Economy

SEOUL (Reuters) -South Korea’s economic growth nearly halved in the first quarter from the preceding three months on coronavirus curbs and surging inflation, while a slowing Chinese economy clouded the outlook for the coming months.Gross domestic product grew a seasonally-adjusted 0.7% in the first quarter from the last quarter of 2021, preliminary data from the Bank of Korea (BOK) showed on Tuesday, slowing from 1.2% a quarter earlier, but just beating 0.6% growth seen in a Reuters survey.”Domestic consumption will rebound as domestic COVID-19 curbs were mostly lifted, but China’s slowdown would severely hit exports and the overall economy in the current quarter,” said Park Sang-hyun, economist at HI Investment & Securities.South Korean stocks and the won currency opened with modest gains after the data.The data comes as a senior International Monetary Fund (IMF) official warned on Tuesday Asia faces a “stagflationary” outlook with likely downgrades to growth projections and surging price pressures.Private consumption shrank 0.5%, the worst contraction in five quarters, as the government enforced social distancing restrictions to curb a surge in Omicron coronavirus cases.Capital investment fell 4%, the fastest decline in three years, while construction investment lost 2.4%.From a year earlier, the economy grew 3.1%, compared with economists’ forecast for 2.8% growth.The BOK is expected to revise down this year’s growth forecast from the current 3% estimate in its next review in May, as the country faces headwinds from the Ukraine war, U.S. monetary policy tightening and COVID-19 lockdowns in China.New BOK governor Rhee Chang-yong said last week economic growth is expected to weaken further from earlier projections and that monetary policy would need to address risks to growth and the threats from inflation.In a separate Reuters poll, South Korea’s economy was forecast to grow 2.8% this year and 2.6% in 2023 after expanding at an 11-year high of 4% in 2021. The BOK this month raised its benchmark rate to 1.50%, the highest since August 2019 in a surprise move as it ramped up the fight against inflation.The IMF recently lowered its 2022 growth projection for the country to 2.5% from 3.0% while upgrading its inflation projections to 4.0% from 3.1%. More

(Reuters) -Lael Brainard, one of President Joe Biden’s four nominees to the Federal Reserve, is poised to become the U.S. central bank’s next vice chair after she cleared a procedural hurdle in the U.S. Senate Monday evening with bipartisan support. The Senate is scheduled to hold a final confirmation vote Tuesday at 2:15 pm ET (1815 GMT) on Brainard, a current Fed governor.Eight Republicans joined Democrats in voting 54-40 Monday to end debate on Brainard’s nomination. A cloture vote on a second Fed nominee, Michigan State University’s Lisa Cook, could come on Tuesday.The Senate is also expected to schedule confirmation votes this week for Fed Chair Jerome Powell, renominated to his current position, and Davidson College dean of faculty Philip Jefferson, nominated to a vacant seat on the Board. Both are expected to win bipartisan support.At its policy meeting next week the Fed is widely anticipated to deliver a half percentage point interest rate hike and announce the start of a reduction in its giant balance sheet as it ramps up its fight against 40-year high inflation. Cook and Jefferson would likely join after that meeting, taking part in deliberations over what are expected to be interest-rate hikes at every subsequent Fed meeting this year and into at least the first part of next year.Cook would be the first Black woman to serve on what is currently an all-white Fed Board, and Jefferson would be the fourth Black man to serve in the central bank’s more than 100-year history. More

The UK’s post-Brexit trade deal with the EU has caused a “steep decline” in the number of trading relationships Britain has with the bloc as red tape at the border curbs the ability of smaller firms to export, new research has found.Although UK exports to the EU have now recovered to pre-pandemic levels, analysis of trading data shows the number of relationships between buyers and sellers tumbled by a third after the introduction of the EU-UK trade deal in January 2021.The findings from the LSE Centre for Economic Performance chime with warnings from business groups that smaller firms have struggled to absorb customs controls, VAT and regulatory red tape, with many quitting exporting altogether. The LSE team analysed changes in trade patterns for 1,200 individual product lines traded with the EU, in what they said was the most comprehensive study to date of the effects of Brexit on UK-EU trade.

