Economy

Sri Lanka’s central bank has confirmed the country has missed a deadline for foreign debt repayments, the first sovereign default in the Asia-Pacific region this century, according to Moody’s.A 30-day grace period for missed interest payments on two international sovereign bonds expired on Wednesday, forcing Sri Lanka into what some analysts called a “hard” default as the country confronts an economic and political crisis. The last Moody’s-rated sovereign borrower to default in Asia was Pakistan in 1999.President Gotabaya Rajapaksa’s government said last month that Sri Lanka would stop repaying its international debt to conserve foreign currency reserves for imports such as fuel, medicine and food.Sri Lanka, which has never defaulted before, owes about $51bn in overseas debt to international bondholders as well as bilateral creditors including China, Japan and India.At a briefing on Thursday, Nandalal Weerasinghe, the central bank governor, confirmed that Sri Lanka’s creditors could now consider the country technically in default.“We announced to the creditors, we said we are not in question to pay that. If you even don’t pay after 30 days . . . then probably from their side they can consider it as a default,” he said. “Our positions are clear. We say until they come to restructure we will not be able to pay.”But the central bank disputed that it was a hard default, calling the move “pre-emptive”.S&P last month downgraded Sri Lanka’s foreign currency ratings to “selective default” on the missed interest payments. Analysts said that rising global interest rates, high energy prices and a surge in inflation were piling pressure on import-dependent developing economies such as Sri Lanka.The island borrowed heavily to fund infrastructure-led growth after the end of its civil war in 2009, but policies including a 2019 tax cut and the loss of tourism during the pandemic left it unable to refinance in international debt markets.The crisis has triggered widespread pain for Sri Lanka’s population, with a scarcity of fuel leading to long queues for petrol and multi-hour power cuts. The currency has also plunged, exacerbating political unrest.The cabinet, including Gotabaya’s brother Mahinda, the prime minister, resigned last week as attacks by pro-government supporters against a growing protest movement triggered a wave of violence across the island.Ranil Wickremesinghe, the newly appointed prime minister, said this week that the Treasury was struggling to find $1mn to pay for imports.

Sri Lanka has begun negotiations with the IMF over a loan programme and is appointing advisers for debt restructuring talks with its creditors. But it lacks a fully functioning government, including a finance minister, and analysts expect any deal to take months.The missed payments, for interest on two $1.25bn international sovereign bonds maturing in 2023 and 2028, could trigger cross-default clauses that would bring much of Sri Lanka’s debt due before it has begun formal restructuring talks.A Sri Lankan government bond maturing in July this year is trading at about 45 cents to the dollar, with longer-dated bonds at even lower values.JPMorgan on Wednesday assigned an overweight rating to Sri Lanka bonds, indicating that it expected bond prices to rise in the coming months.“Twists and turns are likely to materialise in the months ahead,” JPMorgan wrote. “However . . . we think risk-reward is favourable to start building long positions.”Additional reporting by Hudson Lockett More

Times of big global upheaval may not be good for the world, but the dirty secret of journalism is that regular opinion writers find them professionally quite rewarding. Books, however, are a different matter. The economic shocks have been rolling in so fast that the slow process of book publishing leaves years of painstaking work hostage to fortune. I finished my last book, The Economics of Belonging, in the early months of 2020, just too soon to discuss a pandemic that in weeks turned the global economy upside down. The paperback edition, which came out in the US on Tuesday, gave me a chance to think about what has changed (though after I sent off the new preface, Russia attacked Ukraine, leaving the book outdated again). For me, the most “intriguing” thing about the pandemic is that some of the policies I advocated in the book suddenly fell massively into favour. They include strong macroeconomic stimulus for a “high-pressure economy”, policies helping to rebalance power in the labour market and the digital economy (and, of course, the combination of the two, where high demand pressure improves the bargaining power of workers), and easier conditions for leaving bad jobs to look for better ones. The US government’s “Bidenomics”, in particular, is a great test case.In the book, I argued we had had far too few of these things in the past. The cost, I wrote, had been poor growth and productivity performance, and also rising unfairness because these outcomes disproportionately hurt those on lower wages and on the margins of the labour market. Among other things, I concluded it was crucial to be much less timid about macroeconomic demand stimulus.This week, these arguments have been supplemented by new research from the Bank for International Settlements. Here are three key findings. First, on average, recessions increase inequality. Second, increases in inequality are sticky, and it does not quickly come back down by itself. This is called “inequality hysteresis” in the jargon. (The analogy is with the “hysteresis” where output lost in a downturn is gone forever as post-recession economies rarely return to their pre-recession path). And third, higher inequality blunts the