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Two heavyweight reports on prospects for the world economy make grim reading, highlighting the devastating effect of the war in Ukraine on top of the damage wrought by the pandemic.
The OECD, in its twice-yearly World Economic Outlook today, warned of the “hefty price” of taking a stance against Russia’s invasion, forecasting lower growth and high inflation, with poorer countries hit particularly hard.
The club of rich nations cut its global growth forecast for this year to 3 per cent, down from 4.5 per cent in December, even lower than the IMF’s recent estimate of 3.6 per cent. For 2023, growth would be still lower at 2.8 per cent. The OECD expects inflation to average 8.5 per cent across the bloc in 2022 and 6 per cent in 2023, with energy price rises spreading out into other areas.
The OECD singled out the UK, which it said would experience the weakest growth in the G20 outside Russia next year, hit by a unique combination of high inflation, rising interest rates, increasing taxes and “probably a bit of Brexit”. The forecast was 3.6 per cent for this year and zero for 2023 as the economy stagnated “due to depressed demand”.
The organisation warned against letting poor countries shoulder the burden of the war, particularly the threat to food supplies, a danger also highlighted today by Turkey’s foreign minister. Commodities correspondent Emiko Terazono says the west must move fast to tackle the crisis as grain importers teeter on the edge of catastrophe, while Russian president Vladimir Putin tries to throw the blame on to western sanctions. Today the Kremlin rejected claims that war was fuelling the situation.
The OECD report follows yesterday’s Global Economic Prospects update from the World Bank, which highlighted the damage from the war to developing countries and the prospects of a debt crisis, with 75mn more people pushed into extreme poverty than expected in 2019. It likened global conditions to those of the 1970s, when inflation led to steep interest rate rises and a global recession.
Warning signs are already visible in global finance with emerging markets hit by the worst sell off in decades as investors rush to safety.
The war in Ukraine meant stark choices for the west, said OECD chief economist Laurence Boone. “There is a price [of Russia’s invasion] and the questions for policymakers are, how high is the price, and how should it be shared. If you don’t share it well, the price will be higher.”
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Need to know: the economy
The war in Ukraine means the EU may have to revise its seven-year budget sooner than planned, reports our Europe Express newsletter. Frankfurt bureau chief Martin Arnold previews tomorrow’s policy meeting of the European Central Bank as it prepares to end eight years of bond-buying and negative interest rates, while economics editor Chris Giles warns of a miserable few months ahead.
Latest for the UK and Europe
Industry data showed UK retail sales fell 1.1 per cent in May, the biggest drop since January last year, as consumers tightened their belts and reconsidered major purchases such as furniture and electronics. The trend was also highlighted in separate data from payments company Barclaycard.
So much for the UK government’s “levelling up” agenda. Official data show London still outperforms the rest of the country in economic growth. Northern Ireland, which is still in the EU single market for goods, is the only other region back above pre-pandemic levels. However, UK ministers are still threatening to rip up the protocol which guarantees the province’s special status, a move that could also see the UK booted out of the EU Horizon research programme.
The International Energy Agency warned that Europe, especially industrial gas users, could experience energy rationing from the combination of a cold winter and resurgent demand in China.
The Turkish lira continued to slide after President Recep Tayyip Erdoğan reiterated his intention to keep cutting interest rates despite surging inflation, which hit 73.5 per cent last month.
In another example of the gathering gloom for the world economy, Bridgewater, the world’s biggest hedge fund, is betting on a sell-off in US and European corporate bonds this year. Greg Jensen, its co-chief investment officer, also warned that the biggest risk facing the US economy was that the Federal Reserve was effectively out of ammo.
US Treasury secretary Janet Yellen urged Congress to do more to ease the burden of inflation and build on proposals such as reducing prescription drug prices and improving access to affordable housing.
Bank of Japan governor Haruhiko Kuroda apologised today for his claim that consumers had become “tolerant” of price rises, the same day that the yen hit a 20-year low against the dollar, driving up prices of crucial imported goods. The soaring cost of living is likely to be a key factor in elections to the country’s upper house in July.
