Economy

It is 10am and the queue outside a petrol station in one suburb of Sri Lanka’s commercial capital Colombo is already hundreds of people long. At the front is Malar Peter, whose family has taken turns to keep their place for 12 hours already. A few paces behind her is Padmasiri, who arrived at 1am. And right at the back of the queue stands Arumugam Annaletchumi, 50, who expects to be there for the rest of this hot, humid day.They are all waiting for kerosene, carrying empty plastic canisters for a few litres with which to cook and burn lamps during the long blackouts caused by power shortages. Yet they are there in hope as much as anything else. There is no kerosene at the station and it’s unclear if it will arrive. For Sri Lankans, who until recently enjoyed some of the highest living standards in South Asia, such queues were rare until a few months ago. “People just want to live without problems like this,” Annaletchumi says. “This country has been robbed.”Sri Lanka this month defaulted on its overseas loans after missing interest payments on two $1.25bn sovereign bonds, the first country in the Asia-Pacific to do so in more than two decades, according to Moody’s data. The latest estimates put the country’s total foreign debt at more than $50bn, with a $1bn bond maturing in July. President Gotabaya Rajapaksa’s government says it has all but run out of foreign reserves and fuel, relying on ad hoc shipments to top-up supplies in the most visible manifestation of a crisis that, the Eurasia Group consultancy warns, is turning the island into a “failed” state.After the end of a devastating 26-year civil war in 2009, the island of 22mn had the makings of an Asian economic success story. Under governments run by the powerful Rajapaksa family, annual economic growth peaked at 9 per cent. By 2019, the World Bank had classified the island as an upper-middle income country. Sri Lankans enjoyed a per capita income double that of neighbours such as India, along with longer lifespans thanks to strong social services such as healthcare and education. The country tapped international debt lenders to rebuild, becoming a key private Asian bond issuer and participant in China’s Belt and Road Initiative. Much of that progress is now in jeopardy. Some observers argue Sri Lanka’s debt crisis is the product of the hubris, mismanagement and alleged venality of political elites including the Rajapaksa family, as well as irresponsible lending on the part of its creditors.WN Thilini, hangs out washing in front of her house in Colombo. She says she has enough food and fuel for a couple more meals, before she will need to join a queue © Buddhika Weerasinghe/FTBut, on another level, it is an extreme example of the economic and political churn facing developing countries around the world as rising inflation and Russia’s invasion of Ukraine prompt higher interest rates and surging food and fuel prices globally. Within South Asia alone, countries including Nepal have imposed import restrictions in order to protect foreign reserves while Imran Khan was removed as Pakistan’s prime minister in April amid popular anger over inflation.Sri Lanka’s “economy has been built on unsustainable debt. They were spending more than the money that was coming in,” says Hanaa Singer-Hamdy, the UN’s resident co-ordinator in Colombo. “You don’t have fuel and people queue for three or four kilometres waiting in the heat.”Popular outrage has boiled over in recent weeks after a wave of retaliatory violence following attacks on anti-government protesters and the temporary imposition of a military-enforced curfew. Gotabaya Rajapaksa is fighting for his political survival after the resignation on May 9 of his once-powerful brother Mahinda as prime minister. Together with new prime minister Ranil Wickremesinghe, a political veteran, the president has struggled to form a new cabinet.People queue with empty cans to buy kerosene oil for cooking at a Colombo gas station © Buddhika Weerasinghe/FTChinese loans to Sri Lanka, which totals about $3.5bn, according to the Advocata Institute think-tank, has proved particularly controversial. While Sri Lanka owes more to private bondholders and countries like Japan, critics argue that China’s BRI loans have been extended at high interest rates for infrastructure projects that have often failed to generate returns. Sri Lanka has begun talks with the IMF for a bailout of up to $4bn, and is preparing debt restructuring negotiations with creditors. Analysts say the talks will be closely watched to see how China — one of the largest and most important lenders to the developing world in recent years — will respond amid growing signs of financial strain in other Belt and Road participants.A vendor works at his vegetable stall at a Colombo market. Sri Lanka has the worst inflation in Asia at about 30% in April © Buddhika Weerasinghe/FT“Sri Lanka is a real canary in the coal mine,” says Gabriel Sterne, head of emerging markets at research group Oxford Economics. “It’s the most interesting case in years. There’s going to be lots of low-income debt crises, and the treatment of China in all that is going to be crucial.”Postwar economic boom Sri Lanka has many of the ingredients for economic and political success — from rich natural resources to strong social services and a strategic location near many of the world’s busiest shipping lanes.But in the 1980s tension between the majority Sinhalese Buddhists and Tamils — groups that make up about 70 and 15 per cent of the population respectively — culminated in civil war when the Liberation Tigers of Tamil Eelam launched a brutal separatist campaign amid Tamil resentment over widespread discrimination.The conflict would drag on for more than two decades before Mahinda Rajapaksa was elected president in 2005. With Gotabaya Rajapaksa serving as defence secretary, the brothers would lead an unrelenting campaign to crush the Tigers. Government forces were accused of war crimes including indiscriminately bombing civilian areas and executing suspected militants. The Tigers were also accused of atrocities and the UN estimates that about 40,000 civilians died in the final years of the conflict, almost half the total. Mahinda and Gotabaya have been subject to sustained scrutiny from civil society groups for the alleged abuses committed under their rule, with Human Rights Watch alleging that Gotabaya is implicated in human rights abuses. He has always denied the allegations.The end of the war in 2009 was followed by a boom in Sri Lanka’s economy. The government of Mahinda Rajapaksa tapped international bond markets and longtime ally China for debt to fund the construction of everything from roads and airports to “Port City”, an ambitious project to turn reclaimed land in Colombo into a financial hub. Tourists flocked to the island.Yet this growth masked deep economic and social imbalances. Critics argue that the Rajapaksas shunned efforts at postwar reconciliation and continued to use ethno-nationalism to drum up their Sinhalese Buddhist base. Many debt-backed projects failed to generate a return, most notoriously a Chinese-backed port in the Rajapaksas’ home district that was ultimately handed over to Beijing on a 99-year lease. Critics say that easy money for large infrastructure projects fuelled a culture of kickbacks and corruption that became widespread in politics and business.“The biggest issue is corruption,” says Harini Amarasuriya, an MP from the leftwing Janatha Vimukthi Peramuna party, one of Sri Lanka’s largest. “For the past 25-30 years, our economic decisions have not been made on any economic analysis but on kickbacks and commissions.”Some members of the Rajapaksa family have been accused of wrongdoing on various occasions though they have always denied allegations and have not been convicted. Gotabaya Rajapaksa was charged in a corruption case in 2016 though the charges were dropped on grounds of immunity after he was elected president in 2019, according to media reports. He denied the allegations. Gotabaya Rajapaksa’s 2019 landslide victory came after the Easter Sunday terrorist attacks that killed 269 people. He vowed to right an already struggling economy but instead made a series of idiosyncratic decisions that economists say tipped the island into crisis. He cut taxes sharply — eroding government revenues — and changed the constitution to concentrate power around him and his family, with several relatives also in government. He also imposed a shortlived but destructive ban on chemical fertilisers, designed to promote organic farming and save money on imports, that led to a sharp drop in crop yields.Anushka Wijesinha, an economist at the Centre for a Smart Future in Colombo, says that Sri Lanka was considered a “donor darling” in the decades after independence, before Mahinda Rajapaksa’s government embarked on its postwar infrastructure boom. “The money [was] coming in easily from bilaterals, multilaterals and commercial loans,” he says. “Financing is not a constraint, doing the policy reforms is not a constraint, and — woohoo, bonus — the room for graft is huge.”Passengers wait for a train at Fort railway station in Colombo. Sri Lanka’s default could have significant geopolitical ramifications © Buddhika Weerasinghe/FTA series of ratings downgrades following the 2019 tax cuts locked Sri Lanka, which had never defaulted before, out of international debt markets, leaving it unable to refinance. The pandemic cut off remittances and tourism, vital sources of dollars. A poll in January by think-tank Verité Research found that only 10 per cent of Sri Lankans approved of the government. Yet Rajapaksa dismissed warnings to begin restructuring or approach the IMF for assistance until March, after protests over the growing economic hardship had spread across the island.Sri Lanka’s reserves have fallen from $7.5bn in November 2019 to the point where finding $1mn is “a challenge”, Wickremesinghe, the new prime minister, said in an address last week. This has meant shortages of not only fuel but food and medicine, with hospitals forced to postpone surgeries. The country has the worst inflation in Asia at about 30 per cent in April and the currency has almost halved in value since it was floated in March.

