Aurelia Butler

BENGALURU (Reuters) – Persistently high inflation will haunt the world economy this year, according to a Reuters poll of economists who trimmed their global growth outlook on worries of slowing demand and the risk interest rates would rise faster than assumed so far.This represents a sea change from just three months ago, when most economists were siding with central bankers in their then-prevalent view that a surge in inflation, driven in part by pandemic-related supply bottlenecks, would be transitory.In the latest quarterly Reuters surveys of over 500 economists taken throughout January, economists raised their 2022 inflation forecasts for most of the 46 economies covered.While price pressures are still expected to ease in 2023, the inflation outlook is much stickier than three months ago.At the same time, economists downgraded their global growth forecasts. After expanding 5.8% last year, the world economy is expected to slow to 4.3% growth in 2022, down from 4.5% predicted in October, in part because of higher interest rates and costs of living. Growth is seen slowing further to 3.6% and 3.2% in 2023 and 2024, respectively.Nearly 40% of those who answered an additional question singled out inflation as the top risk to the global economy this year, with nearly 35% picking coronavirus variants, and 22% worried about central banks moving too quickly. “The odds of an accident have risen and the likelihood of a soft landing in 2022 requires some favourable assumptions and a modicum of good luck,” Deutsche Bank (DE:DBKGn) group chief economist David Folkerts-Landau said, noting high inflation, the persistence of supply chain strains and the pandemic, as well as international political tensions. GRAPHIC: Reuters Poll: Global inflation forecasts 2022, https://fingfx.thomsonreuters.com/gfx/polling/egpbklkmevq/Reuters%20Poll%20-%20Global%20inflation%20forecasts%202022.png This month’s Reuters polls found 18 of 24 major central banks were expected to lift rates at least once this year, compared to 11 in the October poll.The U.S. Federal Reserve https://www.reuters.com/business/finance/inflation-fighting-fed-likely-flag-march-interest-rate-hike-2022-01-26 on Wednesday signaled it would raise the benchmark federal funds rate from a record low of 0-0.25% in March after shuttering its bond purchase programme.The Bank of England https://www.reuters.com/markets/europe/inflation-risk-omicron-slowdown-boe-rate-move-balance-2021-12-16 was the first major central bank to raise rates since the pandemic started and is expected to act again, the Bank of Canada https://www.reuters.com/world/americas/timing-bank-canadas-rates-lift-off-knifes-edge-jan-26-hike-possible-2022-01-21 is also seen hiking soon.In contrast, most economists expect the European Central Bank https://www.reuters.com/business/euro-zone-inflation-burn-hotter-ecb-rates-stay-ice-2022-01-19 and the Bank of Japan https://www.reuters.com/markets/currencies/japan-pm-kishidas-wage-policies-unlikely-support-economy-this-year-most-2022-01-14 to stay put at least until the end of next year.While the tightening cycle is in early days in developed markets, many emerging market central banks, with a few notable exceptions like Brazil https://www.reuters.com/article/latam-economy-poll-idUSL1N2U00P3 and China https://www.reuters.com/markets/asia/china-growth-seen-slowing-52-2022-modest-policy-easing-expected-2022-01-13, are waiting for the Fed’s cue while grappling with the pandemic and their own economic challenges. GRAPHIC: Reuters Poll: Global growth outlook – January 2022, https://fingfx.thomsonreuters.com/gfx/polling/lgvdwxwlqpo/Reuters%20Poll%20-%20Global%20growth%20outlook.png “Over the past three decades, developed market central banks led by the Fed have been inclined to see supply shocks boosting inflation as a drag on growth that should be cushioned,” noted Joseph Lupton, global economist at J.P. Morgan.However, with major central banks showing concern about bringing inflation expectations close to their targets, emerging economies face a similar challenge. “Pressure on emerging market central banks to act to anchor inflationary expectations is likely to intensify,” Lupton said.The growth outlook for over 60% of the 46 economies covered in the polls was either downgraded or left unchanged for 2022 and about 90% of respondents, 144 of 163, said there was a downside risk to their forecasts. While most countries saw cuts in growth forecasts for the fourth quarter and the current one, largely due to the spread of the Omicron coronavirus variant, they were expected to rebound next quarter.(For other stories from the Reuters global long-term economic outlook polls package) More

