The International Monetary Fund warned on Tuesday of a slowdown in global economic growth as the world economy continues to take a hit from “increasingly gloomy developments in 2022,” including high inflation, a slowdown in China caused by Covid lockdowns and ongoing fallout from Russia’s war in Ukraine.
The IMF slashed its global growth projections, now expecting global GDP to grow 3.2% this year and 2.9% in 2023, down from previous estimates in April of 3.6% GDP growth for both years.
The group cited a slowdown in the world’s three largest economies—the United States, China and the euro area—as a reason for the revised estimates, warning that the risks to the outlook remain “overwhelmingly tilted to the downside.”
Several “shocks” have hit the global economy as it tries to recover from the pandemic, including higher-than-expected inflation worldwide––especially in the United States and Europe, a worse-than-anticipated slowdown in China caused by Covid lockdowns and “further negative spillovers” from the war in Ukraine.
The IMF also said that high inflation remains a “major problem” as prices have continued to rise in 2022, led by soaring food and fuel costs, arguing that “taming inflation should be the first priority for policymakers” worldwide.
The group now expects global inflation to hit 6.6% in advanced economies and 9.5% in developing economies this year, though prices are expected to return to near pre-pandemic levels by the end of 2024.
The IMF also slashed its growth estimates for the U.S. economy, now forecasting GDP to rise 2.3% this year and 1% in 2023, down from previous estimates of 3.7% and 2.3%, respectively, amid the impact of tighter monetary policy and reduced household purchasing power.
“The outlook has darkened significantly since April,” IMF chief economist Pierre-Olivier Gourinchas said in a statement. “The world may soon be teetering on the edge of a global recession, only two years after the last one.”
“The slowdown in China has global consequences,” the IMF said. “Lockdowns added to global supply chain disruptions and the decline in domestic spending are reducing demand for goods and services from China’s trade partners.” The group now sees China’s economy growing 3.3% in 2022—its lowest pace in four decades and down over 1% from previous estimates.
The World Bank similarly slashed its forecasts for the global economy last month, predicting GDP growth in 2022 of just 2.9%, down from an earlier estimate of 4.1%.
The global economy, still reeling from the pandemic and Russia’s invasion of Ukraine, is facing an increasingly gloomy and uncertain outlook. Many of the downside risks flagged in our April World Economic Outlook have begun to materialize. Higher-than-expected inflation, especially in the United States and major European economies, is triggering a tightening of global financial conditions.
China’s slowdown has been worse than anticipated amid COVID-19 outbreaks and lockdowns, and there have been further negative spillovers from the war in Ukraine. As a result, global output contracted in the second quarter of this year. Under our baseline forecast, growth slows from last year’s 6.1 percent to 3.2 percent this year and 2.9 percent next year, downgrades of 0.4 and 0.7 percentage points from April.
This reflects stalling growth in the world’s three largest economies—the United States, China and the euro area—with important consequences for the global outlook. In the United States, reduced household purchasing power and tighter monetary policy will drive growth down to 2.3 percent this year and 1 percent next year.
In China, further lockdowns, and the deepening real estate crisis pushed growth down to 3.3 percent this year—the slowest in more than four decades, excluding the pandemic. And in the euro area, growth is revised down to 2.6 percent this year and 1.2 percent in 2023, reflecting spillovers from the war in Ukraine and tighter monetary policy.
Despite slowing activity, global inflation has been revised up, in part due to rising food and energy prices. Inflation this year is anticipated to reach 6.6 percent in advanced economies and 9.5 percent in emerging market and developing economies—upward revisions of 0.9 and 0.8 percentage points respectively—and is projected to remain elevated longer. Inflation has also broadened in many economies, reflecting the impact of cost pressures from disrupted supply chains and historically tight labor markets.
On Sunday 1 February 1970, senior politicians and gas executives from Germany and the Soviet Union gathered at the upmarket Hotel Kaiserhof in Essen. They were there to celebrate the signing of a contract for the first major Russia-Germany gas pipeline, which was to run from Siberia to the West German border at Marktredwitz in Bavaria. The contract was the result of nine months of intense bargaining over the price of the gas, the cost of 1.2m tonnes of German pipes to be sold to Russia, and the credit terms offered to Moscow by a consortium of 17 German banks.
Aware of the risk of Russia defaulting, the German banks’ chief financial negotiator, Friedrich Wilhelm Christians, took the precaution of asking for a loan from the federal government, explaining: “I don’t do any somersaults without a net, especially not on a trapeze.”
The relationship would benefit both sides: Germany would supply the machines and high-quality industrial goods; Russia would provide the raw material to fuel German industry. High-pressure pipelines and their supporting infrastructure hold the potential to bind countries together, since they require trust, cooperation and mutual dependence. But this was not just a commercial deal, as the presence at the hotel of the German economic minister Karl Schiller showed.
