Optimism is growing in the global economy but business remains cautious

Optimism is growing in the global economy but business remains cautious

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The most important news of the day

  • Microsoft announced 10,000 job cuts, highlighting the struggles American companies are feeling even as economic data turns promising.

  • The Bank of Japan defied market pressures and stuck to the mainstay of its ultra-loose monetary policy – yield curve control measures – sending the yen and stocks down.

  • 14 people, including Ukraine’s interior minister and one child, were killed when a helicopter crashed near a nursery school in Kyiv.

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Good evening.

Disruptive times may have brought you plenty of pessimistic speculation about the economic outlook lately, but the flurry of positive data has boosted hopes that a global recession can be averted.

Davos residents seem to think so. Our team in the Swiss Alps picked up signs of optimism as China relinquishes its grip on Covid, the US paves the way for a green investment boom and Europe adjusts to the impact of the war in Ukraine. Gita Gopinath, Vice President of the International Monetary Fund, signaled to the dignitaries gathered yesterday that the Fund will raise its economic forecasts – just weeks after it predicted a “tougher” year.

The International Energy Agency added today that global oil demand could reach an all-time high in 2023 as China reopens. And although the country’s gross domestic product figures were disappointing yesterday, showing growth of 3 percent in 2022, well below its target of 5.5 percent, analysts are betting that ending pandemic restrictions can help the economy recover. Vice Premier Liu He said the country is returning to normal faster than expected.

What is not in dispute is the damage caused by Beijing’s now-abandoned coronavirus policy, particularly in sectors such as luxury goods – China is the second largest market in the world – highlighted today again in Richemont and Burberry’s results.

Meanwhile, investors seem to be warming to the idea that inflation has peaked. Even the United Kingdom, which has been lagging behind the rest of the world in positive economic indicators, recorded a second consecutive decline today, bringing the December rate to 10.5 percent, buoyed by the easing of fuel prices.

However, an important warning came last week from Bank of England chief economist Hugh Bell, who warned that the UK could face persistently high inflation for longer than other developed countries, meaning interest rates could remain high for longer. The scale of the challenge was underscored yesterday by new data which showed corporate bankruptcies rising as business costs rose.

There was also some positive news out of the US today, as data showed producer price inflation slowing. Both the headline annual figure of 6.2 percent and the reading excluding volatile food and energy costs of 4.6 percent were lower than expected.

However, Wall Street economists are more pessimistic than the Fed about the prospects of a recession, a point also highlighted by our interview with the head of Norway’s sovereign wealth fund – one of the largest in the world – who warned of, “very low returns for stocks and a possible new cycle of price hikes.” interest from the Fed.

In Europe, investors in Germany are turning positive while in Brussels plans for “unprecedented” investments in clean technologies hope to provide EU industry with similar help to the generous subsidies offered by the US government.

Need to know: UK and European economy

Despite today’s positive news about inflation, Labor market data Yesterday showed that UK wages still failed to keep up. The gap between public and private pay continues to widen, adding fuel to the current wave of strike action: Nurses’ walkouts come today as new data shows industrial disruption is now at a 30-year high. Think tanks say Brexit’s end to freedom of movement has led to a labor shortage of 330,000 workers.

billions of pounds in United kingdom Taxes are being left uncollected because nearly 2,300 compliance officers have been shifted to business related to Brexit and Covid-19. The authorities expect to recover just £1.1bn of the estimated £4.5bn lost through Covid fraud.

Chief Economist of the European Central Bank Philip Lin The European Central Bank’s response to global shocks is discussed in the latest feature by The Economist Exchange. Looking ahead, Lin says, “Our current assessment is that if there is a recession, it will be mild and short-lived.”

Need to know: The global economy

Chief economic commentator Martin Wolf is sounding the alarm (again) about the imminence global debt crisisHe described the current system, as well as the mechanisms for helping poor countries through adverse shocks and towards sustainable development, as not fit for purpose.

Amal L Chinese recovery They are affixed to the country’s small and medium enterprises, which account for 80 percent of the country’s employment and 70 percent of corporate revenue.

The Financial Times editorial board says the Egyptian president Abdel Fattah al-Sisi He needs to reduce the role of the state and military-owned companies to address the country’s deepening economic crisis.

Need to know: business

earnings in Goldman Sachs It fell by more than two-thirds in the fourth quarter, led by a slowdown in investment banking. Net income was $1.3 billion, down from $3.9 billion last year. Morgan Stanley The investment bank also suffered declines, but those declines were partially offset by record wealth management revenue. Overall, it posted a 40 percent year-over-year decline in net income to $2.2 billion, but earnings of $1.26 per share beat analyst estimates.

The Big Read shows how to do this an Apple It has spent two decades building sophisticated supply chains across China and asking the question: can it now untangle itself?

The UK government has confirmed that it will include the trial of tech chiefs in its new report Online security bill. Columnist Helen Thomas says the “world-leading” proposals seem to have lost their way.

LockBitthe latest Royal Mail hacker, has become the world’s most prolific ransomware cluster, claiming to have hit 40 organizations in different countries in the past month.

British Vaulta start-up that had hoped to turn the UK into a battery-manufacturing powerhouse as part of former Prime Minister Boris Johnson’s campaign for a “green industrial revolution”, collapsed to management after talks failed to secure emergency funding.

US business editor Andrew Edgecliff Johnson discusses potential obstacles to… Global trade In 2023, from an energy crisis that hits industrial exporters, to worsening relations with China that could affect trade in rare earths, to tensions over Taiwan that could further damage semiconductor supplies.

world of work

Why is there still shame around taking time off to have a baby? maternity leave And getting back to work is the topic of the new Working It podcast.

Imagine helping us find it The healthiest place to work in Britain? The annual FT / Vitality Survey aims to identify best practices that improve well-being and enhance employee retention. Last year’s survey identified growing mental health concerns, the importance of quality and quantity of sleep and the value of hybrid work.

Some good news

With so many people suffering this winter, it’s good to occasionally highlight some of the contributions from community groups and British businesses. This is one example of the Leicestershire community building to help local food banks.

work on it Discover the big ideas shaping today’s workplaces with a weekly newsletter from Work & Careers Editor Isabel Berwick. Register here

Climate chart: an explanation – Learn about the most important weather data for the week. Register here

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