Aurelia Butler

Deposits in the week ending May 10 totaled $17.10 trillion on a nonseasonally adjusted basis, down from $17.16 trillion a week earlier, the Fed’s weekly snapshot of the banking system’s assets and liabilities showed. Deposits, which had dropped substantially after the collapse in March of Silicon Valley Bank, were down at large banks and little changed at smaller ones.Meanwhile, credit provided by banks dropped to $17.32 trillion from $17.37 trillion a week earlier, led by a decline in securities holdings. Loans and leases saw modest declines. More

Wrangling over the debt ceiling in Washington continues, Greek voters head to the polls and data from the United States to China and Europe could show just how quickly inflation and economic growth are easing. Here’s a look at the week ahead in markets from Kevin Buckland in Tokyo, Lewis Krauskopf in New York, Naomi Rovnick in London and Yoruk Bahceli in Amsterdam.1/ USA WATCH        Critical U.S. inflation data will allow investors to gauge whether the Federal Reserve will be able to pause its interest rate hiking cycle, as many on Wall Street expect.The personal consumption expenditures (PCE) price index, tracked by the Fed, is due on Friday for April. The index gained 0.1% in March. That was the smallest rise since July and, with the consumer price index slowing in April to below 5% on annual basis, hope for peak rates has grown.    Minutes from the Fed’s latest meeting on Wednesday, could provide more clues on whether a rate pause is nearing.    Also looming for markets is the June 1 deadline for when the federal government may default on some debts unless the nation’s debt ceiling is lifted. There are some positive signs for a deal, but any headlines suggesting an agreement remains out of reach will likely weigh on markets.2/ STUTTERING Sentiment towards China is turning, as a lackluster consumer cuts short the post-pandemic recovery that was supposed to offset U.S. and European downturns.The yuan is at 5-1/2 month lows and Citi’s economic surprise index for China is at its lowest since January. Expectations for stimulus – monetary, fiscal or both – are rising. That notion will be put to the test on Monday, when China’s central bank sets the loan prime rate.Friday’s Tokyo consumer price figures, which front-run the national data by several weeks, are in focus for Bank of Japan watchers. Traders have all but given up on a June hawkish BOJ shift in June, potentially setting markets up for a nasty surprise on a very strong print.    The Reserve Bank of New Zealand meets Wednesday, and expectations for a half point rate hike have crept up after a more expansionary than expected budget.3/ TEFLON PMI For stocks, good data can be bad news. S&P Global (NYSE:SPGI)’s U.S. composite purchasing managers’ index, viewed as a real-time gauge of business conditions, has risen for five months. If the improvement continues in the next survey, out May 23 alongside PMIs globally, that may disappoint investors who have chased equity valuations higher because they expect a recession. Big tech stocks that dominate U.S. indices can do well when the economy is weak, as this encourages bets the Fed will cut rates, boosting risk appetite for companies with early-stage innovation baked into their business plans. For Europe, the picture is mixed. Better-than-expected PMIs could benefit regional stocks. But the Stoxx Europe 600 index, up 10% this year, has also been supported by U.S. recession fears driving investors to diversify into Europe. 4/ FADING STARSterling is the best performing major currency against the dollar so far this year, thanks partly to expectations the Bank of England will raise rates further from the current 4.5%.Yet this narrative could lose steam if Wednesday’s April inflation data shows price rises are moderating.    UK inflation was 10.1% in March, the highest in Western Europe. But since then, some signs of cooling job market inflation have emerged, with Britain’s unemployment rate edging up to 3.9%. And while annual wage growth held at 5.8% in March, there was a further decline in the number of people moving jobs.     Some economists reckon wage growth will weaken ahead, suggesting UK rates may have peaked – and sterling’s strength with it.  5/ TO THE POLLS Hot off the heels of neighbouring Turkey, Greece votes on Sunday. Prime Minister Kyriakos Mitsotakis’s New Democracy party leads in the polls, but the election may not produce an outright winner, given a new voting system. While either a coalition government or a second vote in July is likely, Mitsotakis hopes to win a second term to continue reforms and further boost growth. Markets are sanguine; Greek shares and bonds remain big outperformers. Many hail the election as the last step to Greece reclaiming an investment-grade credit rating, over a decade after it was downgraded to junk. Former Prime Minister Alexis Tsipras’s Syriza, which once clashed with Greece’s creditors and then moderated, is polling second. Syriza promises major spending, including a boost to wages, reversal of labour market reforms and nationalising utilities and one major bank — policies that would fray market nerves. More

