Ukraine Update: Immediate Russian Oil, Gas Embargo Impossible, Says German Finance Minister

by Countercurrents Collective, published on Countercurrents, April 9, 2022

A broad survey of economic details from perspective of western press.  Not clarified is what it means to workers around the world, but seems like high prices, expensive credit, wage growth not able to keep up with these factors along with shortages of food and other material goods.  A major global recession.   We will pay for US sanctions on Russia, trade war with China and determination to keep this proxy war in Europe going into the foreseeable future. ….But, at least Europe will finally stop burning coal for energy.   [jb]

An immediate ban on imports of Russian oil and gas into Germany is not feasible, Germany’s Finance Minister Christian Lindner said on Wednesday, although he added he was all in favor of an energy embargo.

If I could follow my heart,” there would be a ban on Russian oil and gas in Germany, Lindner said in an interview published by German weekly Die Zeit on Wednesday.

Media reports said:

“An immediate ban on imports of Russian oil and gas, however, is not feasible at present, because it would endanger Germany’s economy and social stability”, the minister added.

We can’t be responsible for that,” he said.

Germany — Europe’s biggest economy, which depends on Russian gas for around half of its consumption — has been one of the biggest opponents of an energy embargo on Russia.

So far, Europe — which collectively depends on Russian natural gas and oil for around one-third and one-fourth of its demand, respectively — has refrained from targeting directly Russian energy exports fearing that sanctions or an embargo could lead to a deep recession in the major European economies, including the biggest one, Germany.

EU Bans Russian Coal Imports

A Bloomberg report said:

EU countries have agreed to ban coal imports from Russia, the first time the bloc’s sanctions have targeted Moscow’s crucial energy revenues.

War Will Be A ‘Long Slog,’ Says Top U.S. General

The war in Ukraine is “going to be a long slog” and a diplomatic solution isn’t an immediate possibility, General Mark Milley, chairman of the Joint Chiefs of Staff, told the U.S. Senate Armed Services Committee.

It is an open question now on how this ends,” he said.

Defense Secretary Lloyd Austin acknowledged at the same hearing that guidance on intelligence-sharing has not been clear and that he’s clarifying that the U.S. will share intelligence with Ukraine to conduct offensive operations in the disputed Donbas region.

War In Ukraine Could Last Years, Says NATO Chief

The war in Ukraine may last for years, according to the chief of NATO. He said foreign ministers from the alliance had agreed to step up support for the country.

Secretary General Jens Stoltenberg told reporters after the meeting in Brussels that allies need to work for a quick end to the war “but at the same time be prepared for a long haul. This war may last for weeks, but also months and possibly also for years.”

EU May Release Another 500 Million Euros for Arms

An AFP report said:

European Council chief Charles Michel backed a proposal to release an additional 500 million euros to provide arms for Ukraine, taking the total to 1.5 billion euros.

Australia To Send Combat Vehicles

Australia will donate 20 Bushmaster armored combat vehicles to Ukraine following a direct request from President Volodymyr Zelenskiy for the locally made equipment. Canberra will also provide a further A$26.5 million ($19.8 million) package that includes anti-armor weapons and ammunition.

The first four vehicles, which have been refitted and repainted with the Ukrainian flag, will be dispatched from the state of Queensland to Europe on Friday, according to a statement. The blast-resistant vehicles are built to carry 10 people and can sustain themselves for up to three days.

Ukraine Needs NATO’s Help Now, Says Kuleba

Ukrainian Foreign Minister Dmytro Kuleba said his nation needs urgent military assistance before it’s too late to make a difference in its fight against Russian forces.

Either you help us now — and I’m speaking about days not weeks — or your help will come too late,” he said after meeting with NATO foreign ministers in Brussels. He said he will be following up on specific timelines for his country’s request for more weapons to fight Russian forces. “I have no doubts that Ukraine will have weapons necessary to fight. The question is the timeline.”

You provide us with everything that we need and we will fight for our security, but also for your security so that President Putin will have no chance to test Article 5,” he added, referring to a provision of the NATO treaty in which countries pledge to defend all alliance members from attack.

