Aurelia Butler

The bank considers this would be the worst case scenario, which included Ukraine losing access to the Black Sea in the south. The bank’s base case scenario is a 39% GDP contraction in 2022, factoring a prolonged conflict “with fading intensity.””While the external balance deterioration should be limited due to a major imports drop, fiscal and more broadly funding needs are a major challenge” wrote Morgan Stanley economists in a note.Ukraine’s sovereign international bonds are currently pricing in a “light” debt restructuring with “all payments cleared until 2026 yet no haircut, at a conservative exit yield of 14%”, the note added. On Wednesday, Ukraine’s $1 billion bond due in September 2022 traded at just under 70 cents in the dollar while most of the remaining issues were bid between 34 cents and 47 cents, Refinitiv data showed. Morgan Stanley sees Ukraine financial needs at $4.7 billion a month and said how the country will use international aid for reconstruction will play a key role in the economy’s long-term outlook. More

LISBON (Reuters) – Portugal’s central bank has opened up its heavily guarded vaults in a small commuter town near Lisbon, giving a rare glimpse of where some of the country’s gold reserves are kept.The 67,000 square metre compound in Carregado houses an ultra-secure vault where 45% the Bank of Portugal stores 382.6 tonnes of gold. The remaining 55% is abroad, mostly in the Bank of England in London.”Gold is an important asset for central banks as it is a refuge asset and has no credit risks,” said Bank of Portugal board member Helder Rosalino on Tuesday during the rare media visit to the facility, guarded by armed police officers. The compound, which opened in 1995, is protected by alarms and surveillance cameras, and its multiple doors have keypad lock systems that have become more sophisticated over the years. The gold bars, which weigh 12 kilograms (26.46 lb) each, are stacked on hundreds of shelves in a vault behind armoured doors. Only three staff members can open them by using a code on a rotary knob, by turning two keys and then waiting for a fourth person to enter another code remotely from a control room.Rosalino said that since 1999, when the euro currency was officially created, the value of Portuguese gold reserves has increased by 16.8 billion euros. It rose 4.3% to around 19.8 billion euros last year alone.He said 2021’s increase was due to the appreciation of the U.S. dollar against the euro. Gold is priced in U.S. dollars.Portugal has the world’s 14th largest gold reserve, with its value representing the equivalent of nearly 10% of the country’s gross domestic product. More

BELGRADE (Reuters) – Serbia’s central bank on Wednesday cut its 2022 growth forecast to 3%-4% from 3.5%-4.5% due to the conflict in Ukraine. The bank said in its Inflation Report that if the “geopolitical situation” worsened, the forecast could be cut again.The bank said rising fuel, food and commodity prices, domestically and internationally, would result in slower-than-expected growth in manufacturing and construction “and to a smaller extent in services.” More

The move, if confirmed, may be the final straw in Russia’s debt saga after almost three months of war in Ukraine, pushing the country into its first foreign default in a century.Insurance on Russian sovereign debt — used to protect investors against non-payment — jumped on Wednesday, signalling a 90% chance of a default within one year. That probability rose from 77% on Tuesday, according to ICE Data Services.The heightened risk is linked to a decision by the Treasury Department’s Office of Foreign Assets Control, which is expected to let a temporary exemption lapse once it expires on May 25, according to people familiar with the matter. The waiver, issued shortly after the US levied sanctions on Russia, has given Moscow room to pay coupons, and ending it would create a major hurdle for future payments.Trading on credit-default swaps skyrocketed earlier this year as investors wagered on Russia defaulting due to payments being made in rubles rather than the currencies specified in bond documents, or because of money getting held up in the banking system.But Russia has managed to meet all its debt obligations so far, weaving through the tangle of sanctions that closed off some avenues. That includes an 11th-hour escape earlier this month, when blocked payments were eventually allowed through after Moscow tapped its domestic dollar reserves. Russian corporations haven’t been so fortunate, with billions of dollars of debt now in technical default.Finance Minister Anton Siluanov reiterated on Wednesday that Russia has no intention of defaulting on the almost $20 billion of sovereign debt it owes to foreign investors, and will pay in rubles if transfers are blocked, according to the Tass news service.In April, Siluanov pledged to sue if Russia is forced to break its obligations.Moscow’s next debt transfers are due May 27, on foreign bonds maturing in 2026 and 2036. The 2026 note was down by 33% on Wednesday at 16 cents on the dollar, according to CBBT data compiled by Bloomberg. It’s at its lowest level since mid-March, when Russia succeeded in making the first external debt payment since the invasion of Ukraine thanks to the OFAC carveout. The bond maturing in 2036 was little changed.©2022 Bloomberg L.P. More

