South Korea’s finance minister says the nation sees is at a “turning point” in economic relations with Japan.
Speaking to CNBC’s Chery Kang at the Asian Development Bank’s annual meeting in Incheon, South Korea’s finance minister and deputy prime minister Choo Kyung-ho praised Tokyo’s recent decision to restore South Korea to a list of preferred trade partners.
“My understanding is that Japan is processing this according to its legislative and administrative procedures,” Choo said, according to a CNBC translation. adding that South Korean officials hope the process will be completed “as soon as possible.”
“We believe that unnecessary regulations between the two countries will be entirely removed, and we believe that we’re now at a turning point for further cooperation between the two economies,” said Choo.
The thaw in Japan and Korea’s bilateral relations comes after South Korea announced its companies would compensate people who were forced to work during Japan’s 1910-1945 occupation of Korea – a bid by South Korean President Yoon Suk-yeol to improve the strained ties between the two nations.
Earlier this week, the two countries also held their first bilateral finance ministerial meeting in seven years, agreeing to resume regular talks “at an appropriate timing,” according to reports of Choo’s Japanese counterpart Shunichi Suzuki’s remarks after his meeting.
Choo said the recent talks with Suzuki will lead to further economic cooperation between the two U.S. allies.
“The recent bilateral summit has opened things up for improvement. So we can now anticipate cooperation between the two countries, in expansion of industrial and technology cooperation, as well as humanitarian exchange programs for youths,” he said. “We believe this will benefit both countries mutually, economy-wise, and contribute to the regional growth as well,” he said.
Choo added that the bilateral relationship will be “mutually beneficial” for high-tech industries, including semiconductors.
“Especially in sectors that we see both countries being placed in a ‘win-win’ situation, such as strengthening high-tech industrial sectors – we believe this is why Japan and Korea are both actively taking part in pushing for further cooperation through ministerial talks and dialogue between government agencies, which we plan to strengthen further,” he said.
Russia’s President Vladimir Putin, India Prime Minister Narendra Modi, and China’s President Xi Jinping prepare to leave at the concluding session of the BRICS summit at Taj Exotica hotel in Goa on October 16, 2016. (PRAKASH SINGH/AFP via Getty Images)
Prakash Singh | Afp | Getty Images
India’s relationship with Russia remains steadfast as both sides seek to deepen their economic ties. But Moscow has also grown close to Beijing since invading Ukraine, and that raises critical national security concerns for New Delhi.
Indian external affairs minister S. Jaishankar recently said the country was ready to restart free trade negotiations with Russia.
“Our partnership today is a subject of attention and comment, not because it has changed, but because it has not,” he said, describing the relationship as “among the steadiest” in the world.
Despite the display of economic cooperation, India’s leaders are “carefully watching” as Russia becomes more isolated and moves closer to “China’s corner,” said Harsh V. Pant, vice president for studies and foreign policy at Observer Research Foundation, a New Delhi-based think tank.
Russia’s “weak and vulnerable position” and growing reliance on China for economic and strategic reasons, will definitely be worrying for India, he told CNBC.
It’s becoming “more difficult with every passing day because of the closeness that we are witnessing between Beijing and Moscow,” Pant noted. “The pressure on India is increasing, it certainly would not like to see that happen.”
New Delhi will try as much as possible to avoid a potential “Russia-China alliance or axis,” Pant added. “As that will have far reaching consequences and will fundamentally alter India’s foreign policy and strategic calculation.”
There are national interest reasons “why India continues to buy cheap Russian oil and trade with them, this FTA is part of that,” said Sreeram Chaulia, dean of the Jindal School of International Affairs in New Delhi.
But it appears “this relationship is going down from being a very high-value strategic partnership to a transactional one,” he noted, adding Moscow’s “tighter embrace of China” doesn’t bode well for India’s national security needs.
India, which holds the current G-20 presidency, still hasn’t condemned Russia over its invasion of Ukraine.
In its latest foreign policy doctrine published in late March, Russia noted it will “continue to build up a particularly privileged strategic partnership” with India.
But Russia hasn’t been able to deliver critical defense supplies it had committed to India’s military due to the Ukraine war, which could strain the relationship, said analysts.
In March, the Indian Armed Forces acknowledged to a parliamentary committee that a “major delivery ” from Russia “is not going to take place” in a report. “They have given us in writing that they are not able to deliver it,” the IAF official said. The report did not mention the specifics of the delivery.
“Russia has already delayed the delivery of S-400 anti-missile delivery systems to India due to the pressures of the Ukraine war,” said the Jindal School’s Chaulia. “So, there is a big question mark on Russia’s reliability.”
India’s reliance on Moscow, historically, was seen as pivotal “to help moderate China’s aggression,” he added, to maintain a stable balance of power against Beijing.
Now, the country cannot expect Russia to play “the same strategic role for India as it used to prior to the Ukraine war. That’s because of the technological degradation of its military and weakening position as a result of the war,” he said.
Still, Indian authorities will continue to make every “effort till last minute” to create “some space,” in the Russia-China dynamic, Pant added, “so that the space could be exploited by India to ensure its leverage over Moscow remains intact.”
But China is also making moves to strengthen its ties with Russia. In March, Chinese President Xi Jinping met with Russian President Vladimir Putin in Moscow and the two leaders vowed to deepen their relations.
Both sides sealed a “no limits” partnership in February last year — just before Russia invaded Ukraine — and agreed to have no “forbidden” areas of cooperation.
A “Russian tilt” in favor of Beijing “would clearly be bad for India” if war broke out between both nations, noted Felix K. Chang, a senior fellow at the Foreign Policy Research Institute, a Philadelphia-based think tank.
Even without a war, “China’s warm relationship with Russia could encourage Beijing to pursue its interests more forcefully in South Asia, whether on its disputed Himalayan border or with India’s surrounding neighbors,” he wrote in April. “That too could shift the power balance between China and India and lead to greater regional tensions.”
So India needs to “pick up the pace” in its embrace of the West, Chang added, “given how close the Russian-Ukrainian war has brought China and Russia.”
The West recognizes the challenge India faces in the Indo-Pacific region, said Pant from ORF, “that it needs Moscow in managing Beijing in the short to medium term, given its defense relationship with Russia.”
“That sensitivity is, perhaps, what’s driving the Western outreach to India, despite differences over Ukraine,” he said, adding national security concerns are driving India closer to the U.S.
Indian Prime Minister Narendra Modi will join U.S. President Joe Biden and his counterparts from Australia and Japan at the third Quad leaders summit in Sydney on May 24. The Quad is an informal security alignment of the four major democracies that was forged in response to China’s rising strength in the Indo-Pacific.
While America sees “China as the main challenger to U.S. global primacy, it does not see India that way,” said Rajan Menon, director of the grand strategy program at Defense Priorities, a Washington-based think tank.
“To the contrary it views India, nowadays, as a partner to counterbalance China,” he noted.
“That overlapping strategic interest explains why Washington has not reacted to India’s alignment with Moscow in the way it has to the ‘no-limits’ friendship China has forged with Russia,” Menon said.
As for Russia, how it balances this evolving India-China dynamic will be its biggest test, noted Pant.
“It’ll be interesting to see how this triangle works. In the past, it had worked because there was this uniform sense among the three countries to talk of a multipolar world, where American unipolarity was the target,” he noted.
“Today, for India, it’s China’s attempt at creating hegemony in the Indo-Pacific is the target. For Russia and China, the priorities are different than for India,” Pant added. “Russia’s ability to manage India and China will be under the scanner,” as far as New Delhi is concerned.
Bank of Korea Governor Rhee Chang-yong says it’s too early to start talking about rate cuts.
The South Korean central bank was one of the first to pause its tightening cycle, spurring market speculation that it could soon begin cutting rates. But Rhee told CNBC’s Chery Kang at the Asian Development Bank’s annual meeting Incheon that those expectations are “premature.”
“We made it clear, given that our core inflation is still well above our target, and our inflation is going below 4% … so it’s going down,” Rhee said Wednesday. “But still, I think that given that it’s above the target, we have to wait and see and then you know, it would be a little bit premature to talk about pivot at this moment.”
Rhee’s comments come a day after the economy reported inflation reached a 14-month low of 3.7% while hovering above the central bank’s target of 2%.
“We paused our interest rate [hikes] in the last two meetings because we have increased our interest rate by 300 basis points in 1½ years, very fast in pace. And we think it’s the right time for us to kind of assess what is the accumulated impact from this rapid increase,” Rhee said.
Wall Street banks such as Citi predict South Korea could start a rate-cutting cycle as early as the third quarter as headline consumer price index readings coming down even further.
“In our view, headline CPI is likely to fall to early-mid 3%YoY levels in May’23E and 2%YoY levels in June’23E, potentially opening up scope for a rate-cutting cycle from 3Q23E,” Citi economists Jiuk Choi and Jin-wook Kim said in a Tuesday note.
The Bank of Korea governor noted that global inflation levels seem to have peaked despite seeing stickiness in core readings.
“I think the tightening cycle in advanced economies seems close to an end,” he said, adding that he thinks advanced economies cannot continue their rapid hikes given “financial stability issues” in the U.S. and Europe.
