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Scooped by
Graham Watson
onto International Economics: IB Economics May 4, 7:05 AM
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Exclusive: Union body finds workers describing themselves as ‘gambling’ because wages felt like the outcome of chance rather than work
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G77 nations spend $8tn a year servicing debts, but analysis shows how comprehensive relief could benefit social spending
Graham Watson's insight:
A report for the UN Secretary-General argues that the G77 nations spend $8tn per year servicing their debts, and that if borrowing costs were lowered they could free up $900bn for development spending. It's a clear example of the opportunity cost of debt interest repayments, and intuitively it would seem to make sense.
However, you need to be careful: lowering debt service costs might trigger a moral hazard issue in encouraging developing economies to take on more debt that is economically rational, at that's undesirable too.
The biggest issue is perhaps the identity of the lenders, with private lenders renowned for refusing to write-off debt and as Oxfam's head of inequality notes, it seems perverse that they place greater store on debt repayments than paying for education and healthcare for some of the world's poorest citizens.
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Jet fuel has doubled in price since the start of the war on Iran. How bad will the disruption get and could this accelerate the route to jet zero?
Graham Watson's insight:
Another reflection on how the higher price of aviation fuel is going to impact the world. Again, little in the way of theory but a very interesting look at the wider implications of the Iran conflict.
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Study warns women face job losses and increased unpaid care duties as debt and conflict-driven turbulence force spending cuts
Graham Watson's insight:
Gender-based inequality in a developing context, with the UN Development Programme's research suggesting that the effects of a rising debt burden falls most heavily on women.
Not only are they more prone to job losses resulting from this but they're also expected to shoulder a greater burden in the form of increased care responsibilities.
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From
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How much Donald Trump can do with the time he has left as president will depend massively on the cost of living.
Graham Watson's insight:
With the mid-term elections looming, this BBC piece looks at the state of the US economy and concludes that it's actually proved relatively resilient in terms of economic growth but that the cost of living is a significant issue, not least in terms of the inflationary effect of more expensive fuel.
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From
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A shortage of fertiliser due to the Iran conflict could reduce crop yields and push prices higher, says the boss of Yara.
Graham Watson's insight:
This could easily be a Microeconomic scoop, but I've put it here to reflect the developmental implications of what Svein Tore Holsether, the chief executive of Yara told the BBC.
He has emphasised that the interruption of the Iran war to the fertiliser supply chain could, at some point, start to cost the global economy up to 10 billion meals a week, and that those costs are going to fall most heavily on the global poor.
Without fertiliser, there's a real risk to food security, especially in sub-Saharan Africa, but more widely, there's going to be considerable food price inflation to come.
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From
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The zero-tariff regime gives China's soft power a boost, but may lead to uneven gains, say analysts.
Graham Watson's insight:
It has been argued that the country that has gained the most from the war with Iran is China, in as much as it benefits from the lack of certainty being provided by the United States, and can present itself as a counterpoint to that.
So, if you want certainty, then here's a lovely way of achieving that. China has announced that it is going to scrap tariffs on every African nation bar Eswatini. You should be able to draw how this might affect the price of African goods in Chinese markets, and the potential implications for economic welfare.
However, you have to bear in mind that China is already running a significant trade surplus with Africa, and given supply constraints, the size of the effect on African economies probably isn't as large as it might otherwise be.
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Fed officials cite elevated inflation, slow job growth and uncertainty in Middle East as reasons for holding rates
Graham Watson's insight:
Jerome Powell last interest rate decision as Chair of the Federal Reserve, after the confirmation of Kevin Warsh as his successor, sees the Fed keep rates unchanged at 3.5% to 3.75%.
In spite of the endless criticism of the outgoing Chair by President Trump, such a decision doesn't seem controversial, given that only one of the 12 members of the Fed board voted against leaving the rate unchanged. The President, of course, wants lower rates; however, he'd be wise to reflect upon the relative success that the Fed has had in bringing down inflation from 9.1% in the post-Ukraine period.
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Fishing companies can also access subsidies in loosening of state aid rules to cover fuel and fertiliser price rises
Graham Watson's insight:
The EU is trying to ameliorate the worst of the effects of the Iran conflict, with a minimum of paperwork by allowing individual firms to claim "up to 70% of the extra cost of fuel and fertilisers" and for energy-intensive firms in steel, chemicals and rail "able to claim up to 70% of the extra electricity cost of eligible consumption".
