Aurelia Butler

Good evening,Optimism that the global economy could be recovering from its pandemic-induced trauma is being severely tested by the unfolding Ukraine crisis. Russia’s movement of troops into Ukraine’s separatist regions have triggered sanctions that are likely to exacerbate the existing problems of rising energy prices and inflation, prompting sharp swings in share prices.Advanced countries have the capacity to cope, the FT’s economics editor Chris Giles writes, but Russia’s actions increase uncertainty over when central banks should tighten monetary policy.Meanwhile, the easing of pandemic restrictions in Europe, the US and elsewhere is raising business confidence, particularly in the travel and hospitality sector, although supply chain bottlenecks are frustrating the recovery for others. Heathrow, the UK’s busiest airport, predicted a surge in travellers getting away this summer and chief executive John Holland-Kaye said a third runway was “back on the table” to capitalise on the airline industry’s emergence from the ravages of lockdown. Equally bullish was InterContinental Hotels Group, the owner of the Holiday Inn and Crowne Plaza chains, which said business was “closer to pre-pandemic levels” in 2021.Arundhati Bhattacharya, Salesforce’s India chief executive, said that her company was struggling to fill roles, as pandemic-fuelled demand for remote back office support had created skills shortages in the country.The do-it-yourself frenzy brought on by the coronavirus pandemic has helped Home Depot. But despite resilient consumer demand, the Atlanta-based retailer warned yesterday that elevated supply chain costs would continue to weigh on profits in 2022.The road to recovery was going to bumpy even before the Ukraine crisis erupted. Now the path forward has become even less certain.Don’t miss our subscriber-only event “The Russia-Ukraine Conflict: What Next?” this Friday at 1pm GMT. Register free here for this unmissable virtual briefing, featuring Financial Times journalists and leading experts, including Arseniy Yatseniuk, the former prime minister of Ukraine, and Gideon Rachman, our chief foreign affairs commentator.Latest newsEU to hit Putin’s defence minister and chief of staff with sanctionsHong Kong to give out cash handouts as Covid cases hit record levelBarclays’ quarterly profit surges as dealmaking boosts investment bankFor up-to-the-minute news updates, visit our live blogNeed to know: the economyImposing sanctions on Russia poses a threat to the global economy. But the cautious, narrowly targeted measures announced over the last 24 hours will have little impact on Moscow, which can absorb significant economic pain, according to the latest Trade Secrets column by the FT’s senior trade writer Alan Beattie. You can sign up for Alan’s weekly Trade Secrets newsletter here.Latest for the UK and EuropeThe IMF has urged Rishi Sunak to bring forward planned tax rises to limit the risk of persistently high inflation, even though it would tighten the financial squeeze on Britain’s households. The fund added that in the short term the Bank of England should not increase interest rates rapidly — a view shared by the BoE’s deputy governor — as this could risk tipping the economy into recession.The UK government has also been criticised by a parliamentary committee for exposing taxpayers to “substantial, long-term financial risks” because of an estimated £15bn of Covid support lost to fraud and administrative errors. Future generations will be left to pay for these “unacceptable” sums that were “risked and lost” by ministers, according to the House of Commons public accounts committee report.Global latestYears of progress in tackling infectious diseases in the world’s poorest countries have been wiped out by the shift in resources to tackle the pandemic and subsequent disruption to treatments, experts have warned. Many fear that the disruption to treatments caused by lockdowns and the loss of funding to Covid prevention strategies will mean that deaths from HIV, tuberculosis and malaria in some nations are now on track to exceed those caused by the pandemic so far. However, the picture is not entirely bleak, with new approaches developed during the pandemic proving their worth.Need to know: businessSurging prices for raw materials enabled Rio Tinto to make the second-biggest payout in UK corporate history on the back of bumper results. Rio investors will receive a total of $16.8bn (£12.3bn) for the 2021 financial year.Aston Martin narrowed its losses in 2021 as revenues climbed back above pre-pandemic levels, boosted by customer deposits for its high-price special cars and increased demand for its luxury sport utility vehicle.HSBC reported buoyant fourth-quarter earnings yesterday, showing that the bank is recovering from the worst of the pandemic and is optimistic about growth, with interest rates set to rise. However, the London-listed lender set aside $451mn as it braced for more defaults in the troubled Chinese real estate sector and warned of a slowdown in wealth management because of Hong Kong’s restrictive “zero Covid” strategy.The World of WorkThe return to the office brings with it hidden dangers. One major — and much misunderstood — area of risk to all careers is the work social event, according to leadership and diversity consultant Nels Abbey, who offers tips for navigating the office party.The return to the office also creates real legal concerns. Employers in England have warned that they will be flying blind from tomorrow when all pandemic restrictions end. The UK government has not issued new workplace safety guidance and is refusing to fund free workplace coronavirus testing beyond April 1.Get the latest worldwide picture with our vaccine trackerAnd finally . . . 