MUMBAI (Reuters) – Investors are looking beyond the U.S. technology sector’s bounceback this year for longer-term returns, as higher interest rates and an uncertain macroeconomic picture could present further headwinds, fund managers and strategists said.The tech-heavy Nasdaq Composite has jumped 21% this year, more than doubling the S&P 500’s 9% rise, boosted by stronger-than-expected earnings and cost-cutting measures from major companies, along with expectations that the U.S. Federal Reserve’s hiking cycle is nearing an end.Longer term, other sectors are likely to offer better returns at more attractive valuations, said Abigail Yoder, U.S. equity strategist at J.P. Morgan Private Bank.”The tendency is that … the sector that leads in one cycle doesn’t tend to lead in the following cycle,” Yoder told the Reuters Global Markets Forum.The Nasdaq’s current performance is a significant turnaround from 2022’s 33% drop, its worst year since the 2008 financial crisis, but the risks posed by higher interest rates and a potential U.S. economic slowdown have not faded.”We are staying away from the more interest rate-sensitive sectors such as tech,” said Jonathan Mondillo, head of North American fixed income at abrdn.Anticipating an economic slowdown in the second half, more cautious and selective positioning across fixed income portfolios is a better bet, said Jonathan Duensing, head of U.S. fixed income at Amundi.”We’ve always felt that the tech sector in general is one where you need to be very selective,” Duensing said.Abrdn’s base case is a likely recession in the fourth quarter of 2023. Based on that, Mondillo prefers credit in more defensive sectors, including healthcare and consumer staples, over technology.Similarly, Yoder sees healthcare as an attractive defensive option in the face of recession, with mid-cap stocks likely to outperform their larger counterparts.”Longer term, we prefer actually mid-caps, which tend to be higher quality in nature, and tend to exhibit a really good up/down capture over time,” she said.(Join GMF, a chat room hosted on Refinitiv Messenger: https://refini.tv/33uoFoQ) More

MEXICO CITY (Reuters) – The Mexican peso could remain the top performer among major global currencies in the coming weeks, despite Mexico’s central bank choosing to halt a nearly two-year rate-hike cycle, analysts said.The currency traded at 17.40 per dollar this week, its strongest in seven years, and experts believe the exchange rate could soon fall below 17 pesos per dollar, a level not seen since 2015.”It is very likely that this strengthening of the currency will continue in the short term,” said James Salazar, deputy director of economic analysis at local firm CI Banco, adding the differential rate is still very attractive and favors the peso.The Mexican peso has gained nearly 10% so far this year, driven mainly by the dollar’s decline and money entering the country since the central bank started hiking interest rates in June 2021.Banxico, as Mexico’s central bank is known, put the breaks on rate hikes on Thursday, but warned its key rate could remain at its current all-time high of 11.25% – more than double that of the U.S. Federal Reserve – for an extended time.Among the factors boosting the peso, analysts cite a steady inflow of remittances, strong export growth and a private investment boost from nearshoring, the trend of moving factories to a nearby country where production is cheaper.In the Chicago Mercantile Exchange, seen as a market bellwether, speculators on different types of assets have been increasingly betting that the Mexican currency will keep appreciating.These positions, anticipating further strengthening of the peso since mid-March, reached 70,007 contracts in favor of the currency last week, a level not seen since March 2020.Nonetheless, U.S. economic uncertainties such as the risks of a recession, banking system health and the danger that the federal government defaults on its debt obligations, threaten to cloud the outlook for the peso in the medium term.Considering these factors, Mexican economists expect the peso to weaken to 19.13 by year-end, a survey by the central bank showed, while a poll of Citibanamex experts estimated the figure at 19.20. More