(Reuters) – European shares fell on Friday, dragged by auto stocks and a general risk-off tone due to geopolitical tensions in Ukraine and the prospects of higher interest rates.The pan-European STOXX 600 fell 1.0% and was on course for its fourth straight weekly decline.Euro zone bond yields rose as markets continued to digest the more hawkish than expected message that emerged from the Fed policy meeting earlier this week.With geopolitical uncertainty surrounding the Russia-Ukraine conflict also denting investor sentiment, the index is eyeing its worst month since October 2020. “Uncertainty about whether the U.S. Federal Reserve can still steer us to a soft landing has driven market volatility to its highest level in more than a year,” said Mark Haefele, Chief Investment Officer at UBS Global Wealth Management.”But underlying economic growth is likely to stay robust in the first half… (which) favours cyclical companies and value stocks…We believe Eurozone equities, which offer undemanding valuations, will be among the main beneficiaries.”Tech stocks hit their lowest level in nearly a year, and were tracking their worst month since 2008, as market expectations for four to five rate hikes this year are set to hurt last year’s growth stock rally.Meanwhile, France posted its strongest growth in over five decades last year, hitting 7%, as the euro zone’s second-biggest economy bounced back from the COVID-19 crisis faster than expected, data showed.But the German economy, Europe’s largest, contracted more than expected in the fourth quarter of last year as COVID-19 restrictions hampered activity.Auto stocks led losses on the benchmark, with shares in Volvo falling 3.5% after the Swedish truck maker reported lower fourth-quarter core earnings and proposed a smaller-than-expected dividend.Retail stocks was the only sector that traded in positive territory, led by Sweden’s H&M. The fashion retailer gained 5.2% after posting a bigger profit rise than expected for the September-November period.Luxury goods maker LVMH rose 1.4% after the world’s largest luxury goods conglomerate said fourth-quarter sales growth accelerated, while Signify NV, the world’s largest lighting maker, jumped 14.6% after reporting higher quarterly earnings.Sweden’s Electrolux fell 4.7% after saying global supply chain issues would linger, after it posted a drop in fourth-quarter profits.Spain’s largest domestic lender Caixabank declined 2.3% after lower lending income contributed to a 52% drop in its net recurring profit in the fourth quarter. More

Two closely watched measures of US inflationary pressures are expected to show sizeable gains, which would provide additional cover for the Federal Reserve to act forcefully to temper demand in the world’s largest economy. The US central bank’s preferred inflation gauge — the core personal consumption expenditures (PCE) price index — is set to have increased another 4.8 per cent in December from the year before and 0.5 per cent from the previous month.That would represent a small acceleration from the 4.7 per cent annual pace reported in November and the fastest rate since September 1983. Once volatile items such as food and energy are factored in, the PCE index is expected to have jumped 5.8 per cent.The most recent data on consumer prices will be released alongside the latest employment cost index (ECI) report, which tracks US wages, salaries and benefits. Total pay for civilian workers for the fourth quarter is expected to have risen in line with the record-setting 1.3 per cent increase seen between July and the end of September. Both reports are due out at 8:30am Eastern Time on Friday. Jay Powell, the Fed chair, cited the previous ECI release, which showed a 3.7 per cent jump in total pay for the 12-month period ending September, as a primary reason why the central bank decided in December to speed up the scaling-back of its stimulus programme. Rather than continuing to buy government bonds to the end of June, the Fed is now planning to cease purchases of Treasuries and agency mortgage-backed securities in early March, right around the time it is expected to begin raising interest rates for the first time since 2018.The data will reinforce the central bank’s decision to keep its options open to either raise interest rates at the seven remaining policy meetings this year or consider supersized adjustments that bump up the federal funds rate by half a percentage point, as opposed to the typical quarter-point increase.Powell refused on Wednesday to rule out either option at a press conference following the first two-day gathering of the Federal Open Market Committee this year. Market expectations for the policy path forward have since shifted, with traders now pricing in at least three more interest rate increases in 2022 after “lift-off” from the current near-zero levels in March. Soaring inflation and strong economic growth have forced the Fed to assume a much more hawkish stance than initially expected just a couple of months ago. The labour market has also made significant strides and now appears historically tight owing to an acute worker shortage.The Fed chair on Wednesday reiterated that the central bank is “attentive” to the risks caused by “persistent” wage growth, which he warned could lead to even higher inflation. “We have an expectation about the way the economy is going to be evolved, but we’ve got to be in a position to address different outcomes, including the one where inflation remains higher,” he later said. More

