We’ve long known that we can find comfort, solace and help in the pages of a book, and now research has confirmed that reading can be good for our mental health. Read when you’ve got time to spare. It’s that moment when you sink into the sofa after a stressful day at work, relieved to lose yourself in a Kate Atkinson bestseller for 20 minutes.
It’s easing yourself under your duvet at bedtime, prising open Sarah Waters’ Fingersmith, desperate to discover Sue Trinder’s fate. It’s those two minutes snatched with Jane Eyre while you’re waiting for the kettle to boil in between Zoom meetings.
Reading a book is one of life’s biggest joys, but could it also be a way of coping with the difficult times in life, from bereavement to relationship problems, and life in lockdown?
New research suggests that reading could be hugely beneficial for our mental health, with classic books written by authors such as William Shakespeare and Charles Dickens being proven to help relieve depression and chronic pain. In a 2020 study published by Oxford University Press, “challenging language” was found to send “rocket boosters” to our mind that can help boost our mental health.
The mental health benefits of reading are something that Dr Paula Byrne certainly believes in. She is an author and founder of ReLit, a charity which promotes bibliotherapy for mental health. She and her colleagues run workshops in schools, prisons and halfway houses and they host a week-long bibliotherapy summer school which is open to all.
“Bibliotherapy, quite simply, is about books as therapy. It’s not meant to take the place of medicine, but it can complement it,” says Dr Byrne. “It’s actually a reinvention of a traditional idea. The ancient Greeks used poetry as therapy and Queen Victoria drew comfort from the works of Alfred Lord Tennyson when her husband, Prince Albert, died.
“Books can take you to a different place. They can relax you and calm you, and they can offer wisdom, or humour, or both.” The NHS is increasingly tuning into the benefits of literary prescriptions. Reading Well offers two things: a books-on-prescription scheme which helps people to understand and manage their mental health – all the book lists, which are non-fiction, self-help-type books, are endorsed by health professionals and supported by public libraries in England.
Separately, the scheme also lists a range of mood-boosting fiction recommended by readers, from Gail Honeyman’s Eleanor Oliphant is Completely Fine to Nancy Mitford’s The Pursuit of Love. You can also sign up to a bibliotherapy service with The School of Life. For £100, you’ll complete a questionnaire about your relationship with books, before having a having a one-to-one session with a bibliotherapist who will create your own unique book prescription.
In her work with ReLit, Dr Byrne often uses poetry as a way into the practice. “We focus a lot on poetry because it is short and accessible. We all lead busy lives and if you want to relax or go into a different headspace, taking time to read a poem can really slow you down,” she says.
It’s up to you whether you choose a piece of prose for escapism or to seek out your own experiences reflected on the page. “When I had a miscarriage, the only thing that comforted me was a poem written by 17th century poet, Katherine Phillips, about her own miscarriage in 1655,” says Dr Byrne. “Even though her experience was centuries ago, it was a common experience that we shared. There’s something incredibly comforting and cathartic about well-chosen words and language.”
There’s a wealth of evidence to support the idea that books can cure, console and enhance wellbeing. A 2013 study published in the journal Clinical Psychology & Psychotherapyinvolved 96 patients with mild depression. Those who were given a book to read saw improvement in depressive symptoms, compared with those in a control group who didn’t receive bibliotherapy treatment.
Another study from The New School for Social Research, New York, found that reading fiction improves something called Theory of Mind – this is essentially our ability to empathise with others and understand that other people hold different beliefs and desires to our own.
There’s even evidence that as a bookworm, you could enjoy a longer life. A 2016 study from Yale University School of Public Health found that people who read books had a 20% reduction in risk of death over 12 years, compared with non-book readers. Clocking up more years in which to devour everything on our to-read list? Sounds like a good reason to pick up a book to us…
Books as a Balm: 4 Recommended Reads
Dr Byrne and Stylist readers share the tomes that have worked for them.
Bereaved: Our Game by John Le Carre (Penguin Classics)
Chosen by Amy Lewin, 38, TV production manager.
“When my dad died I picked up this book from his shelf. It was a chance to escape and it allowed me to feel in touch with Dad. I wasn’t ready to read books about grief. I didn’t want to read about the experience of others as I was overwhelmed by my own feelings and I looked instead to reading as a source of comfort.”