Today’s top storiesThe European Central Bank called on markets to ignore news wire stories based on leaks of sensitive information, which it said were unreliable indicators of future decisions and should be treated with caution.The UK unveiled its long awaited semiconductor strategy, offering chip companies up to £1bn over the next decade. Although the amounts involved are tiny compared with $52bn in incentives in the US and €43bn of state aid in the EU, the UK says it is focusing on areas in which British companies have a “strategic advantage”.An FT investigation found that a front company for the Russian mercenary group Wagner acquired tens of thousands of helmets from China, at the same time as the group’s chief Yevgeny Prigozhin was raising a vast prisoner army to attack Ukraine.For up-to-the-minute news updates, visit our live blogGood evening.The war in Ukraine and a new “common approach on China” are the dominant themes at the G7 summit which began today in Hiroshima, but the gathering will also discuss many other topics familiar to regular DT readers, from the state of the world economy and the energy crisis to relations with the global south, climate change and the rapid development of artificial intelligence.The Ukrainian president Volodymyr Zelenskyy is making an in-person appearance on Sunday, fresh from his trip to the Arab League summit in Saudi Arabia, to garner support for his 10-point plan to end the war, as well as using the opportunity to lobby non-G7 attendees like India and Brazil. G7 members yesterday announced a new package of sanctions, including proposals to hit Russia’s diamond business, one of Moscow’s few remaining export industries yet to be affected by western restrictions. They agreed to support Kyiv for “as long as it takes” although omitted to include last week’s pledge to block the restarting of Russian gas pipelines.Tomorrow the bloc’s members — the US, UK, Japan, Canada, Germany, France and Italy — will seek to respond to what they term “economic coercion” from China. The tone is likely to be one of “de-risking” rather than decoupling, as they attempt to strike a balance between national security and economic interests. The group will also discuss “heightened uncertainty” on the global economy and issues such as resilient supply chains. G7 finance ministers have already called for action to address regulatory gaps in banking following the recent sector turmoil. On climate change, the host Japan is pushing for a “realistic” approach to cutting emissions, arguing that Asia’s circumstances require a different speed of energy transition, with its economies at an earlier stage of development than the US and Europe and its fossil fuel infrastructure closer to the start than the end of its life. There were also calls for “guardrails” around the development of AI although there is little agreement on how to police it. Taro Kono, Japan’s digital minister, told the FT he was concerned in particular about elections being targeted by “malicious elements”. The highly fragmented nature of regulation is also becoming a worry at a time of increased data flow across borders. Europe currently has the toughest regime, but the US, says Kono “is the wild, wild west”. The wider political message from the summit, says chief foreign affairs commentator Gideon Rachman, is that of the US using the G7 to rally its democratic allies in Europe and Asia for a generational struggle in a new era of superpower rivalry. Or as President Biden’s national security adviser Jake Sullivan puts it, in a none too subtle nod to cold war rhetoric, the G7 is now acting as “the steering committee of the free world”. Read our new special report: G7 JapanNeed to know: UK and Europe economyAnother sign that the UK economic outlook is improving came with consumer confidence figures for May moving to their highest level in a year, albeit still in negative territory.“Levelling up” however, one of the government’s key aims, looks as difficult a task as ever, with new data showing London still outperforming all other regions. The capital enjoyed growth of 0.9 per cent in the third quarter last year, compared with contractions of 0.1 per cent nationally, 2 per cent in Wales and 0.3 per cent in Scotland, with growth flat in Northern Ireland and England.

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Russia admitted “problems” with oil and gas revenues that have fallen to their lowest levels in years as western restrictions gnaw away at Moscow’s main source of income for funding its war in Ukraine. Russia is also having problems attracting western delegates to its flagship St Petersburg economic forum.Need to know: Global economyAs the Bank of England holds its “Festival of Mistakes”, economics editor Chris Giles tackles the question: why are central bank forecasts so wrong?

