Our editors give us a breakdown of this week’s biggest news stories
United Kingdom: Ross Alexander Hutton
In a calculated reversal from the Quarterly Monthly Report released in August, two Bank of England policymakers have warned the damage to the U.K. economy may be more severe than previously thought. Deputy Governor Sir Dave Ramsden cautioned that the permanent loss of GDP would be “greater than [the original estimate of] 1.5%”. This confirms the qualms held over the longevity of a recovery from the Coronavirus crisis and the likelihood of significant structural changes to the British economy as some sectors fail to stay afloat.
Coinciding with the updated economic forecast showing sustained damage to the economy, the unwinding of the hailed furlough scheme has begun as employers have to pay 10% of their workers’ wages. Whilst it would be ludicrous for the scheme to continue indefinitely or to support jobs which are unlikely to return, there is a debate to be had on whether to extend the scheme since the British Economy is more exposed to the downsides of coronavirus restrictions. Without an extension, top economist Ian McCafferty admitted that a rise in unemployment to between 6.5% and 7.5% is inevitable.
However, unemployment is not the only dilemma the Chancellor is facing. With a mini-budget and spending review on the horizon, fiscal responsibility has dominated newspaper headlines this week. Speculation is rife in Westminster as economists and politicians alike can smell the whiff of tax rises and spending cuts to rebalance the nation’s fiscal position. Talk of rises in corporation tax and capital gains tax is likely part of a wider Treasury strategy to ‘test the waters’ before any official announcements in the weeks to come.
Europe: Peter Hourston
German Chancellor Angela Merkel has confirmed that the nerve agent novichok was used in the suspected assassination by poisoning of Russian opposition leader Alexey Navalny. It follows the attempted assassination of former Russian double agent Sergi Skripal and his daughter Yulia in Salisbury by the same chemical in March 2018 which the British Government accused two GRU (Russian military intellgience agency) operatives of carrying out. Merkel described the findings as “disturbing” and that the Bundeswehr had completed tests which proved the existence of novichok, which is prohibited under international chemical weapons treaties. NATO allies supported Germany’s assessment with Secretary-General Jens Stoltenberg calling for the Russian government to release details of its chemical weapons programme. However, Merkel also came under pressure from her own party on her continued support for the controversial NordStream2 pipeline which links Russia and Germany. Norbert Röttgen, chairman of the Bundestag’s influential foreign affairs committee said, “the only language that Putin understands is the language of natural gas”. Critics of the project point to Europe’s dependence of Russian oil and gas for its energy needs which hinders tougher action against Moscow.
The Irish government has nominated Mairead McGuinness, the first vice-president of the European Parliament, and Andrew McDowell, a former vice-president of the European Investment Bank, as its two contenders to become the country’s new European Commissioner. It follows the resignation of the former Trade Commissioner Phil Hogan, who breached Ireland’s coronavirus restrictions by failing to quarantine and attending a dinner of over 80 people. Commission President Ursula von der Leyen had requested that Dubin nominate two candidates – a man and a woman – although it looks like neither McGuinness nor McDowell will receive Hogan’s old coveted trade portfolio, as Brussels wishes to show that Hogan’s actions will have consequences. Commission sources suggested that Belgian Justice Commissioner Didier Reynders would take on the powerful trade role.
EU Brexit negotiator Michel Barnier strongly criticised the British Government “shunned” EU offers to make headway in negotiations over the future relationship. It followed discussions the Frenchman had had with Boris Johnson’s EU Sherpa Lord (David) Frost. A contentious sticking point is on the issue of state aid – London is expected to announce its stance on the issue within weeks – with senior Downing Street advisor Dominic Cummings reportedly favouring a regime which would allow the government to spend money propping up industry.
Asia Pacific: Satyajit Mohanan
India’s GDP shrank by 23.9%, its wrost slump in decades. The data released by the government showed that the economy contracted in the first quarter (ended June 30) of financial year 2020-21. This is the sharpest contraction since quarterly figures started being published in 1996. Experts fear that India is staring at a recession. Many in India, believe that this GDP number does not reflect the true gravity of the economic distress and that this figure is at the upper end of the estimates. This is mainly because there has been an absence of real time data as data collection was severely impaired during the lockdown.
India’s nationwide stringent lockdown which resulted in the closure of business activity owing to the pandemic is said be a critical factor for this slump. However, India was already facing a strong economic slowdown prior to the pandemic with a downward growth of 5.59% in FY19 and 3.09% in FY20. The IMF has also confirmed that India’s GDP is the worst-hit among its G20 counterparts.
