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The world faces a recession in 2023 as higher borrowing costs aimed at tackling inflation cause a number of economies to contract, according to the Centre for Economics and Business Research.The global economy surpassed $100tn for the first time in 2022 but will stall in 2023 as policy makers continue their fight against soaring prices, the British consultancy said in its annual World Economic League Table.“It’s likely that the world economy will face recession next year as a result of the rises in interest rates in response to higher inflation,” said Kay Daniel Neufeld, director and head of Forecasting at CEBR.The report added: “The battle against inflation is not won yet. We expect central bankers to stick to their guns in 2023 despite the economic costs. The cost of bringing inflation down to more comfortable levels is a poorer growth outlook for a number of years to come.”The findings are more pessimistic than the latest forecast from the International Monetary Fund. That institution warned in October that more than a third of the world economy will contract and there is a 25% chance of global GDP growing by less than 2% in 2023, which it defines as a global recession.Even so, by 2037, world gross domestic product will have doubled as developing economies catch up with the richer ones. The shifting balance of power will see the East Asia and Pacific region account for over a third of global output by 2037, while Europe’s share shrinks to less than a fifth.The CEBR takes its base data from the IMF’s World Economic Outlook and uses an internal model to forecast growth, inflation and exchange rates.China is now not set to overtake the US as the world’s largest economy until 2036 at the earliest — six years later than expected. That reflects China’s zero-Covid policy and rising trade tensions with the west, which have slowed its expansion.CEBR had originally expected the switch in 2028, which it pushed back to 2030 in last year’s league table. It now thinks the cross-over point will not happen until 2036 and may come even later if Beijing tries to take control of Taiwan and faces retaliatory trade sanctions.“The consequences of economic warfare between China and the West would be several times more severe than what we have seen following Russia’s attack on Ukraine. There would almost certainly be quite a sharp world recession and a resurgence of inflation,” CEBR said.“But the damage to China would be many times greater and this could well torpedo any attempt to lead the world economy.”It also predicted that:India will become the third $10tn economy in 2035 and the world’s third largest by 2032.The UK will remain the world’s sixth largest economy, and France seventh, over the next 15 years but Britain is no longer set to grow faster than European peers due to “an absence of growth oriented policies and the lack of a clear vision of its role outside of the European Union.”Emerging economies with natural resources will get a “substantial boost” as fossil fuels play an important part in the switch to renewable energy.The global economy is a long way from the $80,000 per capita GDP level at which carbon emissions decouple from growth, which means further policy interventions are needed to hit the target of limiting global warming to just 1.5 degrees above pre-industrial levels.

As 2022 unfolded, Chicago’s long-troubled pension funds faced a new shortfall: A delay in property tax receipts left the system without enough money to pay the city’s retirees.Pension managers contended with the difficult decision of whether to sell off pension assets to raise cash quickly. Instead, they got an advance from Mayor Lori Lightfoot’s administration to plug the gap. In the end, Chicago funnelled in at least $512mn that was earmarked for payments later in the year and early 2023.The payout was the largest advance ever in one year in Chicago, a sign of just how fragile the pension system is, especially at a time when markets are headed for their worst annual return since 2008. Looking ahead, the third-most populous US city’s pensions could take an even deeper hit in 2023 if the market rout continues to erode returns and the looming recession economists are warning of hurts Chicago’s revenue.“Downturns are never good, and systems like Chicago don’t have much wiggle room,” said Jean-Pierre Aubry, director of state and local research at the Center for Retirement Research at Boston College. “Other pension funds will weather it. Chicago may have to react more aggressively and more quickly.”How Chicago arrived at this point is easy to understand and hard to fix. Put simply, it fell behind on contributions for its retirees — including cops, firefighters, labourers and other municipal employees — year after year as officials shortchanged payments. Now, the unfunded liability for Chicago’s four pension systems is $33.7bn, more than twice the size of the city’s annual budget.Chicago’s pensions have enough assets to cover only about 25% of what they owe, while on average funding ratios for US state and local pensions hover around 70%, according to research at Boston College.These underfunded pensions are weighing on the