Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.This article is an on-site version of our Trade Secrets newsletter. Sign up here to get the newsletter sent straight to your inbox every MondayIt’s a couple of weeks now until the WTO ministerial meeting in the United Arab Emirates (Abu Dhabi, to be precise). The mood among delegates is currently sober, bordering on sombre, bordering on sepulchral. This good rundown of the issues with an appropriately dark tinge, published by the Hinrich Foundation think-tank, comes from Keith Rockwell, legendary former WTO spokesperson and comms director. Today we chat to Thani bin Ahmed Al Zeyoudi, the UAE minister of state for trade, who has the unenviable task of compèring proceedings and trying to get stuff done. Charted waters is on EU agriculture and climate change.Get in touch. Email me at [email protected] ambitions make senseIt’s an interesting time to be gathering the world’s trade ministers in the Middle East. The continued blockage of the Red Sea and Suez Canal by the Iran-backed Houthi rebels is a pretty graphic illustration of how supply chains can be interrupted.UAE is trying to portray itself as what Zeyoudi calls a “natural mediator”, having also hosted the World Expo in 2021-22 and the COP climate change meeting late last year, the latter somewhat overshadowed by allegations that the meeting was being used to strike fossil fuel deals. On that front, UAE has a somewhat better story to tell on trade, having successfully made itself into a data and digital hub to diversify from hydrocarbon exports.Zeyoudi predictably doesn’t think the precarious political and military situation in the Red Sea will overshadow the ministerial, noting reasonably enough that the previous meeting in 2022 came a few months after the Russia-Ukraine conflict and yet managed to get a few things done. His definition of success for the conference, though, is realistically modest: “A successful ministerial meeting is one where we’re going to bring back trust to the organisation.” For example, one of the conclusions of the previous ministerial in 2022 was the aim of having a “fully and well-functioning dispute settlement system accessible to all members by 2024”, which will presumably mean undoing the US block on the system’s appellate body. But that’s clearly not going to happen this early in 2024. Zeyoudi says that a road map for future reform of dispute settlement would count as a success.: “It’s a very long process . . . but we’re going to draw timelines with the steps we should be taking.” Maintaining trust in the system by keeping it going, coming up with road maps: these are modest outcomes. But as Zeyoudi points out, businesses themselves have adapted to a variety of shocks, from previous blockages in the Suez Canal to the Covid-19 pandemic, and have adjusted their supply chains. The situation in the Red Sea is just another problem. “This is the beauty of life,” he says. “It’s full of challenges and we have to be more and more resilient.” Hoping the WTO can advance policy at the meeting, but having companies and businesses be prepared to absorb shocks in any case, is a realistic conclusion, if not a spectacular one.The missing champions of the multilateral However energetic the leadership of the WTO itself is, and however many good blue-sky ideas are proposed to improve its functioning, it remains the case that it needs the member countries to keep the world trading system going.This doesn’t just mean being active in the WTO, either. Moan about US intransigence in the organisation all you want (I have and I will), but it’s principally the Americans making serious efforts to resist the Houthis’ attacks in the Red Sea. It looks quite bad for the Middle Eastern countries to talk about their role in catalysing trade but then not even contribute meaningfully, even when the blockage materially affects countries in the region such as Egypt, Yemen and Sudan. (I put this to Zeyoudi: he said that all governments were contributing to peace in their own way.)The US hobbling of the WTO dispute settlement system, an impasse now entering its fifth year, will continue at least until November’s presidential election. But the malcontent-in-chief by a long way is India, often backed by South Africa. New Delhi is still the holdout in a bunch of issues, some of which I’ll discuss between now and the ministerial (fisheries subsidies, agriculture, the very idea of plurilateral agreements and indeed the whole principle of holding environmental negotiations at the WTO). Partly, it seems, multilateral intransigence plays well at home, even if Narendra Modi’s government is simultaneously sneaking through a bit of preferential liberalisation, and partly as leverage over issues it does care about.Of the other big powers, China enjoys being ostentatiously active in WTO discussions because it gets to look all multilateral without actually having to make any concessions. The EU does have a more genuine commitment to the process, but in the absence of anything meaningful happening on issues such as the environment is pressing ahead with its own measures including the carbon border adjustment mechanism. Some smaller countries such as Australia are competent and active, but don’t have the heft to get the show moving on their own. The UK is discovering that being a leader in the WTO is a lot harder than the Brexiters promised.Until the big powers decide collectively to unstick the WTO, it will stay largely stuck. It’s as simple as that.Charted watersThe farmers’ protests across the EU have resulted in environmental targets being watered down (see story in Trade links below), but the measures that were being contemplated wouldn’t have reduced emissions in agriculture that much.Trade linksTaking a short break from lecturing the rest of the world about green policy and using trade deals to enforce it, the European Commission is backing off from environmental targets for agriculture because farmers are complaining.As the South China Morning Post reports, the EU member states are also divided about how tough to get with China. NOBODY COULD HAVE PREDICTED THIS.Investors expect China to export more deflation to the world in 2024.The New York Fed’s index of supply chain pressure has returned to its pre-pandemic range for both December and January, after the huge upward surge in 2021 and 2022 was followed by a slump below the long-run average during most of last year.Deforestation in the Amazon may be causing the Panama Canal to dry up, threatening one of the world’s big chokepoints for goods trade.My FT colleague Martin Sandbu interviews Enrico Letta, the former Italian prime minister tasked with producing plans to protect and extend the EU single market.Trade Secrets is edited by Jonathan MoulesRecommended newsletters for youBritain after Brexit — Keep up to date with the latest developments as the UK economy adjusts to life outside the EU. Sign up hereFree Lunch — Your guide to the global economic policy debate. Sign up here More

