Economy

The IMF said the agreement on the first and final review of a Program Monitoring with Board Involvement (PMB) was subject to IMF management approval and showed positive results. “Performance under the PMB has been strong. Due to the joint efforts of the government … and the National Bank of Ukraine, all end-December quantitative and indicative targets have been met, as have all five end-January structural benchmarks,” the IMF said in a statement.Ukraine is seeking an IMF program of up to $20 billion. As Russia’s invasion enters its second year, it faces an estimated total external financing need of $40-$57 billion in 2023.Among benchmarks met under the policy monitoring arrangement were the government’s submission to parliament of draft tax laws aimed at increasing revenues and steps by the Finance Ministry to address arrears, the IMF said.The Fund said that Ukraine’s economy contracted by 30% in 2022, shrinking less than initially forecast, while inflation has begun to decelerate. But Ukraine’s near-term economic outlook had deteriorated due to Russian attacks on critical infrastructure.”However… a gradual economic recovery is expected through the course of the year,” the IMF said. More

Chairman of Gramercy Funds Mohamed El-Erian told Bloomberg on Friday that the Federal Reserve won’t be able to get U.S. inflation to its 2% target without “crushing the economy.”The economist made the argument because he believes the 2% target “is not the right target.””You need a higher stable inflation rate. Call it 3 to 4%,” El-Erian told Bloomberg Television. The comments follow the recent CPI data, which showed consumer prices rose 0.5% in January, the most in three months.El-Erian also said the Fed is “too data dependent,” adding that it is the “right to take data into account, but you’ve got to have a view of where you’re going,”El-Erian said the Fed’s problem now is that it is stuck chasing an elusive 2% goal and that you “can’t change an inflation target when you’ve missed it in such a big way.” More

