Our editors give us a breakdown of this week’s biggest news stories
United Kingdom: Ross Alexander Hutton
Rishi Sunak acknowledged gaps in the replacement of the ‘Furlough Scheme’ when announcing substantial changes to the Job Support Scheme such as employers contributing less towards their staff’s wages and employees can work fewer hours before they qualify. For businesses across the country facing “profound economic uncertainty|”, the new cohesive support structure will be a relief in the sense that it will protect jobs throughout the difficult winter ahead. However, it does open the Chancellor up to attacks that he is playing catch-up. The original plan was for a far less generous job support scheme as part of a wider strategy of restructuring the economy with ‘viable post-Covid’ jobs but it is clear the economy is yet again in need of urgent measures to survive the second wave of coronavirus.
Several indicators for the U.K.’s economic health were released this week including the inflation rate which rose from 0.2% in August to 0.5% in September, aided by the end of the ‘Eat Out to Help Out’ scheme, pushing up restaurant and café prices. Further to this, U.K. government borrowing reached £36.1bn – the third highest level in any month since records began – increasing the difficulty of the Chancellor’s mission to ‘balance the books’. Given that inflation remains low, it is likely that fiscal and monetary stimulus will only increase to boost the ailing economy in the months ahead. According to Paul Dales, chief U.K. economist at Capital Economics, “with CPI inflation just 0.5% in September, it’s hard to think of reasons why the Bank of England won’t launch another £100bn or so of QE [Quantitative Easing] at the November meeting”.
“Terrible”, “disappointing” and “more of a lecture” – these were accounts of several business groups present at the 22-minute ‘Brexit call’ with the Prime Minister and Cabinet Office Minister. Even though the call was aimed to encourage business to prepare for any outcome of the trade negotiations at the end of the transition period, it felt more like a “box ticking exercise” to the attendees. It comes as the trade talks resumed in London with both sides agreeing to ‘intensify’ negotiations – even working “round the clock” as Michel Barnier said. Yet, has anything profoundly changed from the recent paralysis? Most notably, Barnier was swift to assert that the stumbling blocks of a ‘level playing field’ was “fully compatible” with British sovereignty and the E.U. must be prepared to make concessions on fishing.
Europe: Peter Hourston
Concerns are building over the second wave of coronavirus that is sweeping across the European continent. French President Emmanuel Macron warned that the virus would still be a threat at least until next summer as his country recorded a total of one million positive cases. French Prime Minister Jean Castex extended curfew restrictions across most of the country, warning that, “the weeks ahead will be hard.” Spain’s Prime Minister mirrored those sentiments, adding that the situation facing Europe was “grave”. Although the prospect of further lockdowns threatens economic recovery from the initial onset of the crisis in the spring, the manufacturing sector has been regaining strength. By August, manufacturing production had returned to pre-coronavirus levels in Germany and 2019 levels in Italy. Export demand from China, which saw third quarter growth of 4.9% was a likely factor in boosting factory orders.
Turkey has tested a Russian made S-400 air defence system despite repeated warnings from the United States, its NATO ally. Turkish President Recep Tayyip Erdogan issued a strong rebuke to Washington claiming, “America’s stance is absolutely not binding for us. We aren’t going to ask America.” Turkey bought the hardware from Moscow using loans provided by Russia. A Pentagon spokesperson commented that, “We have been clear and unwavering in our position: an operational S-400 system is not consistent with Turkey’s commitments as a US and Nato ally.” The news of the missile test came as the Turkish lira continued to fall against the dollar, reaching TL7.963. The currency fell by two percent immediately after the Turkish central bank’s decision to keep the benchmark one-week repo rate on hold. Although many investors believe that Turkey needs to raise interest rates, this is being strongly resisted by the government.
