Economy

Next year could see increasing volatility as persistent military conflicts and economic uncertainty influence voting in national elections across the globe.The attacks on crucial shipping traffic in the Red Sea straits by a determined band of militants in Yemen — a spillover from the Israeli-Hamas war in Gaza — is injecting a new dose of instability into a world economy already struggling with mounting geopolitical tensions.The risk of escalating conflict in the Middle East is the latest in a string of unpredictable crises, including the Covid-19 pandemic and the war in Ukraine, that have landed like swipes of a bear claw on the global economy, smacking it off course and leaving scars.As if that weren’t enough, more volatility lies ahead in the form of a wave of national elections whose repercussions could be deep and long. More than two billion people in roughly 50 countries, including India, Indonesia, Mexico, South Africa, the United States and the 27 nations of the European Parliament, will head to the polls. Altogether, participants in 2024’s elections olympiad account for 60 percent of the world’s economic output.In robust democracies, elections are taking place as mistrust in government is rising, electorates are bitterly divided and there is a profound and abiding anxiety over economic prospects.A ship crossing the Suez Canal toward the Red Sea. Attacks on the Red Sea have pushed up freight and insurance rates.Mohamed Hossam/EPA, via ShutterstockA billboard promoting presidential elections in Russia, which will take place in March.Dmitri Lovetsky/Associated PressEven in countries where elections are neither free nor fair, leaders are sensitive to the economy’s health. President Vladimir V. Putin’s decision this fall to require exporters to convert foreign currency into rubles was probably done with an eye on propping up the ruble and tamping down prices in the run-up to Russia’s presidential elections in March.The winners will determine crucial policy decisions affecting factory subsidies, tax breaks, technology transfers, the development of artificial intelligence, regulatory controls, trade barriers, investments, debt relief and the energy transition.A rash of electoral victories that carry angry populists into power could push governments toward tighter control of trade, foreign investment and immigration. Such policies, said Diane Coyle, a professor of public policy at the University of Cambridge, could tip the global economy into “a very different world than the one that we have been used to.”In many places, skepticism about globalization has been fueled by stagnant incomes, declining standards of living and growing inequality. Nonetheless, Ms. Coyle said, “a world of shrinking trade is a world of shrinking income.”And that raises the possibility of a “vicious cycle,” because the election of right-wing nationalists is likely to further weaken global growth and bruise economic fortunes, she warned.A campaign rally for former President Donald J. Trump in New Hampshire in December.Doug Mills/The New York TimesA line of migrants on their way to a Border Patrol processing center at the U.S.-Mexico border. Immigration will be a hot topic in upcoming elections.Rebecca Noble for The New York TimesMany economists have compared recent economic events to those of the 1970s, but the decade that Ms. Coyle said came to mind was the 1930s, when political upheavals and financial imbalances “played out into populism and declining trade and then extreme politics.”The biggest election next year is in India. Currently the world’s fastest-growing economy, it is jockeying to compete with China as the world’s manufacturing hub. Taiwan’s presidential election in January has the potential to ratchet up tensions between the United States and China. In Mexico, the vote will affect the government’s approach to energy and foreign investment. And a new president in Indonesia could shift policies on critical minerals like nickel.The U.S. presidential election, of course, will be the most significant by far for the world economy. The approaching contest is already affecting decision-making. Last week, Washington and Brussels agreed to suspend tariffs on European steel and aluminum and on American whiskey and motorcycles until after the election.The deal enables President Biden to appear to take a tough stance on trade deals as he battles for votes. Former President Donald J. Trump, the likely Republican candidate, has championed protectionist trade policies and proposed slapping a 10 percent tariff on all goods coming into the United States — a combative move that would inevitably lead other countries to retaliate.Mr. Trump, who has echoed authoritarian leaders, has also indicated that he would step back from America’s partnership with Europe, withdraw support for Ukraine and pursue a more confrontational stance toward China.Workers on a car assembly line in Hefei, China. Beijing has provided enormous incentives for electric vehicles.Qilai Shen for The New York TimesA shipyard in India, which is jockeying to compete with China as the world’s largest manufacturing hub.Atul Loke for The New York Times“The outcome of the elections could lead to far-reaching shifts in domestic and foreign policy issues, including on climate change, regulations and global