Week in Review

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What We're Reading:

Big climate bill; Spending green bucks to boost green energy. There have been 308 weather disasters that have each cost the nation at least $1 billion, the record for the hottest year has been broken 10 times and wildfires have burned an area larger than Texas. (AP

What Japan's ‘Lost Decade’ teaches us about recessions. Today we're traveling back to 1990s Japan—an era infamously termed the "Lost Decade" for its slow growth and falling prices—to learn about the lasting scars of recessions shaped, well, not so well. (NPR

Inflation pauses in July. Consumer prices did not climb from June to July as falling gasoline and energy prices offset gains in food, housing and new cars. Year-over-year, prices are up 8.5%, a still remarkably high number, but July’s numbers were the first flat inflation month of the year. (IndustryWeek)

Russia struggles to replenish its troops in Ukraine. As Russia continues to suffer losses in its invasion of Ukraine, now nearing its sixth month, the Kremlin has refused to announce a full-blown mobilization — a move that could be very unpopular for President Vladimir Putin. (AP

India woos Africa with trade, tech and investment. India is trying to strengthen its long-standing ties to countries on the continent as New Delhi attempts to catch up with China, which has emerged as Africa's largest trading partner. (DW

France firefighters battle ‘monster’ wildfire near Bordeaux. More than 1,000 firefighters are battling a "monster" wildfire in south-western France that has already destroyed nearly 7,000 hectares (17,300 acres) of forest, officials say. (BBC

Fertilizer shippers seek carrier reforms to address supply chain snags. Fertilizer shippers are pressuring the Biden administration for transportation-related changes they say will help lower their costs and make them more competitive in world markets. (FreightWaves

Taiwan fishing community casting for fresh markets after China ban. Even before last week's visit to Taiwan by U.S. House of Representatives Speaker Nancy Pelosi, fish farmer Chen Sheng-You was on the lookout for new business, with trade curbs cutting him off from his major source of revenue. (Reuters

A raging fire at a Cuban oil facility worsens the island's energy crisis. Flames engulfed a fourth tank at an oil storage facility in western Cuba as the raging fire consumes critical fuel supplies on an island grappling with a growing energy crisis. (NPR

African wildlife parks face climate, infrastructure threats. Africa’s national parks, home to thousands of wildlife species such as lions, elephants and buffaloes, are increasingly threatened by below-average rainfall and new infrastructure projects. (AP

French winemakers face devastation after worst weather in 30 years. One of France's biggest export industries is facing a devastating blow after an unusually severe frost earlier this month damaged vineyards across the country, heaping pain on winemakers already reeling from the pandemic and U.S. tariffs. (CNN

Business travel costs are expected to rise through 2023, industry report says. The cost of business travel, from hotels to airfare, is set to rise through 2023 as demand returns more than two years after the Covid pandemic began, according to an industry report. (CNBC

Gas prices drop below $4 a gallon. These factors will determine what happens next. Gas prices have dropped as demand for oil worldwide has slowed amid rising worries about the global economy. Brent—the global benchmark for oil prices—has fallen below $100 a barrel, down from over $120 in June. (NPR

Kenya election: Provisional results show tight race amid low turnout. Official results have yet to be announced, but the two leading candidates are running neck and neck in results tallied by local media. Disappointingly, Tuesday's election witnessed a low voter turnout compared with 2017. (DW


Global Current Account Balances Widen Amid War and Pandemic

Giovanni Ganelli, Pau Rabanal and Niamh Sheridan, IMF

The lingering pandemic and Russia’s invasion of Ukraine are dealing a setback to the global economy. This is affecting trade, commodity prices and financial flows, all of which are changing current account deficits and surpluses. 

Global current account balances—the overall size of deficits and surpluses across countries—are widening for a second straight year, according to our latest External Sector Report. After years of narrowing, balances widened to 3% of global gross domestic product in 2020, grew further to 3.5% last year and are expected to expand again this year. 

Larger current account balances aren’t necessarily negative on their own. But global excess balances—the portion not justified by differences in countries’ economic fundamentals, such as demographics, income level and growth potential, and desirable policy settings, using the Fund’s revised methodology—could fuel trade tensions and protectionist measures. That would be a setback for the push for greater international economic cooperation and could also increase the risk of disruptive currency and capital flow movements. 

