US Commerce Department data shows the nation’s economy grew by 5.7% last year – its best performance since 1984 – as it roared back from the pandemic lockdowns. However, analysts expect the growth to slow this year, as the government scales back stimulus spending and the Federal Reserve raises interest rates. Other risks include high inflation and threats from new Covid variants, including Omicron, they say.
“The economy is decelerating and downshifting,” the chief economist for the Americas at Natixis and ex-chief economist for the National Economic Council under former President Donald Trump, Joseph LaVorgna, told CNBC. “It’s not a recession, but it will be if the Fed tries to get too aggressive,” he said.
Statistics show that GDP surged by an impressive 6.9% in the fourth quarter of 2021, while the measure of all goods and services produced in the country grew 5.7% on an annualized basis.
Much of that end-of-year gain was fueled by an inventory rebuild that “contributed 4.9 percentage points to the total, led primarily by the auto sector,” the chief international economist at ING, James Knightley, was quoted as saying by CNN. Inventories were responsible for almost all of the third quarter’s 2.3% GDP increase.
“Given ongoing supply disruption we can’t count on this continuing to support growth in coming quarters,” Knightley said.
Tuesday’s ISM Manufacturing survey showed that the pace of new orders, while still showing gains, is slowing substantially.
Meanwhile, Goldman Sachs has trimmed its first-quarter GDP outlook to 0.5%, down from 2%. The bank also cut its full-year view to 3.2%, well below the current 3.8% consensus.
“Growth is likely to slow abruptly in 2022, as fiscal support fades and, in the near term, virus spread weighs on services spending and prolongs supply chain disruptions,” Goldman economist Ronnie Walker said in a note for clients seen by CNBC. “Q1 growth is likely to be particularly soft because the fiscal drag will be accompanied by a hit from Omicron.”
Bank of America also downgraded first-quarter GDP growth to 1% from 4%, and cut its full-year forecast to 3.6% from 4%.
EU forced to admit that price hikes are not as temporary and benign as previously said
Inflation across the Eurozone surged to 5.1% in January from 5% in the previous month, despite optimistic expectations for a sharp drop to 4.4%, data from Eurostat showed on Wednesday. Inflation is now more than twice the ECB’s 2% target.
The latest growth reportedly reflects the hottest rate of inflation across the 19 countries that have shared the euro since the records began.
Meanwhile, the single currency jumped by 0.3% to $1.13050, touching a one-week high to the US dollar, on the expectation that the ECB would signal a faster path for policy tightening as early as Thursday.
The ECB’s Governing Council is scheduled to gather this week, with an announcement due on Thursday afternoon. The soaring cost of living in Europe is putting pressure on the regulator to tighten money printing.
The ECB is expected to decide whether to keep implementing extremely loose monetary policy or keep running against signals from the US Federal Reserve and the Bank of England that they are planning to launch a rapid rate hike cycle this year to tame the inflation growth.
ECB President Christine Lagarde had previously signaled that a rate hike was unlikely in 2022. Interest rates in the Eurozone are currently at historic lows, however, markets are pricing in around two hikes from the regulator this year.
Emergency supplies can’t resolve the crisis, as re-routed volumes would disrupt other regions
The latest speculation about Russia’s hypothetical invasion of Ukraine and potential sanctions pledged by Western countries in response has raised serious concerns about energy security in Europe, which has already been shaken by the pandemic and the Covid-related supply crunch stretching across each and every sector of the region’s economy.
Europe is going through a severe energy crisis, with surging prices for heating and electricity placing an intolerable burden on households and businesses.
Russian gas supplies account for roughly 40% of Europe’s consumption, with any disruption of deliveries expected to aggravate the current situation and cause spikes in energy prices.
Though major energy producers like Qatar or Azerbaijan have pledged emergency gas supplies to the region, the volumes shipped by Russia are reportedly hard to replace without affecting other big consumers across the world, especially in Asia, the world’s fastest-growing market.