The banking crisis in the West has had an limited impact on South Korea, he said. He also noted that the foreign exchange rate for the South Korean currency is not concerning.
“We are not very much concerned on the every day change of the exchange rate, but we definitely have to be careful for the large volatility,” he said, noting that the currency has traditionally seen pressure on dividend payouts for foreign investors in April.
The South Korean won hit 1,340.77 against the U.S. dollar early Wednesday, the weakest level since November.
Nearly 25% of jobs are set to be disrupted in the next five years, according to the World Economic Forum’s latest ‘Future of Jobs’ report.
10’000 Hours | Digitalvision | Getty Images
The world of work is set to go through major changes in the coming years — with almost a quarter of jobs changing in the next five years, according to a new report from the World Economic Forum.
Some 23% of jobs will be disrupted, WEF said in its ‘Future of Jobs’ report, with some eliminated and others created. Crucially, WEF expects there to be 14 million fewer jobs overall in five years’ time, as an estimated 83 million roles will disappear, while only 69 million will emerge.
“Overall the rate of change is quite high,” Saadia Zahidi, managing director at the WEF, told CNBC’s Steve Sedgwick and Geoff Cutmore Monday at the WEF’s growth summit in Geneva, Switzerland.
The report’s findings are largely based on a survey of 803 companies that employ a total of 11.3 million workers in 45 different economies around the world.
A huge range of factors will play a role in the disruption, according to WEF, from technological developments like artificial intelligence to climate change.
Concerns about technological changes having a negative impact on jobs have been growing, especially since generative A.I. tools like ChatGPT have entered the mainstream. And technology does appear to be one of the biggest drivers of job loss, the research found.
“The largest losses are expected in administrative roles and in traditional security, factory and commerce roles,” the report said, noting that the decline of administrative roles in particular will be “driven mainly by digitalization and automation.”
However, the surveyed companies do not see technological shifts as a negative overall.
“The impact of most technologies on jobs is expected to be a net positive over the next five years. Big data analytics, climate change and environmental management technologies, and encryption and cybersecurity are expected to be the biggest drivers of job growth,” the report reads.
Some of the sectors that could see boosted job creation linked to technology are education, agriculture and health, Zahidi explained.
“In part that is happening not because these are unsafe, low-paid, low-skilled jobs around the world. These are higher skilled, higher value add jobs enabled by technology in the fields of agriculture, health, education,” she said.
AI is described as a “key driver of potential algorithmic displacement” of roles in the report, and almost 75% of companies surveyed are expected to adopt the technology. Some 50% of the firms expect jobs to be created as a result, while 25% expect job declines.
Technology is also not the only factor at play when it comes to job disruption, according to WEF. In fact, it comes sixth on the list of factors leading to net job creation or elimination.
“It’s also economic growth, which is pretty tepid at the moment, it’s also sustainability and the rise of the green economy, it’s also supply chain changes and what’s happening sort of to this era of ‘deglobalization’,” Zahidi said.
Companies becoming greener and adopting higher environmental, social and governance standards are the two biggest drivers of job creation, surveyed companies said, whilst slowing economic growth is expected to be main contributor to job losses.
Other factors that are also likely to lead to job declines in the coming years include the fallout from the Covid-19 pandemic, supply shortages and the global cost of living crisis.
BEIJING, CHINA – APRIL 29: Beijing South Railway Station is seen in Beijing on Saturday, April 29, 2023.
Anadolu Agency | Anadolu Agency | Getty Images
The International Monetary Fund raised its forecast for Asia-Pacific, saying the region’s growth will be primarily driven by China’s recovery and “resilient” growth in India. This comes as the rest of the world braces for slower growth from tightened monetary policy and Russia’s invasion of Ukraine.
The organization predicts Asia-Pacific’s gross domestic product to expand 4.6% this year, which is 0.3 percentage points higher than its forecast in October, according to its May regional economic outlookreleased Tuesday.
The two largest emerging market economies of the region are expected to contribute around half of global growth this year.
International Monetary Fund
The IMF’s upgraded outlook would mean the region would contribute around 70% of global growth, it said. The region expanded 3.8% in 2022.
“Asia and Pacific will be the most dynamic of the world’s major regions in 2023, predominantly driven by the buoyant outlook for China and India,” the IMF said in its report.
“The two largest emerging market economies of the region are expected to contribute around half of global growth this year, with the rest of Asia and Pacific contributing an additional fifth,” it said.
On a country-basis, the organization raised its growth outlook for China, Malaysia, the Philippines, and Laos to 5.2%, 4.5%, 6%, and 4% respectively.
Despite the overall optimism for the region — mostly due to rosier outlooks for emerging markets — the IMF downgraded its predictions for Japan, Australia, New Zealand, Singapore, and South Korea.
“Stronger external demand from China will provide some respite to advanced economies in the region, but is expected to be largely outweighed by the drag from other domestic and external factors,” it said, adding growth in Asia outside of China and India “is expected to bottom out in 2023.”
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It lowered Japan’s 2023 growth estimates to 1.3% to reflect “weaker external demand and investment and carryover from disappointing growth in the last quarter of 2022.”
Weakening domestic demand in Australia and New Zealand from central banks’ tightening is also expected to “dampen growth prospects” this year to 1.6% and 1.1%, respectively, it said.
“Inflationary pressures in Asia’s advanced economies are expected to be more persistent than envisioned in the October 2022 World Economic Outlook, as wage growth has recently become more apparent in Australia, Japan, and New Zealand,” the IMF said in its report.
High consumption in China is likely to spill over to the rest of the Asia-Pacific, the IMF said, adding that China’s reopening after lifting most of its stringent Covid restrictions will “result in a pickup in private consumption that will drive China’s growth rebound.”
That effect is expected to exceed that of other growth drivers, such as investment.
The near-term economic impact of China’s recovery will “likely vary across countries, with those more heavily reliant on tourism likely reaping the most benefit,” it said, noting that a rise in China’s imports will be most strongly reflected in services.
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The IMF said Asia-Pacific economies could also see knock-on effects from China’s ongoing geopolitical tensions. The organization previously estimated global tensions could disrupt overseas investment and lead to a long-term loss of 2% of the world’s gross domestic product.
“Risks of further global trade fragmentation are becoming more salient, considering ongoing US-China trade disputes (including new restrictions on trade in high-tech products) and heightened geopolitical tensions linked to Russia’s war in Ukraine,” it said.
An oil tanker being serviced by a bunkering vessel.
Courtesy: Hafnia
If you think that life at sea is like the movie franchise “Pirates of the Caribbean,” think again.
The movies, which feature ambushes, looting and a drunken captain, are far from real life, according to shipping veteran Ralph Juhl.
“That is, of course, a lot of bollocks,” Juhl told CNBC by phone.
For starters, the consumption of alcohol is banned on many ships.
But there is one similarity with the movie, Juhl said: the code of conduct between seafarers. In the franchise, the Pirate’s Code was chronicled in a book kept by character Captain Teague, and loosely followed by some.
For those who sail for a living, there is a similar type of agreement, Juhl said.
The crew on board an oil tanker operated by Hafnia.
Courtesy: Hafnia
“Seafarers, no matter where they come from — India, Ukraine, Denmark, the Philippines — there is this conduct of how you behave on a ship … You can actually endanger both yourself and all of your colleagues if you are not playing that social game, being on board the ship. So, you take responsibility, you follow authority,” Juhl said.
Juhl, an executive vice-president at oil tanker firm Hafnia, has worked in the industry for several decades, starting as an ordinary seaman — the lowest rank of sailor — in 1983.
“When you as a seafarer [go] on board … you are a contribution to the society and you have to fit in … there is this code of the high seas,” he added.
“Pirates of the Caribbean” is a seafaring stereotype familiar to Hafnia’s DSA Dixon, who has been a captain for five years. Dixon — who sails vessels known as product tankers, which transport both refined and unrefined petroleum products around the world — had to convince his parents-in-law that his role was nothing like the movie, he told CNBC by phone.
“A lot of people have a very different representation of a seafarer, looking at Pirates of the Caribbean,” he said.
Captain DSA Dixon (in black) says he invents games to keep his crew’s morale up during months at sea.
DSA Dixon | Hafnia
Dixon might be captaining a ship such as the huge Hafnia Rhine, which is about 230 meters long by 33 meters wide, with a capacity of more than 76,000 deadweight tons — a measure that includes the oil cargo, plus fuel, food, water and crew members, but not the weight of the ship itself.
Where the ship goes depends on where the demand for oil is and Dixon has sailed to every continent bar Antarctica, he said.
Dixon aims to keep to a schedule of three months at sea followed by three months at home in Mumbai, India, he said, and he started his most recent voyage on the Mississippi River in the U.S., sailing to Brazil and going on to Saudi Arabia via Gibraltar and the Suez Canal, before returning to Brazil.
The greatest part of my job is I’ve seen things that an average human being might not.
Compared to someone working an office job, Dixon said he spends more time with his wife and six-year-old son, as when he is at home he’s “completely” there. “I love this part of my life, because when I go back home, I’m Santa Claus,” he said. “It doesn’t get stagnated at any point – when it’s about to get stagnated, I’m back at sea.”
Aside from navigation, Dixon said the most important part of his job is to keep the crew in good spirits, as they spend months at sea together.
