankruptcy. It encompasses both the oil companies and the countries whose economies heavily rely on oil exports.

In response to the failure of two prestigious American banks, Silicon Valley Bank and Signature Bank, oil prices fell in the first quarter of 2023. Investors are in a difficult position too. The fear about the impact of this banking sector crisis spreading to the wider financial sector caused hefty projections for oil demand to be quashed. Analysts are now cautioning that the oil market will be “locked in a surplus for most of the first half of the year” because of persistent “contagion” risks brought on by the turmoil in the banking sector.

The US inflation rate, since 2022, reached its highest level in 40 years as a result of the sanctions placed on Moscow amid the Ukraine war. To combat this, the Federal Reserve increased interest rates to their highest level since 2007. Although the inflation has come down below 4%, there are talks around further rate increases, even though some have projected that the banking crisis would likely end shortly and that the oil price would rebound too. The impact of the interest rate rises is also difficult to forecast and may continue to draw attention to specific financial market segments as well as vulnerabilities brought on by excessive debt and stretched asset valuations.

Low oil prices may be tough for nations that export it, but the phenomenon will be manageable, according to a WEF analysis, because “with price changes, there is a shift in profiting between oil-producing and oil-consuming countries.”

To mitigate the effects on their economies, oil exporting nations will go for options like reducing government spending, boosting taxes, ending subsidies, and implementing measures to tighten the financial system like hiking interest rates.

In addition, the US CPI has significantly grown, placing stress on the economy at a time when the Federal Reserve is already grappling with inflation among banking issues. If the Federal Reserve lowers interest and inflation rates, the oil market may recover. However, it appears that the market is currently either bracing for a future recession or that one or more funds are being forced to raise cash and reduce risk on their books as a result of worries about liquidity in the wake of bank collapses.

Tracing the ‘hope’

Large investors like Warren Buffet, who boosted his investment in the oil business Occidental Petroleum. are drawn to lower oil prices. Buffett’s company Berkshire Hathaway now owns a 22.2% stake in the corporation as a result of the most recent acquisitions. It has purchased more than 200 million shares worth $12.2 billion. The Chinese market will likely be the source of demand in 2023.

China is the world’s largest consumer of oil, therefore an increase in Chinese demand might help oil prices. The International Energy Agency (IEA) predicted a two million barrel daily rise in oil demand by 2023. The IEA Executive Director asserted that “With the Chinese economy now recovering, it will have major implications for oil and gas market balances.” The OECD has also increased its projection for world economic growth by 0.2% points, from 2.2% in November to 2.6% this year and 2.9% in 2024.

China’s recovery

Despite the upward revision of growth projections, the OECD issued a warning that the recovery is still fragile and that the risks are still disproportionately to the downside. According to customs statistics, China’s crude oil imports dropped 18.8% to the lowest daily rate since January in July 2023 as major exporters reduced their international exports and domestic reserves kept growing.

The largest oil importer in the world imported 10.29 million barrels per day (bpd) of crude in July, according to figures from the General Administration of Customs.

The second-highest import volume on record was reached in June at 12.67 million bpd.

However, despite China’s economy being severely impacted by widespread COVID outbreaks and massive lockdowns a year earlier, oil imports were 17% greater than the 8.79 million bpd brought in at that time.

Some 325.8 million metric tons of crude were imported during the first seven months of the year, an increase of 12.4% from the same time in 2022.

“The (month-on-month) decline was led by lower imports from the big-3 crude exporters, namely the U.S., Saudi Arabia, and Russia, which have cut exports amid reduced production targets and/or higher domestic demand,” said Emma Li, a China crude oil analyst at Vortexa in Singapore.

Li pointed out that at the end of July, China’s onshore crude oil inventories were over 1.02 billion barrels, and that the steady increase in those stockpiles would enable Chinese refiners to reduce their imports in the months to come.

Despite the overall decrease in imports, data from consultancy Zhuochuang showed that state-owned refineries increased their processing rates in July to an average of 78%–82%, up 2-3% points from June.

The need for summer travel had been predicted to increase gasoline usage.