“Europe has no alternative to Russian gas,” BCS Global Markets Senior Analyst Ron Smith said as quoted by Bloomberg. “You would have to divert half of the LNG that Asia consumes in order to replace Gazprom PJSC. And what would that mean? That would mean massive energy shortages all across Asia, you would export Europe’s energy crisis to Asia,” the expert added.
According to Qatar’s energy minister, Saad Al-Kaabi, the volumes of gas the EU needs can’t be replaced by any one supplier unilaterally without disturbing deliveries to other regions.
The official stressed the importance of fulfilling obligations under long-term contracts with existing customers, and said strengthening European energy security would inevitably take collective efforts from a number of gas producers.
Increased competition for liquefied natural gas (LNG) is expected to keep prices high, according to the Brussels-based Bruegel think tank, as cited by the agency. The researchers say that Europe would have to curb demand in case of any prolonged disruption lasting through the next two winters.
Europe currently relies on the LNG that’s been arriving on its shores, helping to ease high prices, but Asia is expected to regain its spot as a premium export market for US cargoes of the fuel as early as May, according to BloombergNEF calculations.
“This idea that ‘we will fill the gap with LNG’ – no, you can’t. It’s physically impossible to do, there’s not enough LNG in the world to do that,” Smith told the agency.
British lawmakers said on Wednesday that Big Tech companies whose online platforms carry fraudulent adverts should be made to compensate those who fall victim to such actions. The call is part of wider efforts to combat a growing epidemic of online fraud in Britain.
According to Mel Stride, chairman of the cross-party Treasury committee, there is not sufficient regulation governing social media and other websites where victims are often first lured in. He told Reuters that “The government should look at some kind of arrangement that makes the polluter pay.”
“Online platforms are hosting this stuff, not really putting enough effort into weeding it out, and indeed financially benefiting because they’re getting the advertising revenues,” Stride said.
The comments come as the Treasury committee published the findings on Wednesday of a report on economic crime. According to the report, trade body techUK said in December that Facebook (now known as Meta), Twitter, and Microsoft had committed to requiring that potential advertisers of financial services be authorized by the UK’s Financial Conduct Authority. The commitment followed similar steps taken by Google, TikTok, and Amazon.
The report noted, however, that there was no set timeline for those changes and that other major online platforms have not followed suit.
Online fraud has risen sharply in the UK in recent years, with an upsurge during the Covid-19 pandemic. Reuters reported in October that Britain has become a global epicenter for bank scams, with a record £754 million ($1.38 billion) stolen in the first six months of last year, up 30% on the same period in 2020. British banks have signed up for a voluntary code to reimburse fraud victims who do enough to protect themselves.
Billions in market capitalization was wiped out after the first Meta quarterly report misses expectations
Shares of Facebook’s parent company Meta went into a nosedive after the markets closed on Wednesday, following an underwhelming quarterly report, the first since CEO Mark Zuckerberg announced the name change.
The stock stood strong at $323 a share when the markets closed at 4pm EST, but collapsed to $249 just half an hour later, for a loss of almost 23%. In just the first 11 minutes of after-hours trading, $16 billion in Meta’s market cap had been wiped out.
What triggered the sell-off was Meta’s quarterly report showing lower revenue, earnings per share, and the numbers of daily and monthly active users than expected by investors.
Meta EPS misses User growth falls short Revenue forecast misses
Whereas investors expected around $30.15 billion, Facebook’s figures showed $27-$29 billion, CNBC reported, citing a Refinitiv survey of market analysts. According to the same source, earnings per share came in at $3.67, short of the expected $3.84.
The number of daily active users (DAU) stood at 1.93 billion, less than the expected 1.95 billion, while the monthly active users (MAU) also undershot the 2.95 expectation, ending up at 2.91 billion, according to Street Account.
This is the first quarterly report since Zuckerberg announced his social media behemoth would be changing its name to Meta, to better represent its focus on the upcoming metaverse and encompass the existing Facebook, Instagram, and WhatsApp brands.
