Category Archives: Global economy

Sri Lanka is the first domino to fall in the face of a global debt crisis

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The south Asian country is the first to buckle under economic pressures compounded by Russia’s war on Ukraine, but it won’t be the last

The departure of Sri Lanka’s prime minister, Mahinda Rajapaksa, follows weeks of protest and a deepening crisis. There is no bankruptcy system for states but if there was then the south Asian country – down to its last $50m (£40m) of reserves – would be first in line to use it.

A team from the International Monetary Fund (IMF) this week started work with officials in Colombo over a bailout that will include a tough package of reforms as well as financial support. But as the IMF and its sister organisation, the World Bank, know full well, this is about more than the mismanagement of an individual country. They fear Sri Lanka is the canary in the coalmine.

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Russia’s war in Ukraine ‘causing £3.6bn of building damage a week’

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Kyiv School of Economics estimates cost of conflict could rise to $600bn, almost four times the nation’s GDP

Russia’s invasion of Ukraine is inflicting damage to the country’s infrastructure at a cost of $4.5bn (£3.6bn) a week as bombs tear through thousands of buildings and public utilities, and miles of road.

According to estimates compiled by the Kyiv School of Economics (KSE), and supported by the Ukrainian government, the total amount of direct infrastructure damage has reached $92bn since Vladimir Putin ordered the invasion in February.

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EU comes to the crunch over Russia’s demands to pay roubles for gas

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Brussels commissioner says energy ministers accept bowing to Moscow’s demands would breach sanctions, as payment date looms

Europe is facing a crunch point in mid-May when EU member states will have to reject Moscow’s demands for fuel payments to be made in roubles – despite being without alternative gas supply, Brussels has warned.

Kadri Simson, the European commissioner for energy, said on Monday that the Kremlin’s demands had to be rebuffed despite the risks of an interruption to supply at a time that the shortfall cannot be made good.

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India and UK to press ahead with talks on free trade deal

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Narendra Modi hails ‘good progress’ as Boris Johnson signals he is willing to make concessions on immigration

India and the UK will press ahead with talks on a bilateral free trade agreement, Boris Johnson and the Indian premier, Narendra Modi, have said, after the UK made clear it was willing to make immigration part of any deal.

The pair appeared to differ on how rapidly an agreement could be made – Johnson suggested it could be ready by the festival of Diwali in late October, but Modi pointed to the end of the year.

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Russia ‘preparing legal action’ to unfreeze $600bn foreign currency reserves

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Elvira Nabiullina says lawsuits aim to release gold and foreign currency frozen amid Ukraine invasion sanctions

Russia is preparing to take legal action to challenge the freeze on its $600bn (£462bn) foreign currency war chest put in place by western governments after the invasion of Ukraine, the head of the country’s central bank has said.

Elvira Nabiullina said plans were being made to launch lawsuits after governments including the US, UK and EU froze the Russian central bank’s foreign currency reserves held within their jurisdictions.

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Ukraine war to slow growth and drive up poverty in Asia, World Bank warns

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Conflict adds strain to developing economies in east Asia and Pacific already struggling with Covid and inflation

Russia’s invasion of Ukraine has further dampened the economic prospects for developing countries in east Asia and the Pacific, meaning lower economic growth and higher poverty in the region this year, the World Bank has warned.

The Ukraine factor came on top of the existing risks that the region – home to 2.1 billion people and stretching from China to Papua New Guinea – has been facing in recent years. They included the ongoing Covid-19 pandemic, the financial tightening in the US, and the pandemic resurgence amid China’s zero-Covid policies.

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War in Ukraine could lead to food riots in poor countries, warns WTO boss

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Exclusive: Ngozi Okonjo-Iweala says impact of conflict on food prices and hunger could be substantial

Rocketing global food prices as a result of the war in Ukraine could trigger riots from those going hungry in poor countries, the head of the World Trade Organization has said.

Ngozi Okonjo-Iweala warned food-producing countries against hoarding supplies and said it was vital to avoid a repeat of the Covid pandemic, when rich countries were able to secure for themselves the bulk of vaccines.