For the advocates of Ostpolitik – the new “eastern policy” of rapprochement towards the Soviet Union and its allies including East Germany, launched the previous year under chancellor Willy Brandt – this was a moment of supreme political consequence. Schiller, an economist by training, was to describe it as part of an effort at “political and human normalisation with our Eastern neighbours”.
The sentiment was laudable, but for some observers it was a potentially dangerous move. Before the signing, Nato had discreetly written to the German economics ministry to inquire about the security implications. Norbert Plesser, head of the gas department at the ministry, had assured Nato that there was no cause for alarm: Germany would never rely on Russia for even 10% of its gas supplies.
Half a century later, in 2020, Russia would supply more than half of Germany’s natural gas and about a third of all the oil that Germans burned to heat homes, power factories and fuel vehicles. Roughly half of Germany’s coal imports, which are essential to its steel manufacturing, came from Russia.
An arrangement that began as a peacetime opening to a former foe has turned into an instrument of aggression. Germany is now funding Russia’s war. In the first two months after the start of Russia’s assault on Ukraine, Germany is estimated to have paid nearly €8.3bn for Russian energy – money used by Moscow to prop up the rouble and buy the artillery shells firing at Ukrainian positions in Donetsk.
In that time, EU countries are estimated to have paid a total of €39bn for Russian energy, more than double the sum they have given to help Ukraine defend itself. The irony is painful. “For thirty years, Germans lectured Ukrainians about fascism,” the historian Timothy Snyder wrote recently. “When fascism actually arrived, Germans funded it, and Ukrainians died fighting it.”
When Putin invaded Ukraine in February, Germany faced a particular problem. Its rejection of nuclear power and its transition away from coal meant that Germany had very few alternatives to Russian gas. Berlin has been forced to accept that it was a cataclysmic error to have made itself so dependent on Russian energy – whatever the motives behind it. The foreign minister, Annalena Baerbock, says Germany failed to listen to the warnings from countries that had once suffered under Russia’s occupation, such as Poland and the Baltic states. For Norbert Röttgen, a former environment minister and member of Angela Merkel’s Christian Democrat Union (CDU), the German government bowed to industry forces pressing for cheap gas “all too easily”, while “completely ignoring the geopolitical risks”.
In February this year, German Green economic affairs and climate action minister Robert Habeck said that gas storage facilities owned by Gazprom in Germany had been “systematically emptied” over the winter, to drive up prices and exert political pressure. It was a staggering admission of Russia’s power to disrupt energy supplies.“I was wrong,” the former German finance minister, Wolfgang Schäuble, says, simply. “We were all wrong.”
In recent weeks even Frank-Walter Steinmeier, the German president, a totemic figure of the Social Democrats and greatest German advocate of the trade “bridge” between east and west, has recanted. He admits he misread Russia’s intentions as he pursued the construction of a new undersea gas pipeline. “My adherence to Nord Stream 2 was clearly a mistake,” he told German media in April. “We held on to bridges that Russia no longer believed in, and that our partners warned us about.”
This is an extraordinary admission for a man who acted as chief of staff to Gerhard Schröder, the Social Democratic chancellor from 1998 to 2005 and thereafter a lavishly rewarded, and much reviled, lobbyist for Vladimir Putin. Steinmeier was also foreign minister under Chancellor Merkel, and a great evangelist for Wandel durch Handel, the concept that trade and dialogue can bring about social and political change.
How did Germany end up making such a blunder? Some argue that Merkel should have seen that Putin was taking Russia in an authoritarian direction when he announced his return to the presidency in 2011. After Russia’s invasion of Ukraine in 2014, Germany made no move to stop importing Russian gas, and although Merkel threatened to introduce crippling trade sanctions, German industry convinced her to hold back. But some blame a more persistent misjudgment stretching back 50 years, based on a fallacy that authoritarian countries can be transformed through trade.
The Social Democrats have now set up a review into whether the policy of Ostpolitik – first laid out in a landmark speech in July 1963 by Egon Bahr, then the closest adviser to West Berlin’s mayor and chancellor-to-be, Willy Brandt – became deformed over time, especially after securing its great achievement, the fall of the Berlin Wall.
What is extraordinary, retracing the history through memoirs and contemporary records, is how frequently and determinedly Germany was warned, by everyone from Henry Kissinger onwards, that it was making a pact it might live to regret. Kissinger wrote to Richard Nixon on 9 April 1970: “Few people, either inside Germany or abroad, see Brandt as selling out to the East; what worries people is whether he can control what he has started.” Over 50 years, Germany fought numerous battles with a series of US presidents over its growing dependence on Russian energy. In the process, Germany’s foreign office developed a view of American anti-communism as naive, and a belief that only Germany truly understood the Soviet Union.