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The boss of South Africa’s Eskom electricity monopoly said the country should prepare for the worst-ever blackouts over winter, with outages of up to 16 hours. Looting, lack of repairs and major coal and nuclear plants going offline have all brought the company to the brink.Need to know: businessJohn Allan, chair of British supermarket chain Tesco, is to step down next month following misconduct claims.Walmart, the world’s largest retailer, raised its profit forecasts after a better than expected first quarter, in contrast with the more wary tone on consumer discretionary spending from rivals Home Depot and Target.Seven of the world’s largest semiconductor makers are expanding in Japan as western allies step up efforts to reshape the chip supply chain amid rising tensions with China. UK water companies apologised for dumping billions of litres of sewage and pledged to invest £10bn to reduce waste outflows. Campaigners were not impressed: the money will come from higher customer bills while regional water monopolies have been paying out excessive dividends and rewarding bosses with hefty pay packages. Rapid infrastructure improvements meanwhile are being hindered by rising costs.UK telecoms group BT said it would slash up to 42 per cent of its workforce by the end of the decade as part of a cost-cutting programme.EasyJet became the latest airline to talk up the bounceback in customer demand, saying it expected to return to pre-Covid capacity this summer and reporting revenues surging by 80 per cent.The US tech industry may be having a difficult time but in Latin America the sector is thriving as entrepreneurs used to political and economic turmoil show they can cope with funding downturns.If you think you have a tough time at work, spare a thought for the hidden army of poorly paid social media moderators who have to wade through countless graphic images of violence to filter out toxic material for end users. Our Big Read details how they are fighting back.Science round upThe World Meteorological Organization said global temperatures would likely exceed 1.5C above pre-industrial levels for the first time in the next five years, fuelled by the anticipated return of the El Niño weather phenomenon,World leaders are expected to make their strongest pledges to tackle dementia for 10 years at the G7 summit, as degenerative brain diseases impose a growing burden on the global economy and effective treatments for Alzheimer’s begin to emerge. The use of non-sugar sweeteners, the subject of a warning from the World Health Organization this week, is one of the issues tackled in Chris van Tulleken’s new book Ultra-Processed People. FT science commentator Anjana Ahuja’s review looks at how we have become hooked on ultra-processed food and modern diets in which many of our calories come from products with novel synthetic molecules, never found in nature.An FT Big Read covers new quick blood tests to spot cancer. Some experts argue there is little proof the tests work and could lead to false positives, overdiagnosis and become a huge cost burden on the health service.Some good newsSome welcome news for England’s rivers as an antidote to the sewage headlines. The diversity of insect and other invertebrate life is better than at any time over the past 30 years thanks to a reduction in copper and zinc levels in the water. Something for the weekendTry your hand at the range of FT Weekend and daily cryptic crosswords. More

The chair of the Federal Reserve says that the credit crunch expected in the aftermath of recent bank failures may limit how much the US central bank will need to raise its benchmark interest rate, as officials weigh the need to forgo further tightening.Jay Powell on Friday highlighted the potential fallout from the failures of Silicon Valley Bank and other lenders and emphasised the high degree of uncertainty clouding the economic outlook.“While financial stability tools help to calm conditions in the banking sector, developments there, on the other hand, are contributing to tighter credit conditions and are likely to weigh on economic growth, hiring and inflation,” he said at a conference organised by the Fed in Washington. “As a result, our policy rate may not need to rise as much as it would have otherwise to achieve our goals.”He added that the extent of the effect on credit conditions was “highly uncertain”.Powell’s comments come as Fed policymakers debate whether to press ahead with an 11th straight rate rise at a meeting next month or pause their campaign of tightening monetary policy to fight persistent inflation. Since March 2022, the Fed has raised its benchmark policy rate by more than 5 percentage points to a target range of 5-5.25 per cent — an increase that Powell on Friday framed as notable.“We’ve come a long way in policy tightening . . . we face uncertainty about the lagged effects of our tightening so far and about the extent of credit tightening from these banking stresses,” he said.Powell separately added that the Fed could “afford to look at the data” before deciding on further rate rises.

That echoed a message sent during the Fed’s last meeting, which was interpreted by economists as support for an imminent pause. Powell on Friday said no decision had yet been made for the June meeting. As chair, he will be tasked with unifying what appears to be a divided group of officials, with several policymakers recently raising doubts that the Fed had raised its policy rate enough to get inflation under control.Lorie Logan, president of the Federal Reserve Bank of Dallas and a voting member on the Federal Open Market Committee, on Thursday said there was not yet convincing evidence for a pause.Speaking with the Financial Times, James Bullard, president of the St Louis Fed, said on Thursday that slow progress on the inflation front “may warrant taking out some insurance by raising rates somewhat more to make sure that we really do get inflation under control”.Also on Friday, John Williams, president of the New York Fed, warned that despite the coronavirus pandemic and the recent surge of inflation, central banks were most likely to have to grapple with low interest rates once the shocks pass.“There is no evidence that the era of very low natural rates of interest has ended,” he said, referring to a level of rates that neither stimulates nor restrains growth. More

