Economy

WASHINGTON (Reuters) -The World Bank on Tuesday slashed its global growth forecast by nearly a third to 2.9% for 2022, warning that Russia’s invasion of Ukraine has compounded the damage from the COVID-19 pandemic, and many countries now faced recession.The war in Ukraine had magnified the slowdown in the global economy, which was now entering what could become “a protracted period of feeble growth and elevated inflation,” the World Bank said in its Global Economic Prospects report, warning that the outlook could still grow worse.In a news conference, World Bank President David Malpass said global growth could fall to 2.1% in 2022 and 1.5% in 2023, driving per capita growth close to zero, if downside risks materialized.Malpass said global growth was being hammered by the war, fresh COVID lockdowns in China, supply-chain disruptions and the rising risk of stagflation — a period of weak growth and high inflation last seen in the 1970s.”The danger of stagflation is considerable today,” Malpass wrote in the foreword to the report. “Subdued growth will likely persist throughout the decade because of weak investment in most of the world. With inflation now running at multi-decade highs in many countries and supply expected to grow slowly, there is a risk that inflation will remain higher for longer.”Between 2021 and 2024, the pace of global growth is projected to slow by 2.7 percentage points, Malpass said, more than twice the deceleration seen between 1976 and 1979. The report warned that interest rate increases required to control inflation at the end of the 1970s were so steep that they touched off a global recession in 1982, and a string of financial crises in emerging market and developing economies.Ayhan Kose, director of the World Bank unit that prepares the forecast, told reporters there was “a real threat” that faster than expected tightening of financial conditions could push some countries into the kind of debt crisis seen in the 1980s.While there were similarities to conditions back then, there were also important differences, including the strength of the U.S. dollar and generally lower oil prices, as well as generally strong balance sheets at major financial institutions.To reduce the risks, Malpass said, policymakers should work to coordinate aid for Ukraine, boost production of food and energy, and avoid export and import restrictions that could lead to further spikes in oil and food prices.He also called for efforts to step up debt relief, warning that some middle-income countries were potentially at risk; strengthen efforts to contain COVID; and speed the transition to a low-carbon economy.The bank forecast a slump in global growth to 2.9% in 2022 from 5.7 percent in 2021, a drop of 1.2 percentage points from its January forecast, and said growth was likely to hover near that level in 2023 and 2024. It said global inflation should moderate next year but would likely remain above targets in many economies.Growth in advanced economies was projected to decelerate sharply to 2.6% in 2022 and 2.2% in 2023 after hitting 5.1% in 2021. U.S. growth was seen dropping to 2.5% in 2022, down from 5.7% in 2021, with the euro zone to see growth of 2.5% after 5.4%.Emerging market and developing economies were seen achieving growth of just 3.4% in 2022, down from 6.6% in 2021, and well below the annual average of 4.8% seen in 2011-2019.China’s economy was seen expanding by just 4.3% in 2022 after growth of 8.1% in 2021.Negative spillovers from the war in Ukraine would more than offset any near-term boost reaped by commodity exporters from higher energy prices, with 2022 growth forecasts revised down in nearly 70% of emerging markets and developing economies.The regional European and Central Asian economy, which does not include Western Europe, was expected to contract by 2.9% after growth of 6.5% in 2021, rebounding slightly to growth of 1.5% in 2023. Ukraine’s economy was expected to contract by 45.1% and Russia’s by 8.9%.Growth was expected to decelerate sharply in Latin America and the Caribbean, reaching just 2.5% this year and slowing further to 1.9% in 2023, the bank said.The Middle East and North Africa would benefit from rising oil prices, with growth seen reaching 5.3% in 2022 before slowing to 3.6% in 2023, while South Asia would see growth of 6.8% this year and 5.8% in 2023.Sub-Saharan Africa’s growth was expect to slow somewhat to 3.7% in 2022 from 4.2% in 2021, the bank said. More

