The impact of central banks in the world on inflation and economic growth
In the past year, we witnessed an unusual race among the central banks of the world to address the problem of inflation, and despite this, the measures taken have not achieved the desired results so far, according to a report published by the Wall Street Journal.
The pace of economic growth remains mostly slow, and rich countries are experiencing strong economic pressures despite sharp increases in interest rates. The reason prices are rising and inflation not falling is mostly due to the strange effects of the COVID-19 pandemic, and the time it takes for central banks to raise interest rates to dampen economic activity. In addition, a tight labor market contributes to higher worker wages and consumer spending.
COVID-19 pandemic and price hikes
The COVID-19 pandemic had an extraordinary impact on the global economy in 2020 and slowed economic growth. Despite the recovery witnessed by the economy in the following years, the abnormal effects of the recession caused by the pandemic led to a weak effect of raising interest rates on inflation.
Government financial support
In 2020 and 2021, governments, including the United States, provided trillions of dollars in financial assistance to families suffering as a result of the pandemic. At the same time, central banks cut interest rates, allowing businesses and consumers to save on lower borrowing costs.
Continuing spending and employment
In recent months, households and companies have continued to consume intensively, as households used their savings as companies continued to hire more workers to fill the shortfall caused by the pandemic.
The impact of interest rates on economic sectors
The automotive and real estate sectors have traditionally been affected by interest rates. Higher interest rates lead to higher borrowing costs for consumers and businesses, and thus lower demand for cars and real estate. However, with the current low interest rates, demand for cars and real estate remains strong.
The world’s central banks have raced at an extraordinary pace over the past year to calm inflation, but so far these measures have not borne fruit. This is partly due to the bizarre effects of the COVID-19 pandemic that have led to price inflation and the weak impact of interest rates on inflation. Governments continue to support economies by providing financial aid and lowering interest rates, which stimulate spending and employment. The automotive and real estate sectors are directly affected by interest rates, as demand may decline if those prices rise.
Semiconductor chip shortage and its impact on the automotive market and the construction sector
Recently, the shortage of semiconductor chips due to the epidemic has affected many industries, including the automotive market and the construction sector. This shortage has reduced the supply of cars available for sale, prompting buyers to pay higher prices to acquire the cars that are available. However, there are still some positive factors affecting the construction sector and the real estate market despite this shortfall.
Shortage of semiconductor chips and the automotive market
The automotive market was greatly affected by the shortage of semiconductor chips. These chips are used in many different electronic components in cars, such as the engine control system, navigation system, displays, and sensors. Due to the shortage of these chips, it has become difficult for car manufacturers to meet the growing demand.
When supply is less than demand, the race between buyers for available cars increases. As a result, higher prices are being paid for the cars on the market. Many potential buyers are putting off buying a car or paying extra to get the model they want. This shortage of semiconductor chips is particularly affecting the electric vehicle industry, as these vehicles need advanced electronics-based technology.
Shortage of semiconductor chips and the construction sector
Although the construction sector saw a decline in home building in the US over the past year, employment in this sector increased over the period over the past 12 months. This is due to bottlenecks in the supply chain that have led to an increase in the time required to complete real estate projects.
Despite the challenges facing the construction sector, there are several positive factors affecting the real estate market and home construction. For example, single-family home construction in the United States has picked up recently because there aren’t as many homes for sale. Many families have refinanced homes during the pandemic and kept mortgage rates low, making them prefer to stay in their homes rather than sell them.
The effect of raising interest rates and government spending
According to the newspaper, an increase in the Fed interest rate usually leads to less spending by debtor consumers and businesses, as they must pay more money to pay down their debts. However, consumers have not significantly increased debt over the past few years, as household debt service payments accounted for 9.6% of disposable personal income in the first quarter of this year, which is below the lowest level recorded since 1980 and pre-pandemic in March. 2020.
On the other hand, government spending continued to support economic growth and mitigate economic shocks. European governments have pledged up to $850 billion in financing to support spending and boost the economy.
The impact of lower oil and natural gas prices
Oil and natural gas prices have fallen this year, which has boosted economic growth, boosted confidence and eased pressure on government budgets. The price of a barrel of oil has fallen by nearly half in the past year, from around $120 to less than $70. This decline in oil and natural gas prices enhances the ability of consumers to reconcile expenses and contributes to increased spending and economic growth.
Chinese economy reopening activity in many of the country’s trading partners
Over the past few months, the Chinese economy has seen a gradual reopening after a period of slowdown due to the COVID-19 pandemic. China’s moves to boost its economic activity were not only limited to its own borders, but also to the trading partners that deal with it. This activity has improved the economic prospects of many countries and companies that are economically linked to China.
Impact on business partners
The impact of the reopening of the Chinese economy on trading partners has been clear and in many cases positive. Countries that depend heavily on trade with China have benefited from the increase in economic activity in the Chinese country.
local growth stimuli
Motivated by the need to boost domestic growth, the Chinese government has introduced new incentives to stimulate the economy. These incentives include tax cuts and loan facilities for companies and investors who contribute to economic activity. These actions have led to an increase in investment and production in China, which has a positive impact on trading partners.
Improve demand for products and services
With the increasing activity of the Chinese economy, the demand for products and services exported from partner countries has increased. Trading companies have seen an increase in demand for their products and export opportunities have improved. This improvement in demand contributed to the revitalization of the national economies of the trading partners.
Despite the positive impact of reopening the Chinese economy, China faces domestic challenges in promoting sustainable growth and development.
weak local growth
Despite the incentives undertaken by the Chinese government, there are still challenges in achieving sustainable domestic growth. China faced a slowdown in economic growth in June this year, prompting it to introduce new incentives to boost economic activity.
The effect of raising interest rates
Raising interest rates is another challenge facing the Chinese economy. It takes time to raise interest rates to affect the economy and calm growth and inflation. The Bank of England, the Federal Reserve and the European Central Bank have all raised interest rates in the past months and this is expected to affect the Chinese economy.