Economy

Today’s top storiesThe UK and the EU agreed a deal on post-Brexit trading rules for Northern Ireland. The British Chambers of Commerce welcomed the deal, dubbed the Windsor framework, but it is not yet clear whether it will be acceptable to Northern Ireland’s Democratic Unionist Party and hardline Tory Brexiters.Andrew Griffith, the UK’s City of London minister, raised concerns that reforms to stop consumers being ripped off by financial services companies could damage the sector and trigger spurious lawsuits.A US congressional panel focusing on threats from Beijing has begun its work, looking at the role of private equity, venture capital and Wall Street firms in China. Back in China, EY staff are being encouraged to wear Communist party badges to show their political loyalty.For up-to-the-minute news updates, visit our live blogGood evening.Don’t bet on interest rate cuts anytime soon. That was the message today from the Bank for International Settlements, which warned investors that borrowing costs needed to stay high to make sure inflation was brought to heel.The BIS — often referred to as “the central bankers’ bank” — highlighted the discrepancy, until recently, between investors’ beliefs that rates would stop rising this year and start falling next year and policymakers’ signals that “gave no indication that easing was on the horizon”. That message was given credence by higher than expected US inflation figures and strong jobs data. Today’s figures on durable goods orders, excluding transportation, were also better than expected.Investment expert Mohamed El-Erian, writing in the FT today, welcomed the growing acceptance that US inflation was “stickier” than many had presumed, but urged Congress to do more by enhancing Fed accountability and helping it improve its policy procedures.Recent data across the Atlantic has also been better than expected, ending expectations that the European Central Bank was similarly close to winning its battle with inflation. Investors are now betting that the ECB will raise interest rates to all-time highs as more evidence emerges of the eurozone’s resilience and signs that inflation could prove tougher to rein in than expected.The “reality check” has brought the global rally in bond markets to an end while US stocks have just suffered their biggest weekly fall in more than two months.Hyun Song Shin, the BIS’s head of research, said the lesson from the 1970s was that inflation could return if policymakers didn’t squeeze it out of the economy. “The reason central banks have been emphasising [the importance of] going the last mile on bringing inflation down is that, if you are not fully back to target and relax too early, you will undo all the work you have done before,” he said.Need to know: UK and Europe economyAnalysts are now forecasting a smaller contraction in UK output because of falling energy prices and better than expected business and consumer sentiment. The average GDP forecast for 2023 now shows a drop of 0.6 per cent, compared with previous estimates of 1 per cent.UK regulator Ofgem lowered the household price cap on energy bills, reflecting the significant decline in wholesale gas and electricity prices. The cap will fall from £4,279 to £3,280 from April. Wind farm developers are demanding UK tax breaks to offset the rising costs of turbines.Need to know: Global economyNew FT analysis delves into the battle of the Asia hubs: Hong Kong versus Singapore. Real estate prices, air traffic and other indicators suggest the Chinese territory has been losing ground. In Shanghai, China’s financial hub has begun to revive — but not to the outside world.

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Big US employers are reporting a strong improvement in hiring conditions despite unemployment being at its lowest level in decades.Six months into his tenure as Colombian president, Gustavo Petro has cast aside any notions of moderation, denouncing “neoliberalism” for causing war, Covid-19, hunger and the climate crisis and railing against businesspeople whom he said were plotting to frustrate his reforms. Mexican president Andrés Manuel López Obrador’s erratic and egocentric political style has now reached a truly dangerous stage, writes chief foreign affairs commentator Gideon Rachman, with a new law that will gut funding for the body which runs the country’s elections. If you’re a Brit looking for a good value holiday, try Egypt, where sterling is up 72 per cent year-on-year against the Egyptian pound. Tourist numbers have gradually recovered in the region after security concerns and the pandemic, with arrivals likely to be welcomed in an economy struggling with 26 per cent inflation.Need to know: businessAustralia’s Recharge Industries completed a deal to buy most of Britishvolt, the UK battery start-up that collapsed into administration last month after running out of cash. Recharge has been given until the end of next month to close a deal to buy the failed start-up’s site in Northumberland, according to two people close to the process.Associated British Foods, which owns the Primark clothing chain as well as assorted food brands, said profits this year would be bigger than expected as shoppers hunt for bargains.Woodside, Australia’s largest oil and gas group, said Europe and China held the keys for the energy market this year as it reported a trebling of profits. Australian companies including BHP, Rio Tinto as well as Woodside are seen as good indicators for global demand given the significance of the country’s mining