Economy

ROME (Reuters) -Italy on Friday approved measures to help consumers and firms cope with surging energy costs exacerbated by the Ukraine crisis, in a wide-ranging decree that also strengthens Rome’s powers to shield key assets from foreign bids.The package, worth 4.4-billion euro ($4.86 billion), is the latest step to curb energy and fuel prices and comes on top of some 16 billion euros budgeted since last July to try and soften electricity and gas bills for firms and households.”We have taken important and motivated measures to respond to the consequences on our country of the war in Ukraine,” Prime Minister Mario Draghi told a news conference after a cabinet meeting on the issue.The measures are funded by taxing extra profits of energy firms that benefited from surging energy prices and will not worsen the public deficit. The levy takes the form of a 10% one shot contribution on profit margins that rose significantly in the last six months on an annual basis.”This redistributive intervention … allows us to avoid extra borrowing and keep public accounts under control,” Draghi said.Rome last autumn targeted the fiscal gap to fall to 5.6% of GDP this year from 7.2% in 2021.In beefing up Rome’s “golden power”, the decree introduces a specific set of measures to oversee and block takeovers and commercial agreements on 5G networks and cloud technology.Firms operating in these two sectors will be required to supply on an annual basis considerably more detailed notification to the authorities for proposed mergers and supply deals.A new 10-member body at the prime minister’s office will be responsible for vetting any potentially sensitive deals, said a draft decree seen by Reuters.Since the golden power was introduced in 2012, government authorities have blocked foreign forays into Italy six times. Five of those headed off Chinese bids, and four have come since Draghi took office 13 months ago. The government also told public authorities to replace anti-virus software linked to Russia, and says it is considering measures to block exports of raw materials to shield domestic industries from shortages.In the energy part of the decree, Rome set out plans to cut excise duties on petrol and diesel. This would cut prices paid at the pump by 25 cents per litre until the end of April.Italy’s economy, which grew 6.6% last year following a record contraction of 9.0% in 2020 caused by extended coronavirus lockdowns, is now facing an increasingly weak growth outlook.The Treasury is preparing to downgrade Italy’s growth target significantly below 4% this year from a previous 4.7% goal made last autumn, a government source said.($1 = 0.9051 euros) More

The Commerce Department said on Friday that it had identified 100 commercial and private aircraft that violated U.S. export controls by flying into Russia and that their owners, operators and servicers were at risk of substantial jail time, fines, loss of export privileges or other restrictions.The announcement said it was putting the world “on notice” not to repair or refuel the planes, highlighting the scope of the new limitations.Since March 2, the department identified a number of commercial and private flights to Russia that most likely violated the restrictions, including on aircraft owned or operated by Aeroflot, AirBridgeCargo, Aviastar-TU, Azur Air, Nordwind, Utair and Roman Abramovich, a Russian billionaire with ties to President Vladimir V. Putin, according to the announcement. Most of the planes were made by Boeing.On Feb. 24, the department imposed broad restrictions on technology that could be exported to Russia, part of an effort to cripple the country’s military and strategic industries. In addition to semiconductors, telecommunications equipment and sensors, the restrictions bar aircraft and some aircraft parts that are made in the United States from being sent to Russia.As a result of the rules, any aircraft manufactured in the United States, or manufactured in a foreign country that used certain American parts or technology, must receive a license to travel to Russia.And any entity providing services to those aircraft, including maintenance, repair and refueling, would also be in violation of the rules, the Commerce Department said.Because the aircraft are prevented from receiving any service, flights to and from Russia on these aircraft are effectively grounded, the department said.“We will not allow Russian and Belarusian companies and oligarchs to travel with impunity in violation of our laws,” Commerce Secretary Gina M. Raimondo said in a statement. More

The central bank kept its key interest rate unchanged on Friday, in line with a Reuters poll of analysts, following an emergency rate hike in late February, but warned of higher inflation and an economic contraction this year, without giving new forecasts.The central bank’s actions have come in support of an economy buckling under the stress of sanctions from across the globe, triggered by Russia’s invasion of Ukraine late last month.U.S. President Joe Biden sought to prevent Beijing giving new life to Russia’s troops in a video call with President Xi Jinping on Friday as stalled Russian forces pressed on with bombardments of towns and cities.The rouble ended 1.6% weaker against the dollar at 104.82 in Moscow, and fell 0.95% to 114.80 to the euro, while rising for the week against both currencies. It has lost about a fourth of its value over the past four weeks.In offshore markets, rouble bids were last indicated at 102.75 per dollar and traded at 105.Trading on the stock market section on the Moscow Exchange has been closed for weeks but currency trading has continued.Central Bank Governor Elvira Nabiullina, who was nominated for another term by President Vladimir Putin earlier on Friday, said the bank would begin buying OFZ bonds when the Moscow Exchange resumes trading those papers on Monday, hoping to limit volatility.Evgeny Suvorov, economist at CentroCredit Bank, said the bank had made clear this was a temporary measure to limit financial stability risks, and not akin to the U.S. Federal Reserve and European Central Bank’s quantitative easing schemes.”The central bank is afraid that the market at opening will go to hell and this will tear apart a load of banks and investment companies,” he said. COUPON PAYMENTThe rouble showed limited reaction to an indication that Russia had averted a default on its foreign currency bonds, after it paid interest due on two sovereign dollar bonds seen as a key test after the imposition of hefty sanctions.Those sanctions increased demand for foreign currency, which prompted the central bank to ban the selling of cash dollars and euros to individuals at banks’ offices.A month ago, the Russian currency traded at around 76 to the dollar and 85 to the euro.Russia sent tens of thousands of troops into Ukraine in late February in what it called a special military operation to degrade its southern neighbour’s military capabilities. More