normal macroeconomic policy tools used to fight inflations. Together, these findings imply there are several equilibrium paths that the economy could end up on: some where recessions are rarer or shallower, inequality is lower and output and productivity are higher; and some where recessions are more frequent or deeper, inequality is higher and output and productivity are lower. Which an economy follows depends in part on how much firepower policymakers are willing to use to keep economies growing, with particular concern for those at the bottom.This is the background from which I have approached the great post-pandemic inflation debate. As I wrote very early on, a bout of inflation would be a welcome sign that we had got demand policies right. And I have argued that the subsequent increases were, in any case, due to, yes, transitory supply shocks. The fact that we have had one unforeseen supply shock after another — which nobody disputes — is not a reason to think each of them is not transitory.But suppose it is true, as most people now seem to think, that record-high inflation is the price we are paying for a high-pressure demand policy, how well is that policy delivering for the price? Let us look at the US, which is clearly the economy that has taken most seriously the need for high-pressure demand if not in so many words. Take productivity first. Increasing at an annual average rate of 1.1 per cent since end-2019, output per hour worked has performed reasonably well — better than in the immediate pre-pandemic years but still disappointing compared with the faster labour productivity growth of the more distant past. Note, however, that output in the US economy is greater today than projected before the pandemic — and you should pause to acknowledge what an extraordinary feat that is. At the same time, fewer people are in work than three years ago, and many fewer than would have been expected on the preceding trend. Put together, this means productivity is significantly higher than projected before the pandemic: output per hour has grown unexpectedly fast.What about inequality? The great Atlanta Fed wage growth tracker usefully breaks down wage growth by wage level. As its chart (reproduced below) shows, wages are growing much faster among the poorest paid than among the highest paid, and this gap has been increasing fast — in fact, it is the highest on record. Caveat: these should not be seen as entirely real-time measures (they are 12-month moving averages of year-over-year wage changes for the same individuals). But the pattern shows convincingly that wages have become less unequal in the pandemic, that the most recent wage growth has been particularly strong at the low end and, therefore, that it is likely that the poorest have seen real wage increases even as the highest paid have seen real wage cuts. (Another caveat: the very richest are not captured; data shortcomings mean the tracker excludes those earning more than $150,000 a year.)So far, then, the economics of belonging thesis is holding up quite well. Better wages at the bottom and higher productivity than expected are a pretty good reward for a rise in inflation — at least if inflation does indeed come down reasonably soon in the absence of new negative shocks to global supply. With US profits soaring as a share of real value added (see chart), there is little sign of unsustainable wage demands forcing companies to fuel price inflation. For more on this sort of argument, read Adam Tooze’s latest write-up on the debate over wage pressures on companies’ pricing. And remember that inflation was unexpectedly low in the previous decade, so the current increase just helps to bring price levels in line with what the Federal Reserve encouraged people to plan on when making long-term lending and borrowing decisions.The contrast with other countries is instructive. In the UK, output has not held up as well as in the US. And the distribution of wages has behaved quite differently. As the chart below shows, in the second half of 2020 the lowest earners did best. But since then, the highest earners have caught up and then some, with the two years showing a clear widening of inequality.Inflation rates, meanwhile, are comparable between the two countries. What accounts for the difference in the output and inequality developments that has come with this inflation? The likely answer is precisely the much punchier stimulus and more consciously redistributive policy choices in the US compared with the UK. We should not write off Bidenomics yet, nor accept the new narrative that all a high-pressure economy brings is immiserising inflation.Other readablesA new paper contributes to the literature showing how financial crises can spawn political extremism. The study shows that greater exposure to foreign-currency loans in Hungary, which lead to greater financial distress as the exchange rate moves, results in greater support for the populist far right.News in the world of universal basic income: US cities are experimenting with a UBI for artists, and a group of Polish municipalities plans a two-year UBI pilot for 5,000 people. In the UK, a new report by the organisation Compass calculates that a UBI amounting to £11,000 for a family of four could be funded by removing tax-free allowances, increasing tax rates by 3 percentage points and charging everyone the same national insurance rate.The German soul-searching on how much to support Ukraine is fascinating. Jürgen Habermas, the greatest living German theorist of democracy, has weighed in on the side of caution. Adam Tooze puts the contribution in context. And Paul Mason argues convincingly why those on the left must reject Habermas.Numbers newsUK consumer price inflation hit the highest rate in more than 40 years because of the recent jump in energy prices. It puts the country near the top of the inflation table among OECD economies. The cognitive impairment caused by severe Covid-19 is comparable to the decline that takes place between the ages of 50 and 70, according to new research. More

