Policymakers gather in Washington as Middle East tensions swell

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Could cautious optimism on the global economy be derailed by the weekend’s events in the Middle East?

That’s the question facing policymakers gathering in Washington DC for the spring meetings of the IMF and World Bank. To an already packed agenda on geopolitical tensions, inflation and interest rates, tackling global debt and helping poorer countries finance the fight against climate change must now be added the impact of a potential wider conflict in the Middle East following Iran’s attack on Israel. 

Ahead of the meetings, the IMF warned of a decade of disappointing growth and popular discontent as central banks continue to battle against rising prices and governments struggle with high levels of public debt. The twice-yearly Brookings-FT Tracking Index for the Global Economic Recovery suggests a modest improvement on growth from last year, fuelled by momentum in countries such as the US and India. The IMF will publish its own outlook later this week.

Aid for debt-strapped countries is high on the agenda as global crises stretch aid budgets. The International Development Association, the World Bank’s $200bn lending arm to the world’s poorest nations, is seeking a record amount of new funds to help countries facing debt and climate crises, while the World Health Organization and its allies want more from western governments distracted by elections at home and wars in Europe and the Middle East.

“There is a record amount of need and a record number of funds coming forward; meanwhile, the international community’s focus is elsewhere,” said Clemence Landers of the Center for Global Development think-tank.

Overseas development assistance budgets, which rich countries use to allocate cash for development banks and multilateral funds, hit a new high last year, but the rise in world conflicts, especially the war in Ukraine, has put them under increasing pressure. Meanwhile progress in addressing poverty in the world’s poorest nations has halted. 

The World Bank has also become a focal point for negotiations to find up to $9tn a year by 2030 to pay for action on climate change.

As Aime Williams points out in today’s Trade Secrets newsletter (for Premium subscribers) its chief Ajay Banga has his work cut out in persuading developing countries that the institution feels their pain. It’s been almost a year since Banga replaced his Trump-appointed predecessor, David Malpass, who became something of a hate-figure for climate types. 

But it is the events of the past 48 hours that hang heavily over the meetings in Washington. Western leaders are urging restraint from Israel while the EU is mulling new sanctions on Tehran. Iran for its part considers the matter “concluded”.

So far at least, reaction in the markets remains muted, with investors shrugging off fears of a wider conflagration.

If events escalate, any jump in oil prices could shock an already tight market as demand increases in big economies while Opec+ producers constrain supply.

“The US and China stand to lose from the conflict’s expansion as it would significantly impact on energy exports from the region, the price of oil, and the global economy,” said Ayham Kamel at the Eurasia consultancy. A rise in petrol prices would also deal a fresh blow to the re-election hopes of US President Joe Biden.

Need to know: UK and Europe economy

Lord Ken Clarke, former chancellor, warned that an incoming Labour government would face the biggest set of problems of any new UK administration since the second world war, thanks to a sluggish domestic economy with low productivity growth, low business investment, strained public services and multiple international crises.

The UK is considering new legislation to regulate artificial intelligence, months after prime minister Rishi Sunak vowed “not to rush” new rules. Legislation would likely put limits on large language models, the technology underpinning AI products such as OpenAI’s ChatGPT.

England has just experienced its wettest 18 months since 1836. A future of warmer and wetter winters means heightened risks not only for farmers but for the country’s food security.

International Energy Agency chief Fatih Birol in an FT interview criticised Europe for making “two historic monumental mistakes” by relying on Russian gas and turning away from nuclear power. The bloc would need “a new industrial master plan” in order to recover, he said.

It will take “decades” for Germany’s manufacturers to reduce their dependence on China, according to a top executive at Siemens, highlighting the problems facing western companies and their reliance on the country as a market as well as a supplier.

Spain has overtaken the UK as hotel investors’ favourite destination in Europe according to a new survey. The hospitality sector is enjoying a revival of dealmaking as it recovers from the pandemic.

Need to know: Global economy

Aluminium and nickel prices jumped after the UK and US introduced fresh sanctions on new Russian metal trading on the world’s largest exchanges for the vital industrial raw materials.

The FT-Michigan Ross poll showed Joe Biden’s approval rating on the US economy improving, but concerns over inflation, including rising fuel prices, could derail his re-election bid. US retail sales rose by 0.7 per cent in March, a higher rate than expected, according to official data published today.

An insurgency is gaining ground in Myanmar after the ruling military junta lost control of strategic frontier regions near India, China, Bangladesh and now Thailand.

Singapore’s prime minister Lee Hsien Loong is stepping down next month after 20 years in power, handing over to his deputy in what will be only the third transition of power in the city-state’s modern history.

As baby-boomer wealth begins to trickle down and with government finances under pressure, debate is growing on whether inheritance taxes should play a greater role. A Big Read explains.

Need to know: business

Water companies in England and Wales paid £2.5bn in dividends and added £8.2bn in debt in the two financial years since 2021, according to Financial Times research. The updated figures mean that the 16 water monopolies have paid out a total of £78bn in dividends in the 32 years between privatisation in 1991 to March 2023. The sector’s problems smack unnervingly of the issues facing banks in the run-up to the 2008 financial crisis, says FT deputy editor Patrick Jenkins.

An increasing number of FTSE 100 companies are asking investors to back executive pay rises to compete with the US. The moves have sparked a vigorous debate with some advisers opposing the changes. AstraZeneca chair Michel Demaré in an article for the FT hit out at proxy advisers after more than a third of the company’s shareholders voted against a £1.8mn pay rise for chief executive Pascal Soriot.

Asahi, Japan’s biggest brewer, forecasts zero- and low-alcohol drinks will generate half of the company’s beverage sales by as early as 2040 as consumers turn to healthier options.

The World of Work

More companies are appointing designated heads of artificial intelligence but what do these jobs actually entail? Emma Jacobs investigates.

Work and Careers editor Isabel Berwick reflects on the need for “spaciousness”: finding time for listening/thinking/doing nothing in particular in a very busy working day.

Could CEOs learn a few tricks from the steady commitment and humble objectives of local parish councillors? They are all at bottom closely connected “stakeholders”, committed to mutual support, and adept at jettisoning jargon in favour of a serious commitment to work together for mutual benefit.

Some good news

Nigeria became the first country in the world to roll out a “revolutionary” new vaccine against meningitis. Last year, there was a 50 per cent jump in reported cases of the disease across Africa.

Source: Economy - ft.com