US Business

The OECD warned Wednesday that the world economy will pay a “hefty price” for Russia’s invasion of Ukraine as it slashed its 2022 growth forecast and projected higher inflation.

The Paris-based organisation, which represents 38 mostly developed countries, is the latest institution to predict lower GDP growth due to the conflict, which has sent food and energy prices soaring.

In its latest economic outlook, the Organisation for Economic Co-operation and Development said global gross domestic product would grow by three percent in 2022 — down sharply from the 4.5 percent estimated in December.

The OECD also doubled its forecast for inflation among its members — which range from the United States to Australia, Japan, and Latin American and European nations — to 8.5 percent, its highest level since 1988. 

“The world is set to pay a hefty price for Russia’s war against Ukraine,” wrote the OECD’s chief economist and deputy secretary-general, Laurence Boone, adding that a “humanitarian crisis is unfolding before our eyes”.

“The extent to which growth will be lower and inflation higher will depend on how the war evolves, but it is clear the poorest will be hit hardest,” Boone said.

“The price of this war is high and will need to be shared.”

Before the war broke out, the outlook had appeared “broadly favourable” for 2022-23, with growth and inflation expected to return to normal after the devastating Covid-19 pandemic, said the OECD.

However, “the invasion of Ukraine, along with shutdowns in major cities and ports in China due to the zero-Covid policy, has generated a new set of adverse shocks,” it said.

– Food shortage risk –

The OECD was supposed to publish its outlook in March, but it delayed its detailed assessment until now due to uncertainty over the war. At the time, it said the conflict could cut global GDP growth by “over one percentage point”.

The World Bank revised its own figures on Tuesday, lowering its global growth forecast from 4.1 percent to 2.9 percent. The IMF cut its forecast by nearly one point to 3.6 percent in April.

The OECD cut its growth forecast for the United States from 3.7 percent to 2.5 percent and that of China, the world’s second biggest economy, from 5.1 percent to 4.4 percent. The eurozone’s GPD is now seen growing by 2.6 percent instead of 4.3 percent while Britain’s outlook was lowered to 3.6 percent from 4.7 percent.

The OECD noted that commodity prices had risen, hitting real income and spending, “particularly for the most vulnerable households”.

“In many emerging-market economies the risks of food shortages are high given the reliance on agricultural exports from Russia and Ukraine,” it said.

The report warned that the “effects of the war in Ukraine may be even greater than assumed”, raising as an example a scenario of Russia cutting gas supplies to Europe.

As central banks tighten their monetary policies to counter inflation, the report said sharp increases of interest rates could also hit growth more than anticipated.

– Covid risk –

The Covid pandemic, meanwhile, could take another turn for the worse.

“New more aggressive or contagious variants may emerge, while the application of zero-Covid policies in large economies like China has the potential to sap global demand and disrupt supply for some time to come,” the OECD said.

Faced with these challenges, governments needed to protect the most vulnerable from the economic shockwaves, it added.

In the short term, “temporary, timely and well-targeted” fiscal measures would help the poorest households, the OECD said.

Over the medium- and long-term, governments would have to invest more in clean energy and defence spending.

“The world is already paying the price for Russia’s aggression,” wrote Boone.

“The choices made by policymakers and citizens will be crucial to determining how that price will be distributed across people and countries.”

Stock markets were lower on Wednesday as investors weighed the prospect of recession with inflation soaring around the world. 

The yen fell to new lows against both the dollar and euro after the Bank of Japan — in contrast with other central banks — decided not to raise interest rates to rein in combat runaway consumer prices.

Just a day after the World Bank slashed its forecasts for global growth, the OECD warned that the world economy would pay a “hefty price” for Russia’s invasion of Ukraine and inflation would keep rising.

The Paris-based Organisation for Economic Co-operation and Development predicted that the world economy would grow by three percent this year — much slower than its previous estimate of 4.5 percent in December.

Market sentiment “continues to remain extremely fickle, prone to the ebb and flow of inflation expectations, followed by fears that central banks will overreact in combatting inflation (and) concern about what that might do to global growth,” said CMC Markets analyst Michael Hewson. 

“This argument over whether we see a recession… is likely to become a lot clearer over the next week or so,” he said, pointing in particular to the release of US inflation data on Friday. 

