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Headlines: deflation worries, US growth, Facebook and Nintendo…

In Business and Currency by Kyle RammlerLeave a Comment

Every Friday the Current rounds up the biggest business stories of the week. This week; Japan, Brazil and Britain all flirt with deflation, the US enjoys the biggest growth in consumer spending in 8 years, Sweden cuts interest rates, European stimulus efforts boost stock market, China bails out a property developer and Facebook and Nintendo both branch out.

Japan nears Deflation

Japan, the world’s third largest economy, is on the brink of deflation. The core consumer price index (CPI) hasn’t budged since last year despite the Bank of Japan (BOJ) pursuing an inflation target of 2%. The country only broke out of recession in the final quarter of last year and already figures show that household spending is down 2.9% and retail sales down 1.8%. The BOJ initiated an aggressive monetary policy and stimulus package in October of last year but are unlikely to act further. Despite low growth, wages increased in Japan by 1% last year and unemployment is at a paltry 3.5%, both indicators that the Japanese economy is not in trouble.

Brazil close to deflation

Brazil, the world’s 7th largest economy, recorded just 1% growth in 2014. Despite a decade of impressive growth the South American giant has struggled over the last 4 years, and under the new finance minister the country has moved from stimulus to austerity. Similar policies in Europe have proven to be effective but at a great social and political cost.

UK Inflation Drops to 0%

February’s consumer price index (CPI) fell to 0% in the UK, the lowest level ever recorded. Most experts had predicted a figure of 0.1% but even this modest prediction proved to be too optimistic. Due to the fall in oil prices, inflation could turn negative in the coming months, but the Bank of England has not indicated that it would cut interest rates.

US economy enjoys Spending Growth

In the final quarter of 2014 the US economy grew by 2.2% thanks to the biggest increase in consumer spending in 8 years. But it is unlikely that the first quarter of 2015 will be able to live up to the strong performance that wrapped up 2014. Brutal winter weather, the recovery of oil prices and other factors will most likely push spending, and growth, down.

Sweden cuts interest rates

Sweden’s Central Bank surprised experts by cutting rates from -0.1% to -0.25% and increased the scale of its quantitative easing program (What is quantitative easing?) in an attempt to stave off deflation. Norway, again to the surprise of experts, did not follow the Riksbank’s lead and has instead held rates steady.

European QE Boosts Stock Market

For the first time ever Frankfurt’s DAX stock market index closed above 12 000. Eurozone bonds have fallen in price as a result of the European Central Bank’s quantitative easing program causing investor to pull out of the bond market and search of better returns in stocks. The euro’s decline has also boosted exports from the eurozone, and Germany in particular – contributing to the DAX’s historic high. Just weeks after initiating QE, the ECB was already claiming success, and the latest stock market news out of Frankfurt seems to justify their self-congratulation.

China bails out property developer

Evergrande, one of China’s largest property developers has received $16 billion of credit from the Chinese government. House prices in the Asian giant fell 5.7% between February 2014 and February 2015, including big drops in Beijing and Shanghai. The government has hinted that it may hand out further stimulus packages in the coming months. Meanwhile, the Asian Infrastructure Investment Bank (AIIB) that was proposed by China has failed to woo America’s Congress – who voted down a proposal to reform the IMF in order to increase China’s influence. Britain, France, Italy and Germany have all signed onto the AIIB but the US remains skeptical of China’s intentions.

Facebook and Nintendo branch out

Facebook has launched an instant messaging based money transfer service. The tech leader hired David Marcus, formerly of PayPal, to lead the project. Meanwhile Nintendo has finally caved in and announced that classic games, like Super Mario, would be made available for mobile platforms. The news brought a 21% jump in shares for the Japanese video game producer.

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