AFP

The world economy will take a bigger hit than previously forecast next year due to the effects of Russia’s war in Ukraine, the OECD said Monday.

In a bleak report titled “paying the price of war”, the Paris-based organisation noted that the conflict aggravated inflationary pressure when the cost of living was already rising quickly.

Covid outbreaks are still having an impact on the global economy while growth has also been affected by rising interest rates as central banks scramble to cool red-hot prices, the OECD said.

“A number of indicators have taken a turn for the worse, and the global growth outlook has darkened,” the Organisation for Economic Co-operation and Development said in the report.

Global growth stalled in the second quarter of this year and data in many economies “now point to an extended period of subdued growth”, the OECD said.

The organisation slashed its 2023 growth forecast for the global economy to 2.2 percent, down from 2.8 percent in its previous estimate in June.

– German recession –

The outlook for nearly all nations in the Group of 20 top economies was cut, except for Turkey, Indonesia and Britain, though the latter is forecast to have zero growth.

Growth in the United States — the world’s biggest economy — is forecast to slow to 0.5 percent in 2023.

The growth forecast for China, whose economy has been hit by strict Covid lockdowns, was cut sharply for this year to 3.2 percent while it was slightly lower to 4.7 percent for 2023.

Germany is now expected to go into recession next year with Europe’s biggest economy now seen shrinking by 0.7 percent — a 2.4-percentage-point drop from the previous forecast.

The country’s economy has been hit the hardest in Europe as it has relied heavily on Russian supplies of natural gas, which Moscow has cut significantly in suspected retaliation to Western sanctions.

The eurozone as a whole will post meagre growth of 0.3 percent, a sharp downgrade from 1.6 percent.

The OECD kept its 2022 global growth forecast unchanged at three percent after previously lowering it.

To highlight the impact of Russia’s invasion of Ukraine, the OECD said global output in 2023 is now projected to be $2.8 trillion lower than previously estimated before the conflict in December 2021.

– ‘Significant uncertainty’ –

The war has sent energy and food prices soaring over concerns about supply as Russia is a major oil and gas producer while Ukraine is a key exporter of grains to countries across the world.

Inflation had already been on the rise before the conflict due to bottlenecks in the global supply chain after countries emerged from Covid lockdowns.

“The effects of the war and the continuing impacts of Covid-19 outbreaks in some parts of the world have dented growth and put additional upward pressure on prices,” the OECD said.

“Inflationary pressures have become increasingly broad-based, with higher energy, transportation and other costs being passed through into prices,” it said.

The OECD raised its inflation forecast for the G20 to 8.2 percent for 2022 and 6.6 percent for next year.

Governments have announced emergency measures to help households and businesses cope with the soaring cost of living.

But the fiscal measures to offset energy costs “have been poorly targeted”, the OECD said.

Central banks, meanwhile, have ramped up interest rates, a move necessary to tame inflation but that can also push economies into recession.

The monetary tightening is a “key factor slowing global growth”, the OECD said.

The organisation warned that “significant uncertainty surrounds the projections” for the global economy.

More severe fuel shortages could shave off a further 1.25-percentage-points from Europe’s economy in 2023 and a half-point for global growth

The pound hit a record low against the dollar Monday on surging fears about the UK economy after the government unveiled a huge tax-cutting budget.

The selloff came as equity markets across Asia and Europe fell again owing to a growing expectation that central bank interest rate hikes to fight runaway inflation would lead to deep and painful recessions. Oil also suffered more hefty selling.

Officials in several countries including the United States, Britain, Switzerland and Sweden announced more increases in the cost of borrowing.

The moves sent equity markets deep into the red again after officials reiterated their focus on fighting inflation, even if that means causing a recession.

But the biggest casualty of the week was the pound, which fell below $1.10 for the first time since 1985 as new finance minister Kwasi Kwarteng announced his controversial mini-budget.

It then extended the losses Monday to briefly touch an all-time low of $1.0350 in Asian trade after he said he intended to unveil further reductions, despite his budget causing ructions on London’s markets.

It also fell to a two-year low against the euro, though the single currency remains under pressure against the dollar, sitting at 2002 levels.

Now, observers are warning that the pound could fall even further.

“The pound’s crash is showing markets have a lack of confidence in the UK and that its financial strength is under siege,” said Jessica Amir, of Saxo Capital Markets. 

“The pound is a whisker away from parity and the situation is going to only worsen from here.”

Kwarteng, who was appointed by Liz Truss after she became prime minister earlier this month, said he planned to slash taxes to kickstart the British economy and provide cash to cushion families from rocketing energy costs.

But investors were spooked by the huge amount of borrowing likely needed for the multi-billion-pound package, which critics said would benefit the rich far more than the poorest during a cost-of-living crisis.

Sterling’s drop has led to speculation the Bank of England will have to step in with an emergency interest rate hike to give the currency a much-needed shot in the arm.

– ‘Macau casinos soar’ –

“Whether or not the UK government announcement of the biggest tax reduction since 1972… will in time yield a significant growth dividend is not something markets are yet willing to contemplate,” said National Australia Bank’s Ray Attrill.

