Week in Review

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Shinzo Abe death: Shock killing that could change Japan forever. Since news broke [Friday] of Shinzo Abe's shooting, messages have been pouring in from friends and contacts, all asking the same question: how could this have happened in Japan? (BBC)

Boris Johnson resigns not over policies but perceptions about his character. British Prime Minister Boris Johnson has finally resigned as leader of the Conservative Party under heavy pressure from lawmakers in his own party. His resignation caps a remarkable political career filled with highs, lows and almost too many scandals to count. (NPR)

Zimbabwe to introduce gold coins as local currency tumbles. Zimbabwe will start issuing gold coins as legal tender in late July, its central bank has said, as the country battles to control runaway inflation that has considerably weakened the local currency. (The Guardian)

Putin says West can ‘try’ beating Russia on the battlefield—live updates. Russian President Vladimir Putin slams the West for trying to impose “new world order,” and says peace talks move ever further away as the conflict continues. (DW)

‘Fonio just grows naturally’: Could ancient indigenous crops ensure food security for Africa? Calls are growing to invest more in the continent’s traditional grains as a way to break its reliance on imported wheat, rice and maize. (The Guardian)

Dry bulk market: Coal imports making their way into Europe. In a clear sign of the turbulent times we’re experiencing, coal imports have begun making their way into Europe with more cargoes entering the EU market. It’s a response to the scramble to offset the losses of Russian gas. (HSN)

China’s pro-growth policies may extend into second half. An expert expressed confidence in China’s economic recovery and predicted the government’s pro-growth policies to extend into the second half of this year. (HSN)

Who will replace Boris Johnson? Boris Johnson has announced he will resign, which means there will now be a leadership election to decide who becomes the next Conservative leader and prime minister. (BBC)

Sweden and Finland’s journey from neutral to Nato. Sweden and Finland are both joining Nato—a monumental shift for two nations with a long history of wartime neutrality and staying out of military alliances. During a Nato summit in Madrid, they overcame what is likely to be the final obstacle—objections by Turkey. (BBC)

Mexico’s annual inflation hits 21-year high in June. Mexico’s annual inflation accelerated in June to a level not seen since early 2001, official data showed on Thursday, suggesting the central bank will have little choice but to continue its monetary tightening to tame spiraling consumer prices. (Al Jazeera)

US imposes new Iran sanctions amid efforts to revive nuclear deal. The Biden administration has announced a fresh round of Iran-related sanctions amid continuing diplomatic efforts to revive the 2015 nuclear deal with Tehran. (Al Jazeera)

Last Muslim lawmaker leaves India’s ruling party. The last remaining Muslim lawmaker in India’s ruling Bharatiya Janata Party has resigned, leaving the party without a single representative from the minority community among its 395 members of parliament. (CNN)

Energy prices are causing chaos in Asia. Here’s why the rest of the world should worry. In Sri Lanka, people queue for miles to fill a tank of fuel. In Bangladesh, shops shut at 8 p.m. to conserve energy. In India and Pakistan, power outages force schools to shut, businesses to close and residents to swelter without air conditioning through deadly heat waves in which temperatures top 100 degrees Fahrenheit (37 degrees Celsius). (CNN)

US persuasion won’t unlock more oil supply—and China’s reopening will drive crude prices higher, Laffer Tengler’s CEO says. Crude oil prices will remain high with supply levels unlikely to rise and China’s reopening boosting demand, according to Laffer Tengler’s chief executive. Nancy Tengler predicted that crude prices will stay elevated in the long-term, even if they hover around $100 a barrel over the next “six to nine months.” (Markets Insider)

UK warship seizes advanced Iranian missiles bound for Yemen. A British Royal Navy vessel seized a sophisticated shipment of Iranian missiles in the Gulf of Oman earlier this year, officials said Thursday, pointing to the interdiction as proof of Tehran’s support for Yemen’s Houthi rebels in the embattled country. (ABC News)

 

 
 

Global Economic Outlook Deteriorating, Experts Say

Annacaroline Caruso, editorial associate

The global economic picture continues to morph as governments around the world take differing actions to navigate the same issues—supply backlogs, slowing economic growth, labor shortages and sky-high inflation.

