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Global economy faces rough weather ahead

By SHAO XINYING | China Daily | Updated: 2023-12-28 09:27
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Bryan Cranston (front left) and Aaron Paul (front right), cast members from Breaking Bad, strike on a picket line outside Sony Pictures studios in Culver City, California, on Aug 29. CHRIS PIZZELLO/AP

Rising prices trigger protests as Fed's interest rate hikes cause spillover effects worldwide

US actors Bryan Cranston and Aaron Paul met again in August. This time not for the reunion of the Breaking Bad series, but on the picket line in solidarity protests with other Hollywood actors.

Speaking to the crowd, Cranston said, "We just want them to see reality and fairness and come back to the table and talk to us."

Striking actors started the rally in mid-July, more than two months after screenwriters began protests in their bid to get better pay and working conditions under the influence of streaming services and artificial intelligence.

The celebrity-packed picket lines brought more attention to the so-called Hollywood double strike — writers and actors — unseen in 60 years.

From coast to coast, a wave of strikes has gripped the US throughout 2023, rippling across industries such as logistics and automobiles.

The country's United Auto Workers union began a strike in mid-September against all the Big Three automakers, namely Ford Motor, General Motors and Stellantis. The first-ever strike of all three at once in the union's 88-year history came after failed talks on new contracts.

In the past 50 years across the United States, there has been a massive redistribution of wealth, Vermont Senator Bernie Sanders said at a rally, highlighting the rising salaries of the CEOs of the Big Three automakers.

Against this backdrop, the union had reportedly been negotiating for significantly higher pay and new benefits.

"After the pandemic, the US economy grappled with sluggish growth and encountered intense competition from other countries, presenting challenges for businesses," Wang Zhen, a research professor of international politics at the Institute of International Relations, Shanghai Academy of Social Sciences, told China Daily.

During the pandemic, the US implemented stimulus packages to bolster the economy.

"The fiscal expansion policies led to high inflation and elevated the cost of living for the working class," Wang said. "In addition, technological advancements, particularly artificial intelligence, have encroached upon the traditional interests of corporate workers, prompting them to take to the streets to defend their rights."

The US inflation rate started to grow at a more than 2 percent rate from March 2021 and peaked at 9.1 percent in June 2022 to a 40-year high, according to the US Bureau of Labor Statistics.

To tame inflation, the US Federal Reserve raised its benchmark policy interest rate 11 times since March 2022 from the near-zero level to the current 5.25-5.50 percent range, marking the fastest pace in 40 years.

"The Fed is as aggressive as it has been since the early 1980s," Chris Turner, global head of markets at the Dutch banking group ING, was quoted by CNN as saying.

"They're willing to tolerate higher unemployment and a recession", he said. "That's not good for international growth."

Even though inflation has eased from a peak of 9.1 percent last year, it remains too high for the Fed.

The US central bank said it remains "highly attentive to inflation risks" and that it is strongly committed to returning inflation to its 2 percent goal as it left interest rates unchanged on a Dec 13 meeting, a third pause from September.

The rate-setting group pointed to recent indicators showing that economic activity has slowed in the third quarter.

The high rates have put the banking system under pressure, which has seen the collapse of Silicon Valley Bank and Signature Bank in March, and the failure of First Republic Bank in May. Elsewhere, UBS agreed in March to buy Credit Suisse in a rescue move to avert a banking sector meltdown.

"Ripple effects of US financial system strains could lead to tighter credit, sharper slowdown worldwide," said a report by The Wall Street Journal earlier this year. "Turmoil in the US banking sector isn't just a problem for the US. It also increases the risks of a global recession."

Xu Gao, chief economist at Bank of China International, told China Daily, "After the collapse of the Silicon Valley Bank, the growth rate of credit extended to entities by the US banking system showed a slower pace.

"Once the accumulated liquidity is drained, the impact of subsequent liquidity crunch is expected to manifest in the real economy."

Citing the manufacturing purchasing managers index in the US which has run under 50 since November last year, Xu said, "Although the US economy seems to be doing well this year, its role as a driving force for global economic growth has declined."

The World Economic Outlook published by the International Monetary Fund in October said: "Borrowing costs for emerging (markets) and developing economies remain high, constraining priority spending and raising the risk of debt distress.… The danger is of a sharp repricing of risk, especially for emerging markets, that would appreciate further the US dollar, trigger capital outflows, and increase borrowing costs and debt distress."

In November, European Central Bank President Christine Lagarde told the European Parliament that although she expected the weakening of inflationary pressures to continue, "the medium-term outlook for inflation remains surrounded by considerable uncertainty". She said wages would continue to play a pivotal role in driving domestic inflation.

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