European stock markets were in the red in mid-afternoon trading and Wall Street also opened lower following two days of gains. 

Earlier in Asia, stock prices had rallied as China eases Covid lockdown restrictions and is forecast to lift its crackdown on the tech sector.

China’s approval of dozens of new video game releases sent shares of some of its biggest tech firms soaring Wednesday.

Global equities have enjoyed some respite in recent weeks from a painful sell-off caused by central bank monetary tightening, in particular by the US Federal Reserve.

The new inflation data on Friday will provide a clearer idea about the pace of future Fed rate hikes.

In Europe, the European Central Bank is on Thursday expected to signal an end to its bond-buying, paving the way for an interest rate increase further down the line. 

“The reality for the economy and probably the stock markets is that aggressive central bank rate hikes are likely to take a sharp bite out of household consumption,” said SPI Asset Management’s Stephen Innes.

Hungarian inflation has reached double figures for the first time in 20 years, official data showed Wednesday.

High oil prices, a major factor behind the surge in inflation, were up again on Wednesday. 

– Key figures at around 1340 GMT –

New York – Dow: DOWN 0.7 percent to 332,958.91 points

London – FTSE 100: DOWN 0.4 percent at 7,568.47

Frankfurt – DAX: DOWN 0.9 percent at 14,423.15

Paris – CAC 40: DOWN 1.1 percent at 6,431.22

EURO STOXX 50: DOWN 0.7 percent at 3,781.13

Tokyo – Nikkei 225: UP 1.0 percent at 28,234.29 (close)

Hong Kong – Hang Seng Index: UP 2.2 percent at 22,014.59 (close)

Shanghai – Composite: UP 0.7 percent at 3,263.79 (close)

Dollar/yen: UP at 134.05 yen from 132.62 yen late Tuesday

Euro/dollar: UP at $1.0747 from $1.0715 

Pound/dollar: DOWN at $1.2558 from $1.2592

Euro/pound: UP at 85.59 pence from 85.02 pence

Brent North Sea crude: UP 0.8 percent at $121.58 per barrel

West Texas Intermediate: UP 0.6 percent at $120.10 per barrel

burs/spm/jj

Russia and Turkey made little headway on Wednesday in talks aimed at securing safe passage for Ukrainian grain exports, as a Russian sea blockade triggered new warnings of deadly famine.

Prior to the war, Ukraine was a major exporter of wheat, corn and sunflower oil, but shipments have been blocked since Russia invaded its neighbour in late February, causing food prices to soar worldwide.

Countries in the Middle East and Africa depend on Ukraine’s exports, raising fears of hunger in those countries.

At the request of the United Nations, Turkey has offered its services to escort maritime convoys from Ukrainian ports, despite the presence of mines — some of which have been detected near the Turkish coast.

“We are ready to ensure the safety of ships that leave Ukrainian ports,” Russian Foreign Minister Sergei Lavrov said at a news conference with Turkish counterpart Mevlut Cavusoglu after talks in Ankara.

Ukraine, which was not part of the talks in Turkey, has said it is ready to create conditions to resume exports from its ports, but it seeks security guarantees not to be attacked by Russia. 

But Russia’s chief diplomat blamed Ukraine for the situation.

“Grain can be freely transported to destinations, there are no obstacles from Russia,” Lavrov said. 

Referring to Ukraine’s president, he said “it is necessary that Mr (Volodymyr) Zelensky give an order, if he is still in charge of something there, to allow foreign and Ukrainian ships to enter the Black Sea.”

Lavrov also said Russia was ready to provide guarantees it would not launch any attacks if Ukraine de-mined ports.

“We are ready to do this in cooperation with our Turkish colleagues.”

– ‘Condemning millions to death’ –

Cavusoglu said the UN plan was “reasonable” and “implementable”, and he offered to host a meeting in Istanbul to discuss the details of the scheme.

“We prepared a plan for food corridors,” a Turkish diplomatic source said. 

“We presented it to Russia but as you see during the press conference, Russia sends the ball into the court of Ukraine,” added the source, who declined to be named.

Zelensky said this week that the amount of grain blocked by the war could triple within several months.

