Aurelia Butler

DUBAI (Reuters) -The World Bank blasted Lebanon’s ruling class on Tuesday for “orchestrating” one of the world’s worst national economic depressions due to their exploitative grip on resources. The global lender said the nation’s elite https://www.reuters.com/world/middle-east/lebanon-deputy-pm-talks-with-imf-focus-budget-banking-sector-exchange-rate-2022-01-24 were still abusing their position despite Lebanon suffering possibly one of the three biggest financial crashes globally since the 1850s.”Lebanon’s deliberate depression is orchestrated by the country’s elite that has long captured the state and lived off its economic rents,” the World Bank said in a press release attached to a report on the Lebanese economy https://openknowledge.worldbank.org/bitstream/handle/10986/36862/LEM%20Economic%20Monitor%20Fall%202021.pdf?sequence=2&isAllowed=y.”It has come to threaten the country’s long-term stability and social peace,” the released added, echoing public sentiments that have prompted angry protests in recent years.Fuelled by massive debt and the unsustainable way it was financed, the crisis has slashed Lebanon’s gross domestic product (GDP) by 58.1% since 2019, plummeting to an estimated $21.8 billion in 2021, the World Bank said.Already one of the most unequal countries, millions more have been pushed into poverty. The World Bank expected those below the poverty line to have risen by as much as 28 percentage points by the end of 2021, after an increase of 13 percentage points in 2020.Government revenues collapsed by almost half in 2021 to reach 6.6% of GDP: the lowest ratio globally after Somalia and Yemen, the bank said.Real GDP is estimated to have declined by 10.5% last year, according to the report, while gross debt is estimated to have reached 183% percent of GDP, a ratio only exceeded by Japan, Sudan and Greece.’DELIBERATE DEPRESSION'”Deliberate denial during deliberate depression is creating long-lasting scars on the economy and society,” said Saroj Kumar Jha, the World Bank’s regional director of the Mashreq.”Over two years into the financial crisis, Lebanon has yet to identify, least of all embark upon, a credible path toward economic and financial recovery.”While government finances improved in 2021, that was driven by a decline in spending even steeper than in revenues, the World Bank said.It projects a fiscal deficit of 0.4% of GDP in 2021 from 3.3% of GDP last year, helped by a recovery in tourism. Arrivals leapt 101.2% in the first seven months of last year, though still impacted by the pandemic.But a sudden halt to capital inflows and a large current account deficit was steadily eroding reserves, the World Bank said.Lebanon began talks with the IMF on Monday, hoping to secure a bailout – something Beirut has failed to achieve since 2020, with no sign of long-delayed economic reforms sought by donors. “This elite commands the main economic resources, generating large rents and dividing the spoils of a dysfunctional state,” the World Bank said.Lebanon’s politicians, former militia leaders and others from families wielding influence for generations over the Christian and Muslim communities often acknowledge corruption exists. But they generally deny individual responsibility and say they are doing their best to rescue the economy.The crisis has caused massive losses in the financial system, estimated by the government in December at $69 billion.”Worryingly, key public and private actors continue to resist recognition of these losses, perpetuating the zombie-like state of the economy,” the World Bank said.The nosediving exchange rate – the Lebanese pound has lost more than 90% of its value since 2019 – should have boosted exports. “This did not happen,” the World Bank said, hindered by pre-crisis economic fundamentals, global conditions and the institutional environment. More

FRANKFURT/TOKYO/WASHINGTON (Reuters) – Today’s central bankers have the unenviable task of weaning a pandemic-hit global economy off cheap money amid unprecedented sovereign debt levels and with asset prices inflated by years of stimulus and near-zero interest rates.What’s more, the risk of errors may be all the greater given that many of them have no experience of raising interest rates – and hardly any have ever had to do it in the face of inflation at multi-year highs and pushing way beyond target.”Even in the old days, when inflation-fighting was every central banker’s job, it proved extremely difficult to pull off a ‘soft landing’ that would bring inflation down without causing a recession,” said Peter Ireland, an economics professor at Boston College.Before the current price spikes brought on by surging energy costs, snags in global supply chains and a generalised demand-supply mismatch as the world economy emerges from last year’s lockdowns, inflation had been on the back burner for years.Factors ranging from technology, cheap Chinese exports, population aging and global recessions have all been cited as behind the fall from the double-digit heights of the 1980s to the 2% or less that most major economies had become used to.While some of today’s central bankers were around for a modest – and swiftly reversed – rate-hiking cycle in the second half of the last decade, some don’t even have that to draw on.None of the Bank of Japan’s current nine-member board has ever instituted a hike. Even Deputy Governor Masayoshi Amamiya was in a non-policy-making role for the last rate increase in 2007 to counter what proved a short-lived reprieve from deflation.At the European Central Bank, Dutch central bank chief Klaas Knot had been in office for less than two weeks when the ECB last raised interest rates in 2011. He is the only member of the current 25-head Governing Council to have tasted such action.Some suggest the fact the two 2011 hikes – made on the eve of the euro zone debt crisis – have gone down in history as the ECB’s biggest policy error in two decades of existence could create a “once bitten twice shy” mentality.”There is indeed a risk of a policy mistake of being too