BERLIN — The Biden administration is developing plans to further choke Russia’s oil revenues with the long-term goal of destroying the country’s central role in the global energy economy, current and former U.S. officials say, a major escalatory step that could put the United States in political conflict with China, India, Turkey and other nations that buy Russian oil.The proposed measures include imposing a price cap on Russian oil, backed by so-called secondary sanctions, which would punish foreign buyers that do not comply with U.S. restrictions by blocking them from doing business with American companies and those of partner nations.As President Vladimir V. Putin wages war in Ukraine, the United States and its allies have imposed sanctions on Russia that have battered its economy. But the nearly $20 billion per month that Russia continues to reap from oil sales could sustain the sort of grinding conflict underway in eastern Ukraine and finance any future aggressions, according to officials and experts.U.S. officials say the main question now is how to starve Moscow of that money while ensuring that global oil supplies do not drop, which could lead to a rise in prices that benefits Mr. Putin and worsens inflation in the United States and elsewhere. As U.S. elections loom, President Biden has said a top priority is dealing with inflation.While U.S. officials say they do not want to immediately take large amounts of Russian oil off the market, they are trying to push countries to wean themselves off those imports in the coming months. A U.S. ban on sales of critical technologies to Russia is partly aimed at crippling its oil companies over many years. U.S. officials say the market will eventually adjust as the Russian industry fades.Russia’s oil industry is already under pressure. The United States banned Russian oil imports in March, and the European Union hopes to announce a similar measure soon. Its foreign ministers discussed a potential embargo in Brussels on Monday. The Group of 7 industrialized nations, which includes Britain, Japan and Canada, agreed this month to gradually phase out Russian oil imports and their finance ministers are meeting in Bonn, Germany, this week to discuss details.“We very much support the efforts that Europe, the European Union, is making to wean itself off of Russian energy, whether that’s oil or ultimately gas,” Antony J. Blinken, the secretary of state, said in Berlin on Sunday when asked about future energy sanctions at a news conference of the North Atlantic Treaty Organization. “It’s not going to end overnight, but Europe is clearly on track to move decisively in that direction.”“As this is happening, the United States has taken a number of steps to help,” he added.But Russian oil exports increased in April, and soaring prices mean that Russia has earned 50 percent more in revenues this year compared to the same period in 2021, according to a new report from the International Energy Agency in Paris. India and Turkey, a NATO member, have increased their purchases. South Korea is buying less but remains a major customer, as does China, which criticizes U.S. sanctions. The result is a Russian war machine still powered by petrodollars.American officials are looking at “what can be done in the more immediate term to reduce the revenues that the Kremlin is generating from selling oil, and make sure countries outside the sanctions coalition, like China and India, don’t undercut the sanctions by just buying more oil,” said Edward Fishman, who oversaw sanctions policy at the State Department after Russia annexed Crimea in 2014.As President Vladimir V. Putin of Russia wages war in Ukraine, the United States and its allies have imposed a range of sanctions that have battered the Russian economy.David Guttenfelder for The New York TimesThe Biden administration is looking at various types of secondary sanctions and has yet to settle on a definite course of action, according to the officials, who spoke on the condition of anonymity to discuss policies still under internal consideration. The United States imposed secondary sanctions to cut off Iran’s exports in an effort to curtail its nuclear program.Large foreign companies generally comply with U.S. regulations to avoid sanctions if they engage in commerce with American companies or partner nations.“If we’re talking about Rubicons to cross, I think the biggest one is the secondary sanctions piece,” said Richard Nephew, a scholar at Columbia University who was a senior official on sanctions in the Obama and Biden administrations. “That means we tell other countries: If you do business with Russia, you can’t do business with the U.S.”But sanctions have a mixed record. Severe economic isolation has done little to change the behavior of governments from Iran to North Korea to Cuba and Venezuela.One measure American officials are discussing would require foreign companies to pay a below-market price for Russian oil — or suffer U.S. sanctions. Washington would assign a price for Russian oil that is well under the global market value, which is currently more than $100 per barrel. Russia’s last budget set a break-even price for its oil above $40. A price cap would reduce Russia’s profits without increasing global energy costs.The U.S. government could also cut off most Russian access to payments for oil. Washington would do this by issuing a regulation that requires foreign banks dealing in payments to put the money in an escrow account if they want to avoid sanctions. Russia would be able to access the money only to purchase essential goods like food and medicine.And as those mechanisms are put in place, U.S. officials would press nations to gradually decrease their purchases of Russian oil, as they did with Iranian oil.