(Reuters) -Running out of petrol, medicines and foreign reserves, once-booming Sri Lanka is in a mess. And the measures needed to pull its economy out of the unparalleled crisis are likely to bring even more pain.The dire assessment by new Prime Minister Ranil Wickremesinghe this week of the island nation’s economic plight was a necessary first step, economists said. His proposed solution to bring back some stability includes selling the loss-making national airline, printing more money and possibly raising taxes as well as energy and utility prices.Wickremesinghe said the “unpleasant and terrifying” facts facing the country included a fiscal deficit that was 13% of gross domestic product (GDP), virtually no foreign reserves and shortages of petrol, gas, furnace oil and cancer and anti-rabies medications.The country has suspended sovereign debt payments and ratings agencies are expected to place it in default. In addition, the chronic foreign exchange shortage has led to rampant inflation, bringing thousands of anti-government protesters onto the streets of the Indian Ocean nation, over which China and India jostle for influence.In Colombo, the commercial capital, no petrol was to be found at most service stations on Wednesday. Long lines of auto-rickshaws, the city’s most popular mode of transport, and other vehicles were parked in front, waiting for supplies.”Any petrol station you go, there is no fuel, and people (are) lined up for kilometres and kilometres,” said Mohammad, a delivery driver who only gave one name. “So, how can you run a vehicle, right? How can you do your daily…day-to-day activities?”Sri Lanka has no dollars to pay for petrol shipments, Power and Energy Minister Kanchana Wijesekera told parliament, appealing to people to stop queuing for the next two days.Economists said most of the prime minister’s proposals made sense.However, the decision to print money was concerning and would raise fiscal and external imbalances, said Patrick Curran, senior economist at London-based Tellimer.”The policies announced are a necessary first step to resolve Sri Lanka’s economic crisis, but will entail significant short-term pain via higher inflation and currency depreciation and will necessitate further rate hikes from the CBSL (Central Bank of Sri Lanka) to contain the pressure,” he said.S&P said printing money would have “significant inflationary implications”.The central bank holds a rate meeting on Thursday and is likely to raise rates for a fourth consecutive time this year, according to a Reuters poll. It increased the key lending rate by a historic 7 percentage points to 14.5% in April and is likely to decide on a further increase of up to 2 percentage points this week, most analysts said.SUBSIDIES, FERTILISER BANSri Lanka’s economic crisis, unparalleled since its independence in 1948, has come from the confluence of the COVID-19 pandemic battering the tourism-reliant economy, rising oil prices and populist tax cuts by the government of President Gotabaya Rajapaksa and his brother, Mahinda, who resigned as prime minister last week.Other factors have included heavily subsidised domestic prices of fuel and a decision to ban the import of chemical fertilisers, which devastated the agriculture sector.Sri Lanka was a model for emerging market economies and grew at an average rate of 6.2% between 2010 and 2016, according to World Bank figures. In the next three years, the figure had dropped to 3.1%.The World Bank has forecast the economy will grow 2.4% this year from 3.5% in 2021 but has said the outlook is highly uncertain.Charles Robertson, global chief economist at Renaissance Capital in London, said the removal of electricity and fuel price subsidies was essential.These and other reforms would form the starting point for discussions with the International Monetary Fund for a crucial bail-out, other economists have said.”We will also have to see massive tax hikes, probably a doubling of VAT from 8% to at least back to the 15% we saw in 2019,” Robertson said. “It was the cut in those VAT rates which contributed to this crisis.”The sale of SriLankan Airlines is not likely to fetch much money in the current environment, the experts said. “Not a bad thing to sell it but that is a drop in the bucket vs their USD financing needs,” said Nathalie Marshik, head of emerging market sovereign research at Stifel Financial (NYSE:SF) Corp.The worry is that fuel and utility price increases will add to public anger against the government at a time when the administration is in deep disarray. The new prime minister has to convince the people that the measures are necessary to restore stability, economists said.Inflation hit 29.8% in April, with food prices sky-rocketing by 46.6% year-on-year.”Overall, it seems that corporates and individuals are preparing for more tax measures,” said Trisha Peries, head of research at CAL Securities in Colombo. “Further, expectations are being set for electricity tariff hikes to come as well.”In a sense he was preparing the minds of the public for the economic pain that is to come,” Peries said of Wickremesinghe. More

