Tag: #usa

ICAEW chart of the week: IMF World Economic Outlook Update

My chart for ICAEW this week illustrates how countries rank in the IMF’s latest forecasts for economic growth over 2024 and 2025.

IMF World Economic Outlook Update ICAEW chart of the week (Horizontal bar chart) Legend: Emerging markets and developing economies (green) World (purple) Advanced economies (blue) UK (red) Projected annualised real GDP growth 2024 and 2025 Bars in green except where noted. India: +6.5% Philippines: +6.0% Indonesia: +5.0% Kazakhstan: +4.4% China: +4.3% Malaysia: +4.3% Saudi Arabia: +4.3% Egypt: +3.8% Iran: +3.4% Thailand: +3.2% Türkiye: +3.1% World Output: +3.1% (purple) Nigeria: +3.0% Poland: +3.0% Pakistan: +2.7% World Growth: +2.6% (purple) South Korea: +2.3% (blue) Mexico: +2.1% United States: +1.9% (blue) Canada: +1.8% (blue) Russia: +1.8% Brazil: +1.8% Spain: +1.8% (blue) Australia: +1.7% (blue) France: +1.3% (blue) South Africa: +1.1% United Kingdom: +1.1% (red) Germany: +1.0% (blue) Argentina: +1.0% Netherlands: +1.0% (blue) Italy: +0.9% (blue) Japan: +0.8% (blue) 8 Feb 2024. Chart by Martin Wheatcroft FCA. Design by Sunday. Source: IMF World Economic Outlook Update, 30 Jan 2024. (c) ICAEW 2024

Each January, the International Money Fund (IMF) traditionally releases an update to its World Economic Outlook forecasts for the global economy. This year it says that it expects the global economy to grow by an average of 2.6% over the course of 2024 and 2025 at market exchange rates, or by 3.1% when using the economists-preferred method of converting currencies at purchasing power parity (PPP).

The chart shows how the 30 countries tracked by the IMF fit between emerging market and developing economies, most of which are growing faster than the global averages, and advanced economies, which tend to grow less quickly. 

The biggest drivers of the global forecast are the US, China and the EU, with both the US and China expected by the IMF to grow less strongly on average over the next two years than in 2023. This contrasts with an improvement over 2023 (which involved a shrinking economy in Germany) by the advanced national economies in the EU over the next two years – apart from Spain, which is expected to fall back from a strong recovery in 2023. 

Growth in emerging and developing countries is expected to average 4.1% over the two years, led by India (now the world’s fifth largest national economy after the US, China, Germany and Japan), followed by the Philippines, Indonesia, Kazakhstan growing faster than China, followed by Malaysia, Saudi Arabia, Egypt, Iran, Thailand and Türkiye. 

Nigeria, Poland and Pakistan are expected to grow slightly less than world economic output, followed by Mexico. 

Russia, Brazil and South Africa are expected to grow less strongly, while Argentina is expected to grow the least, with a forecast contraction in 2024 expected to be followed by a strong recovery in 2025.

The strongest-growing of the advanced economies in the IMF analysis continues to be South Korea, followed by the US, Canada, Spain, Australia, France, the UK, Germany, the Netherlands and Italy, with Japan expected to have the lowest average growth. Overall, the advanced economies are expected to grow by an average of 1.6% over the next two years.

For the UK, forecast average growth of 1.0% over the next two years is expected to be faster than the 0.5% estimated for 2023, but at 0.6% in 2024 and 1.6% in 2025 we may not feel that much better off in the current year.

Of course, forecasts are forecasts, which means they are almost certainly wrong. However, they do provide some insight into the state of the world economy and how it appears to be recovering the pandemic.

For further information, read the IMF World Economic Outlook Update.

More data

Not shown in the chart are the estimate for 2023 and the breakdown in 2024 and 2025, so for those who are interested, the forecast percentage growth numbers are as follows:

Emerging market and developing countries:

CountryAverage over
2024 and 2025		2023
Estimate		2024
Forecast		2025
Forecast
India6.5%6.7%6.5%6.5%
Philippines6.0%5.3%6.0%6.1%
Indonesia5.0%5.0%5.0%5.0%
Kazakhstan4.4%4.8%3.1%5.7%
China4.3%5.2%4.6%4.1%
Malaysia4.3%4.0%4.3%4.4%
Saudi Arabia4.1%-1.1%2.7%5.5%
Egypt3.8%3.8%3.0%4.7%
Iran3.4%5.4%3.7%3.2%
Thailand3.2%2.5%4.4%2.0%
Türkiye3.1%4.0%3.1%3.2%
Nigeria3.0%2.8%3.0%3.1%
Poland3.0%0.6%2.8%3.2%
Pakistan2.7%-0.2%2.0%3.5%
Mexico2.1%3.4%2.7%1.5%
Russia1.8%3.0%2.6%1.1%
Brazil1.8%3.0%2.6%1.1%
South Africa1.1%0.6%1.0%1.3%
Argentina1.0%-1.1%-2.8%5.0%

