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WTO chief sees world economy heading towards recession – Industry roundup: 29 September

WTO chief now fears global recession

The head of the World Trade Organisation (WTO) said that she expects global trade forecasts will have to be revised lower from the current 3% growth projection for 2022, citing the ongoing Russia-Ukraine war and related food and energy crises.

“We are in the middle of revising our forecasts now but it's not looking very promising. All the indicators are pointing to downside numbers,” WTO Director-General Ngozi Okonjo-Iweala told Reuters in an interview.

“The indicators are not looking good. A global recession – that is what I think we are edging into.”

Any downgrade of the WTO’s trade growth projections for 2022 would be a second revision, following an announcement last April that it had lowered its projection for growth in merchandise trade this year to 3%, down from 4.7% previously. It has also pencilled in growth of 3.4% for 2023. The decrease in growth projection comes after the Paris-based Organisation for Economic Co-operation and Development (OECD) this week cut its growth forecasts for the Group of 20 economies next year.

The global economy will expand just 2.2% in 2023, the OECD said on Monday, against its earlier forecast in June of 2.8%. The new projection for the year means output will be US$2.8 trillion less than officials had predicted at the end of 2021. Indonesia is the only G20 that the OECD believes has slightly better prospects next year than it previously predicted. The WTO’s revised forecast for trade growth is expected next month.

Okonjo-Iweala says she is mostly concerned with food supply and energy access issues, noting that they have been affected by Russia's invasion of.Ukraine. “I am very concerned about food security. The spectre of not having enough food is one that worries me. Access to energy is creating problems at the moment.”

International concern over food supplies has grown since the invasion of Ukraine in February with some analysts comparing the impending food shortage to something similar, or worse than, that of the crisis faced in 2007-08. As the global food system has already taken a hit due to the Covid-19 pandemic, analysts say the war has exacerbated the global food crisis.

Russia and Ukraine together export nearly 12% of food calories that are traded globally, being major providers of basic agro-commodities such as maize, sunflower oil, and wheat. Russia is also the world’s top exporter of fertilisers. Several regions are heavily dependent for their basic food supply on imports from these two countries, which normally over 50% of cereal imports in the Middle East and North Africa combined. Eastern African countries import 72% of their cereals from Russia and 18% from Ukraine.

Bank of England launches bond-buying programme to restore stability

The Bank of England launched a temporary bond-buying programme on Wednesday as it took emergency action to prevent “material risk” to UK financial stability.

The BoE that it would buy as many long-dated government bonds as needed between now and 14 October in a bid to stabilise financial markets in the wake of the mayhem that followed the government's mini-budget announced on 23 September.

In addition to the plunge in the value of the pound in the past week, it has also seen investors demand a greater rate of return for UK government bonds - essentially IOUs.

That is because the level of borrowing required to fund the government giveaway, including tax cuts and energy aid for households and businesses, shocked the market which immediately questioned the sustainability of the public finances. The intervention is reported to have cost the Bank as much as £65 billion (US$70 billion).

The International Monetary Fund (IMF) has since added its voice to criticisms of the government’s “dash for growth” under the UK’s new prime minister, Liz Truss.

What the Bank's action is aimed at doing is tackling consequences of rising bond yields, in this instance a liquidity crunch facing pension funds. The move, aimed at "restoring orderly market conditions”, had an immediate impact on the rates demanded by investors to hold UK government debt. The pound fell back in response but bond yields did ease back from multi-year highs.

On Thursday morning both sterling and the euro both fell in early trading and the US dollar recouped a recent dip as relief at the BoE’s intervention in bond markets faded. The Bank’s former governor, Mark Carney accused Liz Truss’ government of “undercutting” the country’s economic institutions and working at “cross purposes” with the BoE. Truss and her chancellor, Kwasi Kwarteng, appeared to be working at “cross purposes” with the Bank, he suggested.

Banque de France unveils CBDC projects

France’s central bank said that it is looking at a wholesale central bank digital currency (CBDC) that would be used by banks and the financial markets.

The Banque de France announced new projects to achieve the benefits of CBDCs used at a wholesale level by banks and financial markets. “A wholesale CBDC could significantly contribute to improving cross-border and cross-currency payments,” Villeroy de Galhau, a governor at the Bank of France, said when he appeared at the bank’s digital currency conference. CBDCs at the wholesale level attract less attention than their headline-grabbing retail equivalent, he added.

One venture will look to improve CBDCs’ liquidity management in decentralised finance (DeFi) – such as via automated market makers – which would play a role equivalent to that of investment banks that seek to sustain trading in a particular security, de Galhau said.

Another project will focus on issuing and distributing tokenised bonds on a blockchain, he said, building on previous findings about CBDCs being used to settle Web3 securities, such as the French central bank’s Project Jura, which has explored the settlement of tokenised euro commercial paper and foreign exchange transactions.