Their UK counterparts must be delighted; as should Brexit Leave voters who presumably weighed up the opportunity cost of lost EU state aid before voting.
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Several warning lights are flashing that have some wondering whether we are in the foothills of another financial crisis.
Graham Watson's insight:
I'll leave this here without comment: today's must read. Are we on the brink of another financial crisis? It couldn't come at a worse time...
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Big win for Donald Trump, who has accused organisation of ‘ripping off the rest of the world’ by inflating oil prices
Graham Watson's insight:
Wow! This could perhaps be the most significant economic effect of the Iran war, with the United Arab Emirates announcing that it intends to quit OPEC (the Organisation of Petroleum Exporting Countries), the cartel which plays a major role in determining global oil prices by establishing production quotas.
The UAE has been an OPEC member since 1967, but argues that leaving OEPC gives it greater flexibility as well as having negligible effect on the market in the immediate term. Longer-term it would allow the country to increase production calling into question the sustainability of the cartel going forward.
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From
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Tuna populations around the Pacific Islands could move away as ocean temperatures increase.
Graham Watson's insight:
This BBC article highlights the very real costs of climate change for the Pacific islands of Kiribati, with the prospect of higher sea temperatures driving tuna away from the islands and reducing the revenues earned from selling fishing licenses. It's a stark reminder of how reliant some states are on one commodity, how this may represent a barrier to development.
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With the price of fuel rising China's BYD says it is positioning itself to benefit from the global shift away from fossil fuels.
Graham Watson's insight:
A demonstration of lots of themes: shifting economic gravity, the green transition, the drawbacks of tariffs and the lack of innovation from established car manufacturers. However, in this article China's BYD are bold in effectively announcing that they don't need access to US markets to thrive: and they're right.
China is the world's largest market and with other economies growing why would they want to pay high tariffs to gain access to US market when they're already in a situation where demand for their cars outstrips supply at the current price.
And for America? Less choice and higher priced electric vehicles, which, if they ever want to take climate change seriously, they'll need to adopt at some point, and at the moment they're losing ground to Chinese manufacturers. economic grq
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Kevin Warsh, Trump’s ‘central casting’, has a long road ahead of convincing board members to lower interest rates
Graham Watson's insight:
President Trump seems to think that the Governor of the Federal Reserve can unilaterally set interest rates. If this is the case, then - as is not uncommon - he over-estimates the power of the individual.
As this article points out, Kevin Warsh might seem like the President's patsy, but this might not be the case. It even argues that Warsh's damascene conversion from inflation hawk to inflation dove might have a degree of validity if AI can deliver significant productivity gains. However, the uncertainty associated with the Trump regime won't make his job easier. However, even then to changing interest rates requires a majority of the board members to vote for it, and whilst two of them are Trump appointees, the other five aren't.
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The global semiconductor industry powers everything from artificial intelligence to everyday electronics, and is on track to become a $1 trillion market. But its supply chain is under growing strain, as geopolitical tensions and rising demand force companies and governments to rethink how chips are made and where they come from.
Graham Watson's insight:
This brilliant Bloomberg clip looks at the global supply chain for semi-conductor, looking at why they are central to the global economy and our growth prospects and how growing demand for them, driven by AI, represents a threat to this.
Is this the greatest threat to continued prosperity.
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Exclusive: Union body finds workers describing themselves as ‘gambling’ because wages felt like the outcome of chance rather than work
Graham Watson's insight:
The TUC are concerned that Uber drivers and others subject to so-called dynamic pay, determined by algorithms in much the same way as passenger fares are, might be being exploited by the companies that employ them.
Certainly, the extent to which there's a lack of clarity would be a concern, as not having certainty about one's earnings would create uncertainty and impose undue stress on drivers.
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From
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The bill is tied to the estate left by the firm's late chairman Lee Kun-hee, who died in October 2020.
Graham Watson's insight:
Ouch! An eye-watering Inheritance Tax bill that reflects South Korea's relatively high 50% inheritance tax rate.
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From
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The current level of tariffs charged on goods entering the US from the EU is 15%, under a deal negotiated last July.
Graham Watson's insight:
The US President is going to increase the tariff on EU cars to 25% next week, presumably on the basis of some perceived sleight - real or imagined. As a result, the EU is considering its next move, US consumers will face higher prices. Both sides claim the other is breaching the terms of last year's EU-US trade deal.