“There wouldn’t be a ban on Russian oil and gas per se,” said Maria Snegovaya, a visiting scholar at George Washington University who has studied sanctions on Russia. “Partly this is because that would send the price skyrocketing. Russia can benefit from a skyrocketing price.”But enforcing escrow payments or price caps globally could be difficult. Under the new measures, the United States would have to confront nations that are not part of the existing sanctions coalition and, like India and China, want to maintain good relations with Russia.In 2020, the Trump administration imposed sanctions on companies in China, Vietnam and the United Arab Emirates for their roles in the purchase or transport of Iranian oil.A U.S.-led assault on Russia’s oil revenues would widen America’s role in the conflict.Alexey Malgavko/ReutersExperts say the measures could be announced in response to a new Russian provocation, such as a chemical weapons attack, or to give Kyiv more leverage if Ukraine starts serious negotiations with Moscow.Russia-Ukraine War: Key DevelopmentsCard 1 of 3In Mariupol. More

After leaving the labor force in unusual numbers early in the pandemic, Americans approaching retirement age are back on the job at previous levels.When Kim Williams and millions of other older Americans lost their jobs early in the coronavirus pandemic, economists wondered how many would ever work again — and how that loss would weigh on the economy for years to come.Ms. Williams, now 62, wondered, too, especially when she struggled for months to find work. But in January, she started a new job at an AAA office near her home in Waterbury, Conn.“I’m too young to retire, so I had to go back,” she said.Whether by choice or financial necessity, millions of older Americans have made the same move in recent months. Nearly 64 percent of adults between the ages of 55 and 64 were working in April, essentially the same rate as in February 2020. That’s a more complete recovery than among most younger age groups.

The rapid rebound has surprised many economists, who thought that fear of the virus — which is far deadlier for older people — would contribute to a wave of early retirements, especially because many people’s savings had been fattened by years of market gains. But there is increasing evidence that the early-retirement narrative was overblown.“The bottom line is that older workers have gone back to work,” said Alicia Munnell, director of the Center for Retirement Research at Boston College. For many people, retiring early was never an option. Ms. Williams spent more than 25 years in manufacturing, working for a Hershey’s plant making Almond Joy and Mounds bars. The job paid reasonably well, and offered a retirement plan and other benefits. But in 2007, Hershey’s closed the factory, moving production partly to Mexico.The State of Jobs in the United StatesThe U.S. economy has regained more than 90 percent of the 22 million jobs lost at the height of pandemic in the spring of 2020.April Jobs Report: U.S. employers added 428,000 jobs and the unemployment rate remained steady at 3.6 percent ​​in the fourth month of 2022.Trends: New government data showed record numbers of job openings and “quits” — a measurement of the amount of workers voluntarily leaving jobs — in March.Job Market and Stocks: This year’s decline in stock prices follows a historical pattern: Hot labor markets and stocks often don’t mix well.Unionization Efforts: Since the Great Recession, the college-educated have taken more frontline jobs at companies like Starbucks and Amazon. Now, they’re helping to unionize them.Ms. Williams, then in her 40s, went back to school, earning an associate degree in hospitality and eventually finding a job as a supervisor at a local hotel. But the position paid significantly less than her factory job, and she drew down her retirement savings to cover medical expenses and other bills. When she was laid off again in June 2020, just a few weeks after her 60th birthday, Ms. Williams had little in savings.Ms. Williams tried to change careers again, this time going back to school to train as a medical secretary. But she has been unable to find work in her new field. In January, with her savings gone, she took a job at AAA for $16.50 an hour, $2 an hour less than she earned at the factory in 2007, before accounting for inflation. She says she will have to work at least until she can start drawing her full Social Security benefits at age 67.“If I could’ve left at 62, I would’ve left at 62, but I can’t,” she said. “Not all of us made that money where I could move down to Florida and get a $400,000 house.”The fastest inflation in decades has added to the pressure on people of all ages to return to work. More recently, so has the turmoil in financial markets, which has taken a bite out of retirement savings.But even some people who could retire are choosing to return to work as the pandemic ebbs.When the Long Island fitness studio where she worked as a spinning instructor shut down early in the pandemic, Jackie Anscher lost both a job and a part of her identity. In an interview with The New York Times that summer, she described what seemed at the time like an abrupt end to her career as “a forced retirement.”But after spending the beginning of the pandemic reorganizing her life and re-evaluating her priorities, Ms. Anscher, 60, has begun teaching spin classes again as a substitute instructor at a local gym, and she is looking for a more regular gig. Her husband is already retired — “he’s been waiting for me to go fishing,” she said — and the couple could afford for her to stop working. But she isn’t ready to hang up her cycling shoes.