Category: Economy

Post-mid-term elections in September, Prime Minister Justine Trudeau returned to power. Shortly after four months, his popularity is taking a battering due to high levels of inflation.

According to the government’s data agency Statistic Canada, the consumer price for the month of December was at 4.8%, which reached the highest point in three decades. This level of data is considered as an “inflation anxiety”. Hashtag #JustinFlation is making rounds on social media by Trudeau’s opponents.

In September, he formed another minority government for the first time after precipitating snap polls. The ruling party has 28.2% which is marginally behind the Conservative’s 28.5% mark according to Nanos Research.

As per the new poll from the non-profit, non-partisan polling agency (ARI) Angus Reid Institute, 57% of Canadians say that is currently difficult to feed their households where these numbers in 2019 stood at 36%. The further survey suggests that 29% of respondents believe that their financial standing might worsen in the next 12 months which will be six points higher than those who believed that it will improve.

The president is likely to address the matter in the coming days. PM’s office said that bringing down costs will be priority agenda.

On Friday (Jan 21), US President Joe Biden praised Intel’s plan to spend US$20 billion on a new US semiconductor facility. This facility was hailed by the president as the “historic” investment as a global chip shortage fans the inflation flames weighing on his leadership.

The president was seen urging the manufacturers to bring their production back to the country. The nation was once a leader in making the chips key from vacuums to television to cars, everything that became scarce due to the pandemic.

Biden said, “This is a truly historic investment in America and American workers and is one of the largest investments in the semiconductor manufacturing in American history”. The global supply chain crisis demonstrates both the importance of semiconductors and the risks of over-dependence on imports.

Due to the pandemic, the closure of semiconductor plants, particularly in Asia, has disrupted the global chip shortage and has affected a range of industries from automobiles to video games. In addition, surging demand caused bottlenecks and slowed production, which drove prices higher.

The chip production is said to start from 2025 once the construction of two plants starts by the end of the year in the Midwestern state of Ohio.

Official figures showed on Saturday, Sri Lanka’s consumer prices show a new high of 14 percent in December. The current high surpassed the previous high of 11.1 percent from a month earlier as food and fuel charges are worsening in the country.

According to the Census and Statistics Department, the National Consumer Price Index (NCPI) for December, year-on-year inflation reached its highest level since the index was established in 2015. Food inflation has seen a new record high of 21.5 percent which is up from 16.9 percent in November and 7.5 percent a year ago. Vegetables and fruits crop yields have sharply been reduced due to the use of substandard organic fertilizer and pesticides.

Ministers in the parliament warned earlier this week of a growing food crisis after the government banned imports of agrochemicals last year, which led to farmers abandoning more than 30% of farmland. The government had lifted its agrochemical import ban in October after the intense farmer protest. However, the banks are yet short with dollars to finance imports.

Due to the pandemic, the island’s tourism-dependent economy has been negatively impacted, with the government imposing broad import restrictions to avert a currency crisis, resulting in a shortage of essential items.

New Zealand’s first foreign aid Hercules aircraft carrying emergency supplies arrived in Tonga. The military plane landed after the workers cleared ash from the Tonga airport.

Hundreds of volunteers and the rescue team desperately worked for days to clear the thick layer of ash at the Nuku’alofa airport runway that prevented planes from landing. They used wheelbarrows and shovels, to which New Zealand’s commander of joint force Rear Admiral Jim Gilmour called it a “mammoth effort”.

New Zealand’s Defence Force confirmed the arrival of Hercules C-130 at 16:00 local time (03:00 GMT). The aircraft was loaded with temporary shelter kits, water containers, electricity generators, communication equipment along with hygiene and family kits.

Earlier the aid efforts were hampered by ash from the volcano but now Austalia also confirmed the first of its relief planes had arrived. Australian Defence Minister Peter Dutton tweeted hours afterward, the arrival of the first plane by Australia Defense Force landed with “humanitarian assistance and disaster relief supplies”.

After being cut off from the rest of the world for five days, Tonga is now re-establishing global contact. Three deaths have been reported so far and communications have been crippled for these five days.

On Wednesday, the Turkish Central Bank announced a currency swap deal between Turkey and the United Arab Emirates. Both the nations have agreed to a currency swap of 4.74 billion to build and boost Turkey’s foreign exchange reserve.

With the possibility of extending the deal further, currently, the nations swapped 65 billion Turkish lira and 18 billion UAE dirham for three years. According to the agreement, the central bank sold foreign currency to prop up the lira during a currency crisis in order to increase reserves in Turkey.

The Central Bank of the Republic of Turkey’s statement quoted that Khaled Mohamed Balam, chief of the UAE central bank said after the signing ceremony, the deal signifies each nation’s desire to enhance bilateral cooperation in financial matters, especially in the trade and investment sectors.

Sahap Kavcioglu, his Turkish counterpart said, “This agreement demonstrates the two central banks’ commitment to deepen bilateral trade in local currencies in order to advance economic and financial relations between our countries”.

Last month, Abu Dhabi’s powerful crown prince visited Ankara as the first official trip to Turkey since 2012. It was the highest-level visit by an Emirati official in recent years.