According to data from the Longzhong consultancy, domestic diesel inventories increased by around 2% while domestic gasoline inventories decreased by about 3% between mid-June and mid-July as sluggish export volumes and a downturn in the real estate industry continued to dampen demand.

Chinese oil product exports increased in July as a result of better fuel profit margins in Asia, which also supported higher processing rates.

Exports of refined petroleum increased in July 2023 from 4.51 million metric tons the month before by 55.8% to 5.31 million metric tons.

Some 10.31 million metric tons of natural gas were imported into China in July, an increase of 18.5% from 8.7 million a year earlier when importers reduced spot purchases due to high liquefied natural gas prices around the world.

In conclusion, the oil market is currently facing a complex web of factors that are influencing its dynamics.

The impact of the price fluctuations extends beyond the pump. Many oil businesses, especially those heavily reliant on higher oil prices, are grappling with reduced profits, potential job losses, decreased output, and even the threat of bankruptcy. The banking crisis and uncertainty in the financial sector have further exacerbated the situation, leading to cautious projections for oil demand and market surplus.

The broader economy is also feeling the effects, with the US Federal Reserve raising interest rates to counterbalance inflation. This move, however, brings its own set of uncertainties and potential repercussions, including impacts on specific financial segments and vulnerabilities arising from debt and asset valuations.

Amid the challenges, there are glimmers of hope. Key investors like Warren Buffet see opportunity in lower oil prices, and the recovery of the Chinese economy, as the world’s largest oil consumer, holds promise for increased oil demand. The International Energy Agency’s projection of a rise in oil demand by 2023, driven by China’s recovery, suggests a potential positive shift in the market.

However, caution remains. The recovery is still fragile, as evidenced by China’s cautious oil import trends and the ongoing risks associated with the pandemic. The world economy’s growth projections have been revised upwards, yet the OECD emphasises that the downside risks remain significant.

In this intricate landscape, the oil market’s future trajectory remains uncertain. It will likely depend on a delicate balance between geopolitical events, economic recovery, investor sentiment, and government policies. While challenges persist, the interplay of various factors also presents opportunities for adaptation, innovation, and growth across industries and economies.

Despite all the encouraging indicators, there is still a lot of uncertainty over the future of the oil industry, the recovery of China, the implications of the ongoing Ukraine conflict, and the geopolitical environment as a whole. It’s a waiting game, at least for the moment.

The post Navigating the ‘oil’ uncertainty appeared first on International Finance.

Loo, while looking at the pan-China data, be it the official estimates of unsold property inventory or the construction-to-sales ratio, found that it would take at least four to six years for the real estate developers in the world’s second-largest economy to complete unfinished residential projects.

“That means efforts to boost funding to developers and other efforts to resolve China’s property market problems don’t directly address the bigger issue of uncompleted homes,” Loo’s research stated, as reported by CNBC.

“However, as one slices the data, the existing excess supply in the market is likely to take at least another four years to unwind, absent a meaningful pickup in demand,” Loo commented further in her study.

“Increasing supply coming from secondary market transactions – as households, worried about depleting profits from price declines, sell their second or third homes – is an additional drag to this process,” she said further, while noting that “developers’ inventory is far too large for households to absorb quickly.”

What does the study suggest?

Loo’s study noted that apartment homes in China were typically sold ahead of project completion, thereby putting pressure upon the real estate developers to finish their construction activities on time.

“However, financing struggles and other issues have meant developers have had to delay home delivery times — discouraging future home sales. On the extreme end, residential construction in the relatively poor province of Guizhou could take well over 20 years to complete,” Loo said further.

While China’s real estate and related sectors used to account for about a fifth to one-fourth of the country’s economy during the pre-COVID times, rating agency Moody’s now expects that figure to decline.

The firm also stated that the drop in land sales will result in the local governments facing financial strain.

“That means Beijing may need to step in, posing downside risks to China’s fiscal, economic and institutional strength,” Moody’s noted, while downgrading its outlook on Xi Jinping government’s credit ratings to negative from stable.

Moody’s also expects China’s GDP to slow to 4% growth in 2024 and 2025 and average 3.8% a year from 2026 to 2030. The firm, however, maintained an “A1” long-term rating on the country’s sovereign bonds.