“Two sisters, Elinor and Marianne, both suffer from broken hearts but they have very different ways of dealing with it. Marianne cries, she doesn’t eat, she paces, she can’t sleep. Meanwhile, Elinor doesn’t tell anyone, suffering in silence.”
“I was 14 when I read Oranges…, around the time I began struggling with anxiety and depression. It wasn’t the Pentecostal exorcisms or obstructive matriarchs I related to but the secret humour and descriptions of isolation. As a maudlin bisexual teenager convinced that the frustration of growing up would be endless, it was gratifying to read.”
Media headlines out did each other in broadcasting China’s 6.8% contraction in GDP in the first quarter this year. It was indeed breaking news in that it was the first ever contraction since China started reporting quarterly GDP data in 1992. However, beyond the headlines, there is surprisingly little that is newsworthy.
It is not telling us anything we didn’t know already. A deep contraction was widely expected because of the massive quarantine and lockdown implemented to contain the COVID-19 outbreak, which practically shut down the economy. For example, Wuhan, the epicenter of the outbreak, ended its lockdown only on April 18 after 76 days.
Not surprisingly markets largely shrugged off the news. The S&P 500 rose 1.6% on April 17, after Nasdaq flipped into positive territory for the year the day before. Wall Street was not alone, Asian and European stocks also finished the week higher.
The slew of Beijing’s counter-cyclical policies to help the economy recover from COVID-19 has also been well and fully anticipated. Export rebate rates were raised on over 1,000 products to help exporters facing slumping demands. New infrastructure projects, many are planned and budgeted but now moved forward, have started in 25 provinces which will help prop up demand for industrial production and employment.
The People’s Bank of China, the central bank, has been adding liquidity to the financial system by cutting interest rates and reserve requirement ratio, as well as directing more lending to small and medium size businesses through loan guarantees. According to its data, bank loans grew by 11.5% year-on-year in March, the fastest growth rate since August 2018. This is an impressive feat.
China’s central bank is succeeding in raising bank credit growth in the midst of a massive economic contraction, something that is extremely difficult to do. None of these will bring about a V-shaped rebound, but they will pave the way for a recovery that will gather strength through the course of the second half of the year even if the global economy is still in recession.
The real news in China’s GDP contraction, which had come and gone hardly being noticed, is a policy document released without fanfare on March 30 outlining a set of wide-ranging structural reforms to be implemented in the aftermath of COVID-19. Ostensibly these structural reforms are needed, above and beyond the cyclical measures described, to revitalize an economy ravaged by COVID-19.
Upon closer scrutiny, however, it becomes clear that these are some of the deepest structural reforms that had been proposed and debated for the last two decades, and were strenuously resisted and successfully blocked or deferred by local governments. It appears that Beijing is taking advantage of COVID-19 and the unprecedented GDP contraction to ram through tough reforms that would otherwise be harder to do. What are these reforms?
These are deep and sweeping structural reforms regarding land use, the labor market, interest and exchange rates and the financial markets. They are what really matters if the Chinese economy is to become more market driven and efficient. On land use, current restrictions on how rural land can be sold and used for commercial purposes will be lifted, and the system of rural land acquisition and sales will be made market driven.
Behind these innocuous sounding policy-speak is the intention of slaying of one of communism’s sacred cows, the public ownership of land. Sweeping indeed. The removal of the household registration system, the hukou, is the centerpiece for reforming the labor market. This will be implemented nation-wide with the exceptions of a few mega-cities like Beijing and Shanghai.
For the tens of millions of migrant workers, they will be able to become fully-fledged urban residents in towns and cities where they are gainfully employed. They will be able to live with their families and have full access to urban health care, education and social welfare services.
Apart from lifting a highly discriminatory barrier that divides the Chinese population into two unequal tiers, at one stroke this reform will also increase urban consumption demand massively, especially in housing, while further enhancing the growth and dynamism of China’s burgeoning service sector.
The integration of benchmark lending and deposit rates with market rates will be the central plank of price reform in banking and finance, which will align them to become more market driven. The RMB exchange rate will be made more flexible. Civil servant salaries will be made comparable with the private sector.
The institutional infrastructure for listing, trading and delisting in the stock markets will be streamlined with stronger regulatory oversight, and the development of the bond market will be fast-tracked to offer an expanded range of products in size and varieties. And, finally, the opening up of the financial sector to full foreign participation will be accelerated.
