Aurelia Butler

European business leaders expect governments to tighten control over a growing number of sectors in the name of national security, as the world divides into competing economic blocs.Roughly 80 per cent of those running Europe’s biggest industrial companies believe more sectors will be identified as national security priorities in the coming years, according to a survey carried out last month by the big-business lobby group, European Round Table for Industry, and The Conference Board, a US think-tank. Ilaria Maselli, senior economist with the Conference Board, said supply chain disruptions because of Russia’s invasion of Ukraine and China’s zero-Covid policy were fuelling protectionist tendencies globally. With China, Europe and the US all aiming to reduce their reliance on others for strategic imports, and trade sanctions increasingly used as a foreign policy tool, “protectionism is becoming a fact”, she added.In recent years countries from France to Australia have expanded the list of sectors considered strategic, opening the way for greater government intervention. But Russia’s invasion of Ukraine has drawn attention to new areas. Since the war began, 23 countries have turned to food protectionism, according to the International Food Policy Research Institute, a US think-tank.The survey also revealed that, within five years, 80 per cent of the respondents were expecting to do business in a polarised world, as the war in Ukraine stokes tensions between the west and a realigned China and Russia.The findings echo rising anxiety about a splintering of the global system of trade. José Manuel Barroso, former president of the European Commission, told the Financial Times recently that tensions between the US and China and Russia’s invasion of Ukraine “were raising serious concerns about a decoupling world”.Businesses are beginning to shift production, the survey indicates, but Maselli warned this would be neither easy nor quick. A majority of business leaders surveyed in both Europe (51 per cent) and at the head of European businesses in China (60 per cent) were investing in local capacity expansion. However, 44 per cent of respondents said they had no plans to reduce their dependence on Chinese suppliers.“Decoupling will continue, but not as fast as we talk about,” Maselli said. Over the medium term, roughly 48 per cent of respondents said the Ukraine war would accelerate their efforts to decouple from China, while 46 per cent expected no change in their strategy.The survey, conducted in the second half of April, revealed a steep drop in confidence among chairs and chief executives of Europe’s biggest industrial companies, from 63 in the second half of 2021 — where a reading above 50 indicates an overall positive response — to just 37 in April this year. Some 61 per cent also said they expected the outlook to worsen over the next six months.Many businesses are struggling with sharply higher energy prices as a result of Europe’s desire to shift away from Russian gas, as well as funding the hefty investment needed to meet the EU’s carbon targets. Forty per cent of respondents said they did not expect energy prices to return to pre-pandemic levels before 2024, while 38 per cent believe they will never go back. Yet two-thirds do not expect high energy prices to slow Europe’s efforts to reach its target of a 55 per cent cut in carbon emissions by 2030, compared with 1990 levels. And despite the generally grim near-term expectations, business leaders’ confidence in the outlook for employment remained positive and “relatively high” by survey standards, Maselli said.“That is a data point I would not have bet on,” she said. “If you look at the labour market there are strengths in Europe . . . Wages are going up and that will support demand.” It gave hope that “the worst outcome might not be realised”, she said.The survey was conducted in the second half of April with 57 ERT members. ERT brings together the chairs and chief executives of Europe’s 60 biggest industrial and technology companies with combined turnover of about €2tn. More

