Thu. Jan 20th, 2022

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A OECD warning today is the most important assessment so far of the potential economic damage of the Omicron variant of coronavirus, and in particular its ability to stimulate inflation.

Although it has left growth forecasts largely unchanged in its bi-annual economic outlook, the OECD has significantly raised its expectations for inflation in 2022, raising its forecast for G20 countries from 3.9 per cent in September to 4.4 per cent. The biggest increases were in the US and the UK, where forecasts for next year rose in both from 3.1 per cent to 4.4 per cent.

Bar graph of 2022 inflation forecast (%) showing OECD 2022 inflation forecasts for advanced economies revised sharply higher

OECD chief economist Laurence Boone told the FT Omicron was contributing to the already high level of uncertainty and it could be a threat to recovery, which could delay a return to normalcy or something worse.

The review comes on the heels of hawkish remarks by Jay Powell yesterday that suggested that inflation is no longer an “ephemeral” issue, as the US Federal Reserve chief indicated support for a faster “slimming” of the Fed’s bond buying scheme (as well as a move away of the use of “perishable”).

Similar concerns were also voiced yesterday by Bank of England policymaker Catherine Mann, who points out that the BoE has acknowledged that British inflation – which reached 4.2 per cent in October, the highest level in a decade – is above its inflation can stay target of 2 percent for longer than previously expected.

The sentiment is shared across the channel, where new eurozone data showed yesterday that inflation reached 4.9 per cent in November, the highest since the birth of the single currency two decades ago, increasing pressure on the European Central Bank to reduce its monetary stimulus. Data on Monday showed that inflation in Germany reached 6 percent, the highest level since 1992.

Investors, meanwhile, are bracing themselves for a bumpy ride while concerns about the new variant take hold.

Fears of damage to Omicron and Powell’s falconry tone caused shares to fall on Tuesday, but today shares and oil prices rose again as traders bought into stocks that benefit from stricter US policies. One analyst warned that confidence would remain fragile as markets fluctuated between optimism about economic growth and the “humble reminder that the pandemic remains with us”.

Hunters for canaries in coal mines will take note of the sharpest sales in more than a year of US junk effects as traders bet that spreading the variant would make it harder for low-rated companies to pay off their debt.

Check out our new inflation tracker for the latest snapshot of how consumer prices around the world are rising, a summary of forecasts, and where investors think inflation is heading in the medium term.

Latest news

  • Ursula von der Leyen, President of the European Commission, calls for an EU ‘discussion’ on compulsory vaccination

  • Omicron has now hit 24 countries, including South Africa with about 100 cases, UK (22), Botswana (19), the Netherlands (14) and Portugal (13). (Reuters)

  • US companies 534 000 jobs added in November, a slight cooler over the previous month, but still proving that businesses have made progress in filling vacancies

For the latest news updates, visit us live blog

Must know: the economy

Our Big Read looks at the setback of Europe’s populists over coronavirus restrictions, even before the advent of Omicron. As one observer notes of increasing political instability, the pandemic has broken parts of the European liberal consensus without many governments yet fully realizing it.

Scientists have been warning for months about the dangers of leaving large parts of the world unvaccinated, yet the reward for the skill, speed and honesty of South Africa’s scientists in the excavation of the Omicron variant was a paralyzing travel ban for the country’s tourist-dependent economy, writes Africa editor David Pilling. “Strong inequality, both within nations and between them, is good for pathogens,” he notes. “It has been said a million times before in a thousand different ways. It tolerates it repeated. Inequality is bad for your health.” Vaccine inequality is also the subject of today’s Trade Secrets newsletter (for Premium subscribers).

Graph showing that rich countries gave far more boosters in four months than poor countries gave total doses throughout the year - both in absolute and percentage terms - exacerbating large inequalities in vaccine coverage around the world

Latest for UK and Europe

The average British house price beat a new record of £ 252,687 last month, thanks to stronger-than-expected economic growth, low borrowing costs and a mismatch between supply and demand. Prices were 10 percent higher than in November last year and almost 15 percent above pre-pandemic levels of March last year.

£ '000 line graph showing UK house prices rise more than expected in November

British tax authorities less than £ 30m blocked of suspicious claims in the first year of the government’s leave scheme, compared to an estimated £ 5.3bn paid out for fraud and errors, the FT revealed. The job retention program paid out about £ 70 billion in wages to millions of workers by the time it closed in September.

Turkey made an invasion of foreign exchange markets to try to limit the dive into the lyre, despite a previous commitment not to do so and limited foreign exchange reserves. The currency plunged as the country’s central bank repeatedly lowered interest rates, even against a backdrop of inflation that was close to 20 percent.

Worldwide latest

Factory activity in China returned to growth in November after two months of contraction due to the energy crisis, according to new PMI data. Industrial output in South Korea, Asia’s fourth largest economy, has fallen at the fastest pace in a year and a half thanks to supply chain disruption, a problem that also continues Vietnam. The manufacturer of many of the world’s shoes and smartphones faces work cards, closed borders and costs to test and isolate coronavirus workers.

Australia’s economy shrunk a less than expected 1.9 percent in the third quarter after coronavirus restrictions were eased, raising hopes of a return to pre-restriction levels in the last three months of the year. Unlike much of the world economy, the country was less affected by inflationary pressures as wage growth remained weak and the country did not face high energy costs.

Must know: business

Pfizer now dominates the market for Covid vaccines, but does it give the US company too much power? Our Big Read maps the inside story of “a once-in-a-lifetime windfall ‘. Competitive pharmaceutical company GSK stripped one of Pfizer’s key vaccine drivers as it turns to mRNA technology.

The global chip crisis gives rise to a new semiconductor nationalism across Asia, says Mercedes Ruehl in our Trade Secrets newsletter. Countries in the region, along with the US and the EU, have until recently criticized China’s strong state-subsidized effort to house chip production. “The big change that the pandemic brought about,” she notes, “is that they are now starting to copy it.”

The tendency to retail automation which was turbo-charged during the pandemic continues. On Monday, supermarket chain J Sainsbury became the latest to launch a checkout free shop in central London and the first in Europe to license Amazon’s “just walk out” technology for its own use. Amazon opened its own toll-free store on the same street days earlier and Tesco has one nearby.

The travel industry still get convulsions due to the rise of the Omicron variant. US officials consider giving all incoming visitors a negative Covid test one day before their trip, rather than the current three-day rule, while the Japanese government has asked international airlines to stop taking bookings for incoming flights.

Budget airline easyJet warned against “mitigating demand” while Emirates boss Tim Clark said the variant could lead to “significant trauma” for airlines, one of the sharpest warnings to date about its potential impact.

The World of Work

Being interviewed by prospective employers via laptop webcams became an established practice during the pandemic, but the rise of “asynchronous” video interviewing makes the process even more miserable, writes columnist Sarah O’Connor. Companies use the automated method to turn applicants off to a smaller pool that they can meet in person, but it can make young job seekers feel confused, dehumanized and exhausted, she says.

Do bossless offices make workers happier and more efficient or do they give toxic colleagues the chance to act even worse? The latest issue of our Working It podcast approach flat hierarchies.

From young professionals rejecting a world of high stress, to accelerated changes in work practices, columnist Emma Jacobs reviews a clutch of new books on the future of work.

Covid cases and vaccinations

Total global cases: 262.8m

Get the latest global picture with us vaccine tracker

And finally …

Sick of the city? Browse our new Back to nature collection for inspiration on everything from chicken keeping to understanding the language of trees.

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