UK inflation hit 9 per cent in April, its highest level in more than 40 years, after soaring gas and electricity bills intensified the cost of living crisis facing households. The rate of consumer price inflation is almost double the rate the Bank of England expected only six months ago.With economic activity slowing sharply during the first quarter of the year, the UK economy is suffering its worst bout of stagflation — weak growth alongside high inflation — since the second oil shock of the 1970s. CPI inflation rose from 7 per cent in March to 9 per cent in April, putting it at the highest level among G7 countries and among the highest of any advanced economy in the world.It is expected to rise further in the autumn to more than 10 per cent.The sharp rise in the cost of living will add to pressure on Chancellor Rishi Sunak to accelerate promised measures to help poorer families and pensioners cope with prices rising much faster than their incomes. In response to the figures, Sunak released a statement blaming global shocks on energy prices. “We cannot protect people completely from these global challenges but are providing significant support where we can, and stand ready to take further action,” he said. The Office for National Statistics said the 54 per cent increase in Britain’s energy price cap in April caused almost three-quarters of the rise in the inflation rate that month, but prices were also climbing rapidly in almost all categories of expenditure and in goods leaving factories. Grant Fitzner, ONS chief economist, said the rise in raw material prices was adding to pressure on manufacturers to pass on their higher costs. “This was driven by increases for food products, transport equipment and metals, machinery and equipment,” he said. With inflation far in excess of the Bank of England’s 2 per cent target and the price of services up 4.7 per cent on a year earlier, widespread evidence that inflation is becoming more persistent is likely to add force to those wanting the central bank to raise interest rates further to cool the economy.Kitty Ussher, chief economist at the Institute of Directors, said business leaders were saying the weak economy was now “their number one negative issue” and was making them “more reluctant to invest, storing up problems for the economy in future”.But, according to research on business attitudes for Accenture, just 9 per cent of consumer industry executives believed their customers had less disposable income than a year ago and only a fifth thought their clients were having money troubles. Using the ONS figures on Wednesday, the Institute for Fiscal Studies showed that the 54 per cent rise in energy prices resulted in a much higher inflation rate for poorer households than richer ones because they spent a higher proportion of their incomes on gas and electricity. Heidi Karjalainen, economist at the IFS, estimated that inflation for the poorest 10 per cent of Britain’s households was running at 10.9 per cent in April, compared with 7.9 per cent among the richest 10 per cent. With state benefits rising only 3.1 per cent in April, it meant “big real-terms cuts to the living standards”, said Karjalainen.

The Bank of England this week sought to deflect blame for the lack of control of inflation. Andrew Bailey, BoE governor, blamed global shocks for rising prices and said there was “not a lot we can do about it”. Yael Selfin, chief UK economist at KPMG, said: “The [bank’s] Monetary Policy Committee will be keen to show they can keep inflation expectations anchored down the line. The key risk facing policymakers is if today’s high pace of inflation becomes embedded in pay negotiations, which will put additional pressure on prices to rise”.Retail price inflation, using a discredited measure that still underpins the cost of index-linked government debt, rose to 11.1 per cent in April, also a 40-year high. More

Japan’s economy contracted in the first three months of the year as its recovery was hampered by Covid-19 restrictions and soaring commodity prices caused by Russia’s invasion of Ukraine. While the pace of contraction was slower than expected, Asia’s largest advanced economy has wrestled with surging import costs that have been accelerated by the yen’s fall to a multi-decade low. Japan’s gross domestic product shrank at an annualised rate of 1 per cent in the January-to-March period, compared with economists’ expectations of a 1.8 per cent decline. The data translated into a drop of 0.2 per cent from the previous quarter, according to preliminary figures released by the cabinet office on Wednesday.The GDP figure was released a day after Prime Minister Fumio Kishida’s cabinet approved a ¥2.7tn ($21bn) supplementary budget consisting of subsidies and cash handouts to low-income households to address rising oil and food prices.The Kishida administration has come under pressure to address the squeeze on living standards caused by surging inflation ahead of an upper house election in a few months.Private consumption was flat compared with the October-to-December quarter as the service sector was hit by a rapid rise in Omicron coronavirus variant infections early in the year.In addition to weak spending, net exports knocked 0.4 percentage points off GDP growth as a result of imports gaining 3.4 per cent, exceeding the 1.1 per cent growth in exports.

