Aurelia Butler

WASHINGTON (Reuters) – The potential for a global economic slowdown is reason for the Fed “to be cautious” as it raises interest rates in coming months, Atlanta Fed president Raphael Bostic said in comments Tuesday to CNBC.“I don’t think it is easy to know for sure how strong the economy is going to continue to be as we move through the summer and into the fall,” said Bostic, who sees rates rising less this year than many of his colleagues. The International Monetary Fund’s reduction in estimated 2022 global growth to 3.6% from 4.4% “is a sign we need to be cautious as we move forward.” More

The UK will be the worst-performing G7 economy next year with the cost of living crisis and tax increases projected to slow economic activity to a crawl, according to a new IMF forecast. The US, Japan, Germany, France, Italy and Canada are forecast to grow faster, according to the fund. The new forecast undermines recent claims by Boris Johnson, prime minister, that the UK was the fastest growing G7 economy thanks to its successful vaccine programme and recovery from the coronavirus pandemic. In a speech to a Conservative party conference last month, Johnson said: “Thanks to the speed of that booster rollout, we have the fastest growing economy in the G7.”The IMF predicted that Britain’s economy would increase by just 1.2 per cent in 2023 and that its inflation would be higher than every other G7 member and slower to return to its 2 per cent target. Pierre-Olivier Gourinchas, IMF chief economist, said: “What we are seeing is that the UK is facing elevated inflation, and tight monetary policy is weighing down on economic activity this year and next.” Economists have pointed out that the UK’s economic performance over the Covid-19 crisis has been average among the G7. This has been masked by greater volatility following a relatively big contraction in 2020 followed by a faster recovery last year, with the IMF forecasting more of a hangover in 2023 as taxes rise.Julian Jessop, an independent economist, said the volatility of the UK’s performance from year to year depended on the timings of its Covid lockdowns, subsequent bounce-backs and its exposure to Russia’s invasion of Ukraine. “The medium-term growth performance [of most G7 countries] is pretty similar,” he said, adding that the UK’s growth projections for the middle of the decade were towards the top of the G7 league table, highlighting a reasonable outlook. Weak growth next year as households deal with the rising cost of living and companies face an increase in the corporate tax rate from 19 per cent to 25 per cent next April will make it difficult for Rishi Sunak, chancellor, to put the economy centre stage in any early general election. Rachel Reeves, shadow chancellor said: “The IMF’s economic outlook shows the UK is forecast to have the slowest growth in the G7 next year. Once again, the Conservative economic strategy of low growth and high taxes is laid bare.”With slow growth in 2023, the IMF forecast that unemployment would rise to 4.6 per cent after it hit a multi-decade low of 3.8 per cent at the start of the year, according to official data. More

The writer is co-chair of the Bill & Melinda Gates FoundationYears ago, I visited a rural province in India and met a group of women farmers who were part of what economists call “the informal workforce”. They were the economic backbone of their community. These women had pooled their money and purchased seeds, so they could support their families and one another. Their hard work contributed a great deal to their country’s economy — as does the labour of the other 2bn informal workers worldwide.These farmers weren’t employed by any company and didn’t earn a regular pay cheque. They probably didn’t show up in government labour statistics. When Covid-19 hit, many such informal women workers used their skills to help their communities and countries get through the pandemic. But as is often the case, governments frequently overlooked and undervalued their contributions. Economically, they lost more than nearly anyone. In a 2020 analysis of 10 countries, job losses were two to three times higher among informal workers than those formally employed. And they have no safety net to fall back on — no paid sick leave, no unemployment insurance.The world now has a big opportunity to do better. If leaders — including the finance ministers participating in this week’s World Bank and IMF meetings — put informal women workers at the centre of their economic recovery plans, they will repay an enormous debt. What is more, they will also be able to get their economies growing more quickly. When the women working in fields, markets and homes around the world lose their livelihoods, of course they and their families suffer. But economies do, too. Informal work accounts for 60 per cent of all global