{"id":18695,"date":"2022-12-30T20:03:46","date_gmt":"2022-12-30T14:33:46","guid":{"rendered":"https:\/\/www.indiaeconomyandbusiness.com\/is\/?p=18695"},"modified":"2024-01-31T03:19:19","modified_gmt":"2024-01-30T21:49:19","slug":"international-events","status":"publish","type":"post","link":"https:\/\/www.indiaeconomyandbusiness.com\/is\/international-events\/","title":{"rendered":"The Year That Was – International"},"content":{"rendered":"
The world witnessed another year of crisis, after two harrowing Covid years. Global economy ws hit by Russia\u2019s attack on Ukraine which disturbed the entire global economy, particularly food and fuel supplies. Here is a look at some key global developments of the year.<\/p>\n
The Russian attack led to unprecedented increase in natural gas prices as a result of disruption in gas trade between the largest buyer and seller, Europe and Russia. While Europe is trying to reduce its dependence on Russian gas, Russia has cut its supplies to Europe. TTF (Title Transfer Facility) prices, the benchmark index for European gas, reached over $55 per MBtu in Sept\u201922 quarter (Q3), double that in Q2 and more than eight times their five-year average! Asian LNG spot prices also rose to $45 per Mbtu. Russia provided nearly 80% of total gas that Europe imported before the breakout of war. As per IEA, the supplies were lower by as much as 70% y-o-y in Q3\u201922. Even as the natural gas market appears to be in deep trouble at the moment, it could bring succour to consumers like India and China as Russia would look for newer markets. How it pans out over a period of time would be interesting to see.<\/p>\n
The other major fall-out of Russian attack on Ukraine was sharp increase in food prices. As per OECD, Russia and Ukraine, together, accounted for 30% of global wheat exports and as much as 75% of global sunflower oil exports. The war had immediate impact on the food supply chain with cereal price index rising by 17% in March\u201922 over its Feb\u201922 value whereas vegetable oil price index rose even more sharply by 25% as per FAO. Even though prices have come down since then, there still appears to be significant variation across different regions due to hoarding and disruption in trade. The situation is aggravated by decline in production for cereals projected to be lower by 2% during 2022\/23 in contrast with average increase of about same percent during last three years. Global trade in cereals is projected to be lower by 1.9% during 2022\/23 over previous year as per FAO. Much to the relief of consumers and governments, prices of oil seeds have come down significantly with robust production and removal of export ban by major exporting nations due to significant build-up of domestic inventory.<\/p>\n
US is battling a 40 years high inflation which peaked at 9.1% in June\u201922 but has come down to 7.1% in Nov. However, it is still over three and half times the target of 2%. US central bank, the Fed, has increased interest rate by 300 basis points (3 percentage points) since March\u201922 to bring it down to acceptable level. However, it is possibly a case of delayed response as the inflation had started climbing in March\u201921, a good 12 months before the Fed finally acted. A rather unusual trend in the current phase is continued strength in labour market despite the monetary tightening. Unemployment rate (UR), which stood at 6% in March\u201921 came down to 3.6% in March\u201922 and stays at about that level since then. Wage growth rate in the month of Nov\u201922 was 6.2%, lower than the peak of 11.4% in Feb\u201922 but still not low enough to provide any comfort. An unintended effect of US monetary tightening is flight of capital back to US from across the globe resulting in sharp depreciation of currencies. Among the worst is Japanese Yen which has depreciated by almost 30%, from about 115 Yen per dollar in March\u201922 to 149 Yen per dollar. However, Yen has recovered partially now. Japan\u2019s problems are unusual as it has been grappling with low inflation rate, even negative, for long. Inflation stood at 3.8% in November, still not too high and therefore, does not warrant much monetary action. It is among the few countries which has not yet raised rates.<\/p>\n
Not just US, most other countries particularly the advanced economies, are also grappling with high inflation. UK inflation peaked at 11.1% in October and has come down marginally to 10.7% in November. While food and fuel prices inflation stand at about 17%, even core inflation is close to 6%, much above the acceptable range of 2%. Bank of England, UK\u2019s Central bank, has raised interest rate which now stands at 3.5%, up from 0.25% at the beginning of the year. The monetary tightening is taking a toll on the economy which shrank by 0.3% in Sept\u201922 quarter after a marginal growth of 0.1% in June\u201922 quarter. Its GDP is still below the pre-pandemic level and with prospect of a recession, may not be able to cross the level any time soon. It may be noted that UK saw the exit of its Prime Minister after the shortest stint of 45 days because of the economic woes.<\/p>\n