Economy

Attending an International Air Transport Association (IATA) conference in the Qatari capital Doha, IATA Director General Willie Walsh said China’s zero-COVID policy had “devastated” Hong Kong and hit airline Cathay Pacific hard. “Cathay Pacific is a shadow of its former self as a result. Hong Kong has lost its position as a global hub and will struggle to regain it because other hubs have taken advantage of it,” he said, blaming government policies, not the virus.Hong Kong is traditionally a major hub where passengers transit between international flights and on journeys to China, and is the base of Cathay Pacific.The pace of the recovery in global passenger demand has picked up over the northern hemisphere summer, with airline executives attributing higher than expected demand to a surge of people keen to travel after two years of restrictions.But the recovery has been uneven, with China continuing to enforce tight COVID-19 related border and social curbs.Walsh said IATA was closely watching for any indications that China would ease its restrictions, and said there had previously been expectations there would be changes this year.If the restrictions continue next year, the industry will suffer. “It clearly will have an impact on the overall strength of the recovery,” Walsh told reporters. More

ROME (Reuters) – For the first time in Italian history, 18-24-year-olds will enjoy full voting rights at the Sept. 25 national election, meaning the voice of young people should count more than ever before.Ending a long-standing anomaly, the minimum voting age for the upper house Senate has been lowered from 25 to 18, bringing it into line with the lower house Chamber of Deputies. The two houses of parliament have equal powers.”In terms of numbers, of course it means that young people matter more in these elections,” Livio Gigliuto, vice-president of the Istituto Piepoli polling institute, told Reuters. “The key issue is how many of them actually vote.”The change in rules affects 4.1 million people, out of a total electorate of 51.4 million, and although pollsters say a sizeable number might abstain, politicians are not being shy in their attempts to win over new voters’ hearts and minds. True to his showman persona, former premier and cruise ship crooner Silvio Berlusconi has led the way in attempts to reach out to them via TikTok, with videos in which he uses funny voices, cracks jokes and plays on his playboy image. “I’m speaking to those of you over the age of 18 – is it to ask you to introduce me to your girlfriend? Not at all! I am asking you to go and vote on September 25, and to vote for me,” the 85-year-old said last week.With his antics, Berlusconi has attracted more than 2.5 million likes on the social network, in less than three weeks. But is unclear whether the attention he is getting will translate into cast ballots. “I watched Berlusconi’s videos on TikTok, but because they make me laugh, not because I want to vote for him,” said Alessandro Males, 20, a high school student from Milan who is planning to abstain. “Generally speaking, I think voting does not lead to any change. I don’t see any tangible differences for me whether there is one person or another in government,” he said.COMEBACK HOPESA poll released in August by the SWG institute estimated the potential abstention rate among younger voters at 34-38%, reporting that 43% of them believed that voting “is meaningless” because politicians “do whatever they want” once elected.But that hasn’t stopped parties specifically targeting first-time voters.All the manifestos include generous promises targeted at young people struggling with work or studies, including help with tuition fees, mortgage and rent costs, the introduction of a minimum wage and the outlawing of unpaid internships.The centre-left Democratic Party (PD) is also promising a 10,000 euro ($9,980) “dowry” for 18-year-olds from low-income families, and is messaging strongly on climate change, abortion and LGBTI rights.Surveys suggests these are top concerns among young voters. PD leader Enrico Letta “is really convinced this is one way in which he can close the gap with the centre-right”, a centre-left candidate, who was not allowed to discuss strategy on the record, told Reuters. It would be quite a comeback: before an opinion poll blackout came into force on Sept. 10, the PD-led bloc was polling below 30%, compared with more than 45% for the right-wing coalition fronted by Giorgia Meloni’s Brothers of Italy (FdI) party.The SWG poll in August showed the PD to be the most popular party in the 18-24 age group with 19% backing compared with 17% each for FdI and the left-leaning 5-Star Movement (M5S).Support for 5-Star has been edging up since August, mostly thanks to its championing of welfare for the unemployed and poor, leaving the door open to a late surprise in Sunday’s vote.”Looking at what is on offer, I wouldn’t feel like voting for anyone else,” said Enrico Garitta, 26, from Palermo. ($1 = 1.0022 euros) More

