Aurelia Butler

The World Trade Organization has cut its goods trade growth forecast for this year by about a third to 3 per cent, warning that the decline in commodity exports caused by the Ukraine war could cause mass hunger in developing countries.The Geneva-based body revised predicted growth in goods trade volumes down from 4.7 per cent, but said a protracted conflict and an embargo on Russian energy supplies could reduce it to 0.5 per cent.The WTO also cut forecasts for growth in gross domestic product from 4.1 per cent to 2.8 per cent in 2022, rising to 3.2 per cent in 2023. It also warned that lockdowns in Chinese cities to prevent the spread of coronavirus are again disrupting seaborne trade.The conflict between Russia and Ukraine, big exporters of grain and fertiliser, could cause widespread hunger, said WTO director-general Ngozi Okonjo-Iweala as she warned against export restrictions or food hoarding.“Smaller supplies and higher prices for food mean that the world’s poor could be forced to do without. This must not be allowed to happen. This is not the time to turn inward,” she said. Around 35 countries in Africa import food and 22 import fertilisers from Ukraine, Russia or both. Wheat prices in some states in sub-Saharan Africa could rise by up to 85 per cent without intervention, the WTO said.Okonjo-Iweala called for humanitarian corridors to allow grain to leave Ukraine by truck or ship and for farmers to be able to work. “Eighty per cent of Ukraine’s wheat is harvested in July. That’s the winter crop and we hope there can be some kind of humanitarian cover so this can be harvested and they can plant the next crop in September. The ability to harvest that winter crop will be highly significant.”She also repeated a call for countries with grain stocks to sell them internationally to reduce prices.Between them, Russia and Ukraine in 2019 supplied around 25 per cent of wheat, 15 per cent of barley and 45 per cent of sunflower product exports, used in animal feed, according to the WTO.The WTO estimated a 3.4 per cent rise in trade volumes in 2023 but warned the numbers “are less certain than usual”.Global trade contracted by 5 per cent in 2020 but rebounded by 9.8 per cent in 2021, as consumers shifted to buying more goods as spending on services was limited by Covid-19 restrictions. Before the war in Ukraine, trade was expected to grow at a robust pace this year supported by savings that households in many countries had accumulated.However, surging inflation, which squeezes households’ real income, and further supply chain disruptions have drastically changed the outlook.

The WTO forecasts that exports will contract in South America this year, while Asia is forecast to see export growth slowing to 2 per cent from 14 per cent in 2021. Exports growth is expected to more than halve in Europe compared with last year, while North America and Middle East oil exporting countries are set to see above average growth rates.The CIS region that includes Russia is forecast to see a big drop in imports and GDP this year, but exports should grow by 4.9 per cent as other countries continue to rely on the country’s energy.The WTO’s forecast anticipates the global economic outlook published later this month by the IMF.The negative impact of the war on trade was laid bare by separate figures published this month by the Kiel Institute for the World Economy, which tracks shipping data from 500 ports in real time to create a global trade index. The company reported that the value of global trade fell 2.8 per cent between February and March, with Russia and the EU registering the sharpest contractions. More

Fears about the outlook for global economic growth among large institutional investors have risen to their highest level in more than a quarter of a century, as Russia’s war in Ukraine enters its third month.A net 71 per cent of fund managers in March said they expected the global economy to weaken over the next 12 months, according to a widely followed Bank of America survey that has data stretching back to 1995. “Investors are struggling with the prospect of a really big slowdown in economic growth over the next six months. It is still only a minority that believe that a recession is coming but that view is changing quickly,” said Michael Hartnett, chief investment strategist at Bank of America. BofA canvased views from 292 investment professionals who together oversee assets of $833bn for pensions plans, insurance companies, asset managers and hedge funds. Stagflation — an unwelcome combination of below trend economic growth and above trend inflation — is now anticipated by two-thirds of the fund managers surveyed by BofA. That marks the worst reading for this measure since August 2008, the month before the implosion of Lehman Brothers. Growing worries about the outlook for inflation have surpassed investors’ concerns about the wider implications of the war in Ukraine, which have moderated owing to the withdrawal of Russian troops from around Kyiv. Inflation data released on Tuesday showed that US consumer prices rose 8.5 per cent in March, a pace not seen since 1981.Expectations for company profits have deteriorated sharply and risks to financial market stability have again returned to the extreme levels seen in March 2020 during the early phase of the coronavirus pandemic and during the worst days of the global financial crisis in 2008, according to the survey.Hartnett said a “staggering disconnect” had emerged between investors’ downbeat expectations for economic growth and equity allocations among global fund managers, which as a group still held a net overweight position in stocks.“Everyone is bearish on the outlook for growth, inflation, the Fed and US interest rates, but asset allocators are still overweight equities,” said Harnett.Cash represented the largest “overweight” position held by global fund managers in March followed by commodities, healthcare stocks and energy while close to 70 per cent of the asset allocators were “underweight” bonds. “Investors don’t like equities much at this stage of the cycle, but they really hate bonds,” said Hartnett. He cautioned that recession warning signs were becoming clearer in the US property market and among small businesses, which account for almost half of US private sector employment.According to the National Federation of Independent Business, the number of small business owners expecting to see an improvement for their company over the next six months sank in March to the lowest level in the entire 48-year history of the NFIB’s monthly survey, published on Tuesday.“Small-business owners remain pessimistic about their future business conditions. Their expectations for sales growth and business conditions later this year are in the tank,” said Bill Dunkelberg, the NFIB’s chief economist. More

