Economy

The writer is chair of Rockefeller InternationalIn February of 1998, twenty-five years ago this month, I was in Bangkok, ground zero of the Asian financial crisis. The implosion of the Thai baht had triggered a serial meltdown of currencies and markets with protesters in the streets across the region and chaos spreading. As world leaders raced to slow the global contagion, Thailand and its neighbours had sunk into a depression.The Thai economy contracted by nearly 20 per cent, as stocks fell by more than 60 per cent and the baht lost more than half its value against the dollar. Prices in Bangkok felt unbelievably cheap. I did not dare buy Thai stocks, with so much unsettled. But I did leave with many shopping bags and two golf sets, one to give away.While the drama of that year is etched in history, the epilogue comes as a surprise. Since early 1998, Thailand has faded on the global radar but the baht has proved uncommonly resilient, holding its value against the dollar better than any other emerging world currency and better than all but the Swiss Franc in the developed world.In contrast, in Indonesia, where the 1998 crisis toppled the dictator Suharto, the rupiah trades near 15,500 to the dollar, down from 2,400 before the crisis. The baht trades at 33 to the dollar, not much lower than 26 before the crisis. Yet Thailand hardly feels expensive: a foreign visitor can find a 5-star hotel room for under $200 a night, a fine dinner in Phuket for $30. Despite the strong baht, Thailand is globally competitive. The epicentre of the crisis became an anchor of stability, and a lesson to other emerging economies.After 1998, many emerging societies turned financially conservative, especially those hardest hit in south-east Asia. Indonesian banks went from opaque dens of cronyism to models of good management. The Philippines and Malaysia moved to rein in deficits. But in no country did a government in the region turn more consistently economically orthodox than in Thailand, avoiding the excesses that can scare off outsiders and tank currencies.South-east Asia was in recovery by 2000. Since then, Thailand’s government deficit has averaged 1 per cent of gross domestic product, less than half the average for emerging economies. Its central bank has been similarly cautious, keeping rates relatively high and broad money supply growing at 7 per cent a year, third lowest among major emerging economies.The ultimate pay-off for orthodoxy is low inflation. Thai inflation has averaged just over 2 per cent, the same as the US, a rare feat for an emerging country. Among other emerging economies, only China, Taiwan and Saudi Arabia have had lower inflation than Thailand since 1998. Before the crisis, Thailand pegged the baht to the dollar, which allowed it to borrow heavily abroad, and run up huge current account deficits. As foreigners lost confidence in Thailand, the government was forced to drop the peg and allow the baht to float freely. Its crash followed, but the baht would go on to recover its losses and become one of the least volatile currencies. Steady foreign income helped. Thailand remains among the most open emerging economies. Trade has risen from 80 per cent of GDP in 1998 to more than 110 per cent today. The external deficits that foretold the crash gave way to surpluses, as Thailand built on its strengths in tourism and manufacturing, which generates a quarter of GDP.During the crisis I drove on a new four-lane highway out of Bangkok to see the factories rising on the green pagoda-dotted hills of the eastern seaboard. This manufacturing base in paradise continues to evolve, lately for example from cars into electric vehicle parts, and to draw heavy foreign investment.Meanwhile the tourist hotspots around Phuket and Koh Samui expand alongside new forays into medical and wellness services. Since the crisis, tourism has more than doubled as a share of GDP to 12 per cent, becoming an unusually large source of foreign exchange. Most countries with tourist sectors that big are tiny islands. Thailand also has its flaws, including heavier household debts and a more rapidly ageing population than most of its peers. Despite that, its per capita income has more than doubled to nearly $8,000, up from $3,000 before the crisis.Moreover, Thailand has achieved financial stability despite constant political upheaval, including four new constitutions in the last 25 years. By overcoming challenges the Swiss franc never faced, the Thai baht has sealed its unlikely claim to be the world’s most resilient currency — and a case study in the upsides of economic orthodoxy. More

