[from NBK Group’s Economic Research Department, 21 November, 2024]
Kuwait: Solid credit growth in October driven by household credit. Domestic credit increased by a solid 0.4% in October, driving up YTD growth to 2.9% (3.2% y/y). The recovery in household credit continued, with growth in October at a solid 0.5%, resulting in a YTD increase of 2.4%. While y/y growth in household credit remains a limited 2.3%, annualized growth over the past four months is a stronger 4.7%. Businesscredit inched up by 0.2% in October, pushing YTD growth to 3.6% (2.9% y/y). Industry and trade drove businesscredit growth in October while construction and trade are the fastest growing YTD at 17% and 8%, respectively. In contrast, the oil/gas sector continued its downtrend, deepening the YTD decrease to 13%. Excluding the oil/gas sector, growth in business credit would increase to a relatively good 5% YTD. Looking ahead, the last couple of months of the year (especially December) are usually the weakest for businesscredit, likely due to increased repayments and write-offs, but it will not be surprising if the recovery in household credit is generally sustained, especially given the commencement of the interest rate-cutting cycle. Meanwhile, driven by a plunge in the volatile public-institution deposits, resident deposits decreased in October, resulting in YTD growth of 2.4% (4.2% y/y). Private-sectordeposits inched up in October driving up YTD growth to 4.5% compared with 10% for government deposits while public-institution deposits are a big drag (-14%). Within private-sector KD deposits, CASA showed further signs of stabilization as there was no decrease for the third straight month while the YTDdrawdown is a limited 1%.
Chart 1: Kuwait credit growth
(% y/y)
Chart 2: UK inflation
(%)
Egypt: IMF concludes mission for fourth review, sees external risks. The IMF concluded its visit to Egypt after spending close to 2 weeks, holding several in-person meetings with the Egyptian authorities, private sector, and other stakeholders. The IMF released a statement mentioning that the current ongoing geopolitical tensions in the region in addition to an increasing number of refugees have affected the external sector (Suez Canal receipts down by 70%) and put severe pressure on the fiscal front. The Fund acknowledged the Central Bank of Egypt’s commitment to unify the exchange rate, maintain the flexible exchange rate regime, and keep inflation on a firm downward trend over the medium term by substantially tightening monetary policy. It also highlighted that continued policy discipline was also a key to containing fiscal risks, especially those related to the energy sector. The Fund, as always, re-iterated the need for promoting the private sector mainly through an enhanced tax system and accelerating divestment plans of the state firms. Finally, it also said that the discussions would continue over the coming days to finalize the agreement on the remaining policies and reform plans. However, the release did not provide any clear hints about the conclusion on the government’s earlier request to push the timeline of some of the subsidy moves.
Oman: IMF completes article IV with a strong outlook for the economy in 2025. Oman’s economy continued to expand with growth reaching 1.9% in the first half of 2024 (versus 1.2% in 2023), despite being weighed down by OPEC+ mandated oil production cuts as non-oil GDP grew a stronger 3.8% y/y in H1 (versus 1.8% in 2023). The fiscal and current account balances remain in a comfortable situation evident by a decline in public sectordebt and the recent rating upgrade to investment grade. The Fund expects Oman’s economic growth to see a strong rebound in 2025, supported by higher oil production. It also believes that fiscal and current account balances will remain in surplus but at lower levels. Key risks to the outlook stem from oil price volatility and intensifying geopolitical tensions. The IMF also mentioned that further efforts are needed to raise nonhydrocarbon revenues through more tax policy measures and the phasing out of untargeted subsidies which should help in freeing up resources to finance growth under the government’s diversification agenda.
UK: Inflation rises more than forecast, reinforcing BoE’s caution on rate cuts. UKCPIinflation increased to 2.3% y/y in October from 1.7% the previous month, slightly above the market and the Bank of England’s forecast of 2.2%. On a monthly basis too, inflation rose to 0.6%, a seven-month high, from September’s no change. The steep rise was mainly driven by an almost 10% rise in the household energy price cap effective from October. Core inflation also accelerated to 3.3% y/y (0.4% m/m) from 3.2% (0.1% m/m). While goods prices continued to fall (-0.3% y/y), service prices rose at a faster rate of 5% from 4.9%. Recently, the Bank of England had cautioned about inflation quickening next year (projecting a peak rate of 2.8% in Q3 2025), citing the impact of higher insurance contributions and rising minimum wages as outlined in the latest government budget. Therefore, with inflation rising above forecast, the bank will likely slow the pace of monetary easing after delivering two interest rate cuts of 25 bps earlier, with markets now seeing only two additional cuts by the end of 2025.
Eurozone: ECB warns of fiscal and growth risks in its latest Financial Stability Review [archived PDF]. In its most recent Financial Stability Review (November) [archived PDF], the European Central Bank warned that elevated debt and fiscal deficit levels and anemic long-term growth could expose sovereign debt vulnerabilities in the region, stoking concerns of a repeat of the 2011 sovereign debt crisis. Maturing debt being rolled over at much higher borrowing rates raising debt service costs poses risks to countries with little fiscal space and leaves certain governments exposed to market fluctuations. The bank also emphasized the risks of high equity valuations, low liquidity and a greater concentration of exposure among non-banks. Moreover, it sees current geopolitical uncertainties and the possibility of more trade tensions as heightening risks. The Eurozone’s current government debt-to-GDP ratio stands at 88%, but the underlying data suggest a much more precarious situation with Greece, Italy, and France’s ratios at 164%, 137% and 112%. Recently, concerns about France’s high fiscal deficit (around 5.9% of GDP) and elevated debt levels saw yields on the country’s bonds rise steeply, widening the spread gap with Germanbonds to the highest level in over a decade.
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There is much debate about the effectiveness of Western sanctions, the Ukraine war’s implications for markets and the global economy, and what the West’s next steps should be. While there are few good options, some are clearly worse than others.
On the first question, although the sanctions have been less effective than Europe and the U.S. had hoped, they also are proving more onerous than the Kremlin claims. Russia’s central bank expects GDP to contract by 8-10% this year, while other forecasters expect a larger fall, together with longer-lasting damage to growth potential. Imports and exports have been severely disrupted, and inflows of foreign investment have essentially stopped. Shortages are multiplying, pushing inflation higher. At this point, the country no longer has a properly functioning foreign-exchange market.
