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Inflation: As the global economy deflates, here is what the coming crisis looks like | Economy and Business

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Last October, during the presentation of its World Economic Outlook, the International Monetary Fund (IMF) stated that “the global recovery is underway despite the resurgence of the pandemic.” The world’s growth was expected to be 4.9% in 2022.

In January of this year, however, the IMF’s projection for global GDP growth was lowered to 4.4%. In April, it was cut even further, leaving it at 3.6%, mostly as a result of the economic damage inflicted by the war in Ukraine.

Inflation – which already spiked at the end of 2021 due to rising employment and growing demand after the restrictions imposed by Covid-19 – has run amok to levels not seen in 40 years, mostly due to supply chain bottlenecks and the sharp rebound in energy costs. What was initially seen as a transitory situation has taken root, as the armed conflict in Ukraine stalls and second-round inflationary waves arrive.

Last year, to curb inflation by shrinking the money supply, the main central banks drew up a roadmap for the gradual withdrawal of economic stimulus, while still keeping interest rates low to give investors and borrowers breathing room in the post-pandemic years. This strategy of slowly increasing the price of money and shrinking federal balance sheets was laid to waste by Putin’s invasion. The Federal Reserve, the Bank of England and the European Central Bank have been forced to give a sharp turn and accelerate interest rate hikes to try and stifle burgeoning inflation, by slowing the levels of borrowing and consumer spending.

In a world addicted to liquidity since the response to the 2008-9 Great Recession, a much tighter monetary policy is a heavy blow to growth prospects. In addition to rising prices and interest rates, the world will now likely have to contend with higher unemployment. However, each region has its own peculiarities. In the following reports, we analyze the situation of the world’s four major economic zones.

Nord Stream 2 gas pipeline in Lubmin (Germany).
Nord Stream 2 gas pipeline in Lubmin (Germany).Michael Sohn
EUROPEAN UNION

The euro zone walks a tightrope again

LLUÍS PELLICER

The European economy is walking along a narrow tightrope, trying to maintain its balance in the face of two tumultuous forces: rising energy prices and declining growth. Both are intensifying as the invasion of Ukraine continues.

Everything indicates that Southern Europe is preparing to shine this summer, with its coastlines well-populated after two years of restrictions. However, the recovery may skid due to a number of factors: the escalation of the war, the supply-chain bottlenecks created by China’s intense lockdowns, or the tightening of monetary policy. The European recovery fund – endowed with €800 billion until 2027- will be a necessary buffer in the coming months.

“Everything indicates that we are going to have a good summer, but in September it can change. We are going [through] a stage in which we are going to have higher prices and weaker growth,” says María Jesús Valdemoros, a lecturer in economics at the University of Navarra in northern Spain.

The main risk to the recovery is if Putin cuts off the gas supply to Europe. The European Central Bank (ECB) estimates that this would weigh on economic growth in the eurozone, so that it would grow only 1.3% in 2022 and contract by 1.7% in 2023, while inflation would increase even more than the 8% currently registered. Just a week ago, the German government was forced to raise its alert level due to the forecast of not being able to fill gas tanks by autumn. And therein lies the main fear of Frankfurt and Brussels: that Germany will enter a recession and drag down the rest of its partners.

The influential Munich-based Ifo Institute for Economic Research does not foresee that this extreme will occur, but it notes that all the blows received as a result of the war in Ukraine and the lockdowns in China are going to cost Germany 1.5% of GDP. In a normal year, the agency maintains, the country would have already entered a recession.

Faced with this situation, the ECB has debated between raising rates – despite the risk of strangling growth – or maintaining a more lax policy with the threat that prices will continue to skyrocket. For now, it has decided to raise its key interest rates by 0.25% in July and probably 0.50% in September.

For the inflation “hawks,” the Eurobank is too late, especially when the rest of the central banks have been raising rates for months. The “doves,” with the memory of the ECB’s ill-timed rate hikes that curbed recovery efforts in 2011, fear that a hasty increase will cause an economic slowdown… especially if there is yet another external blow, whether it comes from Moscow or Beijing.