alliances,” the consulting firm EY-Parthenon concluded in a recent report.Next year’s global economic outlook so far is mixed. Growth in most corners of the world remains slow, and dozens of developing countries are in danger of defaulting on their sovereign debts. On the positive side of the ledger, the rapid fall in inflation is nudging central bankers to reduce interest rates or at least halt their rise. Reduced borrowing costs are generally a spur to investment and home buying.As the world continues to fracture into uneasy alliances and rival blocs, security concerns are likely to loom even larger in economic decisions than they have so far.China, India and Turkey stepped up to buy Russian oil, gas and coal after Europe sharply reduced its purchases in the wake of Moscow’s invasion of Ukraine. At the same time, tensions between China and the United States spurred Washington to respond to years of strong-handed industrial support from Beijing by providing enormous incentives for electric vehicles, semiconductors and other items deemed essential for national security.A protest in Yemen on Friday against the operation to safeguard trade and protect ships in the Red Sea.Osamah Yahya/EPA, via ShutterstockThe drone and missile attacks in the Red Sea by Iranian-backed Houthi militia are a further sign of increasing fragmentation.In the last couple of months, there has been a rise in smaller players like Yemen, Hamas, Azerbaijan and Venezuela that are seeking to change the status quo, said Courtney Rickert McCaffrey, a geopolitical analyst at EY-Parthenon and an author of the recent report.“Even if these conflicts are smaller, they can still affect global supply chains in unexpected ways,” she said. “Geopolitical power is becoming more dispersed,” and that increases volatility.The Houthi assaults on vessels from around the world in the Bab-el-Mandeb strait — the aptly named Gate of Grief — on the southern end of the Red Sea have pushed up freight and insurance rates and oil prices while diverting marine traffic to a much longer and costlier route around Africa.Last week, the United States said it would expand a military coalition to ensure the safety of ships passing through this commercial pathway, through which 12 percent of global trade passes. It is the biggest rerouting of worldwide trade since Russia’s invasion of Ukraine in February 2022.Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said the impact of the attacks had so far been limited. “From an economic perspective, we’re not seeing huge increase in oil and gas prices,” Mr. Vistesen said, although he acknowledged that the Red Sea assaults were the “most obvious near-term flashpoint.”Uncertainty does have a dampening effect on the economy, though. Businesses tend to adopt a wait-and-see attitude when it comes to investment, expansions and hiring.“Continuing volatility in geopolitical and geoeconomic relations between major economies is the biggest concern for chief risk officers in both the public and private sectors,” a midyear survey by the World Economic Forum found.With persistent military conflicts, increasing bouts of extreme weather and a slew of major elections ahead, it’s likely that 2024 will bring more of the same. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Rich countries are using the green transition as an excuse to boost their own economies at the expense of developing ones, exploiting outdated World Trade Organization rules, according to the UN’s trade chief. “Many trade rules forbid policies that can be used by developing countries. And the developed countries have more fiscal space to subsidise in the areas that are good for ‘quote, unquote’, the environment,” Rebeca Grynspan, secretary-general of United Nations Conference on Trade and Development, told the Financial Times in an interview. She said the international trading system, which had allowed states such as South Korea and her native Costa Rica to progress, was no longer working for the poorest. “Trade and investment have been the two pillars for developing countries to really go on to a path of dynamic growth. And now it will be as important for dynamic, sustainable growth,” she said.But they now face two big problems, locked out of markets by the fast pace of technological change and new barriers in rich countries. “The least digitally prepared countries are falling farther behind in digital,” said Grynspan.“The other problem is that industrial policy is back, but especially in the most developed countries. And so that could affect developing countries’ ability to compete.”The US has enacted the landmark Inflation Reduction Act with $369bn of subsidies and tax breaks for domestically produced goods such as electric vehicles. The EU has responded in kind with increased subsidies and policies to stimulate production of silicon chips, critical minerals and green technology. “Developing countries see a lot of these policies as protectionist. They don’t have the fiscal space to go the path of subsidies, so they have to go the path of restrictions to trade or even duties or taxes,” she said. Grynspan attacked the EU for taking Indonesia to the WTO over its restrictions on nickel exports and requirement to process the ore locally.She said Jakarta wanted to move up the value chain by making products from the nickel. “They don’t want it to be exported in the raw form, but with value added. So they were taken to arbitration in the WTO. They lost in the first instance precisely because global trade rules have not been adjusted,” she said.  