(Reuters) – North American companies ordered about a third fewer robots last year as worries about a slowing economy and higher interest rates made it harder to justify buying the advanced machines, the first hiccup in five years in what has been a steady progression of the robot invasion of the region’s workforce.”When the economy isn’t great, it’s easier to delay purchases,” said Jeff Burnstein, president of the Association for Advancing Automation, an industry group that tracks robot orders.Companies bought 31,159 robots in 2023, a decrease of 30% over the year before, the largest drop in percentage terms since 2006 and largest drop ever in net units, according to the group, known as A3. The pullback occurred in automotive-related industries – which made up about half of the market last year – as well as other sectors such as food and metals manufacturing.Orders in the fourth quarter hit 7,683, an 8% drop from the same period a year earlier.Slowing robot orders came even as some companies announced initiatives to develop more advanced versions of the machines. Robotics startup Figure said last month it forged a partnership with Germany’s BMW (ETR:BMWG) to deploy humanoid robots in the carmaker’s South Carolina factory to take on certain physical tasks. Electric-vehicle maker Tesla (NASDAQ:TSLA) also has a humanoid robot in development.But for many robot makers, selling existing machines has been hampered by worries about a softening economy and the excess inventories built up during the COVID-19 pandemic. Universal Robots, a Danish maker of small, flexible robots, recently reported its revenue fell 7% last year, to $304 million.Universal’s president, Kim Povlsen, told investors: “2023 was characterized by a difficult economic and business environment for many of our core customers with global industrial activity slowing in the first half of the year.”COMING OFF A RECORD YEAR Robot sales boomed during the COVID-19 pandemic – as producers scrambled to use the machines to churn out goods amid a dire labor shortage. Indeed, 2022 marked a record year for orders, according to A3’s data.To be sure, robots are just one type of equipment companies need, and other gauges of spending have held up better in the U.S. Orders for non-defense capital goods excluding aircraft – a measure closely watched by economists to track trends in business spending – rose 1.7% last year, according to the Commerce Department, suggesting that investments in more basic types of equipment remained close to steady as the economy defied expectations of a sharper slowdown.Dave Fox, president of CIM Systems Inc, a Noblesville, Indiana, company known as an integrator that assembles robotic systems for customers, said his business started off strong last year but then slumped.”Several big projects got pushed into this year,” said Fox. “There were definitely a few customers who brought up their concern about where the economy is headed. And interest rates probably didn’t help.” Fox estimates his business volume fell 30% in 2023, compared with the year before. Fox said some customers who delayed orders are now asking for updated quotes, which is a good sign for business in the months ahead. But he said it is too early to say whether business will return to lofty pandemic levels. A3’s Burnstein said most robot producers he speaks with are optimistic that business will pick up during the second half of this year.Burnstein said the industry has largely worked its way through the distortions caused by the pandemic.During the crisis, many companies put in extra orders for robots because they worried about receiving deliveries amid production delays and a breakdown in global supply chains. “There’s still this feeling that companies were buying in advance of their needs (in 2022),” said Burnstein, “so a lot of companies now have inventory to work through before they order a lot of new robots again.”Joe Gemma, chief revenue officer of Wauseon Machine, a systems integrator in Ohio, agreed there was an inventory glut that distorted the business.”A lot of us were ordering extra inventory,” he said. “Our customers were too.”Gemma said an ongoing shortage of labor in the U.S. means the robot business will continue to thrive. “I was at a plant recently that normally has 600 people working in production – and they have 140 open positions,” he said. “Almost every place we go, there’s still a workforce challenge.” More