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From
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The US president said he would lift restrictions on Scotland's ability to work with the state of Kentucky on whisky and bourbon.
Graham Watson's insight:
And the very opposite of certainty, with the news that President Trump has removed tariffs on whisky in the wake of the King's visit to the US. It's significant because the US represents the largest foreign market for Scotch whisky and it also allows Kentucky bourbon manufacturers to work with UK-based manufacturers to whom they sell around £200m worth of barrels per year.
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ECB interest rate decision looms as growth across bloc stumbles and price rises gather pace, up from 2.6% in March and 1.9% in February
Graham Watson's insight:
As with other developed economies, the Eurozone has been impacted by the Iran war, with inflation up from 1.9% in February to 2.6% in March to 3% in April.
This comes in a week when the European Central Bank meets to determine interest rates, but I suspect that like the Fed and the Bank of England, the decision will reflect a "Wait and See" approach.
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From
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The BBC takes a look in charts at what the UAE's departure could mean for the oil cartel and more widely.
Graham Watson's insight:
The BBC clip look at the wider implications of the UAE's decision to leave OPEC, identifying all OPEC members, how much oil it currently produces and how its influence over the global market for oil has diminished from around half in the 1970s to around a third today.
Another article to complement the two articles I've scooped earlier today.
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Oil prices surged as talks on reopening of strait of Hormuz remain gridlocked, sending prices $1 higher than last year
Graham Watson's insight:
This could easily go on the Microeconomic board, but I'll put it here because of its implications for US inflation, and perhaps as significantly, the forthcoming mid-term elections.
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It will have little effect on the current oil blockades, but it could change everything afterwards.
Graham Watson's insight:
Faisal Islam explains why the UAE's decision to leave OPEC is such a big deal, highlighting the fact that although it's the 4th largest producer of oil, it has the 2nd highest spare capacity and thus has considerable ability to increase its output and in doing so lowering the global price of oil.
This will be accentuated if they develop pipelines that bypass the Strait of Hormuz, and start producing at, or close to, full capacity. It strikes me that the Emiratis have taken the view that as fossil fuels fall out of fashion, they may as well maximize their oil revenues now rather than later, and even with a lower oil price, they're insulate against the worst effects of this because they've already started to diversify, unlike some.
I like this article - it's excellent and also includes one of the most apposite quotes regarding the sector: as former Saudi oil minister, Sheikh Yamani said ""The Stone Age did not end because the world ran out of stones. The Oil Age will not end because the world runs out of oil."
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Critical week for global economy as banks expected to issue warnings over conflict driving up prices
Graham Watson's insight:
The Guardian observes that this week sees a number of central banks making interest rate decisions, with the consensus being that many, if not all of them, are going to hold borrowing costs where they are, as they wait and see what's going to happen next.
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Exclusive: International Energy Agency’s Fatih Birol, the world’s leading energy economist, also says UK should largely forgo North Sea expansion
Graham Watson's insight:
The head of the International Energy Agency, Fatih Birol fears that the Iran war signals the beginning of the end for fossil fuels, suggesting that consumers will have lost trust in the ability of the global economy to supply them without interruption. He notes that renewables represent a "no-regrets alternative", and that the implications of the war for related markets in helium, fertiliser and food are going to be long-lasting.
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US president accuses UK of thinking it can ‘make an easy buck’ from US tech companies, weeks after warning that UK–US trade deal can be changed
Graham Watson's insight:
Oh, here he goes again, the orange blowhard...
President Trump has accused the UK of thinking it can 'make an easy buck' from US tech firms operating here by imposing a digital services tax on them. As a result, he's threatening retaliatory tariffs, changing the nature of the proposed UK-US trade deal.
Of course, the President is likely to be unaware that in the absence of the digital services tax, US firms might think that they can 'make an easy buck' in the UK.
In short, he wants the playing field in every market to favour the United States, which in his mind will benefit the US but is likely to reduce the level of trade, and actually have adverse effects for everyone.
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The TUC are concerned that Uber drivers and others subject to so-called dynamic pay, determined by algorithms in much the same way as passenger fares are, might be being exploited by the companies that employ them.
Certainly, the extent to which there's a lack of clarity would be a concern, as not having certainty about one's earnings would create uncertainty and impose undue stress on drivers.