Economy

DMYTRIVKA, Ukraine (Reuters) – Wisps of smoke still rising from the smouldering wrecks of tanks, business executive Leonid Vereshchagin wends his way past the charred corpses of Russian troops in this Ukrainian hamlet after what he calls a living hell.    For a month, he and his wife sought refuge in a friend’s basement in Dmytrivka, about 22 miles (35 km) west of Kyiv, as Russian troops advanced and occupied the area and took over the homes of some of his neighbours.Most of the 300 residents left, but around a third remained, co-existing with the Russians as their tanks patrolled day and night.”They went to our houses. Those houses that were closed, they opened them, they just broke the windows and they tried to open the doors,” he said, returning to his village on Friday. “We were with them when they were visiting houses, they were trying to open cupboards.”    “I have a very brave wife, she was watching them, making clear that they should not take anything,” he added, sitting in the same basement he had hunkered down in. Several mattresses lay on the floor, and to the side, shelves with provisions.   Three days ago, while the Russians were patrolling the area, Ukrainian troops arrived. When the Russians returned, unaware, there was a fierce battle. Vereshchagin and his wife escaped in a car through the woods during a brief break in the fighting.    Some houses in the smart residential area were completely destroyed. In the garden of one cowered a doe, badly injured from shelling, raw flesh exposed where patches of fur had burned.    “The Hell started in the evening on the (March) 29th,” Vereshchagin said. “From one side we were hearing the tanks shooting at us, and from the area of Bucha was a massive mortar shelling,” he added, referring to a town to the north.    “It’s something like you having a casque (helmet) and someone is hitting by hammer from above.”The pungent smell of dank vegetation sits heavy in the air. A mist envelops the rural area, a patchwork of fields and forest land.Reuters correspondents saw the remains of eight Russian soldiers next to destroyed tanks on the road running through the hamlet.     One had been decapitated by a blast. His naked body lay nearby, his feet blown off and a blackened arm still extended upward as if frozen in time.    “You see that enemy overestimates its potential around Kyiv at least. And we keep going forward liberating our cities and evacuating our people,” said Deputy Interior Minister Yevhen Yenin. “The first task is to restore public order to provide supplies of water, food, electricity, communication,” he added.   To the north, near the Belarus border, lies the nuclear disaster site Chernobyl.”According to our reconnaissance, Russians have left Chernobyl but we should be aware of any unpleasant surprise that could be hidden there,” Yenin said.    Vereshchagin dismisses Russian President Vladimir Putin’s rationale for the invasion – clearing neo-Nazis and protecting Russians in Ukraine. While born in Ukraine, his mother tongue is Russian.    “I’ve never ever experienced any problems in Ukraine being a Russian-speaking Ukrainian,” he said.    “Definitely neither I nor any of my Russian speaking friends were waiting for any salvation army, which was completely fake and paranoia.” More

Russia’s invasion of Ukraine has delivered a “sizable shock” to the global economy that will challenge policy makers to tame inflation without quashing growth, Pierre-Olivier Gourinchas said Thursday in his first interview since taking the job in January. Still, “we’re not looking at a recessionary environment in the U.S., at least in the near future,” he said. “What we are seeing is along the lines of a slowdown in growth but still solidly in positive territory.”The IMF is in the process of updating forecasts it last issued in January, and is set to publish the results in its World Economic Outlook scheduled for April 19 during its Spring Meetings. Gourinchas said the fund is still gauging how much it will need to slash growth projections as a result of Russia’s invasion of Ukraine, which has sent energy and food prices soaring.In the U.S., concerns about the growth outlook have been mounting as the Federal Reserve accelerates its plans for interest-rate increases to combat inflation that was already at the highest levels in four decades even before the war. This week, yields on two-year Treasury bonds exceeded those on 10-year debt — a so-called inversion of the yield curve that’s historically been a harbinger of contractions. Consumer sentiment has slumped to a decade low, even though Friday’s jobs report showed a still-robust labor market. Citigroup Inc (NYSE:C).’s global chief economist said Thursday the odds of a recession are “significant” over the next 18 months, with about a one-in-three chance of a global downturn and one-in-four for the U.S.