Week in Review

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AUGUST 16, 2021

‘Code red’: UN scientists warn of worsening global warming. Earth is getting so hot that temperatures in about a decade will probably blow past a level of warming that world leaders have sought to prevent, according to a report released Monday that the United Nations called a “code red for humanity.” (Business Mirror)

Major container ports in Eastern China see worsening congestion after COVID-19 cases. Congestion off China's top two container ports Shanghai and Ningbo is worsening following the shutdown of a container terminal in Ningbo where a COVID-19 case was detected this week. (US News & World Report)

Brexit has 'significantly altered' Irish-British freight traffic. Post-Brexit trade frictions have "significantly altered" freight traffic between Ireland and Britain and sparked a steep rise in volumes to and from Ireland and other European Union members, an Irish government agency report said on Thursday. (Reuters)

China regulatory crackdown cuts beyond politics. Legitimate economic and regulatory considerations are at play in China’s regulatory crackdown on internet-oriented technology enterprises, private education firms and overseas listings, but a blunt policy execution and communications strategy could alter the regulatory risk premium that global investors require for investing in Chinese securities. (Fitch)

The ‘new normal’ in US-China relations: Hardening competition and deep interdependence. Amidst a focus on great power competition, two broader trends in the U.S.-China relationship have commanded relatively less attention. (Brookings)

US Senate passes $1.2 trillion infrastructure bill. The United States Senate passed the monster spending bill in a big win for President Joe Biden. The White House described the sweeping bill's passage as "historic." (DW)

Hackers steal $600 million in record-breaking cryptocurrency heist. The security of digital assets has been thrown in sharp focus after a huge theft of around $600 million took place on a decentralized network. The lack of protection for those affected is clear. (DW)

Trade rides digital wave, new formats. The COVID-19 pandemic may have savaged many a business, but the dark cloud has a silver lining: resurgent foreign trade riding the wave of new formats and models like cross-border e-commerce, new technologies like big data, and tools like digital payments and online exhibitions, all necessitated by curbs on travel and transport, and measures like social distancing. (HSN)

Obsolete tech is clogging up global trade. Here’s how to unblock it. Even as the world starts to dig out from the economic impact of COVID-19, the outdated technologies that power supply chains are holding back international trade and undermining recovery from one of the worst recessions in modern history. (HSN)

Lebanese government, central bank clash over fuel subsidies. Lebanon's government clashed with the central bank on Thursday over its move to end to fuel subsidies that have drained the currency reserves, saying prices must not change and subsidies must continue until measures were in place to help the poor. (CNA)

Ethiopia's civil war is dire and seems to be getting worse. The civil war in Ethiopia, marked by human rights abuses and war crimes, is now entering its ninth month—and new territory. (NPR)


GCC Countries Back on Path to Economic Growth

The World Bank 

Following a year of economic distress, Gulf Cooperation Council (GCC) economies are expected to return to an aggregate growth of 2.2% in 2021, according to the latest issue of the World Bank Gulf Economic Update (GEU), COVID-19 Pandemic and the Road to Diversification. This growth is buoyed by the global economic recovery, projected at 5.6% and the revival of global oil demand and international oil prices.

The COVID-19 pandemic and the decline in global oil demand and prices dealt the GCC countries a health crisis and a commodity market shock causing a GDP contraction 4.8% in 2020.  Fiscal deficits are projected to persist for most over the forecast period, however.  The three countries with the largest deficits in 2020 (Kuwait, Bahrain, and Oman) are projected to remain in deficit throughout 2021-23, but at narrower ratios to GDP in 2023 than during the economic downturn in 2020.  

According to the GEU, the oil supply cutbacks and the four-year-low average oil price of US$41.30 per barrel slashed the group’s goods and services exports by 8.1% in real terms and turned the current account surplus of 6.8% of GDP in 2019 into a deficit of 2.9% of GDP in 2020.  

Non-oil GDP is proportionately larger now in all the GCC countries than it was 10 or 20 years ago, but much work remains to be done.  Many are still highly reliant on oil and gas exports, which remain over 70% of total goods exports in Kuwait, Qatar, Saudi Arabia and Oman, and on oil revenues, which exceed 70% of total government revenues in Kuwait, Qatar, Oman, and Bahrain. 

The sixth issue of the GEU focuses on fiscal revenues and structural reforms including strategic investments in digitalization and telecommunications, which can help enable more economic diversification. Promoting private sector development remains at the core of national and regional economic diversification efforts. The GCC managed to complete only two state-owned enterprise privatization transactions and only two public-private partnership (PPP) agreements in 2020, but it was a difficult year for commerce and investment anywhere.  

Also, advancing the telecommunications frontier is a strategic investment sector for diversification and post COVID-19 recovery that will serve the GCC well. Past investments in the sector accorded the GCC sizable benefits during the pandemic as quarantines, lockdowns, and restrictions forced public health surveillance, wholesale and retail commerce, public and private education, banking and financial services, and private and government office work onto digital channels. Strategic investment in advanced telecommunications technologies, including 5G, is underway in the GCC. But beyond capital spending on infrastructure, the telecommunications sector would benefit greatly from improvements in the legal, regulatory, and competition frameworks under which service providers operate.

GCC Countries Outlook

Bahrain:  Bahrain will continue to rely on fiscal support measures in 2021 to overcome the economic contraction in 2020. GDP growth is expected to reach 3.3% in 2021 and remain at the same pace during the medium-term. 

Kuwait:  Oil exports will continue to drive Kuwait’s growth dynamics. Economic growth is forecast to rebound to a moderate 2.4% in 2021, before ramping up to an average 3.2% in 2022-23.