Advanced economies (including the UK): 

CountryAverage over
2024 and 2025		2023
Estimate		2024
Forecast		2025
Forecast
South Korea2.3%1.4%2.3%2.3%
USA1.9%2.5%2.1%1.7%
Canada1.8%1.1%1.4%2.3%
Spain1.8%1.1%1.4%2.3%
Australia1.7%1.8%1.4%2.1%
France1.3%0.8%1.0%1.7%
UK1.1%0.5%0.6%1.6%
Germany1.0%-0.3%0.5%1.6%
Netherlands1.0%0.2%0.7%1.3%
Italy0.9%0.7%0.7%1.1%
Japan0.8%1.9%0.9%0.8%

This chart was originally published by ICAEW.

ICAEW chart of the week: Sterling exchange rates 2023

My chart for ICAEW this week looks at how the pound appreciated in value against the euro, US dollar, yuan and yen respectively during 2023.

4 x step charts titled 'Sterling exchange rates 2023' Euro 30 Dec 2022: €1.128 = £1.00 Change: +2% 29 Dec 2023: €1.154 = £1.00 US dollar 30 Dec 2022: $1.204 = £1.00 Change: +6% 29 Dec 2023: $1.275 = £1.00 Chinese yuan 30 Dec 2022: ¥8.31 = £1.00 Change: +9% 29 Dec 2023: ¥9.08 = £1.00 Japanese yen 30 Dec 2022: ¥159 = £1.00 Change: +13% 29 Dec 2023: ¥180 = £1.00 4 Jan 2024. Chart by Martin Wheatcroft FCA. Design by Sunday. Source: Bank of England, 'Daily spot exchange rates against sterling'.

My first chart of the week of 2024 for ICAEW looks back at 2023 and how sterling strengthened against the euro, US dollar, yuan and yen – the currencies of the four largest economies in the world – based on exchange rates reported by the Bank of England.

The smallest increase was against the principal currency of the European Union, our largest trading partner, with the sterling to euro exchange rate up by just over 2% from £1:00:€1.128 to £1.00:€1.154 between 30 December 2022 and 29 December 2023. 

This contrasted with a 6% rise in sterling against the US dollar during 2023 from £1.00:$1.204 at the end of 2022 to £1.00:$1.275 at the end of 2023, a 9% rise against the Chinese yuan renminbi from £1.00:¥8.31 to £1.00: ¥9.08. Sterling increased, and a 13% increase against the Japanese yen from £1.00:¥159 to £1.00:¥180.

Exchange rate movements can be attributed to multiple factors, including relative rates of inflation and economic growth, interest rates, trade and investment flows, and fiscal credibility among others – both actuals and sentiment about prospects for the future. In sterling’s case, expectations that interest rates in the UK are likely to stay higher for longer than in other major economies is a key contributor to the rise in sterling over 2023, although this is only part of the story.

While sterling has appreciated over the last year against these and many other currencies, the pound is still much lower in value than 10 years ago, being down 4% against the euro compared with £1.00:€1.200 at the end of 2013, down 23% against the US dollar from £1.00:$1.653, and down 9% against the Chinese yuan from £1.00:¥10.01. The exception is the Japanese yen, where the rise this year has more than offset falls over the previous decade to leave sterling 4% higher against the yen than the exchange rate £1.00:¥173 on 31 December 2013.

Time to book that holiday to China or Japan?

ICAEW chart of the week: Coronavirus

My chart this week looks at one of the big questions being looked at by the UK COVID-19 Inquiry: why did the UK experience one of the highest death rates in the developed world?

Coronavirus Column chart showing deaths per million population, with each column broken into 2020, 2021, 2022 and 2023 (to 2 Nov) components. Year components only labelled for the UK Japan - 603 (28 in 2020, 120 in 2021, 316 in 2022, 139 in 2023 up to 2 Nov) Australia - 893 (35, 58, 587, 212) Canada - 1,395 (397, 382, 498, 118) Ireland - 1,848 (451, 761, 480, 156) Germany - 2,099 (564, 848, 576, 111) France - 2,599 (983, 938, 580, 98) Italy - 3,259 (1,247, 1,078, 805, 129) USA - 3,365 (1,041, 1,381, 786, 157) UK - 3,421 (1,382, 1237, 583, 219) Greece - 3,635 (451, 1,524, 1,393, 267) 9 Nov 2023. Chart by Martin Wheatcroft FCA. Design by Sunday. Source: Our World In Data, ‘COVID-19 data explorer’ / WHO, ‘Covid-19 dashboard’.