Russia Suspended From UN Human Rights Council

The UN General Assembly voted to suspend Russia from the Human Rights Council, the first country to be kicked off since Libya in 2011, with 93 countries backing, 58 countries abstained and 24 opposing it.

While Moscow was backed by longtime allies including Syria, Iran and North Korea, many nations — including Brazil, India and Mexico — said they wanted to see the results of an independent investigation into the killing of civilians before a decision on Russia’s membership was made.

Europe Struggles On Oil, Gas

An AP report said:

The EU underlined the 27 countries’ inability to agree so far on a much more sweeping embargo on oil and natural gas that would hit Russia harder but risk recession at home.

The coal ban should cost Russia 4 billion euros ($4.4 billion) a year, the EU’s executive commission said. Energy analysts and coal importers say Europe could replace Russian supply in a few months from other countries, including the U.S.

The move is significant because it breaks the taboo on severing Europe’s energy ties with Russia. It is also certain to fuel already record-high inflation. But compared with natural gas and oil, coal is by far the easiest to cut off quickly and inflicts far less damage on Russian President Vladimir Putin’s war chest and the European economy. The EU pays Russia $20 million a day for coal — but $850 million a day for oil and gas.

While the EU ponders additional sanctions, Italian Premier Mario Draghi said no embargo of Russian natural gas is up for consideration now.

And I don’t know if it ever will be on the table,’’ he told reporters Wednesday.

EU countries, especially big economies like Italy and Germany, rely heavily on Russian natural gas to heat and cool homes, generate electricity and keep industry churning.

In case a gas embargo is proposed, Italy “will be very happy to follow it” if that would make peace possible, Draghi said. “If the price of gas can be exchanged for peace … what do we choose? Peace? Or to have the air conditioning running in the summer?

For now, even the coal ban brings worrying consequences for politicians and consumers. Germany and EU members in Eastern Europe still generate a large share of their power from coal despite a years-long transition toward cleaner energy sources.

“The coal ban means European consumers will have to brace for high power prices throughout this year,” according to a Rystad Energy statement.

Higher prices in countries that use more coal will spread across the EU through its well-connected power grid, the energy research company said. That will bring more pain. Europe has been facing high energy prices for months over a supply crunch, and jitters over the war have sent them even higher.

Governments already have been rolling out cash support and tax relief for consumers hit by higher utility bills. High energy prices have pushed inflation in the 19 member countries that use the euro currency to a record 7.5%.

Commodities analyst Barbara Lambrecht at German bank Commerzbank said EU governments likely could agree on a coal embargo because it would take effect after three months and only apply to new contracts. The downside is the limited impact on Russia, with coal only 3.5% of its exports and only a quarter going to the EU.

Germany’s coal importer’s association said Russian coal could be completely replaced from the U.S., South Africa, Colombia, Mozambique and Indonesia “by next winter” — at higher prices.

European coal futures prices jumped after the EU announced the coal proposal, from around $255 per ton to $290 per ton. It was approved by the EU ambassadors and the sanctions should become official once published in the EU’s official journal on Friday.

The big debate remains oil and natural gas. It is tougher for Europe to cut off than the U.S., which imported little Russian oil and no gas and has banned both.

Yet European Council President Charles Michel said, “I believe that measures on oil and even on gas will also be needed sooner or later.”

It is difficult for the EU to agree on energy sanctions because countries like Germany, Italy and Bulgaria are much more dependent on Russian gas in particular than others. Europe has scrambled to get additional gas through pipelines from Norway and Algeria and with more liquefied gas that comes by ship, but those global supplies are limited.

Germany has reduced its reliance on Russian natural gas from 55% to 40%, but the government says the consequences to jobs from a cutoff would be too great.

Germany’s steelmaking association, for instance, has warned of forced shutdowns that would throw people out of their jobs or onto government support and send shortages of basic parts rippling through the rest of the economy.

