Aurelia Butler

The eurozone economy grew in the final quarter of 2022 despite economists’ predictions of a downturn, boosting hopes that the region will avoid a recession.Milder weather and government support cushioned the impact of soaring energy prices, helping the region’s economy expand by 0.1 per cent between the third and fourth quarter, according to official data published by Eurostat on Tuesday.The expansion was better than the 0.1 per cent drop forecast by economists polled by Reuters. The same survey had also predicted another quarter of contraction during the first three months of 2023. Bert Colijn, senior economist at ING, the bank, said the region’s economy was showing “incredible resilience” in the face of the energy crisis triggered by Russia’s invasion of Ukraine.Tuesday’s data means that the region managed to grow in each quarter of 2022 and by 3.5 per cent over the course of the year. John Leiper, chief investment officer at Titan Asset Management, said the figures were “quite an achievement” given the headwinds facing the region.Businesses and households also had to contend with higher borrowing costs, as the European Central Bank raised interest rates by 2.5 percentage points during the second half of last year to combat inflation that peaked at 10.6 per cent.Only a few months ago, economists had forecast a deep recession and energy shortages. But a less cold winter than feared, falling gas prices and generous government support have all helped avoid that scenario. Tuesday’s figures are likely to feature in the considerations of the ECB, which is seeking to ensure that inflation returns to its 2 per cent goal. Markets expect the ECB governing council to increase the benchmark deposit rate by 0.5 percentage points to 2.5 per cent when it meets on Thursday. The central bank’s resolve is also likely to be bolstered by the latest data on prices. French inflation accelerated in January while Spain’s core consumer price growth, which strips out food and energy, rose to the highest level on record.Earlier in the day, data showed France’s economy also managed to avoid falling into recession.The eurozone’s second-largest economy grew by 0.1 per cent between the third and fourth quarters, France’s national statistics bureau Insee said. The figure beat economists’ expectations of no change. Tullia Bucco, economist at UniCredit, said the French data was “encouraging news”. However, Charlotte de Montpellier, senior economist at ING, said this year would be “characterised by near-stagnation” of France’s economy.Germany reported a fourth-quarter contraction of 0.2 per cent on Monday, placing the eurozone’s largest economy on the brink of recession. Data published on Tuesday showed Italy’s economy also contracted, but by just 0.1 per cent — a smaller amount than feared. Spain’s economy expanded by 0.2 per cent, according to figures published last week. But detailed national data from France and Spain showed a sharp fall in imports, suggesting demand among businesses and households is weakening. Household consumption fell sharply in both countries, with Germany also reporting that private spending was the driver of the fall in GDP.The eurozone figure was also boosted by a strong performance by Ireland, which recorded growth of 3.5 per cent. The region’s GDP would have not grown without Ireland’s contribution. “The worst scenarios for this winter have been avoided,” Colijn said. “But the economy remains sluggish.” More

Demand for gold surged to its highest in more than a decade in 2022, fuelled by “colossal” central bank purchases that underscored the safe haven asset’s appeal during times of geopolitical upheaval.Annual gold demand increased 18 per cent last year to 4,741 tonnes, the largest amount since 2011, driven by a 55-year high in central bank purchases, according to the World Gold Council, an industry-backed group. Central banks hoovered up gold at a historic rate in the second half of the year, a move many analysts attribute to a desire to diversify reserves away from the dollar after the US froze Russia’s reserves denominated in the currency as part of its sanctions against Moscow. Retail investors also piled into the yellow metal in a bid to protect themselves from high inflation.Central bank purchases of gold hit 417 tonnes in the final three months of the year, roughly 12 times higher than the same quarter a year ago. It took the annual total to more than double of the previous year at 1,136 tonnes. Krishan Gopaul, senior analyst at the WGC, said “colossal” central bank buying is a “huge positive for the gold market”, even as the industry group predicted that it would be tough to match last year’s purchases because of a slow down in total reserve growth.“Since 2010 central banks have been net purchasers of gold following two decades of net sales. What we have seen recently in this environment is central banks have accelerated their purchases to a multi-decade high,” he said. He added that a lack of “counterparty risk” was a key attraction of the metal for central banks, compared with currencies under the control of foreign governments.Only about a quarter of the fourth-quarter central bank purchases were reported to the IMF. Reported purchases in 2022 were led by Turkey taking in almost 400 tonnes, China, which reported buying 62 tonnes in November and December, and Middle Eastern nations.Gold industry analysts widely believe the remainder is accounted for by central banks and government agencies in China, Russia and the Middle East, which can include sovereign wealth funds.James Steel, a veteran precious metals analyst at HSBC, said that “portfolio diversification is the main reason” for US dollar-laden central banks buying gold. He adds that “a key reason for choosing gold is that central banks are limited in what assets they can hold, and they may be reluctant to commit to other currencies”.Demand among retail investors for bar and coins also jumped to a nine-year high in 2022 above 1,200 tonnes with strong demand in Europe, Turkey and the Middle East offsetting weakness in China where buyers were housebound by Covid lockdowns.Gold prices slid from a record high last March above $2,000 to just above $1,600 per troy ounce in November as rising interest rates led to outflows from gold-backed exchange traded funds equivalent to $3bn over the year. Gold produces no yield, dulling its appeal to investors when interest rates on low-risk bonds climb.However, demand from central banks and retail investors helped prevent the yellow metal sliding further and set the stage for a powerful rally since November. In those three months, gold has jumped almost a fifth to $1,928 per troy ounce — its highest level in nine months — helped by the US Federal Reserve signalling that it would slow down the pace of rate hikes.The WGC expects a revival in gold demand from institutional investors this year as interest rates in main economies approach their peak, while falling inflation could damp demand for bars and coins.As a result of exceptional central bank buying and an expected return of inflows for gold-backed ETFs, UBS raised its year-end target for the precious metal to $2,100 per troy ounce, up from $1,850 previously. More

