Economic growth hit the brakes in the first quarter

    With the new Q1 reports for GDP released, many economists are aware of whats to come for the US economy. With a GDP growth of 1.1% in Q1, the Feds attempt to slow economic growth and decrease inflation by raising interest rates is finally being felt. The original prediction for Q1 GDP was 1.9%, so the Feds actions are working much quicker than expected. 

    The goal of raising the interest rates was to create a soft landing for the American economy, but some economists are skeptical of this actually working. They predict that in the second half of 2023, there will be a mild recession for the economy. There was a business group included in the article that "puts the probability of a U.S. recession over the next year at 99%." This is a worrying fact, as the whole point of the soft landing was to avoid the risk of a recession.

The only reason we haven't reached lower GDP growth rates is because there is a strong consumer in America right now. All economic indications are pointing towards a struggling economy; imports are greater that exports, inflation is high, and interest rates are being risen. Soon, the strong consumer will pull back on their spending and will push the economy ever so closer to a recession.

https://www.cbsnews.com/news/u-s-economy-gdp-first-quarter-2023/

"Mild" Recession in the Forecast

 Fed is predicting a mild recession will hit the US economy. Unwavering inflation as well as emerging bank failures are leading to this prediction.  In an aim to fight inflation, the Fed has increased interest rates 9 times in 2022. This increase is the highest it's been in 17 years. With high interest rates, it becomes more expensive to borrow, so it discourages people from borrowing money. On top of this, banks were limiting credit, so that they remain safe if danger is in the horizon. The limitation of credit also makes it harder for people to borrow. This tightening is usually a response to a recession which means banks are preparing now, so they aren't affected as deeply. If people can't borrow money, this will result in a decline in the growth of the economy. The article brings up a good point that the economy heading into a recession might solve high inflation. 

https://www.usnews.com/news/us/articles/2023-04-27/how-will-we-know-if-the-us-economy-is-in-a-recession

Calls to move away from the U.S. dollar are growing — but the greenback is still king

    Calls to move away from the U.S. dollar are growing — but the greenback is still king

    Countries such as Brazil and others in the Southeast Asia region are trying to find currencies other than the US dollar to carry out trade. With the Fed steeply hiking up interest rates, other central banks around the world have to follow in order to stem outflows and as a result are depreciating their own currencies. 

    The main player in trying to move away from reliance on the US dollar for trade is China, and they have some leverage as being the biggest exporting country in the world. China is also selling off US Treasury's, and has been doing so for years. 

    Moving away from the dollar can really benefit local economies in other countries. It can help simplify importing/exporting businesses and allow them to better mitigate risks and help in their hedging strategies. A reason why moving away from the dollar is being accelerated can be due to the US freezing Russian reserves of US dollars, showing other countries that the US dollar may not be a safe haven to park money.

    A global economy moved on from the US dollar could be highly detrimental to the US economy, and its geopolitical power. We should do what we can to make sure the US dollar remains the global reserve currency.

The banking crisis is having a slow-burn impact on the economy

 https://www.cnbc.com/2023/04/25/the-banking-crisis-is-having-a-slow-burn-impact-on-the-economy.html 

The banking crisis that began just two months ago is being watched closely. Economists have determined that it will most likely lead to a recession through a slow burn. This crisis had already led to smaller banks being more stingy about loaning out money, which impacts economic growth negatively. Bank earnings largely have been decent for the first quarter, but the sector’s future is uncertain. Stocks have been under pressure, with the SPDR S&P Bank ETF (KBE) off more than 3% in Tuesday afternoon trading. In the immediate future, the reading on first-quarter economic growth is expected to be largely positive despite the banking problems. That growth, though, isn’t expected to last, due primarily to two interconnected factors: the Federal Reserve interest rate hikes aimed purposely at cooling the economy and bringing down inflation, and the constraints on small-bank lending. First Republic, for one, reported that it suffered a more than 40% decline in deposits, part of a $563 billion drawdown this year among U.S. banks that will make it tougher to lend. Consumer spending has seemed to hold up fairly well in the face of the banking crisis, with Citigroup estimating excess savings of about $1 trillion still available. However, delinquency rates and balances are both rising: Moody’s reported Tuesday that credit card charge-offs were 2.6% in the first quarter, rising by 0.57% from the fourth quarter of 2022, while balances soared 20.1% on an annual basis. Where the economy and possible recession lead to is all up to the consumer. Consumer demand is currently approaching pre-pandemic levels, but if consumers cannot get those lending services from banks, it will quickly tarnish the progress made.