Great Wall Motor will invest $1.9bn in Brazil over the next decade to make electric and hybrid cars, in the latest example of China’s auto industry expanding overseas.The Baoding-headquartered group said it would open its biggest operation outside China at a former Mercedes-Benz factory in the interior of São Paulo state, serving as an export hub in Latin America.The Brazil venture by one of China’s biggest carmakers follows a series of Chinese deals in Latin America focused on mining, materials processing and production assets in the electric vehicle supply chain, an industry prioritised by Beijing. Parts of the region are rich in lithium and copper, metals that are critical for electric vehicle production. Great Wall’s investment is expected to boost Brazil’s auto sector, which has suffered closures and job losses as the economy slowed. Ford left Brazil last year following decades of manufacturing in the country. Great Wall has pledged to create 2,000 jobs and the capacity to turn out 100,000 vehicles a year. A first investment phase of about R$4bn ($740m) running to 2025 will focus on adapting and upgrading the production line at the facility in Iracemápolis, 140km from the state capital. The second stage will involve R$6bn ($1.11bn) of funds through 2032. Great Wall said it would also launch a product line in Brazil including only hybrid and electric SUVs and pick-up trucks, which will be imported before the first cars roll off the factory lines at the South American plant next year. The company said that it expected to generate annual turnover of R$30bn in 2025.“This is the first factory dedicated only to hybrid and electric cars in Latin America,” said Pedro Bentancourt, director of government relations for Great Wall in Brazil.Tu Le, managing director of Sino Auto Insights, said international expansion has become a priority for Chinese auto groups, including BYD and Geely in addition to Great Wall.Geely, another big Chinese automaker, is also planning to enter the Brazilian market this year, a spokesperson told the Financial Times.The companies are searching for markets as growth in China, the world’s biggest car market, slows. They are also working to strengthen supply chain resilience following the shocks caused by the trade war with the US and the coronavirus pandemic.“Affordable [electric vehicles] in Latin America seems like a formula for success if the local governments can be pushed to invest in the infrastructure,” Tu said.

The offshore pivot by Chinese electric vehicle makers reflected “collective confidence . . . that they can finally compete on equal footing with all of the foreign automakers”, he added.At present, there is a relatively limited market for electric vehicles in Brazil. Most cars sold in the country have “flex” engines that can take both petrol and ethanol, which is produced domestically from sugarcane.All of Great Wall’s offerings in Brazil will be flex, said Bentancourt, adding that the company intended to have 60 per cent of the vehicle content from local suppliers by 2025.Milad Kalume Neto, director of business development at JATO Dynamics, noted that Great Wall was not expecting mass adoption. “They will be niche vehicles. They aren’t thinking about volume,” he said. While the electric market in Brazil was growing, “it doesn’t reach 1 per cent of the fleet”.Additional reporting by Carolina Ingizza and Nian Liu