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The UN Development Programme says that nearly half the population is in danger of falling below the poverty line, and warns of a looming humanitarian crisis as the urban poor and former middle class begin to cut back on meals.WN Thilini lives with her two-year-old daughter in a low-income Colombo neighbourhood. She says she has stopped giving milk to her child and that they now eat mostly rice, dhal and grated coconut. The 38-year-old says she has enough food and fuel in the house for a couple more meals, before she too will need to join a queue. “Most people are down to one meal a day”, says her neighbour, Mohammad Akram, “but are embarrassed to admit it.” A default test case On top of Rajapaksa’s mismanagement and Covid, observers say the final trigger for Sri Lanka’s default was the war in Ukraine — a worrying example of the aftershocks of the conflict for low- and middle-income countries. Some, including Belize and Zambia, had already defaulted in the wake of the pandemic.In addition to depending on imported energy and staples such as wheat, the conflict has hit Sri Lanka in unexpected ways. Russia and Ukraine were Sri Lanka’s first- and third-largest tourist markets in early 2022 respectively. Russia was also the second-largest buyer of Ceylon tea, Sri Lanka’s main goods export.The island’s default could have significant geopolitical ramifications. Its strategic location in the Indian Ocean has long made it an arena for jockeying between countries such as India and China, arch-rivals who have used combinations of easy credit and diplomatic pressure to secure their interests on the island.Critics of Chinese activity in the island accuse it of using BRI projects to ensnare the country in a “debt trap”, allegations that it denies. Yet while China has so far rejected Sri Lanka’s requests to restructure its outstanding debts, India has sought to cement its primacy on the island, offering a series of credit lines, debt swaps and other assistance measures that it [India] says total about $3.5bn.Sri Lanka’s upcoming debt restructuring negotiations are being viewed as a case study for how China works alongside other creditors such as private bondholders, given the rise of Chinese lending in Africa and Asia.