Successfully implementing anyone of these structural reforms would be an achievement. Getting all of them done would be a game changer. This is clearly what Beijing intends to do by seizing the opportunity created by COVID-19 and the unprecedented GDP contraction. For those who welcome engagement with China, be prepared for a more dynamic and innovative Chinese economy.
For those who fear the rise of China, get ready to face a more determined China that marches to its own tune. Finally, the GDP contraction may well be the catalyst that Beijing needs to dispense with the GDP growth target altogether.
In the past decades, it has led provincial governments to boost production regardless of real demand in order to meet such targets, burdening China’s economic structure with wasteful over-capacity as a result. Allowing GDP growth to fluctuate with the rhythm of the business cycle would be an even greater achievement. That would be truly newsworthy.
Big Tech earnings were off to a solid start on Tuesday when Microsoft and Google reported stable revenue growth and margins that are unchanged from recent macro conditions. The strong margins were especially welcomed as many companies have been missing on operating margins and cash flow. Meanwhile, Microsoft delivered free cash flow of $17.8 billion and net profits of $16.7 billion along with upbeat guidance for the year. Similarly, Google reported strong free cash flow of $12.6 billion and net profits of $16 billion in the recent quarter.
The same was not true for Meta, which primarily stumbled on its Q3 guide. The company reported its first decline in revenue in company history and guidance for next quarter missed due to FX headwinds. Analyst expectations for Q3 were for $30.4 billion, or 5% growth. Instead, the company guided for $26 billion to $28.5 billion, or a YoY decline of 6% at the mid-point of the guidance with the current exchange rates creating a 6% headwind.
Alphabet: Search is Resilient
The company reported revenue of 13%, or 16% in constant currency, for a total of $69.7 billion. The operating margin was flat year-over-year, which is a win. Operating expenses grew 24% yet the operating margin was in line with previous quarters at 28% for $19.58 billion in operating income.
The net margin was a bit weaker than previous quarters in 2021 at $16 billion yet in line with last quarter. The company has free cash flow of $12.6 billion. The company has $125 billion in cash and marketable securities. The company reported EPS of $1.21 compared to $1.36 for the same period last year.
Search was stable given the current environment at 13.5% growth to $40 billion and this provided relief that not all ad spend has been paused. Search was strong last quarter at 24% growth to $40 billion, and was flat sequentially in terms of total dollar amount.
The effects of Google’s large R&D department and advances in AI cannot be overstated when it comes to the resiliency of Search in the current environment. We are getting a very slight glimpse of what’s to come for Google in terms of its advertising dominance.
The expectations were that YouTube would weigh on the report yet YouTube provided a bit of growth at 5% year-over-year. The company was adamant that YouTube growth is low because of the tough comps. The tough comps was touched on many times, such as this: “the modest year-on-year growth rate primarily reflects lapping the uniquely strong performance in the second quarter of 2021.”
Notably, Google Cloud slowed to 35.6% growth down from 43.8% growth last quarter. This means Google Cloud is growing slower than Azure on a lower revenue base. This is something to monitor in the future.
Microsoft: Double-Digit Guide for FY2023
Many tech companies are declining to give guidance while Microsoft’s management provided strong guidance in both Q1 FY2023 and for FY2023. For Q1 FY2023, management provided a 10% guide across product lines for next quarter (this includes FX headwinds) and also provided guidance for fiscal year 2023 ending in June: “We continue to expect double-digit revenue and operating income growth in both constant currency and U.S. dollars. Revenue growth will be driven by continued momentum in our commercial business and a focus on share gains across our portfolio.”
Revenue grew by 12% YoY to $51.9 billion (missed Wall Street analysts’ estimates by 0.94%) and EPS came at $2.23 (missed estimates by 2.9%). The strong US dollar negatively impacted the revenue by $595 million and EPS by $0.04. Microsoft Cloud revenue grew by 28% YoY to $25 billion. The company’s results are good considering the various macro uncertainties, China lockdown, and the strong US dollar. FY2022 revenue grew by 18% YoY to $198.3 billion and net income increased by 19% YoY to $72.7 billion.
The company’s gross income increased 10% YoY to $35.4 billion. The gross margin decreased by 147 bps to 68.2% when compared to the same period last year. Excluding the impact from the change in the accounting estimate, the gross margin was relatively unchanged.
The operating income increased by 8% YoY to $20.5 billion. The operating margin decreased by 187 bps to 39.5%. Excluding the impact from the change in the accounting estimate and FX, the operating margin would be relatively unchanged.