UK public sector borrowing fell more than expected last month and was lower than previously estimated for the latest fiscal year, giving chancellor Rishi Sunak more scope to address the cost of living crisis.Public sector net borrowing was £18.6bn in April, well below the £24.2bn recorded in the same month last year, data from the Office for National Statistics showed on Tuesday.April’s figure was lower than the £19.1bn forecast by the Office for Budget Responsibility, the UK fiscal watchdog.In the fiscal year to March, the public sector borrowed £144.6bn, which was £7.2bn lower than earlier estimates from the ONS. This was less than half the borrowing in the previous year, as the economy bounced back from the pandemic. Borrowing fell in April compared with last year because tax receipts increased as the economy grew, and spending fell as government pandemic support schemes for households and businesses were wound down. The cost of Covid vaccines and the NHS Test and Trace programme fell to its lowest level since August 2021 as free testing was phased out.Public finances were boosted also by the large rises in personal taxation in April, with national insurance contribution rates rising and most tax allowances and thresholds frozen in cash terms.As a result, central government receipts were £70.2bn in April, £9.9bn more than in the same month last year. At the same time, central government spending was £76.0bn, which was £6.7bn less than in the same month last year.However many economists expect the boost to public finances to be soon outweighed by surging inflation, which could push the economy into a recession. Michal Stelmach, senior economist at KPMG UK, said the “good fortune for the Exchequer is likely to run its course in the coming months as the economic outlook worsens and the cost of living crisis intensifies”.The government is expected to unveil extra support for households as they face the highest inflation rate in 40 years. Following the release of the borrowing data on Tuesday morning, Sunak said: “We must take a balanced and responsible approach to support people now, while also not burdening future generations, and we’re on track to drive public debt down by 2024-25.”With opinion polls suggesting that the Conservatives would win only 33 per cent of the vote if a general election was held today, “the pressure is mounting on Mr Sunak to do more to improve his party’s chances of being re-elected in May 2024,” said Samuel Tombs, economist at Pantheon Macroeconomics.As a result, Tombs expects the chancellor to bring forward the inflation-linked rise in the value of benefits from April 2023 to October and to greatly increase the value of the Warm Homes Discount this winter. Despite the improvement from the two years of the pandemic, borrowing in the latest full fiscal year was the third-highest borrowing since records began in the fiscal year ending March 1947. The UK public debt, or borrowing accumulated over time, was around 95.7 per cent of gross domestic product, a level not seen since the early 1960s. More

During Davos week, the Swiss ski resort becomes a sea of corporate and national marketing. Walk down the Promenade and you will pass the shopfronts of the Bank of America, Meta, Indonesia House and the India Lounge to name a few. This year, there has been a rebranding. What was previously the Russia House, playing host to the country’s corporate and political elite, is now the Russia War Crimes House — taken over by Ukrainians to highlight the appalling consequences of the invasion of their country.On Monday morning, Oksana Kyrsanova, a doctor recently evacuated from Mariupol, gave tearful testimony of the horrors of trying to save the wounded and dying while the city was under relentless Russian bombardment.This is not the normal Davos fare — even this year. But it is more than just a discordant note in a festival of dealmaking and glad handing. The war has fundamentally changed not just the atmosphere, but the underlying rationale of the World Economic Forum.For 30 years, from the end of the Cold War to the start of the pandemic, geopolitical rivalries took a back seat to globalisation — and nowhere was this more evident than here. The informal motto of Davos was “make money, not war”. The financiers and CEOs who throng the hotels became known as the “masters of the universe”. Political leaders — including Xi Jinping, Narendra Modi and Vladimir Putin himself — came to pitch to the assembled billionaires. Now the politicians and generals are back in charge — and the business people, who assumed for decades that the whole world was a potential market, are disorientated. For the Davos crowd, the implications of the conflict are both immediate and long term. The struggle between Russia and the West has a crucial economic component — and it is not clear which side has the upper hand. One energy industry boss predicts that, by this time next year, the EU will have successfully weaned itself off Russian gas — delivering a disastrous blow to Russia’s national finances, still benefiting from $1bn a day in oil and gas revenues. But western economies could soon come under politically intolerable strain if food and energy prices spike higher again this autumn.The economic consequences of the conflict for the developing world, heavily reliant on Russia and Ukraine for wheat, look even more disastrous. David Beasley, executive director of the World Food Programme, told a panel that unless the Ukrainian port of Odesa was opened in the coming weeks “we will have famines”. Beasley argued that the consequences of food shortages were already being felt in political unrest in countries from Sri Lanka to Peru.

