Economy

The writer is professor of political economy at the University of Cambridge and author of ‘Disorder: Hard Times in the 21st Century’Across the world, politicians are ever more desperately looking to contain the explosive consequences of the energy crisis. In those parts of Asia, the Middle East and Africa already mired in multiple economic and political difficulties, the crisis is proving catastrophic. Those who import liquid natural gas must now compete with European latecomers to the LNG market seeking an alternative to pipelined Russian gas. In early summer, Pakistan was unable to complete a single LNG tender. In poor countries, a large proportion of the state’s resources go on subsidising energy consumption. At prevailing prices, some cannot: earlier this month, the Sri Lankan Electricity Board imposed a 264 per cent increase on the country’s poorest energy users.In Europe, governments want to alleviate the dire pressures on households as well as energy-intensive and small businesses, while letting spiralling prices, pleas to consume less and fear about the coming winter drive down demand. Fiscally, this means state funding to reduce rising energy bills by subsidising distributors, as in France, or transferring money to citizens to pay those bills, as in the UK.What is not available anywhere are quick means for increasing the physical supply of energy. This crisis is not an inadvertent consequence of the pandemic or Russia’s brutal war against Ukraine. It has much deeper roots in two structural problems.First, unpalatable as this reality is for climate and ecological reasons, world economic growth still requires fossil fuel production. Without more investment and exploration, there is unlikely to be sufficient supply in the medium term to meet likely demand. The present gas crisis has its origins in the Chinese-driven surge in gas consumption during 2021. Demand grew so rapidly that it was only available for European and Asian purchase at very high prices. Meanwhile, respite from rising oil prices this year has only materialised when the economic data from China is unpropitious. In the International Energy Agency’s judgment, it is quite possible that global oil production will be inadequate to meet demand as soon as next year.For much of the 2010s, the world economy got by on the shale oil boom. Without US production more than doubling between 2010 and 2019, the world would have been trapped in a permanent oil crisis since 2005, when conventional crude oil production — oil drilled without hydraulic fracturing or from tar sands — stagnated. But American shale cannot expand at the same rate again. Although the largest US shale oil formation — the Permian Basin in western Texas and south-eastern New Mexico — is projected to reach record output next month, overall US output is still more than 1mn barrels per day below what it was in 2019. Even in the Permian, daily production per well is declining.More offshore drilling, of the kind opened up in the Gulf of Mexico and Alaska by the Inflation Reduction Act, will require higher prices, or investors willing to pour in capital regardless of the prospects for profit. The best geological prospects for a game changer akin to what happened in the 2010s lie with the huge Bazhenov shale oil formation in Siberia. But western sanctions mean that the prospect of western oil majors helping Russia technologically is a geopolitical dead end.Second, little can be done that would immediately accelerate the transition from fossil fuels. Britain’s planned micro nuclear reactors will not be completed until the 2030s. Running electricity grids on solar and wind base loads will require technological breakthroughs on storage. It is impossible to plan with any confidence what progress will have materialised in 10 years, let alone next year. But precisely because an energy transition is essential to reduce fossil fuel consumption, large-scale, blue-sky investment is imperative.The only way forward is realism for the short term, recognising that there is no way back to cheap energy, allied to radical, long-term ambition. A grasp of geopolitical realities is also essential. The US remains by some distance the world’s dominant power. Its naval power guarantees open waters for international trade. World credit markets depend on dollars. But Washington does not have the power to direct China and India’s energy relations with Russia. This coming winter will bring a reckoning. Western governments must either invite economic misery on a scale that would test the fabric of democratic politics in any country, or face the fact that energy supply constrains the means by which Ukraine can be defended. More

“It is concerning that economic growth may slow due to limited export recovery going forward, while high inflation pressure continues and economic sentiment is also partly affected amid worsening external conditions,” the ministry said in its latest monthly economic assessment.The ministry cited continued inflation pressure globally, monetary tightening in major countries, economic slowdown in the United States and China and the lengthening war in Ukraine as increasing downside risks. More