As a precaution, several EU governments have acted to cushion their populations from inflation. For instance, Spain has given out bonuses for the most vulnerable workers and reduced the price of transit passes. However, international institutions, from the IMF to the European Commission, are asking for financial reserves to be rebuilt. And, with Germany at the forefront, some governments are warning about overspending.

“It is time to get out of [such] policies. Inflation is high and governments should not make it continue to grow through spending,” says Clemens Fuest, president of Ifo. “It’s a bad decision.”

Forecasts indicate that there are many risks that cloud growth. “Households are seeing their income reduced. Real wage growth has been negative for two consecutive quarters,” said Christine Lagarde, president of the ECB.

There is a possibility that the clouds will dissipate, if, say, the war in Ukraine were to end. But in the event that hostilities continue and the economic battle between Brussels and Moscow persists, it remains to be seen how high energy prices will rise, how far governments can go and when the central banks will run out of cash.

Jerome Powell, Chairman of the Federal Reserve.
Jerome Powell, Chairman of the Federal Reserve.Kevin Dietsch (AFP)

UNITED STATES

Rising prices stop the country from reaching full employment

MIGUEL JIMÉNEZ

Job offers are obvious throughout the nation’s capital: in the windows of banks, clothing stores, supermarkets, movie theaters. It is estimated that, in the United States, there are twice as many vacancies as there are unemployed individuals. The country is nearing full employment. And yet, the economic situation has sunk the popularity of President Joe Biden and threatens his party’s control of the Senate and the House of Representatives in the November midterm elections. Blame it on inflation.

Prices have risen 8.6% in the past year – the biggest increase in four decades. But the daily reminder to Americans that prices are skyrocketing is the cost of fuel. Gasoline has increased in price by more than 60%. On average, it costs about $5 per gallon. There are places where it’s around $8. Furthermore, inflation has entrenched itself and spread to more and more products, from grocery aisles to hotels.

Federal Reserve Chair Jerome Powell has vowed to stabilize prices, even if it comes at the cost of a recession. What he is looking for is a so-called “soft landing,” or to control inflation without the economy contracting and unemployment skyrocketing. In his last Senate appearance, Democratic Senator Elizabeth Warren snapped at him: “You know what’s worse than high inflation and low unemployment? It’s high inflation and a recession with millions of people out of work.”

Powell himself admits that his wiggle room for a soft landing is slim. The Federal Reserve has already made three rate hikes, the last of them being 0.75 points. This is the largest increase since 1994. By the end of 2022, the rates will be between 3% and 3.5%, and next year close to 4%, according to the Fed’s projections. The withdrawal of liquidity will slow down the economy.

Will this lead to recession? “It is not what we are looking for, but it is a possibility,” was Powell’s response before the Senate.

Last week, the IMF lowered its growth forecasts for the United States from 3.7% to 2.9% this year and from 2.3% to 1.7% for the next. It is expected that in 2024, growth will be a mere 0.8%.

“The most likely outlook is very weak growth and persistently high inflation. We see about a 40% chance of a recession next year,” says Ethan S. Harris, global economist at Bank of America Securities.

Recession or not, economic malaise is already palpable. A report published in June indicated that 36% of those who earn more than $250,000 a year (four times the median salary) live paycheck-to-paycheck. If a significant part of the most privileged echelon feels that they can barely make ends meet, it is easy to imagine how the rest of Americans are doing.

Lines in London during the latest public transit strike.
Lines in London during the latest public transit strike.Chris J. Ratcliffe (Bloomberg)
UK

The City sees dark clouds

RAFA DE MIGUEL

After the Bank of England’s (BoE) warning last May that the UK economy would enter a slight recession at the end of 2022, the hard-right of the Conservative Party demanded that the Prime Minister lower taxes. This year, public sector workers have called strikes throughout the summer to demand salary increases compatible with galloping inflation nearing double digits.

Both PM Johnson and Chancellor Rishi Sunak have been trying to contain pressure from their party and the general population, to avoid further aggravating inflation with lower taxes or exorbitant wage increases.

“What is most worrying is that this inflation has been concentrated in what could be called basic goods,” said Andrew Bailey, Governor of the BoE. “Basically, energy and food.”