‘Different Things’Gourinchas, a professor on leave from the University of California, Berkeley, joined the IMF in January, taking over as chief economist from Gita Gopinath, who was promoted to become the fund’s first deputy managing director. Originally from France, Gourinchas earned his doctorate in economics from the Massachusetts Institute of Technology, writing his thesis on exchange rates and consumption. Olivier Blanchard, who himself went on to serve as IMF chief economist, was Gourinchas’s thesis adviser. The war in Ukraine will be the major driver of downward revisions to the IMF’s 2022 outlook, and it will likely hit neighboring Europe harder than the U.S., Gourinchas said.“European economies are more vulnerable,” he said. “They are more dependent on some Russian gas, and there might be more of a shock to the aggregate demand.”The fund is also watching for the potential for disruption from new pandemic lockdowns in China, Gourinchas said.Central bankers face a tough challenge as they seek to bring economies back onto a stable inflation path without crushing growth, and their response is likely to vary based on their proximity to and trade linkages with Russia and Ukraine, he said.“You might face a different trade off if you’re, say, in Frankfurt at the ECB than if you’re in Washington at the Fed,” he said. “We’re not going to see necessarily a very aligned cycle, in terms of monetary policy, because countries are going to have to do different things.”©2022 Bloomberg L.P. More

It is already clear who will bear the cost of inflation. Rising prices are due to hit households hard. Andrew Bailey, governor of the Bank of England, warned this week that Britons face a “historic shock” to their incomes. The same reality is faced by other households around the world. Those lucky enough to have savings are seeing them whittled away to cover dramatic increases in the cost of living. Signs are emerging that consumers have also been borrowing more through credit cards. While this usually reflects growth in spending, some economists are warning that this time, households may be accessing debt to make up for shortfalls in pay.This kind of inflation — and its effects — demand a response that has come in the form of higher rates. The Bank of England has now proceeded with three consecutive rises in an effort to cool prices. The US Federal Reserve has sounded arguably even more determined to rein in inflation, while the European Central Bank has sent signals pointing in the same direction. Yet determining the winners and losers from higher rates is more difficult to predict than the effects of inflation. While interest rates are often referred to as if they affect all borrowers equally, this can be misleading. The ultimate impact on households and businesses alike may depend on whether they are accessing short or long-term credit markets for their funding needs.The most recent changes made to interest rates by the Bank of England and Federal Reserve target the cost of short-term borrowing. Prices on this kind of debt — such as short-term bank credit — are the most responsive to variations the BoE and the Fed have already made to their “bank rate” and “federal funds rate” respectively. The ultimate intention of this move is to relieve pressure on prices by taking the heat out of the economy. But most directly in the line of fire will be those who make use of short-term loans — such as small businesses — as a way to manage cash shortages and to make day-to-day purchases. For those with sustainable levels of debt, rising costs of this kind, while painful, won’t be terminal. Unfortunately, it may be a different story for those who are highly leveraged and already on the edge. Higher rates are better news for households looking to save — interest on bank deposits and other short-term savings vehicles should rise. What will end up happening to long-term borrowers is more uncertain. The supply of capital around the globe is still plentiful, which means that the price demanded for lending it should remain relatively cheap: in an ideal world, the cost of mortgages and long-term corporate borrowing will remain manageable. There are complications though. Long-term rates are due to rise as central banks end their bond purchasing programmes. They may climb further if inflation is not brought under control. This kind of “higher for longer” world would have a direct impact on mortgage rates. Highly leveraged households would feel significant pain when their fixed mortgage rates come up for renegotiation. Some businesses would find themselves similarly squeezed as the cost of funding through corporate bond markets — used by many large businesses — increases.Any analysis of who stands to lose the most from higher interest rates can only end with: “It depends.” Unsatisfactory as it is, this conclusion accurately reflects the nature of an economy that sits at a crossroads. The ultimate outcomes are uncertain, but one thing that can be agreed upon is that the sooner inflation is tamed, the better the prospects for all. More