and energy exports.Twitter chief Elon Musk axed more senior staff at the weekend as he continued his efforts to bring costs under control.Big Tech lay-offs are however music to the ears of Japanese conglomerate Hitachi, which is planning a hiring spree in the US to expand its digital services.Manchester United owners have put the football club up for sale with a potentially record-breaking target price of $6bn-$7bn. FT calculations however suggest the real value is around $1.6bn. Author Sachin Khajuria explores what private equity means for football.The World of WorkSome 2mn people in the UK are suffering from Long Covid, a strain of the disease in which symptoms persist for more than four weeks. Experts argue that employers need to offer more time and flexibility compared with other illnesses. Read more in our special report: Health at Work.A sharp rise in diagnoses of neurodiversity among adults means many more workers, including senior leaders, will need to consider the potential impact on their jobs — and their bosses may have to adapt.Lockdowns are over but many people are still working from home in what some economists have called “Long Social Distancing”. The reasons are three-fold, argues columnist Tim Harford: it works better than we expected, we’ve invested in home kit, and the stigma of working from home has disappeared, reducing the benefits of commuting.Columnist Janan Ganesh argues we should stop making fun of managers. Britain is struggling in part because it stigmatises those who run things, or as he puts it: “There is grandeur in ownership. There is dignity in labour. It is the tier in between that has to plead for its reputation.”Some good newsA charity helping Ukrainian refugees in Swindon has launched a beer with a local brewery to mark the first anniversary of the war and raise funds for its activities. The Hop Kettle Brewery hopes to make the brew — called Volya or “Freedom” in Ukrainian — available online nationally. More

The move seeks to help more women join the work force as industry leaders complain of labor shortages.WASHINGTON — The Biden administration plans to leverage the federal government’s expansive investment in the semiconductor industry to make progress on another goal: affordable child care.On Tuesday, the Commerce Department will announce that any semiconductor manufacturer seeking a slice of nearly $40 billion in new federal subsidies will need to essentially guarantee affordable, high-quality child care for workers who build or operate a plant.Last year, a bipartisan group of lawmakers passed the CHIPS Act, which devoted $39 billion to directly boost U.S. semiconductor factories as part of $52 billion in subsidies for the industry, in hopes of making the nation less reliant on foreign suppliers for critical chips that power computers, video games, cars and more.Companies that receive the subsidies to build new plants will be able to use some of the government money to meet the new child care requirement. They could do that in a number of ways, in consultation with Commerce officials, who will set basic guidelines but not dictate how companies ensure workers have access to care they can afford.That could include building company child-care centers near construction sites or new plants, paying local child-care providers to add capacity at an affordable cost for workers, directly subsidizing workers’ care costs or other, similar steps that would ensure workers have access to care for their children.American employers, including manufacturers, are increasingly raising concerns that a lack of access to affordable child care is blocking millions of Americans from looking for work, particularly women. President Biden pushed Congress to address those concerns over the last two years, proposing hundreds of billions of dollars for new child care programs, but he was unable to corral support from even a majority of Senate Democrats.But Mr. Biden did convince lawmakers to approve a range of new spending programs seeking to boost American manufacturing. Now, Commerce is trying to utilize a centerpiece of those efforts, which aims to expand American semiconductor manufacturing, to make at least a small dent in his large goals for the so-called care economy.The Global Race for Computer ChipsA Ramp-Up in Spending: Amid a tech cold war with China, U.S. companies have pledged nearly $200 billion for chip manufacturing projects since early 2020. But the investments have limits.Crackdown on China: The United States has been aiming to prevent China from becoming an advanced power in chips, issuing sweeping restrictions on the country’s access to advanced technology.Arizona Factory: Internal doubts are mounting at Taiwan Semiconductor Manufacturing Company, the world’s biggest maker of advanced chips, over its investment in a new factory in Phoenix.CHIPS Act: Semiconductor companies, which united to get the sprawling $280 billion bill approved last year, have set off a lobbying frenzy as they argue for more cash than their competitors.It joins a growing list of administration efforts to expand the reach of Mr. Biden’s economic policies beyond their primary intent. For instance, administration officials have attached stringent labor standards and “Buy America” provisions to money from a bipartisan infrastructure law. The child care requirement will be flexible for chip makers, but it will almost certainly divert some subsidy dollars that are meant to expand factory capacity and create jobs.The Commerce Department is expected to release its application