Economy

The writer is president and chief executive of the US Chamber of CommerceOne of the great lessons of the 20th century has been driven home yet again this year: America ignores trouble in Europe at its own peril. As the war in Ukraine reaches an inflection point, the US business community is assessing how the energy and food price shocks and other economic consequences of the war will reverberate in the country’s economy — and worldwide — in the months and years to come. We are particularly concerned about the impact on our friends and allies across the Atlantic, where the US chamber partners with a network of more than 40 American chambers of commerce in Europe. We anticipate that Europe’s energy crisis will persist for years. This winter may not be as bad for Europeans as initially anticipated — Europe’s gas storage sites are now at more than 90 per cent of capacity with dramatically expanded exports of liquefied natural gas from the US and additional supply from Norway. But a lot can go wrong — from a colder than expected winter to malfunctioning pipelines. Natural gas prices are already up 10-fold and European energy costs have risen to 12 per cent of gross domestic product, nearly triple its historical average. This is driving up the cost of electricity, manufacturing and nearly all other economic activities across Europe. Added to that, thousands of European companies are nearing the end of their fixed energy contracts and will be forced to renew at much higher prices. European households may have enough gas to stay warm this winter, but we are already seeing industries scaling back or completely shutting down. Many other production facilities will probably close or move abroad over the coming months, and next winter may be even tougher after existing energy reserves have been depleted. As a result, many American companies are concerned about shortages, especially those with manufacturing facilities in Europe or that rely on European inputs. The US imported $775bn in goods and services from Europe in 2020.There is no way around it: a recession affecting Europe, America’s largest trade and investment partner, will also reduce output and slow growth in the US. Some American companies, including consumer goods manufacturers, steel and chemical manufacturers, auto companies and more have already been forced to scale back production due to conditions across the Atlantic. The declining values of the euro and British pound versus the dollar will also have a range of unpredictable impacts, positive and negative, for US companies. So, what can we do to help the transatlantic business community? The immediate answer is that the US has an opportunity — and a responsibility — to increase its energy leadership to help our allies, and our own nation, weather this storm. That is why the chamber and others are urging the American government to pass permit reform to support timely development of new energy infrastructure, from pipelines and critical mineral mining to renewable generation. Bolstering our domestic production and transport will be critical to helping our European partners. The stakes are high. The economic fallout from the war in Ukraine will ripple throughout the global economy for years to come. A long and deep recession will chip away at Europe’s competitiveness. The continent’s share of the global economy has been declining over the past 15 years and this could accelerate that decline. Moreover, a weakened Europe is not in the interest of the US. We are partners for a reason, having built prosperous societies based on democracy, free enterprise and a rules-based international order. Those very principles are being challenged by Russia’s invasion of Ukraine. For the sake of America’s own interests — and the world — we need to make sure Europe remains strong and prosperous. More

The price of a bowl of tomato pasta, a favourite meal among British households, has risen by nearly 60 per cent since last September due to soaring inflation, according to an analysis by the Financial Times.The price of pasta jumped by an annual rate of 60 per cent last month while cooking oil was up 65 per cent, figures published on Tuesday by the Office for National Statistics showed.The cost of tomatoes increased by 19.3 per cent, while cheese rose by 10.4 per cent — resulting in an average increase of 58 per cent to the cost of preparing a bowl of tomato pasta and laying bare the toll of rising food bills on household budgets. UK inflation stood at 10.1 per cent in September, its highest level in 40 years, driven by a 15 per cent increase in food prices. Orange juice and minced beef, which are less commonly used than other items on the ONS list, were the only categories to register a significant contraction.Inflation surged following supply chain disruptions during the Covid-19 pandemic, which have since been exacerbated by Russia’s invasion of Ukraine, resulting in many products, including gas, wheat and oil, soaring in price.

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The data also showed that the price of bread and chips rose by nearly 40 per cent in September while the price of milk climbed 29.4 per cent, according to the experimental price statistics based on data scraped from the web. The ONS acknowledged that the estimated price changes were “created from a small number of price quotes”, as it had focused “on the very lowest-cost products, not an average of numerous product prices”. Separate data from the ONS released on Tuesday showed that ethnic minorities were worst hit by the cost of living crisis, with a much larger proportion of people from these groups saying they were struggling with energy and rent payments.Nearly 70 per cent of black British adults and 59 per cent of Asian and Asian British people reported difficulties in meeting energy bills. Among white adults, the figure was much lower at 44 per cent.Only 4 per cent of white adults reported being behind on their energy payments, but the share rose to 21 per cent among black or black British adults.