From the late 1960s, the Federal Republic of Germany tried to open its own direct line of communication with the Soviet leadership, even though its interest in reunification created tensions with the US. When it faced criticism from the US, Germany was wont to cite its unique status. “I cannot imagine there is anyone more interested in being allowed to continue working for detente and balance in Europe than the German people who are forced to live in two states,” Hans-Dietrich Genscher, then the foreign minister, told the German Bundestag in January 1980, to great applause.
But after the fall of the Berlin Wall in 1989, why was Germany still so reluctant to listen to others? A sense of guilt for the atrocities committed against the Soviet Union during the second world war may have played a role. Pride, too, that – through Ostpolitik – it had mended its relations with Moscow. Germany, in a sense, became a double prisoner of its past – bound both to the horrors it had committed, and to its belief that its response to those horrors was correct.
The conflicts between Germany and the US in the 70s and 80s, involving two very different presidents, Jimmy Carter and Ronald Reagan, were some of the most rancorous transatlantic battles since the second world war. “The disputes were all part of West Germany showing independence in foreign policy during the cold war, and that became uncomfortable for some American leaders,” the historian Mary Elise Sarotte said to me.
Carter and the German chancellor Helmut Schmidt had little respect for each other. Carter found Schmidt moody, while the chancellor, in his autobiography, dismissed Carter as an idealistic preacher, who knew nothing of Europe and was “just not big enough for the game”. The two leaders did not just grate personally, they disagreed on issues of substance – including how to protect human rights in Russia. In 1979 Schmidt and Carter came together to jointly adopt the so-called dual track decision, by which Nato would upgrade its nuclear weapons based in Europe, while actively seeking an arms control agreement with Russia. But in other ways their approach was very different.
Schmidt never lacked self-confidence, but like many Germans of that era he carried a deep sense of shame arising from painful war memories. He also believed that the stability of the eastern bloc was in the interest of West Germany, given Russia’s nuclear capability. In his autobiography he wrote that he had wanted to develop trading relations with Russia, in order to foster “a greater Soviet dependence upon European supplies”, in turn leading to “more European influence” on Moscow’s policies. And following the 1973 oil crisis, Schmidt became convinced that the Soviet Union represented a more reliable supplier of energy for Germany than the Gulf states.
Carter, by contrast, saw withholding trade as the better way to influence the Soviets. In July 1978, responding to Moscow’s imprisonment of two Soviet dissidents, Aleksandr Ginzburg and Anatoly Shcharansky, Carter restricted US exports of technology for the exploration and development of the Soviet oil and natural-gas industries.
Yet, collectively, European business went in the opposite direction. Even after the Soviet invasion of Afghanistan in 1979, a large German business delegation went ahead with a visit to Moscow. The Soviets (Soyuzgazexport) and western Europeans (chiefly Ruhrgas and Gaz de France) completed negotiations on a new giant gas project, a 4,500km dedicated pipeline from the giant Urengoy field in West Siberia in late 1980. This deal was projected to increase Germany’s dependence on Russian gas from 15% to 30%. When German ministers reviewed the security implications, they concluded there was no danger of Russia misusing its potential stranglehold. Their reasoning was simple. “Long-term disruption would be against the self-interest of the Soviet Union,” the ministry decided.
In a phone call with Carter on 5 March, Schmidt explained his support for the pipeline by telling the US president, “Those engaging in trade with each other do not shoot at one another.” It was a restatement of Norman Angell’s famous pre-first world war theory that the new interdependence of economies made war unprofitable and thus irrational. According to a note in his diary, Carter responded: “It is not beneficial for the Europeans to expect us to provide the stick and for them to compete with one another about providing the biggest carrot.”
In 1980, Schmidt wrote: “To speak of the Federal Republic’s economic dependence on Moscow to a degree large enough to affect foreign policy indicates ignorance or malice.” Given Germany’s plight now, those words look hopelessly misjudged.
Schmidt faced a more challenging opponent in Carter’s successor, the traditional anti-communist Ronald Reagan. In Reagan’s eyes, German trade with Russia was in direct conflict with western security. Reagan’s view was informed by a CIA assessment submitted in July 1981, which noted a clear trend: from 1970 to 1980, Soviet gas exports to western Europe had risen from 1 billion cubic metres (bcm) a year to 26.5bcm annually.
The CIA warned Reagan that the Urengoy gas project would not only accelerate Soviet economic growth, but provide the Soviets with $8bn in hard currency, facilitating a further military buildup. Far from giving Germany sway over Soviet thinking, “it would provide the Soviets one additional pressure point they could use as part of a broader diplomatic offensive to persuade the West Europeans to accept their viewpoint on East-West issues”.
In arguments that echo today’s debates, the US ambassador to the UN, Jeane Kirkpatrick, complained: “We consistently find in our talks the allies are already significantly dependent: France for 15% [of its] gas, Germany for 30%.” Schmidt assured the Americans that Germany “can go six months in the event of a Soviet cut-off”. The forecast now is that, in such an eventuality, Germany would have to go straight to a form of energy rationing.
