Economy

By Elisa MartinuzziLONDON (Reuters) – Armed conflict is the top risk in 2025, a World Economic Forum (WEF) survey released on Wednesday showed, a reminder of the deepening global fragmentation as government and business leaders attend an annual gathering in Davos next week. Nearly one in four of the more than 900 experts surveyed across academia, business and policymaking ranked conflict, including wars and terrorism, as the most severe risk to economic growth for the year ahead. Extreme weather, the no. 1 concern in 2024, was the second-ranked danger. “Rising geopolitical tensions and a fracturing of trust are driving the global risk landscape,” WEF Managing Director Mirek Dusek said in comments accompanying the report. “In this complex and dynamic context, leaders have a choice: to find ways to foster collaboration and resilience, or face compounding vulnerabilities.”The WEF gets underway on Jan. 20 and Donald Trump, who will be sworn in as the 47th president of the United States, will address the meeting virtually on Jan. 23. Ukraine President Volodymyr Zelenskiy will attend the meeting and give a speech on Jan. 21, according to the WEF organisers.Advisers to Trump concede that the Ukraine war will take months or even longer to resolve, Reuters reported on Wednesday, a sharp reality check on his pledge to strike a peace deal on his first day in the White House. Among other global leaders due to attend the Davos meeting are European Commission President Ursula von der Leyen and China’s Vice Premier Ding Xuexiang.Syria, the “terrible humanitarian situation in Gaza” and the potential escalation of the conflict in the Middle East will be a focus at the gathering, according to WEF President and CEO Borge Brende. Negotiators were hammering out the final details of a potential ceasefire in Gaza on Wednesday, following marathon talks in Qatar. The threat of misinformation and disinformation was ranked as the most severe global risk over the next two years, according to the survey, the same ranking as in 2024.Over a 10-year horizon environmental threats dominated experts’ risk concerns, the survey showed. Extreme weather was the top longer-term global risk, followed by biodiversity loss, critical change to earth’s systems and a shortage of natural resources.Global temperatures last year exceeded 1.5 degrees Celsius (2.7 degrees Fahrenheit) above the pre-industrial era for the first time, bringing the world closer to breaching the pledge governments made under the 2015 Paris climate agreement.A global risk is defined by the survey as a condition that would negatively affect a significant proportion of global GDP, population or natural resources. Experts were surveyed in September and October.The majority of respondents, 64%, expect a multipolar, fragmented global order to persist. More

Although short-term dynamics may support elevated yields, cyclical forces and structural factors indicate that yields will eventually stabilize, as per analysts at BCA Research.The rise in bond yields, particularly since the first rate cuts by the U.S. Federal Reserve in late 2024, reflects a combination of factors. Adjustments in monetary policy expectations have been a major driver, with the market reassessing the trajectory of future rate hikes. This realignment has reverberated globally, influencing yields across developed and emerging markets. However, the long end of the yield curve has increasingly decoupled from immediate policy expectations, underscoring the growing importance of term premia driven by inflation uncertainty and government funding concerns.BCA Research notes that much of the recent yield increase can be attributed to risk premia adjustments. Countries with current account deficits, such as the United States and the United Kingdom (TADAWUL:4280), have experienced more pronounced increases compared to surplus economies like Germany and Japan. This dynamic suggests that investors are factoring in greater fiscal vulnerabilities and the need for external financing, which could exacerbate the volatility in bond markets.Despite these headwinds, BCA Research maintains a cautiously optimistic outlook for government bonds over the medium term. The brokerage flags the self-limiting nature of higher yields, which tend to dampen growth and inflationary pressures. Elevated borrowing costs are already straining interest rate-sensitive sectors, such as housing and corporate finance, with signs of reduced activity in mortgage markets and rising refinancing challenges for corporate borrowers. These developments align with the broader expectation of slowing economic growth, which is likely to exert downward pressure on yields over time.Regionally, BCA emphasizes the value in certain government bonds, particularly those from economies with higher risk premia and weaker growth prospects. The UK, for example, stands out as an attractive market despite recent yield spikes. Analysts argue that the selloff in UK gilts is fundamentally different from the 2022 mini-budget crisis and reflects broader global dynamics rather than domestic fiscal instability. The elevated risk premium in UK bonds, coupled with the cyclical vulnerability of its economy, provides a compelling risk-reward profile.In the United States, rising inflation uncertainty remains a central theme. The Federal Reserve has signaled heightened concerns about long-term price stability, contributing to the uptick in term premia. However, BCA argues that these uncertainties are unlikely to persist indefinitely, particularly as economic growth moderates and inflationary pressures ease. This backdrop reinforces the case for maintaining an above-benchmark portfolio duration, favoring high-quality government bonds over corporate debt.A rise in global bond yields also impacts the broader economy. Rising yields and the strengthening of the U.S. dollar pose challenges for emerging markets whose debt is denominated in dollars. Additionally, tighter financial conditions could weigh on global trade and investment flows, amplifying downside risks to growth.BCA Research advises a defensive positioning in fixed income portfolios, prioritizing duration management and selective exposure to government bonds. Despite the possibility of further volatility in the near term, the brokerage stresses the long-term value of bonds, particularly as the economic cycle transitions to slower growth and lower inflation. More