At the Burger King outlet in central Hobbs, New Mexico, a new sign has been plastered across the front window: “NOW HIRING: COOKS/CASHIERS APPLY WITHIN!” Similar notices proliferate across the city’s main shopping plaza: Pizza Hut, Little Caesars, T-Mobile, CVS, K-Mart, Quickcuts, and Neighborhood Barbershop are all advertising vacancies. A boom is under way in this dusty, sun-bleached desert town: joblessness is plunging, wages are soaring and new tax receipts are flowing to state coffers. Driving it all is a surge in crude oil production from the Permian Basin, a vast hydrocarbon trove that stretches across western Texas and south-eastern New Mexico.While other US oilfields are in decline, Permian production hit a record high last year as Russia’s invasion of Ukraine helped drive energy prices higher. At 5.6mn barrels a day the field now accounts for almost half of all the oil produced in the US, pumping more than many Opec countries. The state of New Mexico’s crude production last year eclipsed output from the entire country of Mexico. Unemployment in the US oil and gas industry slid from around 6 per cent a year ago to less than 2 per cent in December — the lowest in a decade, according to the Bureau of Labor Statistics. That stands in stark contrast to sectors of the economy buffeted by rising interest rates: tech companies have laid off almost 230,000 employees since the beginning of 2022, according to layoffs.fyi, which aggregates job cuts. Some 1,500 miles from Silicon Valley, the bustle in the Permian is palpable. Oil and gas producers deployed 350 drilling rigs in the region last week, up by about a fifth from the same time last year, according to data collected by Baker Hughes. Other jobs have followed, from truck drivers and mechanics to hotel cleaners and construction workers. “Business is booming,” said Bruce, a 19-year old employee at a Hobbs supermarket as he retrieved trolleys scattered about the plaza car park by the nightly influx of oilfield workers. “Work is at an all-time high . . . everybody’s looking for somebody”.Employers are competing for workers in Hobbs, New Mexico © Adria Malcolm/ReutersOutside Hobbs, oilfield traffic weaves down winding county roads with names such as Battle Axe and Oiler. Lorries laden with sand and gravel speed down highways, pick-up trucks haul trailers carrying shining new diggers; SUVs cart diesel engines and coils of piping.Their passengers are suddenly earning big money. Roughnecks in New Mexico can command rates of more than $27 an hour, according to consultants Rystad Energy, up from $18-20 a year ago. A commercial trucking licence alone is enough to bag a driver a salary of over $100,000 without so much as a high school diploma.“Most of the entry level jobs right now are anywhere from $15-20 an hour — and usually more towards the high end,” says Sam Cobb, mayor of Hobbs. “It is an excellent opportunity for people that are not from [privileged backgrounds]. Unless you’re an engineer, you don’t have to go to college to become an entry level worker in the oil and gas industry.”Lea County, in which Hobbs sits, now produces more oil than any other county in the US from wells operated by companies including the listed Devon Energy and EOG Resources. Surging production has increased tax receipts for New Mexico, historically a state with one of the highest poverty rates in the nation. The state budget has jumped from less than $6bn four years ago to almost $9.5bn this year, with boosts envisaged for education, housing, healthcare and infrastructure spending. “It’s been just spectacular,” says Cathrynn Brown, a Republican lawmaker in the New Mexico state House of Representatives. “It’s a boom for sure — but this is bigger . . . than anything we have seen before. It’s unprecedented.”New Mexico’s crude oil production has eclipsed output from the country of Mexico © Ernest Scheyder/ReutersHobbs has known booms — and busts — before. In the 1980s, when oil prices crashed to historic lows, cars in town bore bumper stickers that read, “Can the last person to leave turn the lights out?” The start of the pandemic in 2020 effectively halted oilfield activity as prices again collapsed, clobbering workers. Now the mood is different as experts forecast record global oil demand this year and crude prices stabilise around $80 a barrel. Plum salaries in the oilfields have drawn workers from traditional service jobs like retail and hospitality, leaving restaurants running at half capacity owing to a lack of staff. Others have jacked up wages in a bid to compete: Burger King is offering up to $28 an hour to flip burgers, a job that pays an average of $19 in high-cost New York. “Trying to recruit in oilfield jobs that’s hard enough. But recruitment in retail jobs is very difficult,” says Jennifer Grassham, who runs the Lea County economic development board. “I would say everyone is looking for people. It doesn’t matter whether it’s retail or oilfield.”Hotel rates are climbing, with rooms increasingly booked out in the middle of the week to accommodate visiting workers. Insignia Hospitality, which operates a portfolio of more than 20 hotels across the Permian, is opening a new Hilton franchise in Hobbs next month, its fourth location in the city. Rachel Overman, chief operating officer at Insignia, is optimistic. “Otherwise,” she said. “We wouldn’t be building a new hotel there.”Lea County’s unemployment rate sat at 3.7 per cent in November, roughly in line with the national average. Locals say the reality on the ground in the county of 73,000 people is an even tighter labour market. “There’s an unemployment number. But my personal opinion is I think those people are the ones that don’t want to work — because there are jobs,” says Dustin Armstrong, head of the local chamber of commerce. “We’re in the busiest spot in the busiest oilfield in the US.”The current upcycle comes despite fears that the shale revolution that made the US the world’s biggest oil and gas supplier is drawing to a close. Wall Street is demanding that profits be returned to shareholders rather than splurged on drilling binges. And in many parts of the country, the best acreage has already been drilled. Oil producers now complain about rampant cost inflation, another reason the US shale sector is on the whole struggling to increase oil supply as fast and easily as in the past. On top of this, the push to wean the world’s biggest economy off oil and gas in favour of cleaner alternatives is gaining pace. But in the Permian, there is confidence that America will continue to guzzle the hydrocarbons it produces for a long time to come. “We look at the whole energy mix dilemma from a different lens since we are in the business here,” says John Yates, chief executive of Abo Empire, a local producer. “The Permian Basin is more than 100 years old but that doesn’t render us to the pile of dinosaur bones.” More