Sri Lanka says repaying its sovereign debt has become “impossible”. International investors are bailing out. A $1bn bond maturing in July trades at 46 cents on the dollar. Will the IMF and China, a big creditor, save the day? Do not bank on a fix. Sri Lanka’s meltdown is political, economic, financial — and predictable. The island country, with a population the size of Florida, is a link in “a string of pearls” of strategic importance to China and the US. It is also beset with corruption, according to Transparency International. Its economy is in tatters after the pandemic disrupted tourism and transport. Last week, amid blackouts and food shortages, the entire government of President Gotabaya Rajapaksa walked out, apart from his brother, Prime Minister Mahinda Rajapaksa. Newly minted central bank governor P Nandalal Weerasinghe inherits dwindling foreign exchange reserves that last month fell below $2bn. External debt, public and private, is north of $50bn. That is awkward when the home currency has weakened even more than the rouble this year, notwithstanding last week’s doubling of interest rates to 14.5 per cent. At a time of spiralling food prices, triggered by the war in Ukraine, the island is highly vulnerable: more than half of household spending goes on food.The IMF has two challenges. First, handouts without structural reform simply kick the can down the road. Sri Lanka itself has only completed half its prior IMF programmes. But these are febrile times, unconducive to raising taxes to boost government coffers.Second, Sri Lanka has multiple external creditors. China, with about a fifth of the total, looms large. Sri Lanka has asked China for help restructuring its debts. Beijing built and bankrolled big infrastructure projects, including the strategically positioned Hambantota port.Sri Lanka is not alone in this respect. China’s Belt and Road Initiative, decried by critics as “debt trap diplomacy” has left a swath of countries from Asia to Africa in a similar position. The IMF and China can take cold comfort from this: a successful bailout of Sri Lanka would create a blueprint for bailouts elsewhere. More