The writer is a visiting professor of economics at Columbia Business SchoolThe European Central Bank’s transmission protection instrument has been created with the best intentions. As ECB president Christine Lagarde explained, the TPI “can be activated to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across the euro”.There is clearly value in an instrument that backstops the euro without limit. However, to be beneficial to the EU such an instrument must not undermine sound fiscal and economic policies. In this case, the absence of effective conditionality leads to atrocious incentives for countries, politicians and, crucially right now, voters. The ECB listed four criteria for a country to be eligible: compliance with the EU fiscal framework; absence of severe macroeconomic imbalances; sustainable debt, according to the analysis of several institutions; and compliance with other EU recommendations. In practice, the first is suspended given the fiscal rules. The second and fourth do not seem effective since they offer large discretion for judgment by the European Commission. On the last, the commission has been giving free rides to all countries in their recovery plans (except Hungary and Poland, because of disputes about the rule of law). Whether it does this for supposedly good, Keynesian reasons or for bad, political economy reasons, is irrelevant. And, based on sufficiently optimistic assumptions, a declaration by the institutions that debt is sustainable is no real hurdle. Moreover, the ECB must merely “consider” these criteria as “an input”. The ECB has put itself in an impossible position. It has dulled all desirable market signals and incentives, without replacing them with any credible conditionality. The TPI is not accompanied by a fiscal backstop from eurozone countries. So, if the ECB stops intervening “based on an assessment that persistent tensions are due to country fundamentals”, the state supported will face a fiscal crisis. But the ECB will want to avoid sovereign debt restructuring, so it will be trapped into continuing support.

It is no wonder that rightwing parties in Italy brought down Mario Draghi’s government at exactly the moment they knew the ECB was about to announce the backstop for bondholders. The incentives for a new far right, Eurosceptic government to choose a responsible course are low. More likely, it will cut taxes, increase pensions and offer untargeted energy support, betting that the ECB will have no choice but to activate the TPI and continue buying Italian debt. With the ECB providing such full insurance, the incentives to complete the architecture of the euro have evaporated as well. In a stunning development, the member states have quietly announced the abandonment of efforts to conclude the EU’s banking union by putting in place a European deposit insurance. Most importantly, the TPI creates a dangerous lack of transparency for voters. If a coalition that is leading the polls is likely to govern badly and put a country at risk, voters have a right to know the pitfalls and see them reflected in the markets.The creation of such a largely unconditional instrument is a mistake, and one that Draghi avoided while at the helm of the ECB. The instrument he devised at the height of the euro crisis, the Outright Monetary Transactions programme, provided all the right incentives as it could only be activated with the backing of the European Stability Mechanism, and an approved reform programme. The coming winter will test this weak institutional set-up. As long as the eurozone does not move towards a true fiscal and banking union, it is likely to reveal the unsustainable nature of the current construction of the euro. More

BEIJING (Reuters) -The stock of new homes in small Chinese cities hit its highest since 2019 as of the end of August, according to a report from an independent consultancy, amid fragile demand in the country’s downtrodden property market.The number of unsold new homes in tier-three and tier-four cities jumped 5% as of the end of August from a year ago, according to China Real Estate Information Corp (CRIC) which monitors 100 Chinese cities.It was currently taking developers about 20 months to sell a new home nationwide and over 50 months in some small cities, CRIC said in a report published on Wednesday.Small cities generally account for about half of all unsold new homes in China. CRIC declined to comment when asked by Reuters to give more details.China’s property market has repeatedly grappled with crises since 2020 and problems worsened in August as a mortgage boycott and developers’ financial strains further hurt confidence in the sector, data showed earlier this month.Prices were dragged down by weak demand in smaller cities amid persistently slow deliveries by heavily-indebted developers, the data showed.Developers in tier-two cities including some provincial capitals, were also struggling to find buyers, the CRIC report showed, and it was taking them around 18 months to sell houses.The eastern city of Qingdao and the central city of Wuhan both reported more than 20 million square meters of unsold new home stock each, topping the cities monitored by CRIC.While the number of unsold new homes increased by 13% year on-year in August in tier-one cities, where developers tend to launch new projects, it took nearly 13 months for new homes to be sold in cities such as Beijing, Shanghai, Guangzhou and Shenzhen, said CRIC.Nationwide, housing stock rose 3% to 587.2 million square metres, according to CRIC. That’s the equivalent of about 6.5 million typical Chinese homes measuring 90 square metres each.Housing stock has been rising at least since mid-2020 when policymakers started to step in to cut excessive debt held by developers.As of August, there were 6.1 billion square metres of housing projects under construction, according to data from China’s statistics bureau.The market will continue to find its bottom, with home sales likely to fall in the traditional peak buying season of September, said the CRIC.”Overall inventories are likely to maintain a rising trend,” it said. More