She said that the Agreement on Trade-Related Investment Measures should be reformed. Jakarta has appealed but because the US has blocked the formation of a WTO appellate body, the case has stalled. The EU is considering taking enforcement actions such as tariffs on Indonesian goods.  It makes for a “chaotic system” where richer, bigger countries have more power.She also attacked the EU’s new green rules banning imports from deforested land as too punitive. “If you only punish the population and don’t help them have a sustainable income from a sustainable forest . . . what is the way forward?”Brussels’s tax on imports of steel, cement and other carbon intensive products, the carbon border adjustment mechanism, was also iniquitous because it was based on developing countries paying the same carbon price as EU ones, she said. Under the Paris Agreement of 2015 to cut greenhouse gas emissions, countries that had historically emitted more agreed to bear a bigger burden of the costs than developing nations. “The whole issue of common but differentiated responsibility has been marginalised,” said Grynspan. “Paris is not a restaurant menu that you can choose from. That was an integral part of the deal.”  More

Milei, who took office in early December, sent the decree to the legislative body late on Friday for bills to be discussed from Dec. 26 to Jan. 31. Congress is in recess, with sessions next scheduled for March.Earlier this week, Milei proposed more than 300 measures to deregulate the South American country’s economy, including eliminating price controls and bureaucracy to help promote industrial activity.Milei, a libertarian economist who entered politics about four years ago, has said he wants to drastically reduce the size of the government, eliminate the fiscal deficit and devaluate the battered local currency.Argentina is mired in a prolonged economic crisis with triple-digit inflation, negative reserves, a rapidly depreciating peso currency, and over 40% of the population living in poverty. More

The Central Bank of Nigeria (CBN) in Feb. 2021 barred banks and financial institutions from dealing in or facilitating transactions in crypto assets, citing money laundering and terrorism financing risks.Subsequently Nigeria’s Securities and Exchange Commission (SEC) in May last year published regulations for digital assets that signalled Africa’s most populous country was trying to find a middle ground between an outright ban on crypto assets and their unregulated use.In a circular dated Dec. 22, the CBN said current trends globally have shown there is a need to regulate the activities of virtual asset service providers (VASPs), which include cryptocurrencies and crypto assets.The latest guidelines spell out how banks and financial institutions (FI) should open accounts, provide designated settlement accounts and settlement services and act as channels for forex inflows and trade for firms transacting in crypto assets.VASPs would need to be licensed by the Nigerian SEC to engage in the crypto business.”From the commencement of these Regulations, Fl shall not open or permit the operation of any account by any person or entity to conduct the business of virtual/digital assets unless that account is designated for that purpose and opened in line with the requirement of these Guidelines,” the CBN saidBut banks were still barred from trading, holding or transacting cryptocurrencies, the CBN said.Nigeria’s young, tech-savvy population has eagerly adopted cryptocurrencies, for example using peer-to-peer trading offered by crypto exchanges to avoid the financial sector. New York-based blockchain research firm Chainalysis said in a September report that the volume of crypto transactions in Nigeria grew 9% year-over-year to $56.7 billion between July 2022 and June 2023. More

Javier Milei warned that things would get worse before they got better. Now Argentines are living it.Over the past two weeks, the owner of a hip wine bar in Buenos Aires saw the price of beef soar 73 percent, while the zucchini he puts in salads rose 140 percent. An Uber driver paid 60 percent more to fill her tank. And a father said he spent twice as much on diapers for his toddler than he did last month.In Argentina, a country synonymous with galloping inflation, people are used to paying more for just about everything. But under the country’s new president, life is quickly becoming even more painful.When Javier Milei was elected president on Nov. 19, the country was already suffering under the world’s third-highest rate of inflation, with prices up 160 percent from a year before.But since Mr. Milei took office on Dec. 10 and quickly devalued the Argentine currency, prices have soared at such a dizzying pace that many in this South American country of 46 million are running new calculations on how their businesses or households can survive the far deeper economic crunch the country is already enduring.