Charting the Global Economy: ECB Signals Rate Cuts Coming Soon

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(Bloomberg) — The European Central Bank held the line on interest rates but officials leaned even more toward a mid-year cut should inflation continue to cool.

Lower borrowing costs would help nudge a European economy that’s struggled to register any growth for longer than a year. On the other side of the Atlantic, US economic activity is on much more solid footing and inflation is running too fast for Federal Reserve policymakers.

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Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy, geopolitics and markets:

World

Outside of the ECB, Israel refrained from cutting interest rates, with officials focusing on heightening inflation expectations as the war in Gaza shakes the economy and defense spending surges. The Philippine central bank also left rates unchanged, as did Thailand, Serbia and New Zealand. Uganda hiked, while Peru delivered a surprising cut. South Korea and Canada kept rates unchanged but signaled possible easing at some point this year if inflation cooperates.

A new era of global rearmament is gathering pace, and it will mean vast costs and some tough decisions for western governments already struggling with shaky public finances.

Europe

The ECB held the deposit rate at a record-high 4%, while sending its clearest signal yet that slower inflation will soon allow it to commence cuts. While it said it would remain data-dependent and isn’t “pre-committing to a particular rate path,” President Christine Lagarde again signaled the prospect of a move in two months’ time.

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Demand for corporate loans in the euro area saw a “substantial decline” in the first quarter as the region continues to reel from elevated borrowing costs that probably won’t be cut until the middle of the year, according to the ECB.

The UK economy grew for a second month in February, adding to evidence that the shallow technical recession at the end of last year is already over and that a recovery is underway. Still, the UK’s recovery is being held back by past interest-rate increases. Analysts expect the UK to trail every other Group of Seven country except Germany for another year. 

US

A key US price gauge topped forecasts for a third straight month on gains in rents and transportation costs, spurring concerns that inflation is becoming entrenched as the economy keeps powering ahead. The stalling in inflation progress runs the risk of not only delaying future Fed interest-rate cuts, but also limiting the central bank’s ability to cut at all.

Unions don’t typically hold much sway in the world of takeover battles. But Nippon Steel’s bid to buy US Steel is now caught in an election year maelstrom as President Joe Biden and Donald Trump, in the wake of the union’s objections, have both publicly opposed the deal as they vie for blue-collar votes. The turmoil threatens to strain American relations with one of its top allies while underscoring how the politics of winning swing-state voters is dramatically influencing the corporate landscape.

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California, an epicenter of last year’s regional-bank turmoil, is also at the forefront of the industry’s latest trouble spot: commercial real estate. Almost a third of its 127 registered banks have property debt above the 300% level, the most among US states, according to a Bloomberg analysis of federal call reports that lenders filed for the end of last year.

Asia

China is slowing and Western governments increasingly see it as a rival rather than an economic partner. On its southwestern border, another rising economy is vying to take its place as the world’s next growth driver. India’s stock market is booming, foreign investment is flooding in and governments are lining up to sign new trade deals with the youthful market of 1.4 billion people.

Japanese workers’ real wages fell in February for a 23rd consecutive month after consumer price growth accelerated, exerting a drag on spending, in an outcome that will likely keep the central bank on hold for now.

Emerging Markets

Ghana’s inflation rate climbed to a four-month high in March as a slump in the currency pushed up the prices of imports such as fuel and food. The weakness is being stoked by a resurgent dollar. A decline in cocoa production due to adverse weather conditions and debt-restructuring delays are also weighing on sentiment.

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Bug spray is out of stock across Argentina as the country confronts its worst-ever outbreak of dengue, a mosquito-borne illness that’s surged across Latin America amid high heat and heavy rains. On the online marketplace MercadoLibre, mosquito repellent is going for $20 a can, a more than 500% jump from its retail value, a shock even for inflation-battered Argentines grappling with consumer price increases that are now running at an annual pace of 276%.

—With assistance from Abhishek Gupta (Economist), Andrew Atkinson, Bre Bradham, Ann Choi, Enda Curran, Joe Deaux, Ekow Dontoh, Natalia Drozdiak, John Gittelsohn, Yinka Ibukun, Diana Li, Jana Randow, Anup Roy, Bhargavi Sakthivel (Economist), Zoe Schneeweiss, Mark Schroers, Dan Strumpf, Manuela Tobias, Alexander Weber, Josh Wingrove, Jin Wu and Erica Yokoyama.

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