The 10 per cent most polluting people in society are responsible for almost half of the annual greenhouse gas emissions behind climate change, creating a “strong incentive” for policies targeting the elite group, a UN-backed report has concluded.The sweeping research, by a group led by the Nobel Prize winning economist Thomas Piketty, examined the unequal effects of climate change and also found that the top 1 per cent of global emitters were responsible for nearly a quarter of the total growth in pollution between 1990 and 2019. “Carbon inequalities” within countries were now greater than those between countries, said the researchers from the Paris-based World Inequality Lab.The concentration of emissions created a “strong incentive for policies” targeting the most polluting individuals, such as wealth taxes, said the report, which was supported by the United Nations Development Programme. “All individuals contribute to emissions, but not in the same way . . . In addition to an obvious equity concern, there appears to be an efficiency question at stake,” the report said.Despite the increasing urgency of tackling climate change and the sequence of extreme weather events that devastated countries last year, global greenhouse gas emissions have remained stubbornly high. In October, the UN’s leading environmental body said national emissions reduction pledges put the world on track for warming of between 2.4C and 2.6C by 2100. The Paris Agreement binds the almost 200 signatory countries to strive to limit warming to 1.5C, ideally. Global inflation and a worsening cost of living crisis, meanwhile, has put the issue of growing inequality within countries front of mind in many places, including the UK and US. Sub-Saharan Africa was the only region where average per capita emissions presently “meet the 1.5C target,” the report found. The concentration of emissions among a small section of the global population also meant that ending global poverty was not incompatible with rapidly slashing emissions, it said.The so-called “carbon budgets”, or emissions limit, needed to bring everyone above the $5.50 per day poverty line were roughly equal to a third of the emissions from the top 10 per cent of people, the report estimated. The report looked at the emissions of individuals and factored the pollution from goods and services into the carbon footprints of the people who consumed them.