“We have at times, 20, 25 people on board, they’re all different nationalities, different cultures, different languages … our ship is as good as the people on it,” Dixon said.
There’s no fixed daily routine, Dixon added. “There’s no one way to describe life on board. It’s challenging of course, but the challenge keeps you motivated all the time,” he said.
Along with navigation and managing the crew, Dixon might be talking to officials who come aboard when the ship is docked or coming up with ways to celebrate religious festivals.
The engine control room of an oil tanker. Hafnia Chief Engineer Dmytro Lifarenko spent around six months on board during the Covid-19 pandemic in 2020.
Courtesy: Hafnia
“Irrespective of nationality, or religion, people celebrate each other’s events or festivals,” Dixon said. “I even invent something like a treasure hunt on board. The ship is massive, I divide [crew] into teams … and let them find their own way,” Dixon added.
These games might sound “kiddish,” but they serve an important purpose, Dixon said. “These are grown-up men, some might be 50 years-old, and they’re doing this, but it’s the way to bond … we need to socialize and a happy ship is always an excellent vessel,” Dixon said.
Dixon makes sure the crew take Sundays off, spending it as they choose: perhaps playing PlayStation, chatting or sleeping. “I make sure there’s an excellent lunch,” Dixon added.
Traveling across oceans means getting to experience some of the world’s natural spectacles, with Dixon seeing the light phenomenon aurora borealis — also known as the northern lights — while sailing near Norway.
An aurora borealis light display in the southern part of Norway, one of the natural spectacles seen by oil tanker captain DSA Dixon during his seafaring life.
Heiko Junge | Afp | Getty Images
“The only regret I have is what I see I’m not able to share it, I want my family to see [things] at that very point, at that very moment, a photograph won’t capture it,” Dixon said. How did he feel seeing the lights? “You feel complete, I will say. You feel abundant,” he said.
“The greatest part of my job is I’ve seen things that an average human being might not,” he added.
Alongside enjoying scenes of wonder, life as a seafarer can be tough.
Hafnia Chief Engineer Dmytro Lifarenko is from Ukraine and was at home when Russia invaded the country in February 2022, fleeing with his wife and children across Europe to Valencia in Spain.
“I don’t know how I would handle … knowing that the bombs were there and I’m on board,” he told CNBC by phone, speculating about how he would have felt if he had been at sea when war broke out.
While his most recent voyage was five months long — sailing from Singapore to France and then Australia — he has recently taken extended leave to settle his family in their new home.
Chief Engineer Dmytro Lifarenko is from Ukraine and was at home when Russia invaded the country in February 2022. He has since moved with his family to Spain.
Dmytro Lifarenko | Hafnia
“I miss my family a lot during the voyage,” Lifarenko said — he and his wife have three children: a daughter of six months, six-year-old son and a 12-year-old daughter.
“Being two parents for three kids, this is fine. Being [effectively] a single mom for our kids, that’s very difficult … to be honest, this is the worst part of the job.”
This is something Juhl is sympathetic to: “That’s a big ‘uncomfort’ for many seafarers, that they are now so involved in their family [while at sea], even though they can’t do anything about it,” he said.
The boiler suit dressed man with a big spanner — it’s not the sailor that we’ll need in the future.
Ralph Juhl
Executive vice president, Hafnia
During the Covid-19 pandemic in 2020, Lifarenko spent about six months onboard, which is longer than his usual voyage. He said guided meditations sent to him by Hafnia were useful to deal with an uncertain situation.
“You keep thinking about the things that you actually cannot change, and that’s quite close to depression, but this [was] like a helpful hand,” he said.
But, despite some downsides, Lifarenko said he loves his job because of its variety. “You cannot say what is your routine, because the routine part is quite small. Most of the time, you are solving some situation, which requires you to use your brain, and you’re thinking, how to fix this … or how can we maintain this in a better way,” he said.
He has also enjoyed seeing the natural world while onboard, including spotting whales and sailing close to the volcanic Canary Islands.
Juhl spent more than a decade as a seafarer, starting at age 16 and sailing to places such as Honduras and South Korea, and becoming a navigator on chemical carrier ships before captaining ferries. He came onshore in 1997 and is now responsible for Hafnia’s technical operations. He described those onboard as “working their butts off.”
“They never go ashore anymore, there are terminals far away from cities and so on. So, this romantic life and impression of seafarers, it is pretty much gone. It’s hard work,” he said.
Oil tanker crew prepare mooring ropes to secure a bunker barge to their vessel for refueling.
Courtesy: Hafnia
This means attracting the next generation of crew is potentially tougher. “It’s a lonely life from time to time. And today you cannot offer young people loneliness,” he said.
Juhl wants to encourage more women to become seafarers and Hafnia is working on a pilot program to operate two ships where half the crew are female, to understand how the culture onboard might change, both positively and negatively, and how to solve that.
However, issues remain: Authorities in countries where women are discriminated against might not deal with female captains, for example, so Hafnia has had to temporarily assign a male captain for port stays in such places, Juhl said.
There has been internet access on board tankers for just a couple of years, Juhl added, and he wants to get creative about what might be possible as technology involves.
He’s especially keen for sailors to be able to communicate with their families at home, he said.
“Hopefully we can soon make holograms where the captain can go to his cabin with his supper, and then he can open his hologram and he can sit and eat with his wife … we have to think that way,” Juhl said. And new technology will mean seafarers need different skills. “The boiler suit dressed man with a big spanner — it’s not the sailor that we’ll need in the future,” he said.
Smoke rises during clashes between the Sudanese Armed Forces and the paramilitary Rapid Support Forces (RSF) in Khartoum, Sudan on April 19, 2023.
Ahmed Satti | Anadolu Agency | Getty Images
Escalating conflict in Sudan is likely to spill over into the wider region and rest of the world, analysts have suggested, as governments and international bodies hope a fresh cease-fire will enable Sudanese citizens and foreign nationals to flee the country.
Fighting erupted 10 days ago as the result of a power struggle between the Sudanese Armed Forces (SAF), led by President Gen. Abdel-Fattah Burhan, and the paramilitary Rapid Support Forces (RSF), led by Gen. Mohammed Hamdan Dagalo (known as Hemedti).
The two warring factions had been sharing power in Khartoum since a military coup in 2021, which dissolved a civilian-led transitional government put in place following the fall of dictator Omar al-Bashir in 2019. Burhan and Hemedti’s divergent economic and political visions were never reconciled, and the tension between their respective forces began escalating early this month.
A U.S.-brokered 72-hour cease-fire took effect on Monday night, which international bodies and governments hope will allow civilians to leave the country, with the International Rescue Committee estimating that up to 15,000 refugees have already crossed west into neighboring Chad.
However, the RSF alleged Tuesday morning that the SAF had already violated the cease-fire.
“We reiterate our complete commitment to the 72-hour truce that aims to open up humanitarian corridors. However, the Sudanese army has violated the ceasefire by continuing to attack Khartoum by planes, which is a clear breach of the ceasefire agreement,” the RSF said in a statement.
“We urge the Sudanese army to respect the ceasefire and its conditions to alleviate the suffering of innocent civilians. We also call on the international community to intervene and put pressure on the Sudanese army to abide by the terms of the ceasefire.”
KHARTOUM, Sudan – Dec. 5, 2022: Head of Sudan’s ruling Sovereign Council and Commander-In-Chief of the Sudanese Armed Forces, Abdel Fattah al-Burhan (C) and his Deputy Mohamed Hamdan Dagalo (L) attend a ceremony to mark the signing of a “framework agreement” for a new transition period between military and civilian rule in Khartoum. Just four months later, he two are now leading rival factions vying for military power in the country.
Mahmoud Hjaj/Anadolu Agency via Getty Images
Several previous truces over the last 10 days have quickly dissipated, and hundreds of people have lost their lives since fighting began, in what the United Nations has already characterized as a humanitarian catastrophe in the vast, sprawling northeast African country.
The World Health Organization’s representative in Sudan, Nima Saeed Abid, told a media briefing Tuesday that the WHO had confirmed 459 dead and 4,072 injured in the fighting so far, though he said the true toll is likely to be higher.
Sharath Srinivasan, co-director of the Centre of Governance and Human Rights at the University of Cambridge, told CNBC Tuesday that international involvement in this cease-fire may boost its chances of success.
“What is really distinct about this ceasefire is that it seems to have had some international, U.S. leadership on brokering it, so one might think that it has some other influence and heft behind it,” Srinivasan said.
He added that 72 hours is “a long time if it holds” as it will allow crucial humanitarian aid into Sudan, and potentially open the door to negotiations between the two military leaders.
A ‘tinderbox’ for regional tensions
U.N. Secretary General Antonio Guterres warned at a U.N. Security Council meeting in New York on Monday that there is a risk of a “catastrophic conflagration” of the conflict that could consume the region and beyond if a solution is not found soon.
Sudan’s size and location at the juncture of the Indian Ocean, the Horn of Africa, North Africa and the Arab world give it a particular geostrategic importance, said Srinivasan, author of “When Peace Kills Politics: International Intervention and Unending Wars in the Sudans.”
Sudan has land borders with Egypt, Libya, Chad, the Central African Republic, South Sudan, Ethiopia and Eritrea, and sits across the Red Sea from Saudi Arabia.