My chart for ICAEW this week is on the coronavirus pandemic and how, according to World Health Organisation (WHO) data as summarised by Our World in Data’s Covid-19 Data Explorer, the UK suffered one of the highest death rates in the developed world.

According to the official statistics, there were 3,421 deaths per million population attributed to COVID-19 in the UK between 1 January 2020 and 2 November 2023. This compares with 603 deaths per million in Japan, 893 in Australia, 1,395 in Canada, 1,848 in Ireland, 2,099 in Germany, 2,599 in France, 3,259 in Italy, 3,365 in the US and 3,635 in Greece.

Not shown in the chart are the total number of cumulative deaths attributed to COVID-19 (ie before dividing by the population) of 74,694 in Japan, 23,289 in Australia, 53,297 in Canada, 9,281 in Ireland, 174,979 in Germany, 167,985 in France, 192,406 in Italy, 1.14m in the USA, 230,974 in the UK, and 37,738 in Greece.

Both Our World In Data and the WHO give warnings about the data, especially given difficulties in identifying which deaths were caused by the coronavirus (especially in 2020 before testing was widely available), whether deaths are recorded when they happened or when they were reported, and differences in how countries attribute deaths to causes. 

Despite those factors, these statistics give an overall impression of how badly the coronavirus affected different countries, especially when combined with other data, such as excess mortality (also not shown in the chart). According to Our World In Data, the cumulative difference between total deaths reported from all causes and projected deaths (based on an extrapolation from the years prior to the pandemic) changes the rankings for the countries in our chart, improving the UK’s position to an extent with the US has more excess deaths proportionately than the UK, and Italy more than Greece. Australia has the lowest level of excess deaths for these countries, below Japan, while France is between Canada and Ireland.

The chart also illustrates the deaths per million of population by year, highlighting how for the UK this was 1,382 in 2020, 1,237 in 2021, 583 in 2022, and 219 in 2023, up to 2 November 2023.

The UK COVID-19 Inquiry is looking at much more than the number of deaths as it considers how coronavirus affected all of us over the past few years, how people were affected, including short- and long-term impacts on health and how people died, as well as the impact on the economy and our lives more generally of COVID-19 – and the UK Government’s response to it.

This chart was originally published by ICAEW.

ICAEW chart of the week: US federal government deficit 2023

My chart this week looks at the federal deficit of $1.7trn reported by the US government for its recently completed financial year ended 30 September 2023.

Column chart split into three vertical sections: receipts, outlays and deficit. Actuals for the five years to the year ended September 2023, then budget for Y/E Sep 2024. Y/E Sep 2019: $3.5trn receipts - $4.5trn outlays = -$1.0trn deficit Y/E Sep 2020: $3.4trn - $6.5trn = -$3.1trn Y/E Sep 2021: $4.0trn - $6.8trn = -$2.8trn Y/E Sep 2022: $4.9trn - $6.3trn = -$1.4trn Y/E Sep 2023: $4.4trn - $6.1trn = -$1.7trn Y/E Sep 2024 (Budget): $5.0trn - $6.9trn = -$1.9trn 26 Oct 2023. Chart by Martin Wheatcroft FCA. Design by Sunday. Sources: US Department of the Treasury; US Office of Budget and Management.

The US Department of Treasury published on 20 October 2023 its final monthly treasury statement for the US government’s financial year ended 30 September 2023 (FY2023), enabling our chart this week to look at the actual numbers over the past five years and the budget for the new financial year that started on 1 October.

Our chart illustrates how the deficit increased significantly from the $1.0trn reported for FY2019 ($3.5trn receipts less $4.5trn outlays) to $3.1trn in FY2020 ($3.4trn-6.5trn) and $2.8trn in FY2021 ($4.0trn-$6.8trn) at the height of the pandemic, before falling to $1.4trn in FY2022 ($4.9trn-$6.3trn) as the US economy recovered. The deficit by $0.3trn increased to $1.7trn in FY2023 ($4.4trn-$6.1trn) and is budgeted to increase by a further $0.2trn to $1.9trn in FY2024 ($5.0trn forecast receipts-$6.9trn forecast outlays).

