4 October 2023
Developing countries face debt crisis
Several developing countries are facing a severe debt crisis due to a combination of factors, including high interest rates, investor risk aversion and a significant increase in their indebtedness in recent years. These concerns will be discussed at the annual meetings of the International Monetary Fund (IMF) and the World Bank in Marrakech, Morocco, next week. Here is a summary of some of the countries affected:
- Egypt: North Africa’s largest economy is in a critical situation with the need to repay around $100 billion in hard currency debt over the next five years. Currently, more than 40 per cent of the country’s revenues go to interest payments, and financing needs for 2023/2024 amount to $24 billion.
- Ethiopia: The COVID-19 pandemic and a two-year civil war have severely affected the Ethiopian economy. The country requested a debt restructuring in early 2021 under the G20 Common Framework, and China allowed partial suspension of debt repayment in August. Progress is expected through the Common Framework.
- Kenya: Kenya’s public debt reached 67.4% of GDP at end-2022, putting it at high risk of debt overhang. The government has moderated spending and proposed tax increases, but rising oil prices and currency depreciation pose challenges.
- Lebanon: In default since 2020, Lebanon is struggling to resolve its economic crisis. While some changes have been introduced, deeper reforms are needed. The IMF warns that public debt could reach 547% of GDP by 2027 if no action is taken.
- Pakistan: With more than $22 billion needed to service external debt, Pakistan finds itself in a complicated situation. Despite a bridge loan from the IMF and support from Saudi Arabia and the United Arab Emirates, inflation and high interest rates are significant challenges.
- Ukraine: The country froze debt payments after the Russian invasion in 2022. It needs an estimated $3-4 billion a month to keep running. Although the economy shows signs of recovery, the durability of international support is uncertain due to political changes in other countries.
These countries are in precarious financial situations, and resolving their debt problems will be an important issue at IMF and World Bank meetings. Economic and financial stability in these nations is crucial for both their populations and the global economy.
5 October 2023
The WTO cuts its forecast for world merchandise trade growth by more than 50%
The World Trade Organization (WTO) has slashed its forecast for global trade growth this year due to rising interest rates, which have negatively affected consumer purchasing power in the United States, Europe and Asia. The WTO had initially estimated that world merchandise trade would grow by 1.7% in 2023, but has revised this figure downwards to a modest 0.8%.
This trade slowdown has been influenced by persistent inflation, which has kept interest rates higher than expected in many countries. In addition, other factors such as the housing market situation in China and the conflict in Ukraine have clouded the global economic outlook. This downward trend in trade affects a wide range of products, including iron, steel, office equipment, telecommunications, textiles and clothing. However, automobiles have been an exception, recording a surge in sales this year that has offset the shortages experienced during the pandemic.
The figures also reveal a weakening of trade in Germany, Europe’s largest trading partner. German exports fell by 1.2% in August, raising the risk of a possible recession in the German economy in the third quarter of this year.
The WTO outlook comes ahead of similar assessments by the International Monetary Fund (IMF) and the World Bank at their joint autumn meeting in Marrakech. Both organisations are expected to revise down their economic growth forecasts due to signals from central banks that they will keep interest rates high to combat inflation.
Despite trade tensions around the world that have resulted in sanctions and blockades of goods, the WTO sees no signs of wider de-globalisation that would threaten its 2024 forecasts. However, WTO director general Ngozi Okonjo-Iweala expressed concern that the slowdown in trade could negatively impact global living standards, especially in poorer countries. The WTO forecast does not include services, but sees a moderation in services growth after the strong rebound in international tourism in 2022.
6 October 2023
Russian government lifts ban on exports of most of its diesel oil
On Friday 6 October, the Russian government announced that it was ending limits on exports of gas oil arriving at ports through pipelines, on condition that the producer sells 50% on the Russian market.
The restrictions were agreed together with restrictions on petrol on 21 September 2023 in order to maintain price stability on the Russian market. Consequently, diesel prices were raised worldwide.