Oil would be easier to ban than natural gas, because like coal, there is a large and liquid global market for oil and it comes mostly by ship, not fixed pipeline like gas.

But it is not problem-free either. Russia is the world’s largest oil exporter, with 12% of global supply. Taking its oil to Europe off the market would drive up prices from other exporters, such as Saudi Arabia, when supplies are already tight.

Japan Considers Cutting Russia Coal Imports

Japan is considering curbing imports of Russian coal, signaling a potential shift of policy in one of the world’s biggest energy importers.

The Asian nation “will aim to stop importing coal from Russia” as a longer-term goal, and will over time use energy conservation, other power generation and alternative country supply to reduce its dependency on Russia, Trade Minister Koichi Hagiuda said Friday. Japan had previously drawn a line at cutting energy ties to Russia because of its heavy dependence on fuel imports.

Estonia, Finland To Rent Joint LNG Terminal Vessel

Estonia and Finland plan to jointly rent a liquefied natural gas terminal vessel as part of an effort to lower dependence on Russian gas.

The floating storage and regasification unit would have possible berths on both sides of the Gulf of Finland, according to statements from the countries, which are connected by the Balticconnector gas pipeline. The project’s timetable is “extremely urgent,” Finland’s economy ministry said.

Russian Railways Did Not Repay $605M Bond

Russian Railways informed the issuer, RZD Capital Plc, that it’s applied for a license from the Office of Financial Sanctions Implementation in the U.K. for the purposes of facilitating payments on outstanding debt obligations issued before March 24, which “may require a number of weeks processing time,” according to a statement.

Shell Exit From Russia May Trigger $5 Billion Writedown

Shell Plc said its withdrawal from Russia will result in $4 billion to $5 billion of impairments, and warned investors that extreme energy price volatility in the first quarter could hit cash flow.

While western energy companies leaving Russia are likely to take massive financial hits, they are attempting to minimize the reputational damage of investing in Moscow-backed projects following the war on Ukraine.

Thousands Of Foods Railcars Stuck At Ukraine’s Border

A Reuters report said:

In western Ukraine, some 1,100 train wagons carrying grain are stuck near the main rail border crossing with Poland, unable to transport their cargo abroad.

They are just some of the 24,190 wagons carrying various goods for export, including vegetable oil, iron ore, metals, chemicals and coal, that were waiting to cross Ukraine’s Western border as of Tuesday, according to data from the state-run railway company that has not previously been reported.

With war raging along the country’s southern coast, and its main ports blocked off by Russia’s invasion, Ukraine is struggling to export its grain and other goods, according to government officials and industry insiders. But as Kyiv looks for alternative export routes by land, that effort has been hampered by logistical challenges and red tape, industry officials and commodity traders say.

Valerii Tkachov, deputy director of the commercial department at the state-run railway company Ukrzaliznytsia, said that 10,320 wagons – or about half of the total – are waiting at the junction near the village of Izov, the main rail border crossing into Poland. Sitting some 130 kilometers north of Lviv, the junction serves as a gateway for reaching the Polish seaport of Gdansk.

One key issue: the sheer volume of goods that needs to find an alternate route, which is causing shortages of everything from rail cars to staff, according to industry insiders and the government. Ukraine, one of the world’s biggest grain exporters, had prior to the war exported 98% of its cereals via the Black Sea. Typically, only a fraction of the country’s exports went by rail, where transport costs are higher than shipping.

Those difficulties are being compounded by logistical issues, such as differences in rail-track gauges used in Ukraine and neighbors such as Poland – a legacy from when Ukraine was part of the Soviet Union. While the west of the country has been spared by the worst fighting, there have been missile strikes near Lviv, including on oil facilities, and security around the border is very tight.

The disruptions to Ukraine’s exports mean that countries that rely on imports of Ukrainian grain – including China, Egypt, Turkey and Indonesia – will need to find alternative supplies or face food shortages, aid agencies have warned.