How quickly is US inflation receding? Although US inflation has been trending lower, economists have forecast that in January the decline will have moderated owing to persistent price pressures in housing and an uptick in the prices of energy and used cars. Tuesday’s consumer price index report from the Bureau of Labor Statistics is expected to show annual inflation at 6.2 per cent in January, down from 6.5 per cent the previous month, according to an economists’ forecast compiled by Bloomberg. That would represent the slowest rate since October 2021, but the smallest decrease in the annual rate since September, as higher petrol prices are expected to have boosted the headline figure. Core CPI inflation, which strips out the volatile food and energy components, is expected to slow to an annual rate of 5.4 per cent, down from 5.7 per cent in December. High rents will have prevented a bigger drop in core inflation, said Barclays analysts, in addition to higher prices of used cars. After rising significantly at the start of the pandemic because of snarls in the global supply chain, used-car prices finally began to drop in recent months. But the latest reading of the closely watched Manheim used vehicle value index suggests that January could mark a pause in that decline. Over the longer term, Barclays analysts said they had revised higher their CPI forecasts for the end of 2023 and 2024 because of the continuing strength of the US labour market. Last week, the Bureau of Labor Statistics reported that the US added more than half a million jobs in January, roughly triple the number that had been forecast. Kate DuguidWill UK inflation encourage the Bank of England to slow down? The UK’s January inflation figures on Wednesday will also be closely watched by investors and by the Bank of England as it strives to bring inflation back to its target of 2 per cent.Economists polled by Reuters expect UK annual inflation to have slowed to a four-month low of 10.2 per cent. That would mark a decline from 10.5 per cent in December.UK inflation accelerated last year to a peak in October of 11.1 per cent, but has slowed since then on the back of lower energy price growth. Most economists forecast it will continue to slow through this year.Sandra Horsfield of Investec expects inflation to have “subsided further” in January because of “lower fuel prices and more intense competition among retailers amid an ongoing easing of supply chain disruptions and squeezed disposable incomes”.However, policymakers will also closely monitor services and core inflation to assess the pace of domestically generated price pressures. Analysts expect core inflation, which strips out food and energy, to have slowed to 6.2 per cent in January, from 6.3 per cent in December.Jobs data released on Tuesday will also be scrutinised for signs of an easing of labour market tightness. Analysts expect average earnings growth, excluding bonuses, to have accelerated to 6.5 per cent in December, from 6.4 per cent in the previous month.Strong wage growth and higher inflation than expected could call into question the slowdown in the pace of the monetary tightening forecast at the next meeting on March 23. Markets are pricing a 0.25 percentage point rise after the bank lifted rates by 0.5 percentage points earlier this month but signalled it might soon have finished tightening. Valentina RomeiWill the stampede into Chinese equities continue?Global investors have poured record sums into Chinese equities this year, buying up $21bn of shares so far in 2023.The release of strong economic data after the lunar new year holiday has spurred investor confidence that China’s economy is recovering after zero-Covid restrictions were lifted in December, with the benchmark CSI 300 index rising more than 6.25 per cent year to date. Analysts say robust inflows are likely to continue, with US growth expected to slow and retail investors yet to join the fray.“Emerging markets are going to have a much better decade ahead than the past decade,” said Charlie Robertson, global chief economist at Renaissance Capital. “Unless you think the US can outperform again in the 2020s as much as it did in the 2010s then emerging markets and China look very interesting for long-term investment.”Markets could also get a further boost from domestic buyers, according to Citigroup. The bank’s analysts say excess household deposits surged to as much as Rmb13tn owing to higher savings rates during the Covid-19 pandemic, leaving space for households to put their excess cash into equities.“Flows could still benefit the financial market if confidence returns and households opt for not only ‘revenge spending’, but also ‘revenge risk-taking’,” the analysts said in a note. However, long-term political issues, like “mounting concerns on the experience of the incoming administration”, as well as unfavourable growth figures — the IMF predicts Chinese growth may fall below 4 per cent over the next half decade — may mean China remains out of favour with some investors, Citi added. Martha Muir More