Inflation figures from Japan, which could put the central bank’s ultra-loose monetary policy under even more intense scrutiny, and a smattering of Chinese earnings are the juiciest morsels for investors in Asia to get their teeth into on Friday.Analysts expect Japan’s core annual inflation rate in July rose to 2.4% from 2.2% in June. That would be the highest since late 2014 and further above the Bank of Japan’s goal of 2.0%.It would mark months above target, raising further doubts over the BOJ’s policy of buying unlimited amount of bonds to cap the 10-year yield at 0.25%, a policy that runs counter to the rate-raising trend across the developed world.The divergence between Japanese and U.S. yields has pushed the yen down 15% so far this year, on course for its biggest fall against the dollar since 2013 and third steepest since the era of free-floating exchange rates began in the early 1970s. The yen is trading around 136 per dollar, and an uncomfortable inflation print could push it closer towards last month’s 24-year low near 140 per dollar. GRAPHIC: US-Japan 2-year yield spread (https://fingfx.thomsonreuters.com/gfx/mkt/klvykwljevg/JPUS.png) In China, retail banking giant China Merchants Bank releases half yearly results. These could offer a glimpse into the impact of the country’s debt-ridden property sector on banks, as a growing number of homebuyers threaten to stop paying mortgages on hundreds of unfinished housing projects.Results are also due from smartphone maker Xiaomi (OTC:XIACF) Corp, which is struggling amid the industry’s smartphone volumes falling to a decade low as COVID-19 lockdowns batter demand. Xiaomi started constructing its first car factory in Beijing earlier this year, and aims to be mass producing electric vehicles by the first half of 2024. Future rival EV maker Nio (NYSE:NIO) Inc, meanwhile, also releases Q2 earnings on Friday.Key developments that should provide more direction to markets on Friday:Japan inflation (July)Indonesia current account (Q2)Earnings reports from China Merchants Bank, Xiaomi, Nio (This story has been refiled to clarify day in last paragraph as Friday, not Thursday) More

UK consumer confidence has fallen to its lowest level since comparable records began almost 50 years ago as the rising cost of living stokes concerns over personal finances and economic prospects. In monthly research from data provider GfK, the August index score for overall consumer confidence fell to -44 from a figure of -41 the previous month. That was the lowest reading since the equivalent data was first produced in 1974.The decline in confidence reflects a darkening mood across the UK economy with prices rising at double-digit rates, the largest drop in real wages for more than 20 years, a resurgence of strikes and mounting pressures across public services. The survey was undertaken between August 1 and August 12, a period in which the Bank of England forecast the economy would soon slide into a recession lasting over a year as household struggled to pay energy bills, which are likely to rise more by more than 75 per cent in October compared to now. All five elements that comprise the overall consumer confidence index fell, prompting Joe Staton, a director at GfK, to say, “a sense of exasperation about the UK’s economy is the biggest driver of these findings”.“[They] point to a sense of capitulation, of financial events moving far beyond the control of ordinary people,” he said. Linda Ellett, UK head of consumer markets, retail and leisure at KPMG, said the decline in confidence was likely to weaken retail sales soon even though the figures have held up so far this year. “A widespread reduction in spending ability will lead to drops in demand and changing buying behaviour, both of which will impact the high street and wider economy,” she said. Where people were asked about their personal financial situation, their scores over the past year equalled the low points of the financial crisis in 2008-09 and the austerity period around 2012.But the expectations for their situation over the coming year will cause more concern. That figure has fallen to -31, significantly worse than in either of those two earlier periods. The negative score reflects many more people saying their personal finances are likely to deteriorate rather than improve over the year ahead. “With headline after headline revealing record inflation eroding household buying power, the strain on the personal finances of many in the UK is alarming,” said Staton. “Just making ends meet has become a nightmare and the crisis of confidence will only worsen with the darkening days of autumn and the colder months of winter.”Households were similarly gloomy about general economic prospects with the score declining every month since December last year. In August, it stood at -68, worse than at the height of the first coronavirus wave when the UK was in a strict lockdown — although better than at the time of the global financial crisis.