No Spillover Risk

Loo does not see China’s property market troubles as having a significant spillover to the rest of the country’s economy.

“We think China’s housing downturn will tread a different path than that of the US, Spain, or Ireland 10-15 years ago, and is unlikely to trigger a broader financial crisis,” she remarked in her study.

While pointing out that falling house prices, mortgage failures and bank lending were interlinked, Loo said that in China, government policies, state-controlled banks and more stringent mortgage terms would ensure that the property crisis doesn’t become a drag for the overall economy.

Agreeing with Loo, S&P Global Ratings said, “We do see some similarities between China’s situation and the economic stagnation in Japan after the latter’s property bubble burst in 1991. However, China can avert this outcome, helped by regulatory action and the strength of its banking and corporate sectors.”

The post Will China’s real estate sector return to growth path? Oxford economist answers appeared first on International Finance.

Yu’s predicament demonstrates the challenge Beijing confronts in reviving sluggish consumer spending. While reducing interest rates lessens household financial pressures, researchers claim that consumers are unable to loosen their purse strings due to the bleak economic outlook and the absence of longer-term changes in sectors like pensions and healthcare.

About one of the government’s stated goals for those measures, Yu, an asset management firm, told Reuters, “The rate cuts have little impact on my spending power.”

China recently announced lowering interest rates on current mortgages and relaxing regulations for first-time homebuyers in major cities, actions that the central bank and financial regulators described as “conducive to expanding consumption.”

The country’s property market has been rocked by faltering consumers as property giants Evergrande and Country Garden face debt woes. Country Garden just narrowly avoided default while Evergrande has filed for bankruptcy protection.

China’s house prices slipped in July 2023, falling 0.1% year-on-year after a brief recovery in May and remaining flat in June.

However, in a coordinated action, state-owned banks also reduced deposit rates by 10 to 25 basis points to stop profit margins from further contracting. According to Nomura analysts, borrowers might save 200–300 billion yuan (USD 27–41 billion) annually as a result of the mortgage rate reductions.

However, they also note that a 15 basis point reduction in interest rates on the 131.4 trillion yuan in deposits held by Chinese families will result in a 197 billion per year reduction in interest income.

First-time homebuyer mortgage rates hover around 4%, while rates on one-year fixed deposits are approximately 1.5%. Ting Lu, chief China economist at Nomura, described it as “more of a redistribution of income” and claimed it had “limited” effects on spending.

In an economy where real estate accounts for 70% of household wealth, researchers think there is some justification for trying to stabilize the housing market. However, eventually, rather than using household savings, transferring resources from other parts of the economy to consumers would be the most effective approach to encourage Chinese people to spend.

Zhaopeng Xing, senior China analyst at ANZ, stated that “the main constraint is people’s income,” adding that the recent measures’ “mild” boost to consumer confidence will only be temporary. Yu projects a 1,000 yuan reduction in his monthly mortgage payments, which would be somewhat offset by a decrease in interest income from his accounts. He might invest a portion of his funds in stocks and bonds in the hopes of safeguarding his future gains. However, some people are risk-averse, particularly in light of the rising employment insecurity.

Despite being dissatisfied with the decreased rates, Li Xiao, a data analyst in Shanghai, said that he would retain the money in the bank. The depositors eventually suffer the costs, Li claimed, despite the government’s desire to increase consumption. Because people don’t spend because they have no money, decreasing deposit rates won’t be very effective.

Under the condition of some anonymity, Guo, a state-employed employee in the southern province of Guangdong, said he would continue to save “even if deposit rates drop to zero.”

“The economy is bad, and people don’t have enough confidence,” he declared.

“Keeping the principal with you is already a win,” Nancy Yang, who works for an auto parts supplier in Wuhan, in central China, claims that the lack of end-of-year incentives from her workplace for 2022 is the main reason she isn’t spending her money.

“I’m not saving because of the meagre interest rate, Yang remarked, but rather because there are too many unknowns, including unreliable enterprises, stagnant income, house payments, and raising children,” she added further.

Experts Not Impressed

China’s real estate sector is going in “two directions,” and even though further stimulus was expected, a recovery won’t happen anytime soon, according to a former advisor to the People’s Bank of China.