“Instead, they were consumed by worries over the scale of near-term UK government financing needs, at a time when the current account deficit is running at more than eight percent of GDP.”

He added: “Chatter about a possible UK sovereign rating downgrade has already begun.”

And former US treasury secretary Lawrence Summers was scathing of Britain’s recent monetary policy decisions.

“It makes me very sorry to say, but I think the UK is behaving a bit like an emerging market turning itself into a submerging market,” he told Bloomberg Television’s Wall Street Week last week.

“Between Brexit, how far the Bank of England got behind the curve and now these fiscal policies, I think Britain will be remembered for having (pursued) the worst macroeconomic policies of any major country in a long time.”

The collapse in sterling came as markets across the world are sent into a spin by recession worries caused by a sharp tightening of monetary policy by central banks fighting decades-high inflation. 

New York’s three main indexes ended well down, with the Dow at a two-year low, and Asia followed suit.

Tokyo shed more than two percent as traders there returned from a long weekend break, while Seoul was off more than three percent, with Sydney, Shanghai, Mumbai, Singapore, Taipei and Jakarta also tanking.

Hong Kong was also down having reversed early gains that came after the city said it would relax strict hotel quarantine measures for international travellers.

Still, Macau casino stocks rallied as the city said it would accept Chinese tour groups again from November, having been blocked during the pandemic.

London edged up tentatively after Friday’s hammering, while Paris and Frankfurt were also higher.

Oil prices ticked lower, extending the big losses suffered Friday as expectations that a recession is looming hammer demand expectations.

The surging greenback added to the sell-off in crude, which is priced in dollars and therefore ore expensive for buyers using other currencies. 

Both main contracts are sitting at their lowest levels since January, having wiped out all the gains seen in the wake of Russia’s invasion of Ukraine.

Black Gold Investors’ Gary Ross described the strong dollar as “a wrecking ball for commodities”.

– Key figures at around 0810 GMT –

Pound/dollar: DOWN at $1.0700 from $1.0852 on Friday

Euro/pound: UP at 90.40 pence from 89.28 pence 

Euro/dollar: DOWN at $ 0.9673 from 0.9695

Dollar/yen: UP at 143.96 yen from 143.31 yen

London – FTSE 100: UP 0.3 percent at 7,039.64

Tokyo – Nikkei 225: DOWN 2.7 percent at 26,431.55 (close)

Hong Kong – Hang Seng Index: DOWN 0.4 percent at 17,855.14 (close)

Shanghai – Composite: DOWN 1.2 percent at 3,051.23 (close)

West Texas Intermediate: DOWN 0.2 percent at $78.58 per barrel

Brent North Sea crude: DOWN 0.4 percent at $85.84 per barrel

New York – Dow: DOWN 1.6 percent at 29,590.41 (close)

Usually the engine-room of the Ukrainian economy, heavy industry has fallen victim to Russia’s invasion, with output ground down under the pressure of the war. 

In the gigantic ArcelorMittal steelworks and iron mine complex in Kryvyi Rih, three of the four blast furnaces have been shut down, while the mine lies dormant. 

The last working blast furnace, a cathedral of metal surrounded by colossal pipes, was running on low gear when AFP visited.

Much of the site which sprawls over 70 square kilometres — two-thirds the size of the city of Paris — and normally employs 22,000 people was running below normal operations. 

A handful of workers took turns tending a small river of glowing metal, while square steel beams clank along a treadmill in a cavernous hangar nearby. 

The complex in the southern city close to the frontline is considered a national jewel by Ukrainians. 

Bought in 2005 by ArcelorMittal for nearly $5 billion, its products are sold internationally — including for the Burj Khalifa skyscraper in Dubai, the tallest in the world. 

But after the invasion began in February, work halted for a month when Russian troops approached Kryvyi Rih. 

Production eventually restarted, but at a reduced tempo. 

By the end of August, output was “between 15 and 20 percent” of the corresponding period in 2021, according to Artem Filipiev, the site’s deputy director.

– Logistical headaches –

“We keep the site running, that’s our mission,” Filipiev told AFP.  

Some 2,000 of the site’s employees are currently fighting in the Ukrainian army, and 17 have been killed, so keeping the plant functional is “not just about profit…(but) social responsibility”, he said. 

Among the myriad logistical headaches the war has caused for Ukraine’s industrial sector are how to maintain supplies, keep customers, and deliver products.

Moscow now controls the major Black Sea ports of Mariupol and Berdiansk in southeast Ukraine. 

Ports in the southwest like Odesa and Chernomorsk remain in Ukrainian hands, although Russia — under strong international pressure — has only allowed their use for grain exports.

“The ports are closed, the metallurgical industries of Mariupol were among our main consumers of iron ore, clients in Zaporizhzhia have also slowed down their activity, our iron mines are at a standstill,” said Sergiy Milutin, deputy mayor of Kryvyi Rih.  

ArcelorMittal — which exports 85 percent of its products — says it now uses rail and river transport for deliveries, mainly via Poland and the Baltic Sea, as well as Romania. 

