After a year of war in Ukraine, economic indicators are yet to recover. The UK economy is improving faster than expected, allowing the head of the Exchequer to increase its fiscal budget by £10 billion. The US economic growth is below the department of commerce’s expectation of 2.9%, and major indexes appear to underperform, highlighting a recession.
The economic conditions of the UK are improving faster than the UK government expected. These conditions include economic growth, the level of investment, and decreasing energy prices. As a result, it is expected that the UK economy will return to its pre-covid level of output quicker. Bloomberg reports that because of the positive economic indicators, the Exchequer, led by Jeremy Hunt, is increasing its budget by £10 billion. The Exchequer’s budget is used for fiscal policy; with a greater budget, the Exchequer will be able to devote more resources to its fiscal policy and combat a recession effectively, when an opportunity arises. This also sends a message of stability, as the Exchequer’s move indicates that the economy is recovering faster. This can restore the trust in the government and thus lower inflation expectations, ultimately helping the government to manage inflation effectively. Furthermore, the New York Times states that the UK inflation rate is decreasing for a third consecutive month, giving a clever sign that much like the head of the Exchequer believes, the economy is recovering. Nonetheless, inflation in food prices continues, which arguably affects the living standards of many citizens much more.
The S&P 500 index has decreased by 2.67% in the last week, which continues the recent decrease in the S&P 500 composite. Nasdaq and Dow Jones Industrial Average show a similar trend with decreases of 3.33% and 2.99%, respectively. This highlights a reduction in the value of most major American companies and thus might foreshadow an upcoming recession.
The Pound has increased by 0.46 and 0.84 against the Euro and CHF. The currency has also decreased by 0.80% against the US dollar. Due to the low fluctuations in the value of the Pound, it is kept relatively stable against major currencies, showing a high degree of economic stability and potential recovery.
The US economy:
CNN notes that the US economy’s annual growth rate is 2.7% based on the last three months. This growth rate is below the Commerce department’s estimated growth rate of 2.9%. The PCE price index, which measures prices paid for personal spending, indicates that inflation has risen by 3.7%. Similarly, the PCE deflator, which watches inflation, has increased from 3.5% to 3.9%. Thus, the Federal Reserve might have to be more aggressive in its contractionary monetary policy raising interest rates further. This is especially true because the last increase in interest rates was the smallest in this year. The PNC Chief Economist, Gus Faucher, determined that the previous interest increases might result in a mild recession, which can devastate economic growth and recovery. If this is the case, increasing interest rates can be dangerous to the US economy and should be prevented.
It has been a year since the war in Ukraine started. Prior to the war, Ukraine was a leading exporter of agricultural goods, metals and minerals. The Financial Times reports that Russian gas exports had met 40% of Europe’s demand for energy before the war. Yet, since it began, Russian exports have been cut by over three-quarters, resulting in an energy crisis across the continent, and especially in Germany. Ukraine has lost its ability to export as the country’s resources are all dedicated to the war. Moreover, Russia is considering exporting more gas to Asia to combat the European sanctions against it, yet, it may take a long time to modify existing infrastructure to make mass transport possible. In the case of Ukraine, the economy has since shrunk by 30. Until the war will end, Ukraine will not be able to restore its exports, and even as a year has passed, an ending to the war is nowhere to be seen.