“The property market right now in China is actually two-fold. It’s actually going in two directions,” Li Daokui, now a professor of economics at Tsinghua University, told CNBC.

Asked if Beijing’s policy response should be “bolder,” Li said there are “many meetings, discussions, deliberations which are [unseen] below the water.”

The post China’s real estate stimulus faces consumer confidence test appeared first on International Finance.

According to a government spokeswoman Fu Linghui, the choice was made as a result of changes in the world’s second-largest economy and its society.

China’s urban 16 to 24-year-old unemployment rate reached a record high of more than 20% in June.

Recently, the nation’s central bank reduced borrowing costs in an effort to support growth.

According to official data released, China’s overall unemployment rate increased to 5.3% in July.

At the same time, the government announced a temporary suspension of data on youth unemployment but did not specify a time frame for the suspension, according to the BBC.

The method of calculating unemployment among young people needed to be reconsidered, a spokesman for the National Bureau of Statistics said.

“The economy and society are constantly developing and changing. Statistical work needs continuous improvement,” Fu Linghui told a news conference in Beijing.

Fu suggested that the increase in students between the ages of 16 and 24 had an impact on the unemployment rate, although China has never included individuals who are in the education sector as unemployed.

In 2018, China began releasing statistics on youth unemployment. However, it does not currently release information on young people’s work status in rural areas.

According to the BBC, the revelation came as the nation’s post-pandemic economic recovery was sluggish.

Meanwhile, households across China have been thrown into panic over the past week as ‘Country Garden,’ a company renowned for building huge projects in China’s second and third-tier cities, missed USD 22.5 million in coupon payments on August 6, 2023.

The firm, one of the world’s largest homebuilders, has until early September to make the payments or has to follow hundreds of other developers who are in the default and restructuring category.

The post China stops showing youth unemployment data appeared first on International Finance.

The US West Texas Intermediate (WTI) crude futures were down 14 cents, or 0.2%, at USD 71.06, while Brent futures were down 21 cents, or 0.3%, to USD 75.69 per barrel.

The dollar increased as statistics indicated that permits for new construction increased and US homebuilding jumped in May to the highest level in more than a year, suggesting that the housing industry may be recovering after being severely damaged by Federal Reserve rate hikes.

Oil demand is affected by a stronger dollar since it increases the cost of the commodity for customers using foreign currencies.

China, the top oil importer in the world, is experiencing a sputtering recovery, which continues to worry the market. With a smaller-than-expected 10-basis-point decrease in the five-year, China reduced its benchmark lending prime rates (LPR) for the first time in ten months in an effort to spur economic growth.

The rate cut came in response to recent economic data showing that China’s industrial and retail sectors were having trouble maintaining growth from earlier this year.

“Investors remained impatient with China’s efforts to boost economic growth. Beijing’s slow stimulus rollout is adding concerns about the weakening economy,” ANZ Research said in a client note.

The oil market was also cautious ahead of the US Federal Reserve Chair Jerome Powell’s speech, which is anticipated to shed light on potential rate changes in the largest economy in the world.

Recently, two Federal Reserve policymakers and an economist who joined the Fed’s Washington-based board stated that their top priority is to lower the country’s excessive inflation so that it may resume sustainable growth.

“We expect Fed Chair Powell to deliver a hawkish semi-annual testimony to Congress reflecting the FOMC’s median projection for higher interest rates in coming months and more resilient inflation in the near term,” ANZ Research said in the note.

The post Oil prices slide further amid concerns over China’s economic growth appeared first on International Finance.

So what lies ahead in 2023?

The International Monetary Fund (IMF) has put up a positive growth outlook (not by a big margin, but positive indeed) for 2023, due to “surprisingly resilient” demand in the United States and Europe, easing energy costs and the reopening of China’s economy.

“It still sees the pace of global growth falling this year compared with 2022, but by a smaller margin than it predicted in October. The IMF is now forecasting 2.9% growth for 2023, up from a 2.7% forecast in October, versus 3.4% growth last year,” the global financial body said in its Europe. However, the recession threat looms large.

“Central banks are likely to continue to tighten monetary policy to fight inflation, and concerns that this restrictive stance could tip the economy into a recession have increased in major advanced economies,” the report remarked.