“Egypt has long-standing ties to Sudan and especially to the armed forces. One side of this conflict at the moment — the Rapid Support Forces themselves — have close ties to a number of actors, especially [Field Marshal Khalifa] Haftar in Libya, but via Haftar also again to the UAE and other actors in the region,” Srinivasan explained.
These relationships increase the likelihood of Sudan becoming “enmeshed within broader political fissures” and make it more difficult for a resolution to be found imminently, according to Benjamin Hunter, Africa analyst at global risk consultancy Verisk Maplecroft.
Sudanese army soldiers, loyal to army chief Abdel Fattah al-Burhan, sit atop a tank in the Red Sea city of Port Sudan, on April 20, 2023.
– | Afp | Getty Images
Notorious Russian mercenary force Wagner Group has been linked to various commercial and military operations in Sudan. Its leader Yevgeny Prigozhin claims no member of the military contractor has been present in the country for more than two years, though Wagner is well-known to be active in the ongoing civil war in the Central African Republic and across a broader Sahel region beset by insecurity.
However, Moscow’s interest in Sudan is long-standing. Former President Bashir signed a number of deals with the Kremlin in 2017 that included permission for a Russian naval base at Port Sudan, on the Red Sea, along with concessions on gold mining for a Russian company the U.S. Treasury alleges is a front for Wagner activities.
Hemedti’s partnership with Wagner in Sudan’s gold sector is reported to have translated into arms provisions from Wagner planes based in Libya.
“This relationship is likely to deepen over the coming six months and will further entrench Wagner’s growing network across the Sahel region, where it has deployed mercenaries and become a player in the extractive sector,” Verisk Maplecroft’s Hunter suggested.
“Closer ties with Wagner, potentially involving the deployment of more Russian mercenaries alongside the RSF, risks Sudan’s conflict becoming tied up in competition between western countries and Russia.”
However, Srinivasan argued that Moscow’s involvement is “easy to exaggerate” and that “first and foremost, this is about the actors on the ground” and their various geostrategic rivalries.
Italian citizens are boarded on an Italian Air Force C130 aircraft during their evacuation from Khartoum, Sudan, in this undated photo obtained by Reuters on April 24, 2023.
Ministero Della Difesa | Reuters
“So in that sense, this conflict matters greatly because it is bringing to the fore a range of complex contestations over resources, over security, over influence that has bedeviled the region for some time, so Sudan in a sense is a tinderbox for a wider set of regional dynamics.”
He explained that relations between Khartoum and Gulf powers Saudi Arabia and the UAE thawed in the mid-2010s after a period of tension under Bashir. Ties were then deepened by the RSF and Sudanese army’s provision of troops alongside Emirati forces to the Saudi-led coalition fighting in Yemen.
“In that sense, there was a relationship that built around security interests but then as a result also around other things like gold production, like access to agriculture etc.,” Srinivasan said.
“The UAE just announced late last year that it was investing heavily in Port Sudan, and again this was a sign that it was seeing strategic importance in this very contested Indian Ocean world of getting a foothold in Sudan, so there’s these economic, security, geostrategic interests that have sort of intermixed over the last 10 years and really speak to why both countries have an interest.”
What happens next?
Despite the three-day cease-fire currently in place, neither leader has yet signaled a willingness to begin negotiations to end the conflict, which analysts believe will quickly engulf the country’s infrastructure and draw in surrounding nations.
“The RSF is likely to target oil infrastructure linking South Sudan with Khartoum and the export terminal at Port Sudan,” Verisk Maplecroft’s Hunter suggested.
“Revenue from pipeline transit fees is controlled by the SAF and Hemedti’s forces will seek to cut this off in the event of an extended war.”
Damage to this oil infrastructure would disrupt the oil exports of Chinese, Indian and Malaysian companies in South Sudan that depend entirely on Sudan for access to the global market, Hunter said.
People evacuated from Sudan arrive at a military airport in Amman on April 24, 2023. – Foreign countries rushed to evacuate their nationals from Sudan as deadly fighting raged into a second week between forces loyal to two rival generals.
Khalil Mazraawi | AFP | Getty Images
Though South Sudan’s relatively low output means impact to global oil markets will be limited, 90% of the country’s economy is centered around oil exports. Hunter suggested this would compel President Salva Kiir’s administration, itself facing domestic challenges from various armed groups, to support the SAF in the event that Hemedti does attack Sudan’s oil infrastructure.
Verisk Maplecroft also expects Chad to be drawn in on the side of the SAF, and Hunter suggested the conflict is also likely to prevent a resolution to the dispute between Egypt and Ethiopia over the Grand Ethiopian Renaissance Dam (GERD), with both countries already aligned with opposing sides of the Sudanese conflict.
“Egypt is a staunch backer of the SAF and has reportedly deployed airstrikes against RSF positions, while Hemedti has, since 2021, cultivated a closer relationship with Addis Ababa,” Hunter said.
“However, Ethiopian Prime Minister Abiy Ahmed has not yet provided any direct military support for the RSF and remains unlikely to do so because it would effectively pull Egypt and Ethiopia into a proxy conflict.”
‘No easy off-ramps’
The fact that this is a contest over who is the “dominant security actor” for the state “doesn’t bode very well at all” for hopes of an imminent resolution, Srinivasan said, adding that there is a “great worry” that the two sides may look to involve other domestic armed groups and rebel movements in the conflict.
But he suggested that there is a “glimmer of hope” in that both parties rely not just on international support, but also on the support of big business in Sudan.
“In a sense, what’s devastating this country is that conflict and war and violence has come to Khartoum which has never seen this kind of violence for over a hundred years, rather civil war has always engulfed the regions and peripheries of Sudan,” he said.
“What that means is the big business interests, the more dominant political economy actors in the country, are much more affected by this conflict and violence, and they may weigh in on both of these actors in different ways, especially the Sudan Armed Forces, to try to restrain them and get them to pull back.”
However, he suggested that there are “no easy off-ramps” for negotiation or mediation at this early stage, other than to shore up the cease-fire and open up the possibility for regional and international actors to come to the table with warring forces on the ground.
A Deliveroo cyclist, a man with an umbrella, and two women with a pram, walk past a derelict high street shop front with painted white windows on 16th February, 2022 in Leeds, United Kingdom.
Daniel Harvey Gonzalez | In Pictures | Getty Images
LONDON — Companies and workers are trying to pass the impact of inflation onto each other — and that risks persistent inflation, according to Huw Pill, the Bank of England’s chief economist.
“What we’re facing now is that reluctance to accept that yes we’re all worse off, we all have to take our share,” Pill said on an episode of Columbia Law School and the Millstein Center’s “Beyond Unprecedented” podcast, released on Tuesday.
“To try and pass that cost on to one of our compatriots and say, we’ll be alright but they will have to take our share — that pass the parcel game … is one that is generating inflation,” he said.
Pill was discussing the “series of inflationary shocks” that had fueled inflation over the last 18 months, from pandemic supply disruption and government household support programs boosting demand, to the Russian invasion of Ukraine and resulting spike in European energy prices. That has been followed by adverse weather and an outbreak of avian flu driving up food prices.
But Pill said that was not the whole story, and that it was “natural” that the behavior of price-setters and wage-setters in economies including the U.K. and U.S. would change when living costs such as energy bills rise, with workers asking for higher salaries and businesses raising prices.
“Of course, that process is ultimately self-defeating,” said Pill.
He added that the U.K., which is a net importer of natural gas, faced a situation where the goods it buys from the rest of the world had gone up a lot relative to what it is selling to the rest of the world, primarily services. The U.K. imports nearly half its food.
“If what you’re buying has gone up a lot relative to what you’re selling, you’re going to be worse off,” Pill said.
“So somehow in the U.K., someone needs to accept that they’re worse off and stop trying to maintain their real spending power by bidding up prices, whether higher wages or passing energy costs through on to customers, etcetera.”
Pill’s comments have been widely published across U.K. media. In February 2022, Bank of England Governor Andrew Bailey came under scrutiny when he said wage bargaining could create domestic inflationary pressures and urged workers and employers to show “restraint” in pay discussions. Bailey’s comments were criticized by unions for focusing on how wages, not corporate profits, can fuel inflation.
The concept of a wage-price spiral, when rising wages create a loop of inflationary pressures by increasing costs for businesses and boosting demand, is debated within economics. Several policymakers — including U.S. Treasury Secretary Janet Yellen and European Central Bank officials — have said they do not see evidence of it in the U.S. or euro zone.
Economists, including IMF Chief Economist Pierre-Olivier Gourinchas, have said wages can rise further without risking growth since they have not risen significantly when adjusted for inflation and the corporate world has maintained comfortable margins.
But some argue the U.K. is particularly at risk due to its import-heavy economy, weakness in the British pound and a tight labor market which has been constrained by Brexit.
U.K. inflation was expected to drop into the single digits in March, but came in at 10.1%, with core inflation — which excludes food and energy and is closely watched by the Bank of England — at 5.7%.
Calls to move away from relying on the U.S. dollar for trade are growing.
More and more countries — from Brazil to Southeast Asian nations — are calling for trade to be carried out in other currencies besides the U.S. dollar.
