Economy

The US economy will tip into a recession next year, according to nearly 70 per cent of leading academic economists polled by the Financial Times.The latest survey, conducted in partnership with the Initiative on Global Markets at the University of Chicago’s Booth School of Business, suggests mounting headwinds for the world’s largest economy after one of the most rapid rebounds in history, as the Federal Reserve ramps up efforts to contain the highest inflation in about 40 years.The US central bank has already embarked on what will be one of the fastest tightening cycles in decades. Since March it has raised its benchmark policy rate by 0.75 percentage points from near-zero levels.The Federal Open Market Committee gathers once again on Tuesday for a two-day policy meeting, at which officials are expected to implement the first back-to-back half-point rate rise since 1994 and signal the continuation of that pace until at least September.

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Almost 40 per cent of the 49 respondents project the National Bureau of Economic Research — the arbiter of when recessions begin and end — will declare one in the first or second quarter of 2023. A third believe that call will be delayed until the second half of next year. The NBER characterises a recession as a “significant decline in economic activity that is spread across the economy and lasts more than a few months”. Just one economist pencilled in a recession in 2022, with a majority predicting monthly jobs growth to average between 200,000 and 300,000 for the remainder of the year. The unemployment rate is set to steady at 3.7 per cent, according to the median estimate for December.The survey results, which were collected between June 6 and June 9, run counter to the Fed’s stance that it can damp demand without causing substantial economic pain. The central bank predicts that, as it raises interest rates, employers in the red-hot US labour market will opt to pare back historically high job openings as opposed to laying off staff, in turn cooling wage growth.Jay Powell, the Fed chair, has conceded that the Fed’s efforts to moderate inflation may cause “some pain”, leading to a “softish” landing that sees the unemployment rate rise “a few ticks”. But many of the economists polled are concerned about a more adverse outcome given the severity of the inflation situation and the fact that monetary policy will need to shift towards much tighter settings in short order to address it.“This is not landing a plane on a regular landing strip. This is landing a plane on a tightrope, and the winds are blowing,” said Tara Sinclair, an economist at George Washington University. “The idea that we are going to bring incomes down just enough and spending down just enough to bring prices back to the Fed’s 2 per cent target is unrealistic.”

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Compared to February’s survey, more economists are now of the view that core inflation, as measured by the personal consumption expenditures price index, will exceed 3 per cent by the end of 2023. Of the June respondents, 12 per cent thought that outcome was “very likely”, up from just 4 per cent earlier this year. The share of economists surveyed who thought that level “unlikely” over the same time period has since nearly halved.Geopolitical tensions, and the increase in energy costs that is likely to accompany that, were cited overwhelmingly as the factor potentially keeping upward pressure on inflation over the next 12 months, followed by prolonged supply chain disruptions. By year-end, the median estimate for core inflation is 4.3 per cent.Jonathan Wright, an economist at Johns Hopkins University who helped to design the survey, said the notable pessimism around both inflation and growth has stagflationary undertones, although he noted the circumstances are far different than the 1970s, when the term embodied a “much nastier mix of high inflation and recession”.

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Nearly 40 per cent of the economists warned that the Fed would fail to control inflation if it only raised the federal funds rate to 2.8 per cent by the end of the year. This would demand half-point rate rises at each of the central bank’s next three meetings in June, July and September before downsizing to its more typical quarter-point cadence for the final two gatherings of 2022. Few respondents expect the Fed to resort to 0.75 percentage point increases.Further rate rises are also likely well into next year, says Christiane Baumeister, a professor at the University of Notre Dame who thinks the Fed could lift its benchmark policy rate as high as 4 per cent in 2023. That is just above the level the majority of economists surveyed believe will be the peak of this tightening cycle.

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Dean Croushore, who served as an economist at the Fed’s Philadelphia branch for 14 years, cautioned that the central bank may need to eventually raise rates to roughly 5 per cent to contain a problem he believed was largely caused by the Fed waiting “far too long” to take action.“It’s always tough to bring inflation down once you let it out of the bottle,” said Croushore, who now teaches at the University of Richmond. “If they would just accelerate the rate increases a little bit more, it might cause a little financial volatility in the short-run, but they might be better off by not having to do as much later.” More