“I liked what I had. I loved who I was in front of the room,” she said. “It’s about my mental health. For me, it’s about preserving me.”Older workers weren’t any more likely than younger workers to leave the labor force early in the pandemic. But economists had reason to think they might be slower to return. Unemployed workers in their 50s and 60s typically have a harder time finding jobs than their younger counterparts, because of ageism and other factors. And unlike after the 2008-9 recession, when depressed housing prices and high debt levels left many people with little choice but to keep working, in this crisis prices of both homes and financial assets kept rising, providing a financial cushion to some people nearing retirement age.The share of Americans reporting that they were retired did rise sharply in the spring of 2020. But retirement is not an irreversible decision. And research from the Federal Reserve Bank of Kansas City has found that at the pandemic’s onset, there was a steep drop in the number of people leaving retirement to return to work, attributable at least partly to fear of the virus and a lack of job opportunities, swelling the ranks of the retired.As the economy has reopened and the public health situation has improved, these “unretirements” have rebounded and have recently returned roughly to their prepandemic rate, according to an analysis of government data by Nick Bunker of the Indeed Hiring Lab.

The return of older workers has been concentrated among those in their late 50s and early 60s, people who were still several years or more away from retirement when the pandemic began. The employment rate among those 65 and older fell more sharply and has been much slower to recover. That suggests that the pandemic might have led some people who were already closer to retirement to accelerate those plans, and that the greater health risks they faced may have made them less likely to return to work while the virus continues to circulate. Still, the return of early retirees to the labor force is a reminder that rising wages and abundant job opportunities can draw in workers who might otherwise remain on the sidelines, Mr. Bunker said. The labor force shrank during the last recession, too, and some economists were quick to declare that workers were gone for good. But many people eventually came back during the strong job market that preceded the pandemic: It provided opportunities to people with disabilities and criminal records, to people with little formal education and to people who had taken time away from work to raise children or to care for ailing parents.That pattern may be repeating itself, but on a much more compressed timeline.“Don’t underestimate labor supply,” Mr. Bunker said. “Don’t count out the possibility that people want and need work. It has happened much more quickly than what we saw after the global financial crisis, but the broad principle is the same.”When Tad Greener lost his job managing utilities for a Utah university in late 2019, he wasn’t worried at first about finding a new one — the unemployment rate, after all, was near a 50-year low. But Mr. Greener had hardly begun his search when the pandemic hit and the bottom fell out of the economy. Suddenly, he was 60 years old, unemployed and facing the worst labor market in nearly a century.Mr. Greener eased up on his job search during the first phase of the pandemic, in part because of some health issues unrelated to the coronavirus. By spring of 2021, he was ready to work again, but he had little luck applying for jobs. He thinks many prospective employers were turned off by the combination of his age and his time out of the work force.“It’s a daunting task to be 62 years old, to be unemployed for over a year and to try and find work,” Mr. Greener said. “There were times where I didn’t think I was ever going to be able to go back to work.”As the economy reopened, however, many businesses struggled to hire enough workers to meet the surge in demand. That prompted employers to consider candidates they might otherwise have dismissed, or to look for ways to attract people who could work but weren’t looking.In Mr. Greener’s case, he learned about a new “returnship” program from the State of Utah that was meant to help people who had been out of the labor force get back to work. Last fall, he was accepted into the program, landing a part-time job in the state Office of Energy Development, which quickly turned into a permanent, full-time job. Now that he is back at work, Mr. Greener says he plans to stay until he is 67, or perhaps longer if he stays healthy.“Every day I hear about how there aren’t enough workers available,” Mr. Greener said. “There are a lot of older workers that are being written off, or at least finding it much more difficult to get back into the workplace, who have a lot of years and things to offer.” More