The U.S. dollar has been king in global trade for decades — not just because the U.S. is the world’s largest economy, but also because oil, a key commodity needed by all economies big and small, is priced in the greenback. Most commodities are also priced and traded in U.S. dollars.
But since the Federal Reserve embarked on a journey of aggressive rate hikes to fight domestic inflation, many central banks around the world have raised interest rates to stem capital outflows and a sharp depreciation of their own currencies.
“By diversifying their holdings reserves into a more multi-currency sort of portfolio, perhaps they can reduce that pressure on their external sectors,” said Cedric Chehab from Fitch Solutions.
To be clear, the U.S. dollar remains dominant in global forex reserves even though its share in central banks’ foreign exchange reserves has dropped from more than 70% in 1999, IMF data shows.
The U.S. dollar accounted for 58.36% of global foreign exchange reserves in the fourth quarter last year, according to data from the IMF’s Currency Composition of Foreign Exchange Reserves (COFER). Comparatively, the euro is a distant second, accounting for about 20.5% of global forex reserves while the Chinese yuan accounted for just 2.7% in the same period.
Based on CNBC’s calculation of IMF’s data on 2022 direction of trade, mainland China was the largest trading partner to 61 countries when combining both imports and exports. In comparison, the U.S. was the largest trading partner to 30 countries.
“As China’s economic might continues to rise, that means that it’ll exert more influence in global financial institutions and trade etc,” Chehab told CNBC last week.
China — long among the top 2 foreign holders of U.S. Treasurys — has been steadily reducing its holdings of U.S. Treasury securities.
Analysts say changing global economic dynamics are driving the co-called de-dollarization trend which can benefit local economies in a number of ways.
Trading in local currencies “allow exporters and importers to balance risks, have more options to invest, to have more certainty about the revenues and sales,” former Brazilian ambassador to China, Marcos Caramuru, told CNBC last week.
Another benefit for countries moving away from using the dollar as the middle man in bilateral trade, is to “help them move up the value chain,” said Mark Tinker from ToscaFund Hong Kong told CNBC “Street Signs Asia” early April.
“It isn’t about selling cheap stuff to Walmart, keeping down the prices for American consumers in order to earn dollars to buy its energy. This is now about actually a completely bilateral trade bloc,” Tinker said.
Meanwhile, growth of non-U.S. economic blocs also encourage these economies to push for wider use of their currencies. The IMF estimates that Asia could contribute more than 70% to global growth this year.
“U.S. growth might slow, but U.S. growth isn’t what it’s all about anymore. There is a whole non-U.S. block that’s growing,” said Tinker. “I think there is going to be a re-internationalization of flows.”
Geopolitical risks have also accelerated the trend to move away from U.S. dollar.
“Political risk is really helping introduce a lot of uncertainty and variability around how much of a safe haven that U.S. dollar really is,” said Galvin Chia from NatWest Markets told “Street Signs Asia” earlier.
Tinker said what accelerated the calls for de-dollarization was the U.S. decision to freeze Russia’s foreign currency reserves after Moscow invaded Ukraine in February 2022.
The yuan has reportedly replaced the U.S. dollar as the most traded currency in Russia, according to Bloomberg.
So far, the U.S. and its western allies have frozen more than $300 billion of Russia’s foreign currency reserves and slapped multiple rounds of sanctions on Moscow and the country’s oligarchs. This forced Russia to switch trade toother currencies and increase gold in its reserves.
Although analysts don’t anticipate a complete break away from dollar-denominated oil trade over the short-term, “I think what they’re saying more is, well, there’s another player in town, and we want to look at how we trade with them on a bilateral basis using yuan,” said Chehab.
Despite the slow erosion of its hegemony, analysts say the U.S. dollar is not expected be dethroned in the near future — simply because there aren’t any alternatives right now.
“Euro is somewhat an imperfect fiscal and monetary union, the Japanese yen, which is another reserve currency, has all sorts of structural challenges in terms of the high debt loads,” Chehab told CNBC.
The Chinese yuan also falls short, Chehab said.
“If you look at the yuan reserves as a share of total reserves, it’s only about 2.5% of total reserves, and China still has current account restrictions,” Chehab said. “That means that it’s going to take a long time for any other currency, any single currency to really usurp the dollar from that perspective.”
Data from IMF shows that as of the fourth quarter of 2022, more than 58% of global reserves are held in U.S. dollar — that’s more than double the share of the euro, the second most-held currency in the world.
The international reserve system “is still a U.S.-reserve dominated system,” said NatWest’s Chia.
“So long as that commands the majority, so long as you don’t have another currency system or economy that’s willing to step up to that international reach, convertibility and free floating and the responsibility of a reserve currency, it’s hard to say dollar will be displaced over the next 3 to 5 years. unless someone steps up.”
— CNBC’s Joanna Tan and Monica Pitrelli contributed to this report.
Employees prepare orders at ‘Wok to Walk’ restaurant in the Soho district in London, UK, on Friday, Sept. 30, 2022. UK retailers are facing a mortgage time bomb, with rising interest rates set to have twice the impact on consumer finances as the recent surge in utility bills, according to a Deutsche Bank analyst. Photographer: Jose Sarmento Matos/Bloomberg via Getty Images
Bloomberg | Bloomberg | Getty Images
For workers struggling with the soaring cost of living, the idea that rising wages are concerning has always seemed laughable. But they had some policymakers and economists worried last year.
Minutes from the U.S. Federal Reserve’s March 2022 meeting showed unease that “substantial” wage increases would fuel higher prices.
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In the U.K. the discussion was even more blunt, with Treasury officials publicly saying there was an inflationary risk from workers expecting wages to keep up with price rises. Bank of England Governor Andrew Bailey even went so far as to call for “restraint in pay bargaining” (and Germany’s finance minister made a similar plea).
The experts were worried about a so-called wage-price spiral. This occurs when workers expect inflation to keep rising, so demand — and achieve — higher salaries to keep up with price rises. Businesses then raise the prices of goods and services to cover higher labor costs, at the same time as workers have more disposable income to increase demand. This creates an inflationary loop, or in the language of economists, “second-round effects.”
This is argued to have happened in the 1970s, when inflation hit 23% in the U.K. and 14% in the U.S. in 1980.
But while concerns this time around aren’t totally gone, what’s being discussed more frequently now is the fact that a wage-price spiral has not occurred in the 18 months or so that inflation has been running red-hot in much of the world.
The European Central Bank’s March minutes, released Thursday, say wages have “had only a limited influence on inflation over the past two years.” Treasury Secretary Janet Yellen has also said she doesn’t see a wage-price spiral in the U.S.
And at the International Monetary Fund’s spring meetings session, the group’s chief economist, Pierre-Olivier Gourinchas, told CNBC it’s not something he is worried about in relation to the global economic growth outlook.
“What we’ve seen in the last year is prices rising very rapidly, but wages have not increased nearly as much, and that’s why we have a cost of living crisis,” Gourinchas said, after noting that core inflation remained high in many countries and in some cases was increasing.
“We should expect wages to catch up eventually and people’s real income to recover,” he said. Real income refers to wages adjusted for inflation, reflecting changes in purchasing power.
But the increase doesn’t present a risk because “the corporate sector has been sitting on pretty comfortable margins,” Gourinchas continued. Businesses’ revenues “have risen faster than costs, and so margins have room to absorb rising labor costs.”
The ECB’s March minutes say their analysis found the “increase in [corporate] profits had been significantly more dynamic than that in wages.”
There has also been increased discussion about how those corporate profits are contributing to inflation.
In a recent note, economists at ING looked at Germany, where inflation is increasingly a demand-side issue. While cautioning that so-called “greedflation” cannot be proven and there are variations by sector, they wrote that there are signs companies have been hiking prices ahead of the rise in their input costs, and that “from the second half of 2021 onward, a significant share of the increase in prices can be explained by higher corporate profits.” They call this a profit-price spiral.
The president of the Netherlands’ central bank, Klaas Knot, in December urged companies to raise wages for workers and said that 5%-7% pay rises in sectors that could afford it, combined with government energy bill support, would help balance the effects of inflation rather than fueling it.
Kristin Makszin, assistant professor of political economy at Leiden University, agrees. She told CNBC that while both wages and prices are rising, we can’t ignore external factors driving up wages (including the tight labor market) and prices (such as supply shortages).
“Since the Global Financial Crisis, wages have not recovered,” she said. In the U.S. for example, an annual wage increase of around 3.5% would be considered positive, accounting for 2% inflation and 1.5% productivity growth, but it has lagged behind this, Makszin said.
“It’s not that a wage-price spiral couldn’t happen, but it’s low on the list of concerns versus the factors we know are problematic,” she said. These include a potential downward low-wage-productivity spiral — when wages aren’t sufficient to get people back into the workforce or areas where they are needed, dampening productivity and therefore economic growth.
A key mechanism that would fuel a wage-price spiral, workers’ bargaining power, has been weakened because unions have less power than in the 1970s, Makszin added.
But with a tight labor market, people can just refuse to work — and that’s an area policymakers need to address, she said. “In sectors like U.S. hospitality, wages have increased dramatically, but that was correcting for many decades of low-paid work when labor was replaceable … it could be viewed as compensating for long-term wage stagnation,” she continued.