employment. In Africa and India, as many as nine in 10 working women are in informal jobs. Right now, thanks to $93bn mobilised recently by the World Bank’s International Development Association, governments in low-income countries have the opportunity to take decisive action to support these women and jump-start their economies. First, countries should invest in childcare. This is just common sense: when their children are safely looked after, more women can return to the workforce or start a new business. All told, the Eurasia Group estimates that expanding access to childcare for families who don’t currently have it could increase global gross domestic product by more than $3tn. At the Gates Foundation, we are investing in the World Bank Childcare Incentive Fund, which will help governments fund promising models. Second, countries should direct financial resources, including cash transfers, to women, many of whose assets were wiped out in the pandemic. To support economic growth, countries need to increase access to affordable credit for women, who often can’t get the financing they need to start and grow businesses. Expanding bank lending and directing funds to collective enterprises like the one I saw in India can turn this story around, by providing liquidity, rebuilding assets and encouraging growth, especially in the private sector. Third, countries should use data better to track challenges and progress. To solve a problem, you have to be able to see it. Too often, leaders don’t understand how women are suffering disproportionately and how that affects economies, because that’s not how they break down their data. By consistently disaggregating economic and development data by sex and other key characteristics, countries can gain a fuller picture, and ultimately devise more effective policies. In Mexico, information gathered over several years from the financial sector and surveys of citizens allowed leaders to see, and then narrow, gaps in women’s access to financial services.When Afghan girls desperate to learn are banned from school and pregnant Ukrainian women are stumbling out of bombed maternity hospitals, it is hard to think of anything else. These are grave atrocities. And they are not totally disconnected from the economic neglect of women. When we build a world where those furthest from economic opportunity have an equal chance to thrive and lead, we build a world that’s more peaceful and more resistant to shocks.As global leaders seek solutions to the mounting financial, health and security challenges, they must not overlook the informal women workers who hold up their societies in innumerable and often invisible ways. These individuals can be the engine of our global recovery. We must see them. But more than that, we must support them — with action, not just words.   More

Stanley Gibbons expects stamp and coin enthusiasts to benefit from rising prices for their collections, as inflationary pressures push investors to hedge against inflation. Graham Shircore, chief executive of the collectibles dealer, said on Tuesday there was “some evidence that real assets tend to do reasonably well during periods of heightened inflation . . . stamps and coins have shown to be at the better end of the spectrum.” Talk of the increasing potential for investors to hedge against inflation by buying real assets comes as gold rose to its highest level in more than a month on Monday, reaching a peak of $1,998 a troy ounce before falling back to $1,977.Shircore said any tangible increase in value for stamps and coins would become clear by the end of the year and the company said it was “by no means taking this for granted”. However, he said a series of record sales “would suggest the higher end is going through a period of price appreciation”.A US coin sold last year for $18.9mn in an auction at Sotheby’s in New York, breaking its own record set in 2002 when it went for $7.6mn. Stanley Gibbons bought the world’s most valuable stamp for $8.3mn at the same auction. Both items formed part of the collection of luxury shoe designer Stuart Weitzman.The dealer has since offered collectors the opportunity to acquire fractional ownership of the 1856 One-Cent Magenta stamp, through its partner Showpiece Technologies.The sale attracted more than 1,000 customers in a few weeks, while ownership of a second item on the platform, an Edward VIII penny coin, sold out in under four days, the company said in its trading statement.Shircore also said the company had worked on the concept of non-fungible tokens of stamps and coins, as part of “the changing ways of people collecting things”. Interest in stamp and coin collecting rose along with growth in other hobbies during the pandemic, he said, but Stanley Gibbons suffered from auction closures and a fall in sales during lockdowns, with revenue slumping to £10mn in the 12 months to March 31 2021 from £13mn the previous year.The dealer said the company expected annual revenues of about £12mn in the year to March 2022.Christophe Spaenjers, an expert in real assets and associate professor of finance at HEC Paris said that while “it is true that British stamps appreciated a lot in the inflationary 1970s”, there was no guarantee they would do so again.Gold, silver and diamonds were the best-placed real assets to hedge against inflation, according to Spaenjers, followed by stamps and art.“There is arguably an interesting self-fulfilling element here,” he said. “Stamps will only hedge against inflation if people start buying them as a hedge against inflation.” More