Households’ assessment of the UK’s economic prospects in the year ahead was -60, more gloomy than at any time since GfK started collecting the data, and 54 points lower than in August 2021. With such low confidence about their finances and the economic situation, households were naturally unlikely to say that now was a good time to make a major purchase. This sub-index fell to -38, down 4 points on the month and from a level of -3 a year earlier. In contrast, with interest rates rising, people increasingly think now is a good time to save. If many increase savings at the same time and reduce spending, it will accelerate the expected economic downturn this autumn. More

WASHINGTON (Reuters) -President Joe Biden’s administration is readying about $800 million of additional military aid to Ukraine and could announce it as soon as Friday, three sources familiar with the matter said on Thursday.Biden would authorize the assistance using his Presidential Drawdown Authority, which allows the president to authorize the transfer of excess weapons from U.S. stocks, the sources told Reuters.The sources, speaking on condition of anonymity, said that an announcement could slip into next week, cautioning that weapons packages can change in value before they are announced.The White House declined to comment.Since Russian troops poured over the Ukrainian border in February in what Russian President Vladimir Putin termed a “special military operation,” the conflict has settled into a war of attrition fought primarily in the east and south of Ukraine.Washington has sent billions of dollars in security assistance to the Kyiv government. More

BUENOS AIRES (Reuters) -Argentina’s latest economy minister, Sergio Massa, stressed the need to boost hard currency reserves on Thursday, pointing to new debt repurchase operations that could help, as well as advances in talks with the country’s key farm sector.President Alberto Fernandez tapped Massa as economy minister a couple of weeks ago, making him the country’s third economic chief in barely a month, amid a severe economic slump fueled by sky-high inflation and growing street protests.”We’re negotiating three (debt) repurchase agreement mechanisms,” Massa said during a speech at a think tank event in Buenos Aires. He noted that banks from Asia, Europe and the United States are taking part in the talks and have made offers.”We’re proposing they unify the offers to buy back debt and strengthen our reserves,” he added, but did not elaborate.The minister also touted “unexpected” good news on employment, announcing a 6.7% jobless rate ahead of the national statistics agency INDEC’s expected second-quarter figure next month. The ministry later confirmed that the figure Massa provided corresponds to the April-to-June period. Argentina’s unemployment rate stood at 7.0% in the first quarter.Referring to ongoing talks with key farm sector leaders, Massa expressed hope that faster grains exports would be achieved, in another push to bring in more dollars to the central bank’s coffers, but did not go into specifics.He said that since Wednesday, grains exporters have been speeding up pre-financing plans.The minister, a former congressional leader from the ruling center-left Peronist coalition, plans to travel to the United States next month to meet with finance leaders at the International Monetary Fund, according to Jorge Arguello, the South American country’s ambassador to Washington, who spoke at the same event sponsored by the Council of the Americas.The early September trip will mark Massa’s first foreign travel as the so-called superminister overseeing agricultural, industrial and trade policy.In Washington, Massa will also meet with officials at the U.S. Department of the Treasury, the White House and private banks, said Arguello.Massa’s meetings with the IMF come as the organization carries out its regularly scheduled review of Argentina’s $44 billion debt deal signed in March.The quarterly review closes in September and is used to finalize new disbursements from the international lender.The Argentine government is scrambling to meet foreign reserve targets set out by the IMF agreement in order to trigger some debt forgiveness. Massa held high-stakes talks last week with the powerful farm and rural sector leaders in a push to boost reserves via stalled agricultural exports. More

