The shock effect between the US and Iran and liquidity reversal, limited economic contribution of the World Cup to the US, typhoon weather disrupts domestic travel—0720 Macroeconomic Briefing
- The escalation of tensions between the US and Iran marks the first confrontation since the peace agreement, creating a short-term shock effect that is likely to wane subsequently. The major powers’ contest is also expected to ease throughout the year. Softer US employment and inflation data will suppress expectations for interest rate hikes this year. Coupled with the Walsh reforms promoting balance sheet reduction and rate cuts, a liquidity reversal is anticipated to unfold gradually.
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The contrast between the advanced sports venues and the outdated public transportation limits the economic spillover effect due to spatial constraints. The episodic nature of sporting events contributes only around 0.05% to GDP and is difficult to sustain. Local residents are driven away by congestion and rising prices, while consumption fueled by credit card debt intensifies default risks. Soaring debt levels and wealth inequality have led to a K-shaped divergence in consumption patterns, masking deeper concerns beneath the prosperity of the events.
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Typhoon conditions and the rapid rise in oil prices are disrupting domestic travel and industrial production. Blast furnace and coking operations have slowed on a month-on-month basis, real estate transactions have decelerated, and asphalt production remains sluggish with only minor improvements. While international crude oil prices have rebounded sharply and most domestic raw material prices have recovered, interbank liquidity remains tight and domestic demand growth pressures are mounting in the second quarter.
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