Soft Landings, Sticky Inflation, and Great Power Rivalry: Insights from S&P Global’s Chief Economist

Introduction

Paul Gruenwald, S&P Global’s chief economist, recently shared his thoughts on various economic subjects. In this article, we will explore his insights on soft economic landings, sticky inflation, the dash to decarbonize, and the emergence of India.

Soft Economic Landings

• Australia, the US, and other countries have shown economic resilience despite interest rate hikes.
• A soft landing in Australia would involve a slight increase in the jobless rate, as long as job creation and wage growth remain strong.
• Employers are keen to retain staff due to the costs associated with letting people go and finding new workers.
• ANZ predicts Australia’s jobless rate to decrease to 3.6% in August.

Sticky Inflation

• Central banks may have been too optimistic about inflation, considering the fiscal stimuli caused by the Covid pandemic.
• The spike in energy prices after Russia’s invasion of Ukraine has added to the inflationary pressures.
• Monetary authorities, including Australia’s Reserve Bank, are likely to keep interest rates elevated to control inflation.
• Interest rate cuts may not happen until late 2024 for the US.

The Dash to Decarbonise

• Two global energy transitions are underway: decarbonizing the fossil fuel industry and increasing the use of renewables.
• The US has taken the lead with subsidies for battery storage, green hydrogen, and electric vehicles.
• Australia has great potential for decarbonization due to its abundance of renewable energy and critical minerals.
• The EU has been more prescriptive in its approach to decarbonization.

Great Power Rivalry and the Emergence of India

• Australia is more vulnerable to changes in the Chinese economy due to its dependence on Chinese trade.
• China’s problem lies in excessive investment and real estate dependency.
• China’s state banks are offering debt relief to construction firms to restore confidence in the housing market.
• India, with its potential growth rate of 7%, is expected to take over as a major economic player.
• India faces challenges in transitioning from an agriculture-based economy to a services-dominated one.

Overall, Paul Gruenwald’s insights provide valuable perspectives on the current economic landscape.