Despite various US efforts to persuade Europe to adopt a voluntary ban, including offering alternative sources of energy, in 1981 Ruhrgas AG and Soyusgazexport went ahead and signed a contract for annual imports of 10.5bcm of Soviet gas over a 25-year period. Unemployment in Europe was close to 9% at the time, and European industry needed to boost its energy supplies. At the same time, the US argument about security was dismissed as a veiled way of promoting the US oil industry.
When Moscow backed the imposition of martial law in Poland on 13 December 1981, Reagan thought such a shocking event might persuade Germany to put the pipeline on hold. In a private note to Margaret Thatcher, sent on 19 December 1981, he urged her to back tough sanctions against the Soviets, stating that “this may well be a watershed in the history of mankind. A challenge to tyranny from within.” Unusually for her, Thatcher vacillated, advising Reagan that the Germans “cannot and will not give up the gas pipeline project”.
The US responded to the Soviet intervention by banning US companies from helping with the pipeline. In the summer of 1982 Reagan tried to force European firms to stop working on the pipeline by imposing secondary sanctions on them. Such sanctions are now a commonplace in the US foreign policy armoury, particularly over Iran, but then, they were seen as an incursion into European sovereignty. Thatcher bridled, telling the Commons “it is wrong” for “one very powerful nation [to] prevent existing contracts being fulfilled”.
By November, Reagan had abandoned the attempt to impose sanctions. In a trial of strength in which Europe sided with Germany, the world’s superpower had lost. The new pipeline started pumping on 1 January 1984.
The German advocates of change through trade had won. The US position on Russia was further weakened when the Berlin Wall fell in 1989. The peaceful collapse of communism was trumpeted as a vindication for those that had championed dialogue, and engagement through trade. In a speech to the Brandt Foundation in March 2008, Steinmeier gave full vent to this view: “What Ostpolitik in fact achieved – as is now recognised also by those who criticised it at the time,” he said, “was to make peace in Europe, despite the difficulties, a degree more secure. For the democracy movements in eastern Europe it created new possibilities, new scope for action. It was a key factor, too, in finally ending the confrontation between the two blocs.”
Olaf Scholz, Germany’s current chancellor, remains an adherent of this view, arguing last year that it contributed to the fall of the Soviet Union and laid the basis for democracy and EU membership for much of eastern Europe. The SPD co-leader, Lars Klingbeil, has also insisted that Ostpolitik “was the basis for reunification and the end of the cold war. As a result, there has been a consensus in the federal republic for decades that conflicts can be defused through dialogue. We won’t let that be bad-mouthed.”
Yet a number of historians and writers believe that this rosy picture of Ostpolitik is misleading. “The idea that Willy Brandt’s policy of detente towards Moscow led in a straight line to the fall of the iron curtain and German unity is at least an over-simplification,” says the historian Jan Behrends. German journalist Thomas Urban, author of a new book critiquing Ostpolitik, believes its role in the fall of the wall and German reunification has been exaggerated:
“It was military buildup by Reagan and the flooding of the market with cheap oil that led to the collapse of the Soviet Union,” he told me. The Russian government budget had grown so dependent on energy for its revenue, he said, that when the price of oil plummeted in the mid-1980s, Russia’s lifeline to external capital dried up. “Gorbachev could no longer fund the overseas wars and the Soviet Republics,” he said. “But this argument was entirely missing in the German debate, especially on the left.”
Urban argued that Ostpolitik’s theory of change suffered from two basic misconceptions: the belief that political change in eastern Europe could only come from engaging with the elite in power, rather than from civilian movements, and second, that “security must be the key to everything”. By the turn of the century, the advocates of change through trade were in their pomp. Chancellor Schröder, with growing confidence, promoted the idea of a strategic partnership with Russia. He invited the new Russian president, Vladimir Putin, to address the Bundestag in 2001, where he won over his audience by giving the speech in fluent German and declaring “the cold war is over”.
Schröder, at the time of Putin’s address, saw a perfect confluence of interests between Europe, Germany and Russia: peace, stability, multilateralism and economic growth. Putin, Schröder was convinced, “wants to transform Russia into a democracy”.
In this favourable political climate, pro-Russian German lobbyists such as Klaus Mangold, chairman of the powerful German Committee on Eastern European Economic Relations, pursued the construction of yet another gas pipeline, this time taking gas from Vyborg under the Baltic Sea to Germany – the first Nord Stream. The scheme was especially controversial since it would bypass Poland, Belarus and Ukraine, reducing those countries’ incomes, weakening their bargaining power and depriving them of badly needed transit fees. The €7.4bn pipeline construction costs were to be borne by the private German companies BASF and E.ON, and the majority Russian state-owned Gazprom.
