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BOV Market Watch - Week ending 21st January 2022
21 Jan 2022
World Bank slashes global growth forecast. The World Bank slashed its forecast for global economic growth, warning that a rise in inflation, debt, and income inequality could jeopardize the global recovery in emerging and developing economies. In its latest Global Economic Prospects report, the World Bank said that global growth is expected to slow to 4.1 percent in 2022 and 3.2 percent in 2023, as more countries start unwinding unprecedented levels of fiscal and monetary policy stimulus intended to support their economies during the pandemic. The projections follow a strong rebound in global growth, as demand soared after lockdowns were lifted. The World Bank estimates that the world economy grew by 5.5 percent last year. It warned, however, that covid-19 continues to cast a shadow over growth prospects. 

US consumer sentiment drops more than expected due to Covid-19 and inflation worries. Sentiment among US consumers worsened at the first weeks of January as the surge in Covid-19 cases and high inflation dampened Americans’ mood. The preliminary estimate of the index of consumer sentiment by the University of Michigan decreased to 68.8 in January from 70.6 in December, missing the 70.0 forecast from economists. The reading remains well below the February 2020 pre-pandemic level of 101.0, and sentiment has been moving sideways in the last few months at around decade-lows due to the pandemic and high price growth. “While the Delta and Omicron variants certainly contributed to this downward shift, the decline was also due to an escalating inflation rate,” said Richard Curtin, the survey’s chief economist.

Germany producer price inflation strongest since 1949. German producer prices of industrial products rose by 24.2 percent in December compared to the same month the previous year. That is the strongest year-on-year increase since the start of the data series in 1949, the Federal Statistical Office (Destatis) said on Thursday. Rising by 69 percent year-on-year, energy prices were "mainly responsible" for the increase of producer prices, Destatis noted. Natural gas and electricity saw particularly high price increases, up 121.9 percent and 74.3 percent, respectively. On a monthly basis, producer price inflation advanced to five percent from 0.8 percent in November. Economists had forecast prices to climb again by 0.8 percent.

UK inflation fastest in nearly 30 years. UK inflation jumped to 5.4 percent in December, its highest rate in 30 years, deepening a cost-of-living crisis that is squeezing household incomes and adding pressure on the Bank of England (BoE) to hike interest rates at the February monetary policy meeting. Inflation was forecast to rise to 5.2 percent, marginally higher than November’s 5.1 percent print. The large annual rise in the consumer price index reflected widespread increases in the cost of most goods and services The BoE is walking on a tightrope, having failed to anticipate the surge in inflation. It is under pressure to raise interest rates to curb spending and bring inflation down towards its two percent target, without squeezing household budgets too far and disrupt the fragile recovery.

China’s central bank cut its key interest rate for the first time in almost two years to support an economy that has lost momentum because of a property slump and repeated coronavirus outbreaks. In a notable policy divergence with other major economies, the People’s Bank of China on Monday lowered the rate at which it provides one-year loans to banks by 10 basis points. This was the first reduction since April 2020. While inflation is the dominant concern for central bankers in Europe and the US, China’s relatively stable prices mean policymakers have shifted their attention to boosting growth. Official figures show that gross domestic product rose four percent last quarter from a year earlier, the weakest economic growth since early 2020 during the thick of the pandemic.
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Bank of Valletta p.l.c. is a public limited company regulated by the MFSA and is licensed to carry out the business of banking and investment services in terms of the Banking Act (Cap. 371 of the Laws of Malta) and the Investment Services Act (Cap.370. of the Laws of Malta).