The sanctions would have bitten much harder had the West not opted for a carve-out of Russia’s energy sector, and had many more countries joined the U.S. and Europe in the effort. Because that didn’t happen, Russia has not felt nearly as much pressure as it would have. Moreover, it has been able to continue trading through various side and back doors that will likely become increasingly important as long as the sanctions regime, as currently designed, continues.
Nonetheless, it is only a matter of time before the Russian economy experiences a harder hit. Inventories of imported goods – including many critical technological and industrial inputs – are dwindling fast, and many sectors are becoming less resilient. The cumulative damage to Russia’s economy over time will be significant and long-lasting – a fact that has not yet been fully captured by consensus medium-term forecasts.
The second question concerns global spillovers from the war and the sanctions regime. Most observers agree that Russia’s invasion has increased not just energy insecurity but also food insecurity, highlighting the fallout from the war’s disruption to Ukrainian agricultural exports. But there is still much debate about the West’s use of the economic nuclear sanctions option: the curbs placed on Russia’s central bank and on Russia’s use of the international payments system.
These curbs are far more intrusive than the usual mix of restrictions on sanctioned government and private sector trade and on individuals’ financial dealings. Yet, because they are not subject to any internationally agreed standards, guidelines, or checks and balances, they fall outside the purview of relevant global-governance bodies such as the Bank for International Settlements, the International Monetary Fund, and the World Trade Organization.
In a time of war, such oversight might seem like a nicety. But some worry that the sanctions could significantly reduce the dollar’s role as the world’s reserve currency and the U.S.financial system’s role as the primary global intermediary for other countries’ savings and investments. After all, a growing number of countries undoubtedly now feel more vulnerable to the reach of U.S. sanctions.
But it is impossible to replace something with nothing, which means that no significant loss of dollar or U.S. financial primacy will occur in the immediate future. Rather, the sanctions will lend further momentum to the gradual process of global economic fragmentation, which was also fueled a few years ago by the tariffs imposed by the Trump administration. More countries now have even more of a reason to pursue greater financial resilience and inherently inefficient forms of self-insurance.
That brings us to the third debate. With no end in sight for the war, what should the West do next? Fearing the implications for energy prices and the supply of gas to Europe, many in the West are tempted to call for a moratorium on any new sanctions – or even for additional carve-outs. Others, however, favor additional measures to hold Russia accountable for its indiscriminate attacks on Ukrainian civilians.
In any case, maintaining the current sanctions regime is not problem-free, owing to the twin objectives of pressuring Russia and limiting the economic disruption to Europe. Moreover, as European Commission President Ursula von der Leyen recently said, it feels as if Russia is “blackmailing” Europe by threatening to disrupt gas supplies at any moment. No wonder the Commission is urging member countries to cut consumption by 15%.
Doing so would undoubtedly have a severe short-term economic impact on European economies and the rest of the world, amplifying the “little fires everywhere” syndrome that I warned about in May. It is therefore critical that governments use their available fiscal space to provide targeted support to vulnerable segments of the population, as well as to fragile countries; and multilateral agencies must support developing countries through aid and a more operational debt relief framework. If done properly, this option would yield better outcomes in the medium and long term than the current strategy.
Muddling through risks bringing about the worst of all possible worlds. It is insufficient to dissuade Russia from continuing its illegal war; it is fueling deeper fragmentation of the international monetary system; and it is not even protecting Europe from a winter gas disruption.
Oman shipyard Asyad Dry Dock is expanding its capacity by 20% with a new floating dock as its current facilities are fully utilized.
by Marcus Hand
The shipyard, formerly Oman Drydock Company, is now part of the Asyad Group, the logistics arm of the Oman government. Management of the yard has been combined with shipowner Oman Shipping Company, and overseen by Dr. Irbahim Al Nadhairi, Chief Executive Officer, Shipping & Drydock.
“We have integrated the shipping and drydocking as the shipping service. The companies are still two legal separate entities but then we share the same executive team to be more efficient,” Dr. Ibrahim told Seatrade Maritime News in an interview at Posidonia 2022.
On the shipping side of the business the group owns a fleet of 65 ships with plans to increase the fleet to over 100 vessels over the next five years. He explains that with such a size of fleet the shipowner needed a quality shipyard so it made sense to work together.
Asyad maintains most, if not all its fleet at the shipyard in Oman, accounting for around 15% of its business. While part of the same group Dr. Ibrahim says it does not send its ships to the yard “by default,” and they have to make sure it is competitive as it needs to be for their third-party customers.
Business has been growing for the shipyard and it experienced a spike in the first half of this year as Chinese capacity has been taken out of the market by COVID restrictions pushing work to yards in other parts of the world. “So, we could see there was a big hike in the number of ships, not only for Asyad Dry Dock, but the entire region as well,” Dr. Ibrahim said.
“The next 12 months I believe the ship repair industry will still continue to flourish on our side.”
The shipyard’s two 600,000 DWTdrydocks are already operating at full capacity and this year sees it adding a floating dock with the capacity to handle vessels up to Panamax size.
“We’ve recently acquired a floating dock which is of Panamax size and we reckon that about 40% of the business in ship repair is within that Panamax size. The floating dock gives us around 20% extra capacity,” he said. It will increase the number of ships the yard can repair from 200 to around 240.
The floating dock is expected to arrive in Oman in the next six weeks, and following some dredging works be operational by the start of Q4 this year.
Greek owners are major clients of the shipyard and account for around 40% of business, and Dr. Ibrahim said they added two more Greek clients last week. “It seems we have a good reputation in the Greek market and between now and end of Q3 we have 27 ships in orderbook from the Greek market.”
Being able to deliver services efficiently and on time is of critical importance in the financially booming container sector.
“Today when you talk about bringing a container ship into a shipyard time really is money,” Dr. Ibrahim said. If a container ship owner says a ship will be in the yard for 15 days the owner will expect work to be completed in 12 days.
‘Further Action Is Needed’ As MEPC 78 Gets Underway
IMO Secretary General Kitack Lim hailed the 78th session of the Marine Environment Protection Committee as an opportunity to be brave and lead by example on decarbonization.
by Gary Howard
MEPC 78 has a packed agenda with the opportunity to consider and progress IMO’s work on cutting greenhouse gas emissions from ships.