Vladimir Putin’s assault on Ukraine has silenced last year’s “transitory versus permanent” debate over the global rise in inflation. The economic effects of the war will be huge everywhere, and the behaviour of inflation will reflect those consequences as much as reveal who was right beforehand.That disagreement still matters, however. Where central banks came down on the question before the war has implications for how they must think about handling its effects today if they want to be consistent. Recall that accelerated inflation in 2021 arose from Covid-related production disruptions in global value chains, leading to relative shortages of manufacturing inputs and commodities. There can be reasonable disagreement about whether to tighten monetary policy in the face of a negative supply shock, when inflation occurs because the economy’s productive potential has been damaged. A central bank could judge that this type of inflation should be ignored if the supply shock involves a temporary adjustment in relative prices after which the price level stabilises by itself.Last year, however, this side of the argument lost out inside the major central banks. The Federal Reserve, the European Central Bank and the Bank of England all made clear hawkish turns. By adopting that stance then, they painted themselves into a corner. The war against Ukraine brought a new negative supply shock on top of the old one, adding both to the drag on growth and the upward pressure on prices. Hawkish signals in response to a first supply shock logically committed central bankers to doubling down on tightening when a second one made things worse.Monetary policymakers everywhere are promising that their decisions will be “data-dependent”, but how they interpret incoming data is what matters. So far, major central banks have eschewed the opportunity to use the shock of Putin’s invasion to restate how they think about the economy.How should they do this? First, by better explaining their thinking around negative supply shocks. Are they really committed to tightening more and faster, the worse the shocks buffeting households and businesses get?Second, central banks should clarify how they think their monetary policy works. Presumably, the point of reducing monetary stimulus is to take the wind out of the sails of demand in the economy, so as to bring it down to the damaged supply capacity. This was already hard to justify, given that nominal spending had only barely returned to pre-pandemic trends in the US and still fell short in the eurozone and the UK — hardly “excessive” demand. Do central bankers really think the most severe war in Europe in a lifetime, where the aggressor is the region’s most important commodity exporter, calls for pressing the brake harder on their own economies’ growth? Third, they should be addressing head-on the novel nature of these supply shocks. The Covid lockdowns caused an unprecedented sectoral reallocation in the US. Durable goods spending is still some 25 per cent above its pre-pandemic trend; on nondurable goods it is roughly 10 per cent higher. Services spending remains correspondingly depressed. While the pandemic did not cause a dramatic reallocation of spending in Europe, the war on Ukraine may. The prospect of a sharp fall in fossil fuel supplies from Russia — a coal embargo is already scheduled, and the pressure is strong for oil and gas to follow suit — will, after all, force a significant shift away from production and consumption that use such resources intensively. Such needs for (possibly permanent) reallocation complicate standard arguments about how monetary policy should treat an inflationary supply shock. A recent paper by Veronica Guerrieri, Guido Lorenzoni, Ludwig Straub and Iván Werning shows that if keeping interest rates low makes reallocating resources easier, the optimal stance for a central bank is looser than it would otherwise be. Thus, if it is clear that labour and capital must move from one sector to another — and the faster the better — how can it possibly be right to tighten monetary policy, making investments in new capacity both more expensive and less