Global Macro Monitor

China’s collapse in foreign lending has contributed to a world of hurt and burdensome debt.  

China also lent more than $1 trillion abroad, largely for infrastructure projects to be built by Chinese companies under its Belt and Road Initiative. Over the past two decades, one in three infrastructure projects in Africa was built by Chinese entities. The long-term debt risks for fragile developing economies were often ignored.

…China, now by far the world’s largest sovereign lender, has played a leading role in saddling many countries with levels of debt, often through nontransparent arrangements, that are comparable with those seen in the 1980s. The situation is becoming perilous. Over the past decade, during which China doled out more lending than the Paris Club — a grouping of 22 of the world’s largest creditor nations — the total value of interest payments of the 75 poorest countries in the world have quadrupled and will outstrip their total annual spending on health, education and infrastructure combined, according to the World Bank. An estimated 3.3 billion people live in countries where interest payments exceed investments in either education or health, the United Nations said.  – NY Times

Check out the big moves…

The Consumer Price Index for All Urban Consumers (CPI-U) rose by 0.2% in July on a seasonally adjusted basis, reversing the 0.1% decline in June. The annual increase was 2.9%, the smallest since March 2021. The shelter index was the main driver, contributing nearly 90% of the monthly rise, with a 0.4% increase. Energy prices remained flat after two months of decline, and food prices also saw a modest increase of 0.2%.

Core inflation, excluding food and energy, rose by 0.2% and 3.2% year-on-year, driven by gains in shelter, motor vehicle insurance, and household furnishings. Despite these increases, some areas like used cars, medical care, and airline fares saw price declines.  

Cue the Fed. 

Key Facts:

• Monthly CPI-U increase: 0.2% in July 2024.
• Annual CPI-U increase: 2.9%, the smallest since March 2021.
• Shelter index: Increased by 0.4%, accounting for nearly 90% of the overall rise.
• Energy index: Unchanged in July, following two months of decline.
• Food index: Increased by 0.2%, consistent with June’s growth.
• Core inflation (less food and energy): Up 0.2% in July, with annual growth of 3.2%.
• Declining sectors: Used cars, medical care, airline fares, and apparel saw price drops.

Source:  Visual Capitalist

The latest release from S&P Global regarding the GEP Global Supply Chain Volatility Index for July underscores a marked decrease in supplier capacity utilization, falling to a four-month low not observed since April. This downturn indicates an alleviation of strains across international supply chains concurrently with a general softening in demand across multiple regions.

Europe stands out with pronounced underutilization, driven predominantly by a manufacturing sector grappling with recessionary forces. Germany, in particular, has seen a significant contraction in factory purchasing activity, exemplifying the region’s economic challenges.

Similarly, growth in Asia has slowed, with factory demand plummeting to the lowest levels since December 2023. Chinese manufacturing sectors have notably reduced purchasing activity for the first time in nine months, marking significant economic softening. Japan’s manufacturing malaise has further exacerbated the region’s declining performance.

Conversely, North America’s supply chain utilization has seen only marginal changes from June. Nevertheless, the region is not without difficulties, evidenced by a slowdown in purchasing across the United States, Mexico, and Canada. Canada, in particular, has experienced the most severe contraction within the region, whereas earlier growth observed in Mexican factories has abated somewhat, marking the first downturn in demand since October 2023.

Despite these challenges, global supply chains have maintained a degree of operational efficiency, with negligible disturbances in stock levels, shortages, or undue price fluctuations. However, global transportation costs have escalated to a 21-month peak, largely propelled by increased expenses in Asia.

The diminished purchasing activities reflect broader economic slowdowns, prompting intensified discussions about the necessity for the Federal Reserve to reduce interest rates to bolster demand and mitigate further economic deceleration in the latter half of the year.

Overall, the July 2024 S&P Global report signals growing concerns over deteriorating economic conditions globally, with particular emphasis on critical areas such as Europe and Asia and the subsequent impact on the efficiency of international supply chains.

TOTD:  ‘Toon of the Day

The Producer Price Index (PPI) for final demand was softer than expected in July, increasing by 0.1%, following a 0.2% rise in June. Over the past 12 months, the index advanced by 2.2%. The July increase was driven by a 0.6% rise in final demand goods, particularly energy prices, which grew by 1.9%. Final demand services fell 0.2%, primarily due to a drop in trade services margins. Excluding volatile categories like food, energy, and trade services, prices increased by 0.3% in July, resulting in a 3.3% year-over-year rise.

Key Points

• July 2024 PPI Increase: 0.1% increase in the PPI for final demand.
• 12-Month PPI Change: PPI for final demand up 2.2% year-over-year.
• Final Demand Goods: Prices rose by 0.6%, driven by a 1.9% increase in energy.
• Final Demand Services: Prices decreased by 0.2%, with trade services margins falling 1.3%.
• Energy Impact: 60% of the increase in goods prices was attributed to higher energy costs.
• Notable Price Increases: Gasoline up 2.8%, with rises in diesel fuel, meats, and jet fuel.
• Exclusions Effect: Excluding food, energy, and trade services, prices rose by 0.3%, up 3.3% year-over-year.

Source:  BLS