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The collapse of the blood-testing company Theranos and the conviction of its founder Elizabeth Holmes was hailed as both the end of tech’s “fake it till you make it” culture and of the dubious cultural phenomenon of the “girlboss”. But Elaine Moore, the San Francisco-based deputy head of Lex, finds that in her local start-up community there is no interest in learning lessons from the debacle. More

BRUSSELS (Reuters) – The European Union will be ready to launch a second package of sanctions against Russia, including export controls, if Russian troops move beyond the Ukrainian regions held by Russian-backed separatists, European Commission Executive Vice President Valdis Dombrovskis told Reuters on Wednesday.Russian President Vladimir Putin on Monday recognised the independence of two breakaway regions in the Donbass region of eastern Ukraine that adjoin Russia.Moscow sent troops there on Tuesday, prompting the EU, the United States and Britain to slap sanctions on Russian politicians and banks and curbing the government’s ability to raise capital via the EU’s financial markets.But the EU is concerned Russia may continue its invasion beyond the areas controlled by the separatists and EU leaders will hold an emergency summit on Thursday to discuss what to do next.”Russia decided to go for a major escalation of this conflict by the recognition of the independence of the Donetsk and Lugansk Republics and clarifying that they mean this in the territory of not what is actually controlled by the so-called republics, but the entire Donbass territory, so we are facing a major escalation,” Dombrovskis said in an interview.”If there is further Russian aggression and further incursion into Ukraine territory we are willing to step up our response also in terms of sanctions.”Asked what such a stepping up would mean, Dombrovskis said:”It would concern economic sanctions in the area of trade, for example export controls. The EU has been working on a sanctions package for several weeks, so there are ways how we are able to act quickly and further step up sanctions and do this in cooperation with the United States, Britain and other countries.”He said the conflict, the sanctions and potential Russian counter-sanctions would have economic repercussions for the EU, but that the seriousness of what is at stake meant the 27-nation bloc would have to accept them.”Coming with strong sanctions against Russia is going to have some impact on the EU economy and we need to be ready for this,” Dombrovskis said.”But here we have the security and territorial integrity of Ukraine at stake, and we have the broader security architecture at sake, so we need to be able to react and also take some economic cost, if it is necessary.” More

The writer is a senior fellow at Harvard Kennedy School and chief economist at KrollThe last time the European Central Bank raised interest rates, in 2011, then president Jean-Claude Trichet cited “sharp increases in energy and food prices”. The economy tanked, and the rate rises were quickly reversed. Now, food and energy prices are soaring again. This month, ECB president Christine Lagarde refused to rule out rate increases in 2022, and hawkish members of the governing council have urged quicker tightening. They risk repeating Trichet’s mistake. Eurozone inflation has exceeded the ECB’s target of 2 per cent since the middle of last year, accelerating to 5.1 per cent in January, the highest in more than 20 years. Inflation was forecast to slow as Germany’s 2020 value added tax cut and new CO2 tax dropped out of the annual comparison. This was a surprise, and Lagarde is right to be concerned. The problem is there’s not much she and her colleagues can or should do about it. The main driver of higher prices is energy, which accounts for just over half the headline reading. Gas prices rose nearly fourfold from June to December 2021 and jumped again this week as Russia moved into Ukraine. Roughly 40 per cent of Europe’s natural gas is imported from Russia. If Russia decides to turn off the energy taps in retaliation for sanctions, energy costs will rise further. Food prices have also lifted overall inflation. Strip out these factors, though, and core inflation fell to a 2.3 per cent annual rate in January from 2.6 per cent in December. Even with the threat from Russia, European natural gas futures forecast prices will fall in 2023. Brent oil futures, meanwhile, suggest prices will drop from nearly $100 a barrel to $86 a barrel by the end of the year. If the futures markets are right, higher energy costs are transitory and the ECB should look through them. If wrong, elevated energy prices would weaken demand — hardly an environment in which the ECB should tighten policy. Inflation in the eurozone has also been pushed up by supply chain disruptions. There are tentative signs these have been easing. According to Markit’s purchasing managers’ index, manufacturing suppliers’ delivery times continued to shorten in January. Sanctions on Russia could bring new interruptions, but again, that would portend slower growth, another constraint on tighter credit. Sustained wage growth could justify ECB rate rises this year. But so far there is little evidence of this. The labour market has tightened, with unemployment at historically low levels. While employment has recovered to pre-pandemic levels, there remains a significant shortfall in hours worked because of short-term working schemes. Serious wage pressures are only likely to appear once short-term workers are reabsorbed and people start working overtime. Negotiated pay deals play a significant role in eurozone wage growth, covering roughly two-thirds of the workforce and spanning multiple years. Unions, however, have been more focused on protecting employment and seeking benefits and flexibility than pay rises during the pandemic. HSBC research shows wage growth in pay deals dropped to an all-time low of 1.4 per cent year on year in the third quarter of 2021. This is well below 3 per cent, the level identified by ECB chief economist Philip Lane as consistent with the ECB’s 2 per cent inflation target. Hefty minimum wage increases in Germany and Spain will contribute to pay growth for workers up the wage scale, but they are a one-off measure and so won’t lead to a wage-price spiral. Finally, unlike the US, growth in the eurozone is weak. The Bundesbank recently forecast Germany will fall into recession in the first quarter. Eurozone gross domestic product remains below the pre-pandemic trend. High energy costs and Covid restrictions have dragged on consumption, and supply shortages weigh on industrial production. We should see a rebound in the second and third quarters as restrictions are dropped and new Covid cases subside, but it will be tempered by the income shock of higher inflation and energy costs. Aggressive rate estimates for the ECB now have the deposit rate rising 50 basis points to zero per cent by the end of the year. Spreads between peripheral bond yields and German Bunds have crept up in response. The ECB must move slowly and avoid being led by the markets. Raising the policy rate won’t alleviate oil or gas supplies and premature withdrawal of accommodation could kill the recovery and reintroduce fragmentation concerns. Those who do not learn from history risk repeating it. More