This time, protests against the pipeline did not just come from the US, but from the states that had recently emerged from Soviet rule, such as Poland and Lithuania. Radosław Sikorski, then Poland’s defence minister, notoriously compared the plan to the 1939 Molotov-Ribbentrop non-aggression pact between Nazi Germany and the Soviet Union, which paved the way for the invasion of Poland.
Yet on 8 September 2005, 10 days before the election in which Schröder’s Social Democrats lost to Angela Merkel’s conservatives, the Nord Stream 1 contract was signed in Berlin by representatives of Gazprom, E.ON and BASF. Putin stood alongside Schröder at the signing ceremony.
Schröder has since been singled out for his role in creating Germany’s dependence on Russian energy, and getting very rich in the process. But the distinguished former German diplomat Wolfgang Ischinger recently argued that Schröder should not take the blame for giving the go-ahead to Nord Stream 20 years ago: most German politicians, he told the New York Times in April, did not question whether they were getting into an unhealthy dependence on Russian energy. In the article, Schröder made the same case: “It never occurred to anyone that this could become a problem. It was just a way of procuring gas for Germans, for Germany’s heavy industry, and also for the chemical industry, with fewer problems and disruptions.”
Thereafter it seemed, whatever the setbacks in German-Russian relations, nothing could shift the faith in trade – not Russia’s “peace enforcement operation” in Georgia in August 2008, not the Russian disruption of the gas pipelines in a dispute with Ukraine in January 2009, nor the news that Putin was planning to return to the presidency in 2012, replacing Dmitry Medvedev, in whom Frank-Walter Steinmeier had placed his faith. In 2011, the year Nord Stream finally opened, German total trade exports to Russia rose 34% to €27bn.
Then came the Russian invasion of Ukraine in February 2014. Initially, Russia’s incursion seemed to mark a turning point. Merkel’s condemnation was clear: the annexation of Crimea was contrary to international law. Sanctions were duly imposed, and German exports to Russia fell.
Following the 2014 invasion, serious German media such as Frankfurter Allgemeine Zeitung published lengthy articles looking at the options for how Germany could wean itself off its dangerous dependency on Russian energy. Many of the proposals, such as new liquid gas terminals to allow Germany to import gas from other countries such as Qatar and the US, are the same ones under discussion now, which shows how little actual diversification was achieved. When I spoke to a Qatari energy official last month, he recounted how they spent five years trying to break into the German energy market, only to find their route blocked at every turn.
Some German sanctions on Russia continued for many years, but the advocates of change through trade gradually re-established their ground. It seemed nothing Russia could do would shake their confidence. On 4 September 2015, at the Vladivostok economic forum, with Putin in attendance, an agreement was signed for the construction of the Nord Stream 2 gas pipeline on the Baltic seabed, which would vastly increase Germany’s reliance on Russian natural gas. Gazprom would also take over Germany’s gas storage business, thereby handing control of German energy reserves to a foreign power.
Various theories – some grubby, some metaphysical – have been proposed to explain Germany’s dogged refusal to see the dangers in its dependency on Russia. One argument places the blame on SPD politicians and civil servants who were allowed to move seamlessly between public office and Putin’s employment, and worked hard to manipulate the EU and German regulatory environment to suit Gazprom.
Then there is the question of the German-Russian industrial lobby, as symbolised by the German-Russian Forum, which was closely linked with, and partly funded by, German companies active in Russia. (The Forum was suspended after the invasion of Ukraine.) Its board of trustees consisted mainly of business people, often with economic interests in Russia. Its chairman, Matthias Platzeck, the former SPD minister president of Brandenburg, seemed genuinely shocked by Putin’s invasion: “I was wrong because until recently I thought what happened was unthinkable.”
The historian Sarotte said there is no clear evidence that business had exerted greater influence in politics in Germany than in other countries. Nevertheless, over the years, Russia showed an ability to suborn, and in some cases corrupt, the German political class. The Polish foreign minister, Zbigniew Rau, on a visit to Berlin in late May, called German Ostpolitik a “fiasco”. German rhetoric around the political value of interdependence, he said, crudely boiled down to gaining a competitive advantage through cheap energy.
Thomas Urban, examining the psychological roots of Ostpolitik, pinpoints two emotions in Germany’s relationship with Russia: nostalgia and guilt. He described to me “the memory of Bismarck, who saw the alliance with Russia as an anchor of stability in Europe. But then there was also the feeling of guilt because of the German attack on the Soviet Union in 1941, with millions of dead. It meant it was difficult to criticise the Red Army or the Soviet repression since to do so means you do not recognise the greatest crimes in history. It makes Germany blind to the black side of the Soviet Union. It also permits Putin’s propaganda by talking only of the Russian war dead, and not those that were killed in Ukraine and Belarus.”
