Aurelia Butler

As fresh Covid-19 restrictions bite this month, it is a fair bet that millions of western households will spend the holiday season glued to streaming services. It is also a reasonable prediction that many will watch the wildly popular Netflix hit Squid Game, a violent dystopian fantasy that comes from South Korea.So far, so trivial, you might think. But embedded in this viewing choice is a symbol of the changing nature of globalisation which is rather cheering — and which investors should note as we prepare for 2022.Over the past few decades, the word “globalisation” has been largely synonymous with westernisation, at least in the minds of the global business elite. Globalisation of media content meant that Hollywood was exporting its hit movies; and when the US media platform Netflix sprang into life 24 years ago, it served American-made fare, mostly to American-based consumers.But Squid Game is a made-in-Korea product, backed by Netflix, which has become the most viewed show in 90 countries around the world this year. Indeed, polls suggest that one in four Americans has watched it, while Spanish, Brazilian and French offerings produced for a global audience now litter the Netflix site. The globalisation of media, in other words, is no longer about Hollywood; digitisation has made it a multipolar affair.And this is just one metaphor for what is happening in other fields. Think of fast fashion, where the Chinese company Shein now has a quarter of the US market, or to social media, where another Chinese group, TikTok, has 1bn global consumers. Then consider fintech, where Singapore is now such a locus of innovation that the Bank for International Settlements opened its fintech innovation hub there instead of heading to Silicon Valley. Or think of development flows and how Beijing’s Belt and Road Initiative is creating non-western linkages across Asia and Africa.This point about multi-polarity might seem obvious, since it has been emerging for a while. But it is worth stressing right now given the current gloom about globalisation. In the past couple of years, western pundits have often fretted that we are moving into a “deglobalisation” phase. And no wonder. Although global financial integration soared early in the 21st century, it has flatlined since the financial crisis of 2008, as a study of globalisation that is issued each year by DHL, the logistics group, shows.Trade wars and rising nationalism have also undermined global trade flows, while an authoritarian crackdown on digital freedoms in countries such as China threatens to splinter the internet — and pandemic lockdowns have further shattered global supply chains.However, it is possible that when future historians look back at 2022, they will see not just deglobalisation, but an emerging re-globalisation too, or a type of global connectivity driven by new, non-western and non-traditional forces.“Globalisation had a very specific topology — it was dollar denominated, shaped by the Washington Consensus,” says Joshua Cooper Ramo, chief executive of Sornay, an advisory and growth capital firm. “But deglobalisation is a reaction to too much openness and too much speed — there is a new, re-globalisation model coming. Most in Washington don’t see this yet [but] the battle is over the new topology of re-globalisation.”This might sound threatening, at least to those Washington observers. But it may also be giving new impetus to global integration. Consider, once again, the DHL globalisation report, which is compiled by collating metrics about the movement of people, money, trade and information.The latest survey, released at the end of last month, shows that in 2020 the global movement of people, capital and trade collapsed as the world absorbed the Covid-19 shock. The only globalisation metric that stayed strong was information, due to exploding internet usage. But what is more surprising is that global trade flows have recently surged, in spite of supply chain disruptions. Capital movements have jumped dramatically too, amid a flurry of investment flows and cross-border mergers and acquisitions, not just between western countries but non-western ones too.And while the growth of information flows has eased back to the pre-pandemic trend (perhaps because of internet nationalism), and the movement of people remains low, DHL calculates that the composite index of global integration was around 124 at the end of 2020, compared to a baseline of 100 in 2000.Yes, that is down from a pre-pandemic peak of 127 in 2019. But it is higher than the 119 level recorded in 2007 — in other words, just before the financial crisis and at the high point of the western-driven globalisation wave of the early 21st century.Moreover, DHL projects that its index will be at around 130 by the start of 2022, setting a new peak. So, although the pandemic was a massive stress test for global connectivity, it seems that integration is now higher, not lower, than before. Is this due to a “re-globalisation”? The data do not yet support this conclusion. But if you stream TV content this Christmas, ponder the trend. Yes, the world might now seem dystopian, xenophobic and depressing; but it is also being remade by digital innovation in exciting ways, in finance and business — as well as our TV shows. [email protected] More