The company’s cash flows continued to be strong in the recent quarter. Cash from operations grew by 8% YoY to $24.6 billion (47% of revenue) and free cash flow increased by 9% YoY to $17.8 billion (34% of revenue). The company has cash and investments of $104.8 billion and debt of $49.8 billion.
Despite weakness in PCs, the company’s other segments continue to grow. Intelligent Cloud grew 20% YoY to $20.9 billion and Productivity and Business Processes segment grew 13% YoY to $16.6 billion. The company also made an accounting change in the useful life for server and network equipment assets from four to six years which will extend the depreciation expenses for the company.
Amy Hood said in the earnings call, “First, effective at the start of FY ’23, we are extending the depreciable useful life for server and network equipment assets in our cloud infrastructure from 4 to 6 years, which will apply to the asset balances on our balance sheet as of June 30, 2022, as well as future asset purchases.
As a result, based on the outstanding balances as of June 30, we expect fiscal year ’23 operating income to be favorably impacted by approximately $3.7 billion for the full fiscal year and approximately $1.1 billion in the first quarter.”
Meta: Misses Q3 Expectations
The market does not need a perfect quarter for Q2 given the numerous headwinds facing tech companies. What the market does need is a sign that a company may have bottomed and is able to guide growth (even if minimal) from Q2-Q3.
In Q2, Meta’s revenue declined for the first time in history. This was expected. However, what was not expected was the lower guide for the next quarter. The company guided for $26 billion to $28.5 billion, or a YoY decline of 6% at the mid-point of the guidance. The guidance takes into consideration the weak advertising demand the company experienced in the recent quarter and also the foreign exchange headwinds of 6%. The investors were expecting a return of growth in the next quarter.
The company had a slight beat on DAUs at 1.97 billion versus 1.96 billion expected. Monthly users were 2.93 billion slightly missed expectations of 2.94 billion. Operating expenses rose 22% YoY to $20.4 billion. This led to the drop in the operating margin to 29% in the recent quarter compared to 43% in the same period last year. It also led to the 36% YoY drop in the net income to $6.69 billion. The EPS came at $2.46 compared to $3.61 in Q2 2021.
The company is looking to further reduce the operating expenses for the year to $85 billion to $88 billion from the last quarter guidance of $87 billion to $92 million and the prior estimate of $90 billion to $95 billion.
Apple: Strong results despite challenges
Apple released strong results despite the challenging macro environment, strong US dollar, and supply chain issues. Revenue grew by 1.9% YoY to $83 billion, which was in-line with the analysts’ estimates. It reported EPS of $1.20, which beat estimates by $0.04 (4% beat).
The product segment revenue declined marginally by 0.9% YoY to $63.4 billion and the services segment revenue grew by 12% YoY to $19.6 billion. The company’s installed base of active devices reached an all-time high. It had more than 860 million of paid subscriptions, up 160 million in the past year.
The company did not give exact revenue guidance for the next quarter. Tim Cook, CEO of the company, said in the earnings call, “We’re going to accelerate revenues in the September quarter as compared to the June quarter and will decelerate on the Services side.”
The company’s gross margin was 43.26%, compared to 43.75% in the previous quarter and 43.29% in the same period last year. It was above the management’s guidance of 42% to 43%. Net income was $19.4 billion or $1.20 per share compared to $21.7 billion or $1.30 per share in the same period last year. It beat the analysts’ EPS estimates by $0.04.
The company had cash and marketable securities of $179 billion and a debt of $120 billion. The company reported strong operating cash flows of $23 billion (28% of revenue). The company returned over $28 billion to the shareholders in the recent quarter in the form of dividends and share repurchases.
Royston Roche, Equity Analyst at the I/O Fund, contributed to this article.
Please note: The I/O Fund conducts research and draws conclusions for the company’s portfolio. We then share that information with our readers and offer real-time trade notifications. This is not a guarantee of a stock’s performance and it is not financial advice. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis. Beth Kindig and the I/O Fund own Alphabet and Microsoft at the time of writing.
Beth Kindig is the CEO and Lead Tech Analyst for the I/O Fund with cumulative audited results of 141%, beating Ark and other leading active tech funds over four audit periods
Chinese internet giants have become compliant parts of the regime they promised to disrupt. For Tencent’s Pony Ma and other tycoons the future is fraught. In April 2022, a resurgence of Covid spread seemingly unchecked through the financial centre of Shanghai. The government imposed a strict lockdown, confining millions to their homes, triggering mass-testing on a scale unseen since the initial outbreak and outraging affluent urban residents who were increasingly sceptical about China’s Covid-zero policy.