Not shown in the chart is the excess of financial liabilities over financial assets, which increased by $1.7trn from $22.3trn on 30 September 2022 to $24.0trn on 30 September 2023. This differs from ‘debt held by the public’ (the headline measure of federal debt), which increased by $2.0trn from $24.3trn to $26.3trn, more than the federal deficit because of movements in other financial assets and liabilities.

Receipts in FY2023 of $4,439bn comprised $2,176bn in individual income taxes, £1,614bn in social security and retirement contributions, $420bn in corporation income taxes, $80bn in customs duties, $76bn in excise taxes, £34bn in estate and gift taxes and $39bn in other receipts. Outlays for same period of $6,134bn comprised $1,737bn on health and Medicare, $1,354bn on social security, $821bn on defence, $774bn in welfare benefits, $659bn in interest, $302bn for veteran services and benefits, $127bn on transportation, $100bn on commerce, and $260bn on other outlays. 

The latter includes the administration of justice, agriculture, community and regional development, education, training, employment and social services, energy, general government, general science, space and technology, international affairs, natural resources and environment, and undistributed offsetting receipts.

These amounts are different from the accruals-based US GAAP federal government financial statements for FY2023 that are expected to be published next April, which will show a much larger accounting loss than the federal deficit reported here. For example, the FY2022 net operating cost (ie accounting loss) of $4.2trn was $2.8trn higher than the federal deficit of $1.4trn for last year, of which the largest difference of $2.6trn related to accruals for federal employee and veteran benefits.

These amounts appear astronomical, especially to those of us living in smaller (and unfortunately) less prosperous countries than the 335m people who live in the US, with its estimated GDP of $26.3trn in FY2023 – equivalent to around $6,600 per person per month.

Federal receipts and outlays in FY2023 represented 17% and 23% of GDP respectively or on a per capita basis were approximately $1,105 and $1,525 per person per month. The federal deficit was therefore equivalent to 6% of GDP or $420 per person per month. 

The excess of financial liabilities over financial assets and debt held by the public were 91% and 100% of GDP respectively, equivalent to an amount owed of around $71,500 or $78,500 per person, depending on which measure is used.

This chart was originally published by ICAEW.

ICAEW chart of the week: BRICS+

The ICAEW chart of the week returns from its summer holidays to look at the planned expansion of BRICS from five to 11 countries.

Venn diagram showing the G20, G7, BRICS, and BRICS+: G20 in green, encompassing G7 in teal with USA, Japan, Canada and UK plus in blue with dotted line around Germany, France, Italy and the European Union (the EU members of the G7). Then five countries in G20, but not in the G7, BRICS or BRICS+, being Korea, Australia, Mexico, Indonesia and Türkiye. Tne BRICS+ in purple with Argentina and Saudi Arabia followed by BRICS in orange with Brazil, Russia, India, China and South Africa. Still in the BRICS+ purple, but outside the G20 green are Ethiopia, Iran, Egypt and UAE. Sources: G20, G7, BRICS. Footnote gives share of global GDP: G20 86%. G7 52% (USA 26%, EU 17%), KAMIT 7%, BRICS 25%, BRICS+ 28%.

“The BRICs” was originally coined by Jim O’Neill in 2001 as an abbreviation for Brazil, Russia, India and China, four fast-growing economies that he predicted would come to dominate the world economy.

This investment shorthand evolved into something more substantive in 2006 when ministers from the four countries got together on the sidelines of a meeting at the UN. Leader summits started in 2009, followed by the addition of South Africa in 2011, which resulted in the capitalisation of the final ‘s’ to form BRICS. 

BRICS has developed over time to become a counterweight to the G7, providing an alternative forum for leaders of these five major nations to discuss common concerns such as economic development, currency stability, climate change, and tackling drug trafficking and organised crime. BRICS has been increasingly important to Russia since its ejection from the G7 (then the G8) following its invasion of Crimea in 2014 and to China as relations with the G7 have deteriorated over the last decade.

The most recent summit (the 15th) was on 22-24 August 2023, at which it was announced that six additional countries would be joining on 1 January 2024 to bring the number of members to 11.

Our chart this week takes the form a Venn diagram to illustrate how BRICS, and the expanded “BRICS+” grouping (pending a new official name), fit with two other major intergovernmental organisations where leaders meet on a regular basis – the G7 and the G20.

It starts with the G20, a grouping of 19 nations and the European Union that together represent 86% of the global economy. Within this sit the eight members of the G7 group of advanced economies, representing 52% of the global economy: the USA (26%), Japan (4%), the UK (3%), Canada (2%), Germany (4%), France (3%), Italy (2%) and the European Union (17% including Germany, France and Italy). The five BRICS nations represent 25% of the global economy comprising: Brazil (2%), Russia (1.7%), India (4%), China (17%) and South Africa (0.4%).

