The Day at a Glance | Aug 22 2022

The Top

*Extreme weather conditions and droughts at a global level are starting to threaten inflationary pressures and production disruptions.

*Power failures in the Sichuan industrial province threaten to affect China`s growth and the normalization of production chains.

*The National Commission of Minimum Wages is considering a 50% minimum wage increase towards 2024.

*Germany must prepare for additional reductions regarding Russia`s supply of natural gas: Robert Habeck, Minister of Economy.

*Chinese banks reduce reference rates for mortgages and the government announced 29 billion dollars in loans for the real-estate sector.

Economic environment

Droughts seen at a worldwide level. Severe droughts have affected various countries in recent months, as a consequence of weather phenomena such as “La Niña” in the Pacific, soil degradation due to its over-exploitation and climate change effects. Weather conditions are starting to have considerable effects on the global economy. In China, the industrial Sichuan province announced that it will extend power cuts through August 25^th due to low levels in the Yangtze river, which has decreased production among hydroelectric plants. This likely entails that factories in the region will shut down, which could then affect global supply chains. Companies like Apple, Foxconn, Toyota and Volkswagen have factories in Sichuan. In the United States, droughts have affected the production of agricultural goods such as cotton – which could log a production decrease of up to 40% this year. Other crops have stopped being planted in the Southwestern part of the US due to scarcity of water. In Europe, low levels of water in the Rhin river has substantially affected trade flow in one of the world`s most important channels for the movement of industrial and energy-related goods. Italy has also declared an emergency due to low levels of the Po river. In Mexico, 70% of the country`s territory has been affected by scarcity of water. The Mexican Institute of Water Technology has said this is the worst drought in at least 10 years as it has affected crops. Global climate conditions could turn into a shock that increases energy prices as decreased availability to water decreases production in hydroelectric and nuclear plants. This could also maintain upwards pressures on transportations costs and could hinder production chains due to power cuts or keep inflationary pressures affecting food prices.