This is to say that the crisis, above all, affects the poorest citizens. Although the BoE suggests that there could be a modest recovery by early 2023 – thus avoiding two consecutive quarters of GDP decline, or the technical definition of a recession – it is anticipated that the UK will see growth decline next year by 0.25%.

The average price per household for gas and electricity shot up almost €800 in April, and it will reach more than €3,000 (annually) by October. In May, the government approved a 25% windfall tax on the profits of oil and gas companies. Much of this tax was intended to finance single-payment subsidies to millions of households, between €400 and €1,000, to meet the exorbitant cost of living.

The BoE, like other central banks, has reacted late, but with impetus. So far this year, interest rates have already risen to 1%. Focused on combating inflation, the looming economic storms have not been reason enough for the monetary authority to relax its drastic decision. “I am aware of the harsh consequences this will have for many people, particularly those with lower incomes and little savings,” Bailey admitted after announcing the decision. It will now be harder for small and medium-sized businesses to borrow and expand, and for consumers to pay off credit cards and loans.

Johnson now faces a three-pronged problem: voters angry with the galloping rise in prices; some MPs, desperate to keep their seats, demanding lower taxes; and exhausted public accounts after two years of pandemic spending.

A woman passes a coronavirus control in Beijing on June 28.
A woman passes a coronavirus control in Beijing on June 28.THOMAS PETER (REUTERS)
CHINA

The dragon’s ailments grow

MACARENA VIDAL LIY

Chinese Premier Li Keqiang’s meeting with officials on May 25 was unusual because of its size—nearly 100,000 local officials participated in the video call—but also because of his frankness. The head of government acknowledged that the difficulties facing the second world power’s economy are more serious than in the worst moment of the pandemic, when it contracted for the first time in 30 years.

A lethal combination of lockdowns in some of the country’s major cities – including the closure of Shanghai, its financial heart, throughout April and much of May – the war in Ukraine and the crisis in the real estate sector left alarming numbers in April. Most analysts have downgraded their growth prospects for the Asian giant this year. Few, even within official circles, believe that the government’s objective of a GDP increase of around 5.5% for 2022 will be met. The World Bank calculates 4.3%. Other entities, such as the Swiss UBS, forecast 3%.

Consumer confidence has suffered a severe blow. In April, retail sales fell by 11.1%; in May, by 6.7%. Even the consumption of cosmetics has decreased, products that have never stopped seeing their sales grow since China entered the World Trade Organization 20 years ago. Youth unemployment stands at 18.4%, well-above the average of the European Union (13.9%) or the United States (7.8%). The entry of 10.76 million recent college graduates into the market this summer will grow that number even further.

Experts say that the massive confinements, together with constant PCR testing, are mainly responsible for this economic anemia. “The only predictable thing about China right now is its unpredictability, and that is poison for the business climate,” said Bettina Schoen-Behanzin, the VP of the European Chamber of Commerce in China, at the presentation of her institution’s annual report on the confidence of European companies in the Asian country. Sixty percent of the companies included in the report said that doing business in China had become more difficult, and 49% cited Covid among the three main reasons why.

So far, Beijing has introduced relatively modest stimulus measures, including tax breaks for small and medium-sized businesses and increased spending on infrastructure. The most recent data is beginning to show some bright spots: for instance, industrial production for May grew by 0.7%, after a 3% contraction in April. But analysts from Nomura Holdings note that although the reopening of cities “has raised optimism in the short-term, we do not see it as a change in trend, given that the Covid-zero policy will continue until the beginning of 2023.” Possible risks in the coming months are new lockdowns to stem Covid outbreaks, drastic corrections to support the weakened housing market, or problems related to the high debt of local governments.

Although performing below original forecasts, and far from repeating the driving role it played in the 2008 financial crisis, the Chinese economy will continue to grow. “China is not going to enter a recession,” says Alicia García-Herrero, chief economist for Asia at the investment bank Natixis. Neither “is it going to be a source of global recession, but it will be a source of slowdown, to which it contributes to the extent that it does not grow as much as its potential.”

