Week in Review

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Egypt and IMF reach deal for $3bn loan. Egypt and the International Monetary Fund have reached a deal for a $3 billion loan from the Washington-based lender, lasting three years and 10 months. (The National)

Russia’s hope for Ukraine win revealed in battle for Bakhmut. Russian soldiers pummeling a city in eastern Ukraine with artillery are slowly edging closer in their attempt to seize Bakhmut, which has remained in Ukrainian hands during the eight-month war despite Moscow’s goal of capturing the entire Donbas region bordering Russia. (AP)

German economy: Surprise growth and record inflation. Analysts believed the economy would contract, instead, it showed a modest increase in the third quarter. But the good news was tempered by a new inflation high in October. (DW)

Shipping rates are no longer plunging. Is ‘new normal’ near? Ocean shipping spot rate indexes are still falling. But after months of steep declines, they’re dropping much less rapidly than before. It could be just a temporary plateau before the next leg down. Or it could be something more significant: the first sign of the market bottom, the post-pandemic “new normal.” (American Shipper)

What to know about Brazil's election as Bolsonaro faces Lula, with major world impacts. Brazilians head to the polls Sunday to vote in a crucial presidential election that is testing the world's fourth-largest democracy and could have a critical impact on the fight against climate change. (NPR)

Xi Jinping just became unassailable. Here's why investors are running scared. When Chinese leader Xi Jinping secured a historic third term in power at the weekend and stacked his top team with loyalists in a clean sweep not seen since the Mao era, investors were quick to pass judgment. (CNN)

Sliding yen: What is happening to the Japanese currency? The yen has long been seen as a safe haven, which investors traditionally bought at times of crisis. But that status is now on shaky ground. This year alone it has lost more than a fifth of its value against the US dollar to hit the lowest level since 1990. (BBC)

As US-China relations worsen, expect supply chain chaos. The trans-Pacific trade lane connecting the world’s most important countries is a pillar of the global economy. But now it’s becoming an epicenter of supply chain, financial and geopolitical risk. (FreightWaves)

China Covid: Millions back in lockdown as Beijing doubles down on zero-Covid. Dozens of cities across China, including Wuhan where the coronavirus was first recorded, have gone into lockdown—as the country pursues leader Xi Jinping's zero-Covid policy. (BBC)

Global economy approaching a recession, central banks unchained: Reuters poll. The global economy is approaching a recession as economists polled by Reuters once again cut growth forecasts for key economies while central banks keep raising interest rates to bring down persistently-high inflation. (Reuters)

The driver of the big rig one lane over might soon be one of these teenagers. Over the next decade, trucking industry says it will need to hire more than a million drivers. Part of that's because of a rapidly aging workforce: the average age of long-haul truck drivers is 46. (NPR)

Ukraine grain exports face vessel backlog as concerns grow over Black Sea initiative. Authorities responsible for the safe export of Ukrainian grain from Black Sea ports are working to clear a backlog of vessels awaiting inspection, as concerns grow over whether the initiative will be renewed next month. (Global Trade Review)

Energy stocks get oil price support as recession looms. Surging oil prices charged energy stocks through 2022 and could keep supporting the sector despite a looming recession and stubbornly hot inflation squeezing consumers. (AP)

Another rail union rejects tentative labor agreement. Count the Brotherhood of Railroad Signalmen (BRS) as another union to reject the tentative labor agreement that representatives of the rail unions and the freight railroads negotiated under pressure from the White House. (FreightWaves)

 
 

Asia and the World Face Growing Risks from Economic Fragmentation

Diego Cerdeiro, Siddharth Kothari, Chris Redl, IMF

Geopolitical tensions have raised the prospect that strategic competition and national security concerns may trump the shared economic benefits of global trade.

Interdependencies between economies mean that such a prospect would be very costly, especially for Asia. For example, about half of the imports in the United States and a third in Europe come from Asia. And, in turn, Asian countries account for almost half of global demand for key commodities.

In our latest Regional Economic Outlook for Asia and the Pacific, we document worrying early signs of fragmentation and provide evidence of the potential consequences of dissolving global trade links.

One such sign of fragmentation pressures comes from measures of trade-policy uncertainty. This measure spiked in 2018 amid tensions between the United States and China, which have increased again amid Russia’s invasion of Ukraine as sanctions on Russia created uncertainty around future trade relations.

Even without actual restrictions, policy uncertainty related to trade can worsen economic activity as firms pause hiring and investment, and new firms may decide to postpone entry into a market.

Our analysis shows that a typical shock to trade policy uncertainty, like the 2018 buildup of US-China tensions, reduces investment by about 3.5% after two years. It also decreases gross domestic product by 0.4% and raises the unemployment rate by 1 percentage point. Not everyone is equally vulnerable, however.

The effects on investment are even larger for emerging markets and more open economies, and for firms with high debt. Corporate debt has increased significantly in Asia since the global financial crisis—spiking further in the wake of the pandemic—suggesting that higher trade policy uncertainty could prove to be especially damaging for the region.