OTTAWA (Reuters) -Canada’s economy likely expanded for the sixth consecutive month in November, after matching expectations in October, official data showed on Thursday, implying the Bank of Canada will stay the course on interest rate hikes despite the rise of the Omicron variant.Real gross domestic product rose 0.8% in October from September, in line with analyst estimates, while November GDP was most likely up 0.3%, Statistics Canada said. It also revised up September’s GDP gain to 0.2% from 0.1%.With November’s rise, which is a preliminary estimate, Canada’s economy is just 0.1% below pre-pandemic levels, Statscan said. The gains also imply fourth-quarter GDP will be stronger than Bank of Canada forecasts, analysts said.That “means the Bank may not be too concerned about the renewed disruption from the deteriorating coronavirus situation,” Stephen Brown, senior Canada economist with Capital Economics, said in a note.Several provinces have imposed fresh restrictions and temporarily shut some businesses amid soaring cases of COVID-19.Brown said the impact of those measures would be temporary, and “may not delay” Bank of Canada tightening plans. The bank this month said slack in the economy had substantially diminished, setting the stage for it to begin hiking rates from historic lows.Money markets see a first hike in March 2022, though bets are increasing on an earlier move. [BOCWATCH]The October GDP gain was broad-based and included a rebound in manufacturing activity, which had been hit by supply chain bottlenecks and semiconductor chip shortages.The November gain was driven by growth in hard-hit service sectors. There was no mention in the release of the impact of November floods in British Columbia, which crippled road and rail access to Canada’s largest port. “The advance estimate for November … while a little disappointing relative to industry data received in the past week, is still a solid result given the flooding seen in B.C.,” Andrew Grantham, senior economist at CIBC Capital Markets, said in a note.The Canadian dollar was trading nearly unchanged at 1.2827 to the greenback, or 77.96 U.S. cents. More

BRUSSELS (Reuters) – France and Italy said on Thursday the idea of more permanent joint EU debt issuance deserves an in-depth discussion when the 27-nation bloc reviews its fiscal rules next year, a suggestion likely to meet with resistance from Germany.Italian Prime Minister Mario Draghi and French President Emmanuel Macron wrote in a joint article in the Financial Times that the EU’s 800 billion recovery fund, for which the bloc borrowed as a whole for the first time, has been a success that should serve as a blueprint for the future.”New proposals will deserve in-depth discussion, not clouded by ideology, with the aim of better serving the interests of the EU as a whole,” the two leaders wrote, with a link to a paper written by four economists, one of whom is Macron’s adviser and another an adviser to Draghi.The paper proposes that to deal with the surge in public debt after the COVID-19 pandemic, the EU could set up an EU Debt Management Agency which would buy from the European Central Bank debt issued during the pandemic by EU governments.The agency would use money it raises on the market by issuing its own, EU debt, that would cost less than the national debt because the EU as a whole can borrow at better rates than individual countries.”A debt assumption plan would consist of a gradual transfer of a portion of national public debts to a European Debt Management Agency. The Agency would receive contributions from national governments to cover future interest payments. The debt would clearly not be eliminated,” the paper said.”However, the fact that it will be intermediated by the European Agency will produce a reduction in the debt burden, given that the Agency will be able to issue debt at more favourable conditions than highly indebted countries,” it said.Germany has long been strongly opposed to joint debt issuance in the EU, citing EU treaties, its own constitution and concerns about assuming the responsibility for other countries’ debts.The coalition agreement of the new German government makes clear that joint borrowing for the recovery fund was a one-off. The Netherlands, Finland and Austria also oppose the idea of more permanent joint debt issuance.The paper referred to by the joint Macron-Draghi article said the EU debt agency could buy the debt created during the 2020-2021 pandemic gradually over five years.A table in the paper said Spain had added the most debt during 2020-2021, increasing its debt to GDP ratio by 24.1 points to 119.6% of GDP. Italy was close behind with a 19.2 point increase to 153.5% and France added 17.8 points to 115.3%.”The Agency would pay for the sovereign bonds acquired with newly-issued Agency bonds, using reference market prices for EU bonds of similar maturities. After the Agency bonds reach maturity, the Agency will refinance them on the market,” the paper said. More