In an attempt to control public opinion, the government told social media sites including WeChat – the super-app used by two-thirds of China’s population – to wipe and scrape posts deemed negative or critical of the policy. But the censorship backfired. There was an unprecedented public outcry, which became a virtual protest. A video documenting the dire fallout of lockdown began circulating online.
The six-minute clip known as Voices of April – a montage of audio recordings encompassing the cries of babies separated from parents during quarantine, residents demanding food and the pleas of a son seeking medical help for his critically ill father – resonated with the tens of millions in Shanghai and more across the country. The video was quickly marked as banned content and taken down from social media platforms in China. On the Twitter-equivalent Weibo, even the word “April” was temporarily restricted from search results.
Many deemed the video a neutral yet essential documentation of the human toll of Shanghai’s lockdown. A backlash ensued, as defiant users repeatedly shared the video in ways that could dodge web censors. Some posted the video upside down, others superimposed words or images or embedded other footage. WeChat censors tried to wipe posts sharing the video, but it was like a multi-headed hydra: no sooner did one get blocked, than another would pop up.
This seminal moment embodied the dynamics between the Chinese government and the country’s giant tech companies. On the frontline was Tencent, the entertainment and tech conglomerate that owns WeChat. For the better part of three decades, Beijing tolerated and even celebrated entrepreneurship. As the country leapfrogged into the digital age, China produced one company worth $1bn every 3.8 days in 2018, just a year after Tencent overtook Facebook to become the fifth largest company in the world.
The amount of money Chinese-focused venture and private equity funds raised grew nearly fourfold to $120bn. That bounty helped China transform from industrial backwater into one of the most dynamic and coveted markets on the planet. In addition to generating revenue, companies such as Tencent complied with government orders when it came to monitoring its citizens. For an authoritarian regime ruling over a population scattered across an area almost as large as the US, an app that dominates every facet of life proves enormously useful.
Some say WeChat should be called WeCheck, such is its capacity for mass surveillance. The early days of Chinese tech also saw the construction of the Great Firewall of China. One in five people on the planet using the internet access it through a filter that obscures Facebook, Twitter, Snap, Instagram, the New York Times and YouTube. In a sense, it’s a parallel universe, where nearly a billion people live and thrive – much to westerners’ surprise – on China’s equivalent of such mainstays. There’s Meituan for Deliveroo, Didi Chuxing for Uber, WeChat for WhatsApp and Facebook.
The services are often even better in terms of convenience and design. The Swiss army knife of a super-app, WeChat is the most deft at merging the functions of various western platforms, allowing people to chat, shop or order a takeaway. Domestically WeChat is known as Weixin, and the company has made a point of emphasising that it operates as two apps within and outside the mainland. China’s deficit of privacy controls means its companies and government have an edge when it comes to collecting the data that empowers the algorithms that screen, monitor, name-shame and, sometimes, imprison its citizens.
The dynamics between Chinese tech companies and the authorities are like no other. Before the pandemic I sat down once with an official and talked about the vicissitudes that startups and entrepreneurs endure. “No matter what kind of hotshot you are, we will always have a way of showing you who’s boss,” the person said, making an offhand remark about Tencent’s owner, Pony Ma. “Don’t think because you control a billion users and moved to Singapore or some overseas country that we can’t do anything about you.”
The official told me that when regulators felt Tencent needed to be taught a lesson, they would step up censorship efforts, block or shut down web services till the company got the message. The tactics were not always conspicuous. Given WeChat’s overseas ambitions at the time, they would sometimes disrupt its service for global users, delaying messages or transactions for just half a minute. “That small hold-up is more than enough to drive users crazy and make people ditch the app altogether,” the person said. “That’s how you show them some colour.”
The Wall no longer resides just within China. When Chinese people travel outside the country, the Wall follows them via their telecom providers. A person using a China Mobile sim card is barred from roaming on Google. Authoritarian nations in Africa, south-east Asia and Russia see the appeal of the model. They too want to create their own intranet. As the internet splits in two, aligning itself between the American and Chinese models, Tencent’s story offers a window into an alternative vision of what the global online sphere could become.