At the last MEPC meeting, a revision process was agreed to strengthen the IMO’s initial GHG strategy which was adopted in 2018. A strengthened version of that initial strategy is due in mid-2023 at MEPC 80.
“Whilst progress has been made on many of the measures set out in the Initial Strategy, I am sure that we can all agree that further action is needed. Your discussions this week will chart the way forward for the decarbonization of international shipping,” said Lim.
“It is therefore of utmost importance that IMO continues to deliver concrete progress in transitioning international shipping from fossil fuels to low and zero-carbon alternatives.”
Member states at MEPC 78 will also consider adoption of guidelines to support short-term measures on GHG emissions, including correction factors for carbon intensity, EEXI calculation methodology and revised SEEMP.
Calculations on the GHG impact of fuels will be discussed, as ISWG-GHG 11 reports progress on developing lifecycle GHG assessment guidelines. Well-to-wake and tank-to-wake calculations are in scope, with the aim of giving fuel users a full picture of the impact of the production and use of the fuels they choose.
“Your constructive discussions on these topics will enhance the Committee’s evidence-based decision making when further considering proposals for mid-term GHG reduction measures,” Lim told Member States.
“I would like to take this opportunity to express my deepest appreciation to all Member States, and observer delegations, and especially the Chair of the Working Group on reduction of GHG emissions from ships, Mr. Oftedal of Norway, for the extraordinary effort and dedication in ensuring the successful outcome of both intersessional meetings.”
Houston Begins $1.1Bn Ship Channel Widening
The Port of Houston kicked off its the long-awaited billion dollar dredging scheme, the Houston Ship Channel Widening and Improvement Project 11 last week.
by Michele Labrut
The $1.1bn expansion of the Houston Ship Channel, which has been in planning for more than a decade is finally underway.
After more than a decade of planning, Project 11 will allow the ship channel to accommodate an additional 1,400 vessels per year and could generate up to $134bn more annually in economic impact once completed. The channel currently accommodates about 8,200 vessels and 215,000 barges each year, hauling more than 247m tons of cargo.
“This project will enable Port of Houston to continue to grow and respond effectively to whatever the future demand in the supply chain has to offer,” Port of Houston Executive Director Roger Guenther said in a statement.
Port of Houston is a 40-2 km-long complex of nearly 200 private and public industrial terminals along the 583.6 km-long manmade Houston Ship Channel, which connects the port to the Gulf of Mexico.
Port of Houston and the Army Corps of Engineers signed an agreement in August giving the port permits to start dredging the federal waterway. Great Lakes Dredge and Dock Co. was awarded a $95m contract in October, which also includes oyster mitigation and construction of a bird island. The channel widening and deepening project is scheduled to be completed in 2025.
EU Transport Commissioner Focuses on ‘Solidarity Lanes’ and Sanctions
As the global food crisis deepens and millions of tons of Ukraine’s grain remain blocked in the Black Sea, EU Transport Commissioner Adina-Ioana Vălean has declared that all transport modes will be considered in setting up new Solidarity Lanes that bypass the Black Sea.
by Paul Bartlett
Her comments come as disrupted grain movements risk a global food crisis.
Speaking to journalists immediately prior to yesterday’s opening ceremony at Posidonia, she said that trucks, tracks, trains, transshipment and storage facilities will all contribute to new supply chains to ensure that exports from one of the world’s largest grain exporters can resume, at least in part, as soon as possible.
She said that the setting up of Solidarity Lanes would have important commercial implications for shipping and could even lead to changes in the sector’s business models.
Vălean also rejected criticism from prominent Greek shipowners who had claimed earlier in the day that sanctions imposed on Russia in the wake of its invasion on Ukraine won’t work. At a Maritime Leaders Summit staged by Capital Link on Monday, George Prokopiou and Evangelos Marinakis had both said that sanctions against Iran and Venezuela had been shown not to work and similar moves against Russia would not be effective either.
However, other sources pointed to the scale of the sanctions package that has severely impacted the Russian economy by disrupting key revenue generating sectors. Energy exports are the most obvious example and although Russian oil is still easily sold in India and China, for example, it is at deep discounts to global prices.
Meanwhile, LNG exports have also been hit and development of Arctic LNGsupply chains have also been severely affected. Within the next few months, Vălean said that Russian oil exports would be further disrupted by the withdrawal of insurance cover on shipping and transport arrangements.
UK’s climate change readiness has made ‘significant progress’
by Renee Karunungan on May 4, 2022
There is significant progress in the UK for reporting and implementing climate change adaptation, according to a new study led by TyndallUEA’s Katie Jenkins. Katie has created an Adaptation Inventory of adaptation actions happening based on official records of adaptation projects being implemented by both public and private sector, accompanied by a systematic review of the peer-reviewed literature of adaptation case studies.
Adapting to climate change means taking action to prepare for and adjust to current and predicted effects of climate change. Adaptation plays an important role in managing past, present and future climate risk and impacts. However, there is an “adaptation gap” where the distance between existing adaptation efforts versus adaptation needs is widening, according to the United Nations Environment Programme’s Adaptation Gap Report. Tracking national adaptation plans is deemed critical to support future decision-making and drive future actions.
According to the Committee’s assessment, adaptation planning for 2C and 4C global warming is not happening, and that the gap between future risks and planned adaptation has widened, delivering the minimum level of resilience.
Katie’s new Adaptation Inventory provides insight on what is currently being implemented, which helps policymakers and practitioners learn from existing knowledge and practical case studies.
“The Adaptation Inventory provides a consistent and easily searchable database which will continue to evolve. It can provide evidence on the specific types of adaptation implemented on the ground as well as provide more detailed insight into the specific examples of action being implemented. This has the potential to help and inform UK-based decision-making,” Katie said.
The Adaptation Inventory identifies and documents current and planned adaptation in the UK, and how it is being implemented through adaptation actions, the sectors where adaptation is occurring, and where the gaps remain. There were 360 adaptation actions identified in the Inventory, comprising 134 adaptation types. Out of these 360 adaptation actions, 80% have already been implemented.
