The Fed’s rate hikes have inflated borrowing costs for consumers and businesses, from mortgages to auto loans to corporate credit…reports Asian Lite News
The U.S. economy likely rolled out of 2022 with momentum, registering decent growth in the face of painful inflation, high interest rates and rising concern that a recession may be months away.
Economists have estimated that the gross domestic product — the broadest measure of economic output — grew at a 2.3% annual pace from October through December, according to a survey of forecasters by the data firm FactSet.
The Commerce Department will issue its first of three estimates of fourth-quarter GDP growth at 8:30 a.m. Eastern time Thursday.
Despite a likely second straight quarter of expansion, the economy is widely expected to slow and then slide into a recession sometime in the coming months as increasingly high interest rates, engineered by the Federal Reserve, take a toll. The Fed’s rate hikes have inflated borrowing costs for consumers and businesses, from mortgages to auto loans to corporate credit.
The housing market, which is especially vulnerable to higher loan rates, has been badly bruised: Sales of existing homes have dropped for 11 straight months. Investment in housing plunged at a 27% annual rate from July through September.
And consumer spending, which fuels roughly 70% of the entire economy, is likely to soften in the months ahead, along with the still-robust job market. The resilience of the labor market has been a major surprise. Last year, employers added 4.5 million jobs, second only to the 6.7 million that were added in 2021 in government records going back to 1940. And last month’s unemployment rate, 3.5%, matched a 53-year low.
But the good times for America’s workers aren’t likely to last. As higher rates make borrowing and spending increasingly expensive across the economy, many consumers will spend less and employers will likely hire less.
Last year, the Fed raised its benchmark rate seven times in unusually large increments to try to curb the spike in consumer prices. Yet another Fed rate hike, though a smaller one, is expected next week.
The central bank has been responding to an inflation rate that remains stubbornly high even though it has been gradually easing. Year-over-year inflation was raging at a 9.1% rate in June, the highest level in more than 40 years. It has since cooled — to 6.5% in December — but is still far above the Fed’s 2% annual target.
Another threat to the economy this year is rooted in politics: House Republicans could refuse to raise the federal debt limit if the Biden administration rejects their demand for broad spending cuts. A failure to raise the borrowing cap would prevent the federal government from being able to pay all its obligations and could shatter its credit.
Moody’s Analytics estimates that the resulting upheaval could wipe out nearly 6 million American jobs in a recession similar to the devastating one that was triggered by the 2007-2009 financial crisis.
‘Global economy projected to grow 1.9% in 2023’
World output growth is projected to decelerate from an estimated 3.0 per cent in 2022 to 1.9 per cent in 2023, marking one of the lowest growth rates in recent decades, according to a UN report.
The UN World Economic Situation and Prospects 2023 report, launched on Wednesday, predicted global growth to moderately pick up to 2.7 per cent in 2024, as some macroeconomic headwinds are expected to begin to subside next year.
Amid high inflation, aggressive monetary tightening and heightened uncertainties, the current downturn has slowed the pace of economic recovery from the Covid-19 crisis, threatening several countries — both developed and developing — with the prospects of recession in 2023, the report said.
It said growth momentum significantly weakened in the US, the European Union and other developed economies in 2022, adversely impacting the rest of the global economy through a number of channels.
In the US, gross domestic product (GDP) is projected to expand by only 0.4 per cent in 2023 after an estimated growth of 1.8 per cent in 2022, the report said.
Growth in China is projected to moderately improve in 2023. With the government adjusting its Covid policy in late 2022 and easing monetary and fiscal policies, China’s economic growth is forecast to accelerate to 4.8 per cent in 2023, according to the report.
It pointed out that tightening global financial conditions, coupled with a strong dollar, exacerbated fiscal and debt vulnerabilities in developing countries.
Most developing countries saw a slower job recovery in 2022 and continue to face considerable employment slack, the report said.
It warned that slower growth, coupled with elevated inflation and mounting debt vulnerabilities, threatens to further set back hard-won achievements in sustainable development, deepening the already negative effects of the current crises.
In 2022, the number of people facing acute food insecurity more than doubled compared to 2019, reaching almost 350 million. A prolonged period of economic weakness and slow income growth would not only hamper poverty eradication, but also constrain countries’ ability to invest in the 2030 Sustainable Development Goals (SDGs) more broadly, the report stressed.
“The current crises are hitting the most vulnerable the hardest — often through no fault of their own. The global community needs to step up joint efforts to avert human suffering and support an inclusive and sustainable future for all,” Li Junhua, UN undersecretary-general for economic and social affairs, said in a statement on the release of the report.
The report called for governments to avoid fiscal austerity which would stifle growth and disproportionately affect the most vulnerable groups, affect progress in gender equality and stymie development prospects across generations.
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