Iran plans to move closer to China owing to the mounting pressure from the US sanctions. Iran seems all set for a strategic shift towards Beijing with a 25-year plan. The proposal which was approved by the Iranian cabinet in June reflect the Islamic republic’s efforts to better position itself and its economy in the face of hard hitting US sanctions. An 18-page document accessed by the ‘Financial Times’ suggests many areas of potential cooperation including energy, petrochemical, technology and military sectors. China is already Iran’s biggest trade partner with an estimated trade of $20.7bn during the last Iranian financial year. For a country whose ideological motto since the 1979 revolution was “Neither East, Nor West; [only] the Islamic Republic”, this tactical shift towards China comes as a historic one.
Africa & Middle East: Camille Capelle
In Iraq, the healthcare sector is under serious threat as the industry’s workers announce protests against the lack of funding and job opportunities in the sector. Iraq’s doctors have suffered through the difficult economic crises and even threats to their personal safety, with more than 20,000 fleeing the country and even 363 being assassinated since 2003. The instability and chaos were only exacerbated by the current pandemic, which has hit Iraq harder than most countries. Protests in the healthcare industry could put the whole country at risk as it faces rising COVID cases once more.
The dispute between Egypt, Sudan, and Ethiopia over the building of the Nile Dam continues to be far from resolved as Egypt withdrew from talks scheduled on 5th September, rejecting the proposals made by Ethiopia over the construction project. All countries believe to have some legal precedent to their say in the matter, referring to their rights established in the treaties of 1929, 1959, and 2010.
A rise in coffee consumption among Ugandan youth helping to improve the Ugandan coffee industry. Although the Ugandan people are traditionally tea drinkers, the country remains the second largest coffee exporter in Africa. A recent cultural shift is boosting the industry which already saw formidable growth of 17% in coffee exports between 2015 and 2018.
North America: Amelia Brown
The US unemployment rate has abated slightly, going down to 8.4 percent, bringing the total number of jobs regained up to just under half of the 22.2 million lost during early lockdown. But the economic crisis still remains, and the Federal Reserve is looking to change their long run monetary goals and strategies to match the new economic reality. One change includes nixing “the longstanding presumption that accommodation should be reduced preemptively when the unemployment rate nears the neutral rate in anticipation of high inflation that is unlikely to materialize risks an unwarranted loss of opportunity for many Americans.” Fed Governor Lael Brainard pointed to the positive effect seen in 2015 of allowing the market to continue growing after the 5 percent unemployment rate is reached for minority groups, such as Blacks, Hispanics, and women. The new strategy also looks at inflation – specifically, using Flexible Average Inflation Targeting (FAIT) to bring inflation back to 2 percent means that monetary policy will look to achieve inflation above 2 percent to offset the current rate which is below. However, a New York Times article claims that the measures for inflation fail to capture the reality for many Americans during the pandemic and that the cost of living and inflation are higher than what the government thinks.
In Canada, provinces are taking different approaches to opening up schools. Citizens in Ontario are anxious as schools set to open this coming week, as they have seen 46 schools in Quebec report at least one case of the coronavirus. The Ontario education minister spoke to the press Saturday to reassure people that Ontario’s opening will go differently, in part because of the mandate of face masks and at home screenings before kids are sent off.
Mexico reported a slowing of their decrease in coronavirus cases Friday. The Deputy Health Minister said that the stagnation of cases was “disconcerting,” but also that “we cannot keep society permanently cloistered.” Friday saw 6,196 new cases and 522 new fatalities for the country.
South America: Annie Smith
In a landmark decision, Brazil’s football association (CBF) has declared that the country’s women’s national players will be paid the same as male players from now on. CBF President Rogerio Cabocio said to BBC Sport, “There is no more gender difference, as the CBF is treating men and women equally. What they will gain by conquering or by staging the Olympics next year will be the same as the men will have.” Australia, Norway, and New Zealand are among the countries who have previously announced they will pay men and women the same amount in football, with England also making the same decision in January. The arrangement means all players will be granted the same daily and prize amounts for taking part in preparation periods and games, as well as performances at international tournaments such as the World Cup and Olympics.
The centre-right Jamaica Labour Party secured a landslide re-election victory on Thursday in an election marked by low turnout. Prime Minister Andrew Holness addressed the circumstances in his televised victory speech, noting, “There are many Jamaicans who did not participate, there are many Jamaicans, who for fear of the virus, did not come to the polls, but for other reasons, apathy, frustrations, decided not to participate.” The Prime Minister has been strongly criticised for his government’s handling of the coronavirus pandemic, especially in recent weeks while cases have risen. The vote was called six months early, despite a spike in the virus on the island, which many criticised as putting politics over public health.