Good evening,New data released today showed the US added 431,00 jobs in March, bolstering the case for the Federal Reserve to speed up the tightening of monetary policy in the fight against inflation.The unemployment rate edged down to 3.6 per cent and now stands at its lowest level since before the pandemic. The non-farms payroll report also showed a pick-up in wage growth as businesses try to hang on to talent and fill a record number of job vacancies. Retail and airlines are among the industries boosting starting pay to attract new recruits.A similar pattern is playing out in Europe. New eurozone data yesterday showed unemployment falling to an all-time low of 6.8 per cent. However, rising salaries are failing to keep up with galloping inflation (see below), meaning many workers in Europe face real wage cuts. Real hourly wages fell 3 per cent in the fourth quarter, the biggest drop since comparable data started 14 years ago.In addition, many employers that depend on Russia and Ukraine for imports — such as carmakers, chemical companies and food producers — could be plunged into crisis and find themselves less able to fund big pay increases. “As far as monetary policy and inflation are concerned, there are few signs in the data that the improvement in the labour market is about to lead to a wage-price spiral,” said one economist.The cost of living crisis is also having an effect on the make-up of the labour market. A UK survey this week from investment manager Abrdn showed the share of older workers planning to carry on working into their retirement has nearly doubled in two years thanks to insufficient pension savings as well as rising living costs. A separate survey showed that 70 per cent of renters in the UK think their pension pot will not even cover their housing costs. “Gone are the days when everyone had a set date or a set age from which they’ll never work again,” said Colin Dyer, Abrdn’s client director.The biggest employment story in the UK however remains the mass sacking of sailors without notice or consultation by P&O Ferries. The move exposes the UK’s “embrace of cowboy capitalism”, says Frances O’Grady, general secretary of the Trades Union Congress.The debacle, says columnist Sarah O’Connor, shows that the country’s employment laws need a thorough overhaul to prevent a race to the bottom. A “softly softly” approach to the enforcement of employment rights might seem to be pro-business, O’Connor writes, but it is in fact often the opposite. “Workers need a level playing field without loopholes and grey areas. Businesses do too,” she concludes.Latest newsP&O Ferries faces criminal investigation into sacking of 800 sailorsEnd of Covid insurance scheme sparks warnings over UK film productionsRussia praises India’s neutrality on Ukraine invasionFor up-to-the-minute news updates, visit our live blogNeed to know: the economyEurozone inflation hit a new record of 7.5 per cent in March, driven by a 44.7 per cent increase in energy prices, putting more pressure on the European Central Bank to tighten monetary policy. Even excluding more volatile energy, food, alcohol and tobacco, core inflation increased to 3 per cent from 2.7 per cent in February, showing that price pressures are becoming more broad-based. Use our inflation tracker to track trends across the world. US president Joe Biden yesterday ordered the release of an “unprecedented” 180mn barrels of crude from US reserves to try and offset supply disruptions caused by the war in Ukraine. The Opec producers alliance has ignored calls from the US and UK to pump more quickly.A decree from President Vladimir Putin insisted “unfriendly” countries pay for Russian gas in roubles, but they have until at least the second half of April to comply with Moscow’s demand. The FT editorial board said that, even if some sanctions were lifted as part of a peace deal in Ukraine, Europe’s new determination to end its reliance on Moscow’s gas will be here to stay.Russia has however averted the flow of funds out of the country and steadied the rouble with harsh capital controls and blocks on foreign traders exiting investments. Western countries oppose linking progress in peace talks with the lifting of sanctions.Latest for the UK and EuropeAs we wrote in Wednesday’s edition, April is shaping up to be financial nightmare for UK consumers and businesses. Here’s more on how households will be affected and how companies will be hit by the withdrawal of pandemic support programmes. Energy suppliers’ websites jammed yesterday as consumers rushed to submit meter readings ahead of today’s price rises.There was some better news for the overall UK economy as revised data showed growth was a faster than previously estimated 1.3 per cent in the final quarter of last year, meaning it had largely recovered from the damage of the pandemic. Rising inflation however meant households’ real income fell. Farmers have urged supermarkets to raise the price of eggs by 40p to help counter the cost of soaring feed prices.UK house prices continue to soar, even if affordability is becoming an ever greater issue. The annual rate of growth of 14.3 per cent in March is the fastest in 18 years.The European Systemic Risk Board, the body responsible for monitoring dangers to the financial system, said the war in Ukraine had