Hello and welcome to the working week,Prepare yourselves to be reminded of past scandals and war, which still resonate today. Tuesday is the fifth anniversary of the fire that engulfed west London’s Grenfell tower block, exposing shortcomings in the building’s cladding and sparking a crisis for apartment owners across the UK that continues to generate repercussions. It also happens to be the 40th anniversary of the end of the Falklands war, the wounds from which remain fresh in Buenos Aires.Friday marks the half-century mark since the break-in at the Watergate hotel-apartment-office complex in Washington. Thankfully, this one was resolved more quickly, although it did leave the irritating legacy of the suffix tacked on to what seems to be every subsequent political scandal.The latest of these, “partygate”, has a way to run, although the main protagonist, UK prime minister Boris Johnson, will (ironically) this week be the centre of a legitimate social gathering since he turns 58 on Saturday. Partygate’s spin-off series, Are You Being (Poorly) Served, is likely to see another instalment with the government promising to publish controversial and long-delayed legislation to override the Northern Ireland protocol on Monday. As my colleague Peter Foster noted in his excellent Brexit Briefing newsletter last week, this is unlikely to end well.Johnson is also expected to announce a new “plan for growth” this week alongside his chancellor Rishi Sunak. After the OECD’s verdict on UK growth next year — only sanctions-hit Russia is forecast to come off worse among G20 nations — the country clearly needs a new plan, if not a new PM to deliver it.France goes to the polls again on Sunday for the second round of the parliamentary election. The concern for newly elected president Emmanuel Macron is not the far right this time but an alliance from the far left.There will be at least one resolution this week. Colombians will go to the polls on Sunday for the second round of their country’s presidential election, which will decide whether the populist Rodolfo Hernández can see off former leftwing guerrilla Gustavo Petro. Whatever the outcome, it will be an interesting contest.Thanks for your emails about the content of The Week Ahead: [email protected] dataIt’s going to be a(nother) week for interest rate news. The main attraction will be the gathering of the Federal Reserve’s Open Market Committee, but there will also be decisions from the Bank of England and its equivalents in Japan, Switzerland and Brazil. The question is not whether the tightening of monetary policy will be accelerated but by how much — the answer to this question depends in part on your confidence in the given economy’s ability to achieve a soft landing or whether it is doomed to enter recession. The jump in US inflation on Friday has fuelled talk of a rapid tightening. Policymakers have already signalled that, at a minimum, the Fed will deliver a string of half-point rate rises. Traders have priced in the federal funds rate rising to roughly 2.9 per cent by the end of the year from its current target range of 0.75 to 1 per cent. The OECD placed its marker last week before the US inflation numbers were announced, calling for faster action from the Fed.CompaniesRetail is strongly represented in the earnings calendar this week. The headline act is Tesco, Britain’s biggest supermarket chain, with observers keen to hear more about how inflation is hitting household spending. However, just two months on from its full-year results, few expect the company to deviate from its cautious script that profits this year will be held back by the need to keep prices for shoppers in check. I asked Jonathan Eley, the FT’s retail correspondent, for a view. “The company has been gaining market share in recent months, but first-quarter sales growth figures will be muddied by the closure of pubs and restaurants in the same period a year ago,” he said. “That boosted supermarket sales but hurt Booker, Tesco’s wholesale operation.” Among analysts’ comments, Barclays has forecast an overall decline of 1.8 per cent in the UK, with lower volumes partially offset by higher prices.Key economic and company reportsHere is a more complete list of what to expect in terms of company reports and economic data this week.MondayIndia, May consumer price index (CPI) figuresUK, final April GDP data plus April production statistics, construction output and trade figuresTuesdayGermany, final May CPI figures plus ZEW economic sentiment surveyOpec monthly oil market reportUK, unemployment figuresUS, May producer price index (PPI) figures.Results: Ashtead Group Q4, Bellway Q2 trading update, Ferguson Q3, Paragon Banking Group H1WednesdayBrazil, Banco Central do Brasil’s Monetary Policy Committee rate decisionChina, May industrial production and retail sales figuresEU, March industrial production and April trade in goods dataFrance, final May CPI and harmonised index of consumer prices (HICP) figuresIndia, trade statisticsJapan, April industrial production dataRussia, flash Q1 GDP figuresUS, Federal Open Market Committee interest rate decision. Also, Wells Fargo housing market index plus May retail and food sales data.Results: Clariant Q1, WHSmith Q3 trading updateThursdayCanada, April wholesale trade figuresEU, eurozone Q1 wages dataFerrari holds capital market day in Maranello, Italy. Chief executive Benedetto Vigna is expected to unveil the company’s new long-term strategy as the sports car maker adjusts to growing demand for electric vehicles.Italy, May CPI dataJapan, May trade balance figuresSwitzerland, interest rate decisionUK, Bank of England Monetary Policy Committee interest rate decisionUS, May residential construction figuresResults: Adobe Systems Q2, Boohoo Q1 trading update, Halfords FYFridayCanada, monthly industrial product and raw materials price indicesEU, May HICP figuresJapan, Bank of Japan Monetary Policy Committee’s interest rate decisionUK, May insolvency plus retail sales figuresUS, May industrial production dataResults: Tesco Q1 trading updateWorld eventsFinally, here is a rundown of other events and milestones this week. MondayFrance, the Eurosatory defence industry exhibition event begins in ParisSwitzerland, the 12th ministerial conference of the World Trade Organization (MC12), a biennial gathering of the WTO’s most senior decision-making body, continues in GenevaUK, the Cinch Championships, considered a gauge of players’ performance in the upcoming Wimbledon tennis tournament, starts at the Queen’s Club plus London Technology Week begins at various venues in the capital and onlineTuesday40th anniversary of the Argentine surrender in the Falklands warUK, the fifth anniversary of the fire that engulfed the west London high-rise block Grenfell Tower, leaving 72 people dead and 203 households homeless. Today, the first flight to Rwanda carrying migrants who crossed the English Channel is set to leave. Royal Ascot, the most famous race meeting in the world, considered by many to be the highlight of the British summer social calendar, begins. The first “supermoon” of 2022 will be visible.US, former president Donald Trump turns 76WednesdayBelgium, Nato defence ministers gather in Brussels for a two-day meeting. The event will include a working dinner to which representatives of Finland, Georgia, Sweden, Ukraine and the EU are invited. A separate meeting of the Ukraine Contact Group, hosted by the US, will take place at Nato headquarters.European Centre Bank president Christine Lagarde speaks at a London School of Economics eventThursday122nd US Open golf tournament tees off at the Country Club in Brookline, Massachusetts. Tiger Woods will not be taking part but there will be many other familiar faces on the greens despite the US Golf Association’s unhappiness about players joining the breakaway LIV series. The contest finishes on Sunday.FridayThe annual feast of Corpus Christi is celebrated by the Catholic Church and some other western churchesIceland celebrates its national dayUS, 50th anniversary of the break-in at the Democratic National Committee headquarters in Washington’s Watergate office-apartment-hotel complex that led to the Watergate scandalSaturdayUK, final of the rugby union Aviva Premiership season at Twickenham. Plus, Boris Johnson turns 58.US, the 146th annual Westminster Kennel Club Dog Show — rescheduled from February — begins in New York with almost 3,000 dogs from more than 200 breeds taking part in the second-longest running US sporting eventSundayColombia, second round of voting in the presidential electionFrance, second round of voting in the parliamentary electionUS, Juneteenth commemoration of the emancipation of enslaved African-Americans as well as celebrating African-American culture More

