Aurelia Butler

Gathering for their annual meeting in the foothills of the Teton Range in Jackson Hole, Wyoming, leading officials and economists traded last year’s angst about inflation and central banks’ credibility for fears that the upheaval caused by the pandemic and the war in Ukraine have ushered in a new era for the global economy.During the US Federal Reserve’s three-day symposium, current and former policymakers from around the world voiced worries that the well-established economic relationships that underpinned government authorities’ policy decisions were in jeopardy.They issued an urgent call for a revised playbook to better understand and respond to a rapidly changing landscape that threatened to stoke more frequent supply shocks, higher prices and heightened volatility across financial markets.Articulating this point most directly was Christine Lagarde, president of the European Central Bank, who spoke at length about the ramifications of tighter labour markets, the transition to a greener economy and the fragmentation of the economy into competing blocs.“There is no pre-existing playbook for the situation we are facing today — and so our task is to draw up a new one,” she said.The shift in focus to longer-term structural problems comes amid growing confidence about central banks’ battle against inflation.“Last year there was this massive trepidation about whether policymakers had gotten things really wrong with inflation and it felt a little bit like a battening down of the hatches, whereas this year I feel like there is more breathing room,” Heather Boushey, who serves on the Biden administration’s Council of Economic Advisers, told the Financial Times.Policymakers were adamant it was too early to declare victory on inflation, keeping in play the prospect of further interest rate increases. Ben Broadbent, a deputy governor at the Bank of England, said on Saturday that it was “unlikely” inflation would disappear as fast as it had arrived and that interest rates “will probably have to remain in restrictive territory for quite some time yet”.But signs that it is being tamed have boosted expectations that officials are indeed near or at the end of their historic monetary tightening campaigns.Still, Lagarde warned that the upheaval of the past three years was likely to bring about persistent price pressures that were more unpredictable and harder to root out. That likely means central banks must keep interest rates elevated for an extended period.Other policymakers repeatedly flagged the same risks. On Saturday, Kazuo Ueda, governor of the Bank of Japan, cautioned that in light of mounting geopolitical tensions and tendencies towards “reshoring” — the return of manufacturing activities and jobs to home countries — the global economy could well be “slowly approaching an inflection point beyond which things will change”. While that could lead to local growth booms, it could also result in production inefficiencies, he said.One growing debate is what these changes might mean for the so-called neutral rate of interest, known as R-star, that neither stimulates nor suppresses growth.At the US central bank, more officials have nudged up their estimates for R-star, even though the median forecast as of June was unchanged at a pre-pandemic level of 2.5 per cent — or 0.5 per cent in real terms, once adjusted for inflation at 2 per cent. Fed veteran John Roberts, now at Evercore ISI, reckoned the real rate was potentially higher at 0.75 per cent.Jeremy Stein, a former Fed governor, said he expected R-star to be higher simply because “inflation may stubbornly want to be 3 per cent” versus the Fed’s 2 per cent target, preventing the central bank from any imminent easing.Others expected population ageing to again act as a depressant once the ongoing inflation crisis passed, though they suggested the debate was far from resolved.To grasp the magnitude of these structural shifts and their consequences, Boushey — like Lagarde — has called for a rethink of the assumptions governments rely on to make sense of the economic transformations under way and to formulate the right policy responses.“You don’t have to throw out the old playbook, but you do need new models,” she said, especially those that do not assume major transitions such as the one towards a more climate-friendly system will be “frictionless”.Pierre-Olivier Gourinchas, chief economist at the IMF, sees benefits in more “disaggregated” models that take into account the fact that shocks — including those associated with Covid-19, Russia’s invasion of Ukraine and the climate transition — are affecting different sectors within and across countries in different ways.“We need models that can get into that kind of complexity because otherwise we cannot understand why all of a sudden a given shock caused such a huge price increase and in another shock [it did not],” he told the FT.The IMF’s projections for an extended stretch of slow growth adds renewed urgency to this effort, said Gourinchas. So, too, does a daunting global debt problem that has put advanced and emerging economies on an unsustainable path.In a widely discussed presentation at Jackson Hole, Barry Eichengreen at the University of California, Berkeley, issued a stark warning about public debts, saying it was politically and financially unfeasible to reduce them no matter how desirable it might be.

