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Chinese pilots deplane from a JH-7 fighter-bomber in preparation for the 9th China International Aviation and Aerospace Exhibition, known as Airshow China 2012, in Zhuhai city, south Chinas Guangdong province, 10 November 2012.
Hard Numbers: China rattles the saber, Egypt’s inflation falls, Japan props up yen, Spain wins Euros
30: Taiwan’s defense ministry recorded 30 Chinese combat jets and seven warships in the skies and waters around the islandon Saturday and said it was monitoring “waves” of missile tests in Inner Mongolia province. These are the third large-scale maneuvers around Taiwan this week.
27.5: Inflation rates in Egypt have dropped for the fourth straight month to 27.5%, down from an agonizing 38% peak in September. However, economists warn that fuel, medicine, fertilizer, and naturalgas markets remain volatile, and Egypt’s most needy families are smarting from a 300% increase in the price of subsidized bread.
22 billion: A Bloomberg analysis of the Bank of Japan’s accounts found it had likely spent approximately $22 billion propping up the anemic yen, which has lost 11% of its value this year, on Thursday. This would mark the third time the central bank has directly intervened in the currency market — an expensive practice, but Tokyo has few other options while the difference between US and Japanese interest rates remains so vast.
2-1: Spain beat England 2-1 in a thrilling final of the Euro 2024 championship on Sunday, marking their fourth time bringing home the cup. England, the country that invented modern football, has never won. In Miami, Argentina won the Copa America 1-0 against Colombia, but the event was marred by botched security that saw scenes of panic as unticketed fans rushed and overwhelmed barriers.Shopping in a Whole Foods Market supermarket in New York on Wednesday, June 5, 2024.
Global economy brightens, and US inflation eases, but costs remain high
It's time for a mid-year economic checkup! According to the World Bank, the global economy has improved since the start of the year. Growth increased by 2.6%, and average inflation is at a three-year low – bringing us closer to the “soft landing” economists have aimed for since the end of the COVID-19 shutdown. And experts say we have the strength of the US economy to thank.
This may come as news to Americans irked by high prices at home, but US inflation fell 3.3% in May, leading traders in the futures market to raise their bets on a September rate cut to 84% and causing the S&P 500 to jump 1.3%.
The news also has Joe Biden jumping … for joy. Polls show that the economy is one of – if not the biggest – issues in the 2024 election, and he has lagged behind Donald Trump in polls.
While rates could begin to fall in September, central bankers warn the risk of further inflation remains high, so they are unlikely to reverse the last two years of rate hikes quickly.
But even if interest rates or prices fall, the cost of big-ticket items like housing, healthcare, childcare, and higher education have been climbing unabated for years, trapping the US economy in a much harder-to-solve affordability crisis and keeping voters pessimistic about the economy.
Nigeria Labor Congress (NLC) protest against the high cost of living and massive suffering following a hike in petrol and devaluation of the Naira in Lagos, Nigeria.
Hard Numbers: Blackouts in Nigeria, Turkey’s soaring inflation, Deadly flooding in Central Europe, A new (but familiar) face in UK election, Murdoch ties the knot (again)
4: Millions have taken to the streets in Nigeria as unions began their fourth (and indefinite) strike against President BolaTinubu’s wage policies. Nigeria unions have shut down six power grids, leading to a national blackout at 2am on Monday that halted much of the country’s aviation activity. Unions assert the strike will not end until the government agrees to raise the monthly minimum wage, over tenfold from 30,000 Naira ($20 USD) to 500,000 Naira ($336 USD).
75.5: Inflation has surpassed 75.5% in Turkey, jumping up 5.65% in the last month. Finance Minister Mehmet Şimşek reassured Turkish citizens that “the worst is over,” as the government will begin pushing down inflation in June.
5: Heavy rains over the weekend led to widespread flooding in southern Germany and France, which killed five people, including a rescue worker. States of emergency have been announced throughout the region as highways, railways, and more have been submerged beneath several meters of water.