Children have received an above-inflation boost in “earnings” from parents and caregivers despite household incomes being pressured by rising costs.NatWest Rooster Money, a savings app aimed at children, revealed that users experienced a 10.7 per cent increase in average annual incomes to more than £330 between March 2022 and February this year, above 10.4 per cent inflation over the same period. Fewer children received regular pocket money each week, according to the findings based on data from more than 125,000 young people aged between six and 17. This was down 13.5 per cent in the period, as parents switched to one-off payments to mark special occasions.“Faced with less regular pocket money, kids have been really entrepreneurial and proactive,” said Will Carmichael, chief executive of Rooster Money. He said children had sought out earnings from evening and weekend jobs as well as household chores. Children’s spending and saving habits contrast with a decline in parent and guardian’s inflation-adjusted earnings growth as higher prices reshape how households manage finances. Young people’s pocket money earnings grew by 11 per cent last year compared with nominal wage growth closer to 6 per cent for working people. This meant their financial independence was unencumbered by inflation; the survey data found they were spending mostly at supermarkets, fast food outlets and on video games. On average children saved about 8 per cent of their money over the year, comparable to the adult household savings ratio of 8.3 per cent in 2022, according to the Office for National Statistics. NatWest Rooster, which charges a monthly fee to users, and competitors such as GoHenry, Nimbl and Starling, offer parents control of their child’s spending using a prepaid card unlike a general current account. Debit cards linked to a child’s bank account are available from the age 11.Babysitting, reselling clothes and tutoring all helped children boost their income. These side hustles accounted for some £50 of earnings outside chores, 16 per cent more than they did in 2021-22. More

In a high-level meeting at its New York headquarters this week, the UN Office for Disaster Risk Reduction highlighted the 80 per cent increase in people affected by natural catastrophes since 2015 — and the key role of its Sendai Framework in creating national strategies to protect against them.But Mami Mizutori, special representative of the secretary-general for Disaster Risk Reduction, believes there needs to be a greater emphasis on adaptation — adjustments to ecological, social or economic systems to make countries more resilient to climate effects — as well as mitigation of those effects.And she wants to see the 96/4 percentage split between investment in disaster rescue and investment in disaster prevention completely reversed.Ahead of the meeting, Mizutori spoke to the FT’s climate correspondent Attracta Mooney and climate reporter Camilla Hodgson about getting disaster reduction policies back on track. Attracta Mooney: The link between climate change and disasters is becoming more apparent, especially after last year’s devastating floods in Pakistan. You’ve said previously that you want to create a world with zero climate disasters. Is that even possible? Mami Mizutori: We need to make it possible. We need to work on climate action, mitigation, adaptation, but we definitely need to work on the vulnerability element. That is what is not being done. Climate action is good at working on the hazard, but a disaster is made up of three things. It’s the hazard, the exposure, and the vulnerability. If we can double down our efforts on vulnerability — making people less vulnerable, making the vulnerable countries less vulnerable — we believe we can have a zero-climate disasters world. We also need to work more on early warning systems. It’s one of the best ways to save lives and livelihoods. But, currently, only half of the member states of the UN have [a system] they think is effective. And, many times, it’s not effective because it’s not really end-to-end, it’s not really leading to action on the ground. Early warning is [only] good enough if it leads to early action. If we work on these things, we do believe that we can create a world with zero disasters.AM: For early warning systems, there’s a target, right? Is it 2027? MM: It is 2027. It’s the UN secretary-general’s initiative, called the Early Warnings for All Initiative. This is not about covering all the countries, but all the people, with early warning systems. It needs to be end-to-end. An early warning system has four elements. It’s about good risk information. It’s about good forecasting. It’s about good warning and communication. And, finally, it’s about preparedness on the ground — so, education. Only when you have these four elements, and only when it’s multi-hazard, does it work. You can’t focus on one single hazard, like a cyclone or like a flood. You have to think: what are [all] the hazards you face? When you do that, you have an efficient system. That’s the goal: to do it by 2027. It’s a United Nations effort, but also, we have brought in the private sector: the insurance sector, the big tech [sector] for more information. I would like to say that the media has a great role here because who can educate the people better? I think it’s the media. Camilla Hodgson: How is that effort going? How are you putting in place the early warning systems plan? MM: We have selected 30 countries, which are mostly very vulnerable countries: 28 of them are either small and developing, or [among the] least developed countries. We are going to roll out this plan with UN country team coordinators . . . as a counterpart to the government. We need the government to own it, so the secretary has written to the heads of state in these countries, to say: please appoint a senior person. We want to work with you.