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Myron Jobson, analyst at the investment platform Interactive Investor, said more people were turning to own-label and cheaper products, “but the cost benefits of switching to lower-priced store brand equivalents wane when prices are rising across the board”.“Those on the breadline struggle most with rising food prices as they spend a greater proportion of their incomes on food and drink than those further up the income spectrum,” he added. Overall, the 30 lowest-priced items of those surveyed increased in cost by an annual rate of 17 per cent in September, up from 7 per cent in April.The ONS noted that “economic factors, such as personal income and employment status also appeared to affect people’s experiences” of the cost of living crisis.Sarah Coles, senior personal finance analyst at the asset management Hargreaves Lansdown, said that some of the price rises were “eye-watering” and they make “it enormously challenging to manage on the lowest incomes”. More

The International Monetary Fund is working with Ukrainian authorities to help define and implement the country’s macroeconomic policies and what will be required to become a member of the European Union, as well as produce reliable financial projections, Georgieva told a conference in Berlin on Tuesday.She said IMF staff had met with Ukrainian authorities in Vienna last week to discuss the country’s financial needs and were working toward a fully-fledged IMF lending programme.Georgieva strongly endorsed Ukraine’s calls for a mechanism to coordinate financial needs and support, a message echoed by Odile Renaud-Basso, president of the European Bank for Reconstruction and Development, and other speakers.”We were part of the solution during the emergency phase. We are going to be a part of the solution during this recovery phase,” the IMF leader said.She lauded Ukrainian leaders for continuing to manage the economy in “exceptionally difficult times”. She said the international community had also stepped up with pledges of $35 billion to support the country in 2022, but it was critical to ensure that money not yet disbursed went out quickly.”The country is doing a really good job in making every cent – every hryvnia, I should say – count,” Georgieva said, although budget revenues remained severely constrained.While the best-case scenario called for $3 billion a month in 2023, those costs could easily rise to $4 billion to cover additional gas imports and rebuild infrastructure, she said. “And in a worst case scenario, if the bombing is even more dramatic … it could go to $5 billion a month.”But Werner Hoyer, president of the European Investment Bank, told the conference he didn’t want to “dwell on these horrifying figure scenarios” that were scaring people.”We should be very pragmatic and say first things first,” Hoyer said. “We need to act now. The more the economy stays resilient today, the faster will be the recovery tomorrow. The later we start, the higher the bill will be someday.” More