city’s ability to pay for much-needed services. About $1 of every $5 in Chicago’s budget goes toward pensions, a challenge in a city where revenue often falls short of expenditures, 17% of the population lives in poverty and crime continues to rise — all factors that also could tip the scales on Lightfoot’s chances for re-election in February, when she could face as many as 10 mayoral candidates.The city has faced calls for more mental health clinics, increased funding to help the homeless and greater resources to reduce environmental hazards such as air pollution that have been reported to disproportionately hurt poor neighbourhoods.And the fact that markets are headed for their worst annual gains in 14 years has made 2022 a more challenging year for pension funds. US stocks are down 19%, and the benchmark 10-year Treasury is off 12%.All of this comes even as a key rating company recently lifted the city’s credit rating out of junk, praising Lightfoot’s efforts to increase and accelerate payments into the pension funds. But the problem continues to challenge the Chicago’s ability to pay for much-needed services.Now, the threat of a recession in 2023 raises questions about the city’s ability to provide advances — such as the half billion dollars given from September through November — because a slowdown could reduce tax revenue as economic activity slows. Chicago’s Purchasing Managers Index, a barometer for the region’s economic health, is already starting to send out recession warning signals. The index fell to 37, below expectations and at a level that historically has indicated an economy in recession.Already, rising inflation undercut one of Lightfoot’s proposals to fill the gap. The mayor persuaded the City Council in late 2020 to tie annual property tax increases to the consumer price index but for 2023 decided to forgo that bump up given the highest inflation in four decades. On top of that, the annual property tax bills that were expected roughly around August didn’t go out until early December. The months-long delay meant that one of the biggest sources of funding for the pension funds was stalled.After long failing to make enough contributions into the pensions, the city under former Mayor Rahm Emanuel and Lightfoot increased taxes on property and services such as water and sewer to ramp up pension contributions to the state-required 90% level in about four decades. The city’s annual contributions rose by $1bn over the past three years, and it’s trying to do more than the minimum by providing advances and paying an additional $242mn for pensions in the 2023 budget.The city’s residents have raised concerns about property tax increases that they don’t see reflected in services. Roughly 80% of the city’s property taxes go to pensions, and 10% pay for other debt. Still, the increased contributions led to the city’s first credit rating upgrades in a decade, pulling Chicago out of junk territory. But the future of its ratings, which affect the city’s cost of borrowing, could hinge on the health of those very retirement systems. Pensions remain a credit risk for Chicago and the unfunded portion is its most significant long-term liability, according to Moody’s Investors Service.“When we save the pension funds, we save the city,” said Melissa Conyears-Ervin, Chicago’s treasurer, who oversees about $10bn in city assets.

Japan agreed to purchase more liquefied natural gas from the US and Oman in the latest move to secure fuel supplies and avoid future shortages.Inpex Corp, Japan’s top gas explorer, inked a deal to procure 1mn tonnes a year from Venture Global LNG’s CP2 export project in Louisiana for 20 years. CP2 is slated to begin construction next year, according to Venture Global. Several Japanese companies, including Mitsui & Co, Itochu Corp and the nation’s top power producer Jera Co, will enter an agreement with Oman to purchase an additional 2mn tonnes or so a year from 2025 for 10 years, the NHK said yesterday. Bloomberg previously reported that Mitsui was shortlisted by Oman.The deals come as Japan’s government is reevaluating how it can enhance energy security in the face of a fuel crunch at home. Global LNG supply is slated to remain tight for years, which threatens to increase import costs and add to rising inflation.This also marks a shift for Japanese LNG importers, which had been moving away from long-term deals on the expectation that the transition to cleaner energy sources would reduce gas demand this decade. Companies were instead increasing dependence on the short-term spot market to secure LNG supplies.However, with the spot market tight and prices near a record high, Japanese companies are now reversing course and locking in supply for years at more attractive rates. A Mitsui spokesperson said the trading company was involved in the deal reported by NHK, but declined to comment further. A spokesperson for Itochu declined to give details in an emailed comment, but said the firm will continue negotiations on long-term contracts for LNG with Oman to support Japan’s energy security.Jera was set to make an announcement later on Tuesday, spokesperson Hiroyuki Usami said, declining to give further details of the contract.