Australia has increased interest rates by 50 basis points, the biggest jump since February 2000, to curb the surge in inflation. Up to now, price increases have been lower than in many other countries, but jumps in food and fuel costs have started to dent consumer confidence.
Social media companies in Brazil, which is gearing up for a potentially turbulent general election in October, are cracking down on fake news, said to be a key factor in the 2018 election of Jair Bolsonaro. The far-right president will meet US president Joe Biden this week at the Summit of the Americas.
Need to know: business
Swiss bank Credit Suisse issued its third profit warning since January, highlighting damage to its investment banking division by market volatility due to the war in Ukraine.
Spanish group Inditex reported an 80 per cent jump in profits for the first quarter of €760mn as sales at the world’s biggest clothing retailer passed pre-pandemic levels.
In the US, changing consumer behaviour was blamed for a second profit warning at Target in less than a month. Like its rival Walmart, the retailer has found it difficult to pass on higher prices to consumers and has been hit by increased freight, fuel and labour costs. Part of the problem, says the Lex column, is that poor inventory management means the company is stuck with piles of goods it cannot sell, but this could mean good news for off-price discount chains such as TJX.
After more than a decade of discussions, the EU agreed a new law on a single standard charger — USB-C — for smartphones, laptop computers and accessories, which it says will save consumers €250mn. The move is a blow for Apple which uses proprietary Lightning connectors.
Fintech companies in the insurance sector are among the biggest casualties in the recent sell-off of tech stocks, as investors ditch high-growth businesses for those that generate reliable prospects. The self-styled disrupters now have to persuade a much more sceptical market that their business models are worth sticking with.
UK online car seller Cazoo cut hundreds of jobs, blaming rising inflation and interest rates for a slowdown in investment. Such consumer-facing companies are likely to be badly affected by a recession which could follow the cost of living crisis.
Small trades are sparking big price swings in the world’s biggest capital markets with liquidity at its worst level since the early days of the pandemic. The fraught conditions have coincided with the shift in the global economy towards slowing growth, rising interest rates and surging inflation, catching many portfolio managers off-guard.
Apple entered the buy now, pay later market with a new scheme that allows consumers to pay for purchases in four instalments over six weeks without incurring interest. FT deputy editor Patrick Jenkins warned that the sector was getting out of control: “BNPL operators are money lenders, pure and simple. It is time to regulate this industry properly before it blows up in all our faces,” he wrote.
FT reporters look at the future for the energy industry in Russia, home to a quarter of the world’s gas reserves and more than 5 per cent of its crude oil. Gas and oil continue to flow but long-term decline looks likely as foreign partners pull out and export destinations shrink.
Business papers rarely report on porn even though it owns a big corner of the internet. The FT decided to change that: our new podcast series Hot Money looks at the decision makers and dealmakers behind the industry. What we found will surprise you.
The World of Work
Politicians in Brussels have agreed a deal to ensure workers across the EU are protected by adequate minimum wages and the promotion of collective bargaining. “This is a good day for social Europe,” said Nicolas Schmit, European commissioner for jobs and social rights, adding that it was “especially important at a time when many households are worried about making ends meet”.
In spite of — or perhaps because of — new technology, people now say they are working harder to tighter deadlines under greater levels of tension, writes columnist Sarah O’Connor. This intensification of work could be one reason why the campaign for a four-day working week is gaining traction, she argues.
Hybrid working means the emotional bridge provided by the best middle managers is becoming more important then ever, says Michael Skapinker. As long as they avoid “kissing up and kicking down” the oft-derided group is crucial to a company’s success, he maintains.
Middle managers are also crucial in overseeing employee wellbeing. Our latest Working It podcast discusses whether hybrid working is making it harder to take time off sick and whether the growing acknowledgment of mental health problems means we ought to change the way we think about the need for time off for rest and recovery.
Covid cases and vaccinations
Total global cases: 527.8mn
Total doses given: 11.9bn
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FT editor Roula Khalaf interviewed Ukrainian president Volodymyr Zelenskyy about his aims in the fight against Russia and what a peace deal might look like. Watch the video.
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