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Analysts say that in countries such as Zambia, as well as Sri Lanka, it remains unclear whether Chinese lenders — which includes the government as well as state banks — will be willing to accept losses on their loans or look to enforce claims for full repayment. Zambia’s restructuring has shown “there’s somehow this expectation that [Chinese lenders] would be senior creditors,” and therefore prioritised for repayment, argues one London-based fund manager, who holds Sri Lankan bonds.The fund manager argues that had Rajapaksa started the restructuring process earlier, when Sri Lanka had more foreign reserves left, creditors could have recouped larger amounts. “What would have been a fairly mild restructuring process is now a more complicated one.”A military vehicle patrols a street during a curfew in the commercial capital. Analysts warn the island could face prolonged political instability © Buddhika Weerasinghe/BloombergThe success of any restructuring is likely to be tied to the IMF programme. Any assistance package will take months to negotiate and, while Sri Lanka has already been through 16 IMF programmes in its 74-year history, it has only completed nine. International groups also warn that the reforms the fund is likely to demand, such as reversing Rajapaksa’s 2019 tax cuts and reducing energy subsidies, could exacerbate the suffering without adequate protections for vulnerable populations.Improvement is “not going to come immediately,” warns Nalaka Godahewa, an MP from Rajapaksa’s ruling Podujana Peramuna party. “It’s going to be difficult because nothing much is going to change [in the short term].”It is unclear whether Rajapaksa and his government can survive even before implementing a series of potentially unpopular economic reforms, prompting analysts to warn that the island could face prolonged political instability.“To go into an economic restructuring, you need political stability. This is now challenging,” says the UN’s Singer-Hamdy. “The most important is how you discuss with the creditors now, in terms of agreeing to a haircut. This is [what] will help . . . Everybody is waiting to see how the government will negotiate the restructuring with the creditors.”Additional reporting by Tommy Stubbington in London More

Sara Tauxe had been fretting about a warning from her energy supplier that her monthly bills would more than double to £249 if she did not submit meter readings proving lower usage.Even after April’s hike to Britain’s energy price cap, the 52-year-old single mother, who was used to paying just under £100 a month, could not understand why her regular direct debit had been set so high.Her experiences, and those of thousands of others buffeted by record gas prices, are a big reason why pressure has built up on the UK government to impose a windfall tax on energy groups.High wholesale prices have led to a surge in energy costs for consumers and businesses across Europe, but the pressures faced by UK consumers have been particularly acute.Energy suppliers complain they too have been hit by this year’s surge in wholesale gas prices and that the retail sector is particularly fragile. But one way or another, rising prices are putting electricity groups under increasing scrutiny.Governments in other countries have intervened to protect households from surging bills. In France, for example, rises in electricity costs have been limited to 4 per cent.But in Britain the regulator Ofgem has raised the country’s “energy price cap” by 54 per cent, pushing up average bills for 23mn households to about £2,000 a year. The regulator’s chief executive Jonathan Brearley warned on Tuesday that he expected bills to rise another 40 per cent to £2,800 in October, when the cap is next updated.Many consumers fear being forced into fuel poverty — a reason why a UK windfall tax has widespread public support. Despite the Conservative government’s reluctance to impose such a levy, chancellor Rishi Sunak is considering a broader tax that could include companies that generate electricity and have been benefiting from high wholesale power prices. Such a measure could hit groups including Centrica, ScottishPower and EDF, which own stakes in generation assets such as wind farms, solar schemes and nuclear power plants, as well as supplying UK homes.Government officials estimate generators have made more than £10bn in excess profits, which, if taxed, could help subsidise the energy bills of households most in need over the winter.