LONDON — After sanctions hobbled production at its assembly plant in Kaliningrad, the Russian automaker Avtotor announced a lottery for free 10-acre plots of land — and the chance to buy seed potatoes — so employees could grow their own food in the westernmost fringe of the Russian empire during “the difficult economic situation.”In Moscow, shoppers complained that a kilogram of bananas had shot up to 100 rubles from 60, while in Irkutsk, an industrial city in Siberia, the price of tampons at a store doubled to $7.Banks have shortened receipts in response to a paper shortage. Clothing manufacturers said they were running out of buttons.“The economic prospects for Russia are especially gloomy,” the Bank of Finland said in an analysis this month. “By initiating a brutal war against Ukraine, Russia has chosen to become much poorer and less influential in economic terms.”Even the Central Bank of Russia has predicted a staggering inflation rate between 18 and 23 percent this year, and a falloff in total output of as much as 10 percent.It is not easy to figure out the impact of the war and sanctions on the Russian economy at a time when even using the words “war” and “invasion” are illegal. President Vladimir V. Putin has insisted that the economy is weathering the measures imposed by the United States, Europe and others.Financial maneuvers taken by Moscow helped blunt the economic damage initially. At the start of the conflict, the central bank doubled interest rates to 19 percent to stabilize the currency, and recently was able to lower rates to 14 percent. The ruble is trading at its highest level in more than two years.Empty shelves in a supermarket in Moscow in March. Food prices have shot up, especially for items like imported fruit.Vlad Karkov/SOPA Images/LightRocket, via Getty ImagesAnd even though Russia has had to sell oil at a discount, dizzying increases in global prices are causing tax revenues from oil to surge past $180 billion this year despite production cuts, according to Rystad Energy. Natural gas deliveries will add another $80 billion to Moscow’s treasury.In any case, Mr. Putin has shown few signs that pressure from abroad will push him to scale back military strikes against Ukraine.Still, Avtotor’s vegetable patch lottery and what it says about the vulnerabilities facing the Russian people, along with shortages and price increases, are signs of the economic distress that is gripping some Russian businesses and workers since the war started nearly three months ago.Analysts say that the rift with many of the world’s largest trading partners and technological powerhouses will inflict deep and lasting damage on the Russian economy.“The really hard times for the Russian economy are still in front of us,” said Laura Solanko, a senior adviser at the Bank of Finland Institute for Emerging Economies.The stock of supplies and spare parts that are keeping businesses humming will run out in a few months, Ms. Solanko said. At the same time, a lack of sophisticated technology and investment from abroad will hamper Russia’s productive capacity going forward.The Lukoil refinery in Volgograd. Russia has had to sell oil at a discount, but its tax revenues have risen along with prices.ReutersThe Russian Central Bank has already acknowledged that consumer demand and lending are on a downhill slide, and that “businesses are experiencing considerable difficulties in production and logistics.”Ivan Khokhlov, who co-founded 12Storeez, a clothing brand that evolved from a showroom in his apartment in Yekaterinburg to a major company with 1,000 employees and 46 stores, is contending with the problem firsthand.“With every new wave of sanctions, it becomes harder to produce our product on time,” Mr. Khokhlov said. The company’s bank account in Europe was still blocked because of sanctions shortly after the invasion, while logistical disruptions had forced him to raise prices.“We face delays, disruptions and price increases,” he said. “As logistics with Europe gets destroyed, we rely more on China, which has its own difficulties too.”Hundreds of foreign firms have already curtailed their business in or withdrawn altogether from Russia, according to an accounting kept by the Yale School of Management. And the exodus of companies continued this week with McDonald’s. The company said that after three decades, it planned to sell its business, which includes 850 restaurants and franchises and employs 62,000 people in Russia.“I passed the very first McDonald’s that opened in Russia in the ’90s,” Artem Komolyatov, a 31-year-old tech worker in Moscow, said recently. “Now it’s completely empty. Lonely. The sign still hangs. But inside it’s all blocked off. It’s completely dead.”Nearby two police officers in bulletproof vests and automatic rifles stood guard, he said, ready to head off any protesters.In Leningradsky railway station, at one of the few franchises that remained open on Monday, customers lined up for more than an hour for a last taste of McDonald’s hamburgers and fries.The French automaker Renault also announced a deal with the Russian government to leave the country on Monday, although it includes an option to repurchase its stake within six years. And the Finnish paper company, Stora Enso, said it was divesting itself of three corrugated packaging plants in Russia.A closed McDonald’s in Podolsk, outside Moscow, on Monday. The company said this week it was putting its Russian business up for sale.Maxim Shipenkov/EPA, via ShutterstockMore profound damage to the structure of the Russian economy is likely to mount in the coming years even in the moneymaking energy sector.The Russia-Ukraine War and the Global EconomyCard 1 of 7A far-reaching conflict. More