on Tuesday, allowing companies to begin making a case for federal subsidies that the industry lobbied hard to secure from Congress.The prospect of accessing those funds has already enticed domestic and foreign-owned chip makers to announce billions of dollars in plans for new investments in Arizona, central New York and elsewhere.But even as they ramp up investments, companies are complaining of difficulties in finding workers to build and operate manufacturing facilities.America’s child care industry has not fully rebounded from the pandemic recession. It is still about 58,000 workers, or 5 percentage points, short of its prepandemic peak, according to an analysis of Labor Department data by the Center for the Study of Childcare Employment at the University of California-Berkeley.Shortly before the pandemic, the Bipartisan Policy Center in Washington surveyed 35 states and found more than 11 million children had a potential need for child care — yet fewer than 8 million slots were available.That shortage is particularly acute in some of the areas where manufacturers are set to begin building new chip plants spurred by the new legislation. Commerce Department officials calculate that in the Syracuse area, where Micron announced a $100 billion chip making investment last year after Mr. Biden signed the new law, the need for slots in child care facilities is nearly three times the size of the actual care capacity in the region.In Phoenix, where semiconductor manufacturing is booming, child care costs consume about 18 percent of a typical construction or manufacturing worker’s salary. That share is higher than the national average.Commerce Secretary Gina Raimondo, center, with Gov. Kathy Hochul of New York, said that the child care requirements should help companies hire mothers, easing a labor shortage.Sarah Silbiger for The New York TimesGina Raimondo, the Commerce secretary, said in an interview that the child-care requirements should help companies cope with a tight labor market by making it easier for them to attract and retain caregivers who have been kept from working by difficulties finding care for their children.In a speech last week, Ms. Raimondo called efforts to attract more women to the work force “a simple question of math” for industries complaining of labor shortages. “We need chip manufacturers, construction companies and unions to work with us toward the national goal of hiring and training another million women in construction over the next decade to meet the demand not just in chips, but other industries and infrastructure projects as well,” she said.Only about 3 in 10 U.S. manufacturing workers are women. Ms. Raimondo said the CHIPS Act would fail if the administration did not help companies change those numbers, by bringing in women who have children.“You will not be successful unless you find a way to attract, train, put to work and retain women, and you won’t do that without child care,” Ms. Raimondo said in an interview.The Commerce requirement would represent a relatively small step toward Mr. Biden’s much larger, and as-yet unfulfilled, child care ambitions.Mr. Biden unveiled a $4 trillion economic agenda in the months after he took office. It was split into two parts. One focused on physical investments: repairing bridges and water pipes, laying broadband cable, spurring a shift to low-emission sources of energy and catalyzing new manufacturing capacity to compete on a global stage. It was a source of repeated legislative success for the president, who signed a bipartisan infrastructure bill, the CHIPS bill and a climate, health and tax bill that passed with only Democratic votes.But Mr. Biden failed to persuade centrist holdouts in his party, like Senators Kyrsten Sinema of Arizona and Joe Manchin III of West Virginia, to back most of the provisions in the second half of his agenda. Those were largely the president’s plans to invest in people: federally guaranteed paid leave; subsidized care for children, the disabled and older Americans; universal prekindergarten; free community college for all, and more.The lopsided nature of Mr. Biden’s success threatens to exacerbate existing gender disparities in the economy. Some economists warn they could hinder future economic growth. Many of Mr. Biden’s people-focused programs were deliberately aimed at boosting female participation in the work force.It could be years before Democrats have another opportunity to pass those programs. Republicans won control of the House of Representatives last fall and roundly oppose Mr. Biden on new spending proposals and the tax increases on corporations and high earners that he has called for to cover that spending. Progressive groups and liberal lawmakers largely concede there is little chance of a child care bill making its way to Mr. Biden’s desk before the 2024 election.When it became clear last year that sweeping plans to expand and subsidize child care would not make it into the climate, health and tax bill that marked the culmination of Mr. Biden’s economic efforts in Congress, Ms. Raimondo gathered aides around a conference table. She told them, she said, that “if Congress wasn’t going to do what they should have done, we’re going to do it in implementation” of the bills that did pass.Some American manufacturers have already turned to on-site care facilities to help meet workers needs. The automaker Toyota has provided 24-hour care at a factory in Kentucky since 1993 and one in Indiana since 2004.Chad Moutray, director of the Center for Manufacturing Research at the Manufacturing Institute, which is affiliated with the National Association of Manufacturers, wrote in a report late last year that child care availability is part of the reason women do not seek more jobs in manufacturing.“Women represent a sizable talent pool that manufacturers cannot ignore,” he wrote. More