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British households hit hardIt is not just wholesale prices that are behind the higher bills in Britain.Among the extra costs hitting UK households is a £68 contribution to rescue the customers of the more than 30 energy suppliers that have collapsed in the past year. There are also concerns in the industry that weaker operators have sought to front-load customers’ bills to secure funds to support their daily operations, as they struggle to access alternative finance. Many customers have complained that their monthly direct debits have risen even more steeply than the cap increase — claims Ofgem is looking into.In Tauxe’s case, for example. she typically submitted her meter readings each month to keep her bills lower — but her supplier, EDF Energy, warned her it would take a far higher amount from her bank account if she failed to do so on time. It had been a “huge weight hanging over my head”, she said.EDF reduced her regular direct debit to £145 after being contacted by the Financial Times.Suppliers insist there are many reasons why direct debit increases might be higher than indicated by the cap, such as customers coming to the end of a cheap fixed-price deal or households not being up to date with meter readings.EDF said it could not comment on the case of Tauxe but said: “The approach we use to calculate the correct level of direct debit for a customer is exactly the same now as it was before the recent price increases . . . If poor practice is happening in the industry, it should be stopped.”Profits mask retail woes The steep increases in energy bills for consumers have triggered calls for a windfall tax on oil and gas producers including BP and Shell in recent weeks, as the companies have posted record profits even as households struggled with the worst cost of living crisis in a generation.But the consumer backlash has spread to the suppliers, some of which have also posted healthy profits.Simon Francis, co-ordinator of the End Fuel Poverty Coalition, said the “excesses on show” at some UK energy companies were “obscene in the current climate”.Centrica, owner of Britain’s largest energy retailer British Gas, this month predicted 2022 profits at the top end of analysts’ expectations, for example. Martin Young, analyst at Investec, forecast pre-tax profit of more than £1.2bn for 2022, nearly double 2021’s £760mn. Before reports of the broadening of the windfall tax, Centrica’s share price had risen 20 per cent this year.

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The biggest operators — such as EDF, Eon and ScottishPower — have been able to better cope with the pressure from high wholesale prices as they often own other assets such as oil and gas projects or wind farms, or form part of large multinational companies that have been generating profits in other areas.This has meant that large parts of their business have remained profitable even though the divisions selling electricity and gas to UK homes have been losing money.The big energy generators have hit back, arguing they have “differing commercial arrangements” under which they sell their output, meaning many have not benefited from some of the peaks in wholesale prices.At the other end of the market, dozens of smaller suppliers that were more exposed to wholesale price increases have collapsed since the start of 2021. These did not have the diversified businesses of their larger rivals and their weaker business models left them with little access to external funding.The smaller suppliers in the UK argue that the profit increases recorded by their larger rivals are masking the fragile state of the retail energy sector.Aggregate pre-tax margins for gas and electricity supply across the industry in 2020 was minus 1.02 per cent, Ofgem’s data show.Even with the windfall tax, the backlash against the big suppliers looks set to intensify — as bills are set to rise again for many households and companies face tough decisions over dividends and executive pay.Centrica — often a lightning rod for frustrations with the retail energy sector — faces a particular flashpoint as it decides whether to restore its dividend, which was suspended during the first Covid-19 wave in 2020, even though that may be politically difficult. Privately suppliers acknowledge they could have a bruising winter as families really start to feel the pain of rising prices and blame the companies billing them. “Is there a risk from a public relations point of view . . . that we get blamed for rising prices? Yes, absolutely, we’ve seen it before, it could happen again,” said the chief executive of one supplier. More

Across the US, small and large employers in nearly every industry are asking the same question: where are all the workers?Desperate to hire as the US economy has rebounded at a historic pace from one of its worst economic contractions, companies are struggling to find enough qualified people to fill a record number of job openings. According to Goldman Sachs, they are contending with the most severe imbalance between labour demand and supply since the second world war. For every unemployed worker, there are 1.9 vacant positions.The worker shortage is a nationwide phenomenon, but a Financial Times analysis shows it is more acute in some states and industries than others, and that it varies across different segments of the population. Those differences pose an additional threat to US central bankers who already face a fiendishly difficult task: cooling down the “overheated” labour market by raising interest rates without causing substantial economic hardship.“This variation across states and across sectors is the reason why we don’t think the Federal Reserve is going to be able to engineer just lower labour demand while not moving the unemployment rate higher,” said Matthew Luzzetti, chief US economist at Deutsche Bank. “Our baseline is that there will be a recession by the end of next year, and this is a key element of why.”Regional variancesNot only is labour market tightness in the US at a record high nationwide, but the variation in that tightness between states has never been greater, according to research from the Fed’s Kansas City branch. The number of job openings per unemployed person ranges from 1.3 to 3.8 depending on the state.The tightest labour markets are in places such as Utah, Nebraska and Montana, where there are more than 3.3 job openings per unemployed person. At the other end of the spectrum, in states including Connecticut, Pennsylvania and California, the ratio is less than 1.4.