Elon Musk has said on several occasions lately — on Twitter, from a courtroom stand, on Twitter again, then back at the same court — that he doesn’t want to be a CEO.He said so before and after he became the chief executive of a fifth company, which appears to have been one too many, at least for Tesla shareholders to stomach.Since April 4, the day Musk disclosed that he’d taken a stake in Twitter, the car and clean-energy company that accounts for a third of his net worth has lost about $749bn of market value.Taking a Twitter poll on whether he should step down as head of Twitter — and a decisive vote that found yes, he should — hasn’t stopped Tesla’s hammering.Overpaying for the social media company using tens of billions of his Tesla shares has proven disastrous.It hasn’t helped that Musk has oscillated from arguing that Twitter is doing better under his leadership, to describing it as in the fast lane toward bankruptcy, or that he’s repeatedly assured his followers that he was done selling Tesla stock, only to then dump more again and again.When will Tesla’s shareholders or board of directors conclude that enough is enough? Some are already there.“As his fanboy, I invested [because] of Elon,” Leo KoGuan, one of Tesla’s biggest individual shareholders, tweeted last week. “Of course, I prefer Elon to be CEO but he abandoned Tesla.”There’s been no indication Tesla directors feel the same.Several members of the board, including his brother Kimbal, have stood by Musk through it all: the regrettable SolarCity acquisition, the April Fools’ Day tweeting about Tesla going bankrupt, the calling a critic a paedophile.After Musk made the false and reckless claim he had the funding to take Tesla private, the Securities and Exchange Commission tried to strengthen Tesla’s corporate governance by removing him as chairman and forcing the board to add two independent directors.The effort was doomed from the start — one of the directors added was billionaire Larry Ellison, Musk’s friend and confidant, who left the board less than four years later.He and other directors said nothing publicly about Musk telling “60 Minutes” he didn’t respect the SEC.Privately, Ellison and other fans of Musk’s have explained away Musk’s behaviour to Jeffrey Sonnenfeld, the senior associate dean of leadership programmes at the Yale School of Management.After all, had the professor ever managed to fly rockets into space and land them upright back on Earth?“It’s true, I haven’t been able to do that, and you have to acknowledge the engineering genius and entrepreneurial will that he has is exceptional,” Sonnenfeld said of Musk in a phone interview. “It’s historic, and the world is, on balance, somewhat better off that he’s on the planet.”That said, the Twitter poll Musk has vowed to abide by was just one of the recent votes against him.Last week, Sonnenfeld hosted the Yale Chief Executive Leadership Institute’s annual CEO summit, where chairmen, presidents and CEOs responded confidentially to questions on a range of topics dominating business news headlines.Musk didn’t fare well among 100 of his peers: 98% said he overpaid for Twitter; 79% said he’d become a detriment to the value of the companies he runs; 56% think companies should stop advertising on Twitter.“There have been some standout technological triumphs,” Sonnenfeld said of Musk’s track record. “But we could match each and every one of them with 10 failures that the media looks past because he dangles the new, shiny object and distracts you.”Where, for example, are the 1mn robotaxis that Musk said almost four years ago would be on the road three years ago? Where is the Roadster that Musk claimed would be able to fly, packing SpaceX thrusters in place of the rear seats? The CEO showed a prototype five years ago and promised a launch two years ago.It has yet to hit the market.“Tesla is executing better than ever!” Musk tweeted last week in response to a shareholder who quarrelled with him on Tuesday. “We don’t control the Federal Reserve. That is the real problem here.”Investors haven’t been buying that argument, perhaps since Musk has provided ample evidence that he’s preoccupied with Twitter.On the day he fell from the top spot on the Bloomberg Billionaires Index, Musk dropped in on a Twitter Spaces with Marc Andreessen and other admirers, spending about 25 minutes talking artificial intelligence, his approach to using and running the social media service, the boos he got on stage at Dave Chappelle’s stand-up show in San Francisco, and how much punishment Sam Bankman-Fried deserves.Tesla didn’t come up until the very end.“Speaking of Tesla,” Musk said. “I have a Tesla meeting that I’m late for. I have to step off.”