The paper found the return to pre-Brexit levels of exports to the EU “masks a steep decline in the number of varieties [of goods] exported, driven by the exit of ‘small’ varieties that account for a low share of total exports.” Thomas Sampson, co-author and associate professor of economics at LSE, said the analysis had exposed the hidden impacts of increasing the red tape burden on smaller UK exporters.“The research found that after the trade agreement came into force, the number of buyer-seller relationships between the UK and the EU fell by nearly one-third, with the vast majority of those being shed in the first quarter,” Sampson said.The research also found that the sudden drop in the number of products being sold was most pronounced in trade between British businesses and their counterparts in smaller EU countries. Thomas Prayer, a co-author of the paper who is a doctoral student at the University of Cambridge, said the decline was “remarkable”. He added: “It appears the UK simply stopped selling a lot of products to smaller countries in the EU.”

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The findings are another worrying sign of the negative impact that the Trade and Cooperation Agreement between the UK and EU is having on UK exporters. Last month the Office for Budget Responsibility, the government spending watchdog, warned that UK trade had “missed out” on much of the recovery in global trade and was lagging all other G7 economies. The OBR, which estimates that total UK imports and exports will be 15 per cent lower over the medium term than if Britain had remained part of the EU, said Brexit “may have been a factor” in the relative underperformance.

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Sampson said the LSE findings raised worrying questions about the long-term impact of Brexit on future EU trade. “There’s quite a lot of evidence that future growth in trade comes from firms that are small today,” he added. “If you kill off those exporting relationships it may lead to lower future export growth.”William Bain, head of trade policy at the British Chambers of Commerce said the findings bore out complaints by businesses for more than a year that the TCA was making them less competitive. “Inevitably it is smaller firms which don’t have the money, time or logistical capacity to set up within the EU which are being hardest hit. That is also the message from this important new study,” he said, urging the government to work with the EU to reduce trade frictions.Martin McTague, chair of the Federation of Small Businesses, said exporters were facing “myriad challenges” including increased paperwork and urged the government to launch a new “SME Trade Support Fund” to help firms trade internationally. “Small business must be at the centre of free trade agreements,” he added.The Department for International Trade said the TCA allowed businesses in Britain to “trade freely” with the EU, and was working to support exporters via its Export Support Service. “We are ensuring that businesses of all sizes have the support they need to trade effectively with Europe and seize new opportunities as we strike trade deals around the world,” a spokesperson added. More

Twitter’s board has accepted a roughly $44bn offer to sell the company to Elon Musk that would result in the world’s richest man seizing control of the influential social media platform. Announcing the deal, Musk said “free speech is the bedrock of a functioning democracy” and described the social media platform as “the digital town square where matters vital to the future of humanity are debated”. Musk’s take-private of Twitter could turn the chief executive of Tesla, who has used the platform to attack regulators and critics, into a new-age media baron given that millions of people rely on the San Francisco-based platform for news. Shareholders of the platform will receive $54.20 in cash for each share of Twitter common stock that they own upon closing of the transaction. The purchase price represents a 38 per cent premium to the company’s closing price on April 1, the day before Musk revealed he had built a 9 per cent stake in the company. Musk said he wanted to make Twitter “better than ever” by introducing new features, making its algorithms open source, stamping out bots and authenticating “all humans”.Do you think Musk’s ownership of Twitter will make the platform better or worse? Send your thoughts to [email protected]. Thanks for reading FirstFT Asia — EmilyThe latest from the war in UkraineTransnistria: Explosions struck the building housing the security services of the breakaway Moldovan republic of Transnistria, days after Moscow said the Russian-backed region could be drawn into the war in Ukraine.Diplomacy: The US has pledged to resume diplomatic operations in Ukraine and said it wanted to see Russia “weakened” by its continuing war after a stealth trip to Kyiv by the secretary of state and defence secretary.Russian military: Moscow’s forces have shifted their attention to the eastern region of Ukraine, with many predicting a brutal and bloody onslaught.Opinion: Russia’s invasion of Ukraine looks increasingly likely to lead to Finland and Sweden applying to join Nato. But Stockholm is reluctant as it inches towards the western military alliance, writes Richard Milne.