“Since Milei won, we’ve been worried all the time,” said Fernando González Galli, 36, a high school philosophy teacher in Buenos Aires.Mr. Galli has been trying to cut back without making life worse for his two daughters, who are 6 years and 18 months old, including switching to a cheaper brand of diapers and racing to spend his Argentine pesos before their value disintegrates even further. “As soon as I get my paycheck, I go buy everything I can,” he said.Since Javier Milei took office on Dec. 10 and quickly devalued the Argentine currency, prices have risen at a dizzying pace.Emiliano Lasalvia/Agence France-Presse — Getty ImagesNahuel Carbajo, 37, an owner of Naranjo Bar, a trendy Buenos Aires wine bar, said that like most Argentines, he had become accustomed to regular price increases, but this past week went far beyond what even he was used to.Since Mr. Milei won, the price for the premium steak that Mr. Carbajo serves soared 73 percent, to 14,580 pesos, or roughly $18, per kilogram, about 2.2 pounds; a five-kilogram box of zucchinis rose to 15,600 pesos from 6,500; and avocados cost 51 percent more than the beginning of this month.“There’s no way for salaries or people’s incomes to adapt at that speed,” Mr. Carbajo said.Mr. Milei’s spokesman, Manuel Adorni, said accelerating inflation was the inevitable consequence of finally fixing Argentina’s distorted economy.“We’ve been left with a multitude of problems and unresolved issues that we have to start addressing,” he said. “Inevitably, we will go through months of high inflation.”Mr. Milei has warned Argentines that his plans to shrink the government and remake the economy would hurt at first. “I prefer to tell you the uncomfortable truth rather than a comfortable lie,” he said in his inaugural address, adding this past week that he wanted to end the country’s “model of decline.”Argentina’s economy has been mired in crisis for years, with chronic inflation, rising poverty and a currency that has plunged in value. The economic turmoil paved the way to the presidency for Mr. Milei, a political outsider who had spent years as an economist and television pundit railing against what he called corrupt politicians who had destroyed the economy, often for personal gain.During the campaign, he vowed to take a chain saw to public spending and regulations, even wielding an actual chain saw at rallies.After Mr. Milei’s victory, price increases began accelerating in expectation of his new policies.Buying fruit and vegetables in Buenos Aires. Argentines suffer under the world’s third highest rate of inflation.Tomas Cuesta/ReutersThe previous leftist government had used complicated currency controls, consumer subsidies and other measures to inflate the peso’s official value and keep several key prices artificially low, including gas, transportation and electricity.Mr. Milei vowed to undo all that, and he has wasted little time.Two days after taking office, Mr. Milei began cutting government spending, including consumer subsidies. He also devalued the peso by 54 percent, putting the government’s exchange rate much closer to the market’s valuation of the peso.Economists said such measures were necessary to fix Argentina’s long-term financial problems. But they also brought short-term pain in the form of even faster inflation. Some analysts questioned the lack of adequate safety nets for the poorest Argentines.In November, prices rose 13 percent from October, according to government data. Analysts predict prices will increase another 25 percent to 30 percent this month. And from now until February, some economists are forecasting an 80 percent jump, according to Santiago Manoukian, the chief economist at Ecolatina, an economics consulting firm.The forecasts are partly caused by soaring gas prices, which increased 60 percent from Dec. 7 to Dec. 13, and have a trickle-down effect on the economy.The currency devaluation made imported products like coffee, electronic devices and gas immediately more expensive because they are priced in U.S. dollars. A monthly Netflix subscription in Argentina jumped 60 percent to 6,676 pesos, or $8.30, the day after the devaluation, for example. It also prompted some domestic producers, including farmers and cattle ranchers, to increase prices to align them with their own rising costs.With the chronic high inflation, labor unions often negotiate large raises to try to keep up, yet those wage increases are quickly eaten up by sharp price hikes. Informal workers, a list that includes nannies and street vendors, and who make up nearly half of the economy, also do not get such raises.Outside a clothing store this month in Buenos Aires. In November, prices rose 13 percent from October, and analysts predict that prices will increase another 25 percent to 30 percent this month.Luis Robayo/Agence France-Presse — Getty ImagesOn Wednesday, Mr. Milei launched his next big steps to remake the government and economy with an emergency decree that significantly reduces the state’s role in the economy and eliminates a raft of regulations.The measure prohibits the state from regulating the rental real estate market and setting limits on fees that banks and health insurers can charge customers; changes labor laws to make it easier to fire workers while also placing limits on strikes; and turns state companies into corporations so they can be privatized.Many legal analysts immediately questioned the decree’s constitutionality, saying that Mr. Milei was trying to subvert