The country that is the “most vulnerable developed market economy” when it comes to a wage-price spiral is the U.K., according to Alberto Gallo, chief investment officer at Andromeda Capital Management.
Figures published this week showed U.K. wage growth slowed less than expected in the three months to March 2023, rising by 6.9% in the private sector and 5.3% in the public sector. Meanwhile, inflation remains above 10%, ahead of 7.8% in Germany and 5.3% in the U.S.
The risk, Gallo said, is from a mix of structural factors that contribute to stagflation. While low- and middle-income households are struggling with the soaring cost of food and other basics and higher rates are eroding people’s purchasing power in a highly-leveraged housing market, the central bank is actually keeping real rates — interest rates adjusted for inflation — at the most negative level in developed markets.
Meanwhile, the British pound is weak — and 50% of the country’s goods are imported — and foreign labor has been restrained by Brexit.
“We’re coming from a period where real wages have been stagnant for a long time and high inflation is finally pushing workers into strong renegotiations,” Gallo said. “But if you let interest rates go down against inflation and in effect weaken, you have an inflation spiral. Core goods [inflation] has come down but core services are not coming down,” Gallo said.
Richard Portes, professor of economics at London Business School, told CNBC there is “no serious risk” of a wage-price spiral in the U.K., U.S., or major European countries, however. He also cited reduced union power in the private sector as a notable change from the 1970s.
“If you look at core inflation in the U.S., rentals, housing, have been driving that. That’s got nothing to do with wages — with rentals, it’s more sensitive to interest rate rises,” he added.
There is evidence — including from the IMF — that wage-price spirals aren’t common. The IMF research found very few examples in advanced economies since the 1960s of “sustained acceleration” in wages and prices, with both instead stabilizing, keeping real wage growth “broadly unchanged.” As with so much in economics, the idea that wage-price spirals even exist has also been challenged.
For Kamil Kovar, an economist at Moody’s Analytics, the scenario was always seen as a risk, not necessarily likely. But he, too, said that as time progresses it has become clear that it is not happening.
Wages are likely to increase fairly rapidly for Europe, but there’s “so much scope for wages to catch up with prices, to get to a spiral situation we would need something totally different to happen,” he said. The ECB expects real wage growth of around 5% this year.
Real wages in Europe are so much lower than before the pandemic they could increase another 10% without going into a “danger zone,” Kovar said; while in the U.S. they are roughly equal but exiting the risky zone.
When comparing the current situation to the 1970s, Kovar said there were some similarities such as an energy shock; back then it was in oil, whereas this time it is bigger and broader, impacting electricity and gas too. There has also been a more rapid drop in energy prices as this shock has subsided.
And again, he noted the ongoing growth in corporate profits and the absence of powerful unions as yet more factors for why this time it’s different.
“It’s an example of how we are slaves to our historical parallels,” he said. “We potentially overreact even if the underlying situation is different.”
Workers prepare reinforcing steel at the One Galle Face project developed by China Harbour Engineering, a unit of China Communications Construction, in Colombo, Sri Lanka, on March 31, 2018.
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At its peak, China’s Belt and Road Initiative was seen as the centerpiece of Beijing’s engagement with the world.
Now, a decade after its rollout, observers say the ambitious strategy to build infrastructure trade links across Eurasia and beyond is losing steam, with some questioning the ongoing viability of Beijing’s mega-project.
“Beijing went on a lending spree and issued thousands of loans worth nearly a trillion [dollars] for big-ticket infrastructure projects spread across 150 countries” over the decade,said Bradley Parks, executive director of AidData, a research group at the College of William and Mary in Virginia.
“Now, many borrowers are having difficulty repaying their infrastructure project debts to Beijing,” according to Parks. “In 2010, only 5% of China’s overseas lending portfolio supported borrowers in financial distress. Today, that figure stands at 60%,” he told CNBC.
Xue Gong, a nonresident scholar at Carnegie China, in March noted the momentum behind the project “appears to be slowing thanks to the repercussions of debt sustainability, the coronavirus pandemic fallout, and China’s own economic slowdown.”
Since it started, China’s cumulative Belt and Road projects have totaled $962 billion — including $573 billion in construction contracts and $389 billion in non-financial investments, according to a report by Fudan University in Shanghai.
“Beijing faces a major loan repayment challenge, and it’s responding with a strategic pivot,” said Parks. “It’s ramping down infrastructure project lending and ramping up emergency rescue lending.”
China’s embassy in Singapore told CNBC that “it is true that the debt risks facing developing countries have recently risen significantly, but there are various external factors.”
“We never force others to borrow from us. We never attach any political strings to loan agreements, or seek any selfish political interests,” a spokesperson said. “We have always done our utmost to help developing countries ease their debt burden.”
Parks of William and Mary was one of the authors of a report published in March by researchers at AidData, the World Bank, Harvard Kennedy School, and the Kiel Institute for the World Economy.
According to the report, China issued 128 emergency rescue loans worth $240 billion to 22 countries — including Pakistan, Sri Lanka and Turkey, among others. Nearly 80% of the loans were made between 2016 and 2021, the report said.
But China’s emergency bailouts don’t come cheap, the study pointed out.
“The typical rescue loan by Chinese banks requires interest rates of 5 percent,” the report said. Those rates are “considerably higher than the average IMF interest rate, which has been around 2 percent for non-concessional lending operations over the past 10 years.”
The report raises questions about “the long-term sustainability” of China’s whole initiative, said Parks. “I think this is only a sign of things to come.”
Chinese efforts to revamp Belt and Road have been underway since 2020, according to one observer.
“The expansion strategy before that was not working well,” said Weifeng Zhong, senior research fellow at the Mercatus Center at George Mason University in Virginia, who claimed Xi is “trying to salvage Belt and Road with the post-2020 overhaul.”
Zhong said he did an analysis late last year about how the People’s Daily, the state-controlled newspaper for the ruling Chinese Communist Party, had discussed the initiative over the past decade.
During the Belt and Road Forum, at the International Conference Center in Yanqi Lake, north of Beijing, on May 15, 2017, where leaders of China, Russia, Turkey and Indonesia gathered among others.
Ng Han Guan | Afp | Getty Images
“When it covered the initiative, the People’s Daily used to emphasize ambitious economic outlook for the infrastructure projects and the destination countries,” he said.
According to Zhong, since 2020, the focus has shifted to the importance of the so-called “high-quality development.”
“A nod to the concern that many Belt and Road projects were not economically viable to begin with. The initiative at the minimum hasn’t been cost-effective.”
A slowing global economy, rising interest rates and high inflation have left many countries struggling to repay their debts to China.
In South Asia, debt to China has risen from $4.7 billion in 2011 to $36.3 billion in 2020 — and Beijing is now the largest bilateral creditor to Maldives, Pakistan, and Sri Lanka, according to a World Bank report on international debt statistics for 2022.
“The increased indebtedness in many Belt and Road countries is a direct consequence of Beijing’s overshooting in the pre-2020 phase,” said Zhong.
“China not only tried to lend to many infrastructure projects that couldn’t find other lenders otherwise, it also aimed for commercial, or at least not so concessional terms, making the repayment even less likely,” he added.
For countries grappling with financial distress and “don’t want to face up to economic adjustment immediately, China is the easy first option,” said to Gabriel Sterne, head of emerging markets macro at Oxford Economics.
“China may sometimes be inclined to grant the loan. I don’t see that changing any time soon,” he said.
But the former IMF economist added the “ongoing wave of debt crisis will teach China a lesson.”
“That debt sustainability should be part of the lending criteria and that there are big economic and political costs of holding out against providing debt relief on par with other creditors,” said Sterne, adding Beijing should have placed “more emphasis on grants rather than loans for countries with high debt burdens.”
The Chinese embassy in Singapore told CNBC “China attaches importance to debt sustainability,” and has issued guiding principles to deal with the issue in collaboration with developing countries “to improve their debt management capacity.”
China’s loans have long drawn criticism from Western nations, and some have cast the project as “debt-trap diplomacy.”
The debt-trap argument alleges Beijing strategically ensnares borrowers with loans they cannot repay, in order to exert political influence over them later.
If China wants to “put to rest the narrative that it is engaging in predation and entrapment,” it needs to be transparent about its overseas lending practices, said Parks.
Beijing has “aroused suspicion and fueled speculation about its actions and motivations by refusing to disclose comprehensive and detailed information about the individual projects that it funds,” he added.
“To date, none of the partner countries have accepted the claim” that the initiative “has created ‘debt traps,’” said the Chinese embassy in Singapore.
China has always carried out its financing practices with “openness and transparency,” the embassy insisted, noting that most of the projects were commercially contracted and the Chinese government wasn’t a stakeholder.
So far, Xi’s tighter-than-ever grip on power doesn’t exactly inspire optimism — on the initiative or otherwise.
Weifeng Zhong
George Mason University in Virginia
“Whether the details or loan agreements of the projects could be shared to the public is not the business of the Chinese government,” the spokesperson said.
But analysts generally agree that for all its lending issues, China will not abandon the mega-project, since it’s closely intertwined with Xi’s legacy.
In March, Xi formally clinched an unprecedented third term as president for another five years, further consolidating his power.