Even as Russia scales down operations around Kyiv and the northern region of Chernihiv to focus on battles in the east, the prolonged blockade of ports in the south is dealing a major blow to Ukraine. Grain exports are a cornerstone of Ukraine’s economy – totalling about $12.2 billion in 2021 and accounting for nearly a fifth of all the country’s exports, according to official data.

The Ukrainian government did not respond to a request for comment. Ukraine has said that grain exports last month fell to a tenth of the figure of March 2021 amid port closures and that the disruption impacts people in many countries. “Hundreds of millions of people around the world will not receive food unless Russia’s blockade of Ukrainian ports is lifted in the near future,” the agriculture ministry said in an April 1 statement.

The Kremlin did not respond to a request for comment. Russia has denied deliberately targeting civilians and civil infrastructure, despite documented attacks on hospitals, apartment buildings and railroads.

Ukrainian farmers – who produced a record grain crop last year – say their wheat yields could be cut in half, and perhaps more. Russian forces are repeatedly damaging grain storage facilities in eastern Ukraine, a U.S. official has said. Kyiv and Moscow have accused each other of laying mines in the Black Sea creating dangers for merchant shipping.

The war has upended the country’s agriculture sector and “has destroyed Ukraine’s roads, railways, and rail stations that facilitate overland transportation,” a U.S. official told Reuters last week. “As Putin’s War continues, more and more arable Ukrainian land is ruined by Russian tanks, shells, and landmines—risking a much longer-term food crisis.”  [This is interesting, as the trains appear to have no problem getting from East and Central Ukraine to the Western border.  ~jb]

Ukraine and Russia are major wheat exporters, together accounting for about a third of world exports- almost all of which passes through the Black Sea. Its waters are shared by Bulgaria, Romania, Georgia and Turkey, as well as Ukraine and Russia.

Clearing the backlog could take a long time.

Because the Ukrainian railway network uses a Russian gauge measuring roughly 1.5 metres, or some 10 centimeters more than the tracks used in most of Europe, railway staff have to lift wagons with a jack and manually change the chassis to fit the Polish tracks, Tkachov said. Alternatively, they can unload the grains from the Ukrainian wagons and pour them into the Polish ones – a process that can take up to half-an-hour per wagon.

Tkachov, from the state railway, told Reuters there are currently up to 500 wagons crossing the border near Izov per day – effectively a three week backlog. He added that there are another dozen crossing points, many of which aren’t backed up.

The state railway is working to increase capacity to 1,100 wagons of grains a day crossing into Poland, Romania, Hungary and Slovakia within three months – nearly a tenfold increase from its March level, he said.

It is hiring more people and buying equipment to help switch the rail chassis, diverting staff from passenger trains to cargo transport, and also working to ease other hurdles, such as customs procedures, according to Tkachov.

We are working to speed up the process…reducing the number and duration of wagon inspections, and the amount of paperwork,” he said.

One company impacted by the backlog is Astarta Holding NV, a Ukraine-based food producer. The company had agreed to deliver 25,000 metric tonnes of corn to European customers in April, but had yet to receive the required all-clear from railway authorities, according to Julia Bereshchenko, Astarta’s investor relations and business development director.

Astarta said it also has some 150,000 tonnes of grains, mostly corn, sitting idle in its silos. At this time of the year, the tall storehouses should be almost empty, it said.

Official figures released by the government on Sunday cited exports of 1.4 million tonnes of corn and wheat in March. That was about a quarter of February’s figure and down from some 3 million tonnes in March 2021.

But the most recent month’s export volume includes grain loaded onto vessels stuck at blockaded Ukrainian seaports, deputy agriculture minister Taras Vysotskiy told Reuters.

Vysotskiy told Ukrainian national television on Monday that just 300,000 tonnes of agricultural products left the country, via railways.

Analysts have said Ukraine, which had exported 43 million tonnes of grain from the start of the season in July up to the invasion in late February, could export only around 1 million tonnes in the next three months, due to logistics difficulties. Before the war, the government forecast grain exports could reach 65 million tonnes this season.