Pandemic effects in 2021 

The pandemic widened global current account balances, and it’s still having an asymmetric impact on countries depending, for example, on whether they are exporters or importers of tourism and medical goods. 

The pandemic and associated lockdowns also shifted consumption to goods from services as people reduced travel and entertainment. This also widened global balances as advanced economies with deficits increased goods imports from emerging market economies with surpluses. In 2021, we estimate that this shift increased the U.S. deficit by 0.4% of gross domestic product and contributed to an increase of 0.3% of GDP in China’s surplus. 

Surplus economies like China also saw increases due to greater shipments of medical goods that often flowed to the U.S. and other deficit economies. Surging transportation costs also contributed to widening global balances in 2021. 

War and tightening in 2022 

Commodity prices are one of the biggest drivers of external positions, and last year’s rally in oil prices from pandemic lows affected exporters and importers asymmetrically. Russia’s February invasion of Ukraine exacerbated the surge in energy, food and other commodity prices, widening global current account balances by raising surpluses for commodity exporters. 

Monetary policy tightening is driving currency movements as rising inflation is leading many central banks to accelerate the withdrawal of monetary stimulus. Revised expectations about the pace of the U.S. monetary tightening brought about sizable currency realignment this year, contributing to the projected widening of balances. 

Capital flows to emerging markets were disrupted so far in 2022 by increased risk aversion triggered by the war, with further outflows amid changing expectations about the increased pace of monetary tightening in advanced economies. Cumulative outflows from emerging markets have been very large, about $50 billion, with a magnitude that’s similar to outflows during March 2020 but a pace that’s slower. 

Our outlook for next year and beyond is for a steady decline of global current account balances as pandemic and war impacts moderate, though this expectation is subject to considerable uncertainty. Global current account balances could continue to widen should fiscal consolidation in current account deficit countries take longer than expected. Moreover, the stronger dollar could widen the U.S. current account deficit and increase global current account balances. 

Other factors that could widen these balances include a prolonged war that keeps commodity prices elevated for longer, the varying degrees of central bank interest-rate increases, and greater geopolitical tension causing economic fragmentation, disrupting supply chains and potentially triggering a reorganization of the international monetary system. 

A more fragmented trade system could either increase or decrease global balances, depending on how trade blocs are reconfigured. Either way, though, it would reduce technology transfers, and decrease the potential for export-led growth in low-income countries and thus unambiguously erode welfare gains from globalization. 

Policy priorities 

The war in Ukraine has exacerbated existing trade-offs for policymakers, including between fighting inflation and safeguarding economic recovery and between providing support to those affected and rebuilding fiscal buffers. Multilateral cooperation is key in dealing with the policy challenges generated by the pandemic and the war, including to tackle the humanitarian crisis. 

Policies to promote external rebalancing differ based on individual economies’ positions and needs. For economies with larger-than-warranted current account deficits that reflect large fiscal shortfalls, such as the U.S., it’s critical to reduce government deficits with a combination of higher revenue and lower spending. 

Rebalancing is a different proposition for countries with excessive surpluses, such as Germany and the Netherlands, which can be reduced by intensifying reforms that encourage public and private investment and discourage excessive private saving, including by expanding social safety nets in some emerging markets. 

Reprinted with permission IMF Blog



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Malaysia’s Highest Court Restores UCP 600 Case Trial Court Decision

Annacaroline Caruso, editorial associate

Malayan Banking Berhad (Maybank) successfully obtained leave from the Federal Court of Malaysia Putrajaya to file an appeal against the decision made in the Court of Appeal Malaysia (appellate jurisdiction) between Maybank and Punjab National Bank (PNB), Trade Finance Global reported.  

The appeal is based on the following three questions of law: 

  1. Notice of refusal: where an issuing bank of a letter of credit (LC) governed by the UCP 600 determines documents presented do not constitute a complying presentation. 
  2. Standard for examination of documents presented under an LC: if a negotiating bank is only required to examine whether or not the documents appear to constitute a complying presentation based on the UCP 600? 
  3. Grounds for refusal to reimburse on an LC: where an LC, governed by the UCP 600, expressly provides it is available for negotiation by any bank in Malaysia, whether an issuing bank can avoid its obligation to reimburse the negotiating bank on grounds not stated in the notice of refusal and which relate to the manner of negotiation of the documents presented under the LC? 