Much of Germany’s belief in trade with Russia was born of wishful thinking. It led Steinmeier as foreign minister, for instance, to look constantly for signs of reform, ignoring foreign office advice that he needed a plan B in case Germany’s faith in Russia turned out to be ill-founded. In 2016, Steinmeier gave a deeply sincere, almost elegiac speech at Yekaterinburg University asking whether Germany and Russia were still capable of listening to one another. He admitted the annexation of Crimea had been a low point, but hoped dialogue was still possible, urging both sides not to turn their backs on one another.
It was the speech of a man who sensed the tide was going out, and who feared his belief in dialogue no longer matched the spirit of harsher times: “In political discussions, we sometimes hear opinions expressed by people who are not interested in the slightest in understanding others; people who have already made up their minds about the other side; people who don’t even bother reading because they think they already know the answer.” What he described as the “supposed antagonism” between the west and Russia, he feared was becoming entrenched and ideologically driven, running counter to the pursuit of diplomacy and peace.
Now, as Germany’s president and head of state, Steinmeier has been told by Ukrainian officials that his record as the promoter of Russian interests in Germany means he is not welcome in Kyiv at this time. It seems a shame. There would be no need for him to fall to his knees – as Willy Brandt did in Warsaw in 1970, apologising for his nation’s wartime crimes – but he could give a sober reflection on what precisely went wrong with Germany’s eastern policy for so long. For, one way or another, a reckoning is still needed.
I was lucky enough to find myself on GB News at the weekend, standing in for the veteran broadcaster Alastair Stewart, who was taking some no doubt well-deserved time off. No prizes for guessing what subject was the main focus of the two two-hour programmes.
The world has changed, and investors need to take that into account
There were all sorts of guests – Russian, Ukrainian, Polish – who all knew their onions, and added so many profound insights into the conflict. I sat there trying to ask sensible questions while absorbing as much information as I possibly could. I can’t pretend to be informed on this subject, despite being a lot more so now than I was a week ago – like most of us, I guess.
We covered so many subjects. The incredible bravery of the Ukrainian people and the resilience they have shown in the face of much better-armed opponents; the apparent strategic mistakes made by Russian forces so far, and the poor communication; the ruthlessness of Putin, the need to win and the risk that he doubles down.
We also covered sanctions, Swift and the weaponisation of money; the war on the oligarchs and the kleptocrats; the imminent refugee crisis; propaganda; the tacit alliance between Russia and China – and that China will be watching all of this and learning; the ramifications for Taiwan; the dependency of so many nations on Ukraine and Russia for food supplies. And much more besides. I watched, listened and tried to learn.
I left the studio with a distinct feeling of dread that this invasion may prove to be the beginning of something much bigger. Russian commentator Konstantin Kisin, who hosts the popular podcast Triggerpod, kept repeating the point that in terms of historic significance this invasion is “bigger than 9-11”. The geopolitical landscape has changed, he said, and the West is at war.
On both days, I left the studio feeling glad that I owned gold. It has been a source of immense disappointment and frustration to me, as regular readers will know, but there is a time to own gold and now would appear to be one of those times. I have reported more times than I care to remember on the vast amounts both Russia and China have accumulated over the last 20 years.
Meanwhile, the way that the West has weaponised its money and banking against Russia is extraordinary – unprecedented even, and made possible by digital banking and modern technology. China is surely looking at this weaponisation, looking at Taiwan, and thinking that to protect itself, it needs to de-dollarise as quickly and discreetly as possible. Indeed, we know China has already been doing that.
With so much money frozen abroad, one of the few ways in which Russia can actually fund itself is by selling its gold, probably via Dubai, so that may mean selling pressure. Even so, I think gold rises from here.
Hold gold, bitcoin and gold miners in the Americas
Western money is vulnerable. Fiat money has been printed into oblivion, while interest rates have been suppressed. Official inflation is already at 7%, while actual inflation is arguably much higher. Yet the system probably can’t take interest rates much above two or three percent. There is too much debt.
When the price of raw materials – commodities and natural resources – goes up even more because a key supplier, Russia, has been cut off, the pain of inflation is going to get worse. Governments may well attempt to impose price controls, but history shows that any relief that comes from price controls is only temporary. For the most part they don’t work and often just lead to shortages.
I’ve said for many years all China has to do is declare what its gold holdings really are – and you can see last year’s estimates here (I will do an update on this soon) – and that will be tantamount to a declaration of war. My theory, remember, is that China’s gold holdings are as big, if not bigger than those of the US.
I know I have long moaned about gold. It’s the most analogue asset there is in a world where all the value is digital. But I have also said many times that I continue to own it. It may be analogue but it has also been money since forever. It’s the first metal we ever used.
We used it long before the Bronze Age, when we discovered smelting. Its purpose was the same as it is now – as reward, as display, as store of value, as tool of trade (in this case barter). In other words, as money.