NEW DELHI (Reuters) -India’s retail inflation rate touched a three-month low of 5.10% in January as prices of some food items rose more slowly, data showed on Monday, although the central bank is expected to wait before cutting rates as inflation remains above its target rate.Annual retail inflation eased in January from 5.69% in December, government data showed, and was in line with a 5.09% forecast by a Reuters poll of 44 economists.Last week, Reserve Bank of India (RBI) left interest rates unchanged, signalling that cuts may be some time away as it focuses on getting inflation to 4% on a sustainable basis.Food inflation, which accounts for nearly half of the overall consumer price basket, rose 8.30% in January, compared with a 9.53% rise in December.Prices of cereals rose 7.83% year-on-year in January compared to 9.93% in the previous month, while vegetable prices rose 27.03% compared to 27.64% in December, the data showed.”CPI inflation came in slightly softer than our expectations,” said Upasna Bhardwaj, chief economist at Mumbai-based Kotak Mahindra Bank.But uncertainties about food inflation are likely to keep the central bank “cautious in the near term”, she said.The central bank forecasts retail inflation at an average of 5.4% in the current fiscal year ending in March, and at 4.5% for the next fiscal year.Core inflation, which strips out volatile food and energy prices, is estimated at 3.6% in January, compared with 3.8%-3.89% in December, according to two economists.”Housing inflation remains weaker than expected, despite strong urban demand,” said Gaura Sen Gupta, economist at IDFC First Bank (NASDAQ:FRBA).The Indian government does not release core inflation figures.Core inflation has fallen despite strong growth in the economy.India posted faster-than-expected economic growth of 7.6% in the July-September quarter compared to a year earlier, after growing 7.8% in the previous quarter. The government forecasts annual growth of 7.3% in the fiscal year ending in March.VOLATILE FOOD PRICESFood price shocks have been the main driver of inflation in the past year, due to climate vagaries and supply shocks due to geopolitical tensions.Last week, the RBI said large and repetitive food price shocks were interrupting the pace of disinflation. India lowered the stock limit of wheat that traders can hold to increase the grain’s availability and moderate prices. It has banned exports of wheat, some grades of rice and onions to contain inflation.Some economists expect moderating food prices could help ease pressure on retail inflation. “Price pressures are easing in earnest, and we think rate cuts will come onto the agenda in the second half of the year,” Shilan Shah, deputy chief emerging markets economist at Capital Economics, said. More

The central bank is widely expected to keep interest rates on hold at 16% at its rate-setting meeting on Feb. 16, after hiking rates by 850 basis points since July in the face of stubborn inflation pressure from labour shortages, rouble weakness and high budget spending.”Of course, special attention should be paid to inflation, its containment,” Putin said in a televised meeting at which Central Bank Governor Elvira Nabiullina also appeared following a weeks-long, unexplained public absence.Putin noted the central bank and government’s actions when pointing out that inflation was now trending lower. He said annual inflation in January was 7.2%, down from 7.4% at the end of 2023.Russia’s economy rebounded sharply from a slump in 2022, annual data showed on Wednesday, but the growth relies heavily on state-funded arms and ammunition production and masks problems that are hampering an improvement in Russians’ living standards. More