Five more stories in the news1. Beijing gripped by panic buying as Covid cases rise Beijing residents emptied supermarket shelves of meat and vegetables and non-perishable foods as they brace for a Shanghai-style lockdown. Beijing reported just 41 cases over the weekend, but city health officials called the situation “grave” as evidence emerged of days-long community spread of coronavirus.Markets news: US stocks rebounded late on Monday after concerns about new lockdowns in China and fears of a slowdown in economic growth pushed investors to search for safety earlier in the day.2. Human rights award suspended over Hong Kong security law fears The Hong Kong historic Foreign Correspondents’ Club has decided to halt the Human Rights Press Awards over fears they could break the Chinese territory’s tough security law. 3. Indonesia palm oil export ban fuels global food inflation threat Palm oil prices shot higher and the Indonesian rupiah lost ground yesterday after Jakarta levied a blanket ban on exports of the edible oil in a bid to contain surging food prices as a result of the war in Ukraine.4. Sri Lankan businesses struggle to remain open as fuel prices rise A surge in fuel prices that has exacerbated the highest inflation rate in the Asia-Pacific region, with authorities concerned supplies may run out as they negotiate an IMF bailout. The island nation of 22mn is going through its worst debt and economic crisis in decades.5. Le Pen vows to stick around despite third failed presidential bid In Marine Le Pen’s concession speech, the 53-year-old suggested she was not ready to give up the mantle of opposition leader to the newly re-elected Emmanuel Macron. Le Pen said she would “never abandon the people” and vowed to fight on in June legislative elections. Go deeper: Explore Emmanuel Macron’s election victory over Marine Le Pen in charts.

The day aheadSouth Korea GDP data Economists expect data to show that growth slowed significantly in the first quarter as Covid-19 precautions damped consumer spending. (Reuters) Results Earnings are expected for companies including 3M, Alphabet, GE, General Motors, HSBC, Microsoft, Nomura, Novartis, PepsiCo and UBS.What else we’re reading, listening and watching US-China Tech Race: brave new world In this episode of the Tech Tonic podcast, James Kynge discusses how a mysterious death in Belgrade prompted Serbia to embrace Chinese surveillance technology, raising concerns among Serbian human rights and privacy activists.Lunch with the FT: Historian Romila Thapar At 90 years old, Thapar has a claim to be India’s greatest living historian. Over lunch in Delhi she weighed in on prime minister Narendra Modi, what Mahatma Gandhi told her — and her country’s attitude to the war in Ukraine. Macron’s victory masks France’s ‘fragility’ In electoral victory that might seem a landslide in another country — Macron beat Le Pen by 58.5 per cent of the vote — disguises the reality that the nationalist, Eurosceptic, anti-immigration far right is stronger than at any time since the second world war. French society remains deeply divided.How to handle a narcissist in the workplace The behaviour of the late publishing magnate Robert Maxwell provides an object lesson in the psychology of extreme power. Do you work with difficult — even narcissistic — colleagues? Here are some simple techniques to help you manage workplace anxiety. For more from our Work & Careers desk, sign up to our new Working It newsletter.How London became the dirty money capital of the world Russian oligarchs and companies have been investing in London for two decades, encouraged by British politicians of all stripes, but critics say the “London laundromat” cleans dirty money from Russia and across the globe. The FT examines why it took Russia’s invasion of Ukraine to put the issue in the spotlight.