The writer is Ukraine’s minister of finance In the aftermath of the cold war, world powers put in place systems of global governance. The goal was to protect liberal values, human rights and the world economy, and to extinguish the threat of nuclear annihilation. The unquestionable success of this new rules-based international order was its reach, bringing in Russia and post-Soviet Union states as well as other burgeoning economies such as China and India. But such a system only works when its members follow the rules. With its violent and unprovoked invasion of Ukraine, poisonous support of corruption and documented financing of terrorism, Vladimir Putin’s Russia makes a total mockery of the rules-based international order that gave us a unique period of peace and economic development. Yet, despite everything, Russia maintains a foothold in the global system it is doing everything it can to undermine. Russia sits on the UN Security Council and other UN bodies. The Security Council was created with the specific objective of preventing wars. How, then, can Russia remain a member after embarking on its war of aggression against Ukraine? We also have an international body to ensure global financial security — the Financial Action Task Force. Created by the G7, the FATF sets standards and promotes effective implementation of legal, regulatory and operational measures to limit three main risks: money laundering, financing of terrorism and of the proliferation of weapons of mass destruction. Today, FATF has 37 member states. These include Russia, despite evidence of the country failing to meet FATF standards on all three fronts. This month, FATF members will gather in Paris to consider further measures against Russia on a symbolic date — exactly one year since the invasion of Ukraine.Countless investigations have uncovered Russia’s complicity in money laundering, which has only increased following the introduction of wide-ranging sanctions since the full-scale invasion. Russia has also been found to have enabled or otherwise co-operated with various terrorist groups and blacklisted states, including the Wagner Group, the Taliban, Hizbollah, the Assad regime in Syria, North Korea and Iran.Iranian kamikaze drones were found to have been used to attack Ukrainian civilian targets, leading to further US sanctions in November 2022. Moreover, Russian individuals and entities were also placed under sanctions by the US in March 2022 for actions supporting the weapons of mass destruction and ballistic programmes of North Korea.These examples barely scratch the surface, however. Russia is also responsible for state-sponsored and criminal cyber threats to critical infrastructure. Its war against Ukraine is exacerbating the global energy crisis and drastically raising food costs, causing great harm across the world, especially in developing economies. In short, Russia is not simply undermining the global economic system. It is holding us all to ransom. More must be done, therefore.Ukraine calls on the FATF to expel Russia and blacklist it. This would arguably be the most effective tool for restricting terrorists’ access to the global economy, as it would force all states to apply enhanced due diligence to any transactions involving the financial system of a blacklisted jurisdiction. Sanctions are introduced by specific jurisdictions and are followed by their subjects. This leaves a big part of the global economy that has not introduced sanctions open to Russia.Blacklisting by the FATF would create universal controls and require enhanced due diligence. Any transaction with the Russian financial system would be reviewed and scrutinised. This would significantly increase the cost of doing business with Russia and effectively choke Putin’s ability to finance his illegal war of aggression. Just as important, it would help us to create a stronger, more resilient global financial system in the long term.

The EU, G7 and all other nations committed to a rules-based international order should urgently recognise the risks Russia poses to the integrity of the global financial system. They must also act to put Russia on their own “high-risk jurisdiction” lists and issue relevant market guidance. Russia has been allowed to undermine the system from the inside for too long. The international order can only survive if the rules are followed. We have powerful mechanisms available to enforce these rules. The time has come to use them. More

For decades, Saudi Arabia has attempted to launch its own car industry with nothing to show for it. It is now trying again — but this time with electric vehicles.The electric vehicle initiative is part of the kingdom’s ambitious diversification drive to wean itself off its reliance on oil income, which is its main revenue source as the world’s largest energy exporter.It intends to pour billions into the project to create an electric vehicle manufacturing hub, with the aim of producing 500,000 cars a year by 2030. The US-based Lucid Motors, in which Saudi Arabia acquired a majority stake costing roughly $2bn, intends to produce about a quarter of that target in the kingdom.Saudi Arabia hopes the transition to electric will also give the country a better chance of success as the petrol engine market is extremely difficult to break into because of the dominance of established carmakers in Europe, the US and Japan.The battery powered market offers a more level playing field than combustion, said one Saudi official, and would pit the kingdom against other big electric vehicle producers such as China, Germany