Markets brace for sharpest rise in US interest rates in almost 30 years

Federal Reserve expected to increase cost of borrowing by 0.75 percentage points to curb rising inflation

The world’s financial markets are bracing themselves for the sharpest rise in US interest rates in almost 30 years, as America’s central bank takes action to halt rising inflation.

After days of frenzied investor speculation and signs of growing central bank anxiety, the Federal Reserve is expected to increase the official cost of borrowing by 0.75 percentage points for the first time since 1994.

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Global supply chain crisis fuels push to local manufacturing as China’s appeal dims

Analysis: US to examine with fresh urgency easing reliance on China as pandemic disruptions expose global economic vulnerabilities

Everyone has a story to tell about the supply chain problems that have affected the global economy, from the beginning of the pandemic through to the disruption caused by the war in Ukraine. From shortages of Ikea furniture and Christmas turkeys, to the dearth of computer chips that sent the cost of secondhand cars soaring, the dislocation of a once smooth-running system has caused havoc in the global economy.

But while predictions about the easing of bottlenecks have come and gone without any improvement, it has become clear the disruptions of the past two years or more are spurring fundamental changes to the world economy that could have yet more profound impacts on our lives.

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‘Same nightmare week after week’: UK firms fed up with post-Brexit EU trade

Exporters fear Northern Ireland protocol row will spur trade war with Brussels, making an already difficult job even harder

Mark Brearley is still frustrated by Brexit. More than a year from Britain’s formal withdrawal from the EU, on terms agreed by Boris Johnson’s government, exporting the goods his company produces hasn’t got any easier for the London-based manufacturer.

Describing it as “the same nightmare week after week”, he says: “A lot more time is spent with things going wrong. The EU really feels like the hardest place in the world to ship things to sometimes.”

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China funnels its overseas aid money into political leaders’ home provinces

Schools, stadiums or airports help the presidents of countries that receive cash from Beijing tighten their grip on power

China’s financing of overseas projects has disproportionately benefited the core political supporters of incumbent presidents or prime ministers of those countries that receive the funds, according to a new book.

During the 20th century, China was mostly known as a recipient of international development finance. Its overseas development programme was modest – roughly on a par with that of Denmark. But over the course of one generation, as Beijing emerged as the world’s second-largest economy, its footprint began to extend far beyond its borders – often in the form of infrastructure initiatives such as Belt and Road.

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Ukraine war weighs heavy as apocalyptic mood shrouds Davos

From a warning of third world war to global stagflation or depression, gathering is unsurprisingly sombre

The impact of Russia’s invasion of Ukraine dominated a delayed and slimmed-down World Economic Forum this year but it took George Soros to articulate what many of those making the trip to the Swiss Alps had been thinking.

Davos would not be Davos without a broadside from the 91-year-old philanthropist and former speculator, but the conflict in eastern Europe prompted his most apocalyptic warning yet.

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Sri Lanka defaults on debts for first time

Economists fear Sri Lanka could be first of several, with IMF in talks with Egypt, Tunisia and Pakistan

Sri Lanka has defaulted on its debts for the first time in its history as it struggles with an economic and political crisis triggered by global shock waves from the pandemic and the war in Ukraine.

An inflation rate spiralling towards 40%, shortages of food, fuel and medicines and rolling power blackouts have led to nationwide protests and a plunging currency, with the government short of the foreign currency reserves it needed to pay for imports.

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Ukraine farming group calls for urgent end to ports blockade

Group warns of ‘cascade of export bans’ amid failure to ease grain bottlenecks fuelling shortages and inflation, MHP said

One of Ukraine’s largest farming groups has called for an urgent solution to unblock the country’s Black Sea ports as exports of grain, sunflower and rapeseed are being held up by the Russian naval blockade, driving inflation and shortages around the world.

G7 ministers have held urgent talks about trying to open routes through Romanian and Baltic ports, potentially fed with an army of 10,000 trucks making a five-day trip from Ukraine.

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

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’

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

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

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

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

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

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

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

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

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

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

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

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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