Video: How London became the dirty money capital of the world

Food & drinkAndy Baraghani made his name as a YouTube chef. Deemed the “the internet boyfriend of our dreams” by Out magazine, he’s back with a book and tastier than ever. This May sees the release of his debut cookbook The Cook You Want to Be. More

The US dollar rallied to its highest level since March 2020 on Monday and is on track for its best month since January 2015, buoyed by expectations that the Federal Reserve will have to lift interest rates aggressively to tame inflation. The dollar index, which tracks the US currency against six others including the euro and sterling, rose by as much as 0.8 per cent to a high of 101.86. The index has risen roughly 12 per cent in the past year. The gains come at a time when the Fed is expected to tighten policy more aggressively than other G-10 central banks. The higher interest rates, and higher yields on US government debt, have lured foreign investors into US Treasuries. The value of the dollar rises as investors sell holdings denominated in local currencies in favour of dollar-denominated investments. Bets on ever-tighter Fed policy have continued as inflationary pressures have persisted: Russia’s invasion of Ukraine has lifted commodity prices, and rising coronavirus cases in China have prompted fresh lockdowns that threaten to further disrupt supply chains. Beijing health officials reported that several neighbourhoods would lock down on Monday, triggering fresh fears about the global economy. The futures market is expecting the Fed to raise its key interest rate to 2.7 per cent by the end of 2022 — up from expectations of around 0.8 per cent at the start of the year — including three half-point raises in the coming months. The dollar typically benefits when US interest rates rise and the economy is performing better than other countries. The dollar, the global currency reserve, also benefits during global recessions or moments of turmoil — such as the Russian invasion of Ukraine — as investors seek out safe haven investments. This tendency of the US currency to outperform when the economic environment globally is weak or at risk and when the US is outperforming its peers has been dubbed the “dollar smile”.Demand from investors seeking a safe haven has persisted, said John Doyle, vice-president of dealing and trading at Tempus Inc. That means both ends of the smile are currently helping bolster the dollar.“The dollar smile is working to all intents and purposes. Investors are piling into the dollar, driving it up in sync with yields. And they are downgrading growth estimates for the rest of the global economy,” said Karl Schamotta, chief market strategist at Corpay. This boom in the dollar comes as its primacy as the world’s reserve currency has been brought into question by the Russian sanctions. But investors argue that for now, there is no single alternative to the dollar, and its strength in the current market makes it less likely investors would abandon the currency for political reasons at present. “At the end of the day, this is really a US-centric market,” said Mazen Issa, senior foreign exchange strategist at TD Securities, because the most drastic change in monetary policy in response to inflation has come from the Fed. “When you look globally, the central bank that is most able to lead that charge, and perhaps even redefine what tightening cycles may look like, is the Federal Reserve,” he added. More

Boris Johnson will on Tuesday promise to crack down on “unacceptable behaviour” by companies which are considered to be unfairly pushing up bills for UK households already facing a cost of living crisis.Johnson will convene a cabinet meeting in which ministers will be told to come up with “innovative ways to ease pressure on household finances”, without running up new costs to the Treasury, Downing Street said.Among the measures will be a commitment that ministers will be vigilant in the event that companies are making things worse. “Private companies must play their part,” Number 10 said.Johnson’s allies cite as an example the letter sent by Kwasi Kwarteng, business secretary, to Ofgem, asking the energy regulator to look at claims power companies were making unjustified increases to customers’ direct debits.Rishi Sunak, chancellor, is expected to set out in the autumn a new package of financial support for consumers facing soaring energy bills, but for now wants to avoid running up new bills for the Treasury.Labour has claimed that the government is failing to show enough urgency in tackling the crisis in living costs and that families cannot wait until the autumn for more support.One idea promoted by Jacob Rees-Mogg, Brexit opportunities minister, is to extend for a fourth time a moratorium on full post-Brexit import checks on goods coming from the EU.New checks are supposed to come into effect on July 1, imposing new costs on consumers and complicating supply chains; Johnson’s aides expect the deadline will be extended again.Ministers will also publicise the fact that people are not claiming all of the support to which they are already entitled. Downing Street said 1.3mn families could be taking up government support through tax free childcare.Meanwhile, there are an estimated 850,000 eligible households not claiming pension credit, which could be worth over £3,300 a year for pensioners.The cost of living crisis is having an increasingly severe effect, with many households finding it difficult to pay bills and being forced to borrow money, according to data published on Monday by the Office for National Statistics.Almost nine in 10 adults in Britain said they saw a rise in their cost of living between March 16 and 27, up from 62 per cent in November, the ONS said.Higher prices for food, energy bills and fuel were the most common reasons for the increase, it added.For many, that meant struggling to pay to warm their house. Two in five people said it was difficult to afford their energy bills — a proportion that jumped to nearly 60 per cent among the most deprived households.A greater percentage of renters found it very difficult or difficult to pay usual household bills compared with those with mortgages, the ONS data showed.Among those who said they had gas or electricity supplied to their home, 6 per cent reported being behind on gas or electricity bills in March.As a result, close to one in five said they had to borrow more money or buy more on credit. More than half of the population also cut spending on non-essential goods and services and many reduced energy consumption, the data showed. More