Northern Ireland’s biggest unionist party on Monday gave a guarded initial response to the Brexit deal struck by Rishi Sunak with the EU on revised trading arrangements for the region, saying “key issues of concern” remained.Democratic Unionist Party leader Sir Jeffrey Donaldson said he was concerned that EU rules would still apply in Northern Ireland under the prime minister’s agreement.While accepting “significant progress” had been made in some areas, Donaldson added: “The key issue is why is EU law being applied and what is the purpose of that?” The DUP’s reaction to the proposed overhaul of the so-called Northern Ireland protocol will be a key test for Sunak’s bid to restore the region’s devolved government. The DUP has boycotted the power-sharing assembly and executive at Stormont since last May to press for sweeping changes to the protocol.Donaldson said his party would study the legal text of Sunak’s deal carefully and would not be rushed into a verdict. Ian Paisley Jr, a DUP MP, told the BBC the agreement “does not cut the mustard”.Donaldson said he wanted to understand what Stormont could do if there were any changes to EU rules on goods trade that affected Northern Ireland’s position in the UK internal market.Under Boris Johnson’s 2019 Brexit deal that includes the Northern Ireland protocol, the region stayed in the EU single market for goods.Sunak’s deal includes a mechanism that could give Stormont the right to apply a “brake” on updated EU rules on goods, with the UK able to oppose them, in exceptional circumstances.Donaldson said that of the £77bn in goods produced in Northern Ireland every year, £65bn were traded within the UK and he needed clarity on which rules would apply and to ensure there were no barriers within the UK internal market. “It really is the £65bn question because . . . that’s the extent of trade that we do with the rest of the UK,” he added.Donaldson said: “We will want to continue engaging with the prime minister and his team to examine what these new arrangements will mean . . how they will work in practice.

“And then yes of course there may need to be further engagement with the EU.”Sunak said all parties would be given time and space to digest the deal, as he tries to pave the way for parliamentary approval of his agreement.Donaldson will consult the DUP’s other 11 officers and then the wider 100-strong party executive. Experts said he could seek to delay his final verdict on Sunak’s deal until after council elections on May 18.He can claim that he has successfully pushed the EU into accepting changes to the protocol that go beyond anything Brussels initially said was possible. But hardliners in his party want no EU laws to apply in Northern Ireland at all, and no oversight of the trading arrangements by the European Court of Justice. Despite the changes agreed by Sunak and von der Leyen, the ECJ retains a role. Whether Sunak’s agreement will secure the restoration of Stormont was unclear. Northern Ireland’s nationalist and unionist communities have to share power under the 1998 Good Friday Agreement that ended the region’s three decades-long conflict.

The run-up to the 25th anniversary of the agreement in April has already been marred by the attempted murder last week of an off-duty police officer. The attack has been claimed by dissident republican group the New IRA.Opinion polls show a majority of DUP voters do not want their party to return to the Stormont assembly and executive unless the protocol is either removed or substantially changed.“The DUP leadership will need to enable their supporters not to think they’re immediately being sold out,” said Katy Hayward, professor of political sociology at Queen’s University Belfast. Despite the political uncertainty, business leaders were encouraged by Sunak’s deal.“I’d be surprised if it’s completely satisfactory but it should be capable of improvement over time,” said Archie Norman, chair of retailer Marks and Spencer, who has been highly critical of the protocol.Stuart Rose, chair of Asda, the supermarket, hailed the deal as a pragmatic solution. “Chapeau to the prime minister,” he added. “The grown-ups are back in the room.” More

The UK may be the world’s sixth-largest economy but that economy is unable to guarantee its citizens a salad.Tomatoes, peppers and cucumbers have been rationed in five leading supermarkets since last week following a drop in supply of about half, forcing households to opt for turnips and other seasonal vegetables instead. The chagrin of British consumers has only been worsened by helpful social media users posting images of produce-laden shelves from Madrid to Kyiv and crates of fresh salad being unloaded in snowy Helsinki.There are multiple causes for the breakdown of the UK’s supply chain in crunchy vegetables. Bad weather in Spain and Morocco was the trigger, causing a sharp contraction in the harvest there. The country’s location across the Channel from continental Europe was another, tempting suppliers with limited stocks to spare their truckers the extra journey. Brexit red tape is an additional deterrent, and some blame can also be placed at the door of neglectful UK ministers who failed to heed warnings of domestic glasshouses shutting