- China overtakes USA to become EU’s largest trading partner
- Fed: Economic conditions are “far from” where it needs to be
- Global debt exceeds $281 trillion hitting new record
China Overtakes USA to Become EU’s Largest Trading Partner
Europe is now trading more goods with China than the United States, which can be a sign of how Covid-19 is transforming the global economy.
The total value of imports and exports between China and the EU reached $709 billion last year. Meanwhile, trade between the EU and the USA remained at $671 billion.
Although the Chinese economy contracted in the first quarter of 2020 due to the coronavirus outbreak, it later recovered. This was due to the increase in demand from the EU. Among the world’s largest economies, only China grew in 2020.
“The reason behind it is clearly the fact that China/Asia is the only region going through a nice V-shaped recovery,” ING Germany economist Carsten Brzeski told CNBC on Tuesday.
“Looking ahead, the importance China has for European trade is also a clear dilemma,” Brzeski said, adding that “Europe will have a hard time making choices” between trading with China and helping the U.S. on the technology front.
The coronavirus outbreak occurred in China, but it was not affected by the second wave as heavily as Western countries and had to take strict quarantine measures.
According to the EU statistics office Eurostat, China became the EU’s main trading partner in 2020. The 5.6 percent increase in imports and the 2.2 percent increase in exports played a role in this.
Eurostat data show that the trade deficit between the EU and China continued to increase in favor of China, rising from $199 billion to $219 billion.
The USA and the UK continue to be the EU’s largest export markets. However, it is seen that there has been a serious decrease in trade with both countries. According to Eurostat data, the EU’s imports from the US decreased by 13.2 percent and its exports by 8.2 percent.
The trade volume between the EU and the USA in 2020 was 671 billion dollars. In 2019, this figure was $746 billion. US President Joe Biden’s policies on trade with Europe have not yet been clarified.
However, the EU and China are trying to mutually strengthen their economic ties. The parties are working on investment agreements that will facilitate European companies’ entry into the Chinese market. At the time of the announcement, European trade chief Valdis Dombrovskis said: “The current crisis gives us no other option but to work hand in hand with our global partners, including China.” “By pulling together we can recover more quickly economically, and make progress on areas of mutual interest such as trade and investment relations,” he said in a statement.
European lawmakers, some of whom are critical of the Chinese government and are hesitant to sign it off, have yet to accept the agreement.
Fed: Economic Conditions are ‘far from’ Where It Needs to be
Minutes of the FOMC meeting held on January 26-27 were published. At the meeting, participants stated that the economic conditions are far from the Committee’s long-term goals at the moment.
The minutes of the last meeting of the US Federal Reserve (Fed) revealed that the economic conditions in the country are far from the long-term targets and the supportive policy stance should continue until the targets are reached.
In the minutes of the last meeting, where the policy rate was kept constant between 0-0.25 percent, it was stated that the recovery rate in economic activity and employment has slowed down in recent months.
It was stated in the minutes that the economy will depend on the course of the pandemic, including vaccination, that the ongoing public health crisis will continue to put pressure on economic activity, employment and inflation, and will pose significant risks to the economic outlook.
Pointing out that the general financial conditions continue to be supportive, the minutes said, “Participants noted that economic conditions were currently far from the Committee’s longer-run goals and that the stance for policy would need to remain accommodative until those goals were achieved,” the meeting summary said. “Consequently, all participants supported maintaining the Committee’s current settings and outcome-based guidance for the federal funds rate and the pace of asset purchases.”
In the minutes, which were stated to support the continuation of the guidance on federal funds rate and asset purchases, it was stated that asset purchases will continue at the current pace at least until significant progress is achieved in employment and inflation targets.
Additionally, it was pointed out that the expansion in the Fed’s balance sheet significantly relieved financial conditions and provided support to the economy.
In a discussion over the Fed’s asset purchase program and interest rate policy, the minutes indicated little chance for a change anytime soon.
The minutes mentioned that asset prices are “high” and said that vulnerabilities associated with levels of household and business borrowing are “significant.” Officials also said that certain money markets and open-ended mutual funds face “significant liquidity transformation vulnerabilities.”
Global Debt Exceeds $281 trillion Hitting New Record
Global debt mountain reached $281.5 trillion by the end of 2020, recording an all-time high due to the negative impact of the Covid-19 pandemic on economies.
The International Finance Institute (IIF) has published its “Global Debt Monitor” report. According to the report, the global debt amount increased by $ 24.1 trillion compared to 2019, to $ 281.5 trillion as of the end of last year. The global debt amount was recorded as $ 257.4 trillion in 2019.
While there was a sharp decline in public and corporate revenues due to the Covid-19 outbreak, the $ 24.1 trillion increase in the debt of 61 countries last year accounted for more than a quarter of the debt increase estimated at $ 88 trillion in the last 10 years.
The global debt-to-GDP ratio hit 355 percent last year, up 35 percentage points year-on-year. “The upswing was well beyond the rise seen during the 2008 global financial crisis,” it noted.
Looking at the breakdown of debt, household debt was $ 51.1 trillion, non-financial company debt was $ 80.6 trillion, public debt was $ 82.3 trillion, and financial companies such as banks were $ 67.5 trillion by the end of 2020.
Considering their proportion to total GDP, household debt rose from 60.4 percent to 64.4 percent and non-financial corporate debt from 91.9 percent to 100.1 percent last year. In the same period, public debt increased from 88.3 percent to 105.4 percent, and debts belonging to financial companies from 80.8 percent to 85.9 percent.
“We expect global government debt to increase by another $10 trillion this year and surpass $92 trillion,” the IIF report said, adding that winding down support could also prove even more challenging than it was after the financial crisis.
The largest increase in debt rates has been recorded in European countries such as France, Spain, and Greece. Among the developing countries, China was the country with the highest debt ratio. China, Turkey, followed by South Korea and the United Arab Emirates.
“While large budget deficits are necessary to tackle the crisis, finding the right exit strategy can be even more difficult than after the 2008-2009 financial crisis. Political and social pressure can limit governments’ efforts to reduce deficits and debt and jeopardize their ability to cope with future crises,” the report said. “
The rise in global debt ratios is expected to be relatively modest this year with the backing of rebound in GDP, according to IIF.