Tencent’s products are so convenient and intuitive; yet in the back of everyone’s minds is the knowledge that their every move, location and utterance is documented and potentially scrutinised. Nowhere is this contradiction more apparent than at Tencent’s headquarters, in the heart of southern Shenzhen’s hi-tech district.
Tencent’s office building took five years and more than half a billion dollars to construct. Ma handpicked NBBJ, the architect responsible for Amazon, Google and Samsung’s headquarters. But the billionaire wanted it to be more than a statement of financial largesse. With its twin gleaming towers of glass and steel, he turned the building into one of the world’s biggest laboratories for new internet services and connected devices. It features holographic tour guides, conference rooms that adjust temperatures based on attendance, and alerts for the best parking spots before commuters arrive.
What struck me was that within the halls of a building that serves as a towering paean to futurism and commerce, the Communist party’s influence is omnipresent. In its open-plan reading room, alongside books about the cosmos and the ancient Greek and Roman empires, Chinese President Xi Jinping’s book – tabulating his speeches and thoughts about how to govern – features on the most prominent shelves. QR codes in the gym bring up links to stories documenting battle victories during the Long March.
Even these demonstrations of loyalty are not enough. Common sense would suggest that the Communist party would be supportive of companies such as Tencent and encourage their expansion overseas. But Xi has chosen to make sure the aspirations of a rising class of immensely wealthy entrepreneurs are tamed before they turn political. It was only a matter of time before he went after these national champions.
A crackdown that started with the financial technology industry in 2020, has quickly expanded to engulf every sector from online education to gaming, and ride-hailing to food delivery. With footprints in all of these sectors via its investments in some 800 companies, Tencent has felt the pinch.
Despite Pony Ma’s reputation for being the most low-key and cautious of Chinese tech moguls, Tencent has not been spared. China halted its app rollouts for about a month in late 2021, has curtailed gaming time for those under 18, ordered an overhaul of its financial units, fined it for investment deal disclosure violations and suspended new game approvals this year.
The change in approach to the tech sector is underpinned by shifts in Xi’s priorities. It mirrors crackdowns in other sectors, including property. As China’s economy slows and Xi tries to increase the nation’s birthrate, the policies underscore the Communist party’s growing resolve to respond to mounting public dissatisfaction with hoarded wealth and narrowing avenues for advancement.
A phrase that has emerged in tandem with the crackdowns is “common prosperity”, which refers to China’s goal of becoming a modernised socialist society. The implications for China’s tech industry are far-reaching, and could shape the playbook for the next few decades.
There’s a Chinese saying “Li yu tiao long men” – “a carp leaping over the dragon’s gate”. Legend has it that if the carp manages to swim upstream and vault an arch atop a waterfall on the Yellow river, it transforms into an Oriental dragon, a snake-like creature symbolising imperial power. The story of China’s internet tycoons, like Pony Ma, for the past two decades is that of a generation of carp becoming dragons. The twist, though, is that these idealistic geeks, who ventured out to change the world, are now shackled and have become part of a system they wanted to change. Once self-made dragons have achieved the level of success they have in China, the more important question seems to be: when and how do they bow out unscathed?
German industry is bracing for a tougher 2022 as lockdowns in China and the war in Ukraine compound ongoing supply chain problems, leading two associations to downgrade their forecasts for the year.
The VDMA engineering association cut its machinery production growth outlook for a second time on Monday. It now expects production of industrial machinery carrying the “Made in Germany” label to grow 1% this year, having already slashed its forecast to 4% from 7% two months ago.
Last year, production grew by 6.4%. The BDI industry association said it now expects exports to grow by only 2.5% this year, after predicting a rise of 4% in January. read more
The lowered forecasts come despite many companies having strong backlogs of orders, as they are struggling to fill them: A survey by the Ifo institute said 77.2% of companies complained about bottlenecks and problems procuring intermediate products and raw materials.
One in two companies affected by material shortages said the China lockdowns made the situation even worse than before, the IFO survey published on Monday showed. VDMA President Karl Haeusgen said in a statement that before Russia’s invasion of Ukraine, 80% of companies described their business prospects in Russia as good or satisfactory. Now, 75% expect it to deteriorate in the next six months or want to abandon it altogether.
“This shows the extent to which the war has changed everything,” Haeusgen said. BDI predicts production will grow by nearly 2% – less than expected before the war began – with the caveat that this forecast depends on supply chain problems easing and Russian gas continuing to flow in.