García-Herrero also notes that China is helping to export inflation to the rest of the world. The Beijing government has imposed restrictions on the export of items such as fertilizers and some steel products; the subsequent shortages have triggered international price increases.

“This is an additional source of tension, given that China exports a third of the world’s intermediate goods,” she warns.

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Brazilian woman and fake seer con elderly mother out of $142 million | International

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A woman was arrested on August 10 by Rio de Janeiro police who charged her with conning her mother out of millions. In a strange story of greed abetted by fake psychics, Sabine Boghici and her accomplices stole more than $142 million in money, jewelry and artwork from Boghici’s mother over a two-year period.

Geneviève Boghici, the widow of a major art collector and dealer named Jean Boghici, was walking out of a bank in January 2020 near the famous Copacabana Beach in Rio de Janeiro (Brazil) when she was approached by a supposed psychic prophesying her daughter’s imminent death unless she underwent “spiritual therapy.” They walked together to Boghici’s apartment, where the psychic threw some shells in a mystical ritual that confirmed the tragic prophesy. The 82-year-old victim knew that her daughter suffered from psychological problems, and her affinity for the supernatural swayed her to transfer $980,000 to the swindlers.

Soon after the two-year con began, the elderly woman became suspicious and halted the money transfers when her daughter started to isolate her from friends. Sabine would not allow her mother to use the phone and dismissed all the domestic workers, justifying them as Covid-19 precautions. Yet Sabine and her cronies entered freely to loot her mother’s home of its valuables. Several psychics took items from the home, saying they were “cursed” and needed to be “prayed over.” The increasingly suspicious Geneviève tried to resist, but Sabine began threatening her life. According to the police, she wouldn’t allow her mother to eat and put a knife to her throat.

Police recover 'Sol Poente' by Brazilian painter, Tarsila do Amaral.
Police recover ‘Sol Poente’ by Brazilian painter, Tarsila do Amaral.Policia Civil de Rio de Janeiro (EFE)

The victim told the police that her daughter had some sort of relationship with one of the supposed psychics, Rosa Stanesco Nicolau, who practiced her trade in Rio de Janeiro as “Mãe Valéria de Oxossi” (Mother Valeria), and was a known con artist. Starting in September 2020, under constant threat from her daughter and accomplices, the elderly woman made another 38 bank transfers to the thieves.

Sabine and her cohorts stole 16 paintings and sculptures, and sold them all to art galleries or private buyers. Two of these works – Elevador Social (Social Elevator) by Rubens Gerchman, and Maquete para o menú espelho (A model for my mirror) by Antonio Dias – were bought by Eduardo Costantini, owner of the Museum of Latin American Art of Buenos Aires (Argentina), for his private collection. The São Paulo (Brazil) gallery owner who brokered the deal said he was not suspicious because he had known the family for a long time and the seller was the daughter of the deceased art collector. Constantini released a statement saying that he bought the paintings in good faith and was in direct contact with Genevieve Boghici.

In 2012, a fire in the Boghici’s Copacabana apartment destroyed part of their valuable collection, including Di Cavalcanti’s Samba and Alberto Guignard’s A Floresta (The Forest). Sol Poniente (Setting Sun), painted by Tarsila do Amaral in 1929, is one of the most valuable works in the Boghici collection ($49 million). It survived the 2012 fire but not the rampant greed of their daughter. The stolen painting was found under a bed by police, who arrested Sabine and three other people, including the fake seer. In a final twist to the whole bizarre story, the scamming psychic was apprehended trying to escape through a window.

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India’s HIV patients say shortages leaving hundreds of thousands without drugs | Global development

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Hundreds of thousands of people living with HIV in India are struggling to access treatment because of a shortage of antiretroviral (ARV) drugs, according to campaigners.

Up to 500,000 people have not been able to get hold of free ARVs from government health centres and hospitals over the past five months, they say, as the country experiences stock shortages of key drugs.

ARVs that are available in privately run pharmacies and shops can be prohibitively expensive. Some people have been given alternative drugs, but others have stopped taking any medication.