Asia emerges as the shining spot

As per the IMF, financial conditions in the Asia-pacific region are easing currently. Not only have food and oil prices gone down, but China’s reopening has also boosted the rebounding hopes as well. GDP growth in this part of the world is set to accelerate to 4.7% in 2023 from 3.8% in 2022.

“This will make it by far the most dynamic of the world’s major regions and a bright spot in a slowing global economy,” IMF remarked.

The emerging and developing economies here will expand by 5.3% in 2023, an impressive figure against the overall global GDP growth ratio of 2.9%.

“China and India alone are expected to contribute more than half of global growth this year, with the rest of Asia contributing an additional quarter. Cambodia, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam are all back to their robust pre-pandemic growth,” IMF commented.

The financial institution’s latest ‘Regional Economic Outlook for Asia and the Pacific’ remarks, “For every percentage point of higher growth in China, output in the rest of Asia rises by around 0.3%.”

However, the region’s manufacturing sector has started cooling down. For Korea, Singapore, and Taiwan, the downfall in semiconductor prices will last throughout 2023.

However, the good news here is that inflation is getting moderate in this part of the world. IMF believes that the phenomenon peaked during the 2022 second half. Core inflation is still proving more persistent and may return to central banks’ agenda in 2024 even as financial and commodity headwinds continue to ease.

The Ukraine war and monetary policy tightening from the US Federal Reserve in 2022 made import a costly affair for Asia. However, the pressures of current account deficits and inflation have been cooling off.

“While inflation is moving in the right direction, central banks need to stay alert. Core inflation is still running above the target. The big supply shocks and permanent structural realignments associated with the pandemic have made calibrating monetary policy particularly challenging. Signals in the data about second-round effects are mixed, further heightening uncertainty for policymakers. Given the two-sided risks to inflation in Japan, more flexibility in long-term yields would help to avoid abrupt changes later,” IMF warns.

As China continues its recovery journey, the renewed dynamism of the world’s second-largest economy may put upward pressure on global commodity and service prices, particularly in countries expecting resurgent tourism. Central banks should tread carefully as they face the price stability challenge and if the core inflation doesn’t return to the targets set by these banks; these financial institutions may need to hike rates further.

Another area which needs attention from the policymakers is the fiscal deficit health, which has been shooting up since 2020, and higher interest rates in 2022 added more to this burden. Pakistan, Sri Lanka and Bangladesh have been at the receiving end of the crisis and the authorities need to continue with their fiscal consolidation plans.

“Many Asian countries face elevated financial vulnerabilities, with high leverage across household and corporate sectors, and significant bank exposure to real estate downturns. This suggests subtle policy trade-offs between controlling inflation and ensuring financial stability, and a need to strengthen resolution frameworks,” IMF remarked.

Now, let’s see Asia’s current economic scenario.

China

The IMF has predicted a strong rebound for COVID-hit Chinese economy in 2023, with industrial mobility and activities picking up pace. The economy will expand 5.2% this year, against 3% in 2022. The country will be contributing a third of global growth in 2023.

“The contraction in real estate remains a major headwind, and there is still some uncertainty around the evolution of the virus. Longer-term, headwinds to growth include a shrinking population and slowing productivity growth,” the financial body commented.

Another worry for the Chinese government is a shrinking labour force and diminishing returns to capital investment. The IMF strongly pitched for organisational reforms, especially in the field of productivity, to prevent GDP from falling below 4% over the next five years.

India will ultimately surpass China’s overall population in the next few years and will also cross the latter’s working-age population (20 to 69) as well. China’s working-age population allowed it to become the world’s factory. Over 70% of solar panels, 60% of farm machines, and 25% of robots are constructed with Chinese components.

As per a report from the Hong Kong Post, China is currently re-assessing the labour policies to arrest the declining working population, which can be a potential headache for its domestic market, as well as the global economy. Estimates say that by 2035, around 400 million Chinese will be over 60, nearly a third of the total population. The Chinese labour sector is known for being overworked and underpaid, with competition being heavy and the market lacking worker welfare schemes.