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“The labour market over the past year or two has definitely felt much tighter . . . frankly unlike anything we’ve ever experienced,” said Josh England at CR England, a family-owned trucking company in Utah. “It’s felt like a perfect storm of demand picking up and being really strong in our industry — so we’ve needed to hire a lot of people — but also the supply side feels like it has been somewhat constrained.”England said the perfect storm had hit “hurricane” intensity before the company boosted drivers’ salaries by an average of 25 per cent.Economists already rushing to understand the national picture have not yet reached a consensus on why there is so much geographical variation. But some trends have started to emerge. In places where weekly wage growth has been higher, the labour market tends to be less tight and there is a better balance between vacancies and workers wanting to fill those jobs. Northeastern states including New York and New Jersey have less tight labour markets and have also recorded some of the highest wage gains, for instance. That has meant some workers in these areas are still struggling to find the right job.“My friends and family are puzzled as to why I’m not getting hired because they are reading headlines about this sexy new job market,” said Sheila Egan, who works in financial technology and relocated to New York from Chicago last year. “Some roles are as competitive as ever.”Meanwhile the so-called quits rate has also been lower in northeastern states and Washington DC. That bucks a national trend, where workers are leaving their jobs in record numbers for better prospects elsewhere, with 4.5mn people quitting in March alone.Industry differencesIn addition to regional disparities, labour market tightness also varies widely by industry.Care services such as nursing are among the sectors that have been the slowest to recover, according to official data. Across the healthcare sector, the openings rate has nearly doubled since 2019, while the hiring rate is lower. For nursing in particular, only about 2 per cent of the 412,000 jobs lost since the onset of the pandemic have been recovered.

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Betsey Stevenson at the University of Michigan said the shock of the pandemic had resulted in big societal shifts, with more Americans cooking their own food and caring for children and elders. “I do wonder whether there has been a shift in preferences to wanting a little bit less work and a little bit more, ‘do things for ourselves’,” she said.Employment in leisure and hospitality has also lagged behind other sectors. In accommodation and food services, the number of openings has jumped 62 per cent since 2019 but hiring is up just 18 per cent. More than 6 per cent of workers in this industry quit in March alone, the most recent month for which regional and sector-specific data is available. That was more than twice the national average. On the other hand, the transportation and warehousing industry has experienced a particularly robust recovery. With few services to purchase during various pandemic peaks, consumers switched spending to goods that needed to be delivered, and these workers have enjoyed one of the biggest wage bumps: pay was up 9 per cent on average in the two years ending 2021.Regardless of the industry, however, the worst inflation in more than 40 years has meant that wage gains for many have been gobbled up by higher prices. Real hourly earnings, adjusted for inflation, are down 2.6 per cent year-on-year, according to the latest data.“We have this situation where it’s not really worthwhile to participate in the labour market. It’s expensive to go to work, especially if you don’t make a lot and you have to find childcare,” said Nela Richardson, chief economist at payroll processor ADP. “You have to put gas in the tank . . . clothes are more expensive, food is more expensive. So are you really winning by working?”Demographic distinctions The seismic reshuffling of workers between jobs has dramatically altered the make-up of the US workforce. The labour participation rate — the share of Americans employed or looking for work — is still below its pre-pandemic level but has bounced back faster for some groups than others.

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Women of colour left the workforce in disproportionate numbers during the pandemic, according to research published by the Fed’s Minneapolis branch; to begin with, the plunge in participation among Hispanic and black women was more than twice as large as that for white women. Women with young children were also more likely to leave the workforce. As the labour participation rate has recovered, some of those discrepancies have started to narrow, but unemployment rates among black and Hispanic Americans are still at 5.3 and 3.6 per cent, significantly higher than the 2.7 per cent rate among white Americans.‘Looser’ times aheadFew economists expect the labour market to stay this tight, especially given the Fed’s pledge to raise rates in a bid to stamp out inflation. Higher rates have already increased borrowing costs for households, with further pain to come, which should dent the demand for houses and other big-ticket items. And businesses are expected to reassess expansion plans that would have fuelled hiring and wages.Officials are also hopeful that those still sitting on the sidelines will return to the workforce, as the fear of becoming seriously ill with Covid-19 abates and the stockpile of household savings dwindles. That might help, on the margins at least, to offset factors like lower levels of legal immigration into the US. Some pandemic-inflicted stresses on the labour market are already starting to retreat. For instance, in the past year, approximately 1.7mn retirees have re-entered the labour market, according to Indeed, the jobs website. That marks a slight reversal of the Covid-19 phenomenon that saw millions of older Americans retire early. Most of those returning to work have accepted part-time positions and BLS data show black and Hispanic men aged over 65 are more likely to have done so than white men of that age bracket.Nonetheless, the variations across sectors and states mean it will be all the harder for Jay Powell, the Fed chair, to execute what he has called a “softish landing” for the economy, where tighter monetary policy reduces vacancies rather than spurring significant job losses. “The question is, can the Fed — with the tools it has — fine-tune the temperature of the labour market or does it cool it down more than it would like or that the economy needs?” said Nick Bunker, Indeed’s chief economist. “There is a bluntness to their tools.”Additional reporting by Taylor Nicole Rogers in New York More