Many economists expect a rebound in consumer spending as the government eases Covid-19 restrictions. That could allow the Japanese economy to return to pre-Covid growth levels in the latter half of the year, far behind the recovery in the US and Europe. But Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute, said the pace of the recovery was expected to be weak as the sharp increase in the cost of imported goods hurt consumer sentiment.“The rise in oil prices will be a big damper on spending,” he added. “The economic rebound expected towards the end of the year may not be as strong as anticipated.”Kazuma Maeda, an economist at Barclays, said another risk factor for exports, particularly for cars, was supply chain disruption that had deepened as a result of lockdowns in China. “The outlook for the global economy has grown increasingly uncertain,” Maeda said, pointing to signs of a slowdown in China and the impact of the war in Ukraine on industrial production in Europe. More

Tulo, an African refugee in the UK, is living in challenging circumstances. She relies on state benefits and uses a local food bank. As inflation soars, bringing higher fuel and food bills, her financial situation is likely to worsen. Yet how is it she has one of the happiest dispositions of anyone I know?An active member of her local church community group, Tulo (not her real name) has a wide circle of friends. The emotional support she gains from her social network sustains and enriches her in a way that money, beyond a basic level of sustenance, never can. She says: “I have lots of friends [in my community group] and many of them are much worse off than me. I feel part of something special here that money can’t buy.”Compare her outlook with that of a 35-year-old investment banker I had as a client when I was a financial planner. Let’s call him Peter. Despite earning around £1mn a year, Peter hated his job, worked long hours, had few friends and was prone to bouts of depression.I had shown Peter that he could give up his job tomorrow and never have to work for the rest of his life if he lived a modest lifestyle. His answer was always the same: “I just need to accumulate another £1mn, then I’m done with this job.” I remember asking Peter what things gave him joy in life. He thought carefully and replied, “I love painting. I love losing myself in the process.” When I asked him how often he painted, he replied, “I don’t have the time with my job. And anyway, I’ve not painted since my mother died when I was 20.”Peter had suffered the loss of his mother while he was still at university. By immersing himself in a job he had come to hate, he may have felt he could address emotional problems that I suspected lay unresolved at her death. But there are few such issues that can be addressed by the accumulation of financial wealth.Readers may regard these examples as extreme or special cases — or even irrelevant during a cost of living crunch that is plunging more people into financial distress. If you are unable to afford food or a roof over your head, dealing with emotional concerns is likely to be low on the list of your priorities. When more people have money troubles, it’s no surprise that mental health issues will be on the rise. While money can’t make you happy, its absence can cause stress and anxiety. And when you feel frightened and anxious about money, it’s easy to become overwhelmed and not seek support. Money worries are far from unusual. In a recent financial wellbeing webinar I gave to more than 1,000 people from some of the UK’s biggest employers, I asked attendees how they felt about their financial situation. More than 60 per cent were slightly concerned, while 15 per cent were worried and concerned. Twenty per cent were cautiously optimistic and only 3 per cent were totally relaxed.Citizens Advice Bureau offers free personalised and practical help to people in financial distress, as do debt advice charities such as StepChange. But there is high demand for the services offered by these organisations and getting an appointment can take a while.Offering a helping hand to someone trying to cope with their money troubles could be the most caring thing any of us can do right now. This could mean anything from talking through the issues, helping complete applications and providing moral support.While a significant minority of people are struggling financially, an even greater number are not. A surge in holiday bookings and strong demand for property and second-hand cars over the past few months suggests many are feeling financially confident. But just because you aren’t struggling to make ends meet and are willing to spend on luxuries and other non-essentials, having a high income doesn’t stop money worries. Research by Salary Finance, a small loans provider, found those earning £90,000 or more a year had almost the same level of financial worries as those earning between £10,000 and £30,000.There still seems to be a stigma in talking about money, which means many suffer in silence and those who can help don’t. But there is no shame in having money worries, and the cost of living squeeze, which affects millions of Britons, makes talking about them easier. We all need to feel that we have control over our lives, and have choices that make life more bearable or fulfilling. Being part of a tribe or, in modern parlance, feeling connected to other people can give us this sense of security.The best thing we can all do in these tricky financial times is make time for each other. It’s far easier to cope with financial adversity when you don’t feel alone. Jason Butler is an expert on financial wellbeing and presenter of the “Real Money Stories” podcast. Twitter: @jbthewealthman. He is head of financial education at Salary Finance. More