By June of this year, 37 central banks in developing countries began monetary tightening, in addition to a few countries—such as Brazil—that had already entered the tightening cycle last year, according to a recent report from the United Nations. “More countries, particularly in Africa, are expected to enter a monetary tightening phase following the expected policy rate hike of the European Central Bank. As of June 2022, only a few countries, mainly in East and Southeast Asia, including China, Japan, Indonesia, Thailand, and Vietnam, have yet to announce their intention to tighten their monetary policy stances.”

Several experts have downgraded their forecasts for GDP growth in the coming year as countries struggle to tame stubbornly high inflation. “At this point, we expect growth in GDP to fall well short of potential in 2023 in almost every major economy,” reads an article from Seeking Alpha. “Whether the slowdown meets the technical definition of a recession or not, the next few quarters won't feel good. That's why we don't expect relief for financial markets until inflation eases enough for central banks to slow the pace of rate hikes.”

Wells Fargo is also more pessimistic about the global economy in 2023, now forecasting global GDP growth at 1.7% in the next year. “The sharp downward revision comes from our view that the U.S. economy will fall into recession next year and contagion effects will result in the multiple recessions across the G10 and emerging markets,” reads a Wells Fargo commentary. “We now forecast the U.K. economy to enter recession, while we also believe reduced U.S. demand can tip Mexico into recession come 2023.”

The U.S. Federal Reserve has hiked interest rates by a total of 150 basis points so far this year, with more likely to come. And the Bank of England has raised rates by 125 basis points. The European Central Bank has said it will begin monetary policy tightening in July. However, many inflation drivers are beyond the control of central banks.

“Supply-chain disruptions remain a problem, as the world struggles to reboot from the pandemic shutdowns,” per Seeking Alpha. “Higher commodity prices, driven upward by both supply disruptions and the war in Ukraine, have stoked the fire. Central banks can't fix either of these challenges with monetary policy; all they can do is hike rates and shrink balance sheets to bring demand down toward the current supply level.”

Some central banks have acknowledged the difficulties that lay ahead for their fight against high prices. “We’re living with different forces now and have to think about monetary policy in a very different way,” Federal Reserve Chairman Jerome Powell said during a speech last week. “I think if you want to know the lessons to be learned over the last 10 years, look at our framework—those were all based on the low-inflation environment that we had, and now we’re in this new world where it’s quite different with higher inflation, many supply shocks and strong inflationary forces around the world. It’s quite a different environment.”

UPCOMING WEBINARS




USMCA Companies Protect Liquidity as Inflation Soars

Atradius

USMCA companies have strengthened credit risk management to protect profitability over the coming months as inflation darts upward, increasing pressure on their liquidity and borrowing power, according to trade credit insurer, Atradius.

Its Payment Practices Barometer survey—conducted among companies in Canada, Mexico and the United States (USMCA)—highlights the impact of the inflation surge on businesses. Several factors such as sharply rising energy prices and the severe instability caused by geopolitical unrest have sent the global inflation figure soaring to a level not seen for decades. This has prompted immense concern for businesses worldwide amid fears it will increase the risk of B2B customers defaulting on payment of invoices. This is expected to pose a significant threat to profitability and, in the worst-case scenario, a danger of being pushed out of business completely.

The survey shows that companies in the USMCA region addressed this concern by greatly enhancing their management of credit risk arising from trading on credit with their B2B customers. USMCA companies that opted for managing the issue in-house noted that the primary method used was to make more regular credit checks of customers to detect any warning sign of likely default on payments. This was reported by 53% of USMCA businesses, spiking to 61% in Mexico.

Companies polled also said they often tried to speed up cash flow by offering B2B customers discounts for early payment of invoices, or allowed shorter times to settle payments for their purchases on credit to customers. This was particularly reported both in Canada and Mexico. However, with interest rates rising due to inflation, the powerful motivation of USMCA companies was to get easier access to external funding in case they should cover potential liquidity shortfalls due to customer payment default.