But I have moaned about it because it has been such a perennial disappointment for so long.The currency wars are hotting up. Attacks on national currencies are going to become the norm; the rouble has been bombed already. Don’t think that at some stage the dollar, euro and the pound are not going to come under attack, because they will. Other fiat currencies will get caught in the crossfire.
Gold and bitcoin are the places to hide. On the subject of bitcoin, I see this conflict as an opportunity for it to decouple itself from the Nasdaq. If Swift is out of bounds, and governments in conflict have their tentacles running through the banking system, the use case for bitcoin suddenly got more compelling. What better way to transfer value across borders? You want to own both. And all those gold miners located far away from all of this in the Americas. There’s going to be a lot more demand for their product.
Twitter recently announced its new “crisis misinformation policy” which will seek to suppress posts the company deems “viral misinformation.” The update will allow Twitter employees to label, and censor posts they determine to be misleading or false. The company claimed that the new tools will only be used in the case of a “humanitarian crisis.”
“Today, we’re introducing our crisis misinformation policy – a global policy that will guide our efforts to elevate credible, authoritative information, and will help to ensure viral misinformation isn’t amplified or recommended by us during crises,” Twitter wrote in a blog post Thursday. “In times of crisis, misleading information can undermine public trust and cause further harm to already vulnerable communities.”
Twitter went on to define such crises as “situations in which there is a widespread threat to life, physical safety, health, or basic subsistence.”“This definition is consistent with the United Nations’ definition of a humanitarian crisis and other humanitarian assessments,” the company added.Hoax tweets and other misinformation regularly go viral during emergencies, as users rush to share unverified information. The sheer speed of events makes it difficult to implement normal verification or fact-checking systems, creating a significant challenge for moderators.
As part of its new “misinformation policy”, Twitter will employ a variety of tools, including the removal tweets from recommendations and disabling engagement on “misleading” posts. In addition to a label, users will not be able to like, retweet or reply to flagged tweets.“To reduce potential harm, as soon as we have evidence that a claim may be misleading, we won’t amplify or recommend content that is covered by this policy across Twitter – including in the Home timeline, Search, and Explore,” Twitter explained.
“In addition, we will prioritize adding warning notices to highly visible Tweets and Tweets from high profile accounts, such as state-affiliated media accounts, verified, official government accounts.”Under the new policy, tweets classified as misinformation will not necessarily be deleted or banned; instead, Twitter will add a warning label requiring users to click a button before the tweet can be displayed (similar to the existing labels for explicit imagery).
The tweets will also be blocked from algorithmic promotion.The stronger standards are meant to be limited to specific events. Twitter will initially apply the policy to content concerning the ongoing Russian invasion of Ukraine, but the company expects to apply the rules to all emerging crises going forward.
For the purposes of the policy, crisis is defined as “situations in which there is a widespread threat to life, physical safety, health, or basic subsistence.”The policy comes at a delicate time for Twitter, with the company’s approved sale to Elon Musk in a confusing limbo.
Musk has pledged to scale back moderation systems at the company in favor of a maximalist view of free speech. But with Musk claiming the deal is on hold pending a bot investigation, it’s unclear when or how his ideas will be implemented.The social media giant infamously flagged the New York Post’s bombshell Hunter Biden laptop story just weeks before the election.In order to suppress the story — which included emails, text messages, photos and financial documents detailing foreign business dealings of the Biden family — Twitter cited its “hacked materials” policy. This policy, like many sections of Twitter’s terms of service, has been applied selectively on numerous occasions.
In a recent example, an illegally obtained list of donations to Canada’s Freedom Convoy protesters was allowed to be freely shared on the platform. The list included names, addresses and phone numbers of anyone who donated as little as $25 to the protest movement. Despite the fact that the information was obtained through a hack, Twitter took no action.Many believe Twitter’s “crisis misinformation policy” will be yet another policy that is selectively applied to conservatives.
This would give the San Francisco-based platform even more power to meddle in election outcomes, as they did in 2020. A poll conducted by The Post Millennial this past March found that 16% of Biden voters would not have voted for him if they were aware of the laptop scandal.
The Federal Reserve’s bid to calm inflation by raising interest rates and withdrawing emergency stimulus programs is gearing up just as the global economy is displaying worrisome signs of weakness, aggravated by the war in Ukraine and covid’s continuing hold on industrial supply chains.
The risk, some economists said, is that the Fed and other central banks that are implementing similar anti-inflation policies may adjust too slowly to a complex and fast-changing global landscape.
However, the persistence of a tight labour market and high inflation pose concerns for the Biden administration and the Federal Reserve. This week, the US central bank raised its benchmark interest rate by 0.5 percentage points for the first time since 2000 — to a target range of between 0.75 and 1 per cent — to curb rising prices. Inflation in the US is currently running at a 40-year high.