Video: Cars, companies, countries: the race to go electric More

We’ve picked up plenty of habits during the pandemic — streaming endless box sets, working from home in leisure wear, and emailing colleagues asking if it’s OK to ring them (the shattering intrusion of a phone call being more than some people can bear). As restrictions end, change is definitely in the air. In the past week or so, global stock markets — and tech stocks in particular — have been volatile. Blame inflation, which is surging at its fastest rate in 30 years, the expectation of further global interest rate rises to contain it, and the withdrawal of asset-boosting monetary stimulus. It’s symbolic that Netflix and Peloton, which powered ahead during the pandemic, have been the early casualties of the current earnings season.Our habits are changing. The cost of living is shooting up. This is affecting our personal finances, as well as the corporate earnings of companies we invest in. At home, we’re already contending with rising energy bills and higher food prices; next, we’ll have higher taxes and rising interest rates. This is particularly worrisome for young property owners with huge amounts of mortgage debt. Chances are that surging inflation has promoted an older doom-monger in your life to harp on about the double-digit interest rates they were hit with in the late 1970s and early 1990s. To top it all off, bosses are summoning workers back to the office, with all of the extra costs that entails. Considering the millions of younger people who started investing during the pandemic, I have been wondering if this is a habit they’ll stick with. Will they be spooked by market volatility as the “spare money” millions had to invest during the pandemic starts flowing back towards Pret A Manger?Early signs from the US suggest smaller investors are holding their nerve — for now. Research from data provider VandaTrack shows retail investors are still pumping cash into US equities even as share prices tumble from historic highs.However, shares in US retail brokerage Robinhood have been hit as the meme stock trading frenzy loses steam. Previous market wobbles have been an opportunity to profit, as gung-ho investors “buy the dip” and hang for the inevitable bounce. But the most experienced investors doubt this pattern will continue, predicting markets are heading for a fundamental shift that could unsettle recent entrants. Danni Hewson, a financial analyst at AJ Bell, notes how “lockdown investors” have enjoyed a period of incredible growth — particularly when it comes to US tech stocks, and of course the volatile world of cryptocurrencies (another trend that’s now rapidly unravelling). “The shift from growth to value stocks that so many traditional investors are making won’t appeal in the same way,” she says. “Who wants to invest in mayo when you could be putting your dosh into shiny Teslas with their maverick boss?”

Many older investors are now chasing dividends, but Hewson notes younger investors have always been fixated on share price growth: “Watching the numbers fly up can be addictive, but what happens to the enjoyment of the game now that it has changed?” It’s a valid question — and assuming markets get choppier, I wonder if young investors will panic and take their money out, or adjust their portfolios and stick along for the ride. In the rush to get invested, driven by the fear of missing out, not many thought about their long-term strategy. But I don’t see this as a huge problem. The biggest barrier has been overcome — they’ve got started. You might make mistakes as an investor — we all do — but assuming these don’t put you off the stock market for life, there’s a lot to be said for learning by doing. However, the “get rich slowly” mindset of the value investor is vastly different from the “get rich quick” drama of chasing overnight gains in GameStop and AMC. Hewson worries that some newbies might lose interest in a longer term strategy before money can be made. I am about to offer them some boring and sensible advice, but the older I get, the more I realise that “boring and sensible” is a wonderfully reassuring strategy that usually pays off in the long run. First, think about the fundamentals. Everyone needs a cash emergency fund so they’re not forced into selling investments when markets are down and they need the money.

Be prepared to lock away money that’s invested for the long term — at least five to 10 years. This is psychologically difficult if you’re checking investment apps every hour of the day. I’ve got mine on my tablet, not my phone, so I’m tempted to check them less often. Having cut down your screen time, start learning more about investment (growth versus value is a good place to start). Explore the themes that excite you, researching funds and investment trusts that could give you exposure to these areas of the market (for example, I’m particularly interested in small-caps at the moment). Use these to create a more diversified portfolio, perhaps using cheaper passive funds as building blocks. Don’t feel you have to stop trading in single shares, but limit your exposure to a smaller percentage of your pot. Follow the advice of the Naked Trader: before he buys a share, he considers what his likely exit plan will be, and sets up a “stop loss” to limit the potential downside.Consider writing down your long-term goals to provide reassurance in times of market turbulence. I’ve got a notebook I use for keeping track of my investments (old school, I know). In it is written: “I do not want to withdraw any money from my Isa until I’m over 60” along with a chart showing how the funds inside could grow at my current rate of saving, which I made using an online compound interest calculator. I’ve met other investors who create vision boards for the same reason. Patience pays!Don’t try to time the market. I have long been a fan of regular savings plans, where you invest a set amount into your Isa every month, which is automatically allocated to funds, trust or shares of your choice. These start from £25 per month. If my investments take a turn for the worse, I also like to think about what I might have spent the money on if I hadn’t invested it — in my case, clothes, shoes and handbags. My experiences of selling surplus items on Facebook Marketplace has shown me you’re certain to book a far bigger loss on these than you probably ever will on your investments! There are no short-cuts to wealth, but nailing these investment habits when you’re young will hopefully pay dividends in the future.Claer Barrett is the FT’s consumer editor: [email protected]; Twitter @Claerb; Instagram @Claerb More

