China: Slowing down.
Also: Japan, India, the US, Russia and Libya.
CHINA. Slowing down.
Faltering data demands action.
The People's Bank of China cut medium-term rates by 15 points on Tuesday to 2.5%, the central bank's second cut in three months. Retail, industrial and investment data for July, released on Tuesday, was lower than forecast.
INTELLIGENCE. China’s economy is slowing and Beijing policymakers, the most senior of whom are having their annual conclave in the resort town of Beidaihe, will need to act fast to shore up confidence. They will also need to respond to a string of recent natural disasters. On Friday, mudslides outside the city of Xian killed an estimated 21. Floods since 29 July have killed at least 109. Further storms are expected in the coming weeks.
FOR BUSINESS. Piecemeal rate cuts are not having the desired effect and direct fiscal stimulus may now be warranted. One key figure not released in Tuesday’s data dump was youth unemployment, which in June reached 21.3%. Beijing says it is suspending the data, citing the need to “further improve and optimise labour force survey statistics”. Last month, a Peking University academic suggested the real number might be as high as 46.5%.
JAPAN. Speeding up.
Rallying data demands scrutiny.
Japan's economy beat forecasts to grow at an annualised 6% for the second quarter, according to data released on Tuesday. The result was driven by a 3.2% quarterly jump in exports, offsetting falling consumption and imports.
INTELLIGENCE. Japan’s strong GDP numbers are due to a weak yen, which has fuelled tourism and manufacturing exports. Automakers are also enjoying a rebound, thanks to supply chain snarls being largely in the rear-view mirror. Yet Asian trade remains in a slump and Japan saw near-record falls in imports, indicating manufacturing weakness. Prime Minister Fumio Kishida will look confident when he meets Joe Biden on Friday, but he’s not out of the woods.
FOR BUSINESS. Japan’s economy looks stronger than it is. Falling real wages and household spending for June, released last week, explain the Bank of Japan’s cautious approach. Unless labour prices can sustain growth, Japan's consumers won’t break out of their long-term deflationary psychology. One exception in the labour market may be foreigners, who now comprise 2.4% of the population, or 3 million, and won’t be so shy of asking for a rise.
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INDIA. Running hot.
Food inflation spoils Delhi’s festive mood.
Retail inflation rose to 7.44% on an annual basis in July, versus 4.87% in June, according to data published on Monday. Vegetable prices rose 37.34% due in part to heat and floods. Prices are expected to ease with a normal monsoon.
INTELLIGENCE. As India celebrates its final Independence Day before next year’s polls, Prime Minister Narendra Modi is keen to emphasise his economic achievements. He will be hoping that calmer weather eases inflation, but in the meantime, some of his acolytes are looking for scapegoats. In the state of Assam, his Bharatiya Janata Party has blamed Muslim vendors for expensive tomatoes. In Haryana, Muslim shops are under boycott after a series of riots.
FOR BUSINESS. Indian economic numbers look as robust as Modi’s approval rating, but high prices and rising ethnic tension suggest the facade is brittle. From landslides in Himachal Pradesh to civil conflict in Manipur, there is much cloud in the silver lining, which India's consolidating opposition movement hopes to exploit. An expensive stock market suggests euphoria is ahead of reality. Should a correction occur, the falls could also be felt at the polls.
UNITED STATES. Fourth time lucky?
One scandal blurs into another.
Donald Trump was issued a fourth indictment on Monday after a Georgia district attorney charged him with trying to overturn the 2020 election. Polls released on Monday showed Trump leading the Republican primary vote by 37 points.
INTELLIGENCE. Trump’s legal woes are costing his campaign money, but are delivering popular support, at least among Republicans. With a wide lead against his rivals, he is successfully crafting a narrative of political persecution, juxtaposed against lurid speculation over Joe Biden’s son and allegations of Ukraine-linked corruption. For now, Trump seems unassailable – 57% of New Hampshire Republicans say they’d still vote for him if he were jailed.
FOR BUSINESS. One problem with Trump’s multiple indictments is that voters are becoming confused (and bored) by what are otherwise substantial charges. Another is that Washington is losing focus on what Americans vote for – the economy. Currently, GDP, inflation and jobs are going in the right direction, but an inverted yield curve remains a persistent warning of a looming recession. And when there is a recession, the incumbent almost always loses.
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RUSSIA. Paying a visit.
The Kremlin performs some stunt work.
China's defence minister began a six-day trip to Russia and Belarus on Monday. He is expected to give a speech on how "majority world countries" can counter the West. Russian jets were intercepted near Scotland and the Netherlands..
INTELLIGENCE. Amid fierce fighting on the frontline and strikes against Odesa and Lviv, Russia is using Li Shangfu’s visit and provocative air sorties as a propaganda flex. Monday's developments were not completely in Moscow's favour – Kyiv continues to report small gains in Donetsk and a series of mysterious fires, including of a petrol station in Dagestan that killed 27, may indicate sabotage – but Putin is arguably in his strongest military position in months.
FOR BUSINESS. Russia’s next challenge is to bolster the ruble, which has declined by about 30% this year, passing the psychological threshold of 100 to the dollar on Monday. Moscow will be minded to lift rates in response, but a cheap currency has propelled the country’s exports and helped grow the economy in parity terms. Climbing energy prices may lift the ruble in any case. Tight Western stocks and speculated Chinese stimulus are bullish indicators.
LIBYA. Battles of Tripoli.
Disasters in the desert.
Clashes broke out in Tripoli late Monday after a factional commander was detained at the capital's second airport. Libya has formally asked Lebanon to release Muammar Gaddafi’s son Hannibal, Beirut officials told media on Monday.
INTELLIGENCE. Libya has been in a state of crisis since an ill-fated NATO intervention in 2011, which saw the killing of Gaddafi in a canal and a collapse in oil production that is yet to recover. Divided between factional warlords, some of whom are thought to also be freelancing in neighbouring Sudan and Niger, Libya is in need of a unifying figure. The volatile Hannibal, on hunger strike since June, or his brother Saif, would seem odd choices, but times are desperate.
FOR BUSINESS. A return to Libya under the Gaddafis would be distasteful, should it happen, but a Libya under the warlords serves no one, least of all the EU, which is facing a migration crisis amid the vacuum. France and Italy, which support rival sides, will need to compromise. Libyan factionalism is also endangering oil production in the east. Throughout the 1970s, Libya had a higher per-capita GDP than the US. A return to stability could have wide benefits.
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