US companies are accelerating capital spending despite slower economic growth, as the impact of supply chain disruptions and “deglobalisation” override worries about a looming recession.A wave of recent disruptions, from coronavirus lockdowns to Russia’s invasion of Ukraine and tensions between the US and China, have led many high-profile investors and executives to predict a reversal of the decades-long trend toward sprawling global supply chains and “just in time” inventory management.Recent quarterly reports from the largest US companies provide some of the first concrete signs that companies are following through on their plans, putting pressure on their profitability just as the economic recovery begins to lose steam.With the majority of companies in the S&P 500 index having reported first-quarter results, capital expenditure across its members rose 20 per cent year on year in the first quarter, according to Bank of America data. The proportion of companies providing guidance for higher future spending than analysts had expected also rose. The trend was broad-based, with every sector except real estate increasing spending.“Onshoring or rejigging supply chain risks — that’s a costly phenomenon,” said Savita Subramanian, head of US equity and quantitative strategy at Bank of America. “Capex is usually something companies can move around or relax a bit in a constrained environment, but in this case they may have to spend more than they otherwise might.”The US economy unexpectedly contracted in the first quarter, and investors and commentators such as former Goldman Sachs chief Lloyd Blankfein have become increasingly convinced that the Federal Reserve’s efforts to fight inflation will push the economy into recession.The rising business investment is becoming a burden for some consumer-facing companies, but is also proving a boon for many of their suppliers and infrastructure providers. Shares in Walmart sank 11 per cent on Tuesday after a disappointing quarterly update that included a 60 per cent rise in capital expenditure to increase automation and strengthen its supply chain through projects such as massive high-tech distribution centres. Intel’s pledge to build a $20bn chip manufacturing site in Ohio, meanwhile, sparked celebrations from steelmakers, chemical specialists and plumbing suppliers such as FTSE 100 company Ferguson.Lourenco Goncalves, chief executive of Cleveland-Cliffs, a major steel supplier to the automobile industry, said “deglobalisation is the most important game changer of this decade in the United States”, and he was “encouraged” by Intel’s plans because a better domestic supply of semiconductors would allow carmakers to boost production. Kevin Murphy, CEO of Ferguson, in March described plans to increase US semiconductor production including Intel’s Ohio project as some of the most “exciting” examples of a broader trend toward onshoring manufacturing production.Brookfield Infrastructure Partners, one of the world’s largest investors in infrastructure from electricity lines to data centres, estimated that “re-onshoring activity and deglobalisation” would provide “hundreds of billions of dollars” of new investment opportunities. More

The writer is dean of the Paris School of International Affairs, Sciences PoThe emerging narrative from the war in Ukraine is that the surge in geopolitical risk will compound existing dissatisfaction with the global trade system and lead to fragmentation. Security will trump efficiency. Integration with like-minded partners will replace multilateralism. This narrative is neither right, nor desirable. There is no doubt that the ongoing conflict is reinforcing anti-trade prejudice. But is this a global trend? The short answer is no. There is an appetite for trade integration in many parts of the world, especially developing countries. Proof is the expansion of World Trade Organization membership, the rising number of trade agreements and the profusion of large-scale regional initiatives such as the African Continental Free Trade Area and the Regional Comprehensive Economic Partnership. Even in advanced economies, surveys consistently show positive attitudes to integration, indicating that the opposition to trade may be more concentrated in fewer sectors or regions than commonly recognised.That is not to deny that for many employees, economic conditions have worsened. But one wonders whether this is due to increased trade. If workers in Canada (or other rich countries) are doing better, even though they are vastly more exposed to trade than their US counterparts, it does not make sense to blame trade for the woes of American employees. The US has significant political levers available to improve life for American workers, and it is irresponsible not to use them.Even if the mood has turned against trade, the laws of economics have not. Trade integration guided by the logic of comparative advantage is painful and efficient; trade disintegration will be painful and inefficient. Using trade and industrial policy to achieve reshoring, or to shift demand towards domestic production in the attempt to favour workers in advanced economies, will only lower productivity growth for all. Companies will respond to the war in Ukraine by reassessing security risks and restructuring supply chains. But given the investments already made, the cost of alternatives, and factors such as wage differentials across countries, this process is likely to be gradual rather than sudden. Re-shoring or friend-shoring — confining global supply chains to allies — will require protracted government intervention, raising questions about its long-term sustainability. The targeting principle suggests trade policy is not the proper instrument to deal with inefficiencies that are not caused by trade. Markets need non-market institutions. Trade agreements should expand their scope, as they have done in recent years, to allow for provisions on competition, environment, labour, gender and other issues. This would open markets and promote improvements in domestic policies to address inefficiencies. More