Emerging and developing economies are acutely vulnerable, Carmen Reinhart, who previously worked at the World Bank and the IMF, told the FT. Roughly 60 per cent of the poorest countries are already in or close to debt distress, a particular concern in a “shock-prone, fragmented environment”.“It can become self-perpetuating,” she said. “With weaker initial conditions, if you get hit by a shock, you don’t have the ability to respond very much and therefore you have a weaker recovery.”Even if he was not concerned about debt dynamics in the US or in most European countries right now, Gourinchas said he was worried about this capacity issue on a wider scale in the event of another large shock that would require governments to inject 10-20 per cent of gross domestic product in fiscal support.“I don’t think they can do it again,” he said. “We don’t have an insurance policy anymore. We are at the edge.” More

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The world’s largest shipping and logistics groups are locked in an increasingly intense rush to buy facilities in Asia in a bid to help their customers expand supply chains beyond China.Competition for assets has been fuelled by cash reserves that freight groups worldwide built up when disruption and increased ecommerce spending boosted demand for logistics services during the Covid-19 pandemic.Businesses including German container carrier Hapag-Lloyd and Denmark-based AP Møller-Maersk have invested in ports, warehouses and other logistics infrastructure. The facilities support the increasingly complex supply chains developing between countries including Vietnam, India and Malaysia.Dheeraj Bhatia, who oversees Hapag-Lloyd’s business in India, said competition to invest in these markets was increasing as they attract more of the offshore manufacturing that previously focused on China.“The whole world sees India and south-east Asia as the next natural option to offshore,” Bhatia said. “Middle Eastern, Chinese, European . . . companies from all sides will try to invest into these markets.”Executives said they were responding to western multinationals’ desire to reduce their reliance on China and establish back-up production lines. The trend was inspired by geopolitical rifts and disruptions during the pandemic.But the executives warned that alternative manufacturing hubs across south and south-east Asia needed substantial investments.Hapag-Lloyd, which enjoyed a 40-fold earnings increase between 2019 and 2022, announced in April that it had acquired a 40 per cent stake in Indian port operator JM Baxi. Bhatia said the group was considering further investments in Indian ports and rail infrastructure.“The port infrastructure on the west coast especially is reaching its limits,” Bhatia said.Meanwhile, Maersk last year completed a $3.6bn acquisition of Hong Kong-based LF Logistics and its 198 warehouses across Asia. The Danish group also this year set out plans to develop two new berths at Vietnam’s Lach Huyen port along with the local Hateco group.Anne-Sophie Zerlang Karlsen, Maersk’s head of customer delivery in the Asia Pacific, stressed the importance of expanding and investing across south-east Asia as intraregional trade continues to rise. It was “very viable” the region would experience “very rapid and high growth” for a number of years, she said.China continues to enjoy a substantial lead in the capacity of its freight infrastructure. Research group Drewry found earlier this year that China had 76 container terminals able to support large ships carrying more than 14,000 20-foot containers, the size most often used on trade routes between Asia and both Europe and North America. South and south-east Asian countries had just 31 between them.Drewry researchers nevertheless expect the container capacity of south Asian ports to increase 31 per cent in the five years to 2027, compared with 14 per cent for ports globally.Such expansion is underpinned by sharp increases in goods traffic from Asian countries other than China. Eric Reuter, Asia Pacific vice-president at Forto, said the Berlin-based freight forwarder had doubled the volume of exports it handled from Vietnam between 2021 and 2022.There are also projections of rapid growth of trade between Asian economies. UPS, the US-based logistics company, expects that trade within the continent will more than double in the decade to 2030, to $13.5tn. The US logistics group’s Asia Pacific president, Michelle Ho, said intra-Asia trade held “incredible potential”.Among the growing trade’s beneficiaries has been Singapore. Onno Boots, chief executive for Asia-Pacific and Middle East at logistics group Geodis, part of France’s state-owned SNCF, said a number of manufacturers were moving their Asia-Pacific distribution centres to the city-state.But he added that many of Singapore’s warehouses were at full capacity.Swiss logistics company Kuehne+Nagel moved its regional headquarters from China to Singapore before completing its $1.3bn acquisition of Hong Kong-based Apex Logistics in 2021, according to Joerg Wolle, the company’s chair. The step was a bet on growing south-east Asian trade.“Asia will be the biggest growth opportunity for us,” Wolle said. “The trend to [securing supply chains] is very positive.”

Businesses from China are also seeking a role in the changing environment. Reuter pointed out that many new factories in Vietnam were managed by Chinese investors. Meanwhile, Michael Fitzgerald, deputy chief financial officer of Orient Overseas Container Line, part of China’s state-owned Cosco shipping group, said efforts by companies to reduce their dependence on China were an opportunity for his company.“If I can help a company that manufactures some things in this part of China, some things in that part of China, some things in Thailand, then that’s more logistics management for me,” he said, speaking earlier this year. More

A surge in life sciences investment that helped make Ireland the EU’s top performing economy in the past two years will continue despite a rise in the corporate tax rate to 15 per cent, the country’s investment chief said. Michael Lohan said Ireland was poised to win several big investments from pharmaceutical and medical device companies attracted to the country’s blend of tax incentives, political stability, skilled workforce and EU membership.“As uncertainty continues around the globe, Ireland’s certainty has become more attractive. People are seeking those islands of tranquillity, and Ireland is one of those,” Lohan, chief executive of the country’s foreign investment authority IDA Ireland, told the Financial Times.The number of people employed in life sciences in Ireland has surged by 80 per cent to almost 100,000 over the past decade on the back of almost $15bn in capital investment in the sector. Last year a record 301,475 people worked at multinationals, which paid 86 per cent of all corporate taxes received in the country of 5mn people. Ireland has built its record as being one of the EU’s largest FDI recipients on its attractive headline corporate tax rate of 12.5 per cent, but Lohan is the confident that the rise to 15 per cent in January for all companies that generate $750mn or more in annual revenues is “not making a marked difference in terms of investment decisions”. But as countries such as the US pursue a “reshoring” manufacturing policy and consider tax incentives for pharma companies, analysts and investors warn that the wider OECD-led shake-up of corporate tax rules, as well as housing and energy shortages, could dent Dublin’s ability to attract multinationals.

