Global economic outlook uncertain due to conflicts: US treasury

Global economic growth in both 2022 and so far in 2023 has been stronger than expected, said the semi-annual report on macroeconomic and foreign exchange policies of major trading partners of the United States delivered to Congress. 

Among major US trading partners, the very large surpluses of Germany, Ireland, Switzerland, Taiwan, the Netherlands and Singapore have each remained significant as a share of gross domestic product (GDP) over the four quarters ending June this year.

China’s surplus was higher in dollar terms at $389 billion (2.2 per cent of GDP) over these four quarters compared to $380 billion in the four quarters ending June 2022 (2.1 per cent of GDP).

Meanwhile, the US current account deficit narrowed to 3.3 per cent of GDP in these four quarters—down from 4 per cent of GDP in the four quarters ending June 2022.

Differing growth and inflation outlooks have led to a range of monetary policy actions across countries, and fundamentals including interest rate differentials, terms of trade shocks, and growth expectations have had large impacts on currencies.

The nominal broad dollar was relatively stable in the first half of 2023, weakening slightly but still at a strong level relative to historical values.

Over the course of August and September, though, the dollar strengthened nearly 4 per cent, leaving it up by 1.1 per cent year-to-date as of end-September.

Notably, the dollar strengthened 13.4 per cent against the yen, pushing the yen close to 150 yen per dollar. The dollar is 5.8 per cent stronger against the RMB as expectations for Chinese growth have cooled.

As of end-September, the broad dollar has strengthened 1.9 per cent against the basket of advanced economies’ currencies and 0.4 per cent against the basket of emerging market economies’ currencies.

Most interventions by US trading partners continue to be in the form of selling dollars, actions that strengthen their currency and weaken the dollar.

Thus, it is not a surprise that in the four quarters through June 2023, no trading partner was found to have manipulated the rate of exchange between its currency and the US dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade, the report noted.

A number of major trading partners have excessively large current account surpluses as discussed above, suggesting imbalances in demand and supply across major economies, but currency manipulation was not a driving force of those surpluses during this period.

It is worth noting that two trading partners that ran current account surpluses (Singapore and China) did purchase foreign currency on net over these four quarters, but they too did not meet the standard for preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade, added the report.

Fibre2Fashion News Desk (DS)