Along with the announcement of the end of the restrictions, the Russian government announced the imposition of a tax of 500 euros per tonne of oil on resellers to prevent exports through unauthorised channels.
8 October 2023
Dollar rises on flight to safety amid Israeli-Palestinian clashes
In Monday’s financial context, the dollar and the Japanese yen experienced a rise in value. This was mainly due to military clashes between Israel and the Palestinian Islamist group Hamas, which generated growing political uncertainty in the Middle East. Risk perceptions in the markets were fragile as Israeli forces clashed with Hamas fighters following an attack by the Palestinian group, resulting in the deadliest day of violence in Israel in half a century.
The Israeli shekel depreciated significantly, falling 2.5 per cent against the dollar, reaching an almost eight-year low. This came after the Bank of Israel announced its decision to sell up to $30 billion in foreign currency on the open market to stabilise the situation. Elsewhere, the US dollar strengthened, showing a 0.4 per cent rise in its index to 106.47. The Japanese yen, another traditionally safe haven currency, also rose by 0.1% against the dollar to 149.09.
This rise in the value of the dollar is partly attributed to the perception that in situations of global conflict, the dollar is a preferred safe haven currency for investors. In addition, US employment data, released on Friday, showed a significant increase in September, reaching its highest level in eight months. This could signal a rise in inflation, which would keep the Federal Open Market Committee (FOMC) on its toes, as a tight labour market could have implications for the dollar’s value in the future.
11 October 2023
Yellen sees economic risks from Gaza conflict, says U.S. always considers sanctions
US Treasury Secretary Janet Yellen expressed concern about recent attacks on Israel by the Palestinian Islamist group Hamas, saying the attacks pose additional risks to the already uncertain global economic outlook. She condemned the attacks against Israel and assured strong support for the country. Yellen stressed that funding for Ukraine and resources for Israel were top priorities for the Biden administration.
The attacks led to higher oil prices and a rise in safe-haven currencies such as the yen. Yellen also mentioned the possibility of imposing new sanctions on Iran if evidence of its involvement in the attacks emerged, although the US already had sanctions in place against Hamas and Hezbollah.
World Bank President Ajay Banga expressed similar concerns about the impact of the conflict on the global economy, and Yellen acknowledged that exogenous shocks, such as the attacks on Israel, increased economic risks. She continued to anticipate a soft landing for the US economy, citing labour market resilience and moderating wage pressures as contributing factors, although she acknowledged that uncertainty remained. Yellen also kept open the possibility of future action on frozen Iranian funds in Qatar, emphasising their initial allocation for humanitarian purposes. US Secretary of State Antony Blinken cited the absence of evidence directly linking Iran to the attacks, but noted the historical relationship between Iran and such activities.
13 October 2023
JP Morgan Chase CEO Jamie Dimon guesses this is “the most dangerous time” in the world in decades
JPMorgan Chase posted a strong profit of $13.15bn, or $4.33 per share, in the third quarter, up 35% from a year earlier. However, CEO Jamie Dimon issued a stern warning about the global challenges currently facing the world. He referred to the ongoing war in Ukraine and the recent Hamas attacks on Israel, which could have a major impact on energy and food markets, global trade and geopolitical relations.
Dimon also expressed concern about rising national debt and record peacetime fiscal deficits, which increase the risks of inflation and high interest rates. He mentioned that the Fed’s efforts to reduce its bond holdings, known as quantitative tightening, could further reduce liquidity in the system, especially when market-making capabilities are constrained by regulation.
Dimon has been warning clients about the possibility that interest rates may not only rise, but could rise significantly. Despite the positive financial results, he stressed the need to prepare for a range of economic outcomes to ensure consistent service to clients, given the uncertain global environment.
16 October 2023
EU urges reforms and single market in Western Balkans to boost accession applications
The European Union (EU) aims to bring six Western Balkan countries – Albania, Bosnia, Kosovo, Montenegro, North Macedonia and Serbia – closer to EU membership, but insists they need to implement reforms and create their own single market. European Commission President Ursula von der Leyen made this announcement during a summit of the Berlin Process in Tirana, an initiative focused on enhancing cooperation in the Western Balkans.
