1. Germany's energy dependence on Russia in perspective
Oil accounts for 32 percent of German primary energy input and one third of that comes from Russia. Gas accounts for 27 percent of Germany’s primary energy input, of which 55 percent comes from Russia. Of the coal burned in Germany, which accounts for 18 percent of energy input, 26 percent comes from Russia. All told that means that just over 30 percent of Germany’s primary energy input comes from Russia.
Adam Tooze points to a paper which tries to quantify the likely impact of a complete ban on Russian imports. Their findings are that the impact will be limited and not catastrophic.
According to the calculations by Bachmann et al, even in a worst case scenario the impact on GDP would come to 3 percent, which is less than the 4 percent shock that the German economy suffered in the COVID crisis... Purely in the spirit of being conservative, we therefore postulate a worst-case scenario that doubles the number without input-output linkages from 1.5% to 3% or €1,200 per year per German citizen. This number is an order of magnitude higher than the 0.2-0.3% or €80-120 implied by the Baqaee-Farhi model. We should emphasize that this is an extreme scenario and we consider economic losses as predicted by the Baqaee-Farhi model to be the more likely outcome.
However, a prolonged isolation of Russia may not be sustainable for the world economy without serious long-term costs. Consider these
Russia ranks number one, two and three, respectively, among the world’s exporters of natural gas, oil and coal. Europe gets the bulk of its energy from its eastern neighbour. Russia also accounts for half of America’s uranium imports. It supplies a tenth of the world’s aluminium and copper, and a fifth of battery-grade nickel. Its dominance in precious metals such as palladium, key in the automotive and electronics industries, is even greater. It is also a crucial source of wheat and fertilisers.
Even though Russian commodity exports have not been banned, the commodity markets have been spooked after the invasion.
See also this on the commodity market issues.
2. The Economist points to the TWATS phenomena among office workers in London - going into the office on Tuesdays, Wednesdays and Thursdays! It's reflected in the London Metro commute numbers.
3. The Economist has a crony capitalist index of countries.
Our index uses 25 years of data from Forbes’s annual stock-take of the world’s billionaires. In 2021 the publication listed 2,755 individuals with total estimated wealth of $13trn. We have classified the main source of each billionaire’s wealth into crony and non-crony sectors. Our crony sectors include a host of industries that are vulnerable to rent-seeking because of their proximity to the state, such as banking, casinos, defence, extractive industries and construction. We have aggregated the data according to billionaires’ country of citizenship expressed as a share of its GDP.
4. The rise of digital payments in India
5. From Marina Lewycka
Putin is technically right when he says that Ukraine is not an ancient state. Most states, as we currently think of them, are relatively new. But although Ukraine is not ancient, Kyiv is — hence its importance to his project. Kievan Rus, a federation of mostly East Slavic peoples that was dominated by the city, existed from the 9th century. Kyiv was Russia’s first capital until Moscow was built. The western side of Ukraine, on the other hand, was part of the Habsburg Catholic empire and only incorporated into the Tsarist empire relatively recently.
6. Akash Prakash makes an important point about the Indian equity markets, which has seen a flight of $26 bn of foreign capital since October 2021.
What has impressed me is the resilience of the markets. Sure we are down by 10 per cent this year, but so are global markets. If someone had told me 12 months ago that India would face Rs 200,000 crore of foreign selling in just six months and oil would be at $130, I would never have guessed that the rupee would be stable at 76-77 and markets down only 10 per cent. In 2008, in the face of far less absolute selling, markets fell by 72 per cent in dollar terms. Markets are telling us something. They are not going down beyond a point and are far more resilient than what one has seen historically. The strength and conviction of the domestic investor base is visible. Few people realise that from 2014 onwards, domestic institutions have actually invested more money into Indian equities than global players.
7. WSJ has a profile of former Bank of England economist, Charles Goodhart, who has predicted inflation in advanced economies to settle at 3-4% by end of 2022 and remain at that level for decades. He attributes this to demographics primarily, and also reversal of globalisation. He feels that the labour force will shrink, aging populations will spend more (especially on healthcare) than they'll save, and protectionism and reshoring will reduce the effects of global market places. The result will be higher wages, increase in prices, and reduced pool of savings. The combined effect will be higher inflation and interest rates.
As labor becomes more scarce, he maintained, workers will push for higher wages, in turn driving up prices. At the same time, businesses will manufacture and invest more locally to help offset both labor shortages and the nationalist and geopolitical pressures curbing globalized supply chains. That will increase production costs and local workers’ bargaining power. Global savings will fall as older people consume more than they produce, spending particularly on healthcare. All that will push up interest rates, he predicted.