FUNDAMENTALS* Spot gold held its ground at $1,865.39 per ounce, as of 0042 GMT. U.S. gold futures were also steady at $1,864.80. * Gold prices rose to their highest level since May 9 of $1,869.49 on Tuesday, as the safe-haven metal’s appeal was lifted by a weaker U.S. dollar and lower Treasury yields amid subdued risk appetite in financial markets. * The dollar steadied after hitting its lowest level in a month in the previous session. A weaker dollar makes bullion less expensive for buyers holding other currencies. [USD/] * Shares slid worldwide on Tuesday as supply chain woes and surging costs hurt corporate earnings and manufacturing output slowed, while Treasury yields dipped as the weakness in equities revived a safe-haven bid for U.S. government debt. [MKTS/GLOB] [US/] * As the Federal Reserve amps up its fight against 40-year-high inflation with what is expected to be a string of big interest-rate increases, one U.S. central banker injected a note of caution, warning headlong rate hikes could create “significant economic dislocation.” * Higher short-term U.S. interest rates raise the opportunity cost of holding bullion, which yields nothing. * European Central Bank President Christine Lagarde said on Tuesday she saw the ECB’s deposit rate at zero or “slightly above” by the end of September, implying an increase of at least 50 basis points from its current level. * Spot silver dipped 0.1% to $22.07 per ounce, while platinum gained 0.2% to $955.75, while palladium edged 0.2% lower to $2,002.66. More

NEW DELHI (Reuters) – T.L. Wali, a 66-year-old lawyer in Delhi’s high court, had been looking forward to retirement.But with India’s living costs soaring, he is now forced to dip into his savings and will need to keep working longer just to pay for medicine, travel and household expenses.”I can’t even think about retired life,” he told Reuters at a postal bank, where he had come to withdraw funds.Wali has cut back on fruit, eating out and visits to relatives. He estimates his income is now less than half what it was before COVID-19 struck, with clients unable to pay what they did before the pandemic and his savings yielding less interest in inflation-adjusted terms.While better off than many his age, inflation has forced Wali and millions of other elderly Indians to make tough choices.Sharply rising prices are hitting older people the world over as global supply problems caused by the pandemic — and made worse by the Ukraine war — propel food and fuel costs higher.In India, meagre state pensions mean only a minority of retirees can afford proper healthcare with nearly 15 million of those aged 60 and above – around 10% of the total – nearly homeless.India’s headline inflation hit an eight-year high of 7.79% in April.Food items, which account for nearly half of the consumer price index, have jumped, with wheat, edible oil, vegetables, fruits, meat and tea up by between 10% and 25% in a year. Cooking gas and petrol prices climbed more than 40%.”Inflation is the biggest blow to older people,” said Anupama Datta, director at the HelpAge India charity, which estimates that nearly 90 million of 138 million people aged 60 years or more are working in order to earn enough to live on.India’s central bank warns elevated inflation will persist at least until September.DIPPING INTO SAVINGSMany Indian pensioners rely on savings built over decades for their retirement.There are no official estimates but pensioners’ associations said many they represent are now forced to draw more from those accounts than previously.India’s gross savings rate is estimated to have fallen to below 30% of GDP in the fiscal year ended March, from over 32% before the pandemic. Economists do not expect that to change next year.Average interest rates on long-term deposits have also fallen to 6% from 8.5% over the past three years, taking it below headline inflation.Some pensioners have switched to riskier investments, including equities and mutual funds, but after two good years of returns even stocks are now struggling with the benchmark index down over 6% this year.India’s ruling Bharatiya Janata Party (BJP) conceded that the elderly have been particularly hard hit by inflation.Gopal Krishna Agarwal, the BJP’s economic affairs spokesman, said the government was doing all it could to protect them, including through food and healthcare support.It already provides free food grain to nearly 800 million people as a part of its pandemic relief programme.Over the weekend the government announced tax changes and subsidies that will lower prices of gasoline, diesel and cooking gas.But it is not clear how much relief that will bring. State pensions are just 200 Indian rupees ($2.58) a month, although some states provide up to between 1,000-2,000 rupees monthly.In the eastern city of Kolkata, Gita Sen, a 70-year-old widow of a labourer, said she could not afford even two meals a day on her 1,000 rupee monthly pension.”Often I have to borrow or beg neighbours for food,” she said in front of her rented one-room home in a slum.CARE CRUNCHUnlike advanced economies, India has very few aged-care homes. Most retirees depend on families for support, putting extra strain on children whose livelihoods have been impacted by the pandemic and now inflation.There were just 1,100 old age homes across the country catering to about 100,000 people before COVID-19 struck, according to a study by Tata Trusts, the charitable arm of the Tata Group conglomerate.Largely run on private donations, they face their own challenges as costs soar. Increases in food, medicine and energy costs mean these homes have less to spend on vegetables, fruit, drugs and care providers.Saurabh Bhagat, director at SHEOWS, a Delhi-based charity that runs three such homes catering to more than 400 people, said monthly expenses had recently gone up by nearly 20%.”We can’t think about buying fruit any more, and have cut down expenses on food supplements that is delaying the recovery of sick people at our old age homes,” Bhagat said.He added that the homes he runs were bringing in 30-40 elderly people a month off Delhi’s streets who had been abandoned by their families, almost triple last year’s rate.Basanti Chand, 61, a resident at one of the SHEOWS homes, said she had been abandoned by her family, even though she had spent everything from her savings to make ends meet.She had sold off her small house earlier in order to pay the dowries of four daughters.”I would not have survived today if the home had not given me shelter,” she said, wiping tears from her eyes. Chand did not blame her children.”I can’t think anything bad about them. After all, they are my children … who have their own problems.” More