attractive as demand growth slows? A simple answer would be that this is no concern of central banks responsible only for controlling inflation. But that would be wrong — and not just because central banks have more tasks than this. Since insufficient reallocation means lower productive potential in the future than could otherwise be had, it also means an overzealous fight against inflation today will either raise inflation in the future or increase the cost of keeping it low. What these questions together amount to can be put more simply. Today a pandemic, a war and a climate crisis all necessitate huge structural shifts — which may themselves maximise potential productivity and minimise long-term inflationary pressures. In such a situation, how could it be right for central banks to delay investment and jobs growth, and with them the needed reallocations? Until central bankers can answer that question convincingly, they should be less eager to [email protected] More

Surging inflation and sharply higher borrowing costs in the US and Europe threaten to push indebted emerging market and developing economies into further financial distress, a top IMF official has warned.Almost a quarter of emerging market countries that have issued “hard currency” debt have bonds now trading in distressed territory, with spreads more than 1,000 basis points above US Treasuries, according to the multilateral lender. Borrowers around the world have taken advantage of aggressive monetary easing by the Federal Reserve and the European Central Bank and issued dollar- and euro-denominated debt at ultra-low rates. But borrowing has become more expensive as central banks seek to tackle price pressures with tighter monetary policy. Tobias Adrian, who heads the fund’s monetary and capital markets department, suggested levels of distress were at risk of rising further if central banks in advanced economies moved too abruptly or aggressively to unwind the monetary policy stimulus injected at the onset of the pandemic.“There are certainly many countries that are either already in distress or will potentially be in distress in the near future,” he said in an interview with the Financial Times. The IMF on Tuesday cut its forecast for growth in emerging markets and developing economies to 3.8 per cent this year — down one percentage point from its January estimate. “At some point, some major emerging market could also come into distress and the picture could change . . . That is not in our baseline right now, but it depends on how adverse the evolution of financial sector shocks is going to be,” Adrian added, noting that the amount of debt at risk is not “systemic in nature at this point”.Countries that were particularly vulnerable included commodity and food importers such as Egypt and Bhutan, he said. Tunisia and Sri Lanka have also run into trouble, with the latter defaulting on its debts this month. In its twice-yearly Global Financial Stability Report, published on Tuesday, the IMF said central banks in advanced economies were walking a narrow “tightrope” as they attempted to tame the highest inflation in roughly four decades against the backdrop of mounting geopolitical tensions, weakening global growth and whipsawing financial markets.Traders now expect the federal funds rate to jump to 2.5 per cent by the end of the year from its current level of between 0.25 and 0.50 per cent. The ECB is also expected to lift rates for the first time in more than a decade later this year. The Fed’s attempts to combat price pressures could hit emerging markets laden with foreign currency debt, the IMF warned on Tuesday.The fund said: “A disorderly tightening of global financial conditions would be particularly challenging for countries with high financial vulnerabilities, unresolved pandemic-related challenges and significant external financing needs.”Tobias Adrian, head of the IMF’s monetary and capital markets department: ‘There are certainly many countries that are either already in distress or will potentially be in distress in the near future’ © Alex Kraus/BloombergDebt levels across emerging market economies have risen sharply in recent years, with the total amount outstanding jumping to nearly $100tn at the end of 2021 from less than $65tn roughly five years ago, according to the Institute of International Finance.Global financial conditions have already tightened in recent months as inflationary pressures have become more acute following Russia’s invasion of Ukraine.Adrian said the shift towards less accommodative monetary policy had been smooth, but warned the Fed and other central banks would have to proceed carefully and communicate clearly to ensure that remained the case.“Right now, monetary policy in the vast majority of countries is being tightened and so this is exacerbating downward movements in sovereign debt.”