The Davos crowd is also increasingly preoccupied by the idea that the economic isolation of Russia may not be a one-off. One leading financier notes that the US Congress is considering hundreds of potential measures to restrict economic relations with China. A Chinese invasion of Taiwan may not be necessary to trigger these kinds of measures. Given the growing level of bipartisan hostility towards Beijing, even a Chinese decision to buy Russian oil — or to help Moscow by other means — could be enough to trigger secondary American sanctions.Beyond that lies a broader question about whether America is in danger of overplaying its hand. Those who think primarily about the plight of Ukraine are gung-ho for using confiscated Russian assets. But some business people are concerned about the legal basis for actions such as that, worrying that the West is damaging its reputation for due process and the respect of property rights. One financier says that countries and businesses all over the world are now asking themselves whether they too might, one day, be targeted by US sanctions or asset freezes. He sees increasing interest in ways of diversifying away from dollar-based assets. The effectiveness or otherwise of western sanctions will be a test of the nature of the emerging world order. If the Russian economy is crushed and isolated, it will signal that we still live in a US-dominated world. But if Putin’s Russia survives and other countries begin to diversify away from America, then a very different sort of scenario may emerge. More

BENGALURU (Reuters) – South Korea’s central bank is likely to hike its benchmark rate at a second consecutive meeting on Thursday to combat inflation running at more than double its target, taking rates higher by year end than previously thought, a Reuters poll showed.Inflation in Asia’s fourth-largest economy rose to more than a 13-year high of 4.8% in April, as repercussions from the Russia-Ukraine war and a weakening won, down 7% this year, ramped up prices. Inflation has stayed above the central bank’s target of 2.0% for more than a year.All but one of the 28 economists polled May 17-23 forecast the Bank of Korea (BoK) will raise its policy rate by 25 basis points to 1.75% at its May 26 meeting. Among the first central banks to start raising rates since the pandemic, it has already hiked the base rate by a cumulative 100 basis points since August 2021.The BoK is expected to follow up on a May move with two more hikes, one per quarter, taking rates up to 2.25% by year end, based on a majority view of 17 of 28 economists. Three expected rates to end the year at 2.50%, seven said 2% and one said 1.75%. The majority view is up 25 basis points compared to the April poll, taking rates to a level last seen in the second half of 2014.But there is no consensus that rates will climb above that beyond the end of this year. “It would be difficult for policymakers to extend the rate-hike cycle into 2023, as we expect the peak-out of inflation in 2H22,” said Oh Suktae, an economist at Societe Generale (OTC:SCGLY).A separate poll taken last month predicted South Korean inflation to average 3.3% this year, but fall to 2.0% in 2023.Of 20 economists who provided an end-2023 rate view in the latest survey, nine said 2.50%, four said 2.25%, while the rest said 2.0% or lower. With the won down this year, the BoK is under some pressure to keep hiking while the world’s biggest central bank is also raising rates, and at the moment, aggressively. A separate Reuters survey showed the U.S. Federal Reserve will take the key interest rate to 2.50-2.75% by year end compared to 2.00-2.25% predicted just a month ago. [ECILT/US]”A deteriorating balance of payments position at a time when the U.S. Fed is normalising monetary policy will also add impetus for the BoK to act sooner rather than later,” said Krystal Tan, economist at ANZ.Earlier this month, the BoK’s newly-appointed Governor Rhee Chang-yong, due to chair his first policy meeting on Thursday, said he could consider bigger interest rate increases in coming months. More

