Week in Review

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A rail strike looms and impact on US economy could be broad. American consumers and nearly every industry will be affected if freight trains grind to a halt next month. (AP)

UK faces worst downturn of any advanced economy. The U.K. economy will suffer a bigger blow from the global energy crisis than other leading nations, according to international body the Organization for Economic Cooperation and Development. (BBC)

Lula has won Brazil—now what? Brazil’s presidential election was a bickering, contentious and rancorous race and Lula’s margin of victory against Bolsonaro was under 2%. (Brink News)

Russia’s Gazprom threatens Europe gas cuts through Ukraine. Russian energy giant Gazprom has threatened to reduce natural gas supplies through the last pipeline heading to Europe via Ukraine, saying the amount it’s supplying for Moldova is not ending up in the former Soviet republic. (AP)

Germany seeks less China reliance after Russia mistake. German Chancellor Olaf Scholz said the mistake of depending on one main source in trade “will not happen again.” Economy Minister Robert Habeck said Berlin would cap investment guarantees for China. (DW)

China anti-virus curbs spur fears of global economic impact. More than 253,000 coronavirus cases have been found in China in the past three weeks and the daily average is rising. (AP)

Harris is traveling near the South China Sea. Here's why that matters. Vice President Harris is making an unusual stop on her latest trip to Asia. On Monday evening, she is set to become the highest-ranking U.S. official to visit Palawan, an island of the Philippines that borders the South China Sea. (NPR)

Business leaders wary of increasingly geopoliticized global economy. After more than two years of navigating different dimensions and phases of the COVID-19 crisis, concerns over inflation, affordability and national debt are front of mind for businesses, according to the World Economic Forum’s 2022 Executive Opinion Survey. (Brink News)

Indonesian rescuers search through rubble of quake; 268 dead. Experts said the shallowness of the quake and inadequate infrastructure contributed to the severe damage, including caved-in roofs and large piles of bricks, concrete and corrugated metal. (AP)

UKEF rolls out bills and notes guarantee for overseas buyers. U.K. Export Finance (UKEF) has launched a new product to guarantee payments made by overseas buyers of U.K. goods. (Global Trade Review)

Impact of Russia’s invasion of Ukraine: A trade finance compliance perspective. To date, the European Union (EU) has announced concurrent sanctions packages covering individuals, entities and traded goods, with the most recent 8th package released in October. (HSN)

The crypto meltdown, explained. November 2022 is a month that investors, particularly in cryptocurrencies, will never forget. And the worst may be yet to come. (CNN)

Economic headwinds stunt oil demand. Oil demand growth is expected to slow to 1.6 million barrels per day (bpd) in 2023, down from the 2.1 million bpd anticipated for 2022, according to the International Energy Agency. (HSN)


Risks That Could Reshape the Global Economy in 2023

Kendall Payton, editorial associate

As 2022 comes to an end, many unexpected scenarios continue to weigh on the global economy. The aftermath of COVID-19, the Russia-Ukraine war, an energy crisis in Europe and natural disasters across the world are just a few to name. 

Economists expect the impact of such factors to dampen economic growth in 2023, slowing global growth to 1.6%, according to a report from the Economist Intelligence Unit (EIU). Experts from the EIU outlined 10 risk scenarios and the possible impact of each. Here are five with the highest probability of occurring:

1. Cold winter intensifies Europe’s energy crisis (High probability; Very high impact). Russia has cut off gas flow to 12 different European countries. A cold winter could lead Europe to “exhaust its natural gas reserves early (and fail to replenish them), resulting in a recession that could drag into 2024,” the EIU report reads.

2. High inflation rates lead to social unrest (Very high probability; Moderate impact). With inflation higher than most wages, workers will not be able to provide efficiently for their families. Argentina, for example, had a mass protest in August demanding their government to take action with salary boosts and unemployment benefits, per Reuters.

3. New COVID-19 variants could emerge (Moderate probability; Very high impact). The EIU expects a new variant of the disease to emerge by the end of this year or early 2023. If it is contagious enough, it could lead to another lockdown and ultimately a recession.

4. Interest rate hikes lead to global recession (Moderate probability; Moderate impact). Central banks around the world continue to aggressively raise interest rates in attempt to combat hot inflation. A prolonged rise in rates could trigger a recession.

5. Extreme weather changes add to commodity price spikes (High probability; High impact). Climate change causes severe weather such as droughts or floods—which can lead to crop shortages, increased prices and even famine.

These scenarios all have an underlying root cause from the Russia-Ukraine war, according to the EIU report. “We expect that ripple effects from the war in Ukraine, global monetary tightening and an economic slowdown in China will weigh on the economy in 2023,” the report said.

“Global growth is slowing sharply, with further slowing likely as more countries fall into recession,” said World Bank Group President David Malpass.My deep concern is that these trends will persist, with long-lasting consequences that are devastating for people in emerging market and developing economies.”


Diesel Shortage Threatens Global Trade and Inflation

Jamilex Gotay, editorial associate

Europe and the U.S. are bracing for an ongoing diesel shortage, as prices surge. Diesel stockpiles and heating oil in the U.S. are at their lowest level in 40 years. And Europe is trying to secure Russian diesel three months ahead of an import ban.

“While Europe's reliance on Russian fuel has dwindled, down more than 50% since Moscow invaded Ukraine, Russia is still the continent's largest diesel supplier. To replace Russian volumes, Europe will likely have to secure around 500,000 to 600,000 barrels per day of diesel,” reads an article from Markets Insider.

Currently in Europe, the average price for diesel is €2 per liter, or €7.50 per gallon, with the Netherlands holding the highest record at €2.7 per liter. “The main reason the price has increased is the war in Ukraine. Before that, Russia was a very good provider of diesel to Europe,” Fred Dons, director of commodity trade finance at Deutsche Bank (Amsterdam, NL) said during FCIB’s Global Expert Briefing.