The private sector accounts for 74% of the actions with water companies dominating. Regulatory frameworks, standards, and reporting requirements are key drivers required by water companies by the Regulator. For example, water companies are already required to plan their resilience to drought.
The most common types of adaptation actions are flood protection (12%), leakage reduction (4%), water metering (3%), property level flood protection (3%), operational improvements (3%), and back-up generators (3%). Most actions were categorized as structural and physical interventions. Other interventions were categorized as technological and ecosystem based.
The Adaptation Inventory also looks at the types of climate hazards being addressed. It found that 76% of the actions were in response to drought, 26% for extreme rainfall, 13% for flooding, and 11% for higher temperatures. One example of adaptation for drought is rainwater recovery using storage facilities available on the site, reducing the demand for fresh water during drought. For alleviating flooding, a water company is using afforestation. The London Underground has doubled the capacity of ventilation shafts on the Victoria line, which provide more air flow on hot days.
The Brain Bank has released findings from its first three years of operation, analyzing the brains of professional and non-professional athletes who donate them after death.
The researchers say 12 of the athletes’ brains showed signs of chronic traumatic encephalopathy (CTE), a condition associated with a range of psychiatric problems, ranging from mood and behavior disorders to cognitive impairment and dementia.
“CTE was identified in the brains of older former professionals with long playing careers, but also in younger, non-professional sportsmen and in recent professionals who had played under modern concussion guidelines,” the authors found.
“Screening for CTE in all deaths by suicide is probably impractical, but our finding suggests it should be undertaken if a history of repetitive head injury is known or suspected,” the authors say.
The authors note that brains donated to the bank are more likely to show signs of trauma because donation is often done when an athlete’s family have concerns about the role head trauma may have played in a person’s death or condition.
Nonetheless, they say: “Our findings should encourage clinicians and policymakers to develop measures that further mitigate the risk of sport-related repetitive head injury.”
One Step Closer to Hydrogen-Fueled Planes
Airbus to Test Zero-Emissions Aircraft, but How Does It Work?
Hydrogen fuel, touted by some as the fuel of the future, is seen as a potential solution for the deeply polluting aviation and shipping industries in a net-zero world: hydrogen burns cleanly, producing just energy and water vapor.
But while engineers have promoted hydrogen as a possible transport fuel since at least the 1920s, real-world technologies are still in their infancy, thanks to the destructive dominance of fossil fuels over the last century.
Airbus’ announcement, then, marks an important early step in a move towards making the sector compatible with net-zero.
“This is the most significant step undertaken at Airbus to usher in a new era of hydrogen-powered flight since the unveiling of our ZEROe concepts back in September 2020,” said Sabine Klauke, Airbus Chief Technical Officer, in a statement.
“By leveraging the expertise of American and Europeanengine manufacturers to make progress on hydrogen combustion technology, this international partnership sends a clear message that our industry is committed to making zero-emission flight a reality.”
“Our ambition is to take this aircraft and add a stub in between the two rear doors at the upper level,” said Glenn Llewellyn, Airbus’ Vice President of Zero Emissions Aircraft, in a promotional video on YouTube. “That stub will have on the end of it a hydrogen powered gas turbine.”
There will be instruments and sensors around the hydrogen storage unit and engine, to monitor how the system functions both in ground tests and in-flight. Up in the cockpit, instruments will need to be modified with a new throttle to change the amount of power the engine operates at, and a display for pilots to monitor the system.
Why Hydrogen Fuel?
Hydrogen, the most abundant element in the Universe, burns cleanly, and can be produced using renewable energy through the electrolysis of water (though it can be produced using fossil fuels, too).
Given that it’s so abundant, can be made from water, and combusts to produce water vapor, it can be a closed-loop energy system; the definition of renewable.
It’s also highly reactive: hydrogen gas, made up of two hydrogen atoms, can combust at extremely low concentrations. It can combust in response to a simple spark, and it’s even been known to combust when exposed to sunlight or minor increases in temperature. That’s why it’s a suitable replacement fuel for kerosene, but it’s also why the system needs to be tested for safety.
“Aviation is one of these things that everyone agrees needs hydrogen for decarbonization, because it’s not going to be possible to electrify long distance air travel in the next few decades,” explains Fiona Beck, a senior lecturer at ANU and convener of the Hydrogen Fuels Project in the University’s Zero-carbon energy for the Asia Pacific grand challenge. “We just don’t have the battery technologies.
“One kilogram of hydrogen has 130 times the energy of one kilogram of batteries, so in something like air travel, where weight is really important, there’s just no way you’re going to get batteries light enough to directly electrify air travel.”
That’s a very high-profile incident in which hydrogen proved deadly, but a proverbial boatload of hydrogen gas encased within a fabric covering is nothing like the fuel cells proponents of hydrogen fuel are creating in the modern era.
Nonetheless, the incident demonstrates why it’s important to ensure the safety and impregnability of fuel storage; a single spark can prove fatal (though that’s the case with existing fuels, too).
“The key will be to have really good storage containers for the hydrogen, and you’re going to have to re-engineer all the fuel delivery lines,” says Beck, “because you can’t assume that the systems that deliver kerosene safely to an engine are going to be suitable for delivering hydrogen.”
Ultimately, Beck says pre-existing, sophisticated hydrogen technologies, even if they aren’t derived from aviation, mean engineers aren’t going into this blind.
“We already use quite a lot of hydrogen in industry, which is very different than flying a plane full of hydrogen, but still, we know how to handle it relatively safely.
“So, it’s just about designers and engineers making sure that they consider all the safety aspects of it. It’s different, but not necessarily more challenging.”
Two Paths to a Hydrogen Fueled Future of Flight?
Beck notes that Airbus aren’t the only commercial entity exploring hydrogen as a fuel type. In fact, Boeing are incorporating hydrogen into their vision of a cleaner future, but in a different way.
“There’s a difference between just getting hydrogen and burning it in a modified jet engine and what Boeing are doing, which is using sustainable air fuels,” she says.
But what are sustainable air fuels (SAFs)? Beck says they’re made by combining hydrogen with carbon dioxide to make a sustainably-produced kerosene.
“The difference is that instead of getting fossil fuels and refining them, you start with hydrogen, which you would hope comes from green sources, and then you take some carbon dioxide captured from another industrial process, and you’re cycling the carbon dioxide one more time before it gets released.”