At separate talks on the global food crisis, Italian Foreign Minister Luigi Di Maio warned that millions of people could die of hunger unless Russia lifted its blockade.

“The next few weeks will be crucial to resolving the situation,” he said after a virtual meeting involving Turkey and Lebanon among other Mediterranean countries, alongside G7 president Germany and the UN’s Food and Agriculture Organization.

“I want to say clearly, we expect clear and concrete signals from Russia, because blocking grain exports means holding hostage and condemning to death millions of children, women and men.”

– Russian exports –

Turkey, which hosted talks between Russian and Ukrainian foreign ministers in March aimed at ending the war, has positioned itself as a neutral mediator as it maintains a delicate balancing act between its two Black Sea neighbours. 

At the press conference, Cavusoglu said it was also important to export Russian goods as much as the Ukrainians, calling Moscow’s demands for an end to sanctions to help grain onto the world market “legitimate.”

“If we need to open up the international market to Ukrainian grain, we see the removal of obstacles standing in the way of Russia’s exports as a legitimate demand,” he said.

Soner Cagaptay, a specialist on Turkey for the Washington Institute think tank, said the UN-led plan that would allow Russia to trade with the outside world “could work.”

“Because ultimately this is about food security. Yes, people don’t want Russia to make money but at the same time nobody wants famine,” he told AFP.

Russia and Ukraine produce 30 percent of the global wheat supply.

Cagaptay said some progress could be made in the future, but it might require Turkish President Recep Tayyip Erdogan to meet Russian counterpart Vladimir Putin in the Russian southwestern city of Sochi, “where there’s nobody around to eavesdrop.” 

Disney will not release blockbuster animation “Strange World” in French cinemas, it said Wednesday, in protest against the country’s strict streaming rules.

Under French law, the company’s streaming platform, Disney+, would have to wait 17 months to show the movie after its release in cinemas, which had been due in November.

Disney told AFP it would instead send “Strange World” straight to streaming and skip cinemas entirely, confirming reports by movie website Deadline and French paper Les Echos.

Helene Etzi, Disney France president, told Les Echos that France’s rules were “unfair, constraining and poorly adapted to audience demands.”

“Strange World” is one of its most-anticipated releases of the year, with Jake Gyllenhaal voicing the lead character in the English version of the fantasy adventure tale. 

France has tried to prevent streaming platforms from undermining its large cinema network and the TV stations — notably Canal Plus — that finance many of its films and get a shorter wait for prime releases.

The National Federation of French Cinemas said it “protested with the greatest vigour against Disney’s desire to deprive the French of its Christmas animated film.”

The debate over how long to wait between cinema and streaming releases has also been fierce in Hollywood — though with much shorter delays being considered. 

After trying various strategies at the height of the Covid-19 pandemic, the US industry has settled on 45 days as the optimum gap. 

Scarlett Johansson sued Disney last year for loss of earnings after it released “Black Widow” simultaneously to cinemas and streamers. 

Director Denis Villeneuve said the same move by Warner Bros for his sci-fi blockbuster “Dune” showed “absolutely no love for cinema”. 

Even a 45-day window was reportedly not enough for Tom Cruise, who is rumoured to have launched legal action against Paramount to get a longer delay for his next “Mission: Impossible” instalment next year. 

So far, Disney has no plans to pull “Lightyear” from French cinemas — the “Toy Story” spin-off is due later this month. 

But the fate of other massive productions — including sequels to “Black Panther” and “Avatar” — rests in the balance. 

“We continue to evaluate the situation film by film and country by country,” said Disney’s Etzi.

Stock markets diverged Wednesday as investors weighed recession prospects and inflation around the world hit the highest levels in decades.

The yen hit fresh multi-year lows against the dollar and euro with the Bank of Japan refusing to raise interest rates to combat high consumer prices, in contrast to rival central banks.

The OECD on Wednesday warned that the world economy would pay a “hefty price” for Russia’s invasion of Ukraine as it slashed its 2022 world growth forecast and said inflation to keep rising.

The Organisation for Economic Co-operation and Development predicted that the world economy would grow three percent this year — down sharply on its 4.5-percent estimate in December.

“This argument which the market appears to be having with itself, over whether we see a recession… is likely to become a lot clearer over the next week or so, starting with US” inflation data Friday, noted Michael Hewson, chief market analyst at CMC Markets UK.