A federal judge in Florida has given the US Department of Justice one week to suggest redactions to the affidavit justifying the search of Donald Trump’s Mar-a-Lago resort last week, paving the way for parts of the document to become publicly available. The move by Judge Bruce Reinhart came during a highly anticipated court hearing in West Palm Beach on Thursday that pitted federal prosecutors, who argued to keep the affidavit under seal, against US media organisations who want it unsealed because of the huge public interest in the case. The affidavit — a detailed explanation by the justice department of the reasons for seeking a search warrant at the former president’s property — has remained under wraps since the FBI raid took place on August 8. Not only have media organisations called for its public release, but so have many congressional Republicans, in the hope of shining more light on the rationale behind the justice department’s move to search Trump’s home. The DoJ had argued against any release of the affidavit, on the grounds that it could compromise the investigation and impede co-operation from witnesses in this and other probes. Federal prosecutors also said the document would have to be heavily redacted if it were to be released because of the nature of the investigation, which involves highly classified materials retained by Trump after leaving the White House.Reinhart rejected the argument that the affidavit should remain “fully sealed”, saying he was “not prepared” to keep it that way — suggesting he is tempted to partially unseal it with some level of redaction. Last week, he allowed the search warrant and the list of items recovered by the FBI at Trump’s home to be made public. Those documents showed that federal prosecutors were investigating the former president for improperly handling information related to national defence in violation of the Espionage Act, as well as obstruction of justice and tampering with government records.Thank you for reading FirstFT Asia. Here’s the rest of the day’s news. — AmandaFive more stories in the news1. Erdoğan backs peace talks between Kyiv and Moscow Turkish president Recep Tayyip Erdoğan said he supports peace talks between Kyiv and Moscow after meeting President Volodymyr Zelenskyy in Ukraine. Erdoğan has pursued a balancing act between the two countries, condemning the invasion and selling Ukraine combat drones but refusing to impose sanctions against Russia. 2. Trump Organization’s former CFO pleads guilty in tax case Allen Weisselberg has pleaded guilty to all 15 counts related to his time working as chief financial officer for the Trump Organization. In a deal struck with Manhattan prosecutors, Weisselberg will serve five months in jail and a possible five-year probation contingent on him testifying truthfully in an upcoming trial of the Trump Organization if called upon.3. Turkey surprises with interest rate cut as inflation soars Despite inflation of nearly 80 per cent, Turkey’s central bank slashed its interest rate by 100 basis points. The move shocked markets and goes against the trend of central banks raising borrowing costs to rein in global inflation. Rising prices and concerns over the central bank’s monetary policies have already caused the lira to drop more than 25 per cent this year. Emerging Markets: Central banks across emerging markets are implementing large rate rises as they scramble to tame rampant inflation and fast-depreciating local currencies. Ghana’s central bank just raised interest rates by 300 basis points, its largest increase in two decades. 4. US college sports league Big Ten inks $7.5bn media rights deal Top US media companies CBS, NBC, and Fox have agreed to pay a record $7.5bn contract to show Big Ten college sports for seven years. The deal comes as the US college sports industry experiences tremendous upheaval and loosens restrictions on sponsorships. 5. China boosts coal usage as extreme heat triggers power shortages Beijing pledges support for its coal sector as a months-long heatwave and drought reduce hydropower generation and threaten electricity supplies. Companies including Tesla and state-owned carmaker SAIC Motor have reported supply chain problems from power shortages. The days aheadEconomic data Japan will release July inflation data, while the UK reports monthly retail and trade figures. Germany will publish July producer price index (PPI) figures for industrial products.Japan’s consumer price index is expected to rise a record 2.4 per cent year-over-year, surpassing the central bank’s 2 per cent inflation target for a fourth month. (Reuters)Global inflation tracker: Inflation has hit decade highs in many countries. See how your country compares on rising prices. UK transport strikes Rail, tube, and bus walkouts will continue to the end of the week, with three unions planned to strike for pay rises to combat inflation. It’s one of many walkouts this summer, which marks the biggest industrial action on the UK’s public transport network in a generation.Montenegro no-confidence vote Prime minister Dritan Abazović’s minority government faces a no-confidence vote today after Abazović signed a controversial agreement with the powerful Serbian Orthodox church. The agreement was opposed by human rights activists and pro-western parties. (Euronews)What else we’re readingHow South Korea learned to love private equity Twenty-five years after Asia’s financial crisis, South Korea’s private equity deal value is at a record high of almost $30bn, surpassing Japan by $2bn. Seoul’s private equity achievements reflect the transformation of the country’s once tumultuous relationship with foreign capital.

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Odesa struggles back to life after lifting of Russia’s port blockade A tentative optimism has returned to Odesa after a multilateral deal last month resumed grain shipments to global markets. Odesa’s port is one of the most crucial international supply routes for grain and has been choked off since Russia’s invasion in February, sending global food prices soaring.The village wedding caught in the Taliban’s battle for Kabul In August 2021, people in Dost Kol — a hamlet in the hills an hour west of Kabul — prepared to celebrate the wedding of Mohammad Ullah to a bride from a neighbouring village. But the next 24 hours brought tragedy.TikTok’s extraordinary rise signals a more multipolar internet Popular in over 150 countries, TikTok has left the West Coast’s finest and fastest in the dust. The coolest app for younger users, TikTok’s rise might come to symbolise a moment in the evolution of cyber space: the Sinicisation of the global internet, writes John Thornhill.Food & drinkRavinder Bhogal presents a menu that is a taste of Sicily, from caponata to pasta with sardines and apricot ricotta cake, all borrowed from a christening she gatecrashed this summer.