NEW YORK (Reuters) -Burger King’s parent company said on Thursday it has not been able to close its 800 restaurants in Russia because its independent operator there “refused” to do so.Restaurant Brands International (NYSE:QSR) Inc said that to enforce its contracts with the partner, Alexander Kolobov, it would need the help of the Russian government, but “we know that will not practically happen anytime soon,” according to a letter to employees from David Shear, president, international, of the company.Kolobov said in a statement to Reuters that he does not have the authority or power to decide whether to suspend restaurant operations.Shear’s long letter and Kolobov’s response highlight the many complications bedeviling some American fast-food brands as they try to halt operations in Russia following Moscow’s invasion of Ukraine.It also exposes what can become a point of weakness in international franchising, which is how most American restaurant brands expand overseas: the relationships with their independent operators.On March 8, Starbucks Corp (NASDAQ:SBUX) and a wave of other companies followed McDonald’s Corp (NYSE:MCD) in saying they would suspend or limit operations in Russia.Like Burger King, Starbucks does not own or operate its more than 100 cafes there. But unlike Burger King, it had a willing partner – Kuwait-based Alshaya Group – that immediately agreed to shut its Starbucks’ locations in Russia and support its 2,000 employees.Restaurant Brands entered Russia a decade ago through a joint venture partnership with three entities: Kolobov, who controls day-to-day operations, private equity and asset management firm Investment Capital Ukraine, and Russia’s state-owned VTB Bank, which has been hit by Western sanctions.Restaurant Brands has started the process to dispose of its 15% ownership stake in the joint venture. It wants to do so immediately, Shear said, but it will take “some time” based on the terms of the agreement.There are “no legal clauses that allow us to unilaterally change the contract or allow any one of the partners to simply walk away or overturn the entire agreement,” Shear wrote.”Would we like to suspend all Burger King operations immediately in Russia? Yes. Are we able to enforce a suspension of operations today?” he wrote. “No.”Kolobov said he has never had control of operations since the joint venture formed in 2012. He controls 30% of the partnership and said the decision to suspend operations “must be taken by all shareholders considering the impact it may have” on approximately 25,000 employees. More