and the US.In addition, Saudi can use its financial muscle to “buy into” the electric market, helped by its large surplus of petrodollars. “It’s a sector that’s already been developed,” added Monica Malik, chief economist at Abu Dhabi Commercial Bank. “They [the Saudis] can buy into it and invest in it rather than build something from scratch. It’s gaining traction in global usage, and it factors into the energy transition story as well.”There are some doubts over the country’s ability to compete against the likes of China with its strong electric vehicle manufacturing base, robust technology, high productivity and cheap labour costs.But still, electric vehicle manufacturing is planned as an important pillar of the kingdom’s diversification drive, which is being overseen by the sovereign wealth fund, the $600bn Public Investment Fund.The aim of the diversification drive is to expand the local labour force, teach workers new skills and create jobs in the private sector, while attracting foreign direct investment. The country’s broader economic plan includes the creation of the futuristic new city of Neom, a financial centre in Riyadh and tourist resorts. The Saudis will also continue their spending spree on sports and technology companies abroad. An electric-car charging point in Saudi Arabia © Rotana Hammad/AlamyElectric vehicle production is central to the initiative because the kingdom aims to take advantage of the industry’s expected expansion. Electric cars should make up about 60 per cent of vehicles sold annually by 2030, if net zero targets are to be reached by 2050, the International Energy Agency said. Key to the Saudi electric vehicle plan is the creation of Ceer, Arabic for drive or go, which the country hopes will produce 170,000 cars a year in partnership with Taiwan’s technology group Foxconn and BMW. The first cars are planned to go on sale in 2025 at the affordable end of the market. PIF has also acquired a majority stake in Lucid Motors, which plans to produce 150,000 cars a year in the kingdom in 2025, and signed contracts with Hyundai and Chinese electric vehicle group Enovate.Establishing an electric vehicle industry would substantially cut the kingdom’s import bill, said Tarek Fadlallah, the chief executive for Nomura Asset Management in the Middle East. “Transportation accounts for about 15 per cent of the Saudi import bill and is the single largest consumer of foreign currency. There is a huge incentive to substitute those imports with domestically produced cars.” In addition, the electric initiative fits with Saudi Arabia’s target of 30 per cent of all vehicles in Riyadh to be powered by batteries by 2030, while putting it among the world’s top five producers.However, there are headwinds, said Al Bedwell, director of Global Powertrain at LMC Automotive, as chip shortages and high mineral prices needed for batteries threaten development.He said recessionary forces across the world are likely to constrain the expansion of the electric vehicle sector. “By the end of this year, the industry is hoping they will build enough cars, but unfortunately at that point people may not have enough money to buy those cars.”He added: “The point at which you could produce an electric vehicle for the same cost as a combustion vehicle was thought to be around 2025, but it’s more likely now that it will be towards the end of the decade.”The electric car industry has also been hit by inflation and supply chain bottlenecks of minerals and components that could disrupt Saudi plans.With this in mind, PIF has launched a company to invest in mining abroad to secure its supply of lithium and other minerals used in batteries. At the same time, Australian battery manufacturer EV Metals is planning a lithium hydroxide plant in the kingdom.For its part, Lucid aims to start the assembly of vehicles in Saudi this year with cars completely built in the country in 2025.The Lucid and Ceer factories will be based in the King Abdullah Economic City, a Red Sea zone built to attract investment and boost the economy, which will act as a hub for the supply chain, according to the city’s chief executive Cyril Piaia.“There is a full value chain. The suppliers will be fully integrated. They will be part of the automotive hub. There will be a number of suppliers that will be established here,” he said.Faisal Sultan, Lucid’s managing director for Saudi Arabia, stressed the importance of the government taking the initiative in building a supply chain.“The supply chain is going to be a main thing we’re going to go after,” he said. “The supply chain doesn’t come typically for one OEM [manufacturer] . . . that’s why it’s a government driven initiative rather than OEM driven.” More