raised the possibility of abrupt asset price corrections, turmoil in derivative markets and cyber attacks.Hungary’s Viktor Orban, the EU’s longest-serving leader, is battling for re-election on Sunday in a poll seen as crucial to relations between his country and mistrustful Nato and EU allies. Six opposition parties have united to put forward a single candidate against the populist leader and are neck and neck with his Fidesz party, according to the latest opinion polls.Global latestThe IMF said financial sanctions on Russia would dilute the dominance of the US dollar and fragment the international monetary system. The fund said the measures, including restrictions on Russia’s central bank, could encourage the formation of small currency blocs based on trade between separate groups of countries.The Bank of Japan’s latest quarterly survey shows business confidence in the country slumping due to the mix of the pandemic, rising energy costs and the war in Ukraine. The central bank yesterday said it would boost purchases of government bonds even as the yen suffered its worst month against the dollar since 2016.Chinese manufacturing and services activity shrunk in March for the first time in two years because of the government’s strict pandemic restrictions. Shanghai has extended lockdown measures and Hong Kong confirmed it would stick with China’s official zero-Covid policy despite some recent easing of regulations, much to the dismay of the city’s property tycoons.Need to know: businessGlobal dealmaking has slumped to its lowest level since the start of the pandemic after what had been a record period of mergers and acquisitions. Just over $1tn worth of deals were struck in the first quarter of 2022 — 23 per cent lower than the same period last year, although private equity groups continue to perform well, especially in Asia. US stocks had their worst quarterly performance in two years in the first three months of this year.US businesses in China have slashed revenue projections as Covid-19 infections continue to rage. US editor-at-large Gillian Tett says supply chain crises are forcing a change in mindset at US companies as they face up to once-unimaginable risks.A Chinese-Australian joint venture is close to producing Australia’s first battery-ready lithium hydroxide for use in electric cars and electricity grids. The move comes as western governments have expressed concern over China’s control of the lithium supply chain. Australia is the world’s biggest exporter of the metal but has never refined the product onshore.H&M has become one of the first consumer groups to reveal the impact of the war in Ukraine. The world’s second-largest clothes retailer said yesterday that sales growth slowed in March as the invasion hit consumer sentiment.Huawei on the other hand has been a winner from the conflict, as Russia turns to the Chinese tech company to replace gear from western firms. Despite the threat of US sanctions, Huawei and other Chinese companies are likely to capitalise if big names such as Nokia and Ericsson fully exit the country.One of the other major winners is of course Big Oil. “Under the so-called climate president, many US fossil fuel producers have never had it so good,” notes US energy editor Derek Brower.Science round upToday marked the first day of the UK’s new “Living with Covid” strategy, but also the day the number of weekly infections reached a record high of nearly 5mn. Scientists have questioned the withdrawal of free testing in the middle of a fresh wave of cases. Columnist Anjana Ahuja says living with Covid does not mean pretending it no longer exists.People simultaneously infected with Covid-19 and influenza face double the risk of death, according to a new study. Large flu surges were suppressed during the pandemic, but experts have warned of the possibility of a rare spring or summer flu surge in the northern hemisphere.Half of China’s elderly population is at higher risk of severe Covid-19 because of the country’s patchy vaccination campaign. China’s homegrown Sinovac vaccine was found to be less effective at preventing death from Covid-19 among the elderly than the BioNTech/Pfizer jab, unless they received three shots. Most Chinese people have received either Sinovac or Sinopharm, which also requires a triple dose.BioNTech, which launched the first Covid-19 vaccine in partnership with Pfizer, said it would boost research and development spending by 50 per cent to between €1.4bn and €1.5bn, as it seeks to develop a new range of drugs based on mRNA technology. The company plans to return almost €2bn to shareholders through share buybacks and a special dividend following the commercial success of its Covid jab. A new history of science eschews the traditional Eurocentric narrative and highlights contributions from around the world, including sultan and astronomer Ulugh Beg’s calculation five centuries ago of the length of the solar year to within 25 seconds of our modern value.Get the latest worldwide picture with our vaccine trackerAnd finally . . . Eyewitness accounts from Ukraine have helped bring home some of the horrors of war to the rest of the world. Tim Judah, on assignment for the Financial Times, chronicles 21 days of the Russian invasion as events unfolded.People flee fighting in Irpin, Ukraine, on March 8 © Ron Haviv More

