Today’s top stories
Nato and US officials said China’s proposed peace plan for Ukraine was tainted by the country’s support for Russia.
US core monthly personal consumption expenditure — the Federal Reserve’s preferred measure of inflation — came in at a higher than expected 0.6 per cent in January, with the year-on-year figure at 5.4 per cent, much higher than the anticipated 4.8 per cent, fuelling expectations of more interest rate rises. Economic growth for the fourth quarter was revised down yesterday from 2.9 per cent to 2.7 per cent. Minutes of the last Federal Reserve policy meeting showed it was still determined to bring inflation back to target.
Recession fears returned to Germany after revised figures showed the economy shrank a more than expected 0.4 per cent in the fourth quarter.
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Good evening.
One story dominates global media today: the first anniversary of Russia’s all-out assault on Ukraine. As we catalogue across the FT site today, the war has not only brought devastation to the Ukrainian people but profound changes to the global economy.
Let’s start with the energy crisis. The war brutally exposed Europe’s dependence on gas from Russia, while record oil and gas revenues helped Moscow initially weather the cost of its campaign, with a hit of just 2.1 per cent to Russian GDP in 2022.
But as Europe successfully pivots to alternative sources such as seaborne liquefied natural gas and oil revenues are affected by a western embargo and a price cap, the impact on Russian government revenue — 40 per cent of which comes from energy — is likely to be substantial. The price of Brent crude meanwhile has fallen back to prewar levels.
Falling prices and a mild winter have fuelled a new sense of optimism that the crisis is ending, but Fatih Birol, head of the International Energy Agency, added a note of caution in an interview with the FT yesterday: “Russia played the energy card and it did not win . . . But it would be too strong to say that Europe has won the energy battle already.”
Western sanctions meanwhile continue to ratchet up, with a new raft of measures today timed to coincide with the anniversary. The US and the UK are targeting hundreds of groups and individuals including Russian banks and defence companies, while the EU and Japan are looking at ways of further damaging Moscow’s war economy.
But how effective are the sanctions? Western allies are investigating sanctions dodging and in particular the surge of exports to Russia’s neighbours. An FT investigation found that Yevgeny Prigozhin, leader of the Wagner mercenary group that has played a key role in the invasion, managed to generate more than a quarter of a billion dollars from his natural resources empire despite being sanctioned way before the war. He was even able to get round UK money-laundering checks by submitting a utility bill in the name of his 81-year-old mother.
Meanwhile, as today’s Moral Money newsletter (for premium subscribers) points out, many of the world’s biggest companies are still doing business in Russia, arguing fire sales would harm shareholder value. Tobacco group Philip Morris told the FT this week it would “rather keep” its operations in Russia than sell on tough Kremlin terms.
Another key consequence of the war has been the damage to supply chains, and in particular on food supplies, causing global hunger to jump by almost a quarter last year, according to the UN. Food and fertiliser prices have come down from last year’s peaks but are still high.
As our Behind the Money podcast explains, Ukraine’s role as one of the world’s major sources of grain, corn (a vital source of feed for livestock) and sunflower oil suddenly stopped with the invasion and Russia’s blockade of Ukraine’s ports. Although the UN and Turkey eventually brokered a deal to get grain moving again, poorer countries that rely on Ukrainian and Russian grain have been hit hard.
As for Ukraine itself, the economic damage has been devastating, with GDP falling 30 per cent last year and many of its core industries badly affected. The war effort is costing it 35 per cent of GDP, threatening to turn the country into an inflationary disaster, heavily dependent on foreign aid. And despite repeated offers of support from the west, less than half the financial aid pledged has actually reached Kyiv, according to new analysis.
The FT editorial board nonetheless detects grounds for hope after a year of war and praises the decision to make Ukraine an official candidate for EU membership.
“Discussion is rightly starting about the postwar security guarantees Ukraine will need,” it says. “Thousands of its citizens have paid in blood to ensure independence and a ‘European future’ for their country. Ukraine deserves assurances that this is indeed the future that awaits.”
Need to know: UK and Europe economy
UK opposition leader Keir Starmer outlined five long-term missions for the Labour party if he wins the next election, including a pledge to make the country the fastest-growing G7 economy. Should he become prime minister, he will inherit a severely damaged public sector, according to a new report.
The European Central Bank scrapped its dividend and said it made no profits in 2022 for the first time in 15 years. Analysts said the ECB risked losses in the coming years as it unwinds its quantitative easing policies.
Turkey cut interest rates in an attempt to support the economy following the recent earthquakes, the latest in a series of big reductions ahead of its general election.
Need to know: Global economy
US clean energy tsar John Podesta told the FT there would be “no apologies” for prioritising American jobs in the race for clean energy.
The US nominated former Mastercard chief and Wall Street veteran Ajay Banga as World Bank president to oversee the institution’s upheaval and a new focus on global warming. The FT editorial board outlines the challenges ahead.
South Africa and Nigeria, Africa’s two largest economies, were put on warning by the Financial Action Task Force, an anti-money laundering watchdog, over failures to fight illicit finance and organised crime.
The US may be attempting a pivot towards clean energy but it first must overcome its obsession with big cars. Chief data reporter John Burn-Murdoch details how they result in high levels of air pollution and much higher road death rates than in other developed countries.
Need to know: business
BASF, the world’s biggest chemicals group, is cutting 2,600 jobs and winding down several plants, blaming high energy costs in Europe.
The latest signs of a rebound in travel demand came with British Airways owner International Airline Group returning to profit for the first time since the start of the pandemic and a similar announcement from Australian flag carrier Qantas. In China the revival means the rich are struggling to find private jets. London’s Heathrow airport said it had lost £684mn last year despite passenger numbers trebling.
Job cuts at McKinsey and KPMG are the first concrete signs that the pandemic-fuelled boom in spending on consultants is over, thanks to soaring costs, the end of cheap money and a slump in deal activity.
A hacking outfit known as the Nevada Group has tried to paralyse computer networks of almost 5,000 victims across the US and Europe in one of the most widespread ransomware attacks on record.
Science round up
Google said it had made a breakthrough in correcting for the errors that are inherent in quantum computers, a potentially significant step in overcoming the biggest technical barrier to a revolutionary new form of computing.
Can robot learning be used to generate novel ideas in hard areas such as mathematics and science? Innovation editor John Thornhill is optimistic.
The collision of two neutron stars in 2017 may offer us some insights into the age of the universe and unlock other astrophysical mysteries, writes science commentator Anjana Ahuja.
The worst-ever outbreak of bird flu has led to the disease becoming endemic in some birds, with huge costs for the poultry industry. But how likely is a human bird flu pandemic? Read our new explainer.
Some good news
Ynys Enlli, an island off the coast of Wales, has become Europe’s first dark-sky sanctuary and one of the best places in the world to see the stars
Something for the weekend
The FT Weekend interactive crossword will be published here on Saturday, but in the meantime why not try today’s cryptic crossword?
Source: Economy - ft.com