Before the war in Ukraine, Russia supplied 40% of Europe's natural gas, mostly by pipeline, per Reuters. According to a study by the European Stability Mechanism (ESM), a full gas supply cut would cause gas rationing in early-2023, especially in countries like Germany, Austria, Belgium and Italy. Additionally, euro area GDP is forecasted to fall by 2.6%. Diesel continues to be an important source of fuel in Europe’s logistics industry for fueling trucks and heavy machinery.

Since Russia’s gas supply cuts, the U.S. is nearing a diesel shortage given that they also are a major importer of Russian diesel. Last month, the Energy Information Administration (EIA) reported that the distillate inventories in the U.S. were at their lowest levels since 2008. “On Thursday, a gallon of diesel fuel in the United States cost $5.362 on average, according to AAA. That was down from a record of $5.816 in June but well above the $3.642 it cost a year ago,” reads a New York Times article.

The U.S. has been exporting its personal supply of diesel to neighboring countries, but may not be able to much longer. “There were some rumors about a diesel export ban in the U.S. that wasn’t implemented but because of those rumors, the exports decreased,” Dons said. “According to official data, the U.S. is self-sufficient in energy but if diesel is not able to be exported, then there is a shortage.” A U.S. diesel export ban would leave Europe with no choice but to import diesel from other countries, like Saudi Arabia, which could create trade issues.

In addition to trade issues, a diesel shortage would contribute to Europe’s already high inflation (10.7%). The ECB’s rate hike of 75bps made last week was to match high inflation levels in Europe. If the coming winter in Europe is severe enough, the price for diesel may increase to the highest it has ever been. “Energy prices may go up to such a level in Europe that the U.S. may be interested in exporting to Europe more. Afterall, traders will trade with the highest payer for diesel,” Dons added. “It’s getting to such a level that Europe’s transportation companies are looking for cheaper alternatives that are not there or cancelling some routes to conserve gas.”

Luxembourg: Stronger Productivity and Labor Supply Would Sustain GDP Growth and Living Standards


Like many countries, Luxembourg is seeing its post-pandemic recovery lose momentum as Russia’s war of aggression against Ukraine weighs on economic activity and drives up inflation, according to a new OECD report.

The latest OECD Economic Survey of Luxembourg says policies to cushion the impact on households from rising costs should be targeted and temporary to avoid adding to inflationary pressures and to maintain incentives for energy savings. Over the longer term, sustaining the country’s high living standards will require measures to enhance productivity growth and reform the pension system to lengthen the time people spend in work.

Headline inflation in Luxembourg reached 8.8% in October, with high energy prices and a tight labor market exerting upward pressure. While direct exposure to Russia is low, Luxembourg is feeling the impact of slowing economic activity in Europe caused by the war in Ukraine, supply chain disruptions and COVID-related shutdowns in China. The Survey projects Luxembourg’s GDP growing at 1.7% in 2022 and 1.5% in 2023.

“Luxembourg’s immediate challenge is to tackle inflationary pressures, which are expected to persist. Support for energy efficiency investments and allowances for disadvantaged households are better targeted than price caps and can help reduce energy demand,” OECD Secretary-General Mathias Cormann said, presenting the Survey alongside Minister of the Economy Franz Fayot, Minister of Finance Yuriko Backes and Minister of Energy Claude Turmes. “For the longer term, the focus should be on increasing investment in a low-carbon economy, more research and development to enhance productivity growth and on taking steps to better align the retirement age with longer life expectancy.”

Luxembourg enjoys the highest GDP-per-capita of OECD countries, low unemployment, low public debt and sizeable public assets. However, per-capita GDP growth is slowing, productivity growth is comparatively weak and as the population ages, pension spending is set to rise substantially, putting pressure on public finances.

Taking action to extend working lives would help to improve the sustainability of growth and public finances. With a quarter of men retiring at 54 years of age or younger and, in the absence of reform, the old-age dependency ratio expected to more than double to over 56% by 2070, the Survey recommends reforms to link the retirement age to life expectancy. This would help avoid younger generations facing higher taxes and lower pensions. 

Increasing private investment in research and development, which lags public investment and means overall R&D spending is below the OECD average as a share of GDP, would help to boost productivity and GDP growth. More could also be done to ease burdensome regulatory restrictions, lighten professional licensing rules and help smaller firms to adopt digital technology. Improving adult skills to bring them more in line with employer needs would also help to boost productivity.

The survey notes the urgency of increasing the supply of housing to address the rapid rise in property prices, which have risen by 9.7% a year on average over the past five years compared to an EU average of 4.9%. It welcomes a government proposal to introduce a national property tax on unused land and buildings, which will help to tackle land hoarding.

Finally, the transition towards a low-carbon economy is an opportunity to support stronger and more sustainable growth. Luxembourg’s progress in lowering greenhouse gas emissions has slowed in recent years. A rise in transport emissions, partly linked to urban sprawl, has pushed up overall emissions since 2015. It is important to accelerate progress towards net zero emissions, as set out in Luxembourg’s climate strategy to 2050. Encouraging greater energy efficiency of housing, denser housing can support lower energy consumption and reduced car use. Tax credits and municipal funding incentives should support greener housing, built in line with the Master Program for Spatial Planning. In the medium and long term, there is also a need to raise carbon prices to send clear investment signals and help achieve its net zero emissions target.

See an overview of the survey with key findings and charts.


ICRM fall22 email


Week in Review Editorial Team:

Annacaroline Caruso, editor in chief

Jamilex Gotay, editorial associate

Kendall Payton, editorial associate