The jobs report released Friday — which showed U.S. employers added 431,000 jobs in March on a seasonally adjusted basis — received a round of applause from many economists and labor market analysts, cooling off fears of a major slowdown in growth. And it spurred hope in the service sector that good times may be back again, and stick around more sustainably.After experiencing nearly two years of stop-and-go reopenings — optimistic bursts of in-person activity as the virus ebbed, followed by fearful drawbacks as it rose again — experts say that the broadest swath of consumers yet may be returning to the sort of in-person activity that defined their Before Times lives: The sectors that cover travel, live entertainment, indoor dining, museums and historical sites, bars and other drinking places all saw major boosts.The leisure and hospitality sector saw the largest gains in March.Change in jobs from February to March, by sector More

(Reuters) – It’s not as if U.S. central bankers needed more reasons to step up the pace of interest rate hikes.But that’s what they got on Friday, when the Bureau of Labor Statistics’ latest jobs report showed employers added 431,000 to payrolls last month and the unemployment rate fell to a two-year low of 3.6%. All are signs of a strong labor market with little need for the kind of super-easy monetary policy that the Fed is currently delivering and has begun to unwind. “A very tight labor market got even tighter,” wrote Oxford Economics’ Kathy Bostjancic and Lydia Boussour.Futures contracts tied to the Fed’s policy rate fell after the jobs report, as expectations intensified that the Fed will go bigger at the Fed’s next three meetings, hiking by a half-a-percentage point each time to deal a more decisive blow to price pressures. Rate futures contracts reflect odds-on bets for the policy rate to end the year in the range of 2.5% to 2.75%, with about a one-in-three chance of going even higher. Either way that is high enough to put the brakes on growth.It was just two weeks ago that the Fed raised interest rates by a quarter-of-a-percentage point in its first policy tightening in three years, and signaled ongoing rate hikes ahead to rein in inflation at a 40-year high and climbing. With average hourly pay that’s 5.6% higher than a year earlier, March’s labor market report reflected strong demand for workers despite rising borrowing costs that may, to central bankers, also contain a warning signal for a building “wage price spiral” that could make inflation even worse. At their mid-March meeting, policymakers had projected an end-of-year policy rate of about 1.9%. Since then a number, including Fed Chair Jerome Powell, have signaled their readiness to move faster. Chicago Fed President Charles Evans, who personally prefers the more measured path, told reporters Friday that he doesn’t see a big risk in using “some” half-point rate hikes to bring borrowing costs to neutral sooner, as long as the goal was not to raise rates much faster and push them much higher.The worry there would be that the Fed ends up tightening too much, tipping the economy into recession. Historically it’s been rare that the Fed has avoided such an outcome once the unemployment rate falls as low as it is now. With inflation looking set to accelerate even more after Russia’s invasion of Ukraine sent oil prices higher and a COVID-19 outbreak in China threatens to further damage already strained supply chains, tamping down inflation is “essential” to sustaining a strong labor market, Fed’s Powell has said. The Fed targets 2% inflation by a measure known as the personal consumption expenditures price index. In February that measure jumped to 6.4%.Policymakers don’t want to risk that expectations for ever-higher prices get baked into American household and business psychology. Rate hikes are designed to curb demand and blunt that risk. Besides, policymakers have argued, the labor market has met the standard of full employment, and is strong enough to withstand the kind of fairly rapid withdrawal of support they are contemplating. Friday’s report offered more grist for that argument. The unemployment rate was “little different” than the pre-pandemic rate of 3.5%, the report’s authors said. And it helps ratify the Fed’s hope that workers sidelined by the pandemic would find their way back to the labor force as COVID-19 cases fall. Participation in the labor force by workers in their “prime” years of 25 to 54 rose to 82.5%, the highest level in two years. Most industries are now above or close to their pre-pandemic level of employment U.S. employment overall is still 1.6 million below the pre-pandemic level, the report showed. But Fed policymakers increasingly see that deficit as likely to get filled only slowly and not prone to be hurried along by keeping rates low. More