But the costs have “multiplied by two or three” for steel producers, Marina Bozkurt, an analyst with Rystad, told AFP. 

– ‘De-economisation’ –

The months-long shelling by Russia of Ukrainian troops entrenched in the Azovstal steelworks in Mariupol showed the resilience of such Soviet-era infrastructure — but ultimately the facility was left destroyed. 

By September, over 420 Ukrainian industries and companies had been damaged or destroyed by the war, comprising an estimated loss of $30 billion, according to the Kyiv School of Economics.

Mining and manufacturing processing industries made up 17 percent of Ukraine’s GDP in 2021, and the sector “is part of the economic security” of the country, said Dmytro Goryunov, an economist with the Centre for Economic Strategy. 

The importance of heavy industry for the economy explains why Russia pounds it, according to Anatoly Kovaliov, rector of the Odessa National University of Economics. 

“After three days of failed ‘blitzkrieg’, of absolute fiasco, the Russians understood that they would not take our country easily, so they decided to destroy it”, Kovaliov told AFP. 

The Kremlin has an aim of “de-economisation”, he said. 

Ukrainian GDP collapsed by 37 percent in the second quarter of 2022 compared to the same period last year, according to Goryunov.

According to Kovaliov, the country needs a good five to eight years of reconstruction once it wins the war, which he believes is a certainty.

“We will need a Marshall Plan,” he said, referring to the US-devised giant economic rescue scheme to rebuild Europe after World War II. 

Germany luxury carmaker Porsche is gunning for a blockbuster IPO on the Frankfurt Stock Exchange this week. Here are five facts about the automobile giant: 

– Dial 911 –

Porsche made waves at the Frankfurt international motor show in 1963 when it unveiled a new car with a six-cylinder engine designed to succeed its 356 model. 

The manufacturer originally intended to call it the 901 — but Peugeot had already laid claim to all the three-digit numbers with a zero in the middle, prompting Porsche to settle for 911. 

The number is now strongly linked to the brand — to call the company, 911 is on every phone number after the local dial code. The company’s capital amounts to 911 million shares, and its shares will be traded under the code P911.

– Electric car pioneer –

Volkswagen, the parent company of Porsche, has launched a well-publicised drive to dump combustion engines — but in fact, it produced its first electric vehicles over a century ago. 

At the Porsche museum in Zuffenhausen, southern Germany, a kind of old stage coach described as the first Porsche in history is on display.

Built in 1898 by the company’s founder Ferdinand Porsche, the “Egger-Lohner C.2 Phaeton” ran on electric power. 

Two years later, Porsche unveiled a new model the “Lohner-Porsche”, a petrol-electric hybrid. 

– On screen – 

Porsches have made regular appearances on the silver screen over the years. One of the best-known instances is the 1971 movie “Le Mans”, starring Steve McQueen as Michael Delaney, an American driving a Porsche 917 against a German rival in a Ferrari at the famous 24-hour race in France. 

In the 1995 cop film “Bad Boys”, Will Smith’s character drives a 911 Turbo, as he and a fellow detective investigate the theft of a massive haul of heroin from a police vault. 

One of Hollywood star Tom Cruise’s earliest hits, 1983 teen comedy “Risky Business”, features a Porsche 928. Cruise’s character is forbidden from driving the car while his parents are away — but he does just that, and it ends up sinking into a lake. 

In “Scarface”, Al Pacino — playing a Cuban immigrant who becomes a powerful drug lord in Miami — also drives a Porsche 928. 

– And in motorsports – 

Porsche is one of the world’s biggest race car manufacturers. After enjoying moderate success with early models on long-distance races in the 1950s and 60s, the 917 drove the manufacturer to a coveted first victory at the Le Mans 24 Hour Race in 1970, an event it has triumphed in repeatedly since.

The iconic 911 has done particularly well in rallies, including the Monte Carlo rally. 

The manufacturer has also raced in Formula One. They had a team from 1957-62, although they only raced in two complete seasons 1961/62, with their only victory Dan Gurney’s in the 1962 French Grand Prix.

They returned to the circuit in 1983 providing the engines for the McLaren team and enjoyed great success — McLaren won two successive constructors championships in 1984 and 1985.

However, its negotiations with Red Bull for a partnership that would have allowed them to return to F1 failed earlier this month. 

– Porsche and Piech – 

The Porsche-Piech family are the main shareholders of the Volkswagen group, and have roots in Germany’s auto industry stretching back decades.

An Austrian-born engineer, Ferdinand Porsche was founder of the luxury car brand that bears his name. In addition, he created the Volkswagen Beetle and designed the iconic, open-top Mercedes-Benz SSK sports car. 

During World War II, he contributed to the German war effort by helping produce weapons systems, and was a member of the Nazi party. He died in 1951. 

Ferdinand Piech was the grandson of Ferdinand Porsche. Chief executive of VW from 1993 to 2002, he helped to transform the group into a global auto giant in the face of fierce competition, particularly from rivals in Asia. 

He reorganised the group and cleaned up its books at the cost of tens of thousands of jobs, and was a notoriously tough manager nicknamed “the emperor” and “the patriarch” by German media. 

He died in 2019.