LONDON (Reuters) – Emerging market borrowing led by China inflated the global debt mountain to a record $303 trillion in 2021, although the global debt-to-GDP ratio improved as developed economies rebounded, the Institute of International Finance said on Wednesday. The $10 trillion rise in the global debt pile was down from the $33 trillion increase in 2020 when COVID-19-related expenditure soared. Global debt-to-GDP – https://fingfx.thomsonreuters.com/gfx/mkt/akvezxgblpr/bis%20chart%20one.PNG But more than 80% of last year’s new debt burden came from emerging markets, where total debt is approaching $100 trillion, the IIF said in its annual global debt monitor report.That means emerging markets have started 2022 facing record high refinancing needs just as the Federal Reserve prepares to raise interest rates after years of record low borrowing costs.”While the pace of accumulation slowed in 2021, EM government debt levels remain elevated,” the IIF authors wrote.”This slowdown is in line with the moderation in government budget deficits seen over the past year. Yet, since the onset of the pandemic, some EM governments seem more reliant on off-budget borrowing,” they said, pointing to rising non-financial corporate debt levels in China, Russia and Saudi Arabia.Most of the jump in individual country debt-to-GDP ratios occurred in emerging markets. Emerging market debt ratios surge – https://fingfx.thomsonreuters.com/gfx/mkt/gdpzybrznvw/BIS%20chart%20two.PNG The IIF also noted that the vast majority of additional emerging market debt last year was in local currencies, and its share the highest since 2003. This came at a time when the pandemic slashed foreign investors’ appetite for local currency assets — at 18%, foreign participation in local bond markets is at its lowest since 2009. Emerging markets rely on local currency debt – https://fingfx.thomsonreuters.com/gfx/mkt/byvrjeogwve/BIS%20chart%20three.PNG Those countries heavily reliant on external borrowing face greater risks from wobbly market sentiment and the rise in U.S. interest rates. Global indebtedness soared during 2020 as governments spent huge sums to revive their economies, bail out businesses and keep their citizens employed. While global debt levels remain very high by historical standards, economic recoveries and higher inflation helped improve the picture slightly last year.The global debt-to-GDP ratio fell to 351% in 2021 from an all-time high of more than 360% in 2020, although last year’s rate is some 28 percentage points above pre-pandemic levels.Issuance of debt carrying an environmental, social and governance label boomed as investors piled into sustainable debt markets.ESG-labelled issuance topped a record $1.4 trillion, nearly double the pace of 2020, although at around $3.4 trillion the ESG debt universe accounts for just 1% of global debt, IIF said.Demand for ESG products is expected to increase that share. The IIF sees total global ESG debt issuance reaching $1.8 trillion in 2022 and potentially $7.2 trillion by 2025. Global ESG-labelled debt issuance – https://fingfx.thomsonreuters.com/gfx/mkt/znvnendylpl/BIS%20chart%20four.PNG More

LONDON (Reuters) – Bank of England policymaker Silvana Tenreyro said on Wednesday that she – like other BoE policymakers – saw a case for higher interest rates to tackle inflation near a 30-year high, but the extent of tightening needed was uncertain.Financial markets currently price in BoE interest rates reaching nearly 2% by the end of this year, but central bank forecasts at the start of the month showed inflation would undershoot its target if rates reached 1.4%.Tenreyro, in a speech to be delivered to the National Institute of Economic and Social Research (NIESR), noted that inflation was forecast to fall almost back to target without raising rates above their current 0.5%, and that rates had only been 0.75% before the pandemic.”This metric would also suggest only a small amount of policy tightening will ultimately be required, reflecting the small share of the overall stimulus in the pandemic provided by monetary policy in the UK,” Tenreyro said.Government fiscal policy had been the main source of support for Britain’s economy during the pandemic, she said.Tenreyro voted against the BoE’s rate rise in December, its first since the start of the pandemic, saying she preferred to wait a few weeks for clarity on the impact of the rapidly spreading Omicron variant of coronavirus.In February she joined the majority in voting to raise rates to 0.5% from 0.25%.”The outlook and the risks had shifted in favour of a more front-loaded tightening,” she said. “With the inflation pick-up from higher tradeable goods price inflation now set to be larger and likely more persistent than previously expected, I thought an earlier tightening would strike a better balance between inflation and output volatility,” she added. More