Vysotskiy, in his remarks to television Monday, expressed hope that Ukraine might be able to export 1.5 million tonnes a month by rail, adding that would be only a third of volumes typically handled by the ports but would still generate some much-needed income for the agricultural sector.

Commodity traders, such as Cargill Inc, are looking for ways to get foodstuffs out of the country but there is no easy fix, an industry source said.

Cargill didn’t respond to requests for comment.

Kyiv is in talks with Romania on shipping its agricultural commodities via the Romanian Black Sea port of Constanta, the agriculture ministry said on March 30. That would involve transporting the grains by rail to cargo ports on the Danube river and then uploading them onto barges for sailing towards Constanta, industry officials said.

Once at the Romanian port the grains would have to be moved across to large vessels for shipping worldwide – making the whole process complex and costly. According to APK-Inform, a Ukrainian agriculture consultancy, the cost of delivering Before the war, traders paid around $20 to $40 per tonne to transport grain to Ukraine’s Black Sea ports.

Any hopes of a quick re-opening of that route was further dashed at the weekend. On Sunday, Russian rockets hit the port of Mykolaiv and also struck oil facilities near the major hub of Odesa on the Black Sea, local officials said. Russia’s defence ministry said its missiles had destroyed an oil refinery and three fuel storage facilities near Odesa. It said they had been used by Ukraine to supply its troops near Mykolaiv.

The Ukraine government says it is also worried about the country’s own food supplies, even though it says it has enough stocks for three years.

Last month, Ukraine suspended exports of rye, oats, millet, buckwheat, salt, sugar, meat and livestock since the invasion, and introduced export licences for wheat. The government said it would allow free exports of corn and sunflower oil, however.

A manager at one of the main foreign commodity traders operating in the country said that even if the country succeeded in boosting its agricultural export capacity to 700,000 tonnes a month to 1 million tonnes a month by rail and via the Danube quickly, that would just be a “drop in the ocean.”

We may reach 10-15% of the capacity that is actually needed,” he said. “I believe the risks for the economy are huge.”

Russia Coal And Oil Paid For in Yuan Starts Heading To China

A Bloomberg report said:

Russian coal and oil paid for in yuan is about to start flowing into China as the two countries try to maintain their energy trade in the face of growing international outrage over the invasion of Ukraine.

Several Chinese firms used local currency to buy Russian coal in March, and the first cargoes will arrive this month, Chinese consultancy Fenwei Energy Information Service Co. said. These will be the first commodity shipments paid for in yuan since the U.S. and Europe penalized Russia and cut several of its banks off from the international financial system, according to traders.

Sellers of Russian crude have also offered to give buyers in Asia’s largest economy the flexibility to pay in yuan. The first cargoes of the ESPO grade bought with the Chinese currency will be delivered to independent refiners in May, according to people familiar with the purchases.

China has long bristled at the dollar’s dominance in global trade and the political leverage it gives the U.S. Efforts to chip away at the status quo are now being accelerated by Western steps to punish Russia for its war of aggression. Moscow is offering rupee-ruble payments to Indian oil buyers, while Saudi Arabia is in talks with Beijing to price some of its crude in yuan.

It is unlikely the yuan will pose a serious challenge to the dollar’s dominance, however, at least in the short term. The U.S. currency was used for 88% of foreign-exchange transactions in 2019, compared to 4.3% for the yuan, according to the Bank for International Settlements.

Both steel-making and power-plant coal are being paid for in yuan, Fenwei said. These deals are traditionally done in dollars, but many Chinese buyers temporarily halted purchases after the U.S. and Europe cut off Russian lenders from the SWIFT inter-bank messaging system.

Russia was China’s No. 2 coal supplier last year, filling the gap left by Beijing’s trade tussle with Australia. Nearly half of the imports from Russia are metallurgical coal, which is in demand after the partial resumption of operations in the Chinese steel-making hub of Tangshan. This type of coal isn’t subject to government price controls that apply to power-plant fuel.

While Chinese buyers are interested in importing more Russian supplies, logistics and financing barriers will ultimately cap the flows, the China Coal Transport and Distribution Association said last month.