The diagram is complicated by the expanded BRICS+ as although invitees Argentina (0.6%) and Saudi Arabia (1.0%) are also members of the G20, the other four new members – Ethiopia (0.2%), Iran (0.3%), Egypt (0.3%) and the United Arab Emirates (0.5%) – are outside the G20. These new members together represent 3% of the global economy, taking the expanded BRICS+ to 28%.

Squeezed between the G7 and BRICS+ are five G20 members that together make up around 7% of the global economy that are not in either grouping, being (South) Korea (1.6%), Australia (1.6%), Mexico (1.8%), Indonesia (1.4%) and Türkiye (0.8%). As yet there is no sign of an intergovernmental organisation for these “KAMIT” nations to complement the G7 and BRICS, although in practice they are often invited as guests to G7 summits in addition to their participation in meetings of the G20.

The attraction of intergovernmental forums such as the G7, BRICS and the G20 is that they enable national leaders to engage directly with their counterparts on a wide range of topics, in contrast to the often narrower focus and more formal diplomatic structures of treaty-based international organisations such as the Organisation for Economic and Co-operation Development (OECD), the World Bank or the Organisation of American States (OAS) for example.

Their informal nature gives national leaders more flexibility to (for example) change their memberships without lengthy treaty negotiations or to work together on pressing issues of mutual concern. However, that informality also makes it difficult to create binding resolutions, which is perhaps why the global alternative reserve currency proposed at the first BRICS summit in 2009 had still not been implemented by the time of the 15th summit this August. 

Read more: G20, G7, BRICS.

ICAEW chart of the week: US federal financial statements

My 250th chart of the week for ICAEW takes a look at the recently published Financial Report of the United States Government for the year ended 30 September 2022 and how net liabilities have increased by 67% to $34trn over the past five years.

This week’s chart takes a dive into the latest financial statements of the United States Government for the year ended 30 September 2022 that were published on 16 February 2023, illustrating how the consolidated balance sheet of the executive, legislative and judicial branches has changed over the last five years.

The federal government reported net liabilities of $20.4trn at 30 September 2017, comprising $3.5trn in assets ($1.9trn non-financial and $1.6trn financial) less $23.9trn in liabilities ($14.7trn debt and interest, $7.7trn employee and veteran benefits and $1.5trn other liabilities). 

By 30 September 2022, net liabilities had increased by 67%, from $13.6trn to $34.0trn, comprising $5.0trn in assets ($2.3trn non-financial and $2.7trn financial) less $39.0trn in liabilities ($24.3trn debt and interest, $12.8trn employee and veteran benefits and $1.9trn other liabilities).

The increase in net liabilities is a consequence of net accounting losses of $1.2trn, $1.4trn, $3.8trn, $3.1trn and $4.2trn for the five financial years up to 30 September 2022. These amounts are calculated in accordance with US generally accepted accounting principles (US GAAP) as adapted for government by Federal Financial Accounting Standards (FFAS) issued by the Federal Accounting Standards Advisory Board (FASAB). They differ from cash budget deficits (outlays less receipts) of $0.8trn, $1.0trn, $3.1trn, $2.8trn and $1.4trn over the same period.

Revenue in the year ended 30 September 2022 of $4.9trn comprised $4.0trn from individual income taxes and tax withholdings, $0.4trn in corporate income taxes and $0.5trn in other taxes and receipts. The net cost of government operations amounted to $9.1trn, comprising $7.4trn in gross costs less $0.5trn in fees and charges plus $2.2trn from changes in assumptions. The latter primarily relate to employee and veteran benefit obligations that are on the balance sheet in the US GAAP numbers.

The scale of the negative balance sheet and continued deficit financing highlight just how dependent the US federal government is on its ability to borrow money as needed to meet its financial obligations as they fall due, and why the current challenge in raising its self-imposed debt ceiling is starting to concern markets.

This is the 250th ICAEW chart of the week, a milestone that has crept up on us as we seek to share insights into the economy and public finances that we hope are of interest to ICAEW members and all our other readers. Many thanks for your continued interest and we look forward to providing you with many more nuggets in the future.

This article was originally published by ICAEW.

ICAEW chart of the week: US dollar exchange rates

As the US dollar and euro approach parity, our chart illustrates how the US dollar has soared in value since the financial crisis compared with other major currencies apart from the Chinese yuan.