In addition to raising rates, the Fed will shrink its $9tn balance sheet by halting reinvestments of the proceeds from maturing Treasuries and agency mortgage-backed securities it holds. Should its actions roil markets and lead to a destabilising sell-off, Adrian said he expected the US central bank to moderate the pace at which it allowed its holdings of securities to shrink. The shift in central bank policy — coupled with the fallout from the Ukraine war and sanctions imposed by the US and its allies on Russia — has also dented market liquidity, leading to larger price swings. The IMF on Tuesday warned that there were “some signs” that the uptick in volatility could be weighing on the ability of banks to lend and trade. The fund pointed to the chaos in commodity markets that led to an eight-day suspension of trading in nickel on the London Metal Exchange this year. JPMorgan Chase disclosed a $120mn loss tied to the trade last week. Huge swings in commodity prices have triggered big margin calls on short positions. Those margin calls were, the fund said, “testing the resilience of corners of global financial markets that were little known by the broader public only a few weeks ago”. More

Energy chiefs have warned of a “truly horrific” spike in bills in the autumn that could leave up to 40 per cent of households in Britain in fuel poverty unless the government offers further help.Keith Anderson, chief executive of ScottishPower, told MPs that people were going to “really, really struggle” in the autumn with the weather turning cold and the household energy cap expected to rise again. Anderson told the House of Commons’ energy select committee that ScottishPower had received 8,000 calls last week alone from people expressing worries about their ability to pay their energy bills.He said customers were expressing “a huge amount of anxiety”, adding: “There are a lot of people for the first time facing this issue; they’ve never been in this position before.”Michael Lewis, chief executive of Eon, warned the committee that a large proportion of Britain’s 27mn households were likely to end up in fuel poverty from October without further government intervention. “We are looking at up to 30 or 40 per cent of people going into fuel poverty when the price goes up again in October,” he said, adding that the situation required “unprecedented action from the government”.Meanwhile, Hayden Wood, chief executive of Bulb Energy, told MPs he was still being paid the same £250,000 salary he was receiving before the company collapsed in November and was rescued in the biggest state bailout since Royal Bank of Scotland more than a decade ago.Bulb was the biggest supplier out of the 29 companies that failed as a result of the sharp rise in energy prices since the middle of last year. Wood, who founded the company, said he was no longer an “active director” although administrators have asked him to continue temporarily as chief executive. The Bulb bailout is expected to cost the taxpayer more than £2bn.Michael Lewis, chief executive of Eon, called for ‘unprecedented action’ from the government © Parliamentlive.tvAt the start of the month, energy bills for the 22mn British households not on fixed-term deals rose 54 per cent as regulator Ofgem increased the price cap to just under £2,000 a year on average.Analysts have warned of a further jump in the price cap in October by as much as £600, depending on movements in wholesale energy prices in the coming months.In an attempt to help, chancellor Rishi Sunak in February announced a £150 rebate on council tax bills for those in property bands A to D from April and a £200 loan to households in October. But Lewis said Sunak’s intervention in February was “not nearly enough” to mitigate the impact.Anderson said he expected most families to cope during the summer when consumption usually falls because of warmer weather but warned: “Come October, that’s going to get horrific, truly horrific.”He called for a “deficit fund” under which the government would knock £1,000 off the bills of anyone considered “vulnerable” or in “fuel poverty”, with the money repaid over 10 years.Keith Anderson, chief of ScottishPower, said the situation in October would be ‘truly horrific’ © Parliamentlive.tvLewis said he backed the proposal but also called for short-term measures, such as cutting VAT on bills.Chris O’Shea, chief executive of Centrica, owner of British Gas, said the situation would get “much worse” from October without further intervention. The number of Centrica customers late with payments had risen by 125,000 to 716,000 over the past year.Simone Rossi, chief executive of EDF, said his most vulnerable customers would see the proportion of their income spent on energy rising from £1 in £12 to £1 in £6 later this year.There is no single definition for fuel poverty across Britain, but it is generally classed as households that must spend a high proportion of their income to keep their home at a reasonable temperature. Latest estimates suggest it affects about 13 per cent of households in England, 25 per cent in Scotland and 12 per cent in Wales.The Treasury said the chancellor had promised to review the situation before October and would decide on an “appropriate course of action at that time”.Additional reporting by Leke Oso Alabi More