TOKYO (Reuters) – President Joe Biden will “build on the commonalities” he shares with Indian Prime Minister Narendra Modi during talks on Tuesday despite differences on issues including Russia, according to a senior U.S. administration official.Modi and Biden will join leaders from Australia and Japan in Tokyo for a “Quad” summit in addition to holding their own meeting on the sidelines.India frustrated the United States with what Washington regarded as a lack of support for U.S.-led sanctions and condemnation of Russia’s invasion of Ukraine.But Western officials decided to push Modi on the issue gently and privately, seeking instead to emphasize their shared views on China, which Washington views as a bigger long-term challenge than Russia.India has developed close ties with Washington in recent years and is a vital part of the Quad grouping aimed at pushing back against China.But it has a long-standing relationship with Moscow, which remains a major supplier of its defense equipment and oil supplies. India abstained in U.N. Security Council votes on the issue, though it did raise concerns about some killings of civilians in Ukraine.”The president is very aware that countries have their own histories, they have their own interests, they have their own outlooks, and the idea is to build on commonalities,” said a U.S. official who briefed reporters and declined to be named.One key question for Washington going into the Quad meeting is how to wean India off Russian-supplied military equipment and whether to provide defense aid and other support to India to accelerate that transition.The United States is considering “investment support” of $4 billion for India on top of billions of dollars extended earlier, New Delhi said on Monday after the two sides signed an agreement for COVID-19 vaccine manufacturing, healthcare, renewable energy, financial inclusion and infrastructure.India also joined the United States and 11 other countries in Washington-led economic talks called the Indo-Pacific Economic Framework for Prosperity (IPEF).Though Taiwan was not an official item on the Quad agenda, another U.S. official said, it was expected to be a key topic that comes up when the four leaders meet a day after Biden broke with convention and volunteered U.S. military support for the self-governed island claimed by China. More

LONDON (Reuters) – Mining and oil firms led an 11% jump in dividend payouts to a first-quarter record of $302.5 billion, according to a closely-watched global report, though it warned companies face a growing number of challenges in the months ahead. The war in Ukraine, geopolitical tensions, high energy and commodity prices, rapid inflation and rising interest rates are all likely to impact companies’ dividend prospects, according to British asset management group Janus Henderson. “These challenges also mean greater uncertainty that is likely to affect corporate decision making. The impact on dividends is likely to show up beyond 2022, but it is important to remember that dividends are much less volatile than profits,” said Jane Shoemake, a client portfolio manager for global equity income at Janus Henderson.Payouts to shareholders have rebounded after falling during the pandemic.All business sectors in Janus Henderson’s index saw higher dividends year-on-year in the first quarter, with mining and oil companies recording the fastest growth, both up almost a third. BHP topped the list of the world’s biggest dividend payers in the quarter, followed by Swiss pharmaceuticals group Novartis.Danish shipping group Maersk was the third largest, having also recorded the biggest single dividend increase as the company benefitted from the disruption in global supply chains, according to the report. Overall 94% of companies in the index increased or maintained dividend levels, and every region saw double-digit growth.Janus Henderson expects global dividends for 2022 to reach $1.54 trillion, up 4.6% from the $1.47 trillion paid out in 2021, and over a fifth higher than in 2020. Payouts have more than doubled since 2009, when its global dividend index began. More

“Fed policymakers have emphasized a commitment to act expeditiously to restore price stability, and I expect that further rate increases could put the federal funds rate in the neighborhood of 2% by August, a significant pace of change in policy settings” George said in remarks prepared for delivery to an agricultural symposium put on by the Kansas City Fed. “Evidence that inflation is clearly decelerating will inform judgments about further tightening.” The Fed has been raising interest rates to rein in inflation that is at a 40-year high, lifting short-term borrowing costs from near zero to a range of 0.75%-1% so far this year. Fed Chair Jerome Powell has signaled that the central bank will raise rates by a total of another full percentage point over the next two Fed meetings, in June and July. The central bank’s action after that has become a key point of debate among its policymakers. George used much of her prepared remarks to outline the cross currents affecting the U.S. economy that make a judgment of what will happen with inflation so difficult: Russia’s war and China’s COVID-19 lockdowns could, for instance, hit global growth and reduce inflation pressure, or they could disrupt world productive capacity further and add to inflation pressures. “The central bank’s job is to prevent persistent imbalances from feeding into inflation and unmooring inflation expectations,” George said.The Fed’s interest rate hikes can only reduce demand and cannot influence supply factors that are also heavily impacting inflation, she said. “The evolution of its efforts alongside other factors will affect the course of monetary policy, requiring continuous and careful monitoring.” More