A new media report from online newspaper El Faro has alleged that the government of El Salvador granted favours to imprisoned leaders of street gangs, in return for support in elections. The report claims that the gang leaders were asked to reduce violence and support President Nayib Bukele, with favours ranging from better food to support against rival gangs. The President has repeatedly showcased an administration tough on the country’s gangs, and he has rejected the allegations.
Science & Technology: Paula Plechschmidt
Big Tech are the “real winners” of the coronavirus crisis. As Paolo Gentiloni, European Commissioner for economics and taxation points out, companies such as Apple, Alphabet and Amazon have surged massively during the quarantine period. This widens an existing rift between the US and the European Union regarding the taxation of these companies. The EU believes that these giants do not pay a fair amount of taxes in Europe and is looking to propose a new digital tax in 2021.
Being just weeks away from Apple announcing their new iPhones, there are many rumors circulating as to what is to be expected. There are many signs pointing towards the fact that the iPhone will be getting 5G once networks are able to deliver those speeds. Additionally, it is likely that there will be a new take on the iPhone with squared edges instead of rounded ones. What seems to be an especially likely rumor is that we can expect four new iPhones this year, unlike in the past years where only three have been revealed. This includes:
– A 5.4-inch model as an entirely smaller phone
– A low-end 6.1-inch model
– Another 6.1-inch model but with high-end specs
– A 6.7-inch model, with a bigger screen than the 6.5-inch iPhone 11 Pro Max
Business: Tom Woods
US and Asian stock markets endured a nightmare week, reversing much of the effect of their August gains which saw the S&P Index rise by 7.01%. The S&P has just dropped by 3.5%, while Dow Jones and Nasdaq saw their values fall by 3.5% and 5% respectively. This disappointing drop has been largely driven by shares in the same tech firms who drove so much of last month’s growth plummeting. Thursday witnessed a 9% drop in Tesla’s prices, while the seemingly untouchable Apple also had its value fall by 8%. The sudden drop is speculated to surround the release of US economic data on Thursday which indicated that August’s services sector growth had been smaller than anticipated as well as dread over the impact of another wave of coronavirus.
Mark Smith, CEO of Connecticut-based firearms manufacturer Smith & Wesson, has labelled a recent boom in demand for guns in the USA “unparalleled”. The firm saw $230 million in gross sales over the quarter ending in July, marking a 141% increase on its performance last year. Gun sales traditionally spike during presidential election years as buyers prepare for potential restrictions. However, it seems other forces are at play at this point, with Smith claiming that a large portion of the demand has come from “folks who are just fearful of their personal protection and safety” amidst ongoing “civil unrest”. The trade group NSSF reported that over the last month 5 million Americans purchased a firearm for the first time, with the two fastest-growing groups of gun-owners women and African Americans.
Theory: Cassi Ainsworth-Grace
Abenomics is the economic policy mix from the program of the Japanese prime minister Shinzō Abe. As Abe looks to retire from his position after 8 years, numerous publications have looked back to assess what can be learnt from his three ‘arrow’ approach. These arrows included, firstly, boosting the money supply through expansionary monetary policy, secondly, a flexible program of fiscal expenditure to constrain the high levels of debt and lastly, structural reform to lift structural constraints and improve Japanese international competitiveness.
The general consensus is that Abenomics fell short. Whilst Japan’s economic growth did increase, much of the policy goals were not achieved. The Bank of Japan, to raise inflation to 2% engaged in the purchase of a significant number of assets like bonds and equities, alongside introducing negative interest rates in 2016. However, whilst deflation was halted, inflation failed to reach the target, stumped by the self-fulfilling prophecy of inflation as the public came to expect unchanging prices. The size of the economy is short of the 600 trillion yen ($5.6 trillion USD) target set by the Abe government. The pandemic is set to nullify the positive improvements of Abenomics, as the IMF forecasts a 5.2% contraction in Japanese economic growth.Although Abe’s policies have demonstrated that monetary policy lacks the potency as once believed, it has also made clear that government debt is no longer a condition to be feared. Government debt is even greater than the 230% of GDP it was when Abe took power as the government attempts to cover the shortfall in private sector spending, yet yields for five-year bonds remain in the red. Despite the contradictions of Abenomics, none of the successors of Abe will be likely to overturn Abenomics, and instead will seek to reform and rebrand it.