However, according to analysts at Barclays (LON:BARC), the scope of DOGE’s influence is likely far more limited than its proponents suggest.Contrary to its title, DOGE is not a formal government department. Its function is advisory, with no legal or executive powers to enforce its recommendations. Without congressional approval or direct legislative support, its capacity is constrained to making suggestions rather than implementing change.DOGE’s potential actions include highlighting areas of federal inefficiency, such as waste, fraud, and abuse, and proposing improvements to government operations. These recommendations could target reducing the federal workforce through measures like voluntary buyouts, early retirements, or temporary hiring freezes. The group may also identify federal assets for sale or relocation as a means to cut costs.However, its actual power to enforce these changes is negligible. For instance, proposals to cut government spending or restructure federal agencies require bipartisan congressional support—a tall order in the current polarized political climate. Even identifying and addressing “waste” is no simple task; past efforts by similar commissions have yielded limited results due to legal, logistical, and political barriers.Congress holds the “power of the purse,” meaning that significant reductions in government spending require legislative approval. Although discretionary spending, particularly in defense and non-defense budgets, could theoretically be trimmed, achieving this would demand a level of bipartisan cooperation that seems unlikely. Mandatory spending, which constitutes the bulk of federal outlays, is even less susceptible to DOGE’s influence. Programs like Social Security and Medicare are politically sensitive and legally protected from unilateral cuts.Similarly, efforts to deregulate or amend government operations are subject to rigid processes established under the Administrative Procedure Act. Regulatory rollbacks would need to navigate a lengthy and often contentious rulemaking or litigation process.Despite claims from Ramaswamy that DOGE aims to slash the federal workforce by 75%, the feasibility of such a move remains doubtful. Most federal employees are protected by civil service laws that prevent arbitrary dismissals. Additionally, nearly 70% of the federal workforce operates in defense or national security roles, areas that are politically and practically challenging to downsize. Past initiatives for large-scale reductions in the federal workforce have proven ineffective or counterproductive, often resulting in increased costs and reduced operational efficiency.DOGE’s most tangible contributions might come from identifying opportunities for operational improvements. Federal agencies spend significant sums on maintaining outdated IT systems, and upgrading these could generate long-term savings. According to the Government Accountability Office, there is potential to save billions through enhanced efficiency measures, though such initiatives would likely require upfront investments and congressional approval.Ultimately, the analysts at Barclays emphasize that DOGE’s influence is symbolic more than functional. It may use its platform to draw attention to inefficiencies and advocate for reforms, but its recommendations will remain non-binding. Achieving substantial change will require navigating a complex web of legal and political hurdles that go well beyond DOGE’s advisory remit. More