One of the hardest things to bear about the Shanghai lockdown, says a contact who has been shut in a small apartment with her father for the past two weeks, is the uncertainty. She spends her days on WeChat message groups, trying to co-ordinate bulk food orders, or looking out of the window to see where the authorities have placed the red lines of their cordon sanitaire, which residents must not cross. There is little other information.Social media shows a city on the edge. Residents yell from their balconies and demand food. Drones broadcast messages demanding they return inside. Thousands of people who have tested positive are crammed into isolation centres. On Tuesday, the US state department ordered non-essential workers to leave its consulate in the city because of “arbitrary enforcement of local laws and Covid-19 related restrictions”.It is one of the most severe lockdowns of the entire pandemic. It will affect the economies of Shanghai, China and the whole world. Yet it is happening at a time when, in Europe and the US, many people are on to their third or fourth round of infection and ready to ignore the whole thing. There is a risk, therefore, that they miss the significant consequences of what is taking place in China’s largest city. Three economic impacts stand out: on supply chains, on China’s own growth and on the country’s internal debate about reform.One of the biggest inflationary shocks to hit the world economy in the early days of the pandemic was supply chain disruption caused by shipping delays at ports. Shanghai is the biggest port in the world. Although its terminals are working in a “closed loop” bubble — where staff have no contact with the outside world — there are problems with logistics across the region, so vessels have begun to queue up in the waters offshore as they wait to load or unload. Factories across Asia will have to wait for components. Europe and the US will feel the disruption with a time lag of some weeks or months.That will manifest itself as an inflationary shock at a moment when western economies already have too many others to deal with, from the jump in commodity prices caused by the war in Ukraine to their own labour market disruptions after the pandemic. The impact should be less severe than it was in 2020 or 2021, because the new delays will hit just as previous supply shortages unwind, but it will, at the minimum, add extra uncertainty to an already confusing price environment for beleaguered central banks.Within China, the lockdown of its commercial capital will have an escalating effect on growth, and premier Li Keqiang has repeatedly sounded the alarm over the past week. The economist Jingjing Chen of Tsinghua University and colleagues have used tracking data from 1.8mn long-haul trucks to study the economic impact of China’s city-by-city lockdowns. Truck traffic to a city drops by around 60 per cent when a city enters full lockdown; putting those impacts into a trade model allowed them to estimate the spillover costs elsewhere.A one-month lockdown in Shanghai — close to the scenario now playing out — would cost 4 per cent of national income for the month in question, according to their model. That is already enough by itself to have a meaningful effect on annual growth, but in the extreme case where all Chinese cities are locked down, national income would fall by more than half for that month — an enormous and unsustainable cost.The more Covid lockdowns drag on China’s growth, the harder policymakers will find it to stick to their plans for deleveraging in the property sector, the struggles of which are exemplified by the giant developer Evergrande. The larger the economic losses to the pandemic become, the greater will be the pressure to boost activity with a fresh real estate binge.Most fundamental is the question of how Chinese policymakers interpret Shanghai’s suffering and what it prompts them to do next. One interpretation would be that neither Shanghai nor any other city can be expected to go through such a lockdown twice, so China must prepare to end its zero-Covid strategy and live with the virus. The other interpretation — which is the one more likely to prevail among local officials without a clear signal from the top — is that Shanghai’s mistake was to delay its lockdown until too late.

Guangzhou recorded just 27 cases on Monday, but it has moved schools to online learning and restricted movement in and out of the city. All but 13 of China’s 100 most productive cities have already imposed some degree of quarantine, according to analysis by research firm Gavekal. Given how infectious the Omicron variant is known to be, it could mean frequent lockdowns across China for the rest of the year — a downside risk that markets are barely pricing in.The best political option for President Xi Jinping, as he aims to secure a third term in office this autumn, may be a hard line on lockdowns. The best choice for China’s economy is clearly to maximise vaccine coverage, preferably using more effective mRNA vaccines, and then exit zero-Covid. That choice — politics or growth — will drive the global economy for the rest of this [email protected] More

US consumer price growth surpassed 8 per cent in March following a surge in energy and food prices that stemmed from Russia’s war on Ukraine, bolstering expectations the Federal Reserve will take more aggressive action to curb the highest inflation in 40 years.The consumer price index rose 8.5 per cent last month compared with a year ago, a pace last seen in January 1982, the Bureau of Labor Statistics said on Tuesday.The monthly rise registered at 1.2 per cent, the fastest jump since September 2005 and a sharp acceleration from the 0.8 per cent increase recorded in February.After volatile items such as food and energy are stripped out, “core” CPI advanced 0.3 per cent in March. That was slower than February’s month-on-month increase, but pushed up the annual pace to 6.5 per cent.The data reflect the immediate aftermath of Russia’s invasion of Ukraine, which has dramatically clouded the global economic outlook and sparked concerns about slowing growth coupled with even more elevated price pressures.The Biden administration on Monday blamed the surge in prices on the war, with White House press secretary Jen Psaki saying the CPI reading would be “extraordinarily elevated due to Putin’s price hike”. Psaki noted petrol prices are up on average more than 80 cents a gallon since the invasion, which she said would drive the bulk of the increase.Inflation expectations have in turn risen, with a new monthly survey released by the New York branch of the Federal Reserve on Monday showing that US households are bracing for costs to continue rising.Over the next year, consumers anticipate inflation hitting 6.6. per cent, a 0.6 percentage point rise from the previous period. Expectations for the three-year outlook declined marginally but still remain elevated at 3.7 per cent.Concerns that inflation will become even more deeply entrenched in the world’s largest economy have prompted the US central bank in recent weeks to assume a more aggressive approach to tightening monetary policy.

