In charts: The world economy this month

1. Oil on boil

Prices of crude oil are rising once again as the expectations of a supply deficit have outweighed concerns over low demand. Brent crude oil, which was around $80 per barrel at the beginning of the year, is now hovering over $90 per barrel, after Saudi Arabia and Russia this month extended supply cuts of a combined 1.3 million barrels per day until the end of the year. The move, aimed at propping up prices, came against the backdrop of uncertainty about demand in China, growth in Europe and tightening monetary policy. While rising crude oil prices will have an impact on the global economy, which is already facing high inflation, import-dependent countries such as India are particularly vulnerable. According to a report by Nomura, every 10% increase in oil prices could increase inflation in India by 25 basis points, widen the current account deficit by 40 basis points and slow down GDP growth by 10 basis points.

2. Dragon’s sorrow

Three decades of rapid growth have put the Chinese economy prominently on the world map, right behind the US. But the country is now facing a worrying, and unending, slowdown. The worries grew further after China’s GDP growth in the June-ended quarter came in at 6.3%, lower than the expected growth of about 7%. On a sequential basis, the growth was just 0.8%. Apart from the disruptions caused by the covid-19 pandemic and the country’s zero-covid policy, the country is also facing a slew of challenges from falling exports to deflation. In June, unemployment among people in the 16-24 age group hit a record high of over 20%, after which the country stopped releasing the data. While the economy has grown in size primarily on investments rather than domestic demand, tumbling investments in the crisis-hit property sector, and a global growth slowdown are posing as headwinds to any effort to revive the growth after the pandemic.

3. US shutdown

Earlier this year, the US Congress averted a looming crisis by managing to raise the federal debt ceiling to avoid a default. But now, it has landed in another problem as it stares at the first government shutdown in nearly five years as Democrats and Republicans tussle over the fiscal year 2024 budget. The shutdown is expected to begin from 1 October if a deal on the funding isn’t reached in time even as efforts are being made towards a budget resolution that would keep the US government funded.

The US has seen several government shutdowns in the past, with the closures in the 1980s lasting only for a day or a few hours. However, they have become disruptive in recent years with growing polarization. The previous one that began in late December 2018 lasted for 35 days. The impasse could further impact India’s markets and exports amid already weak global economic conditions.

4. BoE policy

As against the broad expectations of a 25-basis-point hike, the Bank of England last week kept the interest rate unchanged at 5.25%, ending a run of 14 consecutive hikes since December 2021. While the retail inflation in the UK is still three times its aim of 2%, worries over recession in the country led to the surprising pause. Retail inflation has cooled sharply to 6.7% in August from 11.1% in October 2022, but it is still highest among major economies, with rising crude oil prices likely to add further pressure. However, the pause has come against the backdrop of a sharper-than-expected contraction in GDP (0.4%) in July and higher-than-expected rise in unemployment (4.3%). However, it is not only the UK that is facing such a dilemma, the US Federal Reserve has also kept the rate unchanged but penciled one more hike in 2022 as inflation remains a concern.

5. Rice prices

After the Russia-Ukraine war, food prices were already rising, including those of rice. Moreover, low production of rice last year, worsened further by the El Niño this year, has led to further increase in prices, making several countries vulnerable on food security. According to the Food and Agriculture Organization’s monthly All Rice Index, prices have surged in recent months and hit a 15-year high in nominal terms in August. The export ban imposed by India, the world’s second largest exporter, has led to the sharp rise since July. Following this, several countries had reached out to India to relax the export curbs. Meanwhile, production in Thailand, a key rice growing country, has also taken a hit. The elevated prices of rice, which is a staple staple crop for more than half the world, have triggered fears of a global food crisis. And the uncertainties over international trade could keep the prices elevated in the near term.