NEW YORK (Reuters) – Wall Street strategists expect U.S. stocks to end 2022 above current beaten-down levels but some warned of turbulence on concerns inflation and aggressive interest rate rises crimps economic growth and unnerves investors, a Reuters poll found.The benchmark S&P 500 will end this year at 4,400, based on the median forecast of 43 strategists polled by Reuters over roughly the last two weeks. That would be a 10.7% gain from Monday’s close.But strategists have been revising down their year-end forecasts after the recent sharp sell-off, including Credit Suisse Securities, which cut its year-end S&P 500 target to 4,900 from 5,200 earlier this month.The S&P 500 is down more than 16% since the start of the year, with the war in Ukraine and COVID-19-related lockdowns in China adding to the long list of worries for investors.Last week the index came close to confirming it has been in a bear market since hitting a record closing high on Jan. 3. Closing down 20% from that peak would confirm it has been in a bear market since reaching the high, according to a common definition.That would be the S&P 500’s second bear market since the 2020 global sell-off caused by the coronavirus pandemic. The Nasdaq, which has led the market’s fall, is down nearly 30% from its all-time closing high in November 2021.Slightly more strategists in the poll said they saw volatility as likely to increase in the coming months rather than decrease.The Cboe Volatility Index, known as “Wall Street’s fear gauge,” is around 29 compared with a long-term median of nearly 18.”The market is trying to decide whether there’s going to be a recession later this year,” said Paul Christopher, head of global market strategy for Wells Fargo (NYSE:WFC) Investment Institute in St. Louis.”Inflation and the Fed are like a dial that have been increasing the pressure on the economy,” he said. “By the time we get to the end of this year, inflation will have come down from where it is now, and the direction will be clear.” Wells Fargo expects the S&P 500 to end this year at 4,300.The Fed has promised to keep lifting U.S. interest rates until inflation is tamed.Corporate results from major U.S. retailers last week fueled concerns consumers are cutting spending in the face of higher gasoline and other prices, with Walmart (NYSE:WMT) reporting disappointing quarterly results and cutting its full-year outlook.”These retail earnings reports last week are pretty indicative – you’ve got a strong consumer, but they’re changing their shopping habits right now,” said Anthony Saglimbene, global market strategist at Ameriprise Financial (NYSE:AMP).He and other strategists said consensus Wall Street estimates for profit growth this year are still too high, given the inflation and rate outlook.S&P 500 earnings are estimated to grow 9.3% in 2022 from a year ago, and that estimate is up from 8.8% at the start of April, according to IBES data from Refinitiv.At the same time, valuations have come down since the start of the year, and strategists say that’s making some beaten-down areas of the market start to look attractive.The S&P 500’s forward 12-month price-to-earnings ratio is down to 16.6 from 22.1 at the end of December and is near its long-term average of about 16, based on Refinitiv data.”Technology is getting more attractive,” Saglimbene said. “Obviously there’s probably more pain if we’re going to continue to slide, but there are opportunities being created in high quality tech right now.”Based on the poll, the Dow Jones industrial average will finish the year at 34,500, up 8.2% from Monday’s close.(Other stories from the Reuters Q2 global stock markets poll package:) More