down because of spiralling energy costs and labour shortages.But the supermarkets, which have kept UK food prices among the world’s lowest, must also take stock. As a proportion of incomes, UK food budgets in 2021 were the world’s third-lowest at 8.7 per cent, according to Our World in Data, after the US and Singapore. Among other developed economies, Japanese households paid 16.7 per cent and Italians 15.5 per cent; countries such as Taiwan to Sweden were well above 10 per cent.Fierce competition among UK supermarkets, heightened by the arrival of German discounters Aldi and Lidl in recent decades, has helped keep prices low. Clive Black, of Shore Capital, says those discounters use basic goods as loss leaders to lure shoppers through their doors and away from rivals. They have not been shy of taking credit; reporting a drop in profits in September 2022, Aldi chief executive Giles Hurley said the group had “put people before profits and . . . made the right decisions”.The recent crisis has been a test of contracted suppliers’ loyalty to the retailers © Andy Rain/EPA-EFE/ShutterstockYet now that inflation is high and supply chains are still reeling from Brexit and the chaos wrought by the Covid-19 pandemic, those decisions are having unwanted consequences. There is a months-long egg shortage after producers cut down their laying flocks in response to costs rising higher than the prices they receive, and those prices are ultimately set by supermarkets. Now the UK is experiencing a worse salad shortage than its neighbours — in part, industry figures say, because of the low prices its stores pay for produce. Supermarkets hardly operate on generous margins but those of fruit and vegetable growers are even slimmer: about 1 to 2 per cent, says Jack Ward, chief executive of the British Growers Association.A cucumber in the UK costs 70p to 80p, Ward says. In France, it fetches about €1.80 (£1.59). “That partly explains why their shelves are full and ours are not,” says Ward. The recent crisis has been a test of contracted suppliers’ loyalty to the retailers, who have been reduced to calling round growers and processors to urge them to keep sending vegetables rather than favouring other outlets or selling on the open market. Not all have complied.That same squeeze on prices has prompted UK producers to scale down their operations, some permanently. And as the salad crisis has shown, simply relying on imports is not a fail-safe strategy. Broiler chicken producers are the latest group to cut back their operations as prices failed to keep pace with spiralling costs. Production numbers are down about 12 per cent so far, according to the British Poultry Council. Retailers are so far making up the difference from Spain, mirroring the salad situation and undercutting domestic prices further. The nation’s favourite protein could become the next foodstuff to be in short supply in supermarkets.Ministers do have some powers to intervene; they are already scrutinising the supply chains of dairy and pig meat. They have signalled a reluctance to carry out further investigations, however. Thérèse Coffey, the environment minister, angered farmers last week by refusing to attribute the egg scarcity to a “market failure”.But this government may be replaced within two years by one much more comfortable with intervening in markets. In the meantime, the great salad shortage will not be the last breakdown of an overstretched food system. “Shoppers . . . are not paying enough for a secure and sustainable supply chain,” says Black.Supermarkets are happy to take credit for low prices, but they must take some responsibility for empty shelves as well. Perhaps it is time to reconsider their race to the bottom. More

The UK energy regulator has lowered the energy price cap by almost £1,000 for a typical home, but consumers will still end up with higher bills from April as the government reduces subsidies to households.The price cap, which normally governs the amount paid for gas and electricity bills for typical usage, will fall to £3,280 from April having previously stood at £4,279 for the January to March period, Ofgem announced on Monday. The drop partially reflects the significant decline in wholesale gas and electricity prices in recent months, with a further fall in the cap expected later in the year as lower costs to utilities start to feed through to bills. The regulatory change will provide no relief for households, however, as the government is set to sharply reduce the amount of support it has provided.Its energy price guarantee (EPG), which was put in place last October to limit typical bills to £2,500 over the winter months when energy use is highest, is set to rise to £3,000 from April. An extra £400 direct subsidy paid in six monthly instalments since October will also end.Ofgem’s price cap determines the amount of subsidy the government has to provide above the level of its guarantee. Energy analysts are forecasting that from June the cap will fall below the level of the government’s price guarantee, at which point households with average usage will switch to paying that amount.“Although wholesale prices have fallen, the price cap has not yet fallen below the planned level of the energy price guarantee. This means, that on current policy, bills will rise again in April,” said Ofgem chief executive Jonathan Brearley.