As bad as these effects are, losses would be even greater under actual fragmentation. Against the backdrop of tepid productivity growth around the world, and given the importance of trade in particular for Asia, we estimate the output losses from trade fragmentation due to lower productivity. Admittedly these losses represent a lower bound, as they don’t account for channels such as the effects of a lower capital stock due to diminished investment and the potential disruption to knowledge flows.

The fragmentation scenario we model is one where trade is cut off between trading blocs in sectors that have recently seen an increase in restrictions, like energy and technology, and where non-tariff barriers in other sectors are raised to Cold War-era levels. To do this, and for purely illustrative purposes, we divide blocs along the lines of the March 2022 United Nations General Assembly vote demanding Russia end its invasion of Ukraine.

If only Russia is isolated from countries which voted in favor, output losses for the world economy are small. However, losses become significantly larger under more adverse scenarios such as where the world divides into two blocs, with trade restricted between countries in favor and those against or abstaining. Permanent global annual losses are estimated at 1.5% of GDP, with larger losses in Asia and Pacific countries at over 3% of GDP, reflecting the key role trade plays in the region. Losses are larger in countries where trade with the other bloc is significant, due to a loss of export markets and splintering of complex production networks.

As trade unravels and specialization is unwound, there would be severe implications for labor markets. In those sectors forced to contract due to higher trade restrictions in this illustrative scenario, average employment losses in Asian countries are estimated to be as high as 7%.

These results focus on trade and ignore any effects from the potential unravelling of financial ties, which, as we document in the chapter, are also very deep. Financial fragmentation may lead to short-term costs from a rapid unwinding of financial positions, and long-term costs from lower diversification and slower productivity growth because of reduced foreign direct investment.

Our work shows that the stakes are high. Policymakers from Asia and beyond need to act to avoid the adverse effects from greater fragmentation and to ensure that trade remains an engine of growth.

Rolling back damaging trade restrictions and reducing uncertainty via clear communication of policy objectives should be a priority. Complementing regional agreements with reforms at the multilateral level, while also restoring a fully functional World Trade Organization dispute settlement system, can not only mitigate potential negative impacts of discriminatory policies on other trading partners but also help resolve some of the underlying sources of tensions.

Above all, however, engagement and dialogue between countries will be vital to avoid the most harmful fragmentation scenarios.

Reprinted with permission; IMF Blog.

UPCOMING WEBINARS




France: Macron Hamstrung by a Minority Government

PRS Group

The sense of relief generated by Emmanuel Macron’s success at fend­ing off the challenge from his far-right rival RN leader Marine Le Pen in the two-stage presidential election in April was quickly replaced by apprehension and uncertainty when his centrist Renaissance (formerly La République en Marche!) and its allies in the Ensemble bloc failed to win a major­ity at legislative elections held in June.

Claiming the backing of just 245 members in the 577-member National Assembly, the government headed by Prime Minister Élisabeth Borne is weak and vulnerable to instability amid tensions generated by the negative economic impact of the Ukraine crisis. The rejuvenated left has already tested the minority government’s staying power with a confidence vote in July. The challenge failed when the RN ab­stained, but the episode has prompted Macron to pursue a more formal ar­rangement with the center-right LR.

The LR backed an emergency economic package, but the significant losses it suffered at last year’s elections have made the party reluctant to at­tach itself to the controversial reform agenda promoted by Macron, which includes an increase in the retirement age and cuts to jobless benefits. The president has the option of calling a snap election, but the gloomy outlook for the economy suggests that support for Ensemble is likely to erode over the next six-12 months. In that case, an early return to the polls might merely cement Macron’s status as a lame-duck and lead to a protracted bout of total government paralysis unless he agreed to cohabitation with an administration dominated by the leftist NUPES bloc.

The inflation rate is not as high as in some other large European econo­mies, but costs are rising fast enough to have a negative impact on both consumer and business sentiment. The dismal outlook for political stability has reinforced the erosion of confidence.

The government’s economic relief bill and energy-price measures should go some way toward alleviating the pain be­ing felt by consumers and the corporate sector. However, the combination of ris­ing borrowing rates and France’s vulner­ability to worsening external conditions adds up to a high risk of an economic contraction around the turn of the year that will hold annual real GDP growth to less than 1% in 2023. The govern­ment has targeted the reduction of the general government budget deficit to less than 3% of GDP by 2027, but officials could encounter difficulties in the near term if a weakening economy results in unforeseen expenditures and below-target revenue.

The analysis above is taken from the September 2022 Political Risk Letter (PRL). The best-in-class monthly newsletter, written by the PRS Group, provides concise, easy-to-digest briefs on up to 10 countries, with additional recaps updating prior month’s reports. Each month’s Political and Economic Forecasts Table covers 100 countries, with 18-month and five-year forecasts for KPIs such as turmoil, financial transfer and export market risk. It also includes country rating changes, providing an excellent method of tracking ratings and risk for the countries where credit professionals do business. FCIB and NACM members receive a 10% discount on PRS Country Reports and the PRL by subscribing through FCIB. Christopher McKee, Ph.D., economist and CEO of The PRS Group, is FCIB's newest global expert. Members can watch his most recent Global Expert Briefing on political risk on-demand.