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“The key challenge for Ireland is addressing infrastructure constraints and other bottlenecks such as housing which are raising the costs for foreign investors,” said Conall Mac Coille, economist at Davy, a Dublin stockbroker. A downturn in the technology sector that is spurring job losses at Meta, X (formerly Twitter) and Accenture, all of which have operations in Ireland, has added to concerns about its competitiveness.A second tranche of tax reforms called Pillar One, which are being overseen by the Paris-based OECD, would result in a portion of taxable profits generated by large multinationals being reassigned from Ireland to other markets. The change reflects how modern businesses can make profits in foreign markets without necessarily having a physical presence there. Brad Setser, a senior fellow at the Council on Foreign Relations in Washington, said that the Pillar One reforms, and uncertainty over whether the US and other countries will implement the agreement, were the main threats to Ireland.Michael Lohan, chief executive of IDA Ireland, the country’s foreign investment authority © Niall Carson/PAThe OECD is hoping that the measure can come into force in 2025 but a failure by Washington to sign up to a global agreement, which looks likely as many Republicans in Congress remain opposed to it, could create trade tensions and complicate FDI decisions for US multinationals, Setser said.For now, most investors are playing down the risks, suggesting that access to skills and support services in Ireland are more important than tax reforms. Mac Coille also noted that Ireland would maintain a corporate tax advantage over its rivals, including the UK, which in April raised its rate from 19 to 25 per cent. European OECD countries levy an average corporate rate of 21.5 per cent, according to the Tax Foundation think-tank. Ireland-based life science companies have tripled R&D spending, as they undertake higher value activities including manufacturing of complex biologic medicines. Since December the pace of investment has picked up, with Eli Lilly, Pfizer and AstraZeneca ploughing more than $2bn into manufacturing plants in Ireland, which is one of the world’s largest exporters of medicines. Japanese drugmaker Takeda made its first investment in Ireland a quarter of a century ago when corporate tax was 10 per cent. It now employs 1,000 people and last year opened the country’s first cell therapy manufacturing plant. “People and talent are key. The academic institutions are really important,” said Shane Ryan, general manager Ireland at Takeda.Takeda now employs 1,000 people in Ireland © Radharc Images/AlamyIreland has the highest level of per capita Stem (science, technology, engineering and maths) graduates in the EU, according to Ireland’s government statistics office. Ireland’s EU membership is another factor because it provides access to a broader European workforce, said Ryan, adding that Takeda employs 43 nationalities across its four Irish sites.Takeda is one of several life sciences companies which collaborate with Ireland’s National Institute for Bioprocessing Research and Training (Nibrt), an academic centre that provides training and research aimed at expanding the biopharma manufacturing industry.Almost 5,000 people train at the centre every year, including staff from the FDA and other global regulators.

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Matt Moran, director of BioPharmaChem Ireland, an industry group, said that Nibrt highlighted the benefits of close collaboration between pro-enterprise Irish governments, academia and industry. “Compliance and regulation is very good. Many of these plants are approved by the US Food and Drug Administration,” Moran said.Initial Irish investments by Pfizer and Bristol Myers Squibb more than a half century ago encouraged other multinationals to follow, he said. Ireland is now a manufacturing centre for some of the world’s top-selling drugs, including Merck’s cancer therapy Keytruda and Pfizer’s Covid-19 vaccine. Moran said that competition for life sciences investment from the US was becoming more intense following a US push to “reshore” manufacturing, a key plank of President Joe Biden’s economic programme.

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“Ireland was a bit of a no-brainer [for new investment]. Now companies look at US states as well — so we just need to be better,” Moran said.The pharmaceutical industry is focusing on the resilience of supply chains following recent disruptions caused by the pandemic and a spate of drug shortages linked to manufacturing problems in India and the US. The IDA said this trend was benefiting Ireland, which manufactures everything from drug ingredients to tablets and more complex biological medicines. Dublin’s decision to keep its borders open and facilitate exports of life-saving drugs while competitors erected trade barriers during the coronavirus pandemic helped the IDA win two life science investments initially destined for the US and China, the agency said.“We have benefited from the more conservative approach to managing the supply chain,” said Rory Mullen, head of biopharma and food at the IDA. “Covid has changed that decision-making process.”Additional reporting by Emma Agyemang More