Like thousands of Sicilians who live near Priolo Gargallo, part of an industrial petrochemical hub on this island’s southeastern coast, Davide Mauro has tied his livelihood to the giant Russian-owned Lukoil refinery — a landscape of towering chimney stacks, steel cranes and flat-topped gas tanks that rise above the Ionian Sea’s brilliant turquoise waters.Ever since the European Union agreed to ban most imports of crude oil from Russia because of its invasion of Ukraine, the future of this refinery — the largest in Italy — has been thrown into doubt. The deadline for the embargo is less than three months away, but workers still have no idea whether they will have jobs once it goes into effect on Dec. 5.“The company never says anything official,” said Mr. Mauro, a shift operator who has worked for 20 years at a plant that supplies the oil refinery with power. There has been talk of the Italian government’s possibly nationalizing the facility or guaranteeing new lines of credit. Most recently, there has been talk of an interested American buyer. But Mr. Mauro said: “It’s all rumors. Nothing’s clear.”The uncertainty hanging over the Lukoil refinery is a potent example of how the hard-won unified opposition to Russia’s invasion of Ukraine is rippling, sometimes in unintended ways, through Europe, straining local economies and fanning political tensions.Davide Mauro, a shift worker at the ISAB Lukoil refinery, at his home in Siracusa. He fears losing his job after Europe’s embargo on Russian oil goes into effect.Gianni Cipriano for The New York TimesSoaring fuel and food prices have eroded living standards. European leaders have already warned that rationing, factory closures and blackouts may be coming this winter. But in places like the Siracusa province of Sicily, the economic sanctions against Russia — previously Europe’s largest supplier of energy — carry a particular sting.Areas bearing a disproportionate share of the economic burden can be found all over the continent: in Schwedt, Germany, where an oil refinery also depends on Russian crude; in Arques, France, where an energy-hungry glass factory can’t afford to keep the furnaces running; and in Tertre, Belgium, where high natural gas prices have compelled the fertilizer company Yara to shutter its operation.If the Lukoil site in Priolo closes, Mr. Mauro said, he will probably have to leave this place, where he was born. The unemployment rate in Sicily is nearly 19 percent — one of the highest in the European Union. Finding a well-paying job like the one Mr. Mauro has with Lukoil would be next to impossible.“It’s a nightmare,” he said. “My entire life is here.”Lukoil, the largest private corporation in Russia, was not singled out by sanctions by any country when the Ukraine war started in February. Still, many banks and other financial institutions decided to avoid doing business with Russian companies after the European Union imposed sanctions. And so Lukoil lost lines of credit, which it had used to finance purchases of crude from suppliers outside Russia.Before the war, the Priolo refinery, known as ISAB after its former owner, got roughly 40 to 50 percent of its oil from Russia. Now with those other sources off limits, its only alternative was to get all of its crude from Lukoil.Oil tankers at the ISAB Lukoil oil terminal. Before the war in Ukraine, the Priolo refinery got roughly 40 to 50 percent of its oil from Russia.Gianni Cipriano for The New York TimesA Lukoil gas station in Priolo. Although Lukoil is not under sanctions, lenders have stopped providing financing after the European Union imposed sanctions on Moscow for its invasion of Ukraine.Gianni Cipriano for The New York TimesBut when the European Union’s oil embargo kicks in, no Russian oil will be allowed in. Without a financial rescue plan that would allow it to buy non-Russian oil, the plant faces closure and job cuts.“The impact on the community will be devastating,” Giuseppe Gianni, the mayor of Priolo, said from his office, lighting a small cigar. Above his desk hung a gold crucifix and an enormous painting of a Madonna and Child under a fig tree. Outside the window is a small pastel-colored playground with a view of the refinery as a backdrop.Mr. Gianni acknowledged that the petrochemical complex had been linked to toxic air, water pollution and cancer, which he said needed to be resolved, but he maintained that closing the refinery would blight the area’s economy.The refinery, which processes more than a fifth of Italy’s crude oil in addition to exports to other countries, employs about 1,000 workers directly. Two thousand more are contractors working on maintenance and mechanical projects. Another 7,500 in the area — from truck drivers to seamen — would be affected by the widespread layoffs.Several other energy and petrochemical companies including Sasol, Sonatrach and Versalis are in the area, and representatives have said that because the plants produce and buy products from one another and share contractors and supply chains, their economic futures are linked.Giuseppe Gianni, the mayor of Priolo, said closing the Priolo refinery would blight the local economy.Gianni Cipriano for The New York TimesWorkers for ISAB taking a bus home after their shift in Priolo.Gianni Cipriano for The New York Times“The effect would be destabilizing for the whole industrial area,” said Carmelo Rapisarda, the head of the industrial sector of the C.G.I.L. trade union in Siracusa, adding that the 35-kilometer industrial hub accounts for half the province’s economy.The looming oil embargo has forced the region to suddenly confront a long-simmering crisis. The European Union’s decision to transition away from fossil fuels to renewable energy sources means that the life span of the ISAB refinery and two others on Sicily’s coast is limited.