Step chart on US dollar exchange rates, showing the movements against sterling, the euro and the Chinese yuan between 9 Nov 2007 and 13 Jul 2022: Sterling: £0.48:$1.00 +75% = £0.84:$1.00 Euro: €0.68:$1.00 +45% = €0.99:$1.00 Yuan: ¥7.41:$1.00 -9% = ¥6.72:$1.00 Source: Bank of England.

Our chart this week is on the topic of exchange rates, illustrating how the US dollar has appreciated by 75% and 45% against sterling and the euro respectively since the financial crisis, only to decline by 9% against the Chinese yuan over the same period.

On 9 November 2007, one US dollar was worth 48p as the pound peaked in value at an exchange rate of US$2.095:£1.00 according to the Bank of England’s exchange rate database. Since then the dollar has appreciated and sterling has fallen to an exchange rate of US$1.195:£1.00 at 13 July 2022, making one dollar worth 84p or 75% more today. This movement reflects a combination of much stronger economic growth in the USA over the last 15 years, higher interest rates, weaknesses in the UK economy, and the position of the US dollar as the world’s reserve currency that makes it an attractive safe haven for investors generally and even more in times of economic turmoil.

The dollar has also appreciated against the euro for similar reasons, albeit by only 45% over the same period. On 9 November 2007, one dollar was worth 68 euro cents when the exchange rate was US$1.468:€1.00, compared with the 99 euro cents it was worth on 13 July 2022 when the exchange rate was US$1.005:€1.00 – having briefly touched parity during the course of that day.

For the poor British traveller this means going to the US is substantially more expensive than it was 15 years ago, with a pound now worth just under a dollar and two dimes, compared with almost two dollars and a dime back then, a whole 90 cents less. The cost of travelling to the EU is also more expensive, with the pound worth €1.18 now compared with €1.43 in 2007, a fall of 17% in relative purchasing power.

All three currencies have depreciated against the Chinese yuan over the same period, as the Chinese economy has continued to grow to become the second largest in the world after the USA. The relative strength of the US economy has restricted the depreciation in the dollar to 9% from being worth ¥7.41 to ¥6.72 over 15 years. This contrasts with a fall of 38% in the value of the euro against the yuan from ¥10.88:€1.00 to ¥6.79:€1.00 and a 48% depreciation in sterling against the yuan from ¥15.52:£1.00 to ¥8.03:£1.00.

Exchange rates are volatile and can move significantly over the course of each minute, hour, day, week, month and year, so the numbers will keep changing. They also don’t reflect the full picture, as inflation, interest rates and economic conditions mean that the value of the dollar, pound, euro or yuan in your pocket will be worth more or less depending on what you want to use it for.

The strengthening of the US dollar over the last 15 years is one of the key elements of the global economic story that has seen the US economy come through the financial crisis and the pandemic in better shape than almost every other developed country. Many commentators believe that this is likely to continue in the near term, especially as Europe is much more directly affected by the Russian invasion of Ukraine.

However, as all professional financial advisers will tell you, past performance is no guide to the future – and your guess about how much one US dollar might be worth in the next fifteen years is likely to be as good as anyone’s.

This chart was originally published by ICAEW.

ICAEW chart of the week: Inflation around the world

This week we look at how inflation is racing upwards across the world, with the UK reporting in April one of the highest rates of increase among developed countries.

Bar chart showing inflation rates by G20 country: Russia 17.8%, Nigeria 16.8%, Poland 12.4%, Brazil 12.1%, Netherlands 9.6%, UK 9.0%, Spain 8.3%, USA 8.3%, India 7.8%, Mexico 7.7%, German 7.4%, Canada 6.8%, Italy 6.0%, South Africa 5.9%, France 4.8%, South Korea 4.8%, Indonesia 3.5%, Switzerland 2.5%, Japan 2.4%, Saudia Arabia 2.3%, China 2.1%.

Inflation has increased rapidly over the last year as the world has emerged from the pandemic. A recovery in demand combined with constraints in supply and transportation has driven prices, with myriad factors at play. These include the effects of lockdowns in China (the world’s largest supplier of goods), the devastation caused by the Russian invasion in Ukraine (a major food exporter to Europe, the Middle East and Africa), and the economic sanctions imposed on Russia (one of the world’s largest suppliers of oil and gas).

As the chart shows, the UK currently has – at 9% – the highest reported rate of consumer price inflation in the G7, as measured by the annual change in the consumer prices index (CPI) between April 2021 and April 2022. This compares with 8.3% in the USA, 7.4% in Germany, 6.8% in Canada, 6.0% in Italy, 4.8% in France and 2.4% in Japan. 