3 Ways to Create Loyal Employees

Three and Jackie Carpenter, authors of People First: The 5 Steps to Pure Human Connection and a Thriving Organization

Over the course of the last few years, our circumstances have changed, the way we work has changed and we have changed. Our lives may look differently than they did five years ago but it seems we are stuck in a time where we mentally try to separate home from work. Managers try to avoid getting involved in employees’ personal problems and companies still prioritize employees’ productivity over their health and wellbeing. But with burnout running rampant, more people working from home and the pressure to be connected 24/7, there are no lines between our work life and home life anymore. In our new normal, our work lives and home lives coexist side by side, seamlessly so, making the ability to separate the two increasingly difficult.

How support creates loyal employees

No doubt our personal lives impact our work. A few months ago, our friend Brenda suddenly lost her mom. It was a tremendous shock and Brenda openly admitted that she had a hard time focusing and didn’t have much motivation to do anything for weeks, including her job. When our colleague, Keith, was going through a divorce, we noticed how withdrawn he became. He stopped contributing in meetings and requested extensions on project deadlines time and time again. It was obvious when Kate, a coworker, announced she was selling her house and was moving because we had seen a marked change in her behavior—she had never been so scattered and as noticeably stressed in all the years we knew her! Let’s face it, whatever is happening in our personal lives can absolutely alter our attitude, mental capacity, motivation and productivity at work.

We have to recognize that our employees show up at work with everything in their lives (good or bad). We have to see the whole person, not just the worker in the person. When leaders shift from not wanting to know about employees outside of work to caring about the whole person both inside and outside of work, a powerful transformation occurs. Employees are recognized as human beings, not objects. (After all, they are people first!) As a result, employees feel seen, valued and supported, and coworkers begin to help one another both at work and in life. It also forges a bond of loyalty between colleagues and between employees and bosses. We’ve seen cultures transition from cold and transactional to cultures of trust, care and support.

If you want to build teams of loyal, happy and thriving employees, it’s time to begin supporting employees in life, and not just focusing on their productivity at work. Supporting employees in life looks a lot like trying to eliminate difficulties and stresses from people’s daily lives. Below are three easy ways employers can lend tremendous support to their employees:

1. Provide resources and relationships

Build relationships with vendors, childcare providers, moving companies, dentists, doctors, nutritionists, auto shops, etc. Ask these vendors to deliver VIP service, and possibly offer discounts, for the employees of your company in return for your commitment to promote their business and market their services to your entire staff.

2. Provide education and training for life skills

Times are tough for many people right now (COVID, post COVID, inflation, general burnout, etc.). By providing financial education such as how to save for retirement, planning for college, how to get out of debt and what to know about 401K contributions, you can provide real-life education that employees desire and need more than ever. You could also offer unique education for life skills such as cooking, sewing, gardening and Do-It-Yourself home improvement projects to develop employees’ knowledge and set their families up for success.

3. Create an employee support committee 

Call it whatever you want but establish a group of employees who can lead a specialized task force to help fellow colleagues in need, and it’s backed by the company. They could organize rides for an employee whose car is in the shop, schedule meal delivery for employees who have had surgery, undergone a cancer treatment or just had a baby. Perhaps they send flowers (paid for by the company) to employees who’ve lost a loved one. Imagine if a tragedy struck—a fire, flood or tornado—and this committee orchestrated donations, food, clothing and other necessities for the employee and their family. What if the company established an Employee Assistance Fund, where any employee having a difficult time could ask for help and in return the company rallied to provide money or assistance with what they needed at that time?

These are easy ways to show employees you genuinely care about them. As more leaders experience the results of quiet quitting, now is the time to show up for your people! When a company strives to support employees in life, it speaks volumes to who the organization is and what its priorities are. Building engaged, loyal employees starts by demonstrating your loyalty to them first. In a time when companies are doing everything possible to attract and retain their workers, it’s the simple things such as caring, supporting and showing commitment that create upbeat company cultures and positive employee experiences. True leaders strive to support their people in life, not just in business.

Three and Jackie Carpenter have spent their careers in the private club industry, where customer service must be at the highest level. With a track record for creating connected teams, upbeat work cultures and thriving organizations, Three and Jackie have helped some of the most historic and respected country clubs become profitable and have enriched the lives of hundreds of coworkers through the process. They coach, speak and mentor others on the topic of their book: People First: The 5 Steps to Pure Human Connection and a Thriving Organization.

Reprinted with permission; SmartBrief

      

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Week in Review Editorial Team:

Annacaroline Caruso, editor in chief

Jamilex Gotay, editorial associate

Kendall Payton, editorial associate