“This case highlights the importance of strict compliance of the terms of a letter of credit (LC) and how an issuing bank may not be liable to make payment upon fundamental discrepancy of the nature of the documents presented under an LC,” reads a commentary from Lexology.  

Details of the Case 

PNB issued an LC for $1.9 million in favor “of the beneficiary, SIMS Copper Sdn Bhd (Beneficiary) at the request of the buyer, Sara International Limited (Applicant).” The LC terms stated that: The LC was governed by the provisions of Uniform Customs and Practice for Documentary Credits (UCP 600); A full set signed clean on-board ocean bills of lading was to be presented to obtain payment under the LC; and a freight forwarder or house of bill of lading was not acceptable. 

Maybank agreed to act as an advising bank in the transaction relating to the LC. “Subsequently, the Beneficiary presented the documents which were not acceptable under the terms of the LC, in that freight forwarders bills of lading were presented instead of the ocean bills of lading.” Maybank “however paid the Beneficiary and subsequently commenced a claim for the recovery of the sum of the LC against Punjab National Bank.” 

Maybank sought a reimbursement, however, five days after the documents were forward to PNB, Maybank received advice to amend the LC “to include a certificate of analysis (COA), weight and quality in triplicate issued by SGS at the loading port (proposed amendment),” per Trade Finance Global. The proposed amendment was not accepted by the Beneficiary. 

PNB sent Maybank a notice of refusal, claiming the documents had the following two issues: Freight forwarder BoLs presented contrary to the terms of the LC; and COA, weight and quality in triplicate issued by SGS not presented. 

“Maybank disputed the discrepancies raised by PNB and the validity of the notice of refusal as it failed to comply with the provisions in UCP 600 Article 16. Subsequently, PNB returned the documents to Maybank unpaid. The case was brought by Maybank to the High Court of Malaya,” per Trade Finance Global


The trail court accepted the International Chamber of Commerce’s (ICC’s) Opinion R734, held that BoL presented was not discrepant and found that the weight and quality issued by SGS “were not required to be presented as the proposed amendment had never been accepted by the beneficiary.” 

The High Court of Malaya ruled in favor of Maybank and held that PNB was obliged to reimburse Maybank.

Leading Economic Index for Spain Decreased Sharply in June

The Conference Board

The Conference Board Leading Economic Index®(LEI) for Spain decreased by 1.2% in June 2022 to 97.8 (2016=100), after declining by 0.4% in May. The LEI decreased by 2.7% in the six-month period from December 2021 to June 2022, after increasing by 0.6% over the previous six-month period.

The Conference Board Coincident Economic Index® (CEI) for Spain increased by 0.4% in June 2022 to 108.9 (2016=100), after rising by 0.4% in May. The CEI grew by 2.1% in the six-month period between December 2021 and June 2022, slower than the 2.9% increase between June and December 2021.

“With the sharp decline in June, the LEI for Spain points to a worsening economic outlook in the months ahead,” said Ataman Ozyildirim, Senior Director for Economics at The Conference Board. “While current economic growth appears robust due to improving tourism and services activity, tighter monetary policy by the European Central Bank to counteract high inflation and the resulting slower growth in Europe, increase risks of an economic downturn in Spain. The Conference Board projects year-over-year real GDP growth in Spain at 4.6% and 1.0% in 2022 and 2023, respectively.”

About The Conference Board Leading Economic Index® (LEI) for Spain: The composite economic indexes are the key elements in an analytic system designed to signal peaks and troughs in the business cycle. The indexes are constructed to summarize and reveal common turning points in the economy in a clearer and more convincing manner than any individual component. The CEI is highly correlated with real GDP. The LEI is a predictive variable that anticipates (or “leads”) turning points in the business cycle by three months. Shaded areas denote recession periods or economic contractions. The dates above the shaded areas show the chronology of peaks and troughs in the business cycle.

The six components of The Conference Board Leading Economic Index® for Spain include: Capital Equipment, Component of Industrial Production, Spanish Contribution to Euro M2, Spanish Equity Price Index, Long Term Government Bond Yield (inverted), Order Books Survey and Job Placement.


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Week in Review Editorial Team:

Diana Mota, Editor in Chief

Annacaroline Caruso, Editorial Associate