Today’s top storiesA spring offensive by Russian forces in Ukraine appears to be advancing in “metres not kilometres”, according to UK defence secretary Ben Wallace.UK prime minister Rishi Sunak was in Belfast today to seek backing from local politicians as he attempts to resolve the bitter dispute over post-Brexit EU trade relations.The Pentagon’s senior China official is visiting Taiwan amid strained US-China ties. It is only the second trip to the island in 40 years by high-level US defence personnel. For up-to-the-minute news updates, visit our live blogGood evening.Today marked the start of London Fashion Week in the British capital. It promises five days of menswear and womenswear shows alongside more than 400 free experiences as part of its City Wide Celebration programme. Iconic British luxury brand Burberry will present its first collection under the new creative direction of Daniel Lee. LFW is a chance to glimpse future trends. It stands to shape the preferences of potential buyers that then feed, broadly, into a fragment of national, and indeed global, consumptive habits. Today’s fashion industry, as the appointment of Pharrell Williams as Louis Vuitton’s new menswear creative director attests, is firmly in thrall to sales. Globally, the luxury goods market shows remarkable signs of health as Chinese consumers emerge from a strict Covid-19 lockdown in the country. Figures released today by Hermès show a surge in Chinese demand for the French luxury group’s Birkin bags and other leather goods. Sales rose to almost €3bn in the three months to December. Kering, owner of the Gucci and Balenciaga brands, reported an uptick in Chinese sales after a pandemic-mired fourth quarter. Lower down the fashion food chain, the success of online Chinese clothing group Shein has been remarkable. It has become the shopping destination of choice for young western consumers. Now, it is preparing for a blockbuster initial public offering in New York. It is projecting that annual revenues will double to almost $60bn by 2025, in new sales projections seen by the Financial Times. That would exceed the existing combined annual sales of retail giants H&M and Zara. One of Shein’s rivals is UK-based Asos which has warned investors of a challenging outlook as the cost of living crisis bites. But shoppers in the UK have proved surprisingly resilient. According to new figures released today, retail sales, which measure the amount of goods sold in UK shops, rose 0.5 per cent between December and January, better than the 0.3 per cent fall widely predicted by economists. It follows a revised 1.2 per cent drop in the previous month, says the Office for National Statistics. The figures point to a rallying of UK consumer activity, rebounding after two months of successive declines, in the face of assumptions that inflation is gradually easing. Consumer price inflation fell to a five-month low of 10.1 per cent in January, according to figures released by the ONS this week. However, compared with January last year, overall sales volumes fell 5.1 per cent. In a further tempering of optimism, economists expect UK consumers’ real incomes to suffer a further hit in the coming months as wages struggle to keep pace with inflation and the reduction in energy support schemes from April 1 curtails discretionary spending. Retail sales in the US grew more strongly last month, however, rising 3 per cent above December’s levels as shoppers belie inflationary predictions. One of the biggest monthly increases in recent years, it is a sign of how hot the US economy is at present and further complicates the Federal Reserve’s future policy options. Fed chair Jay Powell warned last week that the central bank’s route to curtailing inflation this year was “probably going to be bumpy”.Although weaker sales volumes from Nestlé yesterday and Unilever last week point to a decline in consumers’ willingness to go along with recent price rises motivated by persistent inflation, the figures paint a broader picture of the relative global health of the consumer. Need to know: UK and Europe economyEuropean natural gas prices fell to an 18-month low today, owing to milder than expected weather and sufficient storage capacity. By falling below €50 per megawatt hour, gas prices have collapsed as much as 85 per cent from their August 2022 peak, prompting suggestions of a turning point in the continent’s energy crisis as it weans itself off Russian supplies. The aviation industry in Europe sparked fury from climate campaigners today after it unveiled plans to have newer aircraft classified as a green investment under EU sustainable finance rules that aim to guide private capital towards more socially agreeable ventures. Industry groups argue that investments in new planes are green because they produce fewer emissions per passenger than older, less efficient models. In a blow to the booming influencer economy, HM Revenue & Customs has announced it is to write to 2,300 online traders, social media personalities and gamers that it suspects of not paying the correct UK tax on virtual profits. It marks a fresh development in institutional attempts to keep pace with a galloping digital economy. The number of “content creators” doubled to almost 16mn in the UK between 2020 and 2022. Need to know: global economyUS energy companies are drawing up plans to go public at a rate not seen in more than half a decade as investors seek steady cash flows and balance sheet discipline at the expense of long-term growth. It marks a boost for a sector that has long suffered from turbulence in oil markets and a distaste for polluting companies among environmentally conscious portfolios. These developments, however, may yet face long-run difficulties against US plans to become a global cleantech superpower, as yesterday’s Big Read explores. President Joe Biden’s colossal Inflation Reduction Act last year aimed to spur the private sector to act quickly on decarbonisation programmes through generous subsidies, leaving these newly offered companies exposed to future investment trends. In a sign of how investors are becoming increasingly agitated by the prospect of further US interest rate rises, global equity markets fell today. Hawkish comments from Fed officials this week have raised the prospect of higher US interest rates for longer as the Fed fights persistent inflation.Need to know: businessNatWest announced stronger than expected fourth-quarter earnings this morning, reporting a tripling of pre-tax operating profit to £1.4bn as revenue rose 43 per cent to £3.7bn. Despite benefiting from recent Bank of England rate increases, shares dipped sharply on Friday as the UK bank warned of a static net interest margin this year. A healthy quarterly balance sheet will embolden calls for the bank, in which the UK government still holds a 44 per cent stake, to pass on greater benefits to savers. Bao Fan, one of China’s top dealmakers, has gone missing. The founder of China Renaissance, one of the country’s leading investment banks, said it was working to establish his whereabouts. Financial executives in China have often disappeared in mysterious “anti-corruption” investigations since the start of Xi Jinping’s presidency in 2012. The FT’s sixth annual listing of the UK management consulting firms most recommended by clients and peers is published today. Part of a Special Report on the UK’s leading management consultants, other featured articles include the rising demand for restructuring experts in the sector and the value of employee flexibility. Check it out here.Science round-upWhat flies above the cruising height of commercial aircraft but below satellite orbits? Following the downing of a Chinese surveillance balloon from the upper stratosphere earlier this month, Clive Cookson and Ian Bott explore the “forgotten space” up to 40km above the Earth’s surfaceChinese pharmaceutical group CanSino Biologics says demand for its Covid vaccine in China is “dying down”. The rapid spread of the virus in the country may have prevented further uptake. Chinese health authorities recommend patients wait up to six months before receiving another shot.A woman in Merseyside, England, has become one of the first patients in the world to undergo a pioneering form of cancer treatment. Part of the Mode Of Action Transgene (MOAT) study, it aims to help her immune system kill cancerous cells as an alternative to more debilitating treatment methods. Some good newsA fitness club in south London is on a mission to change the narrative around exercising for older women. Personal trainer Anna Jenkins set out to saturate the internet stock photo ecosystem with alternative images of women lifting weights after growing tired of available images that paint exercisers as weak and half-witted. Building muscle mass is key to fighting bone density loss and helping with menopausal symptoms. Something for the weekendThe FT Weekend interactive crossword will be published here on Saturday, but in the meantime why not try today’s cryptic crossword? More

