World

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.”

China has approved the release of dozens of new video games, sending the shares of some of its biggest tech firms soaring Wednesday on hopes that a long-running and painful crackdown on the sector is easing.

The announcement follows a report in The Wall Street Journal on Monday that said regulators were wrapping up their investigation into ride-hailing giant Didi and will allow it to register new users.

Officials in China — the world’s biggest gaming market — rolled out a series of restrictions last year as part of a sweeping government campaign to rein in huge tech firms.

They capped the amount of gaming time for children with the stated aim of fighting addiction and froze approvals for new games for nine months, hammering the bottom lines of many companies including sector titan Tencent.

China’s National Press and Publication Administration said Tuesday it had approved 60 new games, following the year’s first batch of approvals in April.

Titles from Tencent or rival NetEase were not among the latest approvals, but they did include games from Perfect World and miHoYo — developer of the international hit “Genshin Impact”.

“We are delighted to see established studios such as Perfect World, Shengqu Games, MiHoYo, and Changyou obtained approval titles this time, which we believe could indicate higher possibilities for Tencent’s and NetEase’s titles to be approved in coming batches,” said Citi analysts in a note.

“The approval announcement will also send a positive signal of policy support to the overall China Internet sector.”

Chinese tech stocks surged in Hong Kong on the news, building on the positive sentiment among investors and analysts after the report on Didi earlier in the week.

Tencent shares closed 6.5 percent up in Hong Kong while NetEase climbed 5.7 percent.

The gaming news also boosted other major tech stocks — Hong Kong market heavyweight Alibaba was up 10.1 percent and JD.com piled on more than six percent.

During the clampdown, hundreds of Chinese game makers pledged to scrub “politically harmful” content from their products and enforce curbs on underage players to comply with government demands.

Regulatory changes have hit China’s tech firms hard, wiping out nearly $2 trillion of market value since a 2021 peak, according to Bloomberg News.

China’s economy — the world’s second-largest — has been hammered in recent months by a series of major Covid lockdowns, and the government has rolled out a series of measures to resuscitate it.

Official guidance in recent days has called for more “predictable regulation” in tech, suggesting that some segments of government are willing to signal more clearly ahead of policy changes.

— Bloomberg News contributed to this story —

A train bell rouses a Thai grandmother dozing in her fruit and flower stall, sending her rushing to fold in her awning before the locomotive slowly rumbles past, so close it almost touches her wares.

Six times a day at the Mae Klong Railway Market, local customers and foreign tourists scramble into nooks and crannies while vendors calmly move their woven baskets of goods away from the tracks and close their umbrellas to make way.

Hundreds of stallholders carve out a living along this 500-metre stretch of railway in Samut Songkhram, 80 kilometres (50 miles) west of Bangkok, selling everything from fresh produce to live turtles to clothes and souvenirs.

“Even though it looks risky and dangerous, it’s not dangerous at all,” said fruit and vegetable vendor Samorn Armasiri.

Her family has run a stall in the bazaar — nicknamed in Thai “talad rom hup”, or the umbrella-pull-down market — for five decades, and she’s never witnessed an accident.

“When the train enters, officers sound the horn and everybody packs their stuff — they know the drill,” she said.

– Big train, tiny space –

The sides of the train carriages pass directly over — with just centimetres to spare — bags of lettuce, broccoli, onions, ginger, chilli, tomatoes and carrots placed carefully on the outside of the rails.

In recent years, the spectacle had become a hub for coconut-drinking backpackers in elephant pants and Instagram selfie enthusiasts, but the pandemic hit hard.

Now, with Thailand dropping Covid-19 entry restrictions, tourism is picking up once more.

Australian Ella McDonald, on a two-day stopover on her way to Turkey, was among those marvelling at the market’s organised chaos.

“It was crazy and hectic,” she told AFP. “I was shocked at how big the train was in the small amount of space.

“It’s a unique experience. I’ve never seen anything like this anywhere else in the world.”

– Not just for tourists –

Before Covid-19 hit, the market was also beloved by Chinese tourists buying durian — the pungent-smelling “king of fruit”.

Strict quarantine rules presently discourage would-be visitors from China, who once made up the largest share of foreign tourists in Thailand.

But even without them, fishmonger Somporn Thathom — a stallholder since 1988 — said business was finally picking up after two years of hardship and financial strain.

“During Covid, I barely made enough to pay my staff. I managed to sell 10 fish per day,” the 60-year-old said.

“I used up all my savings… and had to borrow money from the bank.”

Station manager Charoen Charoenpun believes the market’s authenticity ensures its popularity.

“It’s not made up. It’s not built for the tourists,” he said.

“The tourists, when they come they can see the tradition and culture of the local people of Samut Songkhram.”

But for eight-year-old Australian William, the pandemonium ensuing as the train passed through was captivating.

“The most exciting thing is when you get the train going past — just seeing the (market vendors) pack up,” he said.

Asian markets rallied Wednesday, building on a hearty performance on Wall Street and helped by the reopening in China, though analysts continue to warn of near-term volatility caused by surging inflation, rising interest rates and the Ukraine war.

Equities have enjoyed some respite in recent weeks from a painful sell-off caused by central bank monetary tightening — particularly by the Federal Reserve — and a spike in prices that is beginning to hit consumers, raising concerns of an economic slowdown or recession.

A retreat in US Treasury yields provided a lift to New York traders, as did a jump in Chinese firms listed there fuelled by growing optimism that Beijing is to ease back on its long-running crackdown against the tech sector.

The improved mood around tech has come after a report this week said China was close to ending a probe into ride-hailing app Didi Global and restoring its main apps this week.