World Trade Organization director-general Ngozi Okonjo-Iweala has urged governments to end export restrictions on food to help alleviate the growing hunger caused by Russia’s invasion of Ukraine.At the start of the body’s first ministerial meeting in five years, Okonjo-Iweala said she hoped nations would agree to a food security declaration that would limit the use of “things like export restrictions and prohibitions” which “can exacerbate the issue”.A ban on exports by big food producers raised prices for importers during the 2008-09 food crisis, she noted, adding: “Our members are trying to think about how they would try to restrain themselves from taking these kinds of actions. This is a very important contribution they can make to keeping the prices of food products from rising.”At least 30 countries have imposed such controls, according to the IMF. Ukraine was among the world’s biggest exporters of wheat, maize and sunflower oil, but most of the crop is stranded in warehouses after a Russian blockade of its ports.The UN is leading talks aimed at securing safe passage for cargo ships carrying the grain.Okonjo-Iweala said she also hoped that countries would agree there should be no limits on sales to the World Food Programme, the UN division concerned with hunger and food security. The WFP said this month that 750,000 people faced hunger at present, with an “‘all-time high” of 49mn people in 46 countries at risk of succumbing to famine or famine-like conditions.Fifty-six ministers, including those from the EU, Singapore and Ecuador, met in Geneva ahead of Monday’s opening of the MC12, the 12th ministerial conference in WTO history, and agreed a statement of support for Ukraine. They pledged to help it export.The MC12 has been postponed twice due to Covid-19. Okonjo-Iweala admitted there were still differences between the 164 members on the five areas the meeting hoped to decide on. The WTO works on consensus, so any one country can block a deal.She also urged countries to accept compromises. “This is a negotiating forum. It has become a diktat forum. One side says I want this and the other says I want that. There is no negotiation.”Talks on the five topics on which the meeting hopes to clinch deals are fraught, according to Geneva officials.India, South Africa and Indonesia have yet to agree to continue a moratorium on customs duties for digital goods, which expires this month. If they do not, countries would be able to tax cross-border services such as films, social media messages and banking transactions.