“Does the government even realise that at least 500,000, or one-third of the patients, are affected by this? Some adults are being given 11 doses of paediatric medicine to compensate,” said Loon Gangte, president of the Delhi Network of Positive People (DNP+), an NGO that works to improve the treatment and facilities for people living with HIV and Aids. “We only demand an uninterrupted monthly supply. This treatment is our right.”

According to Gangte, who has been protesting with about 30 others outside India’s National Aids Control Organisation (Naco) in Delhi for 22 days, at least 12 other states, including Assam, Uttar Pradesh, Rajasthan and Punjab, are facing ARV shortages. He said several state governments have asked patients to change their longstanding drug regimes.

“The [Covid-19] pandemic had already broken our backs. Now this shortage is pushing us further into penury,” Gangte said.

Kedar Nath, a 30-year-old street vendor taking part in the protest, said he has not taken his ARVs on several occasions over the past two months. He cannot afford the £50 a month it would cost to buy the drugs on the open market.

“I have been taking these drugs for the last 13 years. They have helped me continue with my life despite the virus in my body. But the recent shortage has turned my life upside down since I can neither find the strength to work, nor have any savings to live off,” he said.

According to government figures, 2.35 million people in India are HIV-positive. About 1.5 million people are on antiretroviral therapy, far lower than the World Health Organization’s “90-90-90 target” – under which 90% of people with HIV are diagnosed, 90% are on ARV treatment, and 90% are no longer infectious.

India says it aims to end the HIV epidemic by 2030. In 2019, an estimated 58,900 Aids-related deaths were reported in the country.

The government has refuted Gangte’s claims of a shortage. The Indian health ministry said it had “reviewed the entire situation and held a series of meetings with the protesters. ARV drugs are being provided for [a] duration of less than one month, but at no point in time has there been any shortage of drugs for any of the PLHIV [patients living with HIV]. There is adequate stock nationally for 95% PLHIV.”

Naco did not wish to comment. However, in a letter seen by the Guardian that was dated 30 May, Naco asked all state Aids prevention and control societies, which oversee HIV testing and treatment in each state, to switch to other regimes “to tide through the crisis situation as an interim arrangement”.

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J&J Stops Global Sales of Scandalous Talc-Based Powder After 130 Years

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Once one of its top products for families, J&J’s talc-based powder has been haunted by claims of causing cancer in recent years even as the company consistently denied what it has called rumors and “misinformation”.

Johnson & Johnson has announced it will be ceasing the sales of its talc-based powder, two years after stopping them in the US and Canada, after keeping it in its product line for 130 years. The company will be replacing the product with a cornstarch-based powder.

“As part of a worldwide portfolio assessment, we have made the commercial decision to transition to an all cornstarch-based baby powder portfolio,” the company’s statement said.

The J&J talc-based powder has been at the epicenter of several lawsuits claiming it caused ovarian cancer due to the presence of a known cancer-causing material – asbestos. However, the company has repeatedly denied these allegations, despite losing $3.5 billion in these lawsuits.

As the firm announced the retirement of the talc-based powder, it once again repeated its long-held position on the controversial product’s safety.

“Our position on the safety of our cosmetic talc remains unchanged. We stand firmly behind the decades of independent scientific analysis by medical experts around the world that confirms talc-based Johnson’s baby powder is safe, does not contain asbestos, and does not cause cancer,” the statement said.

Apart from losing a number of lawsuits, J&J faced tough questions following a 2018 Reuters investigation, which claimed the company knew about the asbestos contamination since at least 1971 but failed to act on it. As the veins of asbestos are often found in talc deposits, the extracted talc used to make the powder can be contaminated with the cancer-causing mineral.

A view of the Supreme Court in Washington, U.S. January 19, 2021 - Sputnik International, 1920, 01.06.2021

Pay Up: Supreme Court Rejects J&J’s Request to Appeal $2 Bln Verdict in Talc Cancer Case
Despite continuing to maintain its innocence, J&J stopped selling talc-based powder in the US and Canada in 2020, citing the harm done to the sales by the “misinformation” about its safety. However, the company continued to distribute it around the world alongside the cornstarch-based alternative, which will now completely substitute it.



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