The Wall Street Journal also said investigations into two other firms — Full Truck Alliance and recruitment platform Kanzhun — were coming to a conclusion.

And on Tuesday authorities approved a second batch of 60 games in a further step to lightening their approach in the world’s largest mobile entertainment market.

Citi analysts said the “announcement will also send a positive signal of policy support to the overall China internet sector”.

Market heavyweights rallied in Hong Kong with Alibaba up more than 10 percent, NetEase five percent higher and Tencent up nearly six percent, helping the Hang Seng Index climb more than two percent.

Shanghai, Tokyo, Sydney, Mumbai, Bangkok, Jakarta Taipei and Manila were also well in positive territory. Singapore, Wellington and Taipei were barely moved.

London, Paris and Frankfurt all followed the rally at the beginning of trade in Europe.

The moves come as Beijing relaxes its strict Covid lockdown measures, allowing the world’s number two economy to edge back into life after months.

“The bounce in risk sentiment is due to a more positive China tilt where the outlook is set to brighten up as Covid restrictions ease, and state-owned banks are obliged to increase lending again,” said SPI Asset Management’s Stephen Innes.

“It certainly feels like the tide is turning on the Mainland, though the overall tone still leans more cautiously optimistic, with key emphasis on ‘cautiously’.”

All eyes are on the release Friday of US inflation data for a better idea about the Fed’s plans as it hikes borrowing costs.

Officials are expected to lift rates half a point each in June and July with some commentators warning a strong report on Friday could allow them to unveil a three-quarter-point move in September.

Such a move would push the dollar up even further against its peers, with the unit at a 20-year high against the yen.

And observers said that the uncertainty would continue to cause volatility on markets as banks lift borrowing costs. India on Wednesday announced a fresh hike, a day after Australia unveiled an increase that was twice as big as forecast.

The European Central Bank is expected to signal an end to its bond-buying this week, paving the way for a rate hike later on.

“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 as costs of living pressures come from goods and services, depressed real wage gains and markedly higher mortgage servicing,” Innes added. 

“Hence, the central bank’s endgame is to cool inflation by slowing the economy and tightening financial conditions at stock market investors’ expense until price pressures abate.”

And Kate Moore at BlackRock explained to Bloomberg Television that “figuring out the direction over the next couple of months becomes increasingly difficult”.

“There seems to be across all of the investing segments a lack of strong conviction in the direction of the market. We are going to see a lot more investors remain on the sidelines, remain cautiously positioned.”

– Key figures at around 0715 GMT –

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

Hong Kong – Hang Seng Index: UP 2.1 percent at 21,992.16

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

London – FTSE 100: UP 0.2 percent at 7,615.59

Dollar/yen: UP at 133.25 yen from 132.62 yen late Tuesday

Euro/dollar: DOWN at $1.0690 from $1.0715 

Pound/dollar: DOWN at $1.2565 from $1.2592

Euro/pound: UP at 85.07 pence from 85.02 pence

Brent North Sea crude: UP 0.5 percent at $121.13 per barrel

West Texas Intermediate: UP 0.6 percent at $120.13 per barrel

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

India’s central bank on Wednesday hiked rates for a second time in as many months, as Asia’s third-largest economy reels from galloping inflation in the wake of the Ukraine war.

The Reserve Bank of India raised its key repo rate by 50 basis points to 4.90 percent, a month after kicking off an aggressive monetary tightening cycle with a surprise 0.4 percentage point lift in May.

“The war in Europe is lingering and we are facing newer challenges each passing day,” Bank governor Shaktikanta Das said in a televised address, pointing to higher food and fuel prices.

He added that inflation was a global problem but emerging economies were facing “bigger challenges”, with market turbulence following monetary policy shifts in advanced economies.

India bounced back strongly from the coronavirus pandemic with one of the world’s fastest growth rates, but is now grappling with rising costs as commodity prices skyrocket worldwide.

Consumer inflation has consistently overshot the central bank’s two-to-six percent target range in the first four months of the year, hitting an eight-year high of 7.79 percent in April.

India’s economy has seen sharp price increases across the board, including food and fuel.

Last month the government banned wheat exports to rein in prices after a heatwave hit local crop yields.

Officials also capped sugar exports to safeguard supplies, and slashed duties on fuel and edible oils to buffer consumer spending. 

India imports more than 80 percent of its crude oil needs, with its dependence growing as domestic production falls, and the country’s 1.4 billion people have been hit with rising petrol costs.

Prices have risen sharply since Russia’s invasion of Ukraine earlier this year, and economists estimate that a $10 per barrel increase in Brent crude increases consumer inflation in India by about 25 basis points.

– ‘No brainer’ –

The governor had extensively signalled Wednesday’s move in advance, calling a June rate hike a “no brainer” in a recent television interview.

India’s 0.4 percent rate rise in May had caught markets by surprise, though economists supported the move as a necessary counterweight to inflation pressures.

Kotak Institutional Equities economist Suvodeep Rakshit said Wednesday’s hike and inflation forecasts were “in line with market expectations”. 

Wednesday’s monetary policy resolution also signalled further tightening, with a greater emphasis on dialling back the accommodative stance taken during the pandemic.

The RBI retained its growth forecast at 7.2 percent for the 2022-23 financial year but sharply raised its inflation forecast to 6.7 percent, from 5.7 percent estimated last month.

The World Bank on Tuesday slashed its growth forecast for India in the current financial year to 7.5 percent, from 8.7 percent projected earlier.

A strong consumption recovery from the pandemic will be offset by “headwinds from rising inflation, supply chain disruptions, and geopolitical tensions”, the World Bank said in its report.

Indian stocks turned volatile after the announcement, with the benchmark Sensex index falling one percent before recovering to trade 0.32 percent higher at midday.