A trip to the supermarket in Poland now requires not only a full wallet but also a magnifying glass to check the fine print on the packaging. Parents tasked with wiping their children’s runny noses this winter have been caught out by packets containing not 10, but eight tissues. The health-conscious have found their half-kilo tubs of kefir cut to 420g. The famous “Bird’s milk” chocolate box sold by local confectioner Wedel now contains just 340g of the sweet stuff, down from 360g in December. With inflation at about 17 per cent — almost double the eurozone average — retailers and food producers in Poland are resorting to a practice as old as price pressures to hide the rise in costs from their customers. That practice is “shrinkflation”, a phenomenon that involves skimping on the amount — or quality — of produce sold to consumers, rather than raising the cost of the item itself. It is a technique that has been used by everyone from Roman emperors, who debased silver and gold coins with copper and other cheaper metals to finance their empire-building, to bakers in the Middle Ages, who tried to prevent bread riots by selling smaller loaves. In Poland, following a surge in producers’ energy costs triggered by Russia’s full-scale invasion of Ukraine, consumer goods companies have devised sneaky albeit legal ways to hide the fact they are forcing their consumers to pay the same for less. They are reshaping bottles and tubs, thinning down cleaning sponges and reducing the size of their bags of crisps. A box of Rooibos tea that used to contain 25 bags, left, is now sold in Poland with just 20 bags © Agata Wołoszyn-JaworskaPolish economist Rafał Mundry, who has been compiling a shrinkflation database for the past four years, described it as “the shadow side of inflation that many people unfortunately don’t notice or don’t even ever think about”. With inflation at a 25-year high, Mundry said packaging was being changed “on a scale I’ve never seen before”. As in many other countries, Poland’s statistics office calculates inflation by focusing on the cost of items based on their actual weight rather than the format in which they are sold. If a confectioner cuts the amount of chocolate in each of their bars, this will show up in the statistics. Yet those cuts may not be spotted by consumers doing their weekly shop. Katarzyna Bosacka, a food and consumer affairs pundit, is urging customers to spend more time reading not only the price tags but the labels as well. “I can only say one thing: everything is bigger in Texas, everything is getting smaller in stores in Poland,” she said. “It’s a question of habit,” said Mundry. “When we buy our cheese, we know perfectly well that it can be packaged in all sorts of sizes, so we actually look at whether it weighs half a kilo, 250g, 150g or 100g.”Consumer goods producers argue that they have little choice but to rely on customers’ reluctance not to check familiar items as their production costs have soared by 30 to 40 per cent on the back of higher inflation. Paweł Bajorek, regional director of UK consumer goods company Reckitt Benckiser, said: “You cannot just increase prices that much in one shot.” Among its flagship products on sale in Poland, Reckitt is now selling its Finish dishwasher detergent in batches of 46 tablets, down from 50. Bajorek also noted that repackaging had logistical challenges and limitations, as companies needed to change the certified bar code on each new packaging. “The bad message for consumers is that there will probably be more price increases,” Bajorek said, adding that these would be introduced gradually over the coming months. Comparisons of packaging on yoghurt pots and spaghetti packets by Polish consumers show that sizes have decreased © Agata Woloszyn/Katarzyna BosackaIn some cases, soaring production costs are also getting passed on to consumers by using cheaper ingredients — something that is even harder for both consumers and statisticians to track. Mundry has found more palm oil in his butter, less fluoride in his mouthwash and more glucose syrup being substituted for sugar in his confectionery. In almost every case, he said, the change had been so subtle that he had to compare new labels with older ones to identify it. He mostly shops at Biedronka, one of the biggest supermarket chains in Poland, but he has found similar issues in other stores. Katarzyna Grabarna, brand development manager at Biedronka, said that altering the weight or content of own-brand products was not “our focus when it comes to looking for savings”. Instead, she said, Biedronka was prioritising reducing the plastic in its packaging and improving bulk packaging and deliveries. Biedronka’s packaging alterations meant it reduced its use of plastic by 600 tonnes last year. Still, Mundry worries about the quality of what people now buy in inflation-hit Poland.“It’s very surprising to me how the ingredients in some products have recently been changed, unfortunately never for the better and sometimes for much worse in terms of our health,” he said. More