MADRID (Reuters) -Spain’s left-wing government reached a deal with unions and employers, the Labour Ministry said on Thursday, ending months of talks and bringing it a step closer to overturning a previous conservative administration’s pro-business reforms by granting more power to unions in bargaining contracts.The new deal also limits the extent to which companies can rely on temporary contracts, and makes permanent a furlough scheme brought in to cushion the economic blow from COVID-19.”We end 2021 fulfilling the government’s commitment: a new labour law that recovers rights in favour of decent work,” Labour Minister Yolanda Diaz tweeted. Reforming its labour laws was one of the commitments made by Spain to the European Commission to obtain the second tranche of European recovery funds. Spain expects to receive 70 billion euros ($79.14 billion) in total, but so far only 19 billion euros have been secured. The previous text was drawn up in 2012 without consensus and has generated significant labour conflict. It was a condition for Spain to receive a bank bail-out and concentrated collective bargaining power with companies, with scant union representation.Trade unions claimed the new deal as a victory for workers, saying it restores rights that had been suppressed for decades, while employers also touted the deal as allowing companies necessary flexibility.”The agreement… ensures freedom of enterprise and legal certainty and contributes to social harmony,” the CEOE employers’ association in a statement.The 2012 reform favoured the creation of companies that paid wages below sectoral agreements, creating tension with unions, as well as among companies that saw such practice as akin to unfair competition.Now companies will maintain the right to flexibility around issues such as working hours, while wages will be set through sectoral agreements, where unions have bargaining power.As Spain is the EU country with the highest use of temporary contracts, the new regulation tightens conditions for their use, limiting them to short periods of time. Improper use of temporary contracts will be penalised with fines and social security penalties. ($1 = 0.8845 euros) More

National statistics agency INEGI said inflation reached 7.45% in early December after averaging 7.37% in November, which was the highest rate in Mexico since early 2001.An initial Reuters poll predicted inflation would come in at 7.73% in early December.. With final survey responses, the consensus forecast stood at 7.67%. The core rate of inflation, which strips out some volatile items, hit 5.87%, above analysts’ prediction for 5.70%. The initial Reuters consensus forecast for core inflation was 5.68% after the core rate had reached 5.67% in November.Jonathan Heath, a board member of the Bank of Mexico, which last week raised its benchmark interest rate 50 basis points to 5.50% to try to contain price pressures, expressed concern over the continuing acceleration in core inflation.”Although headline inflation managed to decelerate at the margin, this is not good news, as the core of the problem persists,” Heath said on Twitter (NYSE:TWTR).The central bank last week also revised up its expectations for Mexican inflation at the end of this year and for 2022.The bank targets inflation of 3%, with a one percentage point tolerance range above and below that. Compared to the previous two-week period, consumer prices rose 0.10% in the first half of December. The core index meanwhile climbed by 0.59%, the INEGI data showed. More