The day after the Philippines’ largest phone company plunged by a record 19% following an audit disclosure that shocked investors, chairman Manuel Pangilinan tweeted that his arowana, a freshwater fish, had just died.The poor fish had “probably absorbed all the angst of PLDT, on our behalf,” he quipped.He was referring to the scandal that has engulfed PLDT Inc, with the company losing more than $1bn in market value and becoming the subject of a regulatory investigation and a probe into possible insider trading. The bourse says it hasn’t found evidence of insider trading but its investigation is continuing.Manuel Pangilinan in 2018.PLDT has described this month’s disclosure of more than $800mn in previously unreported spending over four years as a “budget overrun” that involves “no fraud, no anomalies.”But the Philippine stock exchange and securities regulator said the company should clarify what happened, and the head of the bourse said it may take time for PLDT to regain the full confidence of investors. The big question hanging over PLDT: How did so much spending go unreported for so long at a company that’s almost a century-old and had won awards for corporate governance?PLDT was motivated by a need to keep up in an increasingly competitive industry, according to a company disclosure that cited CEO Alfredo Panlilio at a briefing for investors and analysts this week. The company had a fierce rivalry with local peer Globe Telecom Inc and was under pressure from a new entrant backed by China Telecommunications Corp.“Behind the irregular spending was the desire to regain leadership and prepare for threats from new players,” said Japhet Tantiangco, an analyst at local brokerage Philstocks Financial Inc.Pangilinan and Panlilio didn’t respond to multiple requests from Bloomberg News for interviews and comments since the company’s announcement triggered investor and regulatory concerns.The Makati-based firm said after the market closed on December 16, a Friday, that an internal audit had found as much as 48bn pesos ($869mn) in previously undisclosed spending. The outlays ran from 2019 through 2022, a period in which PLDT forked out 379 billion pesos mostly to improve its network and upgrade to 5G.The following Monday, its stock plummeted almost 20%, the biggest decline in data compiled by Bloomberg going back to 1990. The country’s Securities and Exchange Commission announced it had started an inquiry, saying the overspending and the stock selloff before the disclosure were “areas of concern.” It also ordered the nation’s bourse to submit a report on its own investigation into the trading patterns.Trading in PLDT shares spiked in the 10 minutes prior to the close that Friday, before the company informed the exchange about the spending.PLDT executives including Pangilinan and Panlilio told the Wednesday briefing that the previously unreported spending was for equipment to transform the network after years of underinvestment, according to a company disclosure the day after. Panlilio said they felt pressure to do so, partly because then Philippine President Rodrigo Duterte was pushing telecommunications companies to shape up and due to increasing competition and the pandemic. The company said there was no fraudulent trading before the December 16 announcement.“Nobody is shirking from their responsibility,” Pangilinan, who’s known as MVP, said at the meeting, according to a transcript obtained by local media Philippine Daily Inquirer. “I take command responsibility and Al” — referring to Panlilio — “also takes full responsibility.”Carlos Temporal, an analyst at local broker AP Securities Inc, attended the briefing and concluded that “without any substantial changes in top management, sentiment may not recover significantly.”Anabelle Chua, PLDT’s chief financial officer and chief risk management officer, has been put on paid leave so an “independent investigation” can be conducted on the transactions, the company said this week. On December 15, PLDT separately said the board confirmed three new appointments: a group controller, chief technology officer and chief transformation officer.Shares in PLDT, which lists “fast is better than perfect” as one of its six corporate values, have lost 17% since it revealed the spending.The company said on Thursday there was no fraud, no anomalies and “no unrecorded transactions in relation to the overrun.” It also said it expects earnings before interest, taxes and depreciation to remain unaffected this year. But it warned it will reduce fresh capital expenditure in 2023, which it said will be “a year of consolidation.”Later, PLDT said it plans to borrow 35bn to 45bn pesos over two years to fund general expenses including capital spending and dividend payout.The PSE has asked the company to clarify its comments about not uncovering fraud or anomalies, according to bourse President Ramon Monzon.“For you to make that statement, that means the investigation has been completed,” Monzon said in an interview with Bloomberg News. “If the investigation is over, that’s a material information that should have been disclosed. Why wasn’t it disclosed to us?”

