Here’s what you need to know about the world economy during these challenging times.
1. Inflation Insights:
This week features inflation data from the United States, Europe, and Japan, focusing on Thursday’s US personal consumption expenditures (PCE) price index – one of the most crucial inflation measures for an economy that continues to defy the grave prognostications of economists. The Federal Reserve’s short-term interest rates have remained elevated for extended periods. Yet, most of the data we’ve seen lately on consumer prices, employment, and other leading economic indicators point to a robust economy. A firm PCE number could change how traders and bankers price expected rate cuts in the weeks ahead.
2. Euro Area Developments:
The European Central Bank keeps a close eye on inflation trends in the euro area as it inches towards its 2 percent target. February inflation figures – known as flashes because they’re announced before all the data is available, on March 1 – will probably show that inflation moderated from recent highs, which could mean it has stabilized. But if growth is sluggish and energy prices are falling, ECB policymakers must thread a fine needle regarding cutting rates soon or risk leaving inflation out of control.
3. Economic Struggles in Asia:
Tuesday’s data release on inflation in Japan will prompt a Bank of Japan policy reaction on negative interest rates. Meanwhile, China will see if its stimulative policies have had any effect when Friday’s PMI data is released.
4. Global Trade Woes:
Higher protectionism and geopolitical tensions are capping growth rates, and this week in Abu Dhabi, the meeting of ministers from the World Trade Organization isn’t promising any significant breakthroughs. Even before all-out trade wars erupt, traditional drivers of trade deals are stumbling and losing enthusiasm. Big question marks loom over the role that trade will play in generating momentum for the global economy.
5. Ukraine’s Ongoing Struggle:
This Saturday will mark two years since Russia launched its full-scale invasion of Ukraine. The repercussions of the fighting in global markets and geopolitics are here to stay. Even though energy and commodity prices have been rising and falling amid volatility, and many are waning on the generosity of international support for Ukraine, Ukraine’s tribulations have interjected their event into the world markets. From the beginning of Russia’s invasion, the war derailed the early stages of the post-2022 commodity supercycle and dented the overall state of the world economy. For the foreseeable future, it will be presented – and possibly augmented with fresh sanctions against Russia following the latest developments – into the narratives of financial market assessments.
Caught up in these dynamics, markets seem to be braced for more pain while politicians are struggling to find answers to a world that is becoming more and more challenging to manage.
Source: Tomasz Janowski, Reuters February 23, 2024