“The situation was already critical regardless of the war,” Mr. Rapisarda said.Last year, Confindustria Siracusa, the area’s industrial association, proposed a $3 billion conversion plan to develop new clean facilities that could reduce carbon emissions and produce hydrogen. But both the Italian government and the European Union have been reluctant to spend money to help the oil industry transition.Aside from the economic fallout on the region, the refinery is important to Italy’s energy security, said Simone Tagliapietra, a senior fellow at Bruegel, a research group in Brussels. “They cannot let the refinery close down” right away, he said. It is needed “to ensure the provision of oil products, mainly to southern Italy” during the transition.The political situation is complicating the search for a quick solution. Mario Draghi’s national unity government fell in July, and he is in a caretaker role until elections on Sunday. Giorgia Meloni, the hard-right leader of Brothers of Italy, is leading in the polls.Once a vocal admirer of President Vladimir V. Putin of Russia, Ms. Meloni has recently said she supports following the European Union sanctions and sending weapons to Ukraine.Whoever wins the election will inherit the fallout from the oil embargo. But in the meantime, the situation is becoming urgent. To meet the Dec. 5 deadline of ending seaborne imports, the plant would have to start preparing for a shutdown in November and halt deliveries. Various figures, including the outgoing ecological minister, have mentioned the possibility of nationalizing the refinery. In Germany, the government last week took control of three refineries owned by the Russian oil company Rosneft.But Claudio Geraci, vice president of Confindustria Siracusa, dismissed the idea of nationalization as absurd. Mr. Geraci, who is deputy general manager for human resources and external relations at ISAB in Sicily, emphasized that he was speaking solely in his capacity as vice president of the industrial association. “As ISAB’s manager, there is no comment,” he said. In response to queries, press representatives at Lukoil’s headquarters in Moscow declined to comment.Carmelo Rapisarda, a C.G.I.L. union representative, said closing the refinery “would be destabilizing for the whole industrial area.”Gianni Cipriano for The New York TimesA Lukoil gas station near the ISAB Lukoil refinery in Priolo.Gianni Cipriano for The New York TimesMr. Geraci said “the only possibility” was for the government to guarantee a line of credit so that the company could buy crude from non-Russian sources. But he added that “from Confindustria’s point of view, the situation is difficult,” because the Italian government does not want to be seen as helping a Russian company.Local political leaders said there had been interest from potential outside investors. According to union officials, representatives from Crossbridge Energy Partners, a New York-based company that converts traditional energy infrastructure, had recently visited the plant. Crossbridge said it had no comment.Any meaningful and sustainable conversion plan would need significant public investment, said Lucrezia Reichlin, the founder and president of the Ortygia Foundation, a nonprofit devoted to promoting development in southern Italy and located about five miles south of Priolo.Given the region’s important industrial tradition, such an approach makes sense, Ms. Reichlin said. But with the political uncertainty, she added, “I doubt that we’ll have a government that is ambitious enough to look at this situation with a long-term view toward the energy transition.”Ms. Reichlin, who is also an economics professor at the London Business School, said the Italian government was likely to fall back on a familiar and expensive stopgap measure: public assistance for employees who lose their jobs.For now, it seems that workers like Mr. Mauro, politicians like Mayor Gianni and industrial leaders like Mr. Geraci are operating on a wing and a prayer, inveighing against the inaction, while hoping for a last-minute miracle.“It’s like the bank that is too big to fail,” Mr. Mauro said of the refinery and his hope for a bailout. But the precise solution is still murky. “It’s a typical Italian situation,” he added. “I’m sure we will know what happens only at the last moment.”The Bar La Conchiglia, a cafe frequented by refinery workers in Priolo.Gianni Cipriano for The New York Times More