Americans are burning through the excess savings they amassed earlier in the coronavirus pandemic, fuelling concern among a growing number of companies about the outlook for consumer spending once the one-off boost to the economy ends.In this fourth-quarter earnings season several consumer-facing companies have hailed the resilience of an economy where wages are rising, unemployment remains at record lows and Americans are spending on experiences they missed early in the pandemic. Demand is booming for premium vodkas, customised Starbucks orders and Disney theme park tickets, executives report.Others, though, have warned of a new caution among shoppers. Lower-income customers in particular are cutting back on purchases from cat litter to mattresses as inflation keeps prices high and as they spend money they had saved thanks to stimulus packages and lower spending after Covid-19 hit.Estimates of these savings vary but Morgan Stanley analysts calculated last month that US households spent roughly 30 per cent of their $2.7tn in pandemic “excess savings” in 2022. This cushion had disappeared completely for many poorer consumers, they added.“In general, families at the lower end of the income spectrum don’t have any more excess savings and if anything they’re dipping into their savings,” said Gregory Daco, chief economist at EY-Parthenon. There is now a “K-shaped” pattern in consumer spending, he said.“The well-offs are the ones who still have the ability to spend relatively freely but even so they are doing so with more caution” given inflation and high interest rates, he said. “It’s the lower and medium end of the income spectrum that are persistently struggling in the face of these high prices.” That split is leading to mixed messages from executives, even as companies across sectors become more wary of predicting the outlook for the coming months.Citing how many Americans had used up their excess savings, Tyson Foods chief executive Donnie King told analysts this week that he expected its consumers to be under more pressure over the rest of this year. Mattel noted that higher-priced toys had been affected by “macroeconomic challenges”, with sales of its American Girl dolls down 16 per cent.At the same time, Hilton Worldwide chief executive Chris Nassetta highlighted the $1tn-plus of excess savings consumers were still sitting on as a boost to the hotel sector.“They are spending it, and they’re probably reading the papers and watching the news and getting more nervous,” he said, but hotel operators were benefiting from a parallel shift in spending from goods to experiences such as travel.“The confusion in some of these headlines speaks to the fact that the economy is moving at multiple speeds, depending on the sector of the economy,” said Michelle Meyer, North America chief economist at the Mastercard Economics Institute.“We’re in an environment where the economy is right-sizing and depending on the sector of the economy that’s going to feel different. For some sectors it’s going to be a nice acceleration, but for others it’s a contraction,” she said.Mastercard’s SpendingPulse tracker found that US retail sales excluding automotive were up 8.8 per cent year-over-year in January, but the headline number masked big differences between sectors. Sales of furniture and furnishings fell 1.2 per cent even as people’s travel budgets rose and restaurant spending soared by 24.2 per cent.With household balance sheets generally “in pretty solid shape”, consumers “have money but they’re nervous”, Hugh Johnston, chief financial officer of PepsiCo, told the Financial Times. They were avoiding large purchases, “but they do want an affordable treat”, he said.Several companies drew a distinction between wealthier and poorer customers, with Diageo hailing the growing market for premium spirits priced at $50 or more per bottle and Yum Brands highlighting growing interest in cheaper menu items such as Taco Bell’s $2 burritos.

“We’re seeing the high-end consumer continuing to hang in there [but] the low-end consumer has been where a lot of the deterioration has been,” Scott Thompson, CEO of mattress maker Tempur Sealy International, told analysts.Pet owners were trading down from premium to “value” litter, Church & Dwight told investors. “I don’t know if technically, we’re in a recession or not as judged by economists, but I can tell you our consumer sure feels that we’re in a recession,” said Barry Bruno, its chief marketing officer. As inflation pushed up the cost of everyday goods “that’s forcing them to make difficult decisions”.A University of Michigan survey confirmed on Friday that high prices were still weighing on consumers even as inflation moderated, keeping sentiment 22 per cent below the index’s historical average.Daniel Sullivan, chief financial officer of Edgewell, said the maker of razors and sun cream had seen no trading down but would not be surprised if pricing in its markets became more promotional. “We do see the data, particularly the recent spike in credit card usage, and that’s usually a pretty good indicator,” he noted. The more cautious consumer picture has played into a corporate reporting season when earnings are coming in on average just 1.6 per cent above expectations, according to Refinitiv I/B/E/S. Over the past 30 years large listed US companies have beaten forecasts by 4.1 per cent on average, making this “surprise factor” the weakest since the crisis-hit fourth quarter of 2008. More