So, CO2 is still released into the atmosphere, but the individual flight is not adding its own new load of greenhouse gases to the amount. Instead, it essentially piggy-backs off a pre-existing quantity of emissions that were already produced somewhere else.
The type of fuel that wins out remains to be seen.
“It’ll be really interesting to see which approach we go for in the longer term,” Beck muses. “With synthetic air fuels, your plane engine doesn’t need to change at all, nothing about the demand side needs to change–it’s just kerosene.
“But then there’s issues, because you’re still using carbon dioxide.”
Some commentators see Boeing’s bet on SAFs as a more pragmatic approach that may help us usher in a less polluting age, quicker. On the other hand, if successful, the Airbus system can be fully carbon-neutral from fuel production through to combustion.
“Climate Adaptation by Itself Is Not Enough”: The Latest IPCC Report Installment
The Second of Three Reports Shows Our Vulnerabilities and How We Can Protect Them.
In the next part of its Sixth Assessment Report, released today, the IPCC has examined the world population’s vulnerability to climate change, and what must be done to adapt to current and future changes.
It’s the second of three sections of this report (Working group II)–Working Group I’s section, released last August, demonstrates that anthropogenic climate change is continuing, while Working Group III’s component, on mitigation, will be released in April. An overall report is coming in September.
The IPCC reports represent a phenomenal amount of work from hundreds of researchers and government officials. It synthesizes information from over 10,000 studies, with over 62,000 comments from expert peer reviewers.
Literally every sentence of the summary for policymakers has been agreed upon by consensus from a group of experts and government delegations–the line-by-line approval process alone takes a fortnight. The report in its entirety is a product of several years.
Given the time and expertise involved in making the report, its conclusions aren’t revelatory: the world is becoming increasingly vulnerable to the effects of climate change, poorest people are often the most at risk, and adaptation to these effects will force changes in our lifestyle, infrastructure, economy and agriculture.
While adaptation is necessary, it’s also insufficient. “It’s increasingly clear that the pace of adaptation across the globe is not enough to keep up with climate change,” says Professor Mark Howden, Working Group II’s vice-chair and director of the Institute for Climate, Energy & Disaster Solutions at the Australian National University.
Under the IPCC’s projected emissions scenarios, the climate could warm much more or slightly more, based on the volume of greenhouse gas released into the atmosphere.
“Depending on which of those trajectories we go on, our adaptation options differ,” says Howden.
On our current, business-as-usual trajectory, we can’t avoid the crisis, no matter how much we change our human systems to prepare for or recover from the ravages of climate change.
“Climate adaptation, risk management, by itself is not enough,” says Howden.
The report comes at a pertinent time for Australia, as southern Queensland and northern New South Wales experience dramatic flooding from high, La Niña-related rainfall.
“One of the clear projections is an increase in the intensity of heavy rainfall events,” says Professor Brendan Mackey, director of National Climate Change Adaptation Research Facility at Griffith University, and a lead author on the Australasian chapter of the report.
Mackey also notes that he has extended family members in Lismore, NSW, who today needed to be rescued from their rooftops as the town floods.
Howden says that while it’s hard to link individual disasters to climate change as they occur, he agrees that there are more floods projected for northern Australia.
“I think we can say that climate change is already embedded in this event,” adds Howden.
“These events are driven by, particularly, ocean temperatures, and we know very well that those have gone up due to climate change due to human influence.”
He points out that flooding is a common side effect of a La Niña event, of which more are expected as the climate warms.
Flooding is not the only extreme weather event that can be linked to climate change.
“We’ve observed further warming and sea level rise, we’ve observed more flood days and heat waves, we’ve observed less snow,” says Mackey.
“Interestingly, [we’ve observed] more rainfall in the north, less winter rainfall in the southwest and southeast, and more extreme fire weather days in the south and east.”
All of these trends are expected to continue, especially under high-emissions scenarios.
For Australians, the predictions the IPCC has made with very high or high confidence include: both a decline in agricultural production and increase in extreme fire weather across the south of the continent; a nation-wide increase in heat-related mortality; increased stress on cities, infrastructure and supply chains from natural disasters; and inundation of low-lying coastal communities from sea level rise.
The final high-confidence prediction is that Australian institutions and governments aren’t currently able to manage these risks.
“Climate change impacts are becoming more complex and difficult to manage,” says Professor Lauren Rickards, director of the Urban Futures Enabling Capability Platform at RMIT, also a lead author on the Australasian chapter.
“Not only are climatic hazards becoming more severe–including, sometimes, nonlinear effects such as, for example, tipping over flood levees that have historically been sufficient–but also those climatic hazards are intersecting in very, very complex ways. And in turn, the flow-on effects on the ground are interacting, causing what’s called cascading and compounding impacts.”
She adds that many local and state governments and the private sector have both recognized the importance of changing their practices to prepare for or react to climate extremes.
“We have these systems, these infrastructural systems–energy, transport, water, communications, for example–and it’s the need to adapt those at the base of a lot of the adaptation that’s needed,” says Rickards.
Australia is missing a large investment in research on how different places and systems can adapt to the changing climate.
“We’ve seen a really significant reduction in the research into what actions different individuals, communities, sectors, can take,” says Howden.
“And what that means is we don’t have the portfolio of options available for people in a way that is easily communicable, and easily understood, and easily adopted.”
Without this research, as well as work from local and Indigenous experts, some adaptations can even risk worsening the impacts of climate change.
“The evidence that we’ve looked at shows really clearly that adaptation strategies, when they build on Indigenous and local knowledge and integrate science, that’s when they are most successful,” says Dr. Johanna Nalau, leader of the Adaptation Science Research Theme at Cities Research Institute, Griffith University.
While the risks Australia faces are dramatic, things are much worse for other parts of the world. Nalau, who was a lead author on the report’s chapter on small islands, says that “most of the communities and countries are constrained in what they can do in terms of adaptation”.
In April, we will have access to the IPCC’s dossier on mitigating climate change and emissions reduction. But in the meantime, Working Group II’s battalion of researchers advocate for better planning for climate disaster, more research into ways human systems can adapt, sustainable and just development worldwide, and rapid emissions reduction.
“Adaptation can’t be divorced from mitigation, conceptually or in practice,” says Rickards.