How easily companies give up swollen profits could determine how easily the Federal Reserve can cool inflation. Dealerships offer clues.In a recent speech pointedly titled “Bringing Inflation Down,” Lael Brainard, the Federal Reserve’s vice chair, zoomed in on the automobile market as a real-world example of a major uncertainty looming over the outlook for price increases: What will happen next with corporate profits.Many companies have been able to raise prices beyond their own increasing costs over the past two years, swelling their profitability but also exacerbating inflation. That is especially true in the car market. While dealerships are paying manufacturers more for inventory, they have been charging customers even higher prices, sending their profits toward record highs.Dealers could pull that off because demand has been strong and, amid disruptions in the supply of parts, there are too few trucks and sedans to go around. But — in line with its desire for the economy as a whole — the Fed is hoping both sides of that equation could be on the cusp of changing.“With production now increasing, and interest-sensitive demand cooling, there may soon be pressures to reduce vehicle margins and prices in order to move the higher volume of cars being produced off dealer lots,” Ms. Brainard explained during her remarks.The Fed has been raising interest rates to make borrowing for big purchases — cars, houses, business expansions — more expensive. The goal is to cool demand and slow the fastest inflation in four decades. Whether it can pull that off without inflicting serious pain on the economy will hinge partly on how easily companies surrender their hefty profits.If companies begin to lower prices to compete for customers as demand abates, price increases might slow without costing a lot of jobs. But if they try to hold on to big profits, the transition could be bumpier as the Fed is forced to squeeze the economy more drastically and quash demand more severely.“There has been a giant shift in bargaining power between consumers and corporations,” said Gennadiy Goldberg, senior U.S. rates strategist at TD Securities. “That’s where the next adjustment has to come — corporations have to see some pain.”The example of the auto industry offers reasons for hope but also caution. While there are signs that price increases for used cars are beginning to moderate as supply recovers, that process has been halting, and the new-car market illustrates why the path toward lower profits that help slow inflation could be a long one.That’s because three big forces that are playing out across the broader economy are on particularly clear display in the car market. Supply chains have not completely healed. Demand may be slowing down, but it still has momentum. And companies that have grown used to charging high prices and raking in big profits are proving hesitant to give up.The auto market split into two segments that are now diverging — new cars and used cars.New-car production was upended as the pandemic shut down factories making semiconductors and other parts, and it is only limping back. Freshly minted vehicles remain extraordinarily scarce, according to dealers and data, and several industry experts said they didn’t see a return to normal levels of output for years as supply problems continue. Prices are still increasing swiftly, and dealer profits remain sharply elevated with little sign of cracking.Inflation F.A.Q.Card 1 of 5What is inflation? More