Gross domestic product shrank an annualized 0.5% in the three months through March, revised figures from the Cabinet Office showed Wednesday. An upward revision in inventories was a key factor behind the better numbers. Economists had expected a 1.1% decrease, compared with an initial reading of -1%. An upward revision in private inventories was one of the main factors helping narrow the contraction. Business spending was revised down after a report last week showed companies invested at a slower pace in the first three months of the year. For now, analysts are expecting the economy to return to modest growth in the second quarter, as consumers regain confidence in venturing out to spend money following the lifting of the omicron wave restrictions.The updated report on the economy Wednesday comes with the main downside risks having largely shifted from the pandemic to cost-push inflation exacerbated by a sliding currency. Continued fallout from Russia’s war on Ukraine and China’s slowdown are other causes for concern.Data released Tuesday showed pent-up demand outweighed concerns over the impact of inflation on real incomes in April. But analysts warn that once that demand runs out, price gains may cool consumption if wage gains fail to keep up with rising living costs. The yen’s drop to fresh 20-year lows is amplifying some of the higher prices. While a cheaper currency is expected to be a boon for exporters and overseas tourists as Japan gradually reopens its borders, it makes imports of food and energy more expensive and pushes up basic living costs. So far, the Bank of Japan is sticking with its dovish policy stance of ultra-low rates to support the economy, while its peers raise interest rates to cool inflation. That policy difference with the US is helping the yen weaken further.What Bloomberg Economics Says…“Looking ahead, we expect GDP to rebound in 2Q on pent-up consumer demand after virus-related restrictions were lifted in March. But there are downside risks. Higher import prices are squeezing household budgets.”– The Asia economist teamFor the full report, click here.(Adds more details from the release)©2022 Bloomberg L.P. More

WASHINGTON (Reuters) -U.S. Treasury Secretary Janet Yellen told senators on Tuesday that she expected inflation to remain high and the Biden administration would likely increase the 4.7% inflation forecast for this year in its budget proposal.During a Senate Finance Committee hearing, Yellen said that the United States was dealing with “unacceptable levels of inflation,” but that she hoped price hikes would soon begin to subside.U.S. Consumer Price Index inflation has been tracking above 8% in recent months, the highest readings in over 40 years and well above President Joe Biden’s administration’s forecast for its fiscal 2023 budget.But another metric, the core Personal Consumption Expenditures price index excluding volatile food and energy costs, has begun to cool, edging down to 4.9% in April”I do expect inflation to remain high although I very much hope that it will be coming down now,” she said.Yellen repeatedly rejected Republican assertions that inflation was being fueled by Biden’s $1.9 trillion American Rescue Plan (ARP) COVID-19 spending legislation last year.”We’re seeing high inflation in almost all of the developed countries around the world. And they have very different fiscal policies,” Yellen said. “So it can’t be the case that the bulk of the inflation that we’re experiencing reflects the impact of the ARP.”The Biden administration is still pushing for a scaled-back version of its stalled climate and social spending agenda, which would offer tax credits for clean energy technologies and reform prescription drug pricing – policies that Yellen argued would help lower expenses for American consumers weary of price hikes.Yellen repeated her views that inflation was being fueled by high energy and food prices caused by Russia’s war in Ukraine, a shift to goods purchases during the pandemic, and by new COVID-19 variants and persistent supply chain disruptions. ‘TRANSITORY’ WRONG WORDYellen has come under fire from Republicans after acknowledging she was wrong last year in forecasting that inflation would be transitory and quickly subside. She will face more tough questions on the issue in a House Ways and Means Committee hearing on Wednesday.Yellen added that both she and Federal Reserve Chair Jerome Powell both “probably could have used a better term than transitory” in describing inflation that they thought would fade quickly.”When I said that inflation would be transitory, what I was not anticipating was a scenario in which we would end up contending with multiple variants of COVID that would be scrambling our economy and global supply chains, and I was not envisioning impacts on food and energy prices we’ve seen from Russia’s invasion of Ukraine,” Yellen said.She testified as the World Bank on Tuesday warned of a heightened risk of “stagflation” – the 1970s mix of feeble growth and high inflation – returning as it slashed its global growth forecast by nearly a third to 2.9% for 2022. More

Inditex owns brands including Zara, Massimo Dutti and Pull and Bear © Bloomberg

Inditex, the world’s largest clothing retailer, posted an 80 per cent increase in first-quarter net profit as sales surpassed pre-pandemic levels.The owner of brands including Zara, Massimo Dutti and Pull and Bear said net sales for three months from February to the end of April rose 36 per cent to €6.7bn as store footfall recovered sharply. Profit for the quarter was €760mn.Online sales, which boomed at the height of the coronavirus pandemic, dipped only 6 per cent year-on-year, the Spanish group said.Óscar García Maceiras, chief executive, said the group’s performance was underpinned by a “well-differentiated business model” and “a strategic focus on innovation, digitalisation and sustainability”.Net income would have risen to €940mn excluding a €216mn provision against estimated costs related to Ukraine and Russia. The group said Inditex stores in both countries, including its online platforms, had been “temporarily closed” since February 24, the date of the Russian invasion.The company has roughly 500 stores in Russia, its second-largest market in terms of shops.Sales at the company’s 67 stores in China were affected by Covid-related restrictions, but the US cemented its position as the group’s second-largest market with “notable growth”, Inditex said.Inditex recorded a gross margin of 60.1 per cent, the highest in a decade. Operating costs increased 24 per cent.Under a three-year agreement worth more than €100mn signed in May, Inditex has committed to purchase 30 per cent of future production of a textile fibre called Infinna created wholly from textile waste. The company proposes to pay a total dividend €0.93 per share from 2022 profits. More