10: On Monday, Brexit “architect” Nigel Farage announced his plan to “make Britain great again” as the Reform UK party’s candidate in next month’s election. Although his party is only polling at around 10%, it is enough to further destabilize the ruling Tories, who are expected to be beaten soundly by Labour.
5: Is the fifth time the charm? Media tycoon Rupert Murdoch, 93, said “I do” last Saturday to Elena Zhukova, a 67-year-old retired molecular biologist. The couple looked very happy tying the knot in Los Angeles, CA, and showed us it’s never too late for love … particularly if you are a billionaire.
Canadian Prime Minister Justin Trudeau and US President Joe Biden face a summer of discontent.
A summer of discontent
Facing elections and down in the polls, Joe Biden and Justin Trudeau have a lot of bogeys on their radar, but three are starting to stand out: the election call in Britain, Labor strife in Canada, and the rising and potentially self-defeating political popularity of tariffs.
1. Rishi Sunak’s Soggy Snap Election Surprise: Comeback Miracle or Cautionary Tale for Incumbents?
After 14 years of Conservative rule in Britain, Labour now has a chance to take the helm. Beleaguered Prime Minister Rishi Sunak held a rain-drenched (read: pathetic) fallacy of a media conference yesterday to announce a surprise July 4 general election. Why did he do it? Most analysts expected Sunak to drag it out until late fall, giving himself at least two years as PM – 14.8 times longer than the wilting 49-day head-of-lettuce term of Liz Truss, who Sunak replaced in 2022. They were wrong. The Tories are down 20 points in the polls, so when Sunak saw inflation finally fall to the target rate of 2.3% – a rare win – he reckoned it wouldn’t get much better in the months ahead. A summer election could mean low voter turnout, which usually helps the incumbent.
Joe Biden and Justin Trudeau are watching closely. Both are also incumbents facing low polling numbers and an electorate that believes (facts be damned) that things are worse than ever. If Sunak can somehow turn it around – and that’s a big “if” – it would answer a core question: Can falling inflation rates reinflate incumbent popularity? Will people ever believe things are getting better? Biden and Trudeau hope so.
Sunak’s July 4 election will likely end in ashes, not fireworks, for British conservatives, but Biden and Trudeau will pick through the coals and see what they can learn from the fire.
2. How to Fight Your Own Base Without Losing Their Vote?
Everyone reading this column will be familiar with the return-to-work debate. How often are you required to go back to the office post-pandemic, and how much do you want to work from home? Two days, three days, or more? I would be interested to hear your thoughts on that, and you can send them my way here.
In Canada, the debate has been reignited by the federal government’s decision to get public servants back in the office … wait for it … three days a week starting in September. Currently, they work two days a week at the office.
This is not a pay cut. This is not a downsizing. This is simply a back-to-work policy that is in line with almost every other industry. But the unions have gone ballistic, threatening a “summer of discontent” that could include disrupting borders.
File this one under the department of “With friends like these …” After all, the Liberal government has increased the size of the federal civil service by 42% since 2015. Last year, the feds signed a deal with the union leading the call to protest, the Public Service Alliance of Canada, giving them a pay increase. But here is the kicker: The deal both agreed on gave the federal government power to decide on back-to-office schedules. The same union that agreed to that is protesting it now.
There is no such thing as a permanent friend in politics, only permanent interests, but this is a classic stab in the front. Trudeau needs the public sector unions to win a federal election in the next year, and like Sunak he is nearly 20 points behind in the polls. He does not want to pick a fight with a powerfully motivated base. Except for one problem: This is a fight he can win because this is a fight the public supports.
In a new poll out today, Angus Reid found that 50% of Canadians agree with the Federal government and want workers back in the office. Voters over age 55 — the kind who show up at polling stations – really can’t stand the union position, with 79% of them saying “get back to the office.”
Meanwhile, 28% of Canadians “view federal government employees as overpaid,” while 75% say federal workers “have better working conditions than others,” including 73% of Liberal voters. In other words, Justin Trudeau could win this fight and would have the support of the electorate, but he needs every part of his base possible, so he is desperate to avoid this one as well.