“We need adaptation to enable effective mitigation. We need effective mitigation to enable adaptation to give it a chance of succeeding. At present, we’re not on track and we need to pivot quickly.”
Piecing Together Pandemic Origins
New Research Asserts Market, Not Laboratory, Is the “Unambiguous” Birthplace of SARS-CoV-2
by Jamie Priest
Now in our third year of woe, most of us are naturally focused on the end of the pandemic. The global death toll is approaching 6 million, and the world is desperately searching for signs the ordeal’s over.
But amid the future watching, a team of researchers have turned their attention back to the beginning, tackling the question that was once on everyone’s lips: where did SARS-CoV-2 originate?
Outlining their evidence in two preprints, researchers assert an “unambiguous” origin in the Huanan market in Wuhan, spilling over not once, but twice into the human population and kicking off a global health crisis.
The paired papers, which have yet to undergo peer review and publication in a scientific journal, critically undermine the competing, and controversial, alternative origin story that involves a leak–intentional or otherwise–from a nearby Wuhan virology lab where scientists study coronaviruses.
The Huanan market was an immediate suspect when COVID first emerged in late 2019. Workers at the market were amongst the first individuals to present with the pneumonia that was quickly linked to a novel coronavirus, and Chinese officials, fearing a repeat of the 2002 SARS epidemic that killed 774 people, were quick to close the market down.
But by the time Chinese researchers descended on the Huanan market in 2020 to collect genetic samples, they found no wildlife present at all. Although they were able to detect traces of the virus in samples taken from surfaces and sewers in the market, the lack of direct evidence of infection in market animals sparked a debate over whether this truly was the epicenter of the outbreak. Alternative theories centered around the Wuhan Institute of Virology.
In the face of this absence of evidence, researchers working on the new reports turned to alternative information sources.
Using data pulled from the Chinesesocial media app Weibo, they were able to map the location of 737 COVID-positive Wuhan residents who turned to the app to seek health advice during the first three months of the outbreak.
Plotting the geographic concentrations of cases through time, the researchers clearly identified the market as the centre of origin, with the virus spreading radially through surrounding suburbs and across the city as time progressed. Through statistical analysis, the researchers demonstrated that the chances of such a pattern arising through mere chance was exceedingly unlikely.
However, the pattern alone was open to interpretation, with questions remaining about pathways of introduction to the market–was the virus carried in inside a caged animal, on the coat of an unwitting scientist, or via some as-yet unidentified vector?
To dig further into the mystery, the researchers looked at the genetic samples obtained from market surfaces in January 2020 by Chinese scientists, tracing the locations of individual positive samples to their exact location within the market complex.
This second map revealed a strong concentration of positive samples in one corner of the market, a sector that had been previously documented to house a range of wild mammals that are considered potential coronavirus hosts.
Finally, the researchers created an evolutionary family tree of the earliest coronavirus lineages that emerged in the first few panicked weeks of the pandemic.
Even in its very earliest stages SARS-CoV-2 was a variable beast, with evidence of two distinct lineages, dubbed A and B. Looking closely at the mutations that separate the two, the researchers found something surprising–rather than one descending from the other, it appears that they had separate origins and entries into the human population, with lineage B making the leap in late November and lineage A following suit shortly afterwards.
Initial studies of the Huanan market genetic samples found only lineage B, but this latest investigation detected the presence of lineage A in people who lived in close proximity to the market–a finding corroborated by a recent Chinese study that identified lineage A on a single glove collected from the market during the initial shutdown.
Questions remain about the identity of the intermediary animal host species. But by narrowing research focus to the most likely centre of origin, this research will significantly aid efforts to understand the process that saw COVID-19 enter the world, and hopefully help avert future pandemics.
Fake Viral Footage Is Spreading alongside the Real Horror in Ukraine—Here Are 5 Ways to Spot It
Manipulated or Falsified Videos and Images Can Spread Quickly—but There Are Strategies You Can Take to Evaluate Them.
By TJ Thompson, Daniel Angus and Paul Dootson
Amid the alarming images of Russia’s invasion of Ukraine over the past few days, millions of people have also seen misleading, manipulated or false information about the conflict on social media platforms such as Facebook, Twitter, TikTok and Telegram.
One example is this video of military jets posted to TikTok, which is historical footage but captioned as live video of the situation in Ukraine.
Visuals, because of their persuasive potential and attention-grabbing nature, are an especially potent choice for those seeking to mislead. Where creating, editing or sharing inauthentic visual content isn’t satire or art, it is usually politically or economically motivated.
Disinformation campaigns aim to distract, confuse, manipulate and sow division, discord, and uncertainty in the community. This is a common strategy for highly polarized nations where socioeconomic inequalities, disenfranchisement and propaganda are prevalent.
How is this fake content created and spread, what’s being done to debunk it, and how can you ensure you don’t fall for it yourself?
What Are the Most Common Fakery Techniques?
Using an existing photo or video and claiming it came from a different time or place is one of the most common forms of misinformation in this context. This requires no special software or technical skills—just a willingness to upload an old video of a missile attack or other arresting image, and describe it as new footage.
Another low-tech option is to stage or pose actions or events and present them as reality. This was the case with destroyed vehicles that Russia claimed were bombed by Ukraine.
Using a particular lens or vantage point can also change how the scene looks and can be used to deceive. A tight shot of people, for example, can make it hard to gauge how many were in a crowd, compared with an aerial shot.
Taking things further still, Photoshop or equivalent software can be used to add or remove people or objects from a scene, or to crop elements out from a photograph. An example of object addition is the below photograph, which purports to show construction machinery outside a kindergarten in eastern Ukraine. The satirical text accompanying the image jokes about the “calibre of the construction machinery”—the author suggesting that reports of damage to buildings from military ordinance are exaggerated or untrue.
Close inspection reveals this image was digitally altered to include the machinery. This tweet could be seen as an attempt to downplay the extent of damage resulting from a Russian-backed missile attack, and in a wider context to create confusion and doubt as to veracity of other images emerging from the conflict zone.
Journalists and fact-checkers are also working to verify content and raise awareness of known fakes. Large, well-resourced news outlets such as the BBC are also calling out misinformation.