The World Bank must break with the past and choose a leader in touch with the needs of borrowers in poorer countries, campaigners have demanded, as the US races to replace outgoing president David Malpass. “We can’t afford another Malpass,” said Andrew Nazdin, director of Glasgow Climate Action, an umbrella campaign group. “We need a World Bank and global financial system that is accountable to the people it serves.”A shortlist of candidates for the bank presidency — including Samantha Power, head of the US Agency for International Development, Rockefeller Foundation president and also former US Aid boss Rajiv Shah and World Trade Organization director-general Ngozi Okonjo-Iweala — has emerged since Malpass announced on Wednesday that he would step down a year before his term ends. All the contenders have US citizenship. Nazdin said there were “glimmers” of the right candidate in the shortlist but that he would “love those making the decision to think bigger and better than we have had before”.The US is the largest shareholder in the World Bank and has led the countries pressing for reform. Many want changes that would unlock more funding, enabling the institution to step up its lending programmes to tackle global poverty and climate change. A Group of 20 working group said last year that the world’s biggest multilateral lenders, including the World Bank, could boost their lending capacity by $500bn to $1tn by making modest changes to capital adequacy frameworks.

Rajiv Shah, the head of the Rockefeller Foundation, a doctor and former head of US Aid, is also among the favourites to lead the World Bank © Noam Galai/Getty Images for Clinton Global Initiative

The bank has also been criticised for being too slow to deliver finance. The average time taken to disburse funds is 465 days, although this is often because of delays beyond the bank’s control and has fallen in recent years. The implicit agreement between the world’s richest economies that the two main Bretton Woods institutions — the IMF and World Bank — are run by a European and a US citizen respectively has also come under fire. Amy Dodd, policy director for development economics at the ONE Campaign against extreme poverty and preventable disease, said: “It is a problem that a small number of countries, in practice, control our global financial institution.” Dodd added: “We are not giving countries a more equal say in the running of the World Bank, which has huge importance for their own development.”

Dodd said that, in addition to lending more money, the bank should back transnational initiatives to address climate change and poverty. It usually lends directly to individual countries.Dodd’s boss, Gayle Smith, is also in the running to replace Malpass. Another candidate is Mafalda Duarte, chief executive officer of the $11bn Climate Investment Funds. Janet Yellen, Treasury Secretary, said the US expected the bank’s board to run a “transparent, merit-based and swift” selection process and confirmed the US would put forward a candidate.Pressure on Malpass, who was nominated for the job by former US president Donald Trump, had risen after he refused to say whether he believed in human-caused climate change at a conference last September. He later said he had been misunderstood. More