Consultants who specialise in supply chains are having a torrid time.As companies around the world grapple with bottlenecks, shortages and burgeoning demand, supply chain management has moved to the top of corporate agendas like never before.Chief executives need short-term solutions to the immediate problems so they are seeking advice on strategic changes that will allow them to reassure their boards that pandemic-related problems will never recur.“It’s been absolutely nuts,” says Brian Higgins, head of KPMG’s US supply chain and operations practice.According to a McKinsey survey of senior supply chain executives late last year, 92 per cent had already taken steps to improve their resilience, mostly by increasing inventory of critical components and shifting to multiple sources of raw materials. Nearly 60 per cent adopted new supply-chain risk management practices, and many companies are looking to improve their analytics.“There’s a huge question of how do you get the right data in the right place,” says Daniel Swan, who co-leads McKinsey’s operations practice. “A lot of clients have more data than they know what to do with,” he explains. “They need help to get real time transparency.”

Just as banks were forced to invest in consolidated data streams and live risk dashboards after the financial crisis, this year’s supply chain problems have prompted other companies to invest in risk management.Washington DC-based Interos is seeing huge appetite for its comprehensive mapping and monitoring services, which can track 400m companies and provide real-time warnings of potential bottlenecks and sustainability issues. The consultancy has grown from 53 people to 300 in two years, and was recently valued above $1bn.“What has changed is that management consultants have moved from reactive to proactive,” says Jennifer Bisceglie, Interos chief executive. “This is not just logistics. This is understanding who your customers are . . . [plus your] suppliers, and who their customers and suppliers are. Sometimes, the bottleneck is three or four [tiers] away.”Corporate clients are also asking for help in determining how many supply chain issues stem from changes in demand. The pandemic has seen consumers shell out more on goods and less on services — reversing a 60-year trend.Between the first quarter of 2020 and the same period in 2021, US spending on durable goods shot up 32 per cent, and spending on non-durable goods rose 9 per cent. It is not yet clear whether this shift is permanent or temporary.Some clients have responded by wanting assistance in improving their forecasting, so that they can meet at least some of their demand growth by producing the right products in the right places.KPMG’s Higgins says clients are redesigning their planning processes to give 120-day visibility, instead of 30 to 60 days’, but need advice on what kinds of digital technology can improve data inputs and analysis.

Others are stepping up their capital spending and have hired consultants to help them locate new factories and distribution centres, or re-engineer their existing ones, to boost overall output and resilience.Where once supply chain management was mostly about cutting costs, many CEOs now want help balancing the competing demands of improving resilience, cutting carbon emissions and keeping costs down.“How do you design a supply chain where, five years from now, we meet our sustainability goals, we are resilient and we can live with the cost?,” asks Joe Terino, who heads the supply chain practice at Bain. “It’s all about trade-offs.”He is working with consumer goods companies to redesign and standardise their products and manufacturing equipment. The goal is to get away from country-specific products and make it easier to shift production from one factory to another in times of crisis or when demand spikes.Consultants are also being asked to help with automation projects, particularly in the US where labour shortages are acute. Most newly built facilities are already highly automated. But companies are having to decide when it makes sense to retrofit existing warehouses and distribution centres.For example, some can be equipped with automated vehicles that bring employees to the right place to pick up orders, then lift them to the right height and help them find what they need.“The return on investment is pretty attractive. Your workers are more efficient, you have less downtime from safety issues and the workers aren’t making mistakes,” Terino says.However, even as consultants plug away at these resilience and sustainability projects, another challenge looms. “A lot of companies have been in survival mode at the expense of cost efficiency,” says KPMG’s Higgins. “There is a building and pent up need to come back to cost efficiency.” More