“Now that the government transition is over, it remains to be seen whether a pragmatic faction, perhaps, led by the new premier Li Qiang, will emerge,” said Zhong from George Mason.
“If so, whether it will meaningfully take part in improving Belt and Road’s lending quality,” he added. “So far, Xi’s tighter-than-ever grip on power doesn’t exactly inspire optimism — on the initiative or otherwise.”
Brendan Wallace, co-founder and managing director at Fifth Wall, says the Middle East is the “natural place” to think about when it comes to the “imperative” to decarbonize the real estate industry.
The banking sector turmoil that led to the collapse of several lenders was not a systemic crisis and has now subsided, according to Tim Adams, CEO of the Institute of International Finance.
The fall of Silicon Valley Bank in early March — the largest banking failure since the global financial crisis — triggered a wave of market panic that swept through the sector in Europe and the U.S.
Markets have since stabilized, leading many to conclude that the problems were unique to the stricken banks and do not pose a systemic risk. However, the ripple effect has dented the economic outlook in many advanced economies.
Speaking to CNBC on the sidelines of the International Monetary Fund Spring Meetings in Washington D.C. on Tuesday, Adams said the March chaos was a “period of market turmoil or turbulence,” but dismissed the notion that it was a “crisis.”
“We have over 4,000 banks in the United States, we have about 10,000 banks globally that are part of SWIFT and 35,000 financial institutions around the world — 99.999% of them opened their doors over the past month and had no problems whatsoever — [it’s] really just a few isolated idiosyncratic institutions,” Adams told CNBC’s Joumanna Bercetche.
“So I think it is not a crisis, I think it was market turbulence, it has subsided, it has stabilized, but we need to be vigilant and we need to watch for other stresses in the system.”
The IIF is a global trade body for the financial services industry, with around 400 members in more than 60 countries. Adams said the primary concern among members was the downside risk to growth, particularly in advanced economies.
The IMF on Tuesday lowered its five-year global growth forecast to around 3%, marking the lowest medium-term forecast in an IMF World Economic Outlook report since 1990.
The D.C.-based institution’s Chief Economist Pierre-Olivier Gourinchas told CNBC on Tuesday that the turmoil in the banking sector had weakened the growth outlook, especially in the face of rapid monetary policy tightening from central banks that have sharply increased lenders’ funding costs and increased vulnerabilities.
“There are risks, there are geopolitical risks which we can talk about, but the downside risks are real and we just don’t know how deep they are,” Adams said.
“The Fed’s going to probably tighten again, we have other central banks in Europe and the U.K. tightening, so there are risks to the downside.”
Regulators in the U.S. and Europe took swift action to quash contagion risk in the face of the various banking collapses last month. However, U.S. Treasury Secretary Janet Yellen asserted on Tuesday that the banking system remains well capitalized, with ample liquidity.
Adams suggested many of the regulators he had spoken to, including those involved in developing the Dodd Frank and Basel III frameworks in the aftermath of the financial crisis, did not believe major regulatory changes were necessary this time around.
“It’s a very different system than [what] was prevailing in 2007, 2008. I do think we need to better understand what went wrong at certain institutions like SVB, I think we do need to ask what happened to supervision, but I don’t think we’re going to see regulatory changes,” he added.
Interest rate rises have increased banks’ vulnerabilities — and their response presents a significant risk to global growth, the International Monetary Fund’s chief economist warned Tuesday.
“We are concerned about what we have seen in the banking sector, particularly in the U.S. but maybe also in other countries, might do to growth in 2023,” Pierre-Olivier Gourinchas told CNBC’s Joumanna Bercetche in Washington, D.C.
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Central bank hikes have increased funding costs for banks, while lenders have also seen some losses in assets like long-term bonds.
“Banks are in a more precarious situation. They have healthy cushions, but it’s certainly going to lead them to be a little bit more prudent and maybe cut down lending somewhat,” Gourinchas said.
In one scenario, the IMF sees banks tightening lending further than at present, bringing its forecast of 2.8% global growth in 2023 down to 2.5%.
Gourinchas said its models had also forecast a more adverse scenario where financial stability is not contained.
“That would lead to massive capital flows from the rest of the world trying to go back to safety, going to U.S. Treasurys, dollar appreciation, increasing risk premia, loss of confidence,” he said. In this scenario, the IMF sees the world economy growing at about 1% for this year. But the risks of this are comparatively low, Gourinchas noted, at about 15%.
The IMF on Tuesday released its latest global growth report, which contained its weakest medium-term growth expectations for more than 30 years.
Financial stability has been in the spotlight in recent months, amid the collapse of several U.S. banks, the snap sale of Credit Suisse in Europe, and turmoil in the U.K. bond market that nearly toppled pension funds last fall.
Gourinchas told CNBC that the debate around central bank rate hikes had shifted from growth versus inflation to financial stability versus inflation.
He said central banks and financial authorities have shown they have the tools to address pockets of instability, for example U.S. regulators guaranteeing deposits for Silicon Valley Bank customers and Bank of England gilt purchases. “Monetary policy should stay focused on bringing inflation down, that’s our recommendation at this point,” Gourinchas concluded.
The International Monetary Fund has released new economic forecasts and warns that it will be hard for policymakers to bring down inflation while keeping a growth momentum.
Ishara S. Kodikara | Afp | Getty Images
The International Monetary Fund on Tuesday released its weakest global growth expectations for the medium term in more than 30 years.
The D.C.-based institution said that five years from now, global growth is expected to be around 3% — the lowest medium-term forecast in an IMF World Economic Outlook since 1990.
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“The world economy is not currently expected to return over the medium term to the rates of growth that prevailed before the pandemic,” the Fund said in its latest World Economic Outlook.
The weaker growth prospects stem from the progress economies like China and South Korea have made in increasing their living standards, the IMF said, as well as slower global labor force growth and geopolitical fragmentation, such as Brexit and Russia’s invasion of Ukraine.
These forces are now overlaid by and interacting with new financial stability concerns.
In the short term, however, the IMF expects global growth of 2.8% this year and 3% in 2024, slightly below the fund’s estimates published in January. The new estimates are a cut of 0.1 percentage points for both this year and next.
“The anemic outlook reflects the tight policy stances needed to bring down inflation, the fallout from the recent deterioration in financial conditions, the ongoing war in Ukraine, and growing geoeconomic fragmentation,” the IMF said in the same report.
Looking at some of the regional breakdowns, the IMF sees the United States economy expanding by 1.6% this year and the euro zone growing by 0.8%. However, the United Kingdom is seen contracting by 0.3%.
China’s GDP is expected to increase by 5.2% in 2023, according to the IMF, and India’s by 5.9%. The Russian economy — which contracted by more than 2% in 2022 — is seen growing by 0.7% this year.
“The major forces that affected the world in 2022 — central banks’ tight monetary stances to allay inflation, limited fiscal buffers to absorb shocks amid historically high debt levels, commodity price spikes and geoeconomic fragmentation with Russia’s war in Ukraine, and China’s economic reopening—seem likely to continue into 2023. But these forces are now overlaid by and interacting with new financial stability concerns,” the IMF warned.
The IMF said that its baseline forecast “assumes that the recent financial sector stresses are contained.” It comes after a number of banks failed in March, causing volatility across global markets.
The pressures in the banking sector have dissipated in recent weeks, but they have made the overall economic picture worse in the eyes of the IMF.
“Financial sector stress could amplify and contagion could take hold, weakening the real economy through a sharp deterioration in financing conditions and compelling central banks to reconsider their policy paths,” the fund said.
The bank failures shed light on the potential consequences of hawkish monetary policy across many major economies. Higher interest rates, raised by central banks battling to bring down stubbornly high inflation, are hurting companies and national governments with high levels of debt.
“A hard landing — particularly for advanced economies — has become a much larger risk. Policymakers may face difficult trade-offs to bring sticky inflation down and maintain growth while also preserving financial stability,” the IMF said.
The institution expects global headline inflation to drop from 8.7% in 2022 to 7% this year, as energy prices come down. However core inflation, which excludes volatile food and energy costs, is expected to take longer to fall.
In most cases, the IMF does not expect headline inflation to return to its target levels before 2025.
Sweden’s house prices are expected to continue to plummet.
Bloomberg / Contributor / Getty Images
Sweden has long had one of Europe’s hottest housing markets, but prices have tumbled and are not set to recover for a long time, according to Danske Bank. Economists are also warning of a “false dawn,” as recent housing data suggests a slight uptick in prices.
Danske previously projected a 20% drop, peak to trough, in Swedish house prices. It has since revised that figure to a 25% dip, meaning prices are currently “still only half-way to the bottom,” according to Danske Bank’s Nordic Outlook report.
Prices are currently down by 12% from the peak recorded in February last year, according to the bank’s data.
Danske’s rival bank Nordea maintains its previous forecast of a 20% dip in house prices, peak to trough, but says that the risk is larger to the downside, rather than to the upside.
“We’re still very concerned about the housing market, and we think that there’s a lot of downward pressure still for house prices,” Gustav Helgesson, an analyst at Nordea, told CNBC.
The data shows house prices rose by 1% compared with February. When adjusted for seasonality, the increase translates into a small decline of 0.3%, with house prices typically growing slightly at the start of each year.