Social media platforms have added new labels to identify state-run media organisations or provide more background information about sources or people in your networks who have also shared a particular story.
They have also tweaked their algorithms to change what content is amplified and have hired staff to spot and flag misleading content. Platforms are also doing some work behind the scenes to detect and publicly share information on state-linked information operations.
What Can I Do about It?
You can attempt to fact-check images for yourself rather than taking them at face value. An article we wrote late last year for the Australian Associated Press explains the fact-checking process at each stage: image creation, editing and distribution.
Here are five simple steps you can take:
Examine the metadata
This Telegram post claims Polish-speaking saboteurs attacked a sewage facility in an attempt to place a tank of chlorine for a “false flag” attack.
But the video’s metadata—the details about how and when the video was created—show it was filmed days before the alleged date of the incident.
To check metadata for yourself, you can download the file and use software such as Adobe Photoshop or Bridge to examine it. Online metadata viewers also exist that allow you to check by using the image’s web link.
One hurdle to this approach is that social media platforms such as Facebook and Twitter often strip the metadata from photos and videos when they are uploaded to their sites. In these cases, you can try requesting the original file or consulting fact-checking websites to see whether they have already verified or debunked the footage in question.
If old content has been recycled and repurposed, you may be able to find the same footage used elsewhere. You can use Google Images or TinEye to “reverse image search” a picture and see where else it appears online.
But be aware that simple edits such as reversing the left-right orientation of an image can fool search engines and make them think the flipped image is new.
Look for inconsistencies
Does the purported time of day match the direction of light you would expect at that time, for example? Do watches or clocks visible in the image correspond to the alleged timeline claimed?
You can also compare other data points, such as politicians’ schedules or verified sightings, Google Earth vision or Google Maps imagery, to try and triangulate claims and see whether the details are consistent.
Ask yourself some simple questions
Do you know where, when and why the photo or video was made? Do you know who made it, and whether what you’re looking at is the original version?
Using online tools such as InVID or Forensically can potentially help answer some of these questions. Or you might like to refer to this list of 20 questions you can use to “interrogate” social media footage with the right level of healthy skepticism.
Ultimately, if you’re in doubt, don’t share or repeat claims that haven’t been published by a reputable source such as an international news organization. And consider using some of these principles when deciding which sources to trust.
By doing this, you can help limit the influence of misinformation, and help clarify the true situation in Ukraine.
The European Central Bank’s Macroprudential Bulletin provides insight into the work they are currently doing in the field of macroprudential policy. Their goal is to raise awareness of macroprudential policy issues in the euro area by making their ongoing work and thinking in this field more transparent, and to encourage broader discussion on these key issues.
Money market funds perform a key function for the financial system by linking the short-term funding and cash-management needs of various market participants. Proposals to reform the regulation of these funds and enhance the sector’s resilience are assessed in this issue of the Macroprudential Bulletin.
At the onset of the coronavirus pandemic, money market funds proved particularly vulnerable when faced with severe market disruption. This article looks at specific policies to address the liquidity risk of these funds and ensure they can deal with large and unexpected outflows under similar periods of stress.
The provision of financial services and products is undergoing rapid transformation, including through the development of stablecoins, which seek to stabilize the price of a digital currency by linking its value to that of a pool of assets. Stablecoins can potentially serve as a means of payment and store of value, and may contribute to the development of global payment arrangements that are faster, cheaper, and more inclusive. Yet these potential benefits can only be realized if significant risks are addressed. Stablecoin initiatives built on an existing big tech platform with a global customer base may have the potential to scale rapidly, and could pose regulatory and oversight challenges and risks related to consumer protection, fair competition, and the combating of money laundering and terrorism financing, among others, as well as have a significant impact on public policy goals such as financial stability and monetary policy transmission. This paper, written jointly by G7 members, the BIS, and the IMF, including RESMF staff, scopes the causes and implications of the adoption of global stablecoins, and the potential policy efforts to rein in the risks they can bring about.
We study the optimal design of a central bank digital currency (CBDC) in an environment where agents sort into cash, CBDC and bank deposits according to their preferences over anonymity and security; and where network effects make the convenience of payment instruments dependent on the number of their users. CBDC can be designed with attributes similar to cash or deposits, and can be interest-bearing: a CBDC that closely competes with deposits depresses bankcredit and output, while a cash-like CBDC may lead to the disappearance of cash. Then, the optimal CBDC design trades off bank intermediation against the social value of maintaining diverse payment instruments. When network effects matter, an interest-bearing CBDC alleviates the central bank’s tradeoff.
We estimate world cycles using a new quarterly dataset of output, credit and assetprices assembled using IMF archives and covering a large set of advanced and emerging economies since 1950. World cycles, both real and financial, exist and are generally driven by US shocks. But their impact is modest for most countries. The global financial cycle is also much weaker when looking at credit rather than assetprices. We also challenge the view that synchronization has increased over time. Although this is true for prices (goods and assets), this not true for quantities (output and credit). The world business and credit cycles were as strong during Bretton Woods (1950–1972) as during the Globalization period (1984-2006). For most countries, the way their output co-moves with the rest of the world has changed little over the last 70 years. We discuss the reasons behind these new findings and their policy implications for small open economies.
by Nina Biljanovska, Lucyna Gornicka & Alexandros Vardoulakis
An asset bubble relaxes collateral constraints and increases borrowing by credit-constrained agents. At the same time, as the bubble deflates when constraints start binding, it amplifies downturns. We show analytically and quantitatively that the macroprudential policy should optimally respond to building asset price bubbles non-monotonically depending on the underlying level of indebtedness. If the level of debt is moderate, policy should accommodate the bubble to reduce the incidence of a binding collateral constraint. If debt is elevated, policy should lean against the bubble more aggressively to mitigate the pecuniary externalities from a deflating bubble when constraints bind.
by Senay Agca, Deniz O Igan, Fuhong Li & Prachi Mishra
Why do firms lobby? This paper exploits the unanticipated sequestration of federal budget accounts in March 2013 that reduced the availability of government funds disbursed through procurement contracts to shed light on this question. Following this event, firms with little or no prior exposure to the federal accounts that experienced cuts reduced their lobbying spending. In contrast, firms with a high degree of exposure to the cuts maintained and even increased their lobbying spending. This suggests that, when the same number of contractors competed for a piece of a reduced pie, the more affected firms likely intensified their lobbying efforts to distinguish themselves from the others and improve their chances of procuring a larger share of the smaller overall. These findings are stronger in government-dependent sectors and when there is intense competition. The evidence is more consistent with a rent-seeking explanation for lobbying.