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(Reuters) -Two of the Federal Reserve’s most hawkish policymakers on Friday said the central bank needs to take more aggressive steps to combat inflation, and two others said they would be open to it – one of whom just six months ago envisioned a 2022 with no rate increases at allIt still could be that the Fed only needs to raise rates “modestly” above neutral, Minneapolis Fed President Neel Kashkari said in an essay published on the regional Fed bank’s website in which the former dove said he wants to raise rates to 1.75% to 2% this year.But, he said, the economy may have shifted to a “high-pressure, high-inflation equilibrium,” requiring the Fed “to act more aggressively and bring policy to a contractionary stance in order to move the economy back to an equilibrium consistent with our 2% inflation target.” Which way the Fed needs to go will depend on what economic data shows over the course of the year, he said.Fed officials hiked interest rates this week for the first time in three years and signaled that more rate increases are coming as the central bank removes the support provided during the coronavirus pandemic and works to tame inflation at 40-year highs.Most Fed policymakers see rates rising next year to a level that would restrict growth, forecasts show, but exactly how fast or high rates should rise is a matter of debate.Earlier in the day, Fed Governor Chris Waller said economic risks around Russia’s war in Ukraine led him to vote in favor of a quarter percentage point rate increase at this week’s meeting rather than dissent in favor of the larger half point increase he had been advocating. “The data is screaming at us to go 50 (basis points) but the geopolitical events were telling you to go forward with caution,” Waller said on CNBC. But in the months ahead Waller said he would favor a series of half percentage point increases to “front load” tighter policy and have a quicker impact on inflation.St. Louis Fed President James Bullard, who dissented on this week’s action in favor of a half point increase, said on Friday that officials should raise the Fed’s overnight lending rate to more than 3% this year to catch up with elevated inflation. After Wednesday’s move, the Fed’s target rate is now 0.25-0.50%. He said he not only favored a half point increase this week, but rate increases at a pace that would require half point increases at five of the Fed’s six remaining meetings this year.”The U.S. economy has proven to be especially resilient,” against the pandemic and geopolitical risks, Bullard said in a statement explaining his dissent. With inflation by the Fed’s preferred gauge running above 6%, triple its 2% target, Bullard said more Fed action was needed “to prudently manage the U.S. macroeconomic situation.”INFLATION FIGHTING STANCEThough most Fed officials see six more quarter-point rate increases this year, seven of the Fed’s current 16 policymakers, like Bullard, think rates should go even higher by year’s end. To counteract inflation faster Waller said the central bank should pack more of that into the next few months. “I really favor front-loading our rate hikes…Just do it rather than just promise it,” he said.While he did not specify where he would like to see the target federal funds rate end the year, Waller said he would prefer to get above the 2% to 2.25% level he sees as acting neutrally for the economy. Half of Fed policymakers see rates rising to at least 2.8% by the end of next year, high enough to brake economic growth in the view of most of them, projections released this week show.With rates still far from a level that would constrain growth, that rate path “shouldn’t drive economic decline,” said a fourth Fed policymaker, Richmond Fed President Thomas Barkin. Barkin said he is “very open” to a half-point rate hike if inflation accelerates or expectations move up. But, he said, setting the pace is a “balancing act” between raising rates enough to contain inflation but not so much it hurts jobs. Kashkari did not address the possibility of a half-point hike, but the shift in his policy outlook encapsulates the Fed’s pivot from policy designed to cushion the pandemic crisis to its current inflation-fighting stance.In September he was the Fed’s most dovish member, arguing that as the pandemic receded inflation would cool this year without any interest rate hikes as supply chains got fixed, workers returned to the labor force, and super-charged demand for goods ebbed. Instead, inflation has accelerated to well above the Fed’s target. Supply chains have been slow to recover and a resurging pandemic in China risks continued bottlenecks; wage growth has picked up instead of slowing and, in what Kashkari said was his biggest surprise, spending on goods remains elevated. Speaking at a North Dakota Petroleum Council event, Kashkari underscored his hawkish turn, saying he favors starting to reduce the Fed’s balance sheet next month at a pace twice as fast as the Fed used the last time it shrank its portfolio. He said he still thinks it’s possible inflation is mostly driven by a supply-demand imbalance that will right itself, allowing the Fed to raise rates only slightly above the 2% he sees as a neutral level. But Russia’s invasion of Ukraine makes inflation pressures worse, and continued strong household spending suggests that “robust economic activity and the associated high inflation may be sustained and in fact might not be transitory,” he said. More

“The Fund would give liquidity for continued support to authorities and in the longer term serve as backbone for reconstruction of a free and democratic Ukraine once hostilities stop”, Michel said in a tweet.Partners could contribute to the fund through an international donors conference, Michel said.An EU official said the topic would be discussed at a summit of EU leaders next week, adding that the presidents had discussed the need for Ukraine to retain access to international financial support to fund imports of basic necessities and military equipment.The Russian invasion has cut Ukraine off from international financial markets, and the fund could provide the liquidity needed to keep government services running, to continue defence efforts and to provide basic services, the official said. More

In an analysis blog https://www.cgdev.org/blog/price-spike-caused-ukraine-war-will-push-over-40-million-poverty-how-should-we-respond, the Washington-based think tank said food commodity prices since the start of the conflict have risen above levels experienced in price spikes in 2007 and 2010. It cited World Bank Research showing that the 2007 spike may have pushed as many as 155 million people into extreme poverty, and separate research showing the 2010 episode pushed 44 million into extreme poverty.”Price increases seen to date are already of a similar magnitude to the 2010 increases, and our analysis suggests at least 40 million people will be pushed into extreme poverty by the 2022 price spike,” CGDEV researchers wrote.The World Bank defines extreme poverty as living on less than $1.90 a day. The researchers said the most immediate concern was for direct wheat customers of Ukraine and Russia, which together account for more than a quarter of world wheat exports. These include Egypt, Indonesia, Bangladesh, Pakistan, Azerbaijan and Turkey, but prices will rise worldwide as importers compete for alternative supplies.Households in low-income countries allocate nearly half of their budgets to food, and higher prices will force “hard choices between food and other necessities.” The CGDEV blog urged development agencies and international finance institutions to move quickly to respond to a clear increase in humanitarian needs around the world, while wealthy governments should provide supplemental funding to the institutions well in advance of the coming food crisis. More