At the end of the first year of new trade terms between the UK and EU, Brexit has been most notable by the absence of drama at Britain’s borders. There have been few tailbacks at the ports and little noticeable disruption to the flow of trade. But activity has been much lower than expected, even ahead of tighter import controls coming in next year, especially on food and agricultural goods.Brexit’s overall effect on the UK economy and people’s living standards appears to be negative but uncertain, according to economists. They say growth has been already hit by the new rules which kicked in on January 1 when the UK officially left the bloc. Over time, these could leave the country roughly 4 per cent worse off than it would have been had the 2016 EU referendum gone the other way, according to the Office for Budget Responsibility. The debate among economists on Brexit has rarely been about whether there would be a hit to growth and living standards, but rather how big a hit. The exact costs remain unknown because the effects have not been immediate, economists say, and are difficult to disentangle from the impact of the coronavirus crisis. One of the simplest measures to assess Brexit, say economists, is to examine the UK’s overall performance since the June 2016 referendum until now, thereby taking account of the uncertainty created by the Leave vote as well as the country’s experience since. UK growth has lagged behind the US and the eurozone. Gross domestic product in the UK was 3.9 per cent higher in the third quarter of 2021 than in the second quarter of 2016. Over the same period, however, the eurozone produced 6.2 per cent growth and the US 10.6 per cent. While the underperformance of the UK economy is not disputed, it could have many causes apart from Brexit. Economists worry that variations in counting GDP by the ONS have potentially temporarily depressed the UK number. So too are they concerned by different underlying rates of growth which have nothing to do with Brexit, and varying experiences of the Covid-19 pandemic. With these potentially confounding causes of economic weakness, analysts have attempted more direct measures of the Brexit effect, concentrating on the impact on trade. John Springford, deputy director of the Centre for European Reform think-tank, estimated the likely UK trade performance based on a model, “doppelgänger UK”, derived from the performance of similar countries.The model showed that as of October, the latest month for which data is available, UK imports and exports of goods were 15.7 per cent below the level that could have been expected had the UK not left the EU’s customs union and single market in January. The analysis points to a picture that, along with EU nationals leaving, Brexit has “made it harder for the supply side of the British economy to adapt to the reopening of [sectors after lockdown was lifted],” Springford said. He added that uncertainty and sterling’s depreciation following the referendum have left the economy on track to lose around 4 to 5 per cent of national income compared with expectations had the UK voted Remain.Julian Jessop, an independent economist and fellow at the Institute of Economic Affairs think-tank, did not disagree that Brexit has so far been a minus for the economy, even though he supported the UK decision to leave the EU. “There’s not a lot of doubt that the things you can measure have been negative,” he said.Jessop added that lower trade would lead to lower growth, but how trade activity would affect the economy was “extremely uncertain”. Still, the detrimental effects of reduced trade with the EU would diminish over time, he said. While the debate is now less heated, Springford did not dissent from the view that the overall economic hit was likely to be unclear. He said the “big question” for economists was will the trade effects translate into GDP losses. If the trade performance in goods has been negative to date, Sarah Hall, professor of economic geography at Nottingham university, thinks the effect on the UK service sector is more of “refocusing geographically” than of large losses. Her research showed that UK services exports in the second quarter of this year were 14 per cent down on two years earlier, globally, reflecting the effect of Covid-19, especially on tourism. However, exports to the EU were 30 per cent down, suggesting an amplified impact on business with the continent. Hall expects the UK will try to reorganise its service sector over time to be more of a global hub, especially in finance, and believes this has some chance of success. While the end result would be negative, she said, it would not be “apocalyptic”. Shortages of lorry drivers, farm labourers and abattoir workers have showed up teething problems in the ending of free movement of labour. However, economists have been surprised by the smooth introduction of a new visa regime to stem the losses. Jonathan Portes, professor at King’s College London, said there was no surprise that there had been a “very large fall in EU immigration” because anyone who had wanted to come to the UK would have done so before visas were required in 2021. “We’ve seen skilled work visas are substantially up on the pre-pandemic period and, in particular, the health and care visas have seen a huge take up,” he said. “There has been a swift reorientation for the NHS from EU workers to non-EU.” “I didn’t think the Home Office would be able to deliver a new system,” he added. Economists have stressed that data comparisons are still highly uncertain.New imports rules being implemented in the first half of 2022 threatened to add more friction, said Springford, but commitments from HM Revenue & Customs to prioritise trade flow over controls implied there will be only a minimal additional negative effect. “HMRC will change the procedures if the new rules are creating a lot of problems at the border,” he predicted. Kristalina Georgieva, managing director of the IMF, summed up the UK position in mid-December. While acknowledging specific problems clouding the medium-term outlook, she said “we are in no position today, yet, to identify to what extent this is due to the pandemic and what role Brexit may play in it”.The OECD warned in December that Britain’s relationship with the EU was important for its economic prospects. “A worsening trade relationship with the European Union could also weigh on the economic outlook in the medium term,” it said.The advice from the outside, therefore, is that Brexit has done some harm to UK living standards and all efforts should be made to patch up its relationship with the EU to minimise further damage. More