Further details will be detailed in the coming weeks, he added.

The European Central Bank (ECB) is considering whether to issue a digital euro as soon as 2026, de Galhau said. The ECB is one of many central banks exploring the possibility of a CBDC for everyday use and for financial markets.

Asia’s richest man Gautam Adani warns of China’s growing isolation

Indian billionaire Gautam Adani has warned that China “will feel increasingly isolated” from the rest of the world and that the “foremost champion of globalization” would find it hard to bounce back from a period of economic weakness.

Speaking earlier this week at a conference in Singapore, Adani said that “increasing nationalism, supply chain risk mitigation, and technology restrictions,” as well as resistance to Beijing’s huge Belt and Road (BRI) initiative, would impact China’s global role.

Adani was speaking weeks after the business mogul became the world’s third richest man, according to the Bloomberg Billionaires Index. He is the first Asian to take that spot. The founder of the eponymous Adani Group controls companies ranging from ports to power.

He said that “housing and credit risks” in the world’s second largest economy were also “drawing comparisons with what happened to the Japanese economy during the ‘lost decade’ of the 1990s.”

While pessimistic about China, Adani remains bullish about his own country, saying that India is “one of the few relatively bright spots from a political, geostrategic, and market perspective.”

He anticipates India to become the world’s third largest economy by 2030, with “the largest consuming middle class the world will ever see.”

Several technology firms looking to reduce their dependence on Chinese manufacturing already see India as an attractive alternative. This week Apple confirmed that it has started manufacturing its new iPhone 14 in India, as the technology giant looks to diversify its supply chain. While the company manufactures the bulk of its products in China, it has decided to start producing its latest devices in India much earlier than with previous generations.

Businesses may have to move away from China not just because of its strict anti-Covid restrictions, which have squeezed supply chains in recent months, but also because of rising tensions between Washington and Beijing over Taiwan.

The US government recently ordered two of the country’s top chipmakers to stop selling high-performance chips to China, while last week, leaders of America’s biggest banks said they could exit China if it ever attacks Taiwan.

Adani also mentioned the challenges facing the United Kingdom and countries in the European Union, because of the war in Ukraine and Brexit.

“While I expect all these economies will readjust over time — and bounce back — the friction of the bounce-back looks far harder this time,” he said.

Setback for Standard Chartered in legal tussle with Maersk

The Singapore High Court has dashed Standard Chartered’s hopes of a quick legal victory in its claim against shipping giant Maersk over a US$6.1 million cargo of oil mis-delivered to Singapore-based oil trader Hin Leong, which filed for bankruptcy in April 2020. The Court set aside a lower court’s earlier award of summary judgement in favour of the bank.

The case is one of several slowly progressing through the courts, particularly in the Asian trading hub of Singapore that were triggered by a series of financial failures among commodities traders over the early months of the Covid-19 pandemic.

In this case, Standard Chartered claims that Maersk mis-delivered a cargo of gasoil from Winson Oil to Hin Leong in late February 2020 without the original bills of lading. The bank had paid Winson US$6.1 million under a letter of credit (LC) applied for by Hin Leong.

Hin Leong, which had a broader trade finance facility in place with Standard Chartered, did not repay the amount and the trader collapsed shortly after the delivery. The trader’s founder has since faced charges of widespread fraud although allegations of wrongdoing have not been made against it by the parties in this case. After finally receiving the bills of lading from Winson in mid-2020, Standard Chartered demanded that Maersk pay the sum to it owed by Hin Leong.

While the lower court previously ruled that Maersk has no reasonable prospect of mounting a defence against Standard Chartered’s claim at trial, the High Court judge sided with the shipping company, finding that there are severable “triable” issues relating to Standard Chartered’s financing of the specific oil cargo at the heart of the dispute and the broader financing facility.

According to the judgement, Maersk argued that “there are various indicia which point towards the plaintiff never having regarded the bills of lading as security for the financing granted to Hin Leong”.

“This meant that the effective or proximate cause of the plaintiff’s loss was not the mis-delivery by the defendant [Maersk] of the gasoil cargo to Hin Leong without presentation of the bills of lading. Instead, it was the insolvency of Hin Leong and the way in which the plaintiff’s [Standard Chartered] financing arrangements were structured,” the judgement summarises the shipping company as saying.

While stressing that he has “not determined in any way the various contentions of the parties on the merits of the claim”, High Court Justice Ang decided that Maersk had successfully argued that its contentions should be explored at a trial.

HSBC launches embedded banking services within Oracle NetSuite

HSBC and Oracle NetSuite have jointly launched NetSuite AP Automation, described as “the only solution that embeds banking services into a cloud enterprise resource planning (ERP) system”, to help organisations address time consuming and labour-intensive accounts payable (AP) processes.

