EU raises growth forecasts, Turkey faces $85 billion in quake costs and other economy stories you need to read this week

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Author: Ian Shine, Senior Writer, Formative Content

• This weekly round-up brings you the latest stories from the world of economics and finance.
• Top economy stories: China plans stimulus measures to boost consumer spending; EU lifts growth forecasts; Turkey earthquake could cost country $85 billion.

1. EU raises growth forecast, expects to avoid recession

The European Union’s economic growth is likely to be stronger than expected this year, the European Commission says. It also believes economic activity will not contract in the first quarter of this year, meaning the bloc will avoid a previously expected recession.

The Commission now expects EU economic growth of 0.8% in 2023, up from the 0.3% it predicted in November. Declining gas prices, supportive government policy and resilient household spending are behind the improved forecast.

“The European gas benchmark price has fallen below its pre-war level, helped by a sharp fall in gas consumption and continued diversification of supply sources,” the Commission says. “Labour markets have also continued to perform strongly, with the unemployment rate in the EU remaining at its all-time low of 6.1% in December.”

The European Commission has raised its economic growth forecasts for 2023. The Commission forecasts that EU inflation will fall to 6.4% this year from 9.2% in 2022. Image: European Commission

However, it says “the EU economy is still beset with challenges” and that “uncertainty surrounding the forecast remains high”. Core inflation increased in January, interest rates are expected to keep rising, and the declines in gas prices could be reversed depending on the situation in Ukraine. In addition, China’s reopening following COVID-19 restrictions may prove more robust than expected, which could fuel inflation, it says.

The Commission forecasts that EU inflation will fall to 6.4% this year from 9.2% in 2022.

EU inflation is coming down, but remains high. Image: European Commission/Highcharts.com

2. Turkey earthquake could cost country nearly $85 billion

Turkey’s worst earthquake in almost a century could cost the country up to $84.1 billion, a business group says, while a government official puts the figure at more than $50 billion. The Turkish Enterprise and Business Confederation says the costs comprise $70.8 billion to repair homes, $10.4 billion from loss of national income and $2.9 billion from loss of working days.

The death toll of the 7.8 magnitude quake, which hit Turkey and Syria, exceeds 40,000 and looks set to rise. Around 13.4 million people live in the 10 Turkish provinces hit by the quake – 15% of the country’s population – and these areas produce close to 10% of national GDP.

The earthquake’s impact on GDP is unlikely to be as pronounced as after a 1999 earthquake in northwest Turkey, which struck the country’s industrial heartland, IMF Executive Director Mahmoud Mohieldin says. The European Bank for Reconstruction and Development estimates that it could result in a loss of up to 1% of the country’s GDP this year. The government forecast economic growth at 5% in 2022 and had estimated growth at 5.5% in 2023 before the quake.

News in brief: Stories on the economy from around the world

Chinese authorities plan to roll out policies to stimulate spending on housing and unlock consumer savings built up during the pandemic. This will include efforts to improve childcare services and encourage couples to have more children – announcements that follow a historic decline in China’s population last year.

US consumer prices accelerated in January because of higher food and house rental costs, but retail sales still rose by their most in nearly two years on rising purchases of motor vehicles. The US consumer price index increased by 0.5% last month after gaining 0.1% in December. Retail sales surged 3.0% after declining by 1.1% in December. Both trends suggest that the Federal Reserve is unlikely to pause its interest rate hikes.

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Argentina’s annual inflation reached almost 100% in January, giving the country some of the world’s fastest rising prices and leaving workers’ budgets strained as costs outstrip salaries. Monthly inflation sped up to 6% in January, while the annual figure hit 98.8%, the highest since hyperinflation in the 1990s.

The currencies of numerous emerging economies are coming under pressure because of the strengthening US dollar, according to The Financial Times. A series of currency devaluations have unfurled as emerging economies spend foreign reserves to try and prop up their exchange rates, while Egypt, Pakistan and Lebanon stopped pegging their currencies to the dollar earlier this year.

Nigerian companies are facing severe foreign exchange shortages that could threaten bank liquidity. This is forcing many citizens and businesses to seek US dollars on the black market, where the value of Nigeria’s naira currency has progressively weakened. Nigeria regularly suffers acute foreign currency shortages because of central bank efforts to steady the naira.

The EU is proposing more sanctions on Russia to mark the one-year anniversary of the invasion of Ukraine. The export bans would be worth more than €11 billion ($11.8 billion) and would be designed to deprive Russia of critical technology and industrial goods.

Japan’s economy narrowly avoided a recession but rebounded much less than expected in the fourth quarter as business investment slumped. The world’s third-largest economy expanded by an annualized 0.6% in the fourth quarter. The government has picked academic Kazuo Ueda as Japan’s new central bank governor, on expectations he can help keep inflation on target and sustain economic and wage growth.

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India’s annual retail inflation has risen above the central bank’s upper threshold for the first time in three months. It moved to 6.52% in January against a target of 6%, driven by higher food prices. The government could consider reducing taxes on some items such as maize and fuel as a result, Reuters reports.

Sri Lanka has raised electricity prices by 66%, in a move it hopes will persuade the International Monetary Fund to provide a bailout for its crisis-stricken economy.

Canadian house prices have fallen by 15% in the past year, as higher interest rates push prospective buyers out of the market, Bloomberg reports. The figures follow widespread reports late last year that the global housing market is heading for a major downturn in 2023, with prices in most major markets expected to fall because of higher mortgage rates and soaring cost of living.

British inflation fell by more than expected in January and there are signs of cooling price pressure in parts of the economy, adding to signs that further large interest rate hikes are unlikely. Annual consumer price inflation cooled to 10.1% last month, which is its lowest reading since September.

Saudi Arabia’s sovereign wealth fund has invested a total of $1.3 billion in four local construction firms, as it looks to the industry to spearhead an economic diversification drive intended to reduce the country’s dependence on oil.

World Bank President David Malpass has decided to leave his post well before his term ends. He will depart the multilateral development bank, which provides billions of dollars a year in funding for developing economies, by the end of June. His five-year term was due to end in April 2024.

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