The IMF has admitted its biggest-ever bailout, a $57bn loan to Argentina in 2018, was part of an economic programme which was “too fragile” to deal with the country’s deep-seated problems and could have benefited from capital controls and a restructuring of private creditor debt.The IMF programme veered off track after barely a year and was cancelled by the incoming Peronist government of President Alberto Fernández in July 2020 after $44bn had been disbursed.The Peronists accused the Fund of financing capital flight and extending the loan as a political favour to the previous president, Mauricio Macri, in his unsuccessful bid for re-election.An internal IMF report by deputy director Odd Per Brekk published late on Wednesday said the Fund had accepted over-optimistic government projections when agreeing the programme. It described the Macri government’s structural reforms as “unaspiring” [sic] and fiscal consolidation as “low quality”.“Government ownership was given high priority and with that, potentially critical measures — notably a debt operation and reintroduction of capital flow management measures — were ruled out from the beginning,” the 132-page report said.“Ultimately, the programme’s strategy proved too fragile for the deep-seated structural challenges and the political realities of Argentina . . . as a result the programme did not succeed in improving confidence and delivering on its objectives.”The review, which is required by IMF procedures for all lending programmes above normal borrowing limits, said the fundamental problem with the Argentina bailout was “a lack of [investor] confidence in fiscal and external sustainability”.It recommended that future IMF programmes use more conservative macroeconomic assumptions, consider unconventional measures if necessary, sharpen the assessment of whether a country has access to capital markets and consider burden-sharing in bigger loan programmes.“Being the largest creditor to a relatively large country is both exceptionally risky to the Fund and potentially self-defeating to the purpose of catalysing a return to market access,” the report concluded.

Argentina’s current economy minister Martín Guzmán, who is negotiating a new agreement with the IMF, described the report as “not sufficient, but a step forward”. “The Fund has recognised that the [bailout] money was used to pay debt which was unsustainable to private creditors,” he said in television interviews. “It was basically a rescue for creditors who had come in to make a bet in 2016 and it was also used to finance the formation of assets abroad”.Nicolás Dujovne, Macri’s finance minister who negotiated the IMF deal at a time when Christine Lagarde was running the Fund, launched a series of tweets after the Fund published its report to explain the programme. “The agreement with the IMF came during an exceptional period due to drought, the rise in interest rates in the US and the high deficit we inherited,” he wrote. “It had the support of all the IMF member countries.” More

The delay marks a major snag in the so-called European Payments Initiative (EPI), which aims to become a new standard means of payment by offering a card for consumers and retailers across Europe.A majority of the shareholders in Belgium, Germany and France want to move ahead with the project, EPI Interim Company said in a statement on its website.”Other shareholders, such as some Spanish banks, will provide their answer in January,” it said.Holdouts include Germany’s Commerzbank (DE:CBKG) and DZ Bank, people with knowledge of the matter told Reuters. The two lenders are currently planning to exit the project on concerns over a relatively high cost of equity participation for German banks, the sources said. Unicredit (MI:CRDI)’s German operations are also no longer planning to participate but will examine any future proposals, a spokesperson said.Last month, the venture appealed for public money appealed on Tuesday for public money, saying its private backers were not prepared to stump up all the cash needed, saying private backers were not prepared to stump up all the cash needed. Deutsche Bank (DE:DBKGn) and BNP Paribas (OTC:BNPQY) have been among the banks backing the project. More