“However, today’s announcement reflects the fundamental shift in the cost of wholesale energy for the first time since the gas crisis began, and while it won’t make an immediate difference to consumers, it’s a sign that some of the immense pressure we’ve seen in the energy markets over the past 18 months may be starting to ease.”Poverty campaigners have called on Jeremy Hunt, the UK chancellor, to keep the guarantee at £2,500 until the summer, pointing out that the cost of government’s energy support package has come in lower than forecast as wholesale prices have fallen.Cornwall Insight, a consultancy, estimated the cost to the taxpayer of extending the £2,500 price guarantee to the end of June at about £2.5bn. It put the total cost of the scheme at £26.8bn if the government cut support as planned, rising to £29.4bn if the guarantee remained at £2,500.But the Treasury has so far shown no sign of reversing course as it does not want to expose itself to the possibility that wholesale prices start to rise again.Citizens Advice warned that the loss of government support would result in the number of households struggling to pay their bills doubling to one in five from the end of next month.“Without further support from the government, this April will spell catastrophe for millions of households,” said Citizens Advice chief executive Clare Moriarty.“The government must keep the EPG at its current level of £2,500. Recent drops in wholesale prices mean they have the headroom to do this. The alternative is millions more people unable to keep their house warm and keep the lights on,” she added. Consumer champion Martin Lewis, who has also called for the price guarantee to remain at £2,500, said that “reading the runes” he believed the government could still reverse course.“It seems to be an act of national mental health harm to send millions, almost everybody, a letter saying your energy bills are going to go up 20 per cent again when they’ve already more than doubled, just for the sake of three months,” Lewis told ITV’s Good Morning Britain. Lewis’s campaign is backed by Energy UK, the industry trade body, as well as dozens of charities.Cornwall predicted Ofgem’s price cap would fall to about £2,100 in the last six months of this year, though forecasts further out are more volatile and could change depending on the direction of wholesale prices. Prior to the energy crisis the price cap usually hovered around £1,200.The price cap does not limit how much consumers can pay if they use more than the typical amount of energy, so larger households generally pay more. More

The result suggests a slowdown that is likely to gain momentum in a scenario of high borrowing costs following the aggressive monetary tightening implemented by the central bank to curb inflation.Outstanding loans fell to 5.3 trillion reais ($1 trillion) in January, with loans to companies decreasing by 2.4%, while credit to families rose by 1.1%. Over the past 12 months, total credit expansion was 13.6%, down from 14.0% in the previous month.Bank loans in Latin America’s largest economy have decelerated amid more expensive credit, as the country’s benchmark interest rate stands at 13.75% from a record low of 2% in March 2021. This has prompted constant criticism from the new leftist President Luiz Inacio Lula da Silva and his political allies, who see the level of interest rates as unjustifiable given slowing inflation, which reached 5.63% in Mid-February.The central bank has left interest rates unchanged since September, but data from the central bank shows that average interest rates on non-earmarked loans have increased to 43.5% per year from 41.7% in December. Bank lending spreads also grew from 28.7 points the month before to 30.6 percentage points, while a broad measure of Brazilian consumer and business default ratios increased to 4.5% from 4.2% in December.($1 = 5.1889 reais) More

KYIV (Reuters) – When Russia invaded Ukraine a year ago, the shelves of the Novus supermarket chain in Kyiv quickly emptied as its supply chains – domestic and overseas – collapsed. Fresh produce became scarce and panic buying spread.Oleksiy Panasenko, deputy director general for operations at the popular outlet, recalls how the business reeled before Novus, like many other large retail chains, managed to adapt.”On the second day (of the war), there was already fighting on the outskirts of Kyiv,” he told Reuters. “In February and March, our shops became more than a place to buy food: they were a place to meet, to communicate; so-called islands of stability.”And when Ukrainian troops forced Russia’s army to retreat from the capital in the spring, the retail sector and the broader economy rebounded.Data from Ukraine’s European Business Association – which groups over 1,000 foreign and Ukrainian businesses – showed that by the end of May 47% of their members had fully restored operations and another 50% were working with some limitations.But then missile attacks began in October, dealing Ukraine a hammer blow. Russia struck at power grids and sub-stations across the country, leading to outages during the freezing winter and hitting heavy industry hard.The economy shrank by a third last year, the largest fall since Ukraine’s independence from the Soviet Union in 1991. Before Russia’s invasion, annual economic output had topped $200 billion.As the war enters its second year with no sign of slowing, the challenges are formidable. Reuters canvassed seven economists whose forecasts for 2023 ranged from a sizeable – though far less dramatic – decline of 5% in gross domestic product (GDP) to a small expansion. Access to reliable power will be a major obstacle. While many businesses are finding ways to cope with war, those