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SPI Management Newsletter 27.01.2023

U.S. Economy Slows, but Europe’s Picks Up, Raising Hopes World Will Avoid Recession

At the beginning of the year, the two largest economies in the world moved in opposing ways, with U.S. companies reporting additional decreases in activity in January while the eurozone had a minor uptick.

The gap implies that while the European economy may be stabilizing, at least temporarily, the American economy may be losing steam. New business surveys issued on Tuesday show that the rate of contraction in U.S. businesses decreased in January, possibly indicating that the economy has bottomed out as a result of sluggish inflation and strong demand.

When taken together, the surveys show that although the global economy is likely to decline this year, a recession may not occur. The impact of increasing prices and interest rates could be counteracted by the fading prospect of energy shortages in Europe, a still-expanding U.S. economy, and China's post-pandemic recovery, preventing a severe downturn.

The U.S. economy is still growing as of late last year, despite the Federal Reserve raising interest rates repeatedly in an effort to slow the economy and rein in inflation. Higher rates have put a strain on some industries and might be leading households to slow down.

Nearly 18% less homes were sold in 2022 compared to the previous year. In December, retail sales fell by 1.1%, and although the labor market is still strong, it is beginning to show signs of strain. Some economists believe that declining temporary payrolls herald an overall drop in employment.

Сombination of a mild winter, energy-conservation efforts, moves by European governments to find new natural-gas suppliers and hundreds of billions of euros in fiscal support appear to have propped up the eurozone economy.

Chinese customers embrace a life without zero-covid controls, boosting the economy

Halfway through the first extended public holiday since Beijing lifted zero-Covid rules that had restricted people's movements and undermined consumer confidence, Chinese tourists went to domestic tourism sites, made more international vacation plans, and swarmed to the movies.

Data made public this week indicate that the travel industry will see a significant uptick during the week-long Lunar New Year vacation, which began on Saturday. However, other economists expressed concern that it might take some time to fully restore consumer confidence, if that is even possible.

China has primarily relied on government-led projects and exports to drive economic growth since the pandemic struck in early 2020. Consumer confidence suffered significantly as a result of Beijing's strict virus controls, which included periodic Covid testing, large-scale quarantines, and broad lockdowns.

India's Adani was hit by a $48 billion market decline following allegations of fraud

A critical report by a U.S. short seller sparked a selloff in the conglomerate's listed companies, sending shares of Adani Enterprises (ADEL.NS) plunging on Friday.

Seven listed Adani conglomerate companies, owned by one of the richest men in the world, Gautam Adani, saw their market capitalization decline by a combined $48 billio after Hindenburg Research raised concerns about debt levels and the use of tax havens in a report on January 24.

In its report, Hindenburg said key listed Adani Group companies had "substantial debt", putting the conglomerate on a "precarious financial footing". It also said "sky-high valuations" had pushed the share prices of seven listed Adani companies as much as 85% beyond actual value.

Adapted from WSJ, CNBC, FT, Bloomberg, Reuters

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