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Lloyd’s moves to cancel insurance cover of Russian firms hit by sanctions

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Action comes as Lloyd’s of London returns to profit but warns Ukraine war will present ‘major claim’

• Russia-Ukraine war: latest updates

Lloyd’s of London has said it is working with the UK government to implement sanctions imposed over the war in Ukraine as fast as possible, including cancelling Russian firms’ insurance cover.

Announcing a swing back to an annual profit as it recovers from the pandemic, the world’s biggest insurance market warned that the war will present a “major claim” for the insurance market this year, but said it was “manageable”.

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Britain and US agree on steel tariffs as hopes of broader trade deal recede

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Pact ends months of tensions but talks on full free-trade agreement remain far off

The UK has struck a deal with the US to remove tariffs on British steel exports, although trade experts warned a broader trade deal between the two countries remains far off.

The agreement was struck after UK’s international trade minister, Anne-Marie Trevelyan, met her counterpart, the US commerce secretary, Gina Raimondo, on Tuesday evening in Washington.

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Car-free Sundays? IEA sets out 10-point plan to reduce global oil demand

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Energy watchdog says measures could help cut oil usage by 2.7m barrels a day within four months

Driving more slowly, turning down the air-conditioning, car free Sundays and working from home should be adopted as emergency measures to reduce the global demand for oil, according to a 10-point plan from the International Energy Agency (IEA).

Such measures and changes to consumer behaviour would allow the world to cut its oil usage by 2.7m barrels per day (bpd) within four months – equivalent to more than half of Russia’s exports – the global energy watchdog said.

Reduce speed limits on highways by at least 10 km/h
Saves about 290,000 bpd of oil use from cars, and an additional 140,000 bpd if trucks also reduced their speed.

“A reduction in speed limits can be implemented by national governments; many countries did so during the 1973 oil crisis, including the United States and several European countries,” the IEA said.

Work from home up to three days a week where possible
One day a week saves about 170,000 bpd; three days saves about 500,000.

Pre-pandemic, the use of private vehicles to commute was responsible for about 2.7m barrels of oil use a day, the IEA said, yet about one-third of those jobs could be done from home.

Car-free Sundays in cities
Every Sunday saves about 380,000 bpd; one Sunday a month saves 95,000.

Switzerland, the Netherlands and West Germany did this during the 1973 oil crisis and some cities have used the measure to promote public health more recently. Benefits include cleaner air, reduced noise pollution and improved road safety, the IEA report said.

Make public transport cheaper and incentivise walking and cycling
Saves about 330,000 bpd.

New Zealand is halving public transport fares for the next three months in response to high fuel prices, while studies in the US have shown cheaper fares lead to greater use. Some governments have incentivised people to walk or subsidised bike purchases. All of this would require government subsidy.

Alternate private car access to roads in large cities (eg every other day)
Saves about 210,000 bpd.

For example, cars whose number plate ends with an odd number can drive on Monday and those with an even number can drive on Tuesdays. Such schemes have been deployed to tackle congestion and air pollution peaks in Athens, Madrid, Paris, Milan and Mexico City. Exceptions could be made for electric vehicles. One downside is that households with multiple cars could game the rules.

Increase car sharing and adopt practices to reduce fuel use
Saves about 470,000 bpd.

Carpooling has long been used as a way to save money and reduce emissions. Governments can incentivise this with dedicated traffic lanes and parking spaces, or by reducing road tolls on higher occupancy vehicles. Many smartphone apps exist to arrange ride-shares.

Promote efficient driving for freight trucks and delivery of goods
Saves about 320,000 bpd.

As with private cars, freight trucks can be driven more efficiently, including the use of so-called “eco-driving” techniques such as reducing excess weight and not slowing down or speeding up abruptly. Loads should also be optimised to avoid journeys with empty vehicles.

Using high-speed and night trains instead of planes
Saves about 40,000 bpd.

Based on existing high-speed rail infrastructure, about 2% of flights in advanced economies could be shifted to trains, according to the IEA. Almost all of this involves flights of less than 800km.

Avoid business air travel where alternative options exist
Saves about 260,000 bpd.

The IEA recommends virtual meetings where possible and points out that firms such as HSBC, Zurich Insurance and S&P Global plan to cut their business travel emissions by as much as 70%.

Reinforce the adoption of electric and more efficient vehicles
Saves about 100,000 bpd.

