12th October 2022
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IMF issues stark warning on UK economy
Trade tensions between US and China escalate
ECONOMYIMF issues stark warning on UK economy
What happened?Yesterday the International Monetary Fund published its latest assessment on the health of the global economy warning that “the worst is yet to come.” It also reiterated its criticism of the UK government’s mini budget cautioning that it could cause a deep recession. IMF reports in 2022 have made for gloomy readingThe IMF - an international body that acts as a lender for countries facing financial difficulties - regularly updates its estimates of how it thinks countries are performing and flags any concerns it has on global growth.This year it has steadily trimmed its global growth forecasts for 2023 from 3.8% in January, to 2.9% in July and now to 2.7%.It’s blamed lingering pandemic disruptions especially in China, rising interest rates to tackle soaring inflation and Russia’s invasion of Ukraine as the drivers of the worsening outlook. The IMF expects the world’s largest economies - the US, China and the Eurozone - will stall and that 2023, for many, will feel like a recession.The IMF’s verdict on the UK government’s policies is less than complimentaryThe body thinks that controlling inflation should be the priority of governments worldwide otherwise interest rates will keep rising which will make borrowing less attractive and therefore hinder growth.It believes the £45bn of unfunded tax cuts in last month’s mini budget, rather than boosting long term growth as the government claims, risks provoking a deeper recession by driving inflation higher for longer. The IMF predicts inflation in the UK would be the highest of any G7 country at the end of next year, at 6.3%. It also forecasts that the UK economy will grow by 3.6% this year and just 0.3% in 2023, slowing sharply from 7.4% in 2021.Zooming out: The mini budget continues to stoke criticism domestically and internationally. Yesterday think tank, the Institute of Fiscal Studies, warned that the government needs to find £60bn of spending cuts or hike taxes if borrowing is to be kept under control.
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TRADETrade tensions between US and China escalate
What happened?In the past week the US introduced new restrictions to limit exports of semiconductor chips to China in its biggest move yet to hamper its rival’s development of critical technologies.How did we get here?The economic and political rivalry between the world’s two biggest economies has been simmering for years. In recent times this has led to an arms race over the control of the supply of semiconductors – the vital processing units in every tech appliance. The latest measures from President Biden’s administration aim to cut China off from chips used for artificial intelligence, supercomputers, and weapons, as well as the tools needed to make them. The new rules not only require US companies to get special permission to send the chips to China, they also ban countries worldwide from selling to China if they’re made with US equipment. It will harm companies on both sides – China makes up a quarter of global chip demand with many American suppliers reliant on Chinese customers.The politically-motivated move sent shares in Chinese and US chipmakers into a tailspin with American companies losing a combined $240bn in market value globally since it was first announced.Zooming out: The US hopes that other governments will join them in making similar restrictions, as it says that the controls would lose effectiveness and could hurt US companies' standing in the market without global collaboration.
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