Ukraine’s military has had stunning success in recent weeks, recapturing Russian-occupied territory in the northeast and south of the country.
Holger Schmieding, chief economist at Berenberg, said the recently Ukrainian military gains could hit Russia’s economy hard.
The Economist Intelligence Unit is projecting a Russian GDP contraction of 6.2% this year and 4.1% this year, which its Global Forecasting Director Agathe Demarais told CNBC is “huge, by both historical and international standards.”

Russian President Vladimir Putin attends a meeting of heads of the Shanghai Cooperation Organization (SCO) member states at a summit in Samarkand, Uzbekistan September 16, 2022.
Foreign Ministry Of Uzbekistan | via Reuters

Ukraine’s counteroffensive, which has seen vast swathes of Russian-occupied territory get recaptured, could be compounding Russia’s economic troubles, as international sanctions continue to hammer its fortunes.
Ukraine’s military has had stunning success in recent weeks, recapturing Russian-occupied territory in the northeast and south of the country. Now, Kyiv is hoping to liberate the Luhansk in the eastern Donbas region, a key area where one of two pro-Russian self-proclaimed “republics” is located.

Holger Schmieding, chief economist at Berenberg, said the recent Ukrainian military gains could hit Russia’s economy hard.
“Even more so than before, the Russian economy looks set to descend into a gradually deepening recession,” Schmieding said in a note last week. 
“The mounting costs of a war that is not going well for [Russian President Vladimir] Putin, the costs of suppressing domestic dissent and the slow but pernicious impact of sanctions will likely bring down the Russian economy faster than the Soviet Union crumbled some 30 years ago.”

Ukrainian soldiers ride on an armored vehicle in Novostepanivka, Kharkiv region, on September 19, 2022.
Yasuyoshi Chiba | Afp | Getty Images

He highlighted that Russia’s main bargaining chip when it comes to the international sanctions imposed by the West – its influence over the energy market, particularly in Europe – was also waning.
“Although Putin closed the Nord Stream 1 pipeline on 31 August, the EU continues to fill its gas storage facilities at a slightly slower but still satisfactory pace,” he noted, adding that even Germany — which was particularly exposed to Russian supplies — could even get close to its 95% storage target ahead of winter.

Energy problems

Europe’s rapid shift away from Russian energy is particularly painful for the Kremlin: the energy sector represents around a third of Russian GDP, half of all fiscal revenues and 60% of exports, according to the Economist Intelligence Unit.
Energy revenues fell to their lowest level in over a year in August, and that was before Moscow cut off gas flows to Europe in the hope of strong-arming European leaders into lifting the sanctions. The Kremlin has since being forced to sell oil to Asia at considerable discounts.
The decline in energy exports means the country’s budget surplus has been heavily depleted.
“Russia knows that it has no leverage left in its energy war against Europe. Within two or three years, the EU will have gotten rid of its dependency on Russian gas,” the EIU’s Global Forecasting Director Agathe Demarais told CNBC. 
This is a key reason why Russia has opted to cut off gas flows to Europe now, she suggested, with the Kremlin aware that this threat could carry far less weight in a few years’ time.

GDP slump

The EIU is projecting a Russian GDP contraction of 6.2% this year and 4.1% next year, which Demarais said was “huge, by both historical and international standards.”
“Russia did not experience a recession when it was first placed under Western sanctions in 2014. Iran, which was entirely cut off from Swift in 2012 (something that has not happened to Russia yet), experienced a recession of only around 4% in that year,” she said.
Statistics are scarce on the true state of the Russian economy, with the Kremlin keeping its cards relatively close to its chest. However, Bloomberg reported earlier this month, citing an internal document, that Russian officials are fearing a much deeper and more persistent economic downturn than their public assertions suggest.
Putin has repeatedly claimed that his country’s economy is coping with Western sanctions, while Russia’s First Deputy Prime Minister Andrei Belousov said last month that inflation will come in around 12-13% in 2022, far below the gloomiest projections offered by global economists earlier in the year.
Russian GDP contracted by 4% in the second quarter of the year, according to state statistics service Rosstat, and Russia upped its economic forecasts earlier this month, now projecting a contraction of 2.9% 2022 and 0.9% in 2023, before returning to 2.6% growth in 2024.

However, Demarais argued that all visible data “point to a collapse in domestic consumption, double-digit inflation and sinking investment,” with the withdrawal of 1,000 Western firms also likely to have implications for “employment and access to innovation.”
“Yet the real impact of sanctions on Russia will be felt mostly in the long term. In particular, sanctions will restrict Russia’s ability to explore and develop new energy fields, especially in the Arctic region,” she said. 
“Because of Western penalties, financing the development of these fields will become almost impossible. In addition, U.S. sanctions will make the export of the required technology to Russia impossible.”