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MEXICO CITY (Reuters) – The bumper reforms package Mexico’s president stitched together in the dying days of his presidency may fizzle in the legislature but it points to his desire to build a legacy and mould the political agenda of his handpicked successor. Making no secret that the package is an attempt to influence the debate before the June 2 poll his protégé Claudia Sheinbaum is favored to win, President Andres Manuel Lopez Obrador has conceded it’s unlikely Congress would pass many of his proposed 18 constitutional and two legal reforms.Yet the breadth of the changes spanning generous pensions, above-inflation minimum wake hikes, election of judges by a popular vote and many other modifications may put the opposition on the defensive while leaving his stamp on the country, analysts say. “This legislative package seeks to consolidate his legacy by changing many of the institutions set up since the 1980s that he believes were designed to benefit special interests,” said Daniel Kerner, Eurasia’s managing director for Latin America. The package, which would hike pensions to cover 100% of final salaries of some employees, doubles up as an attempt to “shape” Sheinbaum’s policy program, Kerner added.Other key reforms envisage abolishing many autonomous and regulatory bodies which act as a check on presidential power and reducing the size of a Congress Lopez Obrador deems bloated.As the president’s ruling Morena party lacks a qualified majority in Congress necessary to change the constitution, it is likely to be down to Mexico City Mayor Sheinbaum to take the baton given her wide poll lead in the presidential race. Some opposition parties have already announced that they will only support a handful of the proposed changes – depriving Lopez Obrador of a chance to deepen what he terms Mexico’s “Fourth Transformation”, his national revival project.The most likely reforms to pass are the least contentious ones, including prohibiting animal abuse, establishing extra support for agricultural workers and an obligation to raise the minimum wage above inflation. Targeting Mexico’s vast income gap, Lopez Obrador’s administration has raised the minimum wage by double digits every year since he took office at the end of 2018. The policy has been one of Morena’s most popular given that roughly half of Mexicans earn the minimum wage. ‘INTERESTING COCKTAIL’Still, Lopez Obrador may have succeeded in putting the opposition in a bind. If they vote down popular reforms like his pension hike plan which critics slam as endangering fiscal stability and undermining investor confidence, they risk being perceived as a brake on prosperity, analysts say.And if Lopez Obrador’s administration rams through all, or some, of the proposals, it will be a triumph that signals to many the need to keep Morena in power.”Without a doubt the president has made an interesting cocktail with this decision: he dominates the media agenda, offers his candidates a popular electoral script and forces the opposition to define itself and puts them on the defensive,” said Antonio Ocaranza, analyst and one-time spokesman for ex-president Ernesto Zedillo.Lopez Obrador’s critics dismiss the reforms as an attempt to distract from his failures like rampant drug violence and a weak public healthcare system. His administration has also fallen short in addressing the country’s worsening water shortages.Yet Lopez Obrador’s populist package looks like a wining electoral strategy, Ocaranza said. “It has been a master move to dominate the conversation until election day,” he added.($1 = 17.0760 Mexican pesos) More

“We are very confident that the world economy is now poised for this soft landing we have been dreaming for,” after some of the sharpest interest rate hikes in decades, Georgieva said at the World Governments Summit in Dubai.On the prospect of interest rates being cut in leading economies like the United States, she added: “I expect to see by mid year interest rates going in the direction inflation has been going on for the last year.”She cautioned to expect the unexpected in the wake of the COVID-19 pandemic and said a prolonged war between Israel and Hamas would impact global economies.”I fear most a longevity of the conflict because (if) it goes on and on the risk of spillovers go up,” the IMF chief said. “Right now we see a risk of spillover from the Suez Canal,” she said referring to recent attacks on ships in the Red Sea. “But if there are other unintended consequences in terms of where the fighting goes, then it can become much more problematic for the world as a whole.” More

In late January, the International Monetary Fund more than doubled its forecast for the pace of Russia’s economic growth this year, raising it from 1.1% in October to 2.6%.
Russian defense spending has skyrocketed since the war began.
Russia’s current production and consumption patterns are “pretty much what the Soviet Union used to look like,” Georgieva said.

Kristalina Georgieva, managing director of the International Monetary Fund, at a press conference at the IMF Headquarters on April 14, 2023.
Kevin Dietsch | Getty Images News | Getty Images

The head of the International Monetary Fund warned the Russian economy is still facing significant headwinds despite receiving a recent growth upgrade by the Washington-based institution.
Russia’s economy has proven to be surprisingly resilient amid waves of Western sanctions in the nearly two years since it launched its full-scale invasion of Ukraine.

In late January, the International Monetary Fund more than doubled its forecast for the pace of the country’s economic growth this year, raising it from 1.1% in October to 2.6%.
Despite this, IMF Managing Director Kristalina Georgieva sees more trouble ahead for the country of roughly 145 million.
Speaking to CNBC’s Dan Murphy at the World Governments Summit in Dubai, Georgieva described what she believed was fueling Russia’s growth and why the forecast figure does not tell the full story.
“What it tells us is that this is a war economy in which the state — which let’s remember, had a very sizeable buffer, built over many years of fiscal discipline — is investing in this war economy. If you look at Russia, today, production goes up, [for the] military, [and] consumption goes down. And that is pretty much what the Soviet Union used to look like. High level of production, low level of consumption.”
Russian defense spending has skyrocketed since the war began. Last November, Russian President Vladimir Putin approved a state budget that increased military spending to roughly 30% of fiscal expenditure, amounting to a nearly 70% rise from 2023 to 2024.

Defense and security spending is expected to comprise some 40% of Russia’s total budget spending this year, according to analysis by Reuters.

At the same time, however, more than 800,000 people have left Russia, according to estimates by exiled academics compiled last October. Many among those who fled are highly skilled workers in fields like IT and sciences.
“I actually think that the Russian economy is in for very tough times because of the outflow of people, and because of the reduced access to technology that comes with the sanctions,” Georgieva said.
“So although this number looks like a good number, there is a bigger story behind that, and it’s not a very good story.” More