Then we’re hoping that funding will come from the Green Climate Fund, the Climate Risk and Early Warning Systems Initiative (CREWS), and also from bilateral donors. But it’s all about coordinating because . . . every country has gaps. Some countries don’t have anything. For example, we’ve targeted Haiti because it’s very vulnerable, but it doesn’t have anything. Some countries have one of the four [warning system] elements I mentioned, so it’s about really understanding what’s there right now . . . and filling the gap with the money that we are looking for. CH: Do you have an estimate of what it will cost, of how much funding you’ll need? MM: The price tag is $3.1bn. This was announced at the last COP, when we launched the executive action plan. This is not a lot of money because it’s 50 cents per person every year. If you think about how much money we need to spend in recovering Pakistan from the flood, the ask was $16bn. Compared to this, we really don’t think it’s a lot of money.

Last year’s COP27 conference brought leaders from 190 countries together to discuss climate change adaptation © Getty Images

AM: One of the key issues scientists talk about is that, as the world heats up, climate disasters become a bigger risk — we’re going to have more of them. How likely do you think it is that we are going to be able to limit global temperature rises to 1.5 degrees, which is the lower limit set by the Paris Agreement and [the point at] which scientists say we start to see exponential risk of greater impacts from disasters? MM: I must say that we still have that goal. I know that there were calls at the last COP, even from the media, saying why don’t you stop talking about 1.5? But the political will needs to be ramped up, and that is what we’re not seeing. There is concern right now because of what is happening in Europe. The war in Ukraine has allowed some countries to say: ‘We now have to deal with this right now.’ But, on efforts to reach that 1.5, we don’t see that the political [will] is really coming. Also, it’s about which countries really need to improve their act. Of course, the developed countries, but [also] developing countries — for example, China. If we can’t bring these countries in, then it’s really not going to work. I do believe that it depends on how much the countries which are now emerging . . . are going to have stronger political will and look at this as their future, too — not the short-term future of their economic growth, but the long-term future of sustainability for their people.CH: Are there other countries that should be doing more, who are in that category of ‘emerging’, becoming bigger polluters?

MM: We’re talking about a lot [that] are in the G20: China, India, Indonesia, Brazil. These are countries which, yes, are on the track of economic growth and they need to bring the [climate] mitigation policy into their growth policy, their development policy. CH: Are you optimistic about the mitigation agenda at this COP, being held by the United Arab Emirates? MM: We believe that, although the last COP had reached a historic agreement on the Loss and Damage Fund and there were a lot of good things that came out, mitigation probably wasn’t pushed as strongly as it should have been. The UN secretary-general is aiming to really push for mitigation. We do feel that . . . time is [of] the essence in this game. CH: I know there’s still a while to go until COP but, from what you’ve heard so far, are you optimistic that we will get progress on mitigation this year? MM: As you know, you need to get closer to the crunch time. The pressure on all member states, whoever they are — developed countries, emerging economies — to really enhance their efforts, will start coming. Maybe we don’t see it right now, but we still have time and there is a very strong urge to do this. But, also, I believe that adaptation will remain highly [important], because as we mitigate, if we can adapt, then the impact is going to be more intense. AM: You mentioned adaptation, and the most recent Intergovernmental Panel on Climate Change report was quite clear about the need for more adaptation. But, at the same time, there’s a lot of talk that there’s not enough money for adaptation. Who do you think should be funding that?