The same is true for his main opponent, Conservative leader Pierre Poilievre. You might expect him to be taking huge swings at unions and entitlements as his goal is to cut the size of government, but he’s staying out of this one as much as he can. His own riding is in the Ottawa area, the ground zero of public servants, and he doesn’t want their ire turned on him, which could hurt his electoral chances and take the pressure off Trudeau. So who is afraid of public servants going back to work three days a week? Everyone.
Like Biden, who supports Israel’s fight against Hamas but is now losing the support of young voters, Trudeau has to be careful about the battles he picks. Since 2022, he has had a supply and confidence deal with the far-left NDP in order to remain in power. That means the public servants are core to his survival. Despite the polls, if the union folks do have a summer of discontent, Trudeau will be in the worst possible position for a politician: fighting a two-front battle, with Conservatives on the right and the union on the left.
Finally, a half note on tariffs, as Biden is also caught in a pincer move here. As Donald Trump pushes for more trade tariffs to protect American workers, (remember he put a 25% tariff on steel imports), Biden is keeping up the tariff pace, especially with ones directed at goods from China. This week, he announced tariffs on EVs, batteries, and other Chinese exports.
Protectionism is clearly good politics in the US, especially when it comes to China. That is as much about geopolitical rivalry and security as it is about economics, but in general, tariffs are self-defeating economics that lead to higher prices and inflation.
No amount of political hustling on talk shows is going to upend the logic of basic economics. Biden is jammed: On one hand, the average American believes things are worse than ever, but on the other they want him to stand up to China and protect the American worker. Does he risk higher prices and lingering inflation with more tariffs or does he risk alienating his labor base by pushing back against economic isolationism that is suddenly so faddish? For now, he is tiptoeing toward tariffs and trying to avoid the price blowback.
The summer of discontent for Biden and Trudeau is just getting started.
A container ship makes its way into the Port of Vancouver past vessels at anchor in English Bay, as seen from Grouse Mountain in North Vancouver, British Columbia, on May 10, 2024.
Hard Numbers: BC port strike delayed (for now), Senators demand real cash for artificial intelligence, US inflation chills, Toronto squirrel drives power grid nuts
72: The union representing longshoremen at the port of Vancouver has postponed issuing a 72-hour strike notice, creating extra time to avoid a work stoppage at one of North America’s busiest marine hubs. Still, talks between the longshoremen’s union and port bosses remain at an impasse over wage increases. The stakes are high: A two-week Canadian port workers strike last summer interrupted the flow of more than $7 billion worth of trade. Authorities in Alberta, worried about the impact on agricultural and mining exports, have urged Ottawa to intervene.
32 billion: What’s it gonna cost to keep the US ahead of China in the race to dominate artificial intelligence? At least $32 billion more for now, according to a new bipartisan call for Congress to pump more cash into non-defense uses of AI. Senate Majority Leader Chuck Schumer said he hoped lawmakers would agree on more AI funding by the end of the year.
3.4: Consumer prices in the US grew at an annual rate of 3.4% in April, down from 3.5% a month earlier. The main culprits were jumps in the costs of housing and gasoline, while prices for many foodstuffs — in particular eggs — fell. The declining rate of inflation gave fresh hope to investors eager for the Fed to start cutting rates later this year.
6,500: Toronto authorities managed to restore power to 6,500 residents after a three-hour outage this week caused by a squirrel that “came into contact” with grid equipment. We regard this as a copycat (copysquirrel?) crime, following the outages unleashed by raccoons in February.
A Russian Soyuz rocket is carried to the launching pad at Russia's Baikonur cosmodrome on the territory of the former Soviet Kazakhstan on December 18.
Hard Numbers: Russia shoots down space resolution, US economy sputters, Nigerian prisoners make slippery escape, Ecuador gets lifeline
13: A UN Security Council resolution reaffirming a long-standing prohibition on arms races in outer space got 13 votes in favor this week, but it was shot down by a single veto from UNSC permanent member Russia. Moscow says it wasn’t necessary to support a resolution that merely reaffirmed a 1967 treaty that Russia is already part of, but the US ambassador to the UN asked, “What could you possibly be hiding?” In recent months, the US has said it believes Russia is developing a new space-based, anti-satellite weapon.
