Mint’s Plain Facts gives you monthly updates on key global data to help you pull together the biggest developments worth paying attention to.
Accompanying analysis and charts explain how each story is creating ripples on the global stage, where it will be headed in the coming weeks, and whether it could have an impact on India.
To cut or not to cut
Global uncertainty and trade tensions require easier credit flow to keep growth rates steady. This year, several countries and blocs have loosened their monetary policies to support growth, and the US Federal Reserve joined them in September. As inflation remained high in many advanced economies, policy action was difficult to implement, resulting in unsynchronized rate cuts over the course of months. Monetary policies in the US, UK, Japan, Indonesia and the European Union (EU) are expected to remain on different tracks.
The Fed, which is due to announce policy on Wednesday, is expected to cut rates by another 25 basis points even as inflation is 100 basis points above its target due to a weak labor market. On the other hand, the Bank of England (BoE) and the European Central Bank (ECB), which have already cut rates by 75 and 100 basis points respectively, are expected to pause and remain data-driven. The Bank of Japan (BoJ), which is focused on achieving its 2% inflation target, is expected to remain on hold.
Slippery penalties
Since the beginning of the war in Ukraine, the US, the EU and their allies have imposed all kinds of sanctions on Russia. The latest US sanctions target Russia’s biggest oil firms, Rosneft and Lukoil, with the aim of reducing Russia’s fossil fuel revenues, which have not seen a significant drop over the years despite several rounds of sanctions. Russia’s exports of key fossil fuels, including oil and gas, had a 14-day moving average of €1 billion, falling to around €600 million by 2023, but remaining around €400-500 million since then.
There are several reasons why sanctions have so far proven insufficient to dismantle Russia’s war machine. First, China and India continue to buy large quantities of Russian oil. Second, many European countries have drastically reduced the use of Russian oil and gas, but have not been able to completely reduce it due to a lack of suitable alternatives. Third, Russia managed to find a way to avoid sanctions, allegedly using intermediaries, alternative payment systems and shadow fleets.
China’s growth gap
China’s GDP growth slowed to 4.8% in July-September, below the 5% target for the first time in four quarters, due to trade tensions with the US and continued problems in the property market. While real growth is still close to the target, nominal growth paints a picture of slow growth momentum. China has been facing deflation for several months, reflecting weak consumer demand and excess industrial capacity, leading to low growth in current prices. Nominal growth has been 50-130 basis points below the real growth rate over the past 10 quarters.
Falling prices in China bode well for investment intentions and wage growth, both of which are currently overshadowed by the fiscal stimulus the Chinese government announced last year. The slowdown in China’s growth worries the world because of the country’s deep ties in trade and investment. Deflation is particularly worrisome because it allows China to release cheaper goods to other markets, which can hurt competitiveness.