Another troublesome area is the country’s real estate sector, which used to contribute to about a quarter of China’s GDP, but is now facing a drag growth, especially after Beijing cracked down on developers’ debt reliance in 2020. Apartments are usually sold to homebuyers before project completion. However, with COVID disruptions, construction activities have slowed down, resulting in homebuyers halting their mortgage payments as a mark of protest. Residential floor space sale figures have dropped by nearly 27% in 2022, while investments went down by 10%.

Also, Beijing is currently involved in a ‘semiconductor battle’ with the US. The Joe Biden government has imposed export controls and China now faces the challenge of ramping up its domestic capacity for producing these high-end chips. Bloomberg reported in 2023 beginning about the Xi Jinping government stopping its investment in the domestic semiconductor industry and it came two weeks after the news of Beijing preparing a one-trillion yuan (USD 145.61 billion) incentive package in this sector.

India

In its latest projections, the IMF has predicted a dip in the Indian economy from 6.8% in 2022 to 6.1% in 2023. However, the forecast looks impressive for the country, which registered a quick recovery from COVID in 2021, at a time when developed economies like Germany and the UK are facing recession fallouts.

India’s GDP growth figures will also surpass the overall global economy, which is likely to take a plunge to 2.9% in 2023-24, slowing down further from 3.4% in the 2022-23 fiscal period.

IMF Managing Director Kristalina Georgieva, while attending the G20 summit in India, predicted that the country will alone contribute 15% of the global growth in 2023, thus reiterating her stand of calling the Asian country a ‘bright spot’ amid a worldwide economic slowdown.

She also stated that the country’s recent Budget had indicated fiscal discipline and directed more attention to capital spending, which is fundamental for long-term growth.

In his budget, India’s capital investments will see a 33% steep hike for the third year in a row, to enhance growth potential and job creation, crowd-in private investments, and provide a cushion against global headwinds. Railways and road networks, two crucial sectors of the Indian economy, have seen enhanced capital outlays, while 50 new airports, drones and advanced landing grounds will jack up regional connectivity further. MSME, another lifeline of the Indian economy, will continue to receive an infusion of fresh corpora. Eyeing more foreign investments, the Narendra Modi government will bring another dispute resolution scheme, while setting up a ‘Central Processing Centre’ to provide faster responses to companies filing forms under the Companies Act. On the social front, the health sector will undergo further digital transformations, as it eyes the elimination of sickle cell anaemia by 2047. The outlay for government-backed housing projects has seen a 66% hike.

Also, top educational institutes will have centres of excellence for artificial intelligence, along with the ‘National Data Governance Policy’ to encourage innovation and research by start-ups and academia. The agriculture sector will get an ‘Agriculture Accelerator Fund’, which will encourage start-up activities in this part of the Indian economy, along with the introduction of a new digital public infrastructure. India also has laid down plans to become the global millet hub.

During the COVID outbreak, the country launched a food security scheme for its socially vulnerable citizens and this will continue till 2024. The technology and knowledge-driven budget envisions India continuing its impressive growth journey, which saw it toppling the UK from the position of the fifth largest economy in the world.

As per the Reserve Bank of India data in August 2022, the country’s external debt stood at USD 620.7 billion at March-end that year, with the forex reserves covering some 95% of it. India will likely hike its interest rate to 6.75% in the middle of 2023, before easing to 6.5% by the year-end. While inflation falls below 7% in September 2022, it is still high from RBI’s 6% ceiling.

Japan

The Japanese economy got featured in news in 2022 due to its yen reaching a record 32-year low, despite the country, with an Inflation rate between 2.8% to 3%, being better placed among the G7 countries, to tackle the global economic slowdown. However, the falling yen ensured an alarming growth of the trade and current account deficits between Japan and the US.

Japan, which, as opposed to other countries, takes the monetary policy easing the path to combat economic slowdowns, saw its interest rate staying on the negative scale during COVID. It became positive in September 2021 and rose to the 2008 level of 2.5%. The bank’s short-term policy rate remained at an ultra-low level in 2022.

Now in 2023, the country is in some crisis as the Bank of Japan sees a leadership change. Official figures for the last three months of 2022 showed Japan’s economy expanded by 0.6%, much lower than forecasts of 2% growth. December data showed core consumer prices rising by 4% from 2021, twice the rate targeted by the central bank. Kazuo Ueda, the upcoming BoJ governor, now faces the challenge of raising the interest rates, without harming the island country’s economy.