Meanwhile IMF Managing Director Kristalina Georgieva welcomed the country’s economic reform progress, saying she had an “excellent meeting” with Finance Minister Situmbeko Musokotwane and central bank Governor Denny Kalyalya on Monday. “We share the hope for rapid progress on #Zambia’s debt restructuring so the IMF Board can soon consider the authorities’ program,” Georgieva said on Twitter (NYSE:TWTR) https://twitter.com/KGeorgieva/status/1518649347189223425?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Etweet.In 2020 Zambia became the first country to have defaulted in the pandemic-era when its debt burden reached more than 120% of national output. It reached a staff-level agreement with the International Monetary Fund (IMF) in December 2021 on a $1.4 billion three-year extended credit facility.”Thank you to China for joining the Common Framework, for agreeing to join the Common Framework to resolve the debt crisis,” Hichilema told reporters in Lusaka.He added that authorities were working with fertiliser-producing countries to try to alleviate the pressures of rising fuel and fertiliser prices and also wanted to develop exports of wheat to take advantage of higher prices.Georgieva said last Thursday that China has committed to joining Zambia’s creditor committee. Sources with knowledge of the meeting said People’s Bank of China Governor Yi Gang said that China intended to co-chair the committee.China and Chinese entities held $5.78 billion of Zambia’s debt at the end of 2021, according to the most recent Zambian government data. Zambia’s external debt also includes $3 billion in international bonds and $2.1 billion to multilateral lending agencies such as the IMF.However, Zambian officials have also expressed frustration at the process.Musokotwane said at events on the sidelines of the IMF meetings last week the debt restructuring process had “stalled” and Zambia had “come here to complain”. More

The deficit in the fund – which is separate from the national deficit – would be equivalent to 3.3% of gross domestic product, said the advisory committee, which is tasked with supervising public accounts.Colombia, where the top export is oil, has benefited from high international prices, though rising costs for materials have impacted producers.The government has not yet passed the increase in fuel prices onto consumers, amid inflation of 8.53% in the 12 months to March, nearly three times the central bank’s 3% target.The Fund for Stabilization of Fuel Prices (FEPC) had a deficit of 14 trillion pesos ($3.66 billion) at the close of the first quarter, the committee said. The fund’s debt could rise to 33.7 trillion pesos by the end of 2022. “Care must be taken with the issue of inflation, a strong increase could worsen inflation,” said committee President Juan Pablo Cordoba. “Often when there are difficult decisions the decision is to do nothing, but not doing anything also has consequences.”For every percentage point that fuel prices are raised, inflation will increase by 0.08%, the committee said.The government said last week it will publish the draft of a decree meant to change the methodology for setting fuel prices, to bring them in line with international levels and reduce future deficits.($1 = 3,819.07 Colombian pesos) More