With former Vice-President Joe Biden leading incumbent Donald Trump in the opinion polls, can Europe’s leaders look forward to a new administration rebuilding the transatlantic alliance? Or will Trump find the same route in the electoral college as he did in 2016? For more coverage of the US Presidential Election and what it means for Europe check out https://thestandrewseconomist.com/category/europe/
Africa & Middle East: Camille Capelle
In Egypt, another round of national elections have opened as the people gather to elect 568/596 parliamentary seats under the current government of President el-Sisi. However, as many candidates are running independently in addition to the many small-scale parties each with little influence, the formation of a strong parliament seems unlikely. The power of parliament itself has been criticized by many who see it simply as a supporting extension of the presidency.
An end to the Libyan Civil War, which has been going on since 2014, is finally in sight as the two main factions agreed to a ‘permanent ceasefire’. The agreement is supposed to apply to all of Libya and go into immediate effect. While the UN hails the ceasefire as a “historic achievement” other countries were less hopeful, especially Turkey and Russia who have their own interests in maintaining influence in the country.
Controversy over the building of Ethiopia’s Nile dam continues as foreign leaders get involved. The US President claimed that should Ethiopia continue without reaching an agreement with Egypt, they should expect a belligerent response from Egypt. However, the Ethiopian Prime Minister quickly dismissed such unproductive threats which would be illegal under international law, and stated that Ethiopia would not let itself be intimidated in this way.
North America: Amelia Brown
The U.S. Federal Reserve warns that inequality in the economy will undermine the recovery the Fed is trying to lead. Lael Brainard, a Fed governor, urged the White House for more fiscal support, and the banks to follow the loose monetary policy the Fed committed to last month. “The recovery remains highly uncertain and highly uneven — with certain sectors and groups experiencing substantial hardship,” Brainard said during a webcast speech on Wednesday. This comes during a standstill in Congress, where the two parties still cannot agree on a stimulus package amount, which will impact unemployed workers, small businesses, and state governments as the previous package runs out.
Some state governments though are in much deeper water. New York City, Seattle, and Portland have sued the Trump administration over their designation of the cities as “anarchist” jurisdictions, which allows federal agencies withhold federal funding. The complaint is being filed in Portland, a fitting stage for the issue since the city saw federal agents deployed to attack protesters in the streets earlier in the summer. “It’s morally wrong, it’s legally unacceptable, it’s unconstitutional, and we’re going to fight it,” said Bill de Blasio, mayor of New York.
As coronavirus cases continue to rise in Mexico, the deputy health minister warned that stricter measures are necessary to stop the spread. Three states are possibly returning to the highest risk level (and highest restriction level) in the national stoplight system, joining Chihuahua which became the first ‘red’ state this week. Campeche is the only ‘green’ state. However, former Health Minister José Ángel Córdova Villalobos warned that the worst of the pandemic is yet to hit Mexico. “The most dangerous stage is probably coming, […] we’re talking about November and December, [that’s] when we’ll have a true new outbreak as is happening in Europe,” he said after stating that the current increase in cases is just a spike in the first wave, with the second wave not even starting until winter.
An election on Saturday in British Columbia, Canada, resulted in the first New Democratic Party (NDP) majority government in over 20 years. Projected to have won at least 55 counties out of the 87 total, the party leader, John Horgan, claimed an early victory, making him the party’s first 2-consecutive term premier. Although Hogan acknowledged there were, “many hundreds of thousands votes yet to be counted [but] … One thing we know for certain is Monday, I’ll be going back to work.” The Liberal Party is likely to have won 29 counties, and the Green Party three.
South America: Annie Smith
Leftist leader Luis Arce has secured a landslide victory in Bolivia’s presidential election this week, securing 55 percent of the votes with six rivals on the ballot. His win is also success for the Movement Towards Socialism (MAS) party of former President Evo Morales, who is currently in exile. Turnout was high in the election despite the impact of the COVID-19 pandemic, with 88 percent participation making it the second highest record in Bolivian history and one of the highest in Latin America for the 21st century, according to Salvador Romero, head of Bolivia’s electoral authority.