By the end of last year, 8.4m electrical vehicles (EVs) were on the road in advanced economies but the IEA urged faster adoption. “Actions taken now to hasten the adoption of electric vehicles will have a sustained effect in the future,” it said.

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Oil prices soar 10% and stocks plunge as US and Europe consider ban on Russian crude

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Brent crude jumped $20 to $139.13 at start of trading on Monday, with analysts predicting further increases

Oil prices have soared more than 10% and are closing in on their all-time high levels after the risk of a US and European ban on Russian crude threatened a stagflationary shock for world markets.

The global benchmark of Brent crude hit US$139.13 a barrel at the start of trading on Monday, a leap of more than $20 on Friday’s close of $118.03.

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Ukraine war a ‘catastrophe’ for global economy as stock markets plunge

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Moscow stock exchange remained closed during the week, while the rouble fell to record lows

The London stock market has suffered its biggest weekly losses since the start of the global pandemic in March 2020, as investors took fright at the escalation of the conflict in Ukraine.

Shares plunged in the City following news of a fire and Russian capture of Ukraine’s Zaporizhzhia nuclear power station, with the one-day drop of more than 250 points in the FTSE 100 index taking the weekly loss to 6.7%.

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Sanctions are neither new nor guaranteed to work – just look at Cuba

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Analysis: Economic penalties have been meted out since Napoleon’s day but there’s little proof they achieve the desired outcome

Waging war by economic means is nothing new. Napoleon imposed an ineffective embargo on British exports in the early 19th century and during the first world war there were attempts by both sides to starve each other into submission.

But since 1945 sanctions have been used with increasing frequency as a means of trying to change either the policy stance or the regimes in targeted countries.

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UK and New Zealand sign free trade deal

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Government claims it will boost bilateral trade by 60% but critics call its benefits ‘economically marginal’

Britain and New Zealand have signed a free trade deal, which the UK government said would boost bilateral trade by 60% by eliminating tariffs, cutting red tape and enabling freer movement of professional workers.

Most business leaders welcomed the deal, which was agreed in principle in October and follows on the heels of a similar agreement with Australia, but the National Farmers’ Union (NFU) said it would lead to unfair competition in their sector.

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What sanctions have been imposed on Russia over Ukraine invasion?

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We look at different economic measures deployed around world to counter aggression from Putin

Countries around the world have imposed an unprecedented array of economic and other sanctions on Russia after Vladimir Putin’s invasion of Ukraine, targeting its finance, energy and military-industrial sectors as well as individuals and sporting events.

Here are some of the measures adopted by the US, EU and UK, with countries including Japan, Taiwan, Australia and New Zealand all taking similar steps:

The EU, US, UK and Canada have agreed to prevent the Russian central bank from deploying its €640bn (£540bn) of international reserves “in ways that undermine the impact of our sanctions”.

The EU has banned all transactions with the institution. The US has done the same, and added the Russian finance ministry and national wealth fund. The Russian state has, in effect, been banned from raising sovereign debt; shares of Russian state-owned entities may no longer be listed on EU stock exchanges.

A range of Russian banks – their names have not yet been announced – are also being cut out of the Swift international payments system by the EU, US, UK and Canada. Brussels has said this will “stop them from operating worldwide, and effectively block Russian exports and imports”.

The US has placed Russia’s top 10 financial institutions, representing about 80% of the country’s banking sector, under restrictions, including cutting off the biggest – Sberbank, which accounts for about 30% of Russian banking – and its subsidiaries from conducting transactions through the US system.

The assets of many other Russian banks, including VTB, the country’s second largest, Bank Rossiya and Promsvyazbank, have also been hit with strict asset freezes and/or new business restrictions in the EU, UK, US and elsewhere.

The foreign assets of the Russian president, his foreign minister, Sergei Lavrov, and the defence minister, Sergei Shoigu, have been frozen in the EU, US and UK, as have those of the FSB security head, Alexander Bortnikov, the armed forces chief, Valery Gerasimov, and members of the Kremlin’s security council. The EU has imposed sanctions on all 351 members of Russia’s parliament, the Duma; the US and UK are punishing selected members as are Australia, Japan and New Zealand.