MM: I think the reason why there is not enough money for adaptation is that the impact of investing in it is not as clear as it is with mitigation. Investment in mitigation, and what comes from it, is much more clear, in terms of science. But, with investment in adaptation — like resilience — you put money in and then, what is it that you see coming from it? That difficulty in measuring the impact of adaptation is, I think, a big reason. If we can reach a global goal for adaptation at this next COP, then it becomes clearer. Also, if we can work on better metrics to measure adaptation, the money will come. You asked who should be giving the money? I do believe that there is quite a lot of funding that could be available already from the Green Climate Fund. They have committed to making adaptation part of what they’re going to fund. As you remember, [at COP26] in Glasgow, there was this commitment to double the money for adaptation. It’s not coming yet so, ultimately, yes, the member states have to rank up their effort. But none of these things can be done without the contribution of the private sector. Whether they fund it directly or not, that’s a different question. But I think there are opportunities for the private sector in the adaptation field. For example . . . nature-based solutions is an area that is promising, but we haven’t seen it skilled up. There are a lot of pilot projects here and there, which are good, but it hasn’t really seen the impact that it should see. If the private sector can come in and be part of this nature-based solution, that can also contribute to adaptation. I think there’s a real chance of scaling it up. Floods in Pakistan in 2022 put a third of the country underwater and killed more than 1,700 people © AAMIR QURESHI/AFP via Getty Images)CH: There’s a growing question about who pays for loss and damage. What’s your view on who should pay? MM: The thinking right now is that the countries that originally made this a problem should pay. But I do believe that sticking to that [principle] will not resolve the question. You may remember that at the COP at Sharm el-Sheikh, there was already a lot of discussion about who should be paying. The Europeans were very strong in saying that developed countries should pay their part, but it shouldn’t be limited to them. That, I think, is an ongoing discussion . . . But the problem is we’re talking about historic loss and damage, right? So, where do you say the history ended? I think that’s a big thing. Also, if we focus only on historic loss and damage, then, at the same time we are accumulating more losses and damages. The issue of how we avert, minimise, and address current and future loss and damage needs to be discussed in tandem. That is why we believe the Santiago Network [for connecting vulnerable developing countries with providers of technical assistance on addressing climate change] is very important.

CH: Who should pay into the Loss and Damage Fund? Do you have a view on how you identify countries — for example, gross domestic product per capita if there are two countries, such as China and Saudi Arabia, which are very different from other developing countries? MM: I think GDP per capita may not necessarily work because, if you take a country like China or India or Brazil, these are emerging countries which have quite a disparity in terms of the income of their people. I think it’s more about how much their economy is growing, depending on what, and how is that contributing to the global temperature rise. Those are the things that we need to look at. Of course, it would be difficult to reach an agreement on this, but I think those metrics are much more realistic than just looking at what’s the per capita GDP. AM: You’ve talked about the Loss and Damage Fund being historic and the need to think about future disasters, too. What do you think needs to be done to have cash ready to help countries when they suffer a disaster? MM: What we need to do more is bring the cash before the disaster happens. This is about building resilience, this is about reducing the risk. That’s what we’re not doing yet. There is still a lot of short-termism prevailing in what we do. It takes a lot of leadership to invest in prevention because, if you’re good at preventing, you don’t see the positive impact. It’s easier to try to get cash after a huge disaster because people see what happened, people dying, people losing their homes, their livelihoods.

4%

Proportion of official development assistance related to disasters that goes into prevention

This game can’t continue. That is where the Sendai Framework [the global blueprint for reducing risk and disaster] comes in. Currently, we know that only about 4 per cent of all official development assistance related to disasters goes into prevention; the rest goes into response and recovery. But there is not much evidence that recovery is building back better. It seems that we are doing more of building back the same. And if we’re not building back better, if we’re not putting more money into prevention, then the cash after a disaster will be smaller and smaller because the number of disasters — and their impact — is only growing.AM: You said only 4 per cent is put into prevention and preparedness. What do you think that figure needs to be? MM: In an ideal world, we need to reverse the 4 and the 96. The 96 [per cent] needs to go into prevention. Let’s take infrastructure. The World Bank said, in a 2019 report, that if you put one dollar into the resilience of infrastructure, you save $4 in this lifetime, in terms of when disaster hits, in terms of its reconstruction and recovery. That is solid science the World Bank came up with after looking at thousands of projects that it had already implemented. What I’m saying is, let’s try to reverse, if not at once, the 4/96, to make it 50/50 and, then, ultimately, 96/4. Right now, we are relying too much on response and recovery, and we are relying too much on insurance. AM: What does prevention actually look like in practice? What practical examples are there of what prevention would be?