LONDON (Reuters) -Rishi Sunak said on Tuesday he was not daunted by the scale of the challenge as he became Britain’s third prime minister in two months, pledging to restore trust, rebuild confidence and lead the country through an economic crisis. The 42-year-old former hedge fund boss, who has only been in elected politics for seven years, has been tasked with bringing an end to the infighting and feuding at Westminster that has horrified investors and alarmed international allies.”I fully appreciate how hard things are,” he said outside the prime minister’s residence at Downing Street where he shunned the normal tradition of standing with his family and political supporters. “I understand too that I have work to do to restore trust, after all that has happened. All I can say is that I am not daunted. I know the high office I have accepted and I hope to live up to its demands.”Sunak, one of the richest men in parliament, is expected to slash spending to plug an estimated 40 billion pound ($45 billion) hole in the public finances created by an economic slowdown, higher borrowing costs and a six-month programme of support for people’s energy bills.With his party’s popularity in freefall, Sunak will also face growing calls for an election if he moves too far from the policy manifesto that elected the Conservative Party in 2019, when then leader Boris Johnson pledged to invest heavily in the country.Economists and investors have said Sunak’s appointment will calm markets, but they warn that he has few easy options when millions are battling a cost of living crunch.”I will place economic stability and confidence at the heart of this government’s agenda,” he said, shortly after he accepted King Charles’s request to form a government. “This will mean difficult decisions to come.”He also vowed to put the public’s need above politics, reflecting the mounting anger at the sense of perma-crisis that has gripped Britain since the historic 2016 vote to leave the European Union unleashed a battle for the future of the country. Sunak has warned his colleagues they face an “existential crisis” if they do not help to steer the country through the surging inflation and record energy bills that are forcing many households and businesses to cut back spending.FINANCIAL TURMOILBritain’s youngest prime minister for more than 200 years and its first leader of colour, he replaced Liz Truss who resigned after 44 days following a “mini budget” that sparked turmoil in financial markets.He will now need to review all spending, including on politically sensitive areas such as health, education, defence, welfare and pensions.Reflecting the near constant state of turmoil in British politics this year, politicians, journalists and photographers once again crammed into Downing Street on Tuesday to hear a departing speech from Truss, and an arrival one from Sunak. Truss was applauded by politicians as she arrived outside her office and residence to speak, seven weeks to the day after she took office. She did not apologise for her short tenure despite it sparking a collapse in the pound and a surge in borrowing costs and mortgage rates. Sunak paid tribute to Truss and said her plan to reignite economic growth had not been wrong, but he said mistakes were made. “And I have been elected as leader of my party and your prime minister, in part to fix them,” he said. Sunak will now start forming his cabinet, with some Conservative lawmakers hoping he will include politicians from all wings of the party. He is expected to retain Jeremy Hunt as finance minister after the former foreign and health secretary helped calm volatile bond markets by ripping up most of Truss’s economic programme.Investors will also want to know if Sunak still plans to publish a new budget alongside borrowing and growth forecasts on Oct. 31, which would help inform the Bank of England’s interest rate decision on Nov. 3.”Adults have taken charge again,” Michael O’Leary, the boss of airline Ryanair, said.POLITICAL MACHINATIONSSunak, a Goldman Sachs (NYSE:GS) analyst who only entered parliament in 2015, must unite his party, aware that voters are increasingly angry over the antics at Westminster as the economy heads for recession.He was blamed by many in the party when he quit as finance minister in the summer, triggering a wider rebellion that brought down Johnson.While many expressed relief that the party settled on a new leader quickly, a sense of distrust remains among some while others questioned whether struggling families would relate, or ever vote, for a multimillionaire.”I think this decision sinks us as a party for the next election,” one Conservative lawmaker told Reuters. Historian and political biographer Anthony Seldon told Reuters that Sunak would also be constrained by the mistakes of his predecessor.”There is no leeway on him being anything other than extraordinarily conservative and cautious,” he said.Many politicians and officials abroad, having watched as a country once seen as a pillar of economic and political stability descended into brutal infighting, welcomed Sunak’s appointment.Sunak, a Hindu, also becomes Britain’s first prime minister of Indian origin.U.S. President Joe Biden described it as a “groundbreaking milestone”, while leaders from India and elsewhere welcomed the news. Sunak’s billionaire father-in-law, N.R. Narayana Murthy, said he would serve the United Kingdom well.”We are proud of him and we wish him success,” the founder of software giant Infosys (NYSE:INFY) said in a statement.($1 = 0.8864 pounds) More

Meloni said her government would have to spend heavily on curbing the impact of the energy price crisis, which meant it would have to delay some expected measures from the 2023 budget, which must be presented next month.She added that her right-wing, nationalist coalition would ensure public ownership of major infrastructure, such as motorways and airports. She also promised to introduce gradual tax cuts and to reduce red tape.Meloni quoted a forecast from the International Monetary Fund predicting the economy will shrink by 0.2% in 2023. She added that the Italian Treasury was more optimistic, expecting growth of 0.6% in its most recent forecast. (This story has been corrected to make clear that Italian Prime Minister Meloni said the country might fall into recession next year, not that it definitely will) More

