Policymakers grapple with best way forward as momentum slows


Good evening from London,

The global recovery from the pandemic takes centre stage today as the set piece annual meetings of the IMF and World Bank get under way in Washington DC.

As economics editor Chris Giles details, exclusive research for the FT from the Brookings Institution shows growth is “in danger of stalling” thanks to supply chain problems, rising energy prices and growing inflationary pressures — and Covid-19 is still not yet beaten.

Momentum has slowed in the US and China, the world’s two biggest economies, while in poorer countries the signs of long-term scars are appearing, especially in nations where governments and central banks have limited room for manoeuvre to boost demand.

Global growth momentum has stalled after a strong initial rebound from the Covid-19 recession

In the US, the most recent signal was last Friday’s jobs report showing far fewer jobs were created last month than expected. In China, where the government is still firefighting infections from the Delta variant of coronavirus, financial volatility is a real concern, especially in the real estate sector — exemplified by the crisis around developer Evergrande. In Europe, growth in the eurozone and the UK, which enjoyed an early bounce from a rapid vaccine rollout, appears to have slowed sharply over the summer.

The energy crisis meanwhile shows no sign of abating. As today’s Big Read explains, rocketing gas prices — driven by factors such as supply shortages and a reliance on volatile imports (see latest news below) — mean European consumers are paying at least five times more to heat their homes than they did a year ago. The situation could also spark a backlash against the EU’s green energy plans, if consumers start to think the costs of transition are too high.

Eswar Prasad, senior fellow at Brookings, said the task of supporting growth while keeping inflation under control and dealing with supply disruptions meant “difficult trade-offs” for policymakers. The meetings this week in DC could reveal just how difficult those trade-offs might be.

The IMF publishes its World Economic Outlook and Global Financial Stability reports tomorrow. What do you think the priorities for global policymakers should be? Comment below or email us at [email protected].

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Need to know: the economy

As the energy crisis intensifies, UK ministers have held talks with manufacturers concerned by soaring costs, especially those in steel, chemicals and ceramics, while tensions mount within the government about what it should do to support stricken industries. In more positive news, one of the side-effects of the crisis, the severe carbon dioxide shortage, has been fixed — at least until January next year.

Russia’s ambassador to the EU has told the FT that he expected Gazprom, the state-controlled exporter that supplies more than a third of Europe’s gas, to follow president Vladimir Putin’s instructions to adjust its output. Europe’s choice to treat his country as a geopolitical “adversary” had made the situation more difficult, he said. On Wednesday, the European Commission will publish its “toolbox” of measures to protect consumers from record gas prices, including cutting VAT and levies on electricity bills and targeted help for the most vulnerable.

In China, electricity outages at factories have been blamed on policy confusion as well as a shortage of coal.

Latest for the UK and Europe

Renewed warnings of inflation from Bank of England governor Andrew Bailey and fellow policymaker Michael Saunders triggered a UK government bond sell-off. Markets are now expecting a 0.25 per cent interest rate rise by December, with a further increase to 0.5 per cent by March next year.

UK education and business leaders have urged ministers to expand the temporary visa scheme for foreign workers to deal with supply chain problems that have led to fuel shortages, gaps on supermarket shelves and put the economic recovery at risk.

Recovery in Italy, the first European country affected by the pandemic, is proceeding much more quickly than expected after a successful vaccination programme and strong investment and export performance. Prime minister Mario Draghi expects the country to grow 6 per cent this year, in line with OECD and other forecasts and much stronger than the 4.5 per cent expected in April.

Bar chart of GDP growth forecast for 2021, difference with April's forecasts, % points showing Italy's economic outlook is improving

Global latest

US Treasury secretary Janet Yellen said she was confident that Congress would approve the key provisions of the new OECD-brokered deal on global corporate taxation, which aims to wipe out tax havens and bring in $150bn more a year from multinationals.

The saga over domestic production of face masks versus cheap imports offers important lessons on the complicated trade relationship between the US and China, argues columnist Rana Foroohar. “The fact that so much supply is controlled by a strategic adversary that doesn’t play by WTO rules makes it especially complicated to transition from an economy based on rewarding consumers in the form of lower prices to one that is trying to grow incomes and create more resilience in crucial industries,” she writes.

North Korean leader Kim Jong Un has admitted his country, which was already experiencing severe difficulties from foreign sanctions and a poor harvest after floods and heatwaves, was now facing a food crisis. Pyongyang has not admitted to any cases of coronavirus but the World Health Organization has confirmed it was shipping “essential Covid-19 supplies” to North Korea from Dalian, a Chinese port.

Need to know: business

US retailers are scrambling to procure goods well before Black Friday in late November, the traditional start of the US Christmas shopping season, causing a run on warehouse space. According to one retail consultant, this year could redefine Americans’ understanding of the holiday calendar: “Black Friday doesn’t exist; the holiday season doesn’t exist, not as it used to. It’s essentially October 1 to January 15.”

Line chart of retail imports (millions of twenty-foot equivalent units) showing stores are bringing record amounts into the US this year

Another sign of the times is the boom in luxury car sales in India, as the country’s rich bounce back from the pandemic. The trend, according to one executive, highlights the rise of a more self-confident business elite willing to indulge in luxury brands: “The younger generation is less hesitant to spend. India was following the socialist model of development [before]. Conspicuous consumption was looked down upon. We’ve largely moved away from this mindset.”

Now that the global economy is on the — albeit bumpy — road to recovery, how should investors react? Watch asset management reporter Joshua Oliver’s discussion with a panel of experts at an event hosted by FT Live.

The World of Work

Warnings that mandatory vaccination could worsen labour shortages in the US have been proven wrong, with the vast majority of workers in healthcare, education and private companies now happy to be jabbed. One executive at a NY law firm said: “I’m pretty confident that the costs to employers won’t be that high in the end, that many people are changing their minds and will respond to incentives, whether that be carrots or sticks.”

However, it is impossible to return to old ways of working once employees have been given more freedom, according to Arup, the design and engineering company that is allowing its UK employees to spread core work hours over seven days, rather than just between Monday and Friday. Emma Jacobs investigates whether flexible working can mean more than just tinkering with office hours.

Get the latest worldwide picture with our vaccine tracker

And finally…

“As one of the 2.76bn people who use at least one Facebook product every day, the only thing I really lost during the power outage on Facebook, Instagram and WhatsApp, was the opportunity to show off,” says How to Spend It editor Jo Ellison. Could last week’s blackout make us reassess our reliance on social media?

Logos of Facebook, Instagram and WhatsApp
© Lionel Bonaventure/AFP/Getty

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