Ukraine war and the subsequent global energy crisis have only forced Japan to relook over its energy policy. As the public anger over the use of nuclear energy intensified post Fukushima disaster in 2011, Japan decided to expand its conventional energy imports. Even in its carbon neutrality goal for 2050, as announced in 2020, Japan didn’t consider the construction of new nuclear plants necessary then.

However, things have changed in 2023, with the nation’s nuclear watchdog approving new rules to allow reactors to operate longer than the earlier limit of 60 years.

Gas and electricity bills in December 2022 climbed 23.3% and 21.3% against 2021. Households are struggling as energy imports get costly. The government has provided subsidies worth 6 trillion yen to oil wholesalers since January 2022, as well as setting aside a package worth 3.1 trillion yen for households to partially cover energy price increases.

Tokyo Electric Power Company Holdings saw a net loss of 650.9 billion yen in 2022, larger than the 623 billion yen net loss posted following the Fukushima episode. Other leading utilities also raise electricity bills in 2023 to offset the growing energy import costs.

Right now, Japan expects nuclear energy to generate between 20% and 22% of its total output in fiscal 2030, up from 6.9% in fiscal 2021 due to many reactors remaining offline.

Also, the Ukraine war and an escalating economic conflict between US and China are necessitating the need for ensuring economic security at the government level, so that if armed conflict breaks out in Taiwan, Japanese industries should not face supply chain disruptions. A bill in this direction cleared in the Parliament in May 2022 and is expected to gather momentum now.

Toyota Motor Corp has accepted a worker union demand for a record 20-year increase in salary and incentive payments in full. Honda Motor too will give its workers a 5% pay increase, the highest since 1990.

South Korea

Japan’s neighbour, South Korea, kept its interest rates the same in February 2023, after steadily raising them since 2022, amid high inflation, weakened exports, and a housing market slowdown. The interest rate now stands at 3.50%. While the Bank of Korea has warned about China’s reopening having little impact on the country’s economy, South Korea GDP has shrunk more than expected, with the semiconductor and technology sectors witnessing a slowdown. The country has produced a record trade deficit of USD 12.7 billion in the first half of 2023, as exports slumped by 16.6%. Semiconductor exports went down by 44.5%, while total imports fell by 2.6%.

Even though Vietnam emerges as a surprise package with a 6.5% GDP growth forecast for 2023, apart from challenging China’s status as a global manufacturing hub, poor outlooks from Singapore, Taiwan, Thailand and Malaysia, and lacklustre pictures from Sri Lanka, Bangladesh and Pakistan suggest that the major workload of making Asia as a ‘growth machine’ for 2023-24 will be on the shoulders of China, India, Japan and Korea. The growing price volatility in the semiconductor sector due to the China-US trade war can very much emerge as another market factor in this part of the world.

The post Economy 2023: Asian giants walk a tightrope appeared first on International Finance.

The customs office stated that exports grew 5.7% in September but were down 0.3% from a year earlier to USD 298.4 billion. In contrast to the previous month’s 0.3% growth, imports decreased by 0.7% to USD 213.4 billion.

The global trade surplus for China increased by 0.9% from the prior year to USD 85.2 billion.

As global demand dropped after the Federal Reserve and other central banks raised interest rates to tame soaring inflation, many anticipated that Chinese commerce would deteriorate.

At home, a “zero-COVID” strategy that has frequently closed down significant portions of cities to combat viral epidemics has impacted consumer demand. This has caused economic disruptions and forced millions of people to stay inside for extended periods.

From 2.2% in the first half of 2022, economic growth increased to 3.9% over a year earlier in the quarter that ended in September. But according to analysts, activity is waning as more businesses close due to an increase in infections.

According to research by Larry Hu of Macquarie Group, “the economy slowed again in October due to the tightened COVID controls as well as the slowing external demand.”

The decline in Chinese demand is detrimental to the United States, Europe, Japan, and other suppliers of consumer goods, microchips, and other technology and components required by manufacturers, as well as developing nations that provide raw materials like oil, soybeans, and other agricultural products.