The bank said that NetSuite AP Automation can help organisations improve profitability by making it easier and faster to process invoices and pay vendors, all from within NetSuite. This enables customers to better control outgoing cash flows and easily scale end-to-end AP processes.

“HSBC is at the forefront of the embedded banking revolution. This is the largest fully embedded Banking as a Service (BaaS) deployment into a globally recognised cloud ERP system,” said Barry O’Byrne, Chief Executive Officer, Global Commercial Banking at HSBC.

“Business customers increasingly want integrated, accessible solutions at their fingertips. Our embedded banking solution with NetSuite allows customers to manage payments and automate reconciliations at the point of need, without switching screens or multiple logins.”

HSBC added that the launch of automated payment services with NetSuite would make payment processing simpler, faster, and more accurate. From within NetSuite, customers can determine precisely when and how to pay suppliers, ensure control over outgoing cash flow, and take advantage of early payment discounts.

Eligible transactions completed in NetSuite with an HSBC virtual credit card will earn credit, which further reduces operating costs and turns accounts payable from a cost centre into a revenue generator.

NetSuite AP Automation is now available in the US as part of NetSuite’s SuiteBanking; a unified suite that embeds financial technology into a cloud ERP.

Deutsche Bank warns of “mortgage time bomb” for UK retail

UK retailers are facing a “mortgage time bomb,” with rising interest rates set to have twice the impact on consumer finances as the recent surge in utility bills, according to a research note issued by Deutsche Bank.

The warning came as fashion retail chain Next, a bellwether of the UK high street and one of its most consistently successful performers, warned that downward pressure on the pound since the government’s tax-cutting mini-budget of 23 September could prolong cost of living pressures.

The retailer said that as most clothing and homeware factories price their goods in US dollars, it meant that costs were likely to continue rising next year. Next also cut its profit and sales targets for 2022, predicting shoppers would cut back on purchases as prices rose. The group now expects profits of about £840 million (US$912 million) this year, against a previous forecast of £860 million.

Next reported that trading in August had been "below our expectations" and that the pressure on shoppers was likely to rise in the coming months, ahead of the key Christmas period. It added that prices for its autumn and winter ranges were already up by an average of 8% this year compared with 2021, as it has had to pass on extra costs to customers.

Next also expects to see similar rates of inflation for its spring and summer ranges next year.UK prices in August were 9.9% higher than they were 12 months ago. The group said, however, it has seen some cost pressures, such as freight and logistics, ease in recent months.

Mastercard partners with crypto app Hi to launch NFT card

Mastercard has announced a partnership with crypto financial app Hi to launch what it says is the world’s first non-fungible token (NFT) card. This new payment product will enable people to customise their avatars with an item from a collection comprised of these digital assets.

In their joint announcement, Mastercard and Hi said that they will allow customers to personalise their profiles once they verified them as owners of their NFT. This will allow the customer to use their card to spend funds at one of the millions of merchants accepting the company’s debit card.

In a separate post from Hi, Mastercard stated that people interested in getting the card can join the waitlist, simply by downloading or updating their apps and completing the sign-up process. The process to join the Mastercard and Hi NFT card can be completed in a couple of minutes. The app has been updated with a special section to complete the process. Therein, users will need to select a card tier, each one provides them with different benefits.

The crypto clarified that people will need to purchase and stake their native token HI to access one of the tiers and the NFT card benefits. In order to access the benefits, users will need to stake at least 100 HI tokens or 10 EUR and complete the platforms know your customer (KYC) requirements.

These include the capacity to spend funds from their IBAN accounts, in different fiat currencies, and different cryptocurrencies while having access to crypto rewards while purchasing items online. In addition, users will have access to several digital subscriptions, and travel rewards, such as hotel discounts, and more.

Members with Gold tier and subscriptions and above will have access to a wide variety of NFT avatar customisation with support for CryptoPunks, Moonbirds, Bored Apes Yacht Club, and other popular collections in the sector.

The NFT card Mastercard and Hi clarified that the card will initially be available for customers in the European Economic Area (EEA) and the United Kingdom. The partners are yet to announce a rollout date for the product. However, users can “jump the queue” and obtained additional benefits by staking more HI tokens. The more a user stake, the higher their membership tier, benefits, and their priority on the waitlist.

Christian Ray, Senior Vice President, Crypto and FinTech Enablement at Mastercard said: “As consumer interest in crypto and NFTs continues to grow, we are committed to making them an accessible payments choice for the communities who wish to use them. We are proud to be working with Hi to continue to drive innovation in the market and enable these customisable cards together with the safety and security you’d expect from Mastercard.”

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