A clear finding of the survey is that USMCA businesses have grasped the relevance of strategic credit management to navigate the current times of soaring inflation potentially pushing up customer credit risk. In particular, two in five companies polled in the USMCA region acknowledged the value of credit insurance as a strengthening device of their borrowing power. This due to increased bank security coming from having transferred the payment default risk of their B2B buyers on a specialized credit insurance company.

While inflationary pressures are broad-based worldwide, a strong upward push to the figure in the USMCA region is a result of the spill-over effects of soaring energy and commodity prices at global level. USMCA companies struggle to alleviate such pressure, thus increasing their liquidity needs to run their business operations and driving up costs.

For many companies, strategic credit management has represented the most logical step to protect profits and cash flow, while at the same time mitigating customer credit risk during this period of dramatic surge in inflation and unsettled economic times.

Boris Johnson Resigns at Pivotal Time for Economy

Annacaroline Caruso, editorial associate

U.K. Prime Minister Boris Johnson announced last week he is stepping down as the leader of the Conservative Party after roughly three years in power, but will remain prime minister until a successor is chosen. Johnson’s decision comes on the heels of several scandals that emerged throughout his career, and as dozens of aids and cabinet members quit because “they could no longer serve under his leadership,” NPR reported.

The seemingly final straw that ended Johnson’s career was when he knowingly promoted a lawmaker who had been the subject of a sexual harassment complaint. “Johnson was ultimately forced to resign not over policy or political differences, but because of perceptions about his character,” the NPR article reads. According to a poll from YouGov, three out of four Britons view Johnson as untrustworthy, and 69% believed he should resign.

Johnson will be leaving behind the world’s fifth largest economy as it struggles with surging inflation, slowing economic growth and a looming recession, CNN Business reported. “Inflation hit a 40-year high of 9.1% in May, the highest among the G7 leading economies—and is forecast to climb above 11% later this year despite a series of interest rate hikes,” the article reads. “The knock-on effects of Brexit—Johnson’s signature achievement in government—have exacerbated crippling labor shortages and increased operating costs for businesses. The cost of imports has also been driven higher by a sharp fall in the value of the pound this year.”

And whoever takes over as prime minister will need to help the U.K. through whatever economic storm is coming. “A quick resolution to the political impasse would mean policy varying less and no additional fiscal stimulus over the next few months. Moreover, the chances of having greater clarity on Brexit policy and lower budget stress improve,” Gabriele Foa, co-portfolio manager at Algebris Investments, told MarketWatch.

Some experts say his resignation could have a positive impact on the global FX markets. “Although there have been no structural changes to the U.K. economic backdrop to date, markets have seen the pound strengthen against the euro and the dollar, with gains for U.K. stocks,” Giles Coghlan, chief analyst at HYCM, told Yahoo!Finance. “This is likely to be based on the assumption that Johnson’s replacement may restore Conservative party unity and provide the economy with a much-needed fiscal uplift.”

However, any improvement may not hold much weight considering the pound dropped 11% this year. “The pound remains severely weak due to the dire state of the U.K. economy, which is underperforming its peers, likely to enter into a recession while the Bank of England refuses to hike interest rates aggressively to deal with the escalating inflation,” Walid Koudmani, chief market analyst at XTB, told MarketWatch.

But with Johnson out of office, it could leave room for trade relations between the U.K. and EU to improve. “Judging by the early line-up of potential successors to Johnson, the balance of potential outcomes would tilt towards less strained relations with the EU,” Kallum Pickering, senior economist at Berenberg Bank, told CNN. “Even the ardent Brexiteer candidates ... are less of the populist variety than Johnson. This suggests that, while it is unclear whether U.K.-EU relations would improve a bit or a lot, the overall situation stands to be much calmer.”

According to news reports, the Conservative Party plans to install a new prime minister by early September. Possible candidates include former Health Secretary Sajid Javid; former Treasury chief Rishi Sunak; Foreign Secretary Liz Truss; and Defense Secretary Ben Wallace, per the Associated Press.

 

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Week in Review Editorial Team:

Diana Mota, Editor in Chief

Annacaroline Caruso, Editorial Associate