Despite continuing tariff increases in a trade conflict over Beijing’s technology ambitions, exports to the US increased 35.3% year over year to USD 47 billion. American exports were up USD 52.4% to USD 12.8 billion.

The politically sensitive trade surplus between China and the United States increased by 29.9% to USD 34.2 billion.

To reach USD 10.2 billion, imports from Russia—mainly oil and gas—more than doubled from the previous year.

China can purchase Russian energy exports without breaking any of the sanctions put in place by the US, EU, and Japan against President Vladimir Putin’s administration. Beijing is increasing purchasing to benefit from Russian discounts. Increasing the Kremlin’s cash flow and lessening the impact of sanctions irritates Washington and its allies.

Exports to the 27-nation European Union increased little, by 5.5%, to USD 44.1 billion, while imports of commodities from the continent decreased significantly, by 15.5%, to USD 21.4 billion. As a result, China’s trade imbalance with the EU increased to USD 22.7 billion, up 38.1%.

According to the General Administration of Customs, China’s exports increased by 11.1% to USD 3 trillion for the first ten months of the year, while imports increased by 3.5% to USD 2.3 trillion. As a result, the nation had a USD 727.7 billion trade surplus.

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This immediate goal, along with the long-term one of surpassing the economy of its rival United States, looks like a distant one.

As per an Al-Jazeera report, China’s GDP grew by 3.9% during the 2022 July-September quarter.

Its exports’ growth rate in 2022, despite being at 5.7%, has been maintaining a snail’s pace. Imports rose only by 0.3%. Retail sales’ September growth figures of 2.5% have missed the 3.3% forecast. Urban jobless rate is now nearing the 6% mark, the highest since June this year. Around 18% of job seekers are from the 16-24 age categories alone. Property prices fell for the second straight month in September.

China is injecting more capital into its economy at an unsustainable rate, despite worries over its shrinking population and declining property growth. Given the fact that the country is in the category of a middle-income country, it will come across the stage where its economic growth will start slowing down due to the higher base rates.

China’s per capita income currently stands at US 12,500, one-fifth of the United States’ corresponding figures.

Data shows China is poised to become the first large middle-income country to have a 2.5% GDP growth, which doesn’t look like a believable one, given the Asia country’s working-age population has declined since 2015.

Then comes the country’s growing debt.

In 2008, its debts were steady at about 150% of the GDP and by 2015, the amount spiked to 220%, a phase where the country’s economy stalled. While it avoided a deeper slowdown due to the recent tech sector boom, still the total debt is up to 275% of its GDP, with a poorly performing property.

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Till recently, economists across the globe believed that by the end of the decade, China’s gross domestic product, expressed in US dollars, would surpass that of the United States, capping what many people believe to be the most spectacular economic rise ever.

But this year, Beijing’s policies—such as its zero-tolerance for COVID-19 and attempts to control real estate speculation—have stifled development, dimming the outlook for China’s economy.

Economists are becoming more concerned about China’s longer-term prospects as they reduce their projections for 2022, with unfavourable demographics and high debt levels likely hampering any recovery.

In one of the most recent modifications, the United Kingdom think tank Centre for Economics and Business Research predicts that China will surpass the United States as the largest economy in the world two years later than it predicted when it made its last prediction in 2020. It now anticipates that it will occur in 2030.

The Japan Center for Economic Research in Tokyo has indicated it expects the passing of the baton won’t happen until 2033, four years later than its prior projection.

Some economists doubt that China will ever overtake the United States.

Former United States Treasury Secretary Lawrence Summers said China’s aging population and Beijing’s rising tendency to engage in corporate matters, combined with other problems, had prompted him to drastically decrease his forecasts for Chinese growth.

Lawrence Summers draws comparisons between projections of China’s development and prior claims that Japan or Russia would surpass the United States, predictions that now seem absurd.

“I think there is a real possibility that something similar would happen with respect to China,” Lawrence Summers said.

Researchers argue the significance of GDP rankings and wonder if anything will change even if China overtakes the United States.

The United States will continue to have a significant impact because of the strength and openness of its economy. For many years to come, it is anticipated that the dollar will remain the global reserve currency.

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