Meanwhile, US stocks fell on Friday, extending sharp losses from the previous session, as signs of a tightening jobs market compounded inflation worries. European shares also declined, with the regional Stoxx 600 index losing almost 2 per cent, putting it on track to end the week more than 4 per cent down. London’s FTSE 100 lost 1.3 per cent and Germany’s Xetra Dax also fell 1.3 per cent.
The Nasdaq Composite, comprised of many of the largest US technology companies, closed down 5 per cent yesterday, in its biggest one-day decline since 2020. The blue-chip S&P 500 index also declined on Thursday with a 3.5 per cent loss. As the world continues to deal with the economic impact of the pandemic, the war in Ukraine is exacerbating inflationary problems.
Central banks are faced with the risk that controlling rising prices could lead to economic decline. The Bank of England warned yesterday that the UK economy was heading towards a recession and inflation would hit 10 per cent this year, as it lifted the interest rate to 1 per cent, the country’s highest level since 2009.
With UK prices likely to rise at their fastest rate in more than 40 years as sustained double-digit inflation becomes possible for the first time since the 1970s, the BoE — which is celebrating 25 years of independence this week — faces challenges that it has not encountered in the past quarter of a century, writes economics editor Chris Giles.
Line chart of CPI inflation and successive BoE forecasts, 2021-22 (%) showing The Bank did not expect to have to tackle double-digit inflation Latest news Ukraine urges Médecins Sans Frontières to evacuate wounded from Azovstal steel plant Glass Lewis advises Amazon shareholders to vote against pay policy German industry suffers biggest drop in output since start of pandemic For up-to-the-minute news updates.
Need to know: the economy China’s president Xi Jinping has reaffirmed his commitment to the country’s controversial zero-Covid strategy, warning against “any slackening” in the effort and vowing to crack down on criticism of the policy despite signs of damage to the economy. US homebuyers are stretching their budgets to buy new homes and rushing to strike deals to avoid higher mortgage financing costs, according to the latest industry data.
Mortgage rates have reached their highest levels in more than a decade, according to the recent Freddie Mac survey. Latest for the UK/Europe Momentum is building for the European Central Bank to raise interest rates in July to fight soaring inflation, after dovish policymakers indicated they were ready to accept an end to almost eight years of negative borrowing costs.
The EU is considering providing more time and money to Hungary to adapt to an embargo on Russian oil after talks on Brussels’ plans for imposing sanctions became “stuck”. Vodafone, the UK telecoms group under pressure from an activist investor, has strengthened its board with two appointments. They are Simon Segars, former chief executive of Arm, the UK-based chip business, and Delphine Cunci, an industry heavyweight in France.
Europe’s largest activist fund Cevian Capital has been pushing the mobile group to refresh its management, which it believes has insufficient experience. Help us compile our ranking of Europe’s Diversity Leaders. Employees and workplace experts are invited to complete a short survey to assess companies’ progress on inclusivity by June 12.
Coronavirus infections in England have fallen to their lowest level since the start of the year, according to official data published today, as the spread of the disease slows across the UK. Global latest US regulators have travelled to mainland China to discuss a potential compromise over audit disclosures that could stop around 270 Chinese companies from being delisted by New York exchanges, according to two people close to the matter.
Tomorrow you can hear Henry Kissinger, Chimamanda Ngozi Adichie and more at our inaugural US FTWeekend Festival in Washington, DC. Business German sportswear group Adidas has warned that its operating profit this year would be lower than previously expected, as the company struggles with disrupted supply chains, closed shops in China and rising costs.
Operating profit tumbled 38 per cent to €437mn in the first quarter as the company was hit by the economic fallout from China’s strict Covid policies. Australia’s biggest investment bank Macquarie Group profited from volatility on global commodity markets and record dealmaking, driving full-year net profit up 56 per cent from the previous year to a record high of A$4.7bn ($3.3bn).
British Airways has been forced to cut flight schedules further as it struggles to hire staff quickly enough to meet renewed demand for travel after culling nearly 10,000 jobs during the pandemic, raising concerns that the carrier could miss out on a bumper summer for European airlines. France has warmly welcomed Binance’s bid to put down roots in one of Europe’s top financial centres, drawing a deep divide with watchdogs in the UK that rejected the crypto giant.
Binance this week received a nod from French financial regulators, a move that clears the way for the crypto exchange to establish a significant presence in the G7 nation that could also help the company unlock access to other jurisdictions across Europe. Boeing will move its headquarters to the Washington, DC area from Chicago, bringing the company closer to federal lawmakers and rival defence contractors.
The move comes during a tumultuous period for the company, which has been subject to greater regulatory scrutiny following two fatal crashes of its 737 Max jet in 2018 and 2019 as well as the discovery of flaws in its 787 Dreamliner. Science round-up The true total global pandemic death toll was about 15mn by the end of 2021, based on an analysis of excess mortality, said the World Health Organization.