Countries are also divided over how to change WTO intellectual property protections to allow poorer countries to make cheap generic versions of Covid vaccines. There is growing consensus to allow governments to issue compulsory licences to make drugs domestically, with some compensation for rights holders. Ministers cannot yet even agree on parameters for future talks on reducing agricultural subsidies.An attempt to eliminate the most harmful fishing subsidies appears closer, but some developing countries with big fleets such as India and China want certain exemptions from controls.Finally, Okonjo-Iweala hopes ministers will set up a group on WTO reform. It has not brokered a global trade deal since it was founded in 1995 and is contending with complicated areas such as forced labour and sustainable development.She said ministers needed to find “political will” to produce concrete results by the end of the meeting on Wednesday. “Let us see if we can get one or two deliverables. I am cautiously optimistic we can.” More

JERUSALEM (Reuters) – Israel’s government plans to sharply boost construction starts and expand a discount scheme aimed at restraining rapidly rising housing prices as demand continues to outstrip supply.Under a joint plan by the finance, interior, and construction and housing ministries, Israel aims to start building 280,000 housing units by 2025, or 70,000 on average a year. That compares to around 55,000 a year over the past decade.Construction and Housing Minister Zeev Elkin noted that the various incentives would mean a loss of as much as 20 billion shekels ($5.89 billion) to the country’s lands authority, which allocates Israel’s land to developers. “The plan is not a one-step magic solution,” Elkin said at a press conference on Sunday. “(But) we believe (it)… will stabilize Israel’s housing market.”The proposal, parts of which require parliament approval, also includes other measures, such as cutting red tape and building more housing units for rentals.It is the latest government attempt to contain housing costs, with previous ones failing to stabilize prices.It takes twice as long to build an apartment in Israel than it does in the United States and Britain, Finance Minister Avidgor Lieberman said at the news conference, citing data from the Israeli Central Bureau of Statistics. Lieberman also cautioned that other factors, outside the government’s control, could slow progress. Analysts and central bank policymakers have long said the current number of building starts in Israel is too low to meet demand for buyers either looking to invest or for a home. Along with rock-bottom mortgage interest rates, housing prices have more than doubled since 2010, with a 16% rise over the past year alone. Rent has also jumped, pricing many out of the market and contributing to rising inflation. Israeli media have reported double-digit gains in rental rates this year.Data show that a four-room apartment in Israel averages nearly 2.5 million shekels, with prices far higher in Tel Aviv, Israel’s financial and cultural capital. ($1 = 3.3931 shekels) More

The director-general from Nigeria said the world had changed since the WTO’s last ministerial conference nearly five years ago.”I wish I could say for better. It has certainly become more complex,” she told a news conference before the meeting, listing the lingering COVID-19 pandemic, the war in Ukraine and major food and energy crises as pieces of a “polycrisis”.She urged trade ministers to go the extra mile over the coming days to achieve agreements such as to reduce fishing subsidies, boost access to COVID-19 vaccines, address food security and to set a course for reform of the WTO itself.”Let me be clear, even landing one or two will not be an easy road. The road will be bumpy and rocky. There may be a landmine along the way,” Okonjo-Iweala said, adding she was “cautiously optimistic” that the meeting would conclude with one or two deals.She also cautioned ministers they should not expect to achieve everything on their countries’ wish lists and recognise that compromises are never perfect. More

The move comes amid his concerns that energy companies are not passing on to consumers a recent cut in tax on fuel that was enacted to help offset soaring inflation. The ministry foresees reducing hurdles to confiscate profits and giving the cartel office additional powers to intervene, according to the document dated June 11.”Although such a tightening of competition law cannot have a short-term effect in the current situation, it can give the state the necessary strength to intervene more effectively in the future,” the paper said. More