8. Putting the Chinese stock market collapse in recent days in perspective,
Now the entirety of publicly-listed Chinese tech is worth less than Amazon.
9. Interest rate trajectory in Brazil
Brazil’s central bank was already one of the world’s most hawkish, using a series of rate increases to lift its benchmark Selic interest rate from 2 per cent a year ago to 10.75 per cent last month. Economists expect the Selic to rise by a further 1 percentage point to 11.75 per cent on Wednesday, the highest level in five years. Now a survey by Valor, a business media group, of 91 economists’ projections released this week found that the median forecast for the Selic has risen to 12.75 per cent by the end of the year, as Russia’s war in Ukraine has triggered a surge in commodities prices, particularly in oil and agricultural products. This is an increase from the previous consensus of 12.25 per cent.
An increase of over six times over less than two years?
10. The global stock markets staged a remarkable turnaround this week in the biggest weekly gains since late 2020. After being battered by the Russian invasion, rising inflation, and Chinese Covid resurgence, news that Russians and Ukrainians are talking, a senior Chinese official committed to supporting both the economy and the markets, and Fed's only 25 basis points hike have all been treated as worthy enough to support the turnaround. And all this despite continuing news of economic slowdown, even recession or stagflation, in Europe and US.
Stock markets have a narrative. Bad news comes >> Markets respond by pricing for the worst >> News turns out not as bad or some encouraging news emerges >> Markets respond by pricing for the best. Since optimism generates more positive buoyancy than pessimism generates negative sentiment, the net result is that markets keep moving up even amidst such despair! As the FT columnist Katie Martin wrote, "markets are all about how fears match up to reality, and everything could have been worse"!
Never mind, the global economic uncertainty is so much that OECD has even postponed the publication of its global economic outlook, the stock markets march on.
11. The Business Standard points to the problems faced by Employees Provident Fund Organisation (EPFO). The report notes that the share of state government bonds in EPFO's portfolio has risen from 26.39% in 2016-17 to 42.42% in 2020-21.
The surge in state government paper comes as the gap widens between what subscribers get as returns for their money parked with EPFO and what the organisation can expect from debt markets—the yield on central government securities being one example. The gap between returns on 10-year central government securities and EPFO’s promised return to subscribers grew to its widest in almost a decade in 2020-21. State government securities typically offer higher interest rates. The difference between state and central government yields was at its highest in 11 years as of 2020-21.
The widening of gap between returns and committed payout is the problem!
12. Finally, Scott Galloway has an excellent post where he makes the distinction between money laundering and money washing.
A common feature of kleptocracies is that they are unappealing places to spend money. A hundred million dollars in London, Paris, and St. Barts buys a better life than any amount of money will afford you in Riyadh. And you don’t obtain modern economy status with a mansion or a megayacht, but with courtside seats next to Kanye or a position on the board of MoMA. There are forms of washing everywhere. Anna Wintour sells prestige in the form of admittance to the Met Ball, via purchase of print ads in Vogue. Admission to elite society is for sale, but big spenders from autocracies require fabric softener before admission. Just like drug kingpins, oligarchs have money but can’t spend it. Enter the money washer. This is any jurisdiction with strong property rights, ample luxury goods, and a willingness to overlook origins. Also a society that accepts oligarch money for real estate, yachts, and midfielder salaries.
Money laundering is done in secret, because it requires hiding the source of money. Money washing hides in plain sight, because that’s the point (appearances). Money washers merely ask the broader community to ignore the money’s origins. Money laundering experts outline three components: Placement (getting dirty money into the legitimate financial system), Layering (concealing its source through dishonest transactions), and Integration (making it available for spending). Money washing also has three components: Removal (getting kleptocash out of the kleptocracy), Enjoyment (converting dead money into a luxury lifestyle), and Elitism (entry into the elite cultural and political circles of the adopted country).
The key principle of washing is removal: getting money out of Russia (or Iran or Kuwait or Venezuela) and into the West — the American/European financial system. The first port of call for many oligarchs is a web of shell companies located in places including the Virgin Islands and the Caymans. This converts their cache into dollars and euros and removes it from the grasp of the kleptocracy back home, which could have a change of heart. But ultimately oligarchs want things, not numbers. Buying Western assets, vs. just shifting money into Western accounts, looks more like legitimate business activity, and the purchase can earn a return and garner Western prestige.
UK, which waxes indignation at Russians, have been the biggest beneficiaries of the Russian money washing. A non-trivial share of London's economic growth in recent years have been underwritten by wealth from kelptocracies. The US is only slightly less culpable.
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