The figure came as a “small surprise” to Jens Magnusson, chief economist of Swedish bank SEB.
“I was expecting a lower number [on Thursday],” Magnusson told CNBC, describing the positive momentum as “a little bit premature.” SEB is maintaining its forecast of a 20% drop in Swedish house prices, but with downside risk.
We’re not out of the woods.
Gustav Helgesson
Analyst at Nordea Bank
Nordea had also anticipated a decline in prices in the first few months of 2023.
“We’re quite surprised by the unchanged price development in the beginning of the year in non-adjusted figures … I would call this a false dawn,” Helgesson told CNBC before the latest house price data from Svensk Maklarstatistik was released. “We’re not out of the woods.”
The National Institute of Economic Research recently adjusted its forecasts to a more shallow dip in house prices, now seeing a drop of between 15% and 20% — compared with its previous projection near the higher 20% end of that decline range. Despite being more positive, its outlook is still “really pessimistic” according to Emil Brodin, economist at the NIER.
“Our forecast is the bank will increase rates again and that the house prices will continue to decline, but not as much as they did in 2000 and in the autumn,” Brodin told CNBC.
A lower volume of new listings and low transaction levels contributed to the higher-than-expected prices.
The Swedish housing market is particularly sensitive to interest rate movements, as around half of mortgages are financed with variable rates and many people have short-term fixed rates.
Sweden’s central bank unexpectedly started hiking its interest rate in April 2022, just three months after the bank signaled it would not be lifting rates.
Rates then continued to increase, jumping from 0.25% to 0.75% in July, then to 1.75% in September, 2.5% in November, and finally to 3% in the most recent policy statement.
Nordea anticipates a stabilization of the housing market in the second half of 2023, projecting further rate hikes until June. It then expects a policy rate plateau for the rest of the year.
The bank sees a “calm price development” in 2024, when house prices will start to rally but won’t see a dramatic return to earlier heights.
The [Riksbank] probably feels under immense pressure from inflation.
Nordic Outlook report
Danske Bank
The SEB anticipates house prices will start to recover in the summer or early fall this year and would be “surprised” if the housing market were to stabilize before then.
“We remain slightly pessimistic on the housing market for now,” Magnusson said.
Danske Bank also estimated Sweden’s central bank will reach the end of its hiking cycle by the summer, prompting house prices to start to stabilize. But it will be a long time before they fully recover.
“It will probably then be a couple of years before housing prices return to the previous trend seen in 2005-2019,” Danske Bank wrote in its report.
The bank doesn’t expect the central bank to lower its policy rate until inflation reaches its 2% target – a significant reduction from its current rate of 12%.
“The bank probably feels under immense pressure from inflation not showing any signs of peaking and actually accelerating,” Danske Bank wrote.
The Riksbank — Sweden’s central bank — declined to comment when contacted by CNBC.
“China’s growth recovery and north Asia’s earnings rebound in 2024 remain our key investment themes and overweight areas,” Goldman Sachs’ strategists, led by Timothy Moe, wrote in a Saturday note.
Vcg | Visual China Group | Getty Images
It’s been a dramatic quarter for Asia-Pacific stock markets, but strategists are expecting the region to be in better shape than its global peers.
Stocks in the Asia-Pacific were mixed on the first day of trade of the second quarter of the year, with economists predicting China’s recovery will cushion the dampening effect of high global interest rates on the regional economy.
Mainland China’s bourses led gains in the wider region on Monday, with the Shenzhen Component closing its session 1.4% higher and the Shanghai Composite up by 0.72%.
“China’s growth recovery and north Asia’s earnings rebound in 2024 remain our key investment themes and overweight areas,” Goldman Sachs’ strategists, led by Timothy Moe, wrote in a Saturday note.
The firm reiterated its expectations for China’s economy to grow by 6% this year — more than the government’s target of “around 5%.” The Goldman strategists said their views are supported by strong activity data seen in the previous quarter.
S&P Global Ratings, in its second quarter outlook report, added that although China’s growth may not completely erase the impact of a global slowdown on Asia-Pacific markets, it will provide some support.
“China’s economy is on track to recover this year. For other economies this will dampen but not offset the hit of slower growth in the U.S. and Europe, the fading impact of domestic re-opening post the pandemic, and higher interest rates,” S&P’s Asia-Pacific economists Louis Kuijs and Vishrut Rana wrote in the report.
“We maintain our cautiously optimistic outlook for Asia-Pacific,” S&P economists wrote.
It erased all of the gains by mid-March to fall below levels seen at the start of the year, and recently saw a rally of about 5%. That puts the index at a year-to-date gain of 3.62% as of last week’s close.
The index fell nearly 0.24% in a volatile first trading day of the quarter on Monday.
Goldman Sachs strategists added that overall macroeconomic conditions are beneficial for markets in the Asia-Pacific.
“The partial replacement of expectations of higher Fed rate hikes by lower US growth is relatively more favorable for most Asian economies,” Goldman strategists wrote, adding that “Asia appears relatively resilient to the recent DM [developed markets] banking stresses,” referring to recent banking turmoil in the United States and Europe.
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BNP Paribas took a similar view.
“We think risks to Asian banks are limited,” BNP Paribas’ Manishi Raychaudhuri said in a March 27 note, describing the region’s debt-to-GDP ratios as relatively “safe.”
“Asia’s USD debt fell over the past 3 years and most Asian economies’ forex reserves appear safe relative to forex debt,” he wrote in the note.
“Liquidity remains abundant in Asia. Interest rates also have not risen too sharply in Asia,” he said.
Neil Brown, head of equities at GIB Asset Management, discusses the outlook for central bank interest rate policy and says that the Federal Reserve may not hike rates much higher, but will likely keep them elevated throughout 2023 and into 2024.
A Union Jack flag flies near the Elizabeth Tower, commonly referred to as Big Ben, at the Houses of Parliament in central London, U.K., on March 29, 2017.
Justin Tallis | AFP | Getty Images
Britain struck a historic trade deal to join a vast Indo-Pacific trade bloc after nearly two years of intense negotiations.
The U.K. said this was the country’s largest post-Brexit trade deal and makes it the first European nation to join the CPTPP, since it came into force in 2018.
Prime Minister Rishi Sunak hailed the deal and said it puts the U.K. at the center of a dynamic and growing group of Pacific economies.
“We are at our heart an open and free-trading nation, and this deal demonstrates the real economic benefits of our post-Brexit freedoms,” he said in a statement. “British businesses will now enjoy unparalleled access to markets from Europe to the south Pacific.”
The trade bloc spans Canada, Mexico, Japan, Australia, Vietnam, Singapore and Malaysia, among others. The agreement is expected to be formally signed at the end of the year, after final approval from Parliament and the 11 member states.
The trade pact evolved out of the now-defunct Trans-Pacific Partnership, or TPP, that originated in the United States but fell apart after former President Donald Trump scrapped U.S. involvement.
Britain said the deal will cut tariffs on exports of food, drink and cars, and will grant access to a market of around 500 million people and will be worth 15% of global GDP once the UK joins the trade bloc.
The U.K. estimates joining the CPTPP will boost its economy by £1.8 billion in the long term and lift wages by £800 million compared with 2019 levels.
The trade secretary, Kemi Badenoch, said the deal sends a “powerful signal” that Britain is using its “post-Brexit freedoms to reach out to new markets around the world and grow our economy.”
Natalie Black, the U.K.’s trade commissioner for Asia Pacific, called it a “progressive deal” for Britain.
“This deal is, yes, about economic performance today. But is very, very much about economic performance in the future,” she told CNBC’s “Squawk Box Asia” on Friday.
“This is the part of the world that is going to drive economic growth, and also drive the rules of the road of trade going forward. We want to be part of those discussions.”
Still, it remains to be seen how much the deal actually benefits Britain’s growth prospects. Based on the government’s own estimates, the deal will raise long-term domestic GDP by just 0.08%, which will do little to offset the European trade losses incurred as a result of Brexit.
Deborah Elms, executive director of the Asian Trade Centre, said it’s very hard to calculate these trade figures, especially based on existing trade flows.
“If you are a U.K. company, you probably have limited existing trade flows to many of the CPTPP countries like Australia, New Zealand, Japan and Singapore, ” she told CNBC’s “Capital Connection.” “Simply, because the distance is far and because you used to be very tightly enmeshed with the European Union.”
The trade flows are always “under what you actually are likely to see in the reality as businesses recognize the benefits and start to use a trade agreement like the CPTPP,” she added.
Still, negotiations to finalize trade deal, haven’t always been easy. An impasse between Britain and Canada over agricultural market access had to be smoothed over to remove the final hurdle in closing the agreement.
“This has been a complex deal to negotiate,” acknowledged Black. “We’ve been negotiating across multiple time zones across a range of complex issues. And they’re not always straightforward. But, ultimately, all parties have agreed that the U.K. is a great new member of CPTPP.”
There are many “aspirant economies” who have either “declared that they want to formally join or we know are interested in joining,” said Black.
While the trade commissioner said it “wouldn’t be appropriate” to comment on individual economies, she noted the barriers to joining the trade bloc are very high.
“It’s really up to those who come behind us to make sure they meet the expectations of members of having high quality applications.”