European stock markets were lower Wednesday approaching the half-way stage and after Asian indices had rallied as China eases Covid lockdown restrictions and is forecast to lift its crackdown on the tech sector.

China’s approval of dozens of new video game releases sent shares of some of its biggest tech firms soaring Wednesday.

Global equities have enjoyed some respite in recent weeks from a painful sell-off caused by central bank monetary tightening, in particular by the Federal Reserve.

All eyes are on the release of US inflation data for a clearer idea about the pace of future Fed rate hikes.

India on Wednesday announced a fresh hike of its own, one day after Australia unveiled an increase to borrowing costs twice as big as forecast.

The European Central Bank is Thursday expected to signal an end to its bond-buying, paving the way for an interest rate increase in the eurozone.

“The reality for the economy and probably the stock markets is that aggressive central bank rate hikes are likely to take a sharp bite out of household consumption,” said SPI Asset Management’s Stephen Innes.

Hungarian inflation has reached double figures for the first time in 20 years, official data showed Wednesday.

High oil prices, a major inflationary contributor, were up more than one percent.

– Key figures at around 1045 GMT –

London – FTSE 100: DOWN 0.4 percent at 7,571.83 points

Frankfurt – DAX: DOWN 0.5 percent at 14,484.59

Paris – CAC 40: DOWN 0.7 percent at 6,456.96

EURO STOXX 50: DOWN 0.3 percent at 3,796.44

Tokyo – Nikkei 225: UP 1.0 percent at 28,234.29 (close)

Hong Kong – Hang Seng Index: UP 2.2 percent at 22,014.59 (close)

Shanghai – Composite: UP 0.7 percent at 3,263.79 (close)

New York – Dow: UP 0.8 percent to 33,180.14 (close)

Dollar/yen: UP at 133.98 yen from 132.62 yen late Tuesday

Euro/dollar: UP at $1.0722 from $1.0715 

Pound/dollar: DOWN at $1.2538 from $1.2592

Euro/pound: UP at 85.51 pence from 85.02 pence

Brent North Sea crude: UP 1.2 percent at $122.02 per barrel

West Texas Intermediate: UP 1.4 percent at $121.03 per barrel

Global clothing giant Inditex, which owns Zara, posted Wednesday a surge in its first-quarter profits despite closing its stores in Russia after its invasion of Ukraine.

The world’s biggest fashion retailer said its net profit increased by 80 percent in the first three months of its financial year to April 31, compared to the same period last year.

It said it made 760 million euros ($812 million) in profit, against 440 million euros ($470 million) during the first quarter of the 2021 financial year, which was hit hard by the coronavirus pandemic.

The hike in profits came despite a 216-million-euro provision for estimated costs arising from the impact of the Ukraine war, without which its income would have risen to almost “940 million euros”, it said.

The group, which since April has been led by Marta Ortega, daughter of its multi-billionaire founder Amancio Ortega, reported sales of 6.74 billion euros, up 36 percent from the same period in 2021. 

The fashion group, which owns eight brands including upmarket Massimo Dutti and teen label Stradivarius, had warned that 2022 sales would be impacted by Russia’s invasion of Ukraine.

After Russia sent in troops in late February, Inditex closed all its stores in Ukraine and on March 5 suspended all retail activity in Russia, its biggest market after Spain, shutting its 502 shops and suspending all online transactions. 

Inditex said that stopping sales activity in Russia had been offset by “strong growth” in other regions, notably the United States.

Analysts had expected the Spanish retail giant to be hard hit by its Russian pullout decision given that it generates 10 percent of its turnover and 8.5 percent of its operating profit in the country. 

Wednesday’s results were broadly in line with analysts’ expectations, with Factset seeing profits of 770 million euros against a turnover of 6.27 billion euros. 

Online sales, which had surged during the pandemic, fell by 6.0 percent, although Inditex said it expected the figure to reach “30 percent of total sales” by 2024.

Shares in the world’s biggest fashion retailer were trading 4.23 percent higher in late morning trade on the Madrid stock exchange. 

When the pandemic first took hold two years ago, the group saw its profits nosedive as the virus forced it to shutter most of its shops in the first half of 2020.