On Tuesday, India announced a $500 million credit line to help Sri Lanka purchase fuel (petroleum products). The island nation is currently struggling with massive fuel and energy crisis.

According to the Indian High Commission, External Affairs Minister S Jaishankar agreed to offer critical support along with a $500 million credit line through a letter written to Sri Lankan Foreign Minister G L Peiris.

The nation started to lose its currency value, making imports costly. It is also grappling with a shortage of almost all essential commodities including fuel. The power cuts are imposed at peak hours and the state power utilities are unable to run turbines.

On Tuesday, Power Minister Gamini Lokuge was scheduled to hold a talk with the Indian Oil Corporation (IOC) as part of a desperate measure to tide over the crisis. However, the talks are said to have fallen through.

Lokuge said, “The IOC said they are unable to supply fuel to Ceylon Electricity Board (CEB) because they do not have extra supply”. In the meantime, the state energy board has stopped oil supplies due to unpaid bills.

The State Bank of Pakistan (SBP) has junked the Imran Khan-led Pakistan Tehreek-e-Insaf (PTI) request to open the Afghanistan Relief Fund and requested to review its decision. According to the local media, the Central Bank is afraid that the Financial Action Task Force (FATF) can impose sanctions against Islamabad.

On Saturday, the bank advised them to review the action in light of Pakistan’s commitments under international covenants and the FATF action plan. Since 2018, Pakistan is on the Paris-based FATF’s grey list for anti-money laundering and for deficiencies in its counter-terror financing. In Feb, the FATF plenary is going to review the country’s case.

Government officials had requested that the SBP governor instruct scheduled banks to open the bank account on behalf of the federal government. However, the account has not yet been operational.

To provide humanitarian assistance to Afghanistan, the Finance Ministry instructed the SBP to “open with immediate effect” the previous year on December 8 for the Afghanistan Relief Fund. the issue is being examined to ensure Pakistan’s compliance with its international commitments.

The reports show that the central bank’s observers have raised questions over the authority of the federal government.

The US economy is facing the greatest threat since the Great Depression, as inflation jumped at its fastest pace in nearly four decades last month. A 7% spike from one year earlier that’s increasing household expenses, eating into wage gains, and putting pressure on President Joe Biden and the Federal Reserve.

2021 saw a sharp rise in gas, cars, food, and furniture for rapid recovery from the pandemic recession. To help spur the demand for goods, the government provided vast infusion aid and ultra-low interest rates. The fast pace vaccination rate provided residents the confidence to dine out and travel.

On Wednesday, the Labor Department reported that a measure of inflation excluding volatile food and gas jumped 5.5% in December and is considered highest in decades. From November, overall inflation rose to 0.5% from 0.8% in the previous month.

Chief international economist at the financial services company ING, James Knightley said, “U.S. inflation pressures show no sign of easing. It hasn’t been this high since the days of Thatcher and Reagan. We could be close to the peak, but the risk is that inflation stays higher for longer”.

According to the world bank report, the new emerging COVID-19 variants lead to rising inflation, debt, and income inequality and cause a drop in overall GDP to 4.1% in 2022 from 5.5% in 2021. Global Economic Prospects report suggests after a strong rebound in 2021, the new COVID variant can threaten the global economy and might face a slowdown.

World Bank Group President David Malpass said, “The world economy is simultaneously facing COVID-19, inflation, and policy uncertainty, with the government spending and monetary policies in uncharted territory. Rising inequality and security challenges are particularly harmful to develop countries”. He further added that it will also require concerted international action along with some thorough national policy measures to put the global economy in its original state of growth path.

On Tuesday, according to the global economic report, the World Bank retained its forecast for India’s GDP growth for the current year at 8.3%. This was followed by the government’s estimate that India’s GDP will grow at 9.2% in the current financial year ending March 2022.

In addition to its economic growth forecasts for the United States, European nations, and China, the global agency warned that rising income inequality, high debt levels, and new Covid-19 variants could threaten recovery in developing economies.

French economist Pierre-Olivier Gourinchas has been named as the next chief economist for The International Monetary Fund (IMF). He will succeed Gita Gopinath by joining as the First Deputy Managing Director with the IMF management team.

Gourinchas said on Twitter, “I am deeply honored to be appointed as the IMF’s new Economic Counselor and Director of Research. I look forward very much to working with the new IMF colleagues”. He is due to take over his role as the Fund’s chief economist on January 24. As soon as he finishes his teaching obligations, he will begin serving as chief economist of the Fund part-time until April 1 when he will assume full responsibility.

Gourinchas holds a Ph.D. from the Massachusetts Institute of Technology and in 2007 won the Bernacer Prize for the Best European economist under 40. He also received the prize in 2008 for working in macroeconomics and finance for best French Economist under 40. Currently, he is at Haas School of Business at the University of California Berkeley,  the S.K. and Angela Chan Professor of Global Management. Consumption precautionary savings, fiscal federalism, lending booms, labor markets along exchange rates are a few areas of his interest.