dovish for too long, partly because of institutional memory,” ING economist Carsten Brzeski said. “Even if these policymakers were not around, the institution will always remember the 2011 mistake or the 2008 hike,” he said of a separate rate hike cycle on the eve of the global financial crisis which also had to be quickly reversed. Main Fed, ECB, BOJ rates https://fingfx.thomsonreuters.com/gfx/mkt/zdvxoqmlbpx/Pasted%20image%201643100080295.png MISGIVINGSWith the exception of Gov. Chris Waller, the Fed’s current policymakers were in their present jobs for at least part of a rate hiking cycle that ran from late 2015 to the end of 2018.But that round of rate increases was different in scale to the inflation wars fought by earlier Fed leaders, most famously Paul Volcker’s move in 1980 to head off spiralling prices with a record 20% benchmark rate, albeit at the cost of deep recession. The most recent cycle was slow to get going – with a single quarter point rate increase in 2015 and no more until a year later – and stalled in 2019 with the short-term interest rate set in a range between 2.25-2.5%, low by historic standards.Even then, there were misgivings. The current nominee to be vice chair, Gov. Lael Brainard, later saw the decision to raise rates from the zero lower bound as something that may have led to an “unwarranted loss of opportunity for many Americans”.With U.S. inflation now at multi-decade highs and more than twice the Fed’s 2% target, some analysts predict they may end up doing something the bank has not done in more than two decades – raise rates by a half a percentage point in one go.Even inflation hawks like Waller acknowledge that such a move – which at least for now is not in the cards – would be a shock to today’s financial markets, used as they are to a low-inflation, low-interest rate combination.POLITICAL MASTERSOther central banks in G7 economies such as Britain and Canada also went through some policy-tightening towards the end of the 2010s and the Bank of England has already committed a fresh 15-basis point rise last month.In the decade between the global financial crisis and the pandemic, the Bank of Canada took rates from 0.25% to 1.75% by March 2020; over the same period, Bank of England rates only got as high as 0.75%, a rise of barely 25 basis points.BoE Governor Andrew Bailey at one point in November felt compelled to state that “we are in the price stability business”, in an attempt to quell market concerns his bank was reluctant to act.Any hesitations among the current generation of central bankers about turning the screw on borrowing rates may be compounded by a newly pressing factor: the huge debt pile created by pandemic-era emergency stimulus programmes.In 2020, the largest ever one-year surge since World War II put global debt at $226 trillion, with debt held by governments alone rising to a record 99% of global output.At those levels, even a small move by central bankers to raise the cost of borrowing will be felt by national treasuries.”It’s not so much that they (the bankers) will be reluctant but that their political masters will start making noises quickly,” Charles Goodhart, who served on the Bank of England’s Monetary Policy Committee between 1997 and 2000, told Reuters. “So if they become very unhappy, it tends to feed back to you, and of course they will become unhappy.” More

Powell and his colleagues on the Federal Open Market Committee, who meet Tuesday and Wednesday, are wrestling with how to quell the highest inflation in a generation without stalling labor market gains. The risks of error in this quest for a soft landing are big: move too fast and the economy tips back into recession. Go too slow and inflation gets entrenched.Powell’s emergency support of financial markets in 2020 as Covid-19 spread helped stage a solid recovery in 2021. His dexterity won backing from both parties and ultimately his nomination by President Joe Biden to a second term.Now, “that legacy is being challenged” by inflation that’s too high and the Fed’s response which to some appears too slow, said Tim Duy, chief economist at SGH Macro Advisors. “It is going to be hard to glide path prices back to the 2% target” quickly without inducing a recession.Officials are expected to signal a rate hike in March after their meeting ends Wednesday. But Powell may need to open the door to more increases this year than the three projected in their December forecasts. Some urge that Powell suggest that every meeting is live for a potential rate hike if warranted.He will have to balance that message with the Fed’s commitment to a new framework that pledges to let the labor market to run hot in pursuit of broad-based and inclusive gains. There is also the issue of financial market fragility. The S&P 500 has slid more than 7% since the end of last year, in part because of nerves surrounding the Fed’s tightening.Plus, U.S. central bankers are operating in a very different inflation climate than the last time they lifted interest rates from near zero, in December 2015. Back then, the Fed’s preferred inflation index rose by 0.2% over the prior 12 months, compared to 5.7% in the most recent reading.As the Fed chair prepares for his first press conference of the year, critics see two pressing areas for more clarity: the pace of rate increases and the balance sheet.One hitch in Fed communication is that officials talk a lot about their baseline projection. They don’t have a good way to describe their collective response to a rapidly evolving outlook, and they refresh their forecasts only once a quarter.Right now, their baseline from December doesn’t look fully credible, says Anna Wong, chief U.S. economist for Bloomberg Economics.“They have the unemployment rate falling to 3.5% this year, below their long-run sustainable rate, and staying there in the next two years, and yet inflation drifts down back down to 2.1% in 2024,” she said.Meanwhile, they forecast their policy rate would rise to just above 2% — not even reaching what they view as restrictive territory.