Oman:  Oman’s economy is forecast to recover in 2021, albeit at a moderate 2.5% growth rate as a sizable infrastructure investment program gains momentum. Medium-term growth is projected to average 5.3% over the forecast period.

Qatar:  Qatar is forecast to post a strong growth rebound with LNG demand in South and East Asia underpinning medium-term prospects. Qatar’s economy is projected to grow by 3% in 2021 before accelerating to 4.1% in 2022 and 4.5% in 2023. 

Saudi Arabia:  Firmer global oil demand will support Saudi Arabia’s economic recovery in 2021 with GDP growth expected to reach 2.4% in 2021. Medium-term growth is projected to average 3% over the forecast period. 

United Arab Emirates:  The UAE is expected to swing back to growth in 2021, estimated at 1.2%, before accelerating to 2.5% in 2022 and 2023 driven by government expenditures and the staging of Expo 2020 in October 2021. 




Has Super Mario Pulled it Off in Italy?

Chris Kuehl, Ph.D., NACM economist

Several months ago, in the midst of crisis, Mario Draghi was asked to step in as Italy’s prime minister. The former head of both the country’s central bank and the European Central Bank had essentially retired, but he is arguably the most trusted leader in Italy and one of the very few that retained credibility in the rest of Europe.

Draghi accepted the challenge, but he made it very clear that he would govern on his terms and would swiftly walk away if there was the kind of backstabbing and bickering that had made Italy virtually ungovernable. By most accounts, Draghi has been successful and seems to have established the groundwork for more progress.

The two major accomplishments thus far have been the dramatic expansion of the country’s pandemic response and its economic recovery plan. Prior to Draghi, the average for inoculation was only 8.6 per day—well below the EU average. Today, the pace is up to 500,000 a day, and the goal of vaccinating 80% of the population by September now seems in reach. The primary motivation for the increased pace is the requirement that people show proof of vaccination before being allowed to enter restaurants, attend public events or even report to work.

There has not been the backlash against these requirements that have been seen in the United States or in France. The fact that vaccination has accelerated has allowed Italy to avoid restrictive protocols and has allowed business as usual. There is no talk of lockdowns or a move to resume the limitations that crushed the economy last year.

The second major accomplishment is the economic plan. Draghi has embarked on the most ambitious recovery effort in Europe with over 235 billion euros of EU money as well as Italy’s own borrowed cash. The mantra at this point is “Whatever it takes” to get the economy back to growth. Draghi’s reputation in the EU made accessing the recovery funds possible, and the influx of EU cash made Italian leaders more amenable to borrowing more and spending more.

Now the country has to spend this money quickly and wisely. Italy has struggled to do either of these in the past. The country is not especially unified, and there has always been intense competition between regions. The area of Italy that needs the most help is in the south, but the area that generates the majority of the nation’s GDP is in the north. The Northern League dominates the northern region and resents the cash that goes south. The Five Star Movement is the populist party that favors more for the south and so on. Draghi will have to cut through these battles.

The Italians are no longer seen as hopelessly mired in the doldrums. The expectations are much higher now, and there is some confidence that Italy will be shedding some of its reputation as inefficient and corrupt. Draghi has been as focused and implacable as he was as ECB head, but with success will come those that want to get “their” share and that is the regional political turmoil that damages Italy every time.

Cryptocurrency Gains Traction Among
Multinational Firms 


There has been a steady drumbeat of  announcements  from major financial players recently—including PayPal and the card networks—about various, if limited, cryptocurrency integrations with their services. It is another question entirely whether businesses are ready to embrace bitcoin and other digital currencies, and not just as intriguing investments, but as actual means for doing business.

PYMNTS’ latest research offers a clear answer to this question. Cryptocurrencies—and the blockchain technologies that support them—have rapidly gained traction among a unique set of companies: multinational firms. Our research shows that 58% of firms that conduct business in multiple countries use at least one form of cryptocurrency, and these companies are far more likely to be using cryptocurrency and blockchain technology for transactional purposes than investment ones.

The nature of operating in multiple geographies appears to be a major driver of adoption. The more geographies in which a firm does business, the more likely it is to use cryptocurrencies. These digital assets offer the potential for a near-instant means of moving money without the frictions that have long plagued cross-border payments, including hefty fees and limiting banking hours and regulations.

These are among the key findings to emerge from  Cryptocurrency, Blockchain and Global Business: Assessing The Potential For Multinational Companies And Financial Institutions, a collaboration with global financial technology firm Circle and based on surveys of executives at 250 multinational businesses and 250 financial institutions (FIs). The report examines how a range of cryptocurrencies, including bitcoin and stablecoins—digital assets like USD Coin (USDC) that are tied to the values of fiat currencies or commodities, are being put to use, as well as the wider adoption of blockchain-based financial tools, including smart contracts.

Our research reveals that cryptocurrency and blockchain have certainly caught the attention of conventional FIs like banks. While just 10% of FIs provide access to cryptocurrencies, nearly three-quarters plan to expand access to them over the next 12 months. At the same time, banks do not appear to fully appreciate the nature and scope of their corporate and institutional customers’ interest in blockchain-based currencies and financial tools.

Ninety-three percent of FIs believe business customers would use cryptocurrencies for both investing and transacting. In fact, multinational firms are six times more likely to use cryptocurrencies to conduct transactions than they are to hold them as investments.

FIs also appear to lack a clear direction when it comes to their blockchain and cryptocurrency strategies. They cite nine different factors to similar degrees as important drivers of these plans, including the need to retain or attract customers and the potential for better data security. These circumstances, along with an uncertain regulatory environment, raises the question of whether FIs have sound strategies for meeting growing business demand for blockchain and cryptocurrency services.

Reprinted with permission from PYMNTS.com.


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Week in Review Editorial Team:

Diana Mota, Editor in Chief and David Anderson, Member Relations