Good evening,
The IMF’s Fiscal Monitor is the final in a flurry of reports from both the fund and the World Bank highlighting the fragile state of the global economy as it struggles with the lingering effects of the pandemic and the shock of war in Ukraine.
Today’s instalment points out the “narrowing fiscal space” faced by governments and the likelihood that any short-term benefit to public finances from higher inflation will soon disappear under the pressure of higher food and energy prices alongside rising interest rates.
The IMF now expects global prices to rise 7.4 per cent this year, much higher than the 3.2 per cent it forecast in late 2020.
In its World Economic Outlook published yesterday, the fund cut its global growth forecast for this year to 3.6 per cent, down 0.8 points since its January projections and a sharp fall from its estimated total for 2021 of 6.1 per cent.
Risks had “worsened significantly” from the war in Ukraine, it said, putting paid to the idea that this year would see a stronger recovery from the pandemic. On Monday, the World Bank also cut its global growth forecast from 4.1 per cent to 3.2 per cent.
A potential embargo on Russian oil and gas would raise inflation even further, the IMF said.
The effects of increasing price pressures, falling output and shrinking confidence across the global economy were also highlighted by the Brookings-FT tracking index, which compares global and country information with historical averages to determine whether data in a specific period is better or worse than normal. The index shows a marked slowing of growth since late 2021, with confidence levels dropping and a recent dip in financial market performance, leaving policymakers with “grim quandaries”.
IMF chief Kristalina Georgieva told the Financial Times last week that the Ukraine war was a “massive setback” for the world economy. But as well as causing “catastrophic” losses in Ukraine and a severe contraction in Russia, there were also wider risks from a more fragmented global economy, she argued.
“In a world where war in Europe creates hunger in Africa; where a pandemic can circle the globe in days and reverberate for years; where emissions anywhere mean rising sea levels everywhere — the threat to our collective prosperity from a breakdown in global co-operation cannot be overstated,” she said.
Latest news
Ukraine needs $5bn a month to plug financing gap, says IMF
Rio Tinto’s flagship iron ore mines report weak start to year
Bundesbank president warns against hasty interest rate rises from ECB (Reuters)
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Need to know: the economy
Russia is planning legal action to recover $300bn of its foreign currency reserves — nearly half its total holdings — frozen through western sanctions. The tactic has prevented Russia’s central bank supporting the falling rouble and forced it to impose capital controls.
The energy crisis continues. Our Big Read tackles the crucial question: Can the EU wean itself off Russian gas? Despite Germany’s reliance on Russian supplies, it is resisting calls to restart nuclear power, as our new explainer details. US natural gas prices meanwhile have hit a 13-year high.
Latest for the UK and Europe
Yesterday’s IMF report also forecast that the UK would have the slowest growth in the G7 next year, increasing by just 1.2 per cent, and that the country’s inflation would be higher than other member states and slower to return to its 2 per cent target. The FT editorial board said the British government needed to recognise the continuing cost burden of coronavirus on healthcare, business and schools.
Energy bosses told a parliamentary committee that Britons were facing a “truly horrific” autumn, as steep rises in bills potentially leave up to 40 per cent of the country in fuel poverty. Households are already dealing with a 54 per cent rise in annual costs since the start of this month but could be paying an additional £600 from October when the price cap moves up another notch.
German producer prices increased by an annual 30.9 per cent in March — the fastest rate since 1949. The rise was driven by surging energy prices and higher costs of products such as fertiliser, of which Russia is a large exporter. The IMF downgraded its growth forecast for Germany this year by 1.7 percentage points to 2.7 per cent.
Global latest
Several big banks have downgraded growth forecasts for China as the country sticks to its rigorous zero-Covid policy, most notable in the strict lockdown of Shanghai, where many of the city’s wealthy are planning to leave. Official data on Monday showed better than expected growth for the first quarter but indicated that Chinese consumer activity was beginning to wilt.
In response, Beijing published 23 measures to support infrastructure projects and the country’s struggling property sector as well as help for stricken industries. The People’s Bank of China has reduced the amount of reserves that banks must maintain in an attempt to boost the economy, but interest rates remain unchanged.