Russia’s economy can withstand a long war, but not a more intense one

 Since the beginning of the war between Russia and Ukraine last year Russia has been in financial trouble ever since. The value of the ruble has decreased rapidly, the Russian stock market has closed, interest rates have more than doubled, and their credit rating has been labeled terrible. The hope with all these issues that Russia has been facing throughout this war will impede the progress of Russia during this war. Russia's government deficit last fiscal year was at about 37 billion dollars in value before the start of the war which is 2% of GDP. Economists believe that there is a chance this deficit will more than triple, being almost 5% of GDP.

Unfortunately wealth will not be a huge obstacle for the military as Russia's Sovereign wealth fund is at about 150 billion dollars and if they chose not to dip into that they can increase borrowing from the energy companies.

https://www.economist.com/briefing/2023/04/23/russias-economy-can-withstand-a-long-war-but-not-a-more-intense-one

Why America will soon see a wave of bank mergers

 This article stresses how the United States is on the verge of experiencing a wave of bank mergers. The pandemic brought significant change in consumer behavior, which has made a shift in banking practices necessary to remain relevant. The rise of digital banking services such as mobile and online banking has become the new norm, making it important for banks to make large investments in technology to keep up with their competition. This will be costly, and the only way for smaller banks to survive is to merge with large banks. The article suggests that merging will be easy under Biden’s administration.Large banks like JP Morgan and Bank of America will merge to reduce costs and expand market share, while small banks will merge with larger ones to remain in business. Banks that do not adapt to changing consumer habits and invest in new technology are likely to face significant challenges in the future and go bankrupt.

https://www.economist.com/leaders/2023/04/20/why-america-will-soon-see-a-wave-of-bank-mergers

Oil and Gas Prices

An article that I found talks about the price rises in the last two years for oil and gas and how this could mean greater impacts due to the recession that is coming into view. Since the recession is coming into view many oil and gas prices are lowering which is greatly impacting the economy. It was stated that, “S&P 500 energy sector is down about 1.4% so far this year…Oil prices, meanwhile, fell by $2 per barrel as fears of a recession rise.” (CNN). This overall is very concerning for the economy and the oil and gas companies. There are five large companies that are already gearing to combat these fluctuations in prices. All in all, this article describes how these price fluctuations are affecting the economy and what is being planned for combating these changes. 

Article: https://www.cnn.com/2023/04/21/investing/premarket-stocks-trading/index.html 

China is concerned about much more than India outgrowing its population

    China has reacted defensively to the news that India is on track to overtake it as the world's most populous country, accusing Western media of focusing only on population size rather than other factors such as education, industrial output, and economic clout. While the two countries are geopolitical rivals, with a border dispute and ongoing clashes between troops, China says that population size doesn't equate to national power, and instead emphasizes the importance of consumer and investor confidence. Both China and India face their own challenges, with China's aging population raising serious questions about the country's ability to maintain its economic status, while India has struggled to create enough jobs to support its growing population.



https://www.nbcnews.com/news/world/china-reacts-india-overtake-worlds-most-populous-country-economy-rcna80581

Recent CNBC All-America Survey Shows Americans Continue to Have a Negative Outlook On Economy

 The most recent CNBC All-America Economic survey (an indicator of American perceptions of the economy and economic indicators) found that almost seven out of every ten adults currently have a negative outlook on the U.S. economy, the highest level in the poll's 17-year history. Two thirds of individuals polled believe their wages are falling behind the level of inflation, while another two thirds of people believe the economy is either headed for a recession or already in one. This data comes after the Fed raised interest rates for the ninth consecutive time last month in its attempt to tame inflation, which appears to be cooling according to the latest data, showing a decline from 9.1% in June of 2022 to 5.0% last month. Despite the decline in inflation over the last year or so, Americans are still modifying their spending habits. According to the poll, individuals are now spending less on entertainment and travel, and are less likely to buy a car or home due to higher interest rates. While the Fed's efforts to lower inflation come at a cost, the U.S. economy is showing its resilience, as unemployment dropped from 3.6% in February to 3.5% in March, adding 236,000 new jobs. 

https://thehill.com/business/economy/3956526-record-69-percent-holds-negative-views-of-us-economy-survey/