COLOMBO (Reuters) -Sri Lanka’s new Prime Minister Ranil Wickremesinghe said on Tuesday he will present an interim budget within six weeks, slashing infrastructure projects to re-route funds into a two-year relief programme for the crisis-hit island nation.Wickremesinghe, who took office two weeks ago, warned that inflation would rise as the government gets down to tackling the crisis, and that there could be more protests on the streets.He said he hoped any unrest would not get out of hand, adding that funds would be made available to help the most vulnerable of the country’s 22 million people.”Looking at the hard days ahead, there has to be protest. It’s natural when people suffer, they must protest,” Wickremesinghe said in an interview at the colonial-era prime minister’s office in the commercial capital Colombo.”But we want to ensure that it does not destabilise the political system.”With the interim budget, it is just about cutting down expenditure, cutting to the bone where possible and transferring it to welfare.”The country located off India’s southern tip is reeling from its worst economic crisis since independence in 1948, as a shortage of foreign currency severely curtailed imports of essentials including fuel and medicine, triggering months of unprecedented protests.Much of the public ire has been targeted at President Gotabaya Rajapaksa and his family, whom protesters blame for mishandling the economy. The roots of the current crisis also lie in the COVID-19 pandemic, which devastated the country’s lucrative tourism industry and sapped foreign workers’ remittances, and populist tax cuts enacted by the Rajapaksa administration that drained government income.”We have no rupee revenue, and now we have to print another (one) trillion rupees,” Wickremesinghe said, warning that annual inflation could rocket past 40% in coming months, putting further pressure on Sri Lankan households already grappling with high prices.Inflation rose to a record 33.8% year-on-year in April, compared to 21.5% in March, according to government data released on Monday.Earlier on Tuesday, the government announced long-flagged increases in petrol and diesel prices to help repair public finances.Economists have said the increases are necessary but will exacerbate inflation. They have also raised concerns that printing money will add to inflationary pressures.BLOATED SECTORTo find money for supporting relief measures, Wickremesinghe said his administration was undertaking a review of possible expenditure cuts across the country’s bloated government sector.”For instance, ministry of health, we just can’t cut down its expenditure. Ministry of education, it’s a limited cut down, but there are many other ministries where we can cut,” he said.A concrete plan to put public finances back on track is likely to be a part of Sri Lanka’s ongoing negotiations with the International Monetary Fund (IMF) for a loan package. A new finance minister to lead the talks will be appointed by Wednesday, Wickremesinghe said, as a new cabinet of ministers takes shape after President Rajapaksa’s elder brother, Mahinda, resigned as prime minister earlier this month.The resignation came hours after clashes between government supporters and protesters in Colombo sparked a bout of nationwide violence that left nine people dead and about 300 injured. On negotiations with the IMF, Wickremesinghe said he hoped for a “sustainable loan package” from the international lender, while undertaking structural reforms that would draw new investments into the country.Worried about food shortages from August onwards, partly due to a disastrous decision last year to stop importing chemical fertilisers that slashed productivity, Sri Lanka is also banking on foreign aid from allies and multilateral agencies to shore up supplies of staples, Wickremesinghe said.”We will have to look at some help from our friends abroad to ensure there’s sufficient food,” he said, “We will require more rice.”India, which has long jostled with China for influence over the strategically-located island, has been a bulwark of assistance for Sri Lanka in recent months, providing food, fuel, medicines and financial support.Wickremesinghe said he will likely meet China’s ambassador to Sri Lanka next week, seeking fertiliser and medicines from Beijing. “We’d like to see what’s available,” he said, “We know we need fertiliser. I would focus on that.” More

TOKYO (Reuters) – Japan’s Nikkei share index, which has had a rollercoaster ride in the past year, is forecast to climb over 7% to 29,000 by end-2022, a level last seen at the start of January, according to analysts in a Reuters poll.Japan stocks have closely followed the fortunes of Wall Street as U.S. equities were buffetted by worries about red-hot inflation and whether the Federal Reserve’s efforts to cool it might smother economic growth as well.The benchmark index currently trades just above 27,000, consolidating around that level after bouncing off a 16-month low of 24,681.74 set in early March. It reached a post-1980s-Bubble high of 30,795.78 in September last year.Analysts, though, are optimistic the worst will soon be over, with every respondent seeing the lull in equities lasting no more than another six months and some saying it’s already finished.The median among 13 forecasts was for the Nikkei to rise to 29,000 at year-end, with a maximum forecast of 31,000 from Nomura and SMBC Nikko Securities and a minimum of 26,500 from NORD/LB.Dai-ichi Life Research Institute is on the conservative side of respondents, predicting a 500 point increase to 27,500 as Japan gradually learns to live with COVID-19.”Economic reopening in Japan is coming later than the U.S. and Europe, but because of that, we can expect an upside risk to Japanese stocks that gives them some attraction as an investment,” said Dai-Ichi Life’s senior economist Koichi Fujishiro.He is among four respondents who expected stock volatility to gradually decline over the next few months. By contrast, T&D Asset Management – which expects the Nikkei to end the year at 28,800 – expects volatility to drop significantly.”The sense that Japanese stocks are cheap has already been growing, and people are reappraising Japanese politics and policies, so from a long-term perspective we predict stocks will rally,” said Hiroshi Namioka, a fund manager and chief strategist at the firm.One respondent, Societe Generale (OTC:SCGLY), expects a gradual increase in volatility, while Amemiya Soken’s Kyoko Amemiya sees it increasing significantly, although she says the Nikkei will still trade in a broad box between 25,000 and 31,000.Five of seven respondents to an additional question said value stocks would outperform.”U.S. real yields are still low, and will rise further, acting as a weight on U.S. high tech stocks for a little longer,” said T&D’s Namioka. “In Japan too, because of the influence from U.S. markets, growth stocks are going to have a hard time.” More