The accession process of these Western Balkan countries, which were promised EU membership years ago, has been slow due to the reluctance of the 27 EU member states and the lack of reforms in the region. Von der Leyen stressed the importance of further economic integration between the EU and the Western Balkans, with plans to open up the EU common market to the region, covering areas such as the free movement of goods and services, transport, energy and the digital single market. However, this integration will require substantial reforms.
If implemented, these reforms will be accompanied by EU funding for investment. The EU had previously offered a €30 billion economic and investment plan for the region by 2020, which has already triggered investments worth €16 billion. The creation of a common market in the Western Balkans could boost their combined economies by 10 per cent.
German Chancellor Olaf Scholz stressed the importance of the Berlin Process as an instrument to accelerate the integration of the Western Balkan countries into the EU. He noted that progress in establishing a common regional market would bring these countries closer to EU standards. While Serbia and Montenegro have started EU accession talks, Albania and North Macedonia began talks with Brussels last year. Bosnia and Kosovo continue to lag behind their neighbours in the accession process.
18 October 2023
IMF chief says Israel-Hamas war a new obstacle on global economic horizon
The head of the International Monetary Fund (IMF), Kristalina Georgieva, expressed concern about the conflict between Israel and Hamas, describing it as an additional source of uncertainty in an already difficult global economic environment. She noted that the economic impact of the ongoing conflict would be “terrible” for the countries involved and would have negative repercussions in the region, affecting trade, tourism and insurance costs. Several countries, including Egypt, Lebanon and Jordan, are already feeling the economic consequences.
Georgieva emphasised the adverse effects on tourism, as uncertainty tends to deter tourists, and investors may be hesitant to invest in the affected region. Although she did not specifically address the overall economic implications of the conflict, she stressed that the economic outlook was already stagnant.
The ongoing conflict between Israel and Hamas has overshadowed economic discussions at the Riyadh Future Investment Initiative Institute conference, known as “Davos in the Desert”, which usually focuses on economic and investment prospects in the Middle East. Georgieva’s main concern was the loss of human lives due to the conflict, and she called for a rapid resolution of the situation.
25 October 2023
Gold, safe haven after Middle East conflict; US data in focus
Safe-haven gold rose 0.5 per cent to $1,979.79 an ounce on ongoing conflicts in the Middle East. Investors awaited crucial US economic data to gauge the Federal Reserve’s future policy decisions. Geopolitical concerns persisted, with Israel intensifying its actions in southern Gaza. However, a strengthening dollar index and rising 10-year US Treasury yields limited gold’s gains. Investors’ attention was focused on upcoming US GDP figures and the PCE price index, which could influence the Federal Reserve’s stance on interest rates. Higher interest rates may reduce the attractiveness of gold. Market expectations are leaning towards the Fed maintaining rates, with possible support for gold if economic data indicate a slowdown. Meanwhile, US business activity improved in October, while the euro zone faced unexpected challenges. China reported a 7.32% increase in gold consumption in the first three quarters of 2023, driven by economic recovery. Spot silver was down 0.3% at $22.87 per ounce, platinum was up 1.6% at $898.08 and palladium was up 0.9% at $1,130.20.
26 October 2023
European Central Bank holds interest rates steady after 10 consecutive hikes
The European Central Bank (ECB) has decided to keep its policy rate at a record high of 4%, ending a series of 10 consecutive interest rate hikes that began in July 2022. Despite new risks to inflation related to oil markets and the conflict between Israel and Hamas, the ECB considers that recent information confirms its medium-term inflation outlook at 2.1%. They have expressed concern about inflation remaining elevated for an extended period of time and about strong domestic price pressures. The ECB has also stated that discussions on rate cuts are premature, and that it will continue to rely on data for its decision-making. The decision is in line with the approach of other major central banks around the world, which are cautious about adjusting interest rates, given the economic uncertainty.
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In Madrid, 31 October 2023
International Trade and Sanctions Department