Tokyo was hit by a powerful typhoon in September 2019 © AFP via Getty Images

MM: I’ll give you an example from Japan, that is not climate[-related] because we deal with both climate and non-climate disasters. Japan is an earthquake prone country and it knows that, within 30 years, a big earthquake is going to hit Tokyo. They have been working on this. Last year, they made public a projection of the impact of that earthquake and the mortality was calculated at 6,000 people. But, when they compared it with the number of ten years ago, it had gone down by 30 per cent. Why? Because, during the ten years, the government and the private sector and the whole of society put more effort into building codes. Not only making the building codes, but ensuring that they are abided by. That has reduced the [projected] mortality by 30 per cent in ten years, which is quite impressive. That’s what you need to do: you need to make those building codes appropriate for the risk you have. The reinforcement of land planning issues is key. That’s one example of what prevention looks like.

Second, you need to have governance. Many times in a city, the sector that is dealing with risk reduction or prevention and the sector that is looking at development do not talk to each other. Many times, prevention is left to a very small agency in a government, but not looked at across government. You really need to have a risk governance structure that is across all sectors because there’s risk everywhere. CH: Are there specific cities or countries that you think are particularly at risk or underprepared? MM: I think most countries are underprepared, but I can give you some examples of countries doing better. For example, Costa Rica is a country that has, by legislation, established a fund for prevention. Money needs to be put aside for prevention beforehand, before the disaster strikes. Australia is doing this, as well. And, interestingly, some countries in the Small Island Developing States (SIDS), because of their lack of resources, put disaster risk reduction strategy, climate adaptation and sustainable development into the same unit — so they really have an integrated policy. In many countries, including Japan, disaster risk reduction is usually led by a disaster management authority, and climate adaptation by the environment ministry. Although there is so much that overlaps — like early warning systems — they really don’t talk to each other. They have different budget lines for the same thing and don’t have an integrated policy. That is the problem. But, as I mentioned, in the small Pacific islands, they manage to integrate it. That’s one thing that we’re trying to do more universally: to ask the countries to integrate the disaster risk reduction strategies that they have to make under the Sendai Framework. There are now 125 countries that have such a strategy. And we’re telling them: integrate it with your national adaptation plan. Instead of having separate strategies for disaster risk reduction prevention and for adaptation, we are trying to encourage countries to have one plan or strategy that encompasses both areas. AM: One final question. You mentioned earlier that lots of countries are reporting to you under the Sendai Framework. What are you finding from that? What are they actually saying? MM: Mortality from disasters, if you take out Covid, is gradually going down. In our analysis, this is because of early warning. Although only half of the countries have it, that is much more than used to be the case. Early warning systems are contributing to the reduction of mortality.

But the other three indicators of loss, they’re all going up: the number of people affected, this is about livelihoods, this is about jobs, this is about education; the economic loss, this is getting very high, and it doesn’t include the indirect economic loss; and the damage to infrastructure and disruption to basic service is also going up. We’re comparing it to 2005, 2015 and 2020, . . . and all three of them are going up. There are seven indicators and seven world targets — those are the four about loss and damage. There are three more about what needs to be done. One is about governance of the disaster reduction strategy. Now, 125 countries have these strategies. This is much stronger than when the Sendai Framework started, although, we do need to look at the strategies’ content as well. But, in terms of numbers, it’s going up. Countries are aware that if they don’t have a plan, it’s not good. The Sendai Framework also says it’s not only the national governments, but local governments need to have plans as well. We know that’s where the impact comes. Not many local governments have them, so the local resilience is not good enough. Another, sixth, indicator is about enhancing international co-operation for disaster risk reduction. We already talked about this, it’s not going well. And the seventh, and last, one is about enhancing access to risk information and early warning. This has improved but, still, half of the world does not have an early warning system. Only 30 per cent of the SIDS have an early warning system, only 40 per cent of the countries in Africa have an early warning system, so there’s still a lot of gap. So, let’s face it, like [the UN’s] Sustainable Development Goals (SDGs), like [the] Paris [Agreement on Climate Change], we are not on track. This is why, at the midterm review high-level meeting on May 18 and 19 in New York, a political declaration and commitment by the member states is going to be adopted.It’s very important that they recommit [to implement the Sendai Framework] and also say that they will take more risk-informed policies. This is not only important for the Disaster Risk Reduction agenda, but for Paris and for the SDGs. More