Soaring energy prices have encouraged another form of inflation, this one rhetorical. Comparisons of our current challenges with the world’s economic and political struggles in the 1970s are now a dime a dozen.The comparisons are apt as far as they go. Oil prices quadrupled in 1973 and doubled again in 1979. While they have “only” about doubled in the last two years, European gas prices have jumped five to 10-fold since before the pandemic. Overall inflation is the highest in decades, and many fear we face a repeat of the 1970s scourge of stagflation.The similarities end with the effects for political and economic thinking. Once the turmoil of the 1970s had discredited the mixed economies of the postwar era, it paved the way for the market-liberalising transformations pioneered by Margaret Thatcher and Ronald Reagan.Back then, economic failure produced something approaching a consensus that “government is the problem”, as Reagan put it. But today the opposite is the case. Energy prices, the rising cost of living and worsening tensions in labour relations are fuelling calls for the government to come to the rescue. The economic ailments that in the 1970s led the state to withdraw are today dragging it back where, for almost half a century, it has feared to tread.

The market-friendly governing philosophy that triumphed in the 1980s is on the defensive. Government-administered prices are now the order of the day, from car and heating fuel to electricity and, of course, carbon emissions. The pressure for windfall taxes on fossil fuel companies seems irresistible, and governments across Europe are digging deep into their coffers to help hard-pressed households. Even direct cash payments to households, with few strings attached or none, are in vogue, in an echo of the North American experiments with universal basic income in the 1970s.This raises two questions. Why this difference in the political consequences of seemingly similar economic crises? And is today’s turn to a more interventionist state permanent or a flash in the pan?The simplest answer to the first question is that when things feel intolerable, people blame the status quo and demand change. In the 1970s that meant deregulating a rigid economy. Today it may mean re-regulating an unchained one. But the return of the state predates today’s sudden rise in inflation and its main causes — the pandemic, energy price jumps and Vladimir Putin’s attack on Ukraine. Confidence in the post-1980 socio-economic model was already fraying under pressure from, as it were, both the past and the future. The populism of Donald Trump, Brexiters and others (including some on the left) represents a nostalgia for a previous social settlement remembered (rightly) as more controlled and (wrongly) as more prosperous. Meanwhile, the rise of the climate agenda responds to a widely held conviction among voters that current economic arrangements imperil their future. There are enormous differences between these two stances, of course. For one thing, a decarbonised economy is possible, whereas returning to the 1950s is not. But however realistic their goals, they both presuppose a more interventionist and controlling state. This helps to explain the changing conceptions of how to run the economy among centrist politicians and the guardians of economic orthodoxy. A greater emphasis on securing social cohesion and actively reshaping the structure of the economy is more than a temporary response to emergencies.For now, 2022 feels like a 1945 or 1979 kind of moment — a historical hinge point or paradigm shift. Yet the transition to a new economic governing philosophy could still be derailed. The pandemic years made for state interventions unlike any seen in decades — with rapid recoveries in incomes and jobs being proof of their success. But a revisionist view is taking hold that aims to discredit the policies that produced a historically speedy recovery. In this narrative, the current inflationary surge overshadows the triumph of a labour market that makes it easy to find better jobs. So thoroughly have we forgotten what a good labour market looks like that we risk thinking it is an aberration. Certainly, central bankers have been browbeaten into adopting a more hawkish attitude than is wise.The current economic debate is about much more than managing cost of living pressures. The question is whether we will finally put the last 40 years behind us and settle on something [email protected] More

“The legislation that we will outline tomorrow is within the law; what we are going to do is lawful and it is correct,” the Northern Ireland Secretary told Sky News.When Britain left the EU, Prime Minister Boris Johnson agreed a protocol that effectively left Northern Ireland in the EU’s single market and customs union to preserve the open border with Ireland specified in the Good Friday peace agreement.Any unilateral move by London to override the treaty will inflame a simmering argument with the European Union.Ireland’s Sinn Fein, the nationalist party that won a historic victory in the Northern Ireland Assembly election last month, said on Sunday Britain would “undoubtedly” break the law by imposing unilateral changes to the protocol.Lewis said however the protocol needed to be changed because it was “fundamentally undermining” the Good Friday agreement.He said it was disrupting the lives of people in Northern Ireland, was stopping government institutions functioning, and was not respecting the UK’s own internal market.Lewis declined to say how the protocol would be changed, but said the government would set out the legal basis on which it was bringing forward the legislation.Sinn Fein president Mary Lou McDonald said London could work with Dublin and Brussels to improve the application of the protocol. “There is a willingness here, there is a willingness to engage by the European Commission, but the British government has refused to engage,” she told Sky News from Dublin. “It has not been constructive, it has sought a destructive path, and is now proposing to introduce legislation that will undoubtedly breach international law.” More