Monday Musings: April 18, 2022

Apr 18, 2022

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Public Trust Credit Team
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World Bank cut its 2022 global growth outlook due to Russia invasion

Earlier today, the World Bank cut its forecast for 2022 global growth because of the impacts of the war in Ukraine. In January, the organization had projected 4.1% growth for the year but now expects 3.2%. Inflation is high across the globe, while shortages of natural gas have the power to slow down large parts of Europe. Already we have seen economists lower GDP forecasts for countries around the globe so a global decline in the forecast is not surprising. One item of note is that the decline is spurred primarily by Europe and Central Asia, meaning North America has been largely insulated. We continue to diligently manage our European and Asian exposures for any material information that comes along but for the moment, we are not concerned about our counterparties across the pond despite the lower global growth forecast.

As U.S. inflation hits 40-year high, retirees are being forced to make difficult financial decisions

Supply chain shortages and persistently strong consumer demand have exacerbated the recent inflationary environment. While consumers with spending flexibility have limited their nonessential purchases in response to rising price levels, those living on fixed incomes and/or those nearing retirement age are left burdened by the uncertainty of whether their savings will be sufficient to support their lives. With uncertainty surrounding future pricing levels, many workers are choosing to postpone retirement or even return to the workforce out from retirement. The portion of workers over the age of 55 either working or looking for a job has increased in recent months with nearly 300k more within the age group entering the workforce over the last six months than in the six months leading up to the pandemic. There is the potential that an increasing workforce could propel economic growth, lessen the impact of staffing shortages, and moderate the same rising wages and prices that spurred so many to reevaluate their retirement situation in the first place.

Investors get a look under the hood with newly published GDP figures from China

Despite overall spending contracting and growing lockdowns, China’s GPD increased 4.8% in Q1. The country reported its largest drop in consumer spending as well as the worst unemployment rate since the implementation of lockdowns at the start of the pandemic. Retail sales contracted 3.5% in March while the jobless rate jumped to 5.8%, representing the highest rate since May of 2020. 45 cities in the world’s second-largest economy are imposing partial or total lockdown, impacting an estimated 370 million people according to Nomura Holdings. This trend is expected to continue well into 2022, as President Xi Jinping is taking drastic measures to execute his ‘COVID Zero’ approach. However, the effects of extended lockdowns are now compounding with the existing supply strain stress that is felt across the globe. China now facing employment pressure caused by restricted and minimal industrial production coupled with suppressed demand for employee services.

Although China’s GDP appears healthy on the surface, a deeper look reveals the struggles and adverse economic effects of stringent COVID lockdowns. Street projections are estimating the anticipated Chinese annual GDP growth of 5.5% will be unattainable, particularly if this situation extends further into the year. A large portion of China’s economy is state-owned, so these state-owned enterprises (SOE) are competing against quarterly quotas and targets, potentially giving the SOEs incentives to inflate their own figures. With inflated SOE figures removed, many economists share the thought that China’s actual GDP could be half of what is reported. With the lockdowns showing no signs of loosening as we push into Q2, we could see a significant pullback of the key metrics that signal economic health.

All comments and discussion presented are purely based on opinion and assumptions, not fact. These assumptions may or may not be correct based on foreseen and unforeseen events. The information presented should not be used in making any investment decisions. This material is not a recommendation to buy, sell, implement, or change any securities or investment strategy, function, or process. Any financial and/or investment decision should be made only after considerable research, consideration, and involvement with an experienced professional engaged for the specific purpose. Past performance is not an indication of future performance. Any financial and/or investment decision may incur losses.

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