ECB Governing Council member Ignazio Visco, who is also the Bank of Italy’s governor, added he did not believe a recession was inevitable in order to reduce inflation.The ECB has raised interest rates by 3 percentage points since July and promised a 50 basis-point hike for March.”Today, disinflation is obviously needed, but given the levels of private and public debts that prevail in the euro area, we must be careful to avoid engineering an unnecessary and excessive rise in real interest rates,” Visco told the Warwick Economics Summit.”Indeed, I am convinced that the credibility of our actions is preserved not by flexing our muscles in the face of inflation, but by continually showing wisdom and balance.” The ECB has kept its options open about subsequent steps after March, raising doubts among investors about the extent of further increases.Investors and economists have focused on a peak in the deposit rate of between 3.25% and 3.5%, which suggests just one or two moves after the March hike and an end by mid-year.Politicians in Italy have expressed concerns about the impact of rising interest rates given the country’s huge debts.Visco said ECB rates must continue to rise “in a progressive but measured way, on the basis of the incoming data and their use in the assessment of the inflation outlook”.Inflation has dropped by around 2 percentage points since its peak in October, and further falls are likely as natural gas prices retreat.But underlying price growth appears to be stubbornly high leading to fears that inflation could get stuck at levels above the ECB’s 2% target, partly due to rapid nominal wages growth.”I see no compelling reasons for inflation not to return to target, notwithstanding the still abundant (and excessive) liquidity present in the economic system,” Visco said.Looking at the persistence of inflation in many countries during the 1970s, Visco said big improvements in monetary policymaking and changes in European economies made that “very unlikely” to be repeated. More

KARACHI (Reuters) – Pakistan and the International Monetary Fund are to resume talks online next week they said on Friday, after ten days of face-to-face discussions in Islamabad on how to keep the country afloat ended without a deal.With the nuclear-armed nation in the grip of a full-blown economic crisis, the IMF talks are aimed at unlocking at least $1.1 billion of stalled funding as part of a $6.5 billion bailout signed in 2019.Finance Minister Ishaq Dar told reporters Pakistan had agreed with the IMF on the conditions to release the funds, which have been delayed since last December. Talks would resume virtually on Monday, he added, citing “routine procedures” for the delay. “We will implement whatever has been agreed upon between our teams,” Dar said. In a statement, Pakistan IMF Mission Chief Nathan Porter confirmed talks were continuing and that considerable progress had already been made. The hold-up though sent the price of the country’s government bonds tumbling again.Pakistan is in dire need of a successful outcome. The $350-billion economy is still reeling from devastating floods last year, and the government estimates rebuilding efforts will cost $16 billion.The heavily-indebted nation only has enough foreign reserves to cover less than three weeks of crucial imports. The longer it takes for the IMF tranche to be paid out, the higher the risk of default, analysts say, especially with elections also looming.Last week, Prime Minister Shahbaz Sharif called Pakistan’s economic situation “unimaginable.””Ideally, Pakistan should have reached a staff level agreement at the end of the IMF mission,” Khaqan Najeeb, a former finance ministry adviser, told Reuters. “Delay is untenable.” GRAPHIC: Pakistan’s payment pain (https://www.reuters.com/graphics/PAKISTAN-CRISIS/znvnbzrrlvl/chart.png) IMF MEASURESThe so-called staff-level agreement, which then needs to be approved by the IMF’s head office in Washington, must be reached before the funds are disbursed.In addition to the stalled tranche, another $1.4 billion remains of the $6.5 billion bailout programme, which is due to end in June.Experts said Pakistan needs the payout as soon as possible. “If this drags on for, say, longer than a month, things get more difficult as our forex reserves have reached a critical level,” former central bank Deputy Governor Murtaza Syed told Reuters.The conditions set by the IMF include a return to a market-based exchange rate and higher fuel prices, measures that Pakistan recently implemented and that have already sent inflation to a record high – 27.5% year on year in January – and created shortages in some imported goods.Dar said Pakistan had also agreed with the IMF to introduce fiscal measures, including new taxes. Analysts fear more fiscal tightening could tip the economy further into crisis.”The government has not only wasted over five months in realising the gravity of the situation, it is still sleepwalking the country into an economic abyss,” said Sakib Sherani, who served as the finance ministry’s principal economic adviser in 2009-10. More