Investing.com — Investors in global bond markets in the developed world are, by all appearances, on edge these days.Yields on sovereign debt have soared to their highest levels in years, spurred on by many central banks around the world, looking determined to continue tightening monetary policy to quell soaring inflation, even if it may weigh on broader economic growth.The 10-year U.S. Treasury bond, a crucial benchmark, has seen its yield comfortably top 4% after it started the year at around 1.5%. Meanwhile, the yield on its 2-year counterpart has ballooned even higher, a development that historically suggests a recession is looming in the world’s largest economy. Prices typically fall as yields rise.Researchers at the BlackRock Investment Institute are clearly biting their fingernails: A study last week said darkly that normally safe-haven government bonds may not offer much protection should central banks continue hiking borrowing costs to cool down red-hot inflation.Meanwhile, from Wall Street to Washington D.C., concerns over liquidity are heaping additional strain on already stressed U.S. Treasuries – a crucial cog in the engine of the global economy.A measure of market liquidity from JPMorgan recently dropped to its lowest level since the early days of the pandemic in March 2020. A Bloomberg index shows investors are now finding it the most difficult to get deals done in the Treasury market in about two and a half years.Driving these jitters is the Federal Reserve, which has laid out plans to scale back its huge $9 trillion balance sheet. The Fed hopes that by rolling back this bond buying – and thereby reversing much of a program partly designed to help prop up banks during the initial economic fallout from the COVID-19 crisis – it can take some more steam out of price growth.But the consequences of this decision are still far from certain.In September, a strategist at Bank of America flagged that the Fed rapidly pulling liquidity out of the Treasury market represents “one of the greatest threats to global financial stability today, potentially worse than the housing bubble of 2004 – 2007.”Even U.S. Treasury Secretary Janet Yellen has warned that she is “worried” about maintaining adequate liquidity in bond markets. In November, U.S. regulators will debate possible changes in the structure of the Treasuries market to try to address potential systemic issues.This is for good reason, as Rishi Sunak’s sudden rise to power in the United Kingdom has shown. His predecessor as prime minister, Liz Truss, found herself without the support of her party following the release of a disastrous “mini-Budget” filled with unfunded tax cuts that sent British government bond yields, known as Gilts, spiking.These gyrations, along with signs of sputtering in pension funds, led the Bank of England to shore up U.K. debt markets through £5 billion in temporary debt purchases. Truss’s premiership is now over, but not before the chaos also impacted bond markets in the U.S. and Europe.Policymakers at the European Central Bank will meet on Thursday, with the Frankfurt-based institution expected to reveal more details about its rate hike path and, potentially, its own pullback on bond buying.Earlier this week, Eurozone borrowing costs dropped on a report that the Fed could begin to slow its pace of policy tightening. Investors are hoping the ECB may follow suit.But the worries persist, echoing a sentiment attributed to American political strategist James Carville: “I used to think that if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody.”It remains to be seen whether the recent bond market turmoil of the past few weeks may just prove him right. More

MANILA (Reuters) – The Philippine central bank must be a “little aggressive” in tightening policy to bring inflation down to within its target range of 2%-4% next year, its governor said on Tuesday, in yet another signal of his preference for bigger rate hikes ahead. Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla repeated he would vote to match the policy move of the U.S. Federal Reserve, which is expected to deliver another 75 basis-point rate hike at its meeting on Nov. 2.”If I am the only one voting, I will match the next Fed increase,” Medalla, who heads the seven-person policy-making monetary board, told a banking forum. The BSP, which has so far raised rates by a total of 225 bps this year, will hold it penultimate meeting about a week after the policy review of the Fed, which is forecast to go for its fourth consecutive 75 bps rate hike to tame inflation. The BSP’s series of rate hikes has only given policymakers a “50% chance” of hitting next year’s inflation target so “we must be a little bit more aggressive in increasing rates,” Medalla said.Annual inflation has risen past the central bank’s comfort range with the average rate in the nine months to September at 5.1%, fuelled in part by a weaker peso that has aggravated already elevated costs of imported food and fuel. The Philippine peso is Southeast Asia’s worst-performing currency, having lost more than 13% against the U.S. dollar so far this year. It closed slightly firmer at 58.78 per dollar on Tuesday compared with Monday’s close at 58.87. “Given what is happening to the exchange rate, we in this case must respond to the Fed point by point,” Medalla said.Medalla told reporters on the sidelines of the forum the central bank was intervening in the FX market “almost everyday” to counter volatility, and that the level of its foreign exchange reserves remains adequate. The peso hitting 61 to a dollar was “not the end of the world,” he said.The country’s finance secretary said on Monday the government would not allow the peso, which has already hit multi-year lows, to breach 60. More

The rules aim to safeguard the legitimate rights and interests of private businesses and expand employment, China’s cabinet said in a notice published on its website.”Private businessmen are important market players, playing an important role in booming the economy and increasing employment.”The Tuesday rules also banned abusive charges to the self-employed.The world’s second-biggest economy is grappling with the economic impact of persistent COVID-19 curbs, a prolonged property slump and global recession risks with falling domestic demand and high unemployment. More