The UK’s relatively higher rate partly reflects the big jump in energy prices in April from the rise in the domestic energy price cap, which contrasts with France, for example, where domestic energy price rises have been much lower (thanks in part to state subsidies). The UK inflation rate also hasn’t been helped by falls in the value of sterling, making imported goods and food more expensive.

Other countries shown in the chart include Russia at 17.8%, Nigeria at 16.8%, Poland at 12.4%, Brazil at 12.1%, Netherlands at 9.6%, Spain at 8.3%, India at 7.8%, Mexico at 7.7%, South Africa 5.9%, South Korea at 4.8%, Indonesia at 3.5%, Switzerland at 2.5%, Saudi Arabia at 2.3% and China at 2.1%. For most countries, the rate of inflation is substantially higher than it has been for many years, reflecting just how major a change there has been in a global economy that had become accustomed to relatively stable prices in recent years. 

This is not the case for every country, and the chart excludes three hyperinflationary countries that already had problems with inflation even before the pandemic, led by Venezuela with an inflation rate of 222.3% in April, Turkey with a rate of 70%, and Argentina at 58%.

Policymakers have been alarmed at the prospect of an inflationary cycle as higher prices start to drive higher wages, which in turn will drive even higher prices. For central banks that has meant increasing interest rates to try and dampen demand, while finance ministries have been looking to see how they can protect households from the effect of rising prices, particular on energy, whether that be by intervention to constrain prices, through temporary tax cuts, or through direct or indirect financial support to struggling households.

Here in the UK, both the Bank of England and HM Treasury have been calling for restraint in wage settlements as they seek to head off a further ramp-up in inflation. They hope that inflation will start to moderate later in the year as price rises in the last six months start to drop out of the year-on-year comparison and supply constraints start to ease, for example as oil and gas production is ramped up in the USA, the Middle East and elsewhere to replace Russia as an energy supplier, and as China emerges from its lockdowns.

Despite that, prices are likely to rise further, especially in October when the energy price cap is expected to increase by 40%, following a 54% rise in April. This is likely to force many to make difficult choices as household budgets come under increasing strain.

After all, inflation is much more than the rate of change in an arbitrary index; it has an impact in the real world of diminishing spending power and in eroding the value of savings. 

This chart was originally published by ICAEW.

ICAEW chart of the week: Global population

The ICAEW chart of the week looks at how the estimated global population of almost 8bn people is distributed around the world.

Bubble chart showing estimated global population of 7,995m in 2022: South Asia 1,894m, East Asia 1,671m, South East Asia 682m, Pacific 43m, Africa 1,419, Europe 592m, Middle East 357m, Eurasia 246m, North America 511m, South America 443m and Central America & Caribbean 97m.

UN projections show that the planetary population will reach approximately 7,955m in June this year, a 1.0% increase over the 7,875m estimate for June 2021.

The largest region on our chart is South Asia, which has 1,894m inhabitants, including 1,411m in India, 216m in Pakistan, 173m in Bangladesh, 40m in Afghanistan and 31m in Nepal. This is followed in size by the 1,671m people living in East Asia, including 1,432m in mainland China (currently the most populous country in the world), 126m in Japan, 52m in South Korea and 26m in North Korea.

Africa is the third largest region with 1,419m inhabitants, with 482m living in Eastern Africa (including Ethiopia 118m, Tanzania 67m, Kenya 56m, Uganda 50m, Mozambique 34m and Madagascar 29m), 424m in Western Africa (including Nigeria 217m, Ghana 32m, Côte d’Ivoire 27m and Niger 26m), 254m in Northern Africa (including Egypt 106m, Sudan 46m, Algeria 45m and Morocco 38m), 190m in Middle Africa (including the Democratic Republic of the Congo 95m, Angola 35m and Cameroon 27m), and 69m in Southern Africa (of which 60m are in South Africa).

Excluding Russia and Belarus, Europe has 592m people, including 444m in the 27 countries of the EU (including Germany 83m, France 66m, Italy 59m, Spain 46m and Poland 38m), 68m in the UK and 43m in Ukraine, although these numbers are all before taking account of the several million Ukrainians who have been forced to flee the war and are living temporarily in other countries. 

Eurasia, comprising the Commonwealth of Independent States of Russia, Belarus and the ‘stans’ of central Asia, has 246m inhabitants (including Russia 143m and Uzbekistan 34m), while the Middle East has an estimated 357m people (including Turkey 85m, Iran 85m, Iraq 44m, Saudi Arabia 36m and Yemen 32m.