1.6: The US economy expanded by just 1.6% in the first quarter of the year, lagging analyst forecasts by nearly a full percentage point, as consumer spending slowed. Normally that would create momentum for the Fed to cut interest rates to spur growth, but there’s no joy there either: Core inflation (which excludes food and energy) rose 3.7%, higher than economists expectations, limiting the scope for any near-term rate cuts.
118: Authorities in the Nigerian capital of Abuja are on high alert after a rainstorm destroyed a fence at a nearby penitentiary, allowing as many as 118 inmates to escape. A prison service spokesperson blamed “colonial era” facilities. Weak security and run-down buildings contribute to frequent prison-breaks in the West African nation.
4 billion: After months of talks, Ecuador and the IMF agreed to a $4 billion loan agreement meant to help stabilize the small Andean country’s finances as it grapples with a vicious cycle of economic hardship, rising poverty, and skyrocketing homicides. Just days earlier, Ecuadorians had voted yes in a referendum to boost the government’s ability to crack down on drug violence.The Bland Bombshell and the Big Banks
Is there anyone more bland, more powerful, and less recognizable than Federal Reserve Chair Jerome Powell? He makes money moves more than Cardi B, and yet most people wouldn’t recognize him if he were sitting on their lap in the subway.
Why do relatively obscure banker meetings matter? Fair question, and it’s precisely why our GZERO team in Washington, DC, is covering the IMF-World Bank spring meetings this week.
For Masters of Monetary Policy like Powell, being bland is a strategy, not a characteristic. They speak in a purposely arcane language that requires near Bletchley Park decoding powers because everything they say makes news that impacts markets. This, in turn, affects things like your mortgage, your investments, and your grocery bill. It also impacts global poverty, which ought to make a lot more news. So understandably, they have to be careful and neutral to avoid panics or bouts of enthusiasm and ensure their signals leave lots of room for interpretation. But don’t mistake bland for lack of consequence. In global banking, bland is the brand, but influence is the purpose.
What have you missed so far?
Powell had a major bland moment at the Wilson Center’s Washington Forum on the Canadian Economy, which coincides with the spring meetings, where he hinted he would delay dropping interest rates because US inflation is proving more stubborn than predicted. “The recent data have clearly not given us greater confidence and instead indicate that it’s likely to take longer than expected to achieve that confidence,” he said, as the finance world listened to him emphasize every SYL-la-ble.
Then, in case anyone missed it, he took out the verbal highlight pen. “We can maintain the current level of restriction for as long as needed.” Whoa. Treasury yields moved higher that very moment, and he wasn’t even done speaking. Translation for those not steeped in Bland Banker Speak: Interest rates are gonna stay higher for longer – at least until the inflation rate hits the target goal of 2%. Govern yourselves accordingly.
That news got a tiny corner of social media all ginned up, giving us the world’s first – and perhaps last – Federal Reserve Meme: Check out this AI-generated Jerome Powell hyped on rate cuts. Maybe Blands really do have more fun.
Meanwhile, Bank of Canada Gov. Tiff Macklem, who was on the same panel with Powell, hinted he might go in the other direction – and having had many conversations with him over the years, I can say that Macklem isn’t bland at all. Just last week, he held the key interest rate at 5% because inflation had centimetered up a titch, but he still suggested a rate drop was “within the realm of possibilities” as early as June.
What would that mean? For one, if Canada drops rates faster than the US Fed, the Canadian dollar would likely weaken considerably, so depending on which way you travel, things could get either a lot cheaper or more expensive.
In short, everything central bankers say makes a difference to millions of citizens, and still, most folks only pay scant attention to talk about inflation and interest rates close to home – not internalizing how much impact these decisions have on major issues like global poverty. For example, GZERO’s own Matthew Kendrick has been reporting from the spring meetings this week, covering the impact of inflation on the most vulnerable economies like Somalia and what is being done to help. You can read his surprising look at the Somali success story on debt reliefhere.
