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The next 12 months will be a year of rate cuts, with the Federal Reserve poised to lead the push for richer countries.
Traders increased bets on how aggressively the Fed will cut borrowing costs this year after a report showed prices paid to producers fell further in December. Still, the road to containing inflation will be bumpy as a measure of consumer prices rose by the most in three months.
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Similar metrics fell in Norway and Chile in December, while Argentina ended the year with inflation above 200%. While inflation is mostly falling around the world, rising shipping costs and a rise in oil prices are fueling concerns about a resurgence in cost pressures.
Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy:
World
After pushing ahead with the most aggressive tightening campaign in decades in 2022 and 2023, central banks around the world are poised to begin easing monetary policy as inflation continues to fall. The shift is tracked by Bloomberg Economics, whose aggregate measure of global interest rates showed a 128 basis point decline over the year, led largely by emerging markets. Poland, Serbia and Korea maintained their interest rates last week, while Peru cut them.
Just days into 2024, when inflation was expected to have subsided, manufacturers and retailers are once again juggling delays and higher costs as ongoing attacks by Houthi rebels in the Red Sea shut down a key shipping route through the Suez Canal. Sea freight rates for goods from Asia to Europe have more than doubled in the last four weeks.
In the next few weeks, governments from the US, UK and Eurozone will begin flooding the market with bonds on an unprecedented scale. Facing bloated deficits that were once unthinkable, these countries – along with Japan – will sell a net $2.1 trillion in new bonds to finance their 2024 spending plans, up 7% from last year, according to reports Bloomberg Intelligence estimates.
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A war over Taiwan would cost so much blood and money that even those most dissatisfied with the status quo have reason not to risk it. Bloomberg Economics estimates the price tag at about $10 trillion, equivalent to about 10% of global GDP – dwarfing the impact of the war in Ukraine, the Covid pandemic and the global financial crisis.
An annual survey by the World Economic Forum – ahead of its world summit in Davos this week – finds that “misinformation and disinformation” are among the biggest short-term threats to the global economy. The report looks at how economies under pressure from high borrowing costs following a one-off inflation shock, just as key elections are taking place, could present a toxic environment for the world in the coming months.
US
U.S. inflation accelerated in late 2023, fueled by stubborn services costs, while a persistent decline in goods prices eased. Much of the surprise in so-called core goods, which include energy and food, was due to rising prices for used cars and clothing, despite year-end promotional activity.
Prices paid to U.S. producers continued their decline in December, prompting traders to increase their bets on how aggressively the Fed will cut interest rates this year. The categories within the PPI that go directly into calculating the Fed's preferred inflation measure were mostly weak.
With its large white and rural population, evangelical voters and a mix of factories and farms, Iowa – where the first contest in the race for the Republican presidential nomination will take place on Monday – is hardly representative of the national electorate. But it's a good indicator of Republican sentiment — and the party's ideological fault lines.
Europe
Norway's underlying inflation rate fell more than expected at the end of last year, reducing the likelihood of further tightening of monetary policy and suggesting there is a possibility that interest rate cuts will begin sooner than policymakers have signaled.
Asia
With China's real estate sector in decline, President Xi Jinping must reshape the country's economic model to boost growth in the next decade. His administration's solution risks triggering a new wave of trade tensions around the world. China's leaders are pouring money into manufacturing as real estate-related activity, which once fueled about a fifth of economic growth, became a drag on growth in 2022.
The cost of building new homes in New Zealand rose at its slowest pace in more than seven years as high interest rates and economic uncertainty curb demand for new homes.
Emerging markets
Chilean consumer prices posted their biggest monthly decline in more than a decade in December, surprising investors and supporting the central bank's forecast for steeper interest rate cuts in the future.
Argentina ended 2023 with the fastest inflation in more than three decades as President Javier Milei began unwinding a thicket of currency controls and price freezes imposed by the previous government. The International Monetary Fund expressed confidence in Milei's plan and approved a review of its $44 billion program on Wednesday, paving the way for a higher-than-expected loan payout of $4.7 billion.
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