More than a dozen billionaire oligarchs with ties to Putin’s regime, including Andrey Patrushev (oil company Rosneft), Petr Fradkov (Promsvyazbank), Yury Slyusar (United Aircraft), Boris Rotenberg (gas pipeline company SMP), Denis Bortnikov (VTB bank) and Kirill Shamalov, ex-husband of Putin’s daughter Katarina, are on asset freeze and travel ban lists around the world. The US is also sanctioning top state-owned bank executives from VTB and Sberbank. Canada and Australia have also imposed sanctions on multiple oligarchs.

The UK has imposed a £50,000 limit on bank accounts held by Russian nationals in the UK), and the EU a limit of €100,000 in EU banks.

Russian airlines and private jets have been progressively banned from UK and EU airspace and the US is considering similar action but has yet to make a final decision. Aeroflot has said it will cancel all flights to European destinations; multiple European airlines have said they are halting routes to Russia.

The US has in effect banned the Russian energy company Gazprom, the oil pipeline company Transneft, and the power company RusHydro, as well as the country’s biggest freight, rail and telecoms companies, from its credit markets.

The EU has introduced a ban on exports of aircraft and aviation parts to Russia, as well as exports of hi-tech goods including semiconductors, computers, telecoms and information security equipment and sensors. UK and EU-based companies are also banned from exporting to a wide range of Russian defence, naval, transport and communications companies, including the infamous Internet Research Agency troll farm in St Petersburg.

The Uefa Champions League final has been removed from St Petersburg to Paris.

Fifa and Uefa have suspended Russian clubs and national teams from all competitions.

The Formula One grand prix and all World Cup skiing events in Russia have been cancelled.

Russia has been banned from taking part in the Eurovision song contest.

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Moscow braces for rouble to crash at least 25% as new sanctions hit

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Russian currency expected to plunge in first day’s trading since Swift ban and ECB says state-owned Sberbank subsidiaries are set to collapse

Moscow is bracing for economic panic when markets open on Monday morning, with the value of the rouble expected to plummet at least 25% after the US and European Union announced unprecedented sanctions over the weekend.

Those measures targeted the Russian central bank, which has intervened to prop up the value of the rouble following Vladimir Putin’s order to invade Ukraine. They also marked the first time Russian banks have been excluded from the Swift international payments system.

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Russian central bank buys up roubles to avert stock market collapse

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Bank scrambles to prevent invasion of Ukraine sending Russia’s financial system into meltdown as currency hits all-time low

The Russian central bank has purchased millions of roubles to prevent the collapse of the Moscow stock exchange and prop up the currency after it plunged to an all-time low of 89.60 against the dollar.

In a scramble to prevent the invasion of Ukraine pushing Russia’s financial system into meltdown, officials in Moscow closed the stock exchange while the Bank of Russia mounted a rescue operation to put a floor under the skidding rouble.

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Energy prices surge as Russian invasion of Ukraine stokes fears of global shortages

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European stock markets tumble as crisis fuels near-40% rise in gas price and pushes oil to $105 per barrel

Global markets were thrown into turmoil on Thursday as the arrival of war on European soil sent prices of commodities such as oil, gas and wheat surging, while stock market plunged.

The ramifications of a potentially prolonged conflict involving Europe’s primary supplier of gas sent a chill through markets, affecting prices across a phalanx of asset classes and investments.

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Why a swift economic victory against Russia looks unlikely

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Analysis: country has positioned itself to blunt western sanctions and has a few retaliatory ones of its own

Be ready for a long haul. That was the subtext of Boris Johnson’s message to MPs as he committed to toughening up sanctions against Russia.

The warning to prepare for a “protracted struggle” was both timely and appropriate. There will be no quick knockout blow because Vladimir Putin has had time to prepare and is well dug-in.

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Europe could see out winter on gas reserves if Russian imports stop, says German analysis

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Economic institute says current levels of gas enough for six weeks if mild temperatures continue

Europe could heat its citizens’ homes and power its industry on existing gas reserves for the remaining months of a relatively mild winter even if the standoff with Moscow over Ukraine were to escalate to a total stop on Russian gas imports, a leading German economic institute has said.

Unusually low gas reserves have raised alarm among several European governments in recent months, with storage tanks across the continent on average at only 31% capacity at the start of this week – roughly half as full as in 2020.

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