Analysts at BofA Securities warn that the tariffs, if implemented, could escalate into a full-blown trade war, with significant economic repercussions for all three countries.The proposed tariffs, expected to be signed into effect on January 20, would target all imports from Canada and Mexico. The U.S. justifies the move as a means of addressing its trade deficits, which are substantial with both neighbors. However, the interconnectedness of these economies complicates matters. Approximately 30% of Canada’s GDP and 40% of Mexico’s GDP are tied to trade with the U.S., underscoring the heavy reliance both nations have on their southern neighbor.BofA analysts flag a critical distinction in the capacity of the Bank of Canada and the Bank of Mexico to mitigate the economic fallout of a trade conflict. Both institutions operate under inflation-targeting frameworks but face differing constraints.The Bank of Canada is positioned to adopt an accommodative stance, potentially cutting interest rates to offset economic stress. With Canada’s inflation rate currently at the 2% target and core inflation measures similarly stable, the Bank of Canada has the flexibility to support the economy by easing monetary policy. Such action would also weaken the Canadian dollar, helping to cushion the blow to Canadian exports.Conversely, Mexico’s central bank faces tighter constraints. Headline inflation in Mexico stands at 4%, well above Bank of Mexico’s 3% target, and core inflation remains stubbornly high. Long-term inflation expectations are unanchored, further limiting Bank of Mexico’s ability to lower rates. BofA analysts project that Bank of Mexico will proceed cautiously, with modest rate cuts already factored into its 2025 forecast.While both nations are likely to retaliate with targeted tariffs, the report suggests that avoiding escalation may be more beneficial in the long run. Mexico, for instance, has already shown a willingness to align with U.S. demands by imposing its own tariffs on Chinese goods to address concerns about being a conduit for Chinese imports. Similarly, both countries have stepped up efforts to tackle U.S. concerns regarding drugs and illegal immigration, key conditions tied to the proposed tariffs.Although BofA Securities considers the imposition of tariffs unlikely, given these mitigating measures, the risks cannot be ignored. For Canada and Mexico, the choice is between measured retaliation and proactive diplomacy to avoid economic disruption. For both nations, prioritizing economic stability while safeguarding long-term trade relationships with the U.S. will remain the ultimate challenge. More

The government will likely revise the target to less than 300 billion rupees ($3.47 billion) from the initial 500 billion rupees, the newspaper said, citing people aware of the deliberations.The government may set the target at about 450 billion rupees to 500 billion rupees for the next fiscal year, as it intends to conclude the IDBI Bank (NS:IDBI) transaction and step up its asset monetisation bid, the report said.The Finance Ministry did not immediately respond to a Reuters’ email seeking comment.The Indian government, which owns 45.48% in IDBI Bank, and state-owned Life Insurance (NS:LIFI) Corp of India which holds 49.24%, together plan to sell 60.7% of the lender. The sale process was first announced in 2022.Prime Minister Narendra Modi’s administration moved from the usual practise of setting a stake sale target in its budget presented last year.Modi’s ambition of privatising state-run firms has taken a back seat due to regulatory hurdles, complex decision-making, political considerations and valuation issues, but his government has delivered more stake sales than any previous administration.The government has raised 86.25 billion rupees from disinvestments so far in this fiscal year.The government will continue to reduce its stakes in some entities via the offer-for-sale route, the report added.($1 = 86.5710 Indian rupees) More

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TORONTO (Reuters) -Four of Canada’s biggest lenders said on Friday they were withdrawing from a global banking sector climate coalition, joining six major U.S. banks.The departures from the Net-Zero Banking Alliance began with Goldman Sachs’ announcement on Dec. 6 and come ahead of Donald Trump’s return to the White House next week. Trump has been critical of efforts by governments to prescribe climate-change policies.The four Canadian banks are TD Bank, Bank of Montreal, National Bank of Canada (OTC:NTIOF) and Canadian Imperial Bank of Commerce (NYSE:CM) ( CIBC (TSX:CM)).The other big U.S. banks that have withdrawn are Wells Fargo (NYSE:WFC), Citi, Bank of America, Morgan Stanley (NYSE:MS) and JPMorgan.The Net-Zero Banking Alliance, a UN-sponsored initiative set up by former Bank of Canada Governor Mark Carney, was launched in 2021 to encourage financial institutions to limit the effects of climate change and push toward achieving net-zero emissions.The Canadian banks said in separate statements that they were equipped to work outside the alliance and develop their climate strategies.”The NZBA was formed at a time when the global industry was scaling up efforts to take action on climate, and served a valuable role in galvanizing these efforts and establishing momentum,” CIBC said in a statement.”As this space has evolved and matured, and having made significant progress alongside our clients in these areas, we are now well-positioned to further this work outside of the formal structure of the NZBA,” it said.Canadian banks have faced mounting pressure to address climate-related risks arising from their funding activities in the past few years. The country’s banking regulator has also introduced guidelines for financial institutions to manage their climate-related risks.Separately, the U.S. Federal Reserve announced it had withdrawn from a global body of central banks and regulators devoted to exploring ways to police climate risk in the financial system. More