US Treasury Report: Uncertainty in Global Economy Amid Conflicts

According to a recent report by the US Department of Treasury, despite more resilient near-term performance, the global economic outlook remains highly uncertain due to Russia war against Ukraine, geopolitical tensions in the Middle East, and persistently high core inflation.

The United States major trading partners semi-annual report on macroeconomic and foreign exchange policies, which was submitted to Congress, stated that global economic growth in 2022 so far in 2023 surpassed forecasts.

Throughout the four quarters ending in June of this year, the very big surpluses of Germany, Ireland, Switzerland, Taiwan, the Netherlands, and Singapore—major trading partners of the United States—remain significant as a proportion of GDP.

China surplus was higher in dollar terms at $389 billion (2.2 per cent of GDP) over these four quarters compared to $380 billion in the four quarters ending June 2022 (2.1 per cent of GDP).

Meanwhile, the US current account deficit narrowed to 3.3 per cent of GDP in these four quarters—down from 4 per cent of GDP in the four quarters ending June 2022.

different countries are using varied monetary policies in response to differing growth and inflation outlooks, and basic factors like interest rate differentials, terms of trade shocks, and growth expectations have had a significant influence on currency values.

Notably, the dollar gained 13.4% against the yen, pushing the yen close to 150 yen per dollar. The dollar is 5.8 percent stronger against the RMB as Chinese growth prospects have dropped.

By the end of September, the broad dollar had appreciated 1.9% versus the currencies of advanced economies and 0.4% versus the currencies of emerging market economies.

According to the report, it is therefore not surprising that no trading partner was discovered to have manipulated the exchange rate between its currency and the US dollar in the four quarters ending in June 2023 in order to obstruct legitimate balance of payments adjustments or obtain an unfair competitive advantage in international trade.

It is worth noting that two trading partners that ran current account surpluses (Singapore and China) did purchase foreign currency on net over these four quarters, but they too did not meet the standard for preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade, added the report.