Rishi Sunak will take the biggest political risk of his premiership so far if — as expected — he presses ahead with a plan next week to settle the bitter Brexit dispute with the EU over Northern Ireland trade.The British prime minister is supposedly a politician defined by his caution, but he appears determined to take on Tory Eurosceptics by striking a compromise with Brussels on the Northern Ireland protocol.“The biggest gamble of his career? It’s his first political gamble,” said Lord Peter Mandelson, former Labour Northern Ireland secretary and EU commissioner. It will cost Sunak scarce political capital. This is, after all, a prime minister whose party is trailing the Labour opposition by 20 points and whose MPs are in state of continual unrest. Former premier Boris Johnson, who agreed the contentious protocol with Brussels, waits in the wings.But the return on that political capital will be worth it, according to his allies. They believe a deal will end years of acrimony in UK-EU relations and provide instant economic and diplomatic wins.Things could yet unravel. But Sunak, who travels to Munich on Saturday for some intense European diplomacy, hopes to present the deal to his cabinet next Tuesday and then to MPs.The biggest test is whether the deal persuades the Democratic Unionist party to end its boycott of the Stormont assembly. With the 25th anniversary of the Good Friday peace agreement approaching, that would be a huge political win in itself. Sir Jeffrey Donaldson, DUP leader, said on Friday that progress had been made, but more was needed. Sunak cannot be sure what the unionists will do. “The DUP doesn’t speak with one voice,” said one British minister. But even if the DUP blockade of Stormont remains — a scenario Sunak desperately wants to avoid — the prime minister still sees gains from a deal, even if it means a fight with Tory MPs in the pro-Brexit European Research Group.“The ERG are a diminished force, he can afford to take them on,” said one pro-European former Tory cabinet minister. “He needs an internal party win. He can’t be seen to be pushed around by an ERG/DUP axis.” Sunak, accused of being “weak” by Labour, would be tested in the fight.The big win, however, would be improved relations with Britain’s neighbours after years of mistrust. Sunak will discuss the diplomatic wrapper around the deal in talks with EU leaders in Munich on Saturday.The protocol dispute soured the relationship with the bloc and has created “collateral damage”, said one EU diplomat. That includes UK membership of Horizon, the €96bn scientific research programme involving more than 40 countries, which was envisaged in the Brexit deal.

UK universities fear losing staff and falling behind the global competition if they cannot rejoin the scheme, but EU officials believe that Britain’s return to Horizon will follow a deal on the protocol.Britain and the EU are likely to begin exploring other areas for closer co-operation, including defence and energy, which could lower prices for electricity and gas imported to the UK through seabed interconnectors.Georgina Wright, of the Institut Montaigne think-tank in Paris, said the EU was open to these ideas. “A better relationship at the EU level opens the way for more bilateral ties. But it depends on whether the UK Conservative government wants to improve things.”European Commission officials said trade would be smoothed if there was an atmosphere of mutual trust. The Brexit trade and co-operation deal guaranteed that the two sides would maintain a “level playing field” and consult over changes to regulations.Meanwhile, French president Emmanuel Macron, who has taken a tough line on the protocol, hosts Sunak at a UK-France summit in Paris next month. His co-operation in tackling the flow of migrants across the English Channel is vital in helping to meet Sunak’s promise to “stop the boats”.“The case for doing this deal and pushing it through looks overwhelming,” said Lord Kim Darroch, former British ambassador to the EU. “It will make a real, positive, difference in Northern Ireland. It will stand up Sunak’s claim to be a problem solver. It will get us back into the Horizon Europe scheme, crucial for British universities.

“It will improve UK-EU atmospherics and should open the way to further deals to free up trade and travel between the UK and EU. And it will take the brake off UK-US relations.”Mandelson agreed, saying that a deal could open the way for US President Joe Biden to come to Belfast for events to mark the 25th anniversary of the Good Friday Agreement and then on to London for a state visit.He said that Joe Kennedy, the scion of the Kennedy dynasty appointed by Biden as an economic envoy to Northern Ireland, would be “very important” in bringing in inward investment to the region.In recent days Britain has been clearing up simmering disputes with the EU to try to create a fresh start in relations, seven years after the Brexit vote.Last week the UK paid a £2.3bn fine to Brussels for carrying out lax customs checks on Chinese goods entering the EU single market while Britain was still a member of the bloc.Meanwhile, the government also said it would make it easier for EU citizens to remain in the country, dropping a court case that had angered many of the bloc’s member states.After the deep freeze that settled on UK-EU relations during the Johnson era, Sunak could be the British prime minister who delivers the great thaw. The prize is great, but so is the gamble. More