“Despite retiring the word ‘transitory’ that forecast still suggests that they think inflation is mostly supply driven and will go away on its own,” said Wong, who forecasts the Fed will have to raise the benchmark policy rate five times this year.Some officials are starting to publicly second guess their December estimates.St. Louis Fed President James Bullard says that it might take four increases to slow down prices instead of three as he had thought. Governor Chris Waller argued three hikes was still his baseline forecast, but cautioned that four or even five moves in 2022 may be needed if inflation fails to abate as expected.With the committee already shifting, Powell has a chance at his Wednesday press conference to open the door to a rate path with more than three increases this year.He could even dislodge the idea that hikes only happen quarterly by suggesting that every meeting — there are seven more scheduled in 2022 following this week’s gathering — is potentially live for a move.Investors have already priced in four increases for this year with the first in March. Some say they could do more, including Goldman Sachs Group Inc (NYSE:GS). who sees “a risk that the FOMC will want to take some tightening action at every meeting” until inflation is cooled.Minutes from the December meeting showed a consensus among Fed officials on running off their balance sheet not long after rate liftoff. Powell said earlier this month that the committee wants to move “a little faster” and said more clarity is coming.Officials say that shrinking their balance sheet will put some upward pressure on longer-term borrowing costs. That tightens financial conditions and works a bit like a conventional rate hike, though the exact impact is hard to judge.The Fed chair might spell out how the tightening of financial conditions through balance sheet runoff meshes with rate increases — one way perhaps to explain the moderate pace of tightening in their December outlook.“There is a consensus that the committee wants to get a plan of quantitative tightening in the right place so it is part of the policy mix,” said Julia Coronado, partner at MacroPolicy Perspectives LLC. “There is less consensus around equivalency with rate hikes” or its impact on financial conditions, she added.Fed CredibilityPowell has repeatedly said that policy makers need to be nimble as they adjust to an economy that’s responding in unexpected ways during the pandemic. That reflects some hard-won lessons over the last year.Central bankers insisted for months that price surges would be temporary as demand shifted from goods to services and supply constraints eased. But consumer prices marched higher, reaching 7% last month — the most in almost four decades. Even Biden is telling the central bank to start fighting inflation and normalize policy.Some question if the Fed behind is the curve and whether Powell will adjust.“They sure seemed to have dragged their feet in response to their inflation threat,” said Mark Spindel, chief investment officer at MBB Capital Partners. “Are they hard wired to move gradually?”©2022 Bloomberg L.P. More

(Reuters) – The extra amount the world must spend each year to create a “net-zero” emissions economy is equivalent to half all profits currently generated by companies globally, consultancy group McKinsey estimated in a report on the energy transition.It said its calculation was much higher than most other estimates by economists but stressed such investments could be lucrative and the long-term costs of not doing enough to tackle climate change would be greater.”We find that the transition would be universal, significant, and front-loaded, with uneven effects on sectors, geographies, and communities, even as it creates growth opportunities,” it concluded. Although time is running out, reaching net-zero carbon emissions by 2050 would give the world a chance of capping temperature rises at 1.5 degrees Celsius above pre-industrial levels – avoiding the worst fall-out from climate change.The report’s main finding was that this would require spending on physical assets for energy and land-use systems of about $275 trillion, or $9.2 trillion per year on average – an annual increase of $3.5 trillion on current spending.”The increase is approximately equivalent, in 2020, to half of global corporate profits, one-quarter of total tax revenue and 7 percent of household spending,” it calculated.The amount of cumulative spending would be equivalent to about 7.5% of world output from 2021-2050, far higher than the 2-3% of global output which climate economists polled by Reuters in 2021 estimated was needed each year. McKinsey put the difference down to the fact that it was including a broad view of spending by households, businesses, agriculture and forestry as well as some continued spend on high-emissions assets like fossil fuel–based vehicles.”While these spending requirements are large and financing has yet to be established, many investments have favorable return profiles and should not be seen as merely costs,” it added.Gernot Wagner, a climate economist at New York University not involved with the report, welcomed its attempt to come up with a comprehensive view of the investments needed.”Climate policy means massive investment, and a massive rejigging of market forces from the current high-carbon and low-efficiency path onto a low-carbon and high-efficiency one,” said Wagner.”We just spent trillions of dollars because of COVID relief. So, would it be feasible? Yes. Would it involve massive changes? Of course, that too. Where is the money coming from? Ratepayers, taxpayers or shareholders?”The McKinsey report noted large uncertainties relating to how such a transition would play out and that some populations and sectors would be more exposed than others to disruption, notably poorer countries and those reliant on fossil fuels.It added: “The economic and social costs of a delayed or abrupt transition would raise the risk of asset-stranding, worker dislocations, and a backlash that delays the transition.” More