fundamentally, we should ask if fragmenting the trade system would ultimately help achieve non-trade goals such as environmental protection or national security. Fragmentation would make it harder for economies to undertake the huge investment needed to combat climate change. Competing systems would be likely to prioritise short-term gains over long-term environmental achievements. A fragmented trade system also lowers growth opportunities for developing countries, which will struggle to offset diminished demand from advanced economies. Restricting opportunities will only make the world more dangerous and unstable. This is not the moment to divest from the WTO — quite the opposite. The WTO system was never about liberalisation for its own sake. It was about creating predictable rules and a framework for managing disputes and spillovers. It is clear that international progress will be difficult over the next few years. Advances in digital trade may initially be made regionally. This is not a problem, as long as countries keep investing in the multilateral system. Even in this scenario, the WTO system can provide rules of conduct and crucial enforcement mechanisms. The message for the upcoming WTO ministerial meeting is that global co-operation remains vital to protect against everything from climate change to recurring pandemics. A return to 2015 is neither possible nor desirable. Some of the more hopeful assumptions of the 1990s and 2000s — that interdependence would not be weaponised, that economic convergence would foster political comity — were wrong. But we’re still better off in a world of international co-operation on corporate taxation, illicit capital flows, carbon pricing, and most importantly effective domestic policies to foster competitive markets with strong social safety nets. All these are preferable to a chaotic retreat from globalisation. More

SYDNEY (Reuters) – Whichever party takes the reins of power at Australia’s election on Saturday faces an economic road pitted with pot holes, from runaway inflation to rising interest rates, ballooning debt and an over-heated housing market.Much of this is beyond the control of any government, but the winners will still be under pressure to ease the cost-of-living crisis without stimulating yet more inflation.They will also take the blame should rates have to rise so fast that they tip the economy into recession, even if that is really the responsibility of the independent central bank.So far, the centre-left Labor opposition looks set to end the nine-year reign of the conservative Liberal National government at the May 21 vote, although a hung parliament also looms as a possibility.Labor has pledged to tackle the rising cost of living by supporting commensurate wages gains, putting pressure on Prime Minister Scott Morrison who could only promise that wages would eventually increase as unemployment came down.His argument took a body blow this week when official wage data showed annual growth of just 2.4%, less than half the 5.1% pace of consumer price inflation.Labor jumped on the figures to claim ordinary Australians were going backwards in real wages, and that at a time when the Reserve Bank of Australia (RBA) was raising borrowing costs.The RBA underlined its determination to beat inflation by lifting interest rates at a May 3 policy meeting, the first hike in 11 years and a rare step during an election campaign.Financial markets are wagering it will have to hike every month for the rest of the year, taking rates from the current lowly 0.35% to as high as 2.75% by Christmas.If right, that would be one of the most drastic tightening campaigns in modern history and a major burden for households that owe a record A$2 trillion ($1.4 trillion) in mortgage debt.It would add more than A$700 a month to an average repayment at a time when inflation is already at a two-decade peak of 5.1% and likely to reach 6% by the end of the year.DEBT, AND MORE DEBTJust the prospect of rate rises has cast a pall over the national mood. A respected survey of consumers from Westpac this month showed sentiment cratered at lows last seen in August 2020 when the coronavirus pandemic was locking down Melbourne.”The Australian household sector is one of the most indebted in the world, so they are more sensitive to changes in interest rates than at any other time,” warns Gareth Aird, chief economist at the nation’s biggest mortgage lender CBA.”This elevated level of household indebtedness means that the RBA must thread the rate hike needle carefully.”Adding insult to injury, rising borrowing costs also threaten to upend the housing market which boasted its strongest year ever in 2021 as values surged 25% across the nation.Prices have already started to slip in Sydney and Melbourne and the RBA itself has estimated values could fall by 10-15% should mortgage rates rise by 200 basis points.The public sector has debt problems of its own having run up record budget deficits through the pandemic and a gross debt pile of A$900 billion.Another A$185 billion of red ink is projected out to June 2025, when the term of the new government ends, and it will all carry higher borrowing costs as bond yields soar.A year ago the government could borrow for three years at zero percent. It now costs around 3%.Yet both major parties have committed to more spending, not less, and to radical cuts in income taxes due from mid-2024 that are estimated to cost A$184 billion by 2031.Many economists argue this simply cannot be afforded given added spending on health, defence and climate change mitigation. How the winner this weekend settles this vexed issue, could well decide the next election.($1 = 1.4259 Australian dollars) More