Baby bust, our new series, examines how the pandemic has affected population growth and compares policy responses around the world.
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Need to know: business
Multinationals are still paying almost 200,000 employees in Russia despite pledges to suspend or end their operations, according to FT analysis. Mass sackings or nationalisations could follow as hopes of a swift end to the war in Ukraine fade. Russia’s recently developed domestic payments system is helping the country overcome the withdrawal of Visa and Mastercard.
Netflix shares plunged as the video-streaming company said its decade-long run of subscriber growth had ended in the first quarter. “Now the easy-money years of streaming are ending, just as Hollywood’s golden years did,” commented the FT Lex column. Evidence is already mounting that hard-pressed UK consumers are busy ditching their various subscriptions.
Another pandemic boom that might be fading is food delivery. Shares in Just Eat — as with its rivals DoorDash, Deliveroo and Delivery Hero — have plunged as intense competition makes it difficult for any operator to make money. Just Eat is mulling a sale of its Grubhub business in response.
Surging inflation and the war in Ukraine are expecting to feature heavily as first-quarter earnings season in the US picks up steam. Groups representing 70 per cent of the S&P 500 by value are reporting before the end of the month. Average growth in earnings per share is estimated to reach just 5.2 per cent, a sharp drop from the 32 per cent of the fourth quarter of 2021.
Higher costs of living are also feeding through to wage demands. Workers at GlaxoSmithKline have voted to strike over a below-inflation pay rise, the first such action in the drugmaker’s history and unusual in Big Pharma.
There are no such worries at the other end of the pay scale: the bumper bonus is back. Huge recent payouts are all the more jarring because they come just as consumers face steep rises in the price of energy and food, writes US investment and industries editor Brooke Masters.
Meanwhile, drowning your sorrows is set to get a lot more expensive. Heineken, the world’s second largest brewer, is putting up beer prices because of “off-the-charts” increases in costs, even though sales are up as punters return to bars.
Airlines are split on mandatory masks for passengers after a US judge blocked the government from enforcing the rule. Shares in Uber and Lyft leapt after the ride-sharing companies said they would drop mask requirements for US customers.
The head of Korean Air told the FT that South Korean authorities needed to speed up the lifting of pandemic restrictions, describing it as “nonsense” that a PCR test is required for inbound passengers. In the UK, ministers are loosening strict requirements on background checks for new employees to help airlines address severe staff shortages.
Fallout from the war has added to financial problems at Credit Suisse, which now expects a first-quarter loss.
UK gym operators are snapping up prime retail slots in struggling high streets and shopping centres hit by the shift to ecommerce. Vacancy rates remain high, with 14 per cent of retail and leisure venues forecast to remain empty in the first half of this year. But etailers are not immune from problems: Amazon last week said it would add a surcharge on its US sellers to offset growing inflation and fuel costs.
The World of Work
Deloitte has significantly cut back its London office space in the latest sign of how hybrid working has disrupted the commercial real estate market. The sector is also facing higher costs from environmental regulations as well as the rise of flexible working groups such as WeWork.
Technology may have made working from home a lot easier but it has also made it harder to take sick days, writes Emma Jacobs. “We have to be mindful that the lesson from the pandemic is flexible working and not working round the clock,” says one expert.
Another worrying indicator is the growing exhaustion felt by many workers from endless meetings, whether online or in person. “I keep hearing from so many people that they are simultaneously craving face-to-face contact but are also overwhelmed by it,” writes Viv Groskop.
The advantages of experienced older workers have never seemed more obvious, says columnist Pilita Clark. But these same people are vanishing from their desks at much higher rates than their mid-career colleagues in a reversal of an important pre-Covid trend towards older workforces, she writes.
What can companies do when faced with this outflow of workers and what can managers do to retain staff? Listen to our latest Working It podcast on the Great Resignation and sign up for our Working It newsletter.
Get the latest worldwide picture with our vaccine tracker
And finally.
Do you think marriage, for all its imperfections, is still the best path to fulfilment? Or do you concur with one writer’s view that it’s merely a “life-long market correction to true love’s overvaluation”? William Skidelsky reviews three new books exploring the lingering appeal of an institution that is under threat.
Source: Economy - ft.com