Gastronomically speaking, Sicily is the meeting place of at least two major traditions, the Arab and the southern Italian © Aaron Graubar More

ANKARA (Reuters) – Turkey’s central bank shocked markets on Thursday by cutting its main interest rate by 100 basis points to 13%, saying it needed to keep driving economic growth despite inflation hitting nearly 80% and a monetary tightening trend among its peers worldwide. The lira dropped as much as 1.2% to 18.15 per dollar as the bank took its latest step down the unorthodox policy path advocated by President Tayyip Erdogan that aims to provide targeted cheap credit to help boost Turkish exports. There had been virtually no signal that another rate cut was in the works and no economist polled by Reuters had predicted one, given that inflation has soared to 24-year highs, eating deeply into Turks’ earnings and savings. The bank had held its main rate at 14% for the past seven months after cutting it by 500 basis points towards the end of last year. That policy easing sparked a currency crisis in December that sent inflation soaring.The rate cuts long urged by Erdogan – who holds sway over the bank after ousting several of its governors in recent years – have left real interest rates in deeply negative territory and have accelerated a cost-of-living crisis for Turkish households.Analysts expressed dismay at the decision. JPMorgan (NYSE:JPM) said in a note the move was “opportunistic,” driven by a recent increase in forex reserves “alongside a weak global environment and sharp rise in local lending rates” that is weighing on economic activity.But the current policy mix “will eventually either lead to a policy reversal or to an economic downturn,” the note said. Sticking to Erdogan’s unorthodox plan: https://tmsnrt.rs/3MRUHzr The central bank’s policy-setting committee said it needed to act because leading indicators pointed to a loss of economic momentum in the third quarter.”It is important that financial conditions remain supportive to preserve the growth momentum in industrial production and the positive trend in employment in a period of increasing uncertainties regarding global growth as well as escalating geopolitical risk,” it said in a statement.The new policy rate “is adequate under the current outlook”, it said, adding the growing gap between its policy rate and rising loan rates was reducing “the effectiveness of monetary transmission”.”We think the macroeconomic policy mix in Turkey has become more unsustainable with today’s rate cut,” wrote Goldman Sachs (NYSE:GS) analysts in a note in which they forecast annualised inflation to rise to more than 90% and only ease to near 75% by year-end with the help of base effects.”We recognise substantial upside risk to our forecast,” the note added.Both Goldman and JPMorgan expect no more rate cuts in the near future, and JPMorgan sees a rate hike to 25% in the first quarter of 2023 and real rates to turn positive in the second half of next year.The currency crisis last year saw the lira fall 44% against the dollar, stoking inflation via imports. The currency has lost a further 27% so far this year while inflation hit 79.60% in July, partly stoked by fallout from the war in Ukraine. The lira on Thursday broke through 18 to the dollar for the first time since December and set a record closing low of 18.089. AGAINST THE GRAINWith supply constraints, consumer demand and fallout from the war stoking inflation globally, central banks across developed and emerging markets are jacking up interest rates. Turkey’s inflation rate is among the highest worldwide while its real interest rate, at minus 67%, is among the lowest.Ozge Arslan, a teacher in Istanbul, said rising electricity and natural gas bills had forced her family to reduce their oven and kettle use and to take shorter showers. Opinion polls show such concerns have hit the popularity of Erdogan, who faces a tough election by mid-2023.He has made little mention of interest rates since June 6, when he said Turkey would continue cutting rather than raising them.The bank said inflation is driven by the lagged effects of rising energy prices, pricing formations not supported by economic fundamentals, and negative supply shocks.It repeated that disinflation should begin thanks to steps the bank and other authorities have taken to cool some forms of credit, along with an eventual end to the war. In the Reuters poll, all 14 economists had expected the benchmark one-week repo rate to remain unchanged this week. Only one economist predicted a cut later in the year.The bank last month raised its year-end inflation expectation to 60.4%, compared to economists’ median estimate of 70%. It sees inflation peaking near 90% this autumn. More