North America has 511m inhabitants (USA 336m, Mexico 137m, Canada 38m), while 97m live in Central America (52m) and the Caribbean (45m), and 443m live in South America (including Brazil 217m, Colombia 51m, Argentina 46m, Peru 34m and Venezuela 34m).

South East Asia has 682m inhabitants, including 277m in Indonesia, 113m in the Philippines, 100m in Vietnam, 70m in Thailand, 56m in Myanmar and 34m in Malaysia. A further 43m people live in the Pacific region, of which 26m are in Australia. 

Although the rate of global population growth was projected to slow significantly in recent years, from 1.3% a year in 2000 when the population was 6.1bn, to 1.0% a year currently and to a forecast of around 0.7% in 20 years’ time, that still means that the number of people on the planet is expected to grow to around 9.8bn in 2050, placing even greater demands on natural resources than today. 

This highlights just how important achieving net zero and environmental sustainability is to the lives and wellbeing of future generations.

This chart was originally published by ICAEW.

ICAEW chart of the week: G7 economic growth

The latest IMF economic forecasts put the UK at the bottom of the pile in 2023, but our chart this week elevates the UK to fifth place out of seven by looking at average growth for the four years from 2020 to 2023.

Chart presenting economic growth for the G7 in 2020, 2021, 2022, 2023 and the average over four years. USA: -3.4%, +5.7%, +3.7%, +2.3%, average +2.0% Canada: -5.2%, +4.6%, +3.9%, +2.8%, average +1.4% Germany: -4.6%, +2.8%, +2.1%, +2.7%, average +0.7% France: -8.0%, +7.0%, +2.9%, +1.4%, average +0.7% UK: -9.3%, +7.4%, +3.7%, +1.2%, average +0.6% Japan: -4.5%, +1.6%, +2.4%, +2.3%, average +0.4% Italy: -9.0%, +6.6%, +2.3%, +1.7%, average +0.2%

Recent media reports have contrasted the government’s boast of being the best performing economy in the G7 in 2021 with the latest forecasts from International Monetary Fund (IMF) that suggest the UK economy will be bottom of the same league in 2023. Our chart this week attempts to take a step back and look at the overall picture by illustrative average economic growth by the G7 nations over the four years between 2020 and 2023.

These numbers are based on the IMF’s World Economic Outlook and the accompanying World Economic Outlook Database that were published on 19 April, setting out economic forecasts for the world economy over the next few years.

According to the IMF, the USA is the best performing economy in the G7, with average annual economic growth of +2.0% over the period from 2020 to 2023. An economic contraction of 3.4% in 2020 was more than offset by a rebound of 5.7% in 2021, followed by forecast growth of 3.7% in 2022 and 2.3% in 2023. Canada is not far behind, with an average growth of 1.4% over the four years, comprising respectively -5.2%, +4.6%, +3.9% and +2.8% in 2020, 2021, 2022 and 2023.

Germany and France fare pretty similarly to each other, with Germany projected to experience marginally above 0.7% average growth and France marginally below. The patterns are different, however, with Germany having suffered a less severe economic hit during 2020 followed by moderate growth (-4.6%, +2.8%, +2.1%, 2.7%), while France was hit much harder by the pandemic followed by a much stronger rebound before a return to lower growth in 2023 (-8.0%, +7.0%, +2.9%, +1.4%).

The UK is in fifth place in this league table, but at 0.6% average economic growth over the four years selected this is only slightly less than Germany and France. With an economic contraction in 2020 of 9.3%, the UK suffered more severely from the pandemic than the other members in the G7 (although this is partly because of differences in statistical methodologies) but then saw the biggest rebound in 2021 with growth of 7.4%. Growth this year is forecast by the IMF to be 3.7% before falling to an (unfortunately) more typical level of 1.2% in 2023.

Vying for the wooden spoon are Japan and Italy, with Japan continuing a long period of low growth and a slower recovery from the pandemic than the others to average 0.4% a year (-4.5%, +1.6%, +2.4%, +2.3%). Italy secured the bottom position by virtue of being hit hardest by the pandemic and having less of a rebound than others (-9.0%, +6.6%, +2.3%, +1.7%), a net average growth rate of 0.2% over the four-year period.

For those that follow this particular league table, there is a hope that slightly stronger growth than the IMF has forecast could move the UK up one or two places above France and/or Germany. However, the bigger concern for most of us is about the downside risks to the global and UK economies from the war in Ukraine, rampant inflation, and a global cost of living crisis. These may put back even further any hope of returning the UK and other developed economies to a pre-financial crisis path of moderate economic growth.

This chart was originally published by ICAEW.