by Deniz O Igan, Hala Moussawi, Alexander F. Tieman, Aleksandra Zdzienicka, Giovanni Dell’Ariccia, Paolo Mauro
We track direct public interventions and public holdings in 1,114 financial institutions over the period 2007–17 in 37 countries based on publicly available information. We use aggregate official data to validate this new dataset and estimate the fiscal impact of interventions, including the value of asset holdings remaining in state hands at end-2017. Direct public support to financial institutions amounted to $1.6 trillion ($3.5 trillion including guarantees), with larger amounts allocated to lower capitalized and less profitable banks. As of end-2017, only a few countries had fully divested the initial support they provided during the crisis. Public holdings were divested faster in better capitalized, more profitable, and more liquid banks, and in countries where the economy recovered faster. In countries where the government stake remained high relative to the initial intervention, private investment and credit growth were slower, financial access, depth, efficiency, and competition were worse, and financial stability improved less.
Over the past three decades, the price of machinery and equipment fell dramatically relative to other prices in advanced and emerging market and developing economies. Using cross-country and sectoral data, we show that the decline in the relative price of tangible tradablecapital goods provided a significant impetus to the capital deepening that took place during the same time period. The broad-based decline in the relative price of machinery and equipment, in turn, was driven by the faster productivity growth in the capital goods producing sectors relative to the rest of the economy, and deeper trade integration, which induced domestic producers to lower prices and increase their efficiency. Our findings suggest an additional channel through which rising trade tensions and sluggish productivity could threaten real investment growth going forward.
We study the impact of bankcredit on firm productivity. We exploit a matched firm-bank database covering all the credit relationships of Italiancorporations, together with a natural experiment, to measure idiosyncratic supply-side shocks to credit availability and to estimate a production model augmented with financial frictions. We find that a contraction in credit supply causes a reduction of firm TFP growth and also harms IT-adoption, innovation, exporting, and adoption of superior management practices, while a credit expansion has limited impact. Quantitatively, the credit contraction between 2007 and 2009 accounts for about a quarter of observed the decline in TFP.
by Antonio Fatás, Atish R. Ghosh, Ugo Panizza & Andrea F Presbitero
Governments issue debt for good and bad reasons. While the good reasons—intertemporal tax-smoothing, fiscal stimulus, and asset management—can explain some of the increases in public debt in recent years, they cannot account for all of the observed changes. Bad reasons for borrowing are driven by political failures associated with intergenerational transfers, strategic manipulation, and common pool problems. These political failures are a major cause of overborrowing though budgetary institutions and fiscal rules can play a role in mitigating governments’ tendencies to overborrow. While it is difficult to establish a clear causal link from high public debt to low output growth, it is likely that some countries pay a price—in terms of lower growth and greater output volatility—for excessive debt accumulation.
by Harald Hau, Peter Hoffmann, Sam Langfield & Yannick Timmer
New regulatory data reveal extensive price discrimination against non-financial clients in the FX derivatives market. The client at the 90th percentile pays an effective spread of 0.5%, while the bottom quarter incur transaction costs of less than 0.02%. Consistent with models of search frictions in over-the-counter markets, dealers charge higher spreads to less sophisticated clients. However, price discrimination is eliminated when clients trade through multi-dealer request-for-quote platforms. We also document that dealers extract rents from captive clients and market opacity, but only for contracts negotiated bilaterally with unsophisticated clients.
(from ICRIER Newsletter | November 2019 | Vol. III, Issue 11)
The November 2019 issue of the Newsletter provides a quick recap of ICRIER’s research and policy engagements during the month of October 2019.
Three research reports were released by ICRIER last month in the areas of competition, trade and investment and climate change (See below).
ICRIER also organized consultation workshops, dissemination and outreach events during the month. ICRIER researchers published several articles in leading newspapers and other media platforms on a variety of current issues such as growth, agriculture, trade, FTAs, RCEP, single use plastics and the Economics Nobel. We sincerely hope that you will take a few moments to glance through these updates and engage further with anything that interests you. We hope you enjoy the newsletter’s new format. As always, we welcome your valuable feedback.
Competition Issues in India’s Mobile Handset Industry
(Rajat Kathuria, Mansi Kedia and Kaushambi Bagchi)
Using descriptive statistical analysis, this study examines trade and investment opportunities between India and 41 African and Asianeconomies (mostly LDCs) by focusing on the latter’s export opportunities in the Indian market and on India’s investment opportunities in the selected countries. It also discusses barriers to realizing the identified trade and investment opportunities between India and the selected economies, based on a review of the existing literature.
ICRIER hosted the ICANN66 Pre-Meeting Briefing on 18th October 2019 for its Indianstakeholders. This edition of the Pre-Meeting Briefing looked closely at the developments between ICANN65 and ICANN66 and highlighted some of the key policy discussions currently underway at ICANN. The event witnessed participation from various stakeholders from India, including representatives from the Ministry of Electronics & Information Technology (MeitY), National Internet Exchange of India (‘.in’ registry) along with Indian representatives active in various policy development processes at ICANN. ICANN65 was held in Montreal, Canada, between 2-7 November 2019. ICRIER will also be hosting the ICANN66 Readout during the first week of December 2019 to highlight some of the key takeaways from ICANN66.
Dissemination of the India-LDCs Trade and Investment Study
ICRIER organised Dissemination of the Report Exploring Trade and Investment Opportunities between India and Select African and Asian Economies on October 14, 2019 at Magnolia Hall, India Habitat Centre, Lodhi Road, New Delhi.
Welcome remarks were delivered by Dr. Rajat Kathuria, Director & CE, ICRIER and the Introductory Session was Chaired by Dr. Jayant Dasgupta, IAS (Retd.) Former Ambassador of India to the WTO. Dr. Anirudh Shingal, Sr. Fellow, ICRIER presented the key findings of the report, which was followed by a Panel discussion Chaired by Dr. Arpita Mukherjee, Professor, ICRIER.