But if world bankers are all so smart, why are one in three countries worse off than in 2019? Why are so many falling back into poverty post-COVID? To find out, our Head of Content Tony Maciulis sat down with Ayhan Kose, the World Bank Group’s deputy chief economist, who told him, “When the food price goes up, the price of oil goes up. That has significant implications for these economies.” He also noted that some countries have experienced “the weakest growth rate on average since the 1990s.” What are the solutions? Watch Tony’s interview here.
News about IMF and World Bank financiers doesn’t often make the front page because it’s so complex, often depressing, and … well, kinda bland. There are other riveting events, like Donald Trump’s first criminal trial, the war in Ukraine, and Iran launching missiles at Israel to grab our attention, as they should.
But spare a moment for the folks who live in Blandlandia – those people at the IMF and World Bank spring meetings. They are participating in panels like “The Path for Taxing the Super-Rich – Towards a Progressive Global Taxation Agenda,” “Biden Pauses LNG; COP 28 Fossil Fuel Phase-Out Decision – Is World Bank Lagging on Fossil Fuels?” and even “The Polycrisis – How Unchecked Public Debt Fuels Corruption and Bad Governance.”
Beneath the bland, the story of our world unfolds. Since 1944, when both financial institutions were established, the World Bank itself has funded over 12,000 programs focused on economic development and reducing poverty. Has it worked? The record is mixed.
There have been big wins – like the reconstruction of Bosnia after the war, or working on debt relief programs, like Matt described in Somalia. But the World Bank also set a goal of eliminating extreme poverty by 2023, and its leaders admit they are not even close.
Meanwhile, the IMF, whose mission is to “firefight” big, macro-economic emergencies, like a currency collapse, comes in for much harsher criticism. Its Structural Adjustment Programs – loans to low-income countries in distress – have been subjected to extensive research, often proving that they have kept people in countries like Zimbabwe or across Latin America in poverty while enriching investors. Are these Western-designed programs just a neo-liberal form of colonialism, as some suggest, or pragmatic ways to get countries onto the path of economic development? The debates are so divisive that China has moved into the space in countries that no longer trust the IMF, using its Belt and Road Initiative to invest in infrastructure and push its own influence. So, politics are driving this as well.
The IMF and World Bank may not always make things better, and there is even paranoia right now that Donald Trump, if he wins in November, might withdraw the US from the World Bank, which would devastate developing economies. Still, these two organizations are relevant and demand our attention.
At GZERO, we are committed to covering these topics and making them accessible and interesting. So please tell us what you think. If you have suggestions for things we ought to cover, or questions about events like the IMF-World Bank spring meetings, send us a note here, and we will post answers to some of your key questions next Thursday.
Thanks for your remarkable attention to all these matters, and now, let’s get at the rest of the news.
– Evan Solomon, Publisher
A pile of money sitting on top of a table.
No rate cut for Biden or Trudeau
It looks like neither Joe Biden nor Justin Trudeau can count on lower interest rates to give them the economic or political boosts they need.
In the United States, hopes for a rate cut were dimmed when Wednesday’s consumer price index numbers dropped. The index was up 3.5% in March compared to last year, higher than February and higher than expected, which means the Federal Reserve is unlikely to cut rates in the US anytime soon.
The Bank of Canada, meanwhile, held its benchmark rate steady for the sixth straight time on Wednesday, but Bank of Canada Gov. Tiff Macklem offered room for hope. “We need to be sure this is not a temporary dip in inflation,” he said, noting that a rate cut in June is still possible.
Both Biden and Trudeau desperately want inflation to ease and for interest rates to drop – to ease cost-of-living concerns for voters.
On Tuesday, former Bank of Canada and Bank of England Gov. Mark Carney – notably considered a potential successor to Trudeau – said the era of steady low-interest rates may be over because of structural changes – namely greater volatility and the shift to a low-carbon economy.
This perspective will be a cold comfort to the Biden and Trudeau camps as they face the prospect of asking for votes while mortgage rates, grocery, and gas bills remain high.