Congress.After the speech, people across Buenos Aires, like Jesusa Orfelia Peralta, 73, a retiree, took to the streets banging on pots to show their displeasure.She worried that price increases would make proper health care too expensive for her and her husband. Despite severe spinal problems, she said she did not hesitate to head out, using a walker, and vent her anger in public. “Where else would I be?” she said.A protest on Wednesday in Buenos Aires against Mr. Milei’s austerity measures.Luis Robayo/Agence France-Presse — Getty ImagesMr. Milei has sought to discourage protests by threatening to cancel welfare plans and fine anyone involved in demonstrations that block roads. Human rights groups have widely criticized such policies as restricting the right to peacefully protest.For now, most Argentines are trying to figure out how to make ends meet in what often feels like both a complicated course in economics and a frenzied sprint to buy before prices rise again.“I always say that we are at university, and every day we sit for a difficult exam, every five minutes,” Roberto Nicolás Ormeño, an owner of El Gauchito, a small empanada shop in downtown Buenos Aires.Mr. Ormeño said he had been scouring the market for his ingredients and changing suppliers almost every week, either because they increase prices too much or provide poorer quality products.He is trying to avoid passing along too much of his price increases to customers, though he is unsure how long he can sustain that. “I see my frequent customers buying one dozen instead of two” dozen empanadas, he said.Marisol del Valle Cardozo, who has a 3-year-old daughter, has been cutting back in a bid to make ends meet, turning to cheaper brands and going out less. “We don’t turn the air-conditioning on as much,” she said. “We decreased our plans on weekends from four times a month to just once.”Ms. Cardozo, who works for a police department outside Buenos Aires, said that she got a raise this year, but that it is already not enough. She also drives an Uber, but said that fare increases had not kept up with the soaring gas prices.Despite the challenges, Ms. Cardozo said she remained a Milei supporter and was hoping his policies work.“We were living under a fantasy,” she said, referring to gas prices before the recent hike. “If these adjustments are necessary to thrive in the end, they’re worth it.”Protesters in front of the National Congress on Thursday in Buenos Aires.Luis Robayo/Agence France-Presse — Getty ImagesJack Nicas More

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With the latest tranche, China has now earmarked more than 800 billion yuan of its 1 trillion yuan ($140 billion) in additional government bond issuance in the fourth quarter, as it focuses on fiscal steps to shore up the flagging economy.The National Development and Reform Commission (NDRC) said in a statement on Saturday it had identified 9,600 projects with planned investment of more than 560 billion yuan.China’s economy, the world’s second largest, is struggling to regain its footing post-COVID-19 as policymakers grapple with tepid consumer demand, weak exports, falling foreign investment and a deepening real estate crisis.The 1 trillion yuan in additional bond issuance will widen China’s 2023 budget deficit ratio to around 3.8 percent from 3 percent, the state-run Xinhua news agency has said.”Construction of the projects will improve China’s flood control system, emergency response mechanism and disaster relief capabilities, and better protect people’s lives and property, so it is very significant,” the NDRC said.The agency said it will coordinate with other government bodies to make sure that funds are allocated speedily for investment and that high standards of quality are maintained in project construction.($1 = 7.1315 Chinese yuan renminbi) More

The terms, valuation and timing of the funding round have not yet been finalized and could still change, the report said.OpenAI has also held discussions to raise funding for a new chip venture with Abu Dhabi-based G42, according to the report.It is unclear if the chip venture and wider company funding were related, the report said, adding that OpenAI has discussed raising between $8 billion and $10 billion from G42.OpenAI is set to complete a separate tender offer led by Thrive Capital in early January, which would allow employees to sell shares at a valuation of $86 billion, according to the report.Microsoft (NASDAQ:MSFT) has committed to invest over $10 billion in OpenAI, which kicked off the generative artificial intelligence craze in November 2022 by releasing ChatGPT. Microsoft said it had nothing to share when contacted by Reuters. OpenAI did not respond to a Reuters request for comment. ChatGPT, a chatbot which can generate human-like responses based on user prompts, has helped AI’s popularity and fueled a meteoric rise in the valuation of San Francisco-based OpenAI. The company has previously made a $300 million share sale at a valuation of $30 billion.In late November, OpenAI CEO Sam Altman said Microsoft would take a non-voting, observer position on the company’s board.OpenAI had ousted Altman on Nov. 17 without any detailed cause, setting off alarm bells among investors and employees. He was reinstated four days later with the promise of a new board. More