The Fed is now poised to raise interest rates by half a percentage point at its next policy meeting in May, double the pace of its March rate rise, as it seeks to lift its benchmark policy rate to a more “neutral” level that neither aids nor constrains growth by the end of the year. Officials forecast that rate to be roughly 2.4 per cent, implying at least one more half-point adjustment in addition to four more quarter-point rate rises in 2022.The central bank is also set to begin shrinking its $9tn balance sheet next month, building up to as much as $95bn a month over roughly three months beginning in May. More

UK unemployment dropped back to its pre-pandemic level at the start of 2022, but the squeeze on living standards deepened, as earnings failed to keep pace with pay despite record levels of vacancies. The jobless rate averaged 3.8 per cent in the three months to February, returning to lows last seen in 2019, the Office for National Statistics said on Tuesday. But the workforce is still smaller than it was before Covid hit. Despite the number of job openings rising to hit a new record high of 1.29mn in the three months to March — with four in every 100 jobs unfilled — the employment rate was unchanged at 75.5 per cent in the three months to February, well short of its pre-pandemic level.This is because rising numbers are choosing not to work: the inactivity rate rose 0.2 percentage points to 21.4 per cent, driven by people saying they were looking after family or home, had retired, or had long-term sickness.The figures highlight the difficult trade-off for monetary policymakers, who are faced with a tight labour market in which wage growth is picking up but is still failing to keep pace with rising prices.The ONS said growth in average weekly earnings, excluding bonuses, had picked up to 4 per cent in the three months to February — although it noted that this was artificially boosted by the large numbers who had been furloughed on 80 per cent pay a year earlier.Thomas Pugh, economist at RSM UK, said these figures would “make the Monetary Policy Committee even more concerned that the recent burst of high inflation is starting to be reflected in wages” and would give the MPC “all the justification it needs” to raise interest rates again in May.Even with the distortion of furlough, however, the surge in inflation meant regular earnings had fallen 1 per cent in real terms over the past year, the biggest drop since 2013. Total pay growth, at 5.4 per cent, was still just outstripping inflation, the ONS said, because of strong bonus payments.“Soaring inflation is casting a big shadow over an otherwise buoyant labour market,” said Nye Cominetti, senior economist at the Resolution Foundation, a think-tank. He noted that pay had fallen much more sharply in real terms for public sector workers, a gap that would make the coming period of public sector pay restraint “even more challenging”. Suren Thiru, head of economics at the British Chambers of Commerce, said the figures underlined the “historic hiring crunch facing firms”. But he also warned that labour market conditions could weaken soon, if soaring inflation and a rising tax burden “stifled” consumer spending while also limiting companies’ ability to recruit and raise wages.Ellie Henderson, economist at Investec, said that, despite the “vast” pool of vacancies, “hiring confidence can quickly be dented if the high inflationary environment results in households cutting back expenditure while firms struggle with rising costs”. 

Rishi Sunak, chancellor, said the figures showed the “continued strength of the jobs market”, adding that the government was providing £22bn in support to “cushion the impacts of global price rises” on the cost of living.But evidence of the worsening squeeze on living standards will add to pressures for the government to do more to bolster household incomes.Frances O’Grady, general secretary of the Trades Union Congress, said rising hardship was a “political choice”, calling for the chancellor to deliver an immediate boost to the minimum wage, pensions and benefits. Tony Wilson, director of the Institute for Employment Studies, said a “triple whammy” of falling pay, more people out of work and labour shortages would worsen the squeeze on living standards as inflation rose over the summer, with unfilled jobs holding back growth and potentially pushing costs higher. He called for “urgent action” to protect incomes and bring more people back into work. More

The Biden administration is temporarily lifting seasonal restrictions on the sale of higher blends of ethanol in petrol, in the White House’s latest effort to drive down prices at the pump. President Joe Biden will announce during a trip to Iowa on Tuesday that the Environmental Protection Agency will issue a national emergency waiver to allow E15 gasoline — petrol containing up to 15 per cent ethanol, higher than the standard 10 per cent — to be sold across the US this summer. Senior administration officials said that at current prices, using E15 could save motorists 10 cents a gallon on average. Ethanol, typically made from corn, is a renewable source of fuel that can be blended with gasoline, reducing the volume of oil required. But burning high blends of ethanol in hotter summer weather can cause smog, which led the EPA in 2011 to ban E15 sales between June 1 and September 15.The White House’s announcement came hours before the release of inflation figures that were expected to show US consumer price growth surged in March due to a rise in energy and food prices following Russia’s invasion of Ukraine. Average petrol prices hit record levels above $4.30 a gallon last month as the Ukraine invasion drove fears of crude shortages. On Monday, the national average was about $4.11 a gallon, according to the AAA, a motoring group, down slightly from recent highs but more than 70 per cent higher than when Biden took office last year.Amid a challenging domestic political landscape and with crucial midterm elections on the horizon, the White House has sought to place the blame for higher consumer costs on Russian president Vladimir Putin, repeatedly referring to the rise in inflation as “Putin’s price hike”.