Exports may also be a concern. Last year, machinery made up a substantial part of the 26.6 billion euros ($28.5 billion) in goods that Germany exported to Russia.
Critics by Carlos Caceres, Mai Chi Dao, and Aiko Mineshima
IMF European Department
Germany’s economy contracted by just under 5 percent in 2020, outperforming most European peers. New waves of infections and associated lockdowns during late-2020 to early 2021 hampered the rebound from the first wave. But forward-looking indicators suggest further growth in exports and a brightening outlook for the services sector, in line with re-opening plans and anticipated pent-up demand.
For the year as a whole, growth of about 3.6 percent is expected. The recovery pae
th, however, is beset with risks, particularly regarding the progress of the pandemic and supply shortages in key industries. Retaining supportive fiscal policy until there is clear evidence of a sustained recovery while also using the fiscal space to lift potential growth over the medium term will be crucial.
The government has extended various COVID-19 measures from 2020, such as grants to firms and an expansion of the short-time work subsidy, while also introducing several new measures to support households and businesses. Maintaining adequate support while the economy is still weak is important to minimize scarring effects. As the recovery firms up, more targeted policies and a focus on facilitating resource re-allocation becomes important.
Over the medium term, it is important that Germany’s fiscal space is used to boost growth potential by investing in physical and human capital, accelerating digitalization, incentivizing innovation, bolstering labor supply, and increasing disposable income for low-income households. Making progress towards these goals would also help with external rebalancing.
A green transition is key to Germany’s recovery program, yet there are opportunities to improve the cost-effectiveness of its climate mitigation measures. Following a constitutional court ruling in May, Germany tightened its greenhouse gas emissions targets aiming for a 65 percent reduction by 2030 and net zero emissions by 2045. Germany could bolster its mitigation program with a better-specified schedule of carbon prices over a longer time horizon, complemented with sector-specific feebates (revenue-neutral tax/subsidy schemes).
Continued government support for green infrastructure and technologies is also essential for the transition and to spur the economic recovery. To mitigate the potential adverse impact of higher carbon prices on households, further relief targeted at lower-income earners can be considered.
Germany’s expanded short-time work subsidy or Kurzarbeit remains important until the recovery takes hold, while groups not covered by Kurzarbeit need to protected by different means. The unprecedented take-up of Kurzarbeit helped keep unemployment in check and supported aggregate demand. However, as the recovery takes hold, normalizing Kurzarbeit parameters becomes essential so as not to inhibit labor reallocation toward growing firms and industries. Job search assistance and appropriate training programs can facilitate workers’ transition into post-pandemic jobs.
For groups not covered by Kurzarbeit, maintaining expanded access to the current basic income program would be beneficial until the job market recovers sustainably. To arrest widening inequality, the government could consider reducing social security contributions on lower incomes, which would also spur hiring and labor supply.
Safeguarding financial stability during the nascent recovery is essential. So far bankruptcies and financial losses have been limited, while bank capital has actually increased since the onset of the pandemic. But bankruptcies may rise as support measures are phased out, warranting continued targeted liquidity and solvency support for viable firms.
Meanwhile, specifying an appropriately gradual timetable for banks to rebuild capital buffers is important to mitigate the risk of curtailed lending when it is most needed. Banks also need to improve their cost structures to address chronic low profitability. Progress has been made in narrowing data gaps that have hampered the full assessment of macro-financial risks. But the buildup of financial vulnerabilities in real estate markets calls for close monitoring and for expanding the macroprudential toolkit to include income-based instruments.
Photo by Unsplash
New research suggests that reading could be hugely beneficial for our mental health, with classic books written by authors such as William Shakespeare and Charles Dickens being proven to help relieve depression and chronic pain. In a 2020 study published by Oxford University Press, “challenging language” was found to send “rocket boosters” to our mind that can help boost our mental health.
Separately, the scheme also lists a range of mood-boosting fiction recommended by readers, from Gail Honeyman’s Eleanor Oliphant is Completely Fine to Nancy Mitford’s The Pursuit of Love. You can also sign up to a bibliotherapy service with The School of Life. For £100, you’ll complete a questionnaire about your relationship with books, before having a having a one-to-one session with a bibliotherapist who will create your own unique book prescription.
Another study from The New School for Social Research, New York, found that reading fiction improves something called Theory of Mind – this is essentially our ability to empathise with others and understand that other people hold different beliefs and desires to our own.