that cannot run on generators alone will struggle this year, according to the economists, two government officials and executives from two private companies. ArcelorMittal (NYSE:MT) Kryvyi Rih, Ukraine’s largest steel mill, said its production was currently at about 25% of pre-war levels amid electricity blackouts. “We see small and medium-sized businesses adapt fairly quickly to power shortages by purchasing generators, batteries, and other equipment, while infrastructure damage remains moderate,” said Olena Bilan, chief economist at Dragon Capital investment house, whose forecast was the most negative among the economists surveyed.”If this situation persists, the fall in GDP in 2023 will not be as significant as we expect. But our forecast also envisages an end of the war’s hot phase at the end of third quarter of 2023,” said Bilan.She added that because of international support for Ukraine, it was “realistic” to expect its forces to continue to win back territory occupied by the Russians.Russian President Vladimir Putin has said the war is going according to plan, and casts it as a “special military operation” to protect Russia’s own security.Ukraine’s central bank predicts GDP will grow by 0.3% this year, while the economy ministry forecasts 3.2% growth.HUGE TOLLBy last summer, Ukrainian officials had already started sounding more confident about the country’s economy, in particular after a UN-brokered grain export deal.The agreement saved Ukraine’s agriculture, which accounted for about 12% of GDP and some 40% of overall exports before the war. As of mid-February, Ukraine’s grain exports for the 2022-2023 season – which runs July to June – had fallen 29.3% year-on-year to 29.7 million tonnes. A massive increase in military spending, including army wages, has also provided a boost to the economy, said Vitaly Vavrishchuk, head of research at ICU investment house. Ukraine spent 1.5 trillion hryvnias ($40.6 billion) on its defence sector in 2022 – equivalent to around one-third of its economic output – according to the National Security Council.That was around five times higher than its planned pre-war defence budget. Tens of billions of dollars in foreign assistance have poured in, both to help plug the budget deficit and arm Ukrainian forces. But despite the positives, Ukraine is well behind where it was before the war began. And the economic toll is staggering.The invasion destroyed schools, hospitals, ports, roads and bridges. The Kyiv School of Economics estimated the damage to infrastructure due to the war at $138 billion as of December. Poverty rates have soared and the budget deficit is forecast to hit $38 billion in 2023 following a collapse in tax revenues. The government is depending on Western aid to cover it – most of it from the United States and the European Union.”Ukraine’s government took measures that helped to reduce the monthly deficit in 2023 to $3-3.5 billion, which is still a huge figure,” Finance Minister Serhiy Marchenko said, noting there was also a need for infrastructure investment to fuel a recovery.President Volodymyr Zelenskiy’s government has called on donors to start planning for the massive task of reconstruction this year, though it recognizes large scale building will be difficult until some peace returns.Between 40% and 60% of the energy sector has been damaged, according to Marchenko, who said at a recent roundtable in February that he could often hear attack drones buzzing above his house or the building of his ministry.Business events are often held in underground shelters for security. Blackouts are regular. Novus’s Panasenko said the company lost about 30% of the stores’ opening hours in Kyiv in December and some 20% in January. The steel sector, a key pillar of the economy, is among the hardest hit. Ukraine was the world’s 14th largest producer of steel before the war.Two leading steel producers, Azovstal and MMK Illicha in Mariupol, were destroyed and are officially bankrupt.Those that remain are struggling with power outages.”Blackouts for companies like us are a big issue,” Mauro Longobardo, general director of ArcelorMittal Kryvyi Rih. The company recently started to import electricity, but the costs were high. He did not provide further details. Ukraine’s electricity system is connected to the European grid, where prices are higher, and it has imported energy from neighbouring Slovakia. Energy deficits are not the only challenge for ArcelorMittal.Its warehouse in Kryviy Rih, some 400 km (250 miles)southeast of Kyiv, was hit by three Russian missiles in early December and one worker was killed, Longobardo said.ArcelorMittal’s mining facility in a recently liberated area was strewn with landmines and most of the related infrastructure damaged.Logistics are another headache for the company, which used to export up to 80% of its output. Russia blocked Ukraine’s Black Sea ports and Longobardo had to work on new export routes through Poland.Despite the challenges, ArcelorMittal, Ukraine’s biggest foreign investor, is committed to stay.The largest employer in Kryviy Rih, the birthplace of Zelenskiy, it has kept its 26,000 employees on the payroll despite a production fall. Longobardo said ArcelorMittal would invest $130 million this year. Such plans are rare now.The outlook for some other sectors is more positive.Economy ministry data showed Ukraine imported 669,400 generators last year, including over 300,000 in December alone. Panasenko said 52 out of Novus’s 82 stores were already equipped with generators.ICU’s Vavrishchuk saw the economy continuing to adapt, and sectors with high state financing would benefit the most. But obvious security risks were deterring private investments, crucial for a robust recovery.Ukraine has a mixed record on attracting foreign private investment. In 2021, it ranked as the second-lowest country in Europe on Transparency International’s Corruption Perceptions Index, behind only Russia. Vavrishchuk said the country would need to enforce the rule of law, ensure transparency and fair competition.”Participation in the post-war reconstruction could be attractive for investors,” he said. “But still we will have to address all those issues (transparency and corruption) that we have not had time to before the war began.” More