The ruble, meanwhile, has recovered to levels where it was before the invasion of Ukraine. After plunging to around 140 to the dollar in early March, the Russian currency is now back near 80.

JPMorgan CEO Warned Of Unprecedented Risks For The U.S. Economy

A report by The Barron’s Daily said:

JPMorgan Chase CEO Jamie Dimon on Monday warned of the unprecedented risks facing the U.S. economy as the war in Ukraine, persistent inflation, and rising interest rates combine to slow the Covid-19 pandemic recovery.

“They present completely different circumstances than what we’ve experienced in the past—and their confluence may dramatically increase the risks ahead,” Dimon wrote in his closely watched annual letter to shareholders,

While it is possible, and hopeful, that all of these events will have peaceful resolutions, we should prepare for the potential negative outcomes,” he added.

Dimon said that the U.S. economy was strong with plentiful jobs, wages rising, and consumers and small businesses flush with the money generated in 2020 and 2021.

But he warned that the Federal Reserve could raise interest rates “significantly higher” than the markets expect. Last month, the Fed lifted its benchmark interest rate for the first time in three years and signaled that there would be a series of increases this year as it looked to tackle inflation.

If the Fed gets it just right, we can have years of growth, and inflation will eventually start to recede. In any event, this process will cause lots of consternation and very volatile markets,” he wrote.

The war in Ukraine and the sanctions on Russia “at a minimum, will slow the global economy—and it could easily get worse,” Dimon wrote.

Sanctions have already roiled global oil, commodity and agricultural markets and many more could be added which could “dramatically, and unpredictably, increase their effect,” Dimon wrote.

Along with the unpredictability of war itself and the uncertainty surrounding global commodity supply chains, this makes for a potentially explosive situation.”

Dimon said that while he was not worried about JPMorgan’s direct exposure to Russia, the bank could still lose about $1 billion over time. Its stock is up 1.1% in Monday trading.

Over 1,000 Major Investors Believe A Worldwide Recession Is Just Around The Corner, Finds Survey

A report by Fortune.com said:

The Ukraine War has sent international markets roiling and investor morale spiraling, just as the global economy appeared ready to rebound from the stagnant years of the pandemic.

Investor confidence in the eurozone is now at the lowest it’s been since the early days of the pandemic in July 2020, according to a new survey by the Germany-based Sentix economic indicator.

Even worse, it finds that a worldwide recession is just around the corner, and Europe will be hit first and hardest. But there is an even worse finding tucked into the survey.

Morale also fell in the U.S. and Asia, and while the economic outlook in these regions is higher than the global average, economic performance forecasts in every part of the world are all trending negative.

For 20 years, Sentix has produced weekly and monthly assessments of global economic morale based on thousands of investor responses. It calls itself the “leading provider of behavioral finance data and consulting in Europe.”

For this indicator, it surveyed the attitudes of over 1,200 investors in the first few days of April on their outlook toward specific regions and countries. Morale dropped most precipitously in Europe, where investors have grown skittish about the ongoing war—which shows few signs of abating any time soon—and the consequences of Western sanctions cutting Russia out of the global economy.

Europe is bearing the brunt of the confidence collapse, but other parts of the world are all following the same pattern.

Internationally, the declines are smaller, but the trend is the same everywhere,” the survey authors wrote.

Investors surveyed by Sentix said that the war, sanctions, and their effects on slowing down the global logistics industry are sparking fears of an international economic shrinkage. Analysts at Sentix say that an economic recession could begin hitting parts of Europe as early as this month.

But then it gets to the truly scary part.

The survey says that uncertainty as a result of the war will combine with global inflation to create a new type of economic crisis that is largely without precedent. In times of market uncertainty, an option for central banks is to loosen their monetary policy and create more demand. But because of pandemic-infused inflation, which in the U.S. has been branded a “top economic priority” by President Joe Biden, a more expansive monetary policy is simply not an option. The Fed has already begun hiking interest rates in an effort to reduce aggregate demand and bring prices down.