WASHINGTON/LONDON (Reuters) – The U.S. Treasury Department has banned U.S. money managers from buying any Russian debt or stocks in secondary markets, on top of its existing ban on new-issue purchases, in its latest sanctions on Moscow over its invasion of Ukraine.Despite Washington’s sweeping sanctions in recent months, Americans were still allowed to trade hundreds of billions of dollars worth of assets already in circulation on secondary markets. The Treasury said in guidance published on its website on Monday that the ban extends to all Russian debt and that all Russian firms’ shares are affected, not just those of ones specifically named in sanctions. “Consistent with our goal to deny Russia the financial resources it needs to continue its brutal war against Ukraine, Treasury has made clear that U.S. persons are prohibited from making new investments in the success of Russia, including through purchases on the secondary market,” a Treasury spokesperson said on Tuesday.The rules do still allow U.S. investors to sell or continue to hold Russian assets that they already own. Buying shares in U.S. funds that contain Russian debt or equities will also still be possible.Western funds have already dumped Russian assets en masse since the war in Ukraine started.According to Morgan Stanley (NYSE:MS), Russian government and corporate debt on the international markets added up to just over $472 billion at the start of the year, making it one of the largest emerging market asset pools behind Mexico, Indonesia and Turkey.The combined market cap of Moscow’s main stock exchange meanwhile, is currently around 35 trillion roubles ($588.24 billion) down from over 50 trillion in January.The latest Treasury move surprised some analysts, especially because it was posted in the Frequently Asked Questions section of the department’s website, rather than announced with the most recent round of sanctions.”The surprising new thing here is that trading of all existing debt has been now been prohibited, at least for the U.S. citizens,” said Seaport Global emerging market credit analyst Himanshu Porwal. “We have been trading some of the names like Lukoil very actively, but now the U.S. accounts will be unwilling to transact.”The United States and its allies have imposed several rounds of measures on Moscow since its Feb. 24 invasion of Ukraine.Russia calls its assault a special operation to demilitarize Ukraine. Kyiv and its Western allies say it is a baseless pretext for an unprovoked war.($1 = 59.5000 roubles) More

LONDON (Reuters) – Growing food shortages may represent the same health threat to the world as the COVID-19 pandemic, a leading global health figure has warned. Rising food and energy prices, in part sparked by the war in Ukraine, could kill millions both directly and indirectly, Peter Sands, the executive director of the Global Fund to Fight AIDS, Tuberculosis and Malaria, told Reuters in an interview on Tuesday. “Food shortages work in two ways. One is you have the tragedy of people actually starving to death. But second is you have the fact that often much larger numbers of people are poorly nourished, and that makes them more vulnerable to existing diseases,” he said. He said efforts to improve pandemic preparedness should not make the “classic” mistake of concerning themselves only with crises that resemble the most recent threat the world has faced. “It’s not as well-defined as some brand new pathogen appearing with distinctive new symptoms. But it could well be just as deadly,” he said. The World Health Organization estimates that 15 million people may have died as a result of COVID-19.Sands said investment was needed to strengthen health systems to help prepare for the repercussions of food shortages, which is part of the Global Fund’s remit. The Geneva, Switzerland-based fund is aiming to raise $18 billion to boost health systems, fight the three core diseases in its title, and reverse setbacks caused by the pandemic. It has raised just over a third of its target for 2024-2026. More

(Reuters) – The Russian central bank said on Tuesday Russian residents and non-residents from “friendly” states will be able to channel foreign currency abroad equivalent to up to $150,000 a month, up from the previous limit of $50,000. All the non-residents are still be able to send foreign currency abroad to the value of their salaries, the bank said. More

Yellen said economic research showed that events in childhood – such as school shootings – could have a lifelong impact on the psychological well-being and labor market participation of those involved.”Of course it has a negative impact on these individuals and our economy,” Yellen said, when asked about the issue by Senator Robert Menendez during a Senate Finance Committee hearing on the Treasury Department’s budget request for fiscal year 2023.Menendez cited new research by Northwestern (NASDAQ:NWE) University that found students who were survivors of gun violence at school were less likely to graduate from high school and less likely to attend or graduate from college.”I am also horrified by the gun violence we’ve seen in recent weeks and over many years,” Yellen said. “And I do hope that Congress will take long overdue action and put in place common sense measures to reduce gun violence.Yellen said she was no expert, but was aware of a large amount of literature in economics which documented that events in early life could have a lifelong impact on individuals and their psychological well-being. More