Investing.com — Warren Buffett blasts the new buyback tax as Berkshire Hathaway’s performance sags under pressure from last year’s market volatility. Pfizer is reportedly in talks to buy Seagen for around $30 billion. Benchmark Eurozone bond yields hit a 12-year high as the market pushes out its expectations for the first cut in ECB interest rates. The U.K. and EU are on the verge of settling their differences over Northern Ireland, and potentially triggering another civil war in the ruling Conservative Party, and oil prices fall as Bank of America analysts slash their forecasts for the year. Here’s what you need to know in financial markets on Monday, 27th February.1. Buffett blasts buyback tax as Berkshire stumbles in 2022Warren Buffett laid into the Democrat-driven introduction of a tax on stock buybacks, in an uncharacteristically brief letter to Berkshire Hathaway (NYSE:BRKa) shareholders published over the weekend.Buffett said the measures, which aim to raise $74 billion in tax over the next decade, were the brainchild of “economic illiterates” and “demagogues”, and argued that buybacks were an essential tool in the efficient deployment of capital.Berkshire’s fourth-quarter earnings, disclosed at the same time showed an 8% drop in profit, as a number of clunkers in its portfolio underperformed, most notably auto insurance group Geico, which posted a sixth straight quarterly loss.Berkshire’s portfolio registered a loss of nearly $23B last year due to overall market volatility. Its cash pile rose to over $128B as of the end of the year.2. Bund yields hit 12-year high on Lagarde, Visco commentsMarket participants aren’t only pricing in higher interest rates for longer in the U.S. The yield on the benchmark German 10-year bond – the risk-free reference asset for the Eurozone – rose to a 12-year high of 2.58% after European Central Bank President Christine Lagarde hammered home the message that a 50 basis point hike in the ECB’s key rates in March is all but nailed on.Lagarde told the Economic Times of India that “There is every reason to believe that we will do another 50 basis points in March,” adding that what follows will depend on economic data.Over the weekend, Italian central bank governor Ignazio Visco – typically one of the more dovish members of the bank’s governing council – had acknowledged that the ECB’s key rate may have to rise as high as 3.75%, validating the upward move in implied forward rates after last week’s strong U.S. inflation data.ECB chief economist Philip Lane is due to speak at 12:00 ET (17:00 GMT).3. Stocks set to open higher; Pfizer reported in talks to buy SeagenU.S. stock markets are set to open a little higher later after falling to their lowest weekly close of 2023 to date on Friday. S&P Dow Jones Global Indices expects U.S. buybacks to top $1 trillion this year for the first time in history.By 06:45 ET (11:45 GMT), Dow Jones futures were up 120 points, or 0.4%, while S&P 500 futures were up 0.5% and Nasdaq 100 futures were up 0.6%.Stocks likely to be in focus later include Pfizer (NYSE:PFE) and Seagen (NASDAQ:SGEN), with the pharma giant reportedly in talks to buy the cancer drug specialist for around $30B.Also of interest could be Union Pacific (NYSE:UNP), whose stock surged after it said it’s looking for a new chief executive. 4. U.K. and EU hatch N. Ireland dealThe U.K. and European Union appear on the verge of a deal that would settle their simmering dispute over the status of Northern Ireland, an issue which has plagued the Brexit process ever since the U.K.’s vote to leave the EU in 2016.European Commission President Ursula von der Leyen is due in London to hammer out the details with Prime Minister Rishi Sunak.Settling the issue could help the gradual rehabilitation of U.K. financial assets with international investors, who have applied a huge discount to them since 2016. However, it also risks triggering one of the ruling Conservative Party’s periodic bouts of infighting, at a time when the October fiasco of then Prime Minister Liz Truss’s tax cuts are still fresh in the memory.5. Oil falls as BofA cuts forecastsCrude oil futures suffered a poor start to the week, after Bank of America (NYSE:BAC) analysts cut their estimate for average U.S. crude prices this year to $88 from $100 in the face of a weakening U.S. and global economy.They also noted that Russian oil is continuing to flow to world markets despite the heavy discounts imposed on it due to western sanctions. Russian pipeline operator stopped crude flows to Poland through the Soviet-era Druzhba (Friendship) pipeline on Monday, citing paperwork irregularities.By 06:45 ET, U.S. crude futures were down 0.2% at $76.17 a barrel, while Brent was down 0.3% at $82.59 a barrel. Natural gas prices continued to normalize, rising 3.4% to $2.634 per mmBtu. More