Nurses’ leaders in Scotland have recommended their members accept a new pay offer from the government in Edinburgh, in a breakthrough that looks set to spare patients from the strike action that has affected England and Wales for the past two months.Under the proposed deal, NHS workers in Scotland would receive a rise of at least 6.5 per cent from April this year. Nurses and ambulance staff in Scotland have refrained from walkouts during negotiations.The Royal College of Nursing’s willingness to back the offer comes as the dispute in England and Wales looks set to escalate next month when nurses plan to withdraw cover even from critical care services and extend the length of walkouts to 48 hours. The Scottish pay offer could be an indication of the pay rise required to avert action elsewhere.Julie Lamberth, chair of the RCN Scotland Board, said the union had considered the offer and believed it would “make a positive difference for our members which is why we are recommending they vote to accept the offer”.Humza Yousaf, Scotland’s health secretary, said on Twitter that he was “delighted to offer NHS workers the largest pay package in the history” of the health service.Unison, another big health union, which represents ambulance workers across the UK, contrasted the willingness of the Scottish government to negotiate to what they painted as the UK government’s intransigence over the dispute in England.Sara Gorton, Unison head of health, said: “Once again, Holyrood has shown Westminster up . . . [Prime minister] Rishi Sunak should take heed and give it a go too.” The union has yet to decide whether it will accept the offer in Scotland but on Friday described it as “credible and serious”.Ambulance workers in Wales represented by the GMB union had earlier rejected a higher pay offer from the principality’s administration. Two-thirds of the GMB members who voted turned down the deal which would have handed them an average 5.5 per cent pay rise and a 1.5 per cent one-off bonus. The union’s 1,500 members are now expected to join about 10,000 English ambulance workers in staging a mass strike on February 20.Nathan Holman, GMB Welsh NHS lead, thanked the Welsh government “for actually entering talks, but if this is their final offer it’s too low for our members”.Unison also sought to intensify pressure on the government by announcing that around 12,000 more health workers were now eligible to participate in strike action after re-ballots passed the required threshold in four English ambulance services and five NHS organisations, including NHS Blood and Transplant, where it had not initially been met. The union described this as “a significant escalation of the dispute”.Unison general secretary Christina McAnea urged UK prime minister Rishi Sunak to ditch “his ‘do nothing’ strategy for dealing with escalating strikes across the NHS”.She commended ministers in Scotland and Wales for talking to health unions and coming up with higher pay offers for the current year. To the fury of the unions, ministers have so far ruled out reopening the pay settlement for 2022-23 in England.The prime minister “must roll up his sleeves, invite the unions into Downing Street and start the genuine pay talks that could end this damaging dispute”, she added.Staff across key sectors, from train drivers to postal workers, have taken industrial action over the past few months as inflation has far outstripped pay settlements.additional reporting by Lukanyo Mnyanda More

The headline of this fascinating JPMorgan report is so good that we’re appropriating it for our write-up. R* is economics jargon for a natural or “neutral” interest that neither fuels nor slows inflation economic growth. The R stands for interest rates in economic equations, and the star represents its long-term nature.Aside from lending itself to puns (the fault in R*, falling R*, twinkle twinkle little R* you get the drift) it’s a pretty important theoretical concept. The view that R* was close to zero in real, inflation-adjusted terms was one of the main drivers behind central banks pushing rates to zero — and below, in some cases — over the past decade.It is even more important right now, when many central banks have jacked up rates to contain inflation, but are facing an increasingly tricky balancing act between tightening policy without causing economic calamity. But is R* actually still close to zero?In a report published earlier this week, JPMorgan’s chief economist Bruce Kasman argued that it may now be creeping higher. That would mean interest rates will have to stay higher for longer than many people expect.A year ago, we argued it was inappropriate to accept the widely held view expressed by central banks that the inflation process would remained anchored by the credibility of their medium-term commitments. Confidence in the inflation process did indeed erode in the face of a broadening inflation surge last year, despite well anchored medium-term expectations. This erosion in faith helps explain the dramatic acceleration in the pace of policy tightening.We believe faith in another pillar underlying central bank thinking is on track to erode this year: the notion that DM neutral real policy rates stand close to zero. Identifying a “neutral” rate is important as central banks consider how far they continue in the policy adjustment process currently underway. DM central banks appear to be looking for a position whereby holding policy rates at an appropriate level above neutral — a high-for-long stance — can be anticipated to gradually ease labor market tightness and lower inflation.Here is JPMorgan’s chart of its estimates for various neutral rates at the moment. Remember that these are real R-stars, ie after inflation. Kasman argues that a “high-for-long strategy” is now necessary because of disappointing economic results of the “low-for-long” post-financial crisis approach. It’s like the pandemic and the stimulus unleashed to combat its economic impact were a defibrillator shock to the economic system. We attribute the ineffectiveness of last decade’s low-for-long stances to powerful disinflationary forces unleashed by the GFC outside the control of central banks. Importantly, conditions have changed dramatically. In contrast to last decade’s post-GFC balance sheet adjustment and regulatory tightening, the pandemic and has improved private sector balance sheets and created pent-up demand. In addition, fiscal policy shocks during this cycle have generally been positive thus far, a radically different backdrop to the aggressive European and US tightening through the first half of the last expansion. Finally, the supply shocks related to the pandemic have altered the inflation process in a way that is likely raising short-term inflation risk premia. In all, these developments suggest that neutral policy rates have moved higher from estimates at the end of the last expansion.Of course, as Kasman points out, central banks in the developed world have on average jacked up interest rates by 400 basis points over the past year, the most aggressive increase in over four decades. Whether it will be enough, just right, or too much is still unclear. Like many economic concepts, even R*’s historical values are inherently uncertain. And the actual current level of R* “will be obscured for some time”, as Kasman puts it.But the surprising economic resilience we’ve seen lately is a good indicator that R* is indeed higher than many economists thought just a year ago. That has big implications for monetary policy in the coming years.You can read the full report here. More