Sanctions ‘here to stay’

European Commission President Ursula von der Leyen delivers the State of the European Union address to the European Parliament, in Strasbourg, France, on Sept. 14, 2022.
Yves Herman | Reuters

“We have cut off three quarters of Russia’s banking sector from international markets. Nearly one thousand international companies have left the country,” she said.
“The production of cars fell by three-quarters compared to last year. Aeroflot is grounding planes because there are no more spare parts. The Russian military is taking chips from dishwashers and refrigerators to fix their military hardware, because they ran out of semiconductors. Russia’s industry is in tatters.”
She added that the Kremlin had “put Russia’s economy on that path to oblivion” and vowed that sanctions were “here to stay.”
“This is the time for us to show resolve, not appeasement,” von der Leyen said.

As the Kremlin scrambles to strengthen security ties, having been shunned by the West, a top Russian official stated on a visit to Beijing last week that Moscow sees deepening strategic ties with China as a key policy aim. Putin also met Chinese President Xi Jinping in Uzbekistan last week as the two countries touted a “no limits” relationship.
However, several commentators have noted that as Russia’s bargaining power on the world stage wanes, China will hold most of the cards as the two superpowers attempt to cement further cooperation.
“In the long term, China will be the sole economic alternative for Russia to turn to, but this process will be tricky, too, as China will remain wary of becoming overdependent on Russian commodities,” the EIU’s Demarais added.

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Britain’s public finances have given new chancellor Kwasi Kwarteng a difficult backdrop for his mini Budget on Friday, with government borrowing rising to twice the level the independent fiscal watchdog had expected for August.The figures and overnight indications from Prime Minister Liz Truss’s government that it wants to cut taxes further than expected this week raised fears that the package would prove unsustainable and require significantly higher interest rates. Markets are concerned that a borrow and spend package when unemployment is at a 50-year low and inflationary pressure is already high will leave the UK living beyond its means and require the Bank of England to slam on the brakes. The prospect of even higher interest rates did not bolster sterling against a very strong US dollar in early trading on Wednesday, with the pound slipping to another 37-year low of $1.132.In August, the public sector borrowed £11.8bn, higher than City forecasts of £8.8bn and almost twice the amount estimated by the Office for Budget Responsibility earlier in the year. The fiscal watchdog thought the figure would be only £6bn.With the chancellor set to unveil the costs of the government’s energy support package on Friday, financed by additional borrowing and large permanent tax cuts, the level of borrowing is expected to rise sharply above these estimates later in the year. Kwarteng was unapologetic about the government’s new strategy. In a statement he said that strong growth and sustainable public finances went hand in hand. “As chancellor, I have pledged to get debt down in the medium term. However, in the face of a major economic shock, it is absolutely right that the government takes action now to help families and businesses, just as we did during the pandemic,” he said. Jens Larsen, a director at Eurasia Group, the consultancy, said that the government’s new strategy was likely to result in a decline in the popularity of UK assets in financial markets. “The combination of a potentially expensive and relatively inefficient fiscal package, a central bank intent on demonstrating its independence and a very large net supply of gilts will probably lead to continued upward pressure on UK risk premia,” Larsen said. Loosening fiscal policy will put the Bank of England on the spot on Thursday when officials meet to decide how quickly to raise interest rates from the current 1.75 per cent. Financial markets expect rates to rise above 4 per cent by the summer of next year. On the public finances, economists were certain that borrowing would rise significantly. Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said that even excluding the energy package, “the new government’s fiscal activism” would leave public borrowing much higher than expected this year, with a deficit of £125bn compared with the OBR’s March forecast of £99.1bn.Including the energy package, which is to be financed by borrowing and could amount to £150bn over two years, Capital Economics said the deficit was likely to be £165bn this year — representing 6.5 per cent of national income. The data did not show that a slowdown in economic growth had increased borrowing, with central government tax receipts of £69.6bn only a little below the OBR’s expectation of £70.5bn.

Instead, public spending was higher than expected. Debt interest payments, linked to higher inflation, were £8.2bn, much higher than the £4.9bn expected, and other public spending also exceeded forecasts. The one bright spot in the figures was that borrowing for the first four months of the financial year was revised down by £8.6bn, leaving the starting point close to original OBR estimates. During her visit to the US on Tuesday, Truss said she wanted to cut taxes further to boost growth, and aides have not denied reports that the government is considering stamp duty reductions on top of cuts to national insurance and a reversal of plans to increase corporate tax rates. More