For there to be rapid change without harming the most vulnerable, a “profound transformation” of national and international tax regimes was required, the researchers said. For instance, a global “1.5 per cent” wealth tax on the world’s richest individuals could raise billions of dollars to help the most vulnerable groups shift to green energy, estimated at $175bn annually if implemented in the US and Europe, the report says.The removal of fossil fuel subsidies could also “free up considerable resources for more socially targeted adaptive measures,” though such changes needed to be paired with social reforms and assistance to protect the poorest from possible fuel price hikes, they said. A barrier to such measures was the lack of reliable data about the unequal distribution of emissions within and between countries, the researchers said. Policymakers should invest in better collection and understanding of such data to develop effective and targeted policies, they said. The effects of warming are also uneven, with low and middle income countries often more exposed and less able to cope with disasters, such as floods and fires, than the rich nations that bear a greater historic responsibility for climate change. More

Global growth has proven “surprisingly resilient” and most countries will avoid a recession this year, the IMF said, as it upgraded its forecasts and hailed a possible turning point for the world economy.In estimates that took into account China’s decision to scrap its zero-Covid policy last month, the fund said it expected the global economy to grow 3.2 per cent between the end of the final quarter of 2022 and the end of the last quarter of this year.That would mark a significant improvement on 2022, when the IMF estimates the global economy grew 1.9 per cent. The 3.2 per cent projected growth is also 0.5 percentage points higher than the IMF’s last forecast, in October. Pierre-Olivier Gourinchas, IMF chief economist, said 2023 “could well represent a turning point”, with economic conditions improving in subsequent years. “We are well away from any [sign of] global recession,” Gourinchas said, striking a sharp contrast with remarks by managing director Kristalina Georgieva this month that recession would hit more than a third of the global economy. The IMF said its improved outlook reflected the opening up of the Chinese economy and falling energy prices for Europe.It forecast that on average, the global economy would be 2.9 per cent bigger in 2023 than in 2022 — a different basis of calculation than the comparisons of the fourth quarters of this and last year. That is a step down from the 3.4 per cent pace estimated for 2022.But the IMF remained less optimistic than investors. With the MSCI World index of equities up 7 per cent since the start of the year and bond markets expecting interest rate cuts before 2024, traders have priced for a soft landing and pain-free reduction in inflation.The fund expects the UK to be the only leading economy to shrink in 2023, with GDP forecast to be 0.5 per cent smaller in the fourth quarter of the year than in the same period of 2022. Even Russia’s economy is likely to outpace the UK’s, according to its estimates, growing 1 per cent over the same period. Chinese growth, at 5.9 per cent, is forecast to be more than double the fund’s October estimate, while India is expected to be the world’s fastest-growing large economy this year, with output 7 per cent higher at the final quarter of 2023 than a year earlier. Together, China and India will account for half of global growth this year, while the US and euro area will account for just 10 per cent, the IMF said.China will be an “engine” that benefits other countries, Gourinchas said.The IMF warned, however, that it remained concerned about risks in China’s property sector. Beijing has been grappling with a real estate crisis since 2021, when developer Evergrande defaulted on its international debt.By the end of the year, the US economy is expected to be 1 per cent larger than a year earlier, unchanged from October’s forecast. But the IMF says the country’s 2022 performance was stronger than expected. Gourinchas said there was “a possibility” a US recession could be avoided but that this was a “narrow path”, adding that higher interest rates were “certainly going to cool off the economy and bring down inflation”. The US Federal Reserve is expected to raise rates by a quarter point this week, setting a target range of between 4.5 per cent and 4.75 per cent. Tobias Adrian, the director of the IMF’s monetary and capital markets department, warned that interest rates could rise more than markets expect and take longer to come down, particularly in the US.“There’s certainly a wedge in between what policymakers are communicating and what’s priced into markets,” he said. “There is still a lot of upside risk to inflation . . . Until it is very clear that inflation is coming down in a durable fashion . . . it is still necessary to continue to tighten monetary policy.”

The IMF also reiterated concerns about debt defaults in emerging markets but downplayed the risk of a “systemic debt crisis environment”.About 60 per cent of low-income countries and several emerging market economies are at risk of being or already are in distress, according to the fund.Asked about the revival of bailout talks with Pakistan, which had its growth outlook downgraded 2.5 percentage points to 2 per cent for this year, the IMF said it would focus on restoring domestic and external sustainability during a mission to Islamabad this week. More