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SPI Management Newsletter 25.11.22

Record Covid Outbreak Sets Back China's Recovery as Lockdowns Spread

Widespread lockdowns enacted throughout China this week as officials there battled to control the greatest Covid-19 outbreak in the nation run the risk of once again causing uncertainty in global supply chains and dimming the prospects for global economic growth.

Beijing's fight against the virus, which has resulted in severe restrictions on daily life and commerce in cities ranging from the important port city of Tianjin in the north to Guangzhou in the south, is taking place as other economies slow down as a result of central banks raising interest rates to fight inflation.

Nearly three years after the beginning of the pandemic and long after other major economies have dissolved nearly all Covid regulations, the heavy-handed and widely implemented methods send a strong message that the country and its leaders aren't prepared for a permanent reopening.

As the economies of the United States and Europe weaken, the world can probably no longer rely on Beijing to be a growth engine because of its prolonged zero-tolerance policy toward Covid.

According to experts, the poor growth in China expected for the coming year may result in lower demand for oil and other commodities and less upward pressure on global inflation, which may provide much-needed respite to central banks, consumers, and companies. However, a recurrence of the major disruption to global supply chains that occurred during the two-month Shanghai shutdown in the spring could result in its own set of price pressures.

EU requests a swift response to Joe Biden's $369 billion proposal of green subsidies

IThe Inflation Reduction Act (IRA) and its "buy American" clauses have been the subject of a taskforce established by Brussels and Washington, but the European capitals are growing dissatisfied with the lack of progress.

As the US works to reduce its carbon emissions while creating jobs, the IRA offers tax credits and subsidies for US consumers and businesses for goods like electric automobiles, wind turbines, and green hydrogen. Most are only accessible for goods that are mostly made in the US.

Several EU businesses have already stated they will make their next investment in the US as opposed to the EU. The US has much lower energy costs, which serves as an additional attraction.

Some EU states, including France, have demanded that Brussels adopt a similar "Buy European" subsidy scheme to the US statute. Robert Habeck, the minister of economy of Germany, has also suggested raising subsidies.

Fed officials anticipate smaller rate increases to occur soon

According to meeting minutes released on Wednesday, Federal Reserve officials agreed earlier this month that gradual interest rate hikes should take place soon as they assess the effects of policy on the economy.

The meeting report hinted at upcoming lower rate hikes, echoing remarks made by other officials over the last few weeks. The Federal Open Market Committee, which sets interest rates, is largely expected to reduce its rate hike in December from four straight increases of 0.75 percentage points to 0.5%.

Adapted from WSJ, CNBC, FT, Forbes, Reuters

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