LONDON (Reuters) -Stock markets dropped across the globe on Friday and the dollar leapt to six-week highs as jobs data revived expectations the U.S. central bank would stick to its monetary tightening path.Data from the U.S. Labor Department overnight showed monthly producer prices had accelerated in January and the number of Americans filing new claims for unemployment benefits had unexpectedly fallen last week.The data was taken as a further sign that price pressures may remain stickier than markets believed at the start of the year, adding to inflation and jobs data out since the start of February that has sent jitters through global markets. MSCI’s broadest index of world stocks fell 0.4% at 1248 GMT to one-week lows of 645.65.MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.35% to 529.53 at 1248 GMT, its lowest since Jan. 9. The index is down 3% for the month and set for its third-straight week of losses. In Europe, the pan-European STOXX 600 index dropped 0.38%, set for its first daily fall this week. The German DAX was down 0.93%. French blue chip stocks and Britain’s FTSE slipped from all-time highs, down 0.66% and 0.16% respectively, all by 1248 GMT. Stock performance across the Atlantic was also set to follow suit with S&P 500 futures down 0.6%. Traders have raised their bets on how far they see the Fed hiking in recent sessions, and are now pricing in a peak at around 5.3% in July. Bets on a rate cut at year-end have declined, with traders pricing in only a 75% chance of a 25 bps rate cut in December. “Inflation doesn’t go up in a straight line and it won’t come down in a straight line. This week has been a wake up call for a lot of people,” said Michael Hewson, chief market analyst at CMC Markets UK. The buoyancy in U.S. markets since the start of the year was predicated on inflation peaking and then dropping sharply, he said. “For those looking for U.S. rate cuts at the end of this year, that’s now gone. Two-year yields on Treasuries are finally where they should be,” he added. Bets on higher peak rates have pushed two-year U.S. Treasury yields, sensitive to interest rate expectations, to three-month highs at 4.69%. The yield on 10-year Treasuries was up about 5 basis points at 3.88% on Friday at 1248 GMT. Boosted by bets on higher rates, the dollar index, which measures the U.S. currency against six major rivals, rose as much as 0.4% on Friday to 104.24, a fresh six-week high. That hurt the euro and sterling, with both falling to their lowest in over a month. The euro was down 0.5% at 1248 GMT at $1.0618, while sterling was last trading at $1.1943, down 0.4% on the day.It’s hard to gauge how markets will interpret the Fed’s next moves on inflation, said Florian Ielpo, head of macro at Lombard Odier Asset Management. “The markets are torn between two instruments. Intra-day stock prices and credit spreads see a lot of volatility and nervousness while there has been no surge in implied volatility options,” said Ielpo. Two Fed officials said on Thursday the U.S. central bank probably should have lifted interest rates more than it did earlier this month, and they warned that additional rises in borrowing costs were essential to lower inflation back to desired levels.At its Jan. 31 to Feb. 1 policy meeting, the Fed opted to moderate the pace of interest rate rises, lifting rates by 25 basis points to the 4.50%-4.75% range after a series of jumbo rate increases last year.Elsewhere, U.S. crude fell 3.30% to $75.91 per barrel and Brent was at $82.53, down over 3% on the day at the time of writing. [O/R] More