“The president . . . is trying to use all tools at his disposal to address the price increase resulting from Putin’s further invasion in Ukraine,” a senior administration official said, pointing to the administration’s move last month to announce the release of a record 180mn barrels of oil from the US emergency stockpiles over a six-month period. It was the third time since November that the president had dipped into the Strategic Petroleum Reserve in a bid to tame prices.Biden has also asked US oil producers to raise output and leaned on allies in the Gulf to pump more, although neither move has borne fruit. About 2,300 fuel stations across 30 states sell E15, according to the US energy department, a fraction of the roughly 150,000 stations nationwide.The administration of then-president Donald Trump removed the seasonal restrictions in 2019, but a court struck that down. A senior Biden administration official said they were confident the latest move would not face legal challenges, explaining: “The approach, process and specific authority are different here.”Administration officials said the EPA would work with states to “ensure there are no significant air quality impacts through the summer driving season”. The agency’s analysis suggested the emergency waiver was “not likely to have significant impacts on the ground” given E15 is more readily available in the Midwest, rather than large coastal cities where smog is more prevalent.The ethanol industry and politicians from agriculture-reliant states have piled pressure on the Biden administration to lift the restrictions. Last month, a group of senators including Republican Chuck Grassley of Iowa — the country’s biggest corn- and ethanol-producing state — urged Biden to reconsider. Senior administration officials said the EPA was weighing additional steps to increase the availability of E15. More

Sri Lanka’s finance ministry has suspended payments on its government bonds, breaking what it called its “unblemished record of external debt service” in a deepening economic and currency crisis.In a statement on Tuesday, the ministry said keeping up with repayments had “become impossible”, adding that “although the government has taken extraordinary steps in an effort to remain current on all of its external indebtedness, it is now clear that is no longer a tenable policy”. It described the suspension as a “last resort”.A “comprehensive restructuring of these obligations” was needed, the ministry said, adding that it had turned to the IMF for help in making a recovery plan and for financial assistance. Meetings with the IMF are due to start this month. Confirmation that Sri Lanka could not service its debt pushed down their prices from already depressed levels, leaving a $1bn dollar bond maturing on July 25 further below face value at a record low of less than 47 cents on the dollar. The country has a total of about $35bn in external government debt outstanding, with $7bn in payments due this year. The IMF said last month that Sri Lanka’s public debt was at “unsustainable levels”.The finance ministry advised creditors they could calculate Sri Lanka’s missed payments after Tuesday, and add interest, for eventual repayment. It committed to “good faith discussions” with other countries that had lent it money, the largest of which was China, as well as with commercial creditors.Sri Lanka’s foreign reserves fell to under $2bn in March, and a dollar shortage has significantly cut imports, leading to shortages of vital commodities such as fuel. The Sri Lankan rupee has fallen more than 37 per cent against the dollar this year, making it the world’s worst-performing currency.

Colombo has been embroiled in a political crisis this month, after widespread protests against the government prompted a mass cabinet resignation. Protesters have blamed President Gotabaya Rajapaksa’s government for mishandling Sri Lanka’s economy and causing the crisis. The finance ministry said the hit to tourism from Covid-19 and the surge in commodity prices caused by the Ukraine crisis had “eroded Sri Lanka’s fiscal position”.Sri Lankans have been suffering from soaring inflation, 13-hour electricity blackouts and shortages of basic commodities. But Prime Minister Mahinda Rajapaksa, brother of the president and a former president himself, chastised demonstrators in a speech on Monday.“Friends, every second you protest on the streets our country loses opportunities to receive potential dollars,” the prime minister said.The statement from the finance ministry comes after Sri Lanka’s central bank surprised markets with a 7 percentage point rise to the country’s benchmark policy rate on Friday in a bid to curb inflation. But analysts had warned the move was not sufficient to alleviate concerns over a potential default. More