Trials for an Oxford COVID-19 vaccine will continue following a review into the death of a Brazilian volunteer, who was not given the vaccine. Brazil’s health authority has not given details about the volunteer’s death due to confidentiality, although one Brazilian media report claims that the volunteer was a 28-year-old doctor who died of COVID-19 complications and worked with infected patients. Phase 3 of testing is currently being carried out on participants in the UK, Brazil, and India, among other countries, and there are hopes that the vaccine could be one of the first on the market, with Brazil planning to purchase it if approved.
Argentina and Colombia have both surpassed one million COVID-19 cases this week as the virus continues to hit Latin America. Argentina became the fifth country in the world to hit one million cases, and is also the smallest nation to have passed the mark with a population of about 45 million. While Argentina was one of the first countries in South America to close its borders and impose restrictions, the outbreak has intensified in the past few months, particularly in Buenos Aires. Meanwhile, Colombia became the eighth country to surpass one million cases, after lifting restrictions to support its economy and now relying on individual responsibility and widespread mask use to fight the spread of the virus. The two countries have seen about 28,000 and 30,000 deaths respectively.
Science & Technology: Paula Plechschmidt
The trump administration continues to tighten its chokehold on Huawei. In September the US announced sanctions that would force companies to obtain licenses to sell American technologies to Huawei, essentially cutting them off from their semiconductor suppliers. Revenues in the first 9 months of 2020 have dropped from 27% growth to only 3.7%.
TikTok has been trying to become an apolitical platform in light of the upcoming US election. For instance, they do not allow politicians to have an account and they have laid out policies to ban voter intimidation and false claims about voter fraud. It has now also blocked videos promoting white nationalism. However, this aim will be more challenging for TikTok than for any other social media platform that has strived to reach similar goals. This is because of the very technology that has made it so popular, namely its recommendation algorithm. With this algorithm people’s feeds will become more and more targeted towards certain views as the algorithm learns about their likes and dislikes. This means that it will only provide reinforcing messages towards opinions people already have.
Business: Tom Woods
California-based clothes retailer Gap is considering closing all of its UK stores following mounting losses as a result of the COVID-19 pandemic. This included a staggering £740 million loss from March to May of this year. This decision has not been entirely the result of the short-term impact of the pandemic, and the brand was already faced with severe challenges in the UK market. Chiefly, younger consumers have turned their backs on Gap and now tend to prefer its emerging rivals such as Zara and H&M. The pandemic has also worsened Gap’s position compared to other brands due to the rise of online specialists such as Asos and Boohoo. If Gap goes ahead with the closures, it would also have implications for its other stores across Europe, which it also plans to close. Numerous other clothes retailers have struggled to survive in the current harsh market. Edinburgh Woollen Mill, for instance, is on track for administration if it does not find a buyer soon, while DW Sports has already entered administration.
Chinese firm Ant Group, which is the largest fintech in the world and affiliated with the Alibaba Group, has been officially cleared by Hong Kong’s stock exchange to have an initial public offering (IPO). The IPO is expected to be the biggest in history and should generate around $30 billion for the company. The firm is anxious to push through the IPO amidst concerns that the upcoming US presidential election could result in market volatility. Alibaba meanwhile is expected to increase their ownership of the company. Its founder Jack Ma has slammed international financial regulations in the build-up to the IPO, labelling them “like an old people’s club” that holds back developing countries and young people’s opportunities.
Theory: Cassi Ainsworth Grace
This year, the Nobel prize for economics was won by two game theory experts from the US. These specialist, Paul R. Milgrom and Robert B. Wilson, won the prize following their development in auction theory and its design, and particularly exploring how to reduce the issue of ‘winner’s curse’. In their work, Milgrom and Wilson explored how auction structures that divulge more information from bidders can reduce the winner’s problem, as compared to formats where very little information is released, such as a silent auction. This year is the third since 2007 since “mechanism design”, or the use of economic theory to design a market that would solve an issue facing the real world, has won the Nobel prize