For many investors, this is a new experience with its own risks,” the survey said.

World May Be On Cusp Of New Inflationary Era, Says BIS Central Bank Group

A Reuters report said:

The world is facing a new era of higher inflation and interest rates as deteriorating ties between the West, Russia and China and COVID after-effects drive globalization into reverse, the head of the Bank for International Settlements has warned.

Soaring global energy and food prices mean almost 60% of developed economies now have year-on-year inflation above 5%, the largest share since the late 1980s, while it is over 7% in more than half of the developing world.

While major economies like the United States and Britain and swathes of less developed ones are now raising interest rates from all-time lows, a rapid acceleration would be needed if a fundamental paradigm shift took hold.

A key message is that we may be on the cusp of a new inflationary era,” the general manager of the BIS central bank umbrella group, Agustín Carstens, said on Tuesday.

We need to be open to the possibility that the inflationary environment is changing fundamentally,” Carstens added. And “if my thesis is correct, central banks will need to adjust”.

That thesis is the rebound in energy, commodity and food prices was being amplified by the war in Ukraine. Supply chains have been damaged by both the pandemic and trade wars, while rising living costs mean workers are demanding higher wages.

There are also signs that the expectations of consumers, businesses and financial markets for how high inflation will go are becoming “unmoored”.

Carstens pointed to professional forecasts which now see inflation of over 4.5% in the United States and much of Europe over the next two years, and above 3.5% in many other advanced economies.

The immediate implication would be that policymakers would have to quickly shift their “mindsets” to how to stop inflation running out of control, a problem few have had since the 1970s.

Most likely, this will require real interest rates to rise above neutral levels for a time in order to moderate demand,” Carstens said, acknowledging that it could make them unpopular.

But central banks have been here before,” he said. “They are fully aware that the short-term costs in terms of activity and employment are the price to pay to avoid bigger costs down the road.”

He urged governments to resist the temptation to try and offset the pinch of inflation or higher interest rates.

The key to higher sustainable growth cannot be expansionary monetary or fiscal policy,” Carsten’s said.

Many of the economic challenges we face today stem from the neglect of supply side policies over the past decade or more.”

Inflation ‘Rhino’ May Be Difficult To Stop, Says Deutsche Bank

Another Reuters report said:

An inflationary wave unleashed by the war in Ukraine and the response to COVID may be hard to stop because of an energy price shock, sanctions that are exacerbating supply chain problems and labour shortages, Deutsche Bank Wealth Management said.

The rhino in the room has been unleashed and may now prove difficult to stop,” Deutsche Bank Wealth Management Global CIO Christian Nolting said in a research note, adding consumer price inflation in the United States had breached the 7% threshold.

Longer-term issues such as the shrinking workforce and the growing share of GDP generated by labour-intensive services are likely to remain and inflation is therefore unlikely to return to its pre-pandemic level in the years to come.”

Nolting said the sanctions imposed on Russia over the invasion of Ukraine were making supply chain problems worse while the oil and gas price shock could drive prices even higher.

In the developed economies, already elevated inflation rates may now be driven even higher given the conflict-induced oil and gas price shock,” he said.

Sanctions as well as businesses halting their operations in Russia are exacerbating supply chain problems,” he said. “Furthermore, shortages in platinum, palladium or even neon are hampering the manufacturing of intermediate products.”

Economic growth in the U.S. will outstrip that of the euro zone in 2022 and 2023 because of the conflict in Ukraine and Europe’s dependence on energy imports, Nolting said.

“We now expect U.S. growth to outstrip that of the euro zone in both 2022 and 2023 because of the euro zone’s geographical proximity to the conflict zone and Europe’s structural disadvantage as the world’s largest net importer of energy.”

Russia’s economy will contract 8% year on year in 2022, Deutsche Bank said, with zero growth in 2023.

The U.S. will grow 3.4% in 2022 while the Eurozone will grow 2.8% and China by 4.5%, Deutsche said.

The wealth management arm is part of Deutsche Bank’s International Private Bank which has more than 300 billion euros under management.


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