India is set to rank among this year’s best-performing major stock markets globally, overcoming concerns about higher interest rates and an economic slowdown that has mired peers.The S&P BSE Sensex Index is up 3% so far in 2022, the biggest gain in the world after measures in Singapore and Indonesia. A solid run of earnings buoyed key Indian benchmarks to record levels, making the market larger than the UK. Meanwhile, the MSCI All Country World Index has fallen 20%.This year’s winners include shares linked to billionaire Gautam Adani and banks boosted by a sharp recovery in credit demand. Some of the biggest losers were shares of technology firms that languished following their public debuts and software outsourcing providers that faced concerns of a potential slump in overseas demand.The outlook, however, is murkier. The market is seen to lose momentum next year amid elevated valuations, with Goldman Sachs Group Inc calling an underperformance versus China and South Korea.Slowing global growth may weigh on the country’s economy in the near term even as its “structural promise” remains a significant long-term attraction, JPMorgan analyst Sanjay Mookim wrote in a note this month.Here’s a look at some of the most significant stock moves of 2022:Adani firmsAdani’s ports-to-power conglomerate saw at least two of seven listed companies more than double in value this year, led by Adani Power Ltd as it benefited from a jump in demand for electricity. Flagship Adani Enterprises Ltd has surged 113% after it became the second group firm to join the NSE Nifty 50 Index. The share price of Adani Wilmar Ltd, the group’s joint venture consumer food business, could gain another 24% from current levels, according to the 12-month consensus price target of analysts. Investors have sold off the group’s stocks of late amid steep valuations.Bank recoveryThe S&P BSE Bankex has surged 18% this year on the sector’s successful resolution of sour debt, the creation of a bad bank to offload troubled loans and a sharp recovery in credit demand. Uday Kotak, the billionaire managing director of Kotak Mahindra Bank Ltd, called the rebound in banks a “Cinderella” moment. Still, a worsening gap between deposit and credit growth is something to watch out for, according to Macquarie Capital analyst Suresh Ganapathy. State Bank of India, the nation’s largest lender, is up 25% this year and could gain by a similar magnitude over the next 12 months, analysts estimate.IPO letdownLingering disappointment following big initial public offerings sent fintech firm Paytm and online insurance marketplace Policybazaar down more than 50% this year after their trading debuts toward the end of 2021. Other decliners include delivery startup Zomato, the owner of beauty e-retailer Nykaa and logistics firm Delhivery. Life Insurance Corp of India, which surpassed Paytm to become India’s biggest IPO, has lost more than a quarter of its value since May.Software slumpOutsourcing providers were among the worst performers amid concerns over a possible recession in the US and Europe. Major firms — including Infosys Ltd and Tata Consultancy Services Ltd — slid, pushing the sectoral gauge toward its worst year since 2008. Big information technology services companies are bracing for a “longer winter ahead,” said JM Financial Institutional Securities analyst Abhishek Kumar.Cheaper genericsDrug exporters such as Aurobindo Pharma Ltd and Divi’s Laboratories Ltd also took a hit as generic drug prices plunged in the US. Sampath Reddy, the chief investment officer at Bajaj Allianz Life Insurance Co, said drugmakers may focus on profitable complex generics in response to lower prices abroad.

China’s economy continued to slow in December as the massive Covid-19 outbreak spread across the country, with activity slumping as more people stay home to try and avoid getting sick or to recover. Bloomberg’s aggregate index of eight early indicators showed a contraction in activity in December from an already weak pace in November and the outlook is grim for the new year.Although there’s no reliable data on the extent of the spread of the virus or the number of sick and dead now, it had reached every province before the end of extensive and regular testing. The cancelling of almost all domestic restrictions now means the virus can circulate freely. Even before the curbs were lifted, China’s economy was struggling, with a slump in consumer spending deepening and industrial output growing the slowest since the spring lockdowns.The situation was even worse for shops and restaurants in Beijing than it was across the nation as a whole, with retail sales in the city dropping almost 18% in November as both cases and restrictions in the capital increased.However even though people are now free to move around there’s been little rebound in movement so far this month, according to high-frequency data on subway and road usage.The 3.6mn trips made on the Beijing subway last Thursday were 70% below the level on the same day in 2019, and traffic congestion on the city’s streets was only 30% of the level in January 2021, according to BloombergNEF. Other major cities such as Chongqing, Guangzhou, Shanghai, Tianjin and Wuhan are seeing a similar drop. That looks to be impacting home and car sales, which both fell in the first weeks of this month. Car sales had been supported by government subsidies and were a bright spot for consumer spending this year, but began dropping last month as consumers pulled back. That in turn hit industrial output, with production of cars dropping for the first time since May, when many factories were forced to close.However unlike in the spring when it was the Covid Zero policy which caused a shortage of car parts and shuttered some plants, now it is the virus itself which is impacting production, with companies having to deal with more workers getting sick.The spread of the virus across China has undermined the initial euphoria seen in the stock and commodity markets at the reopening. The Shanghai Composite Index has fallen back near the level it was at just before authorities started relaxing curbs on November 11 and has dropped for the past two weeks.The price of iron ore was also headed for a modest weekly drop as a surge in Covid cases clouded the near-term demand outlook and undermined the effect of recent announcements of support for the real-estate sector. Chinese steel mills are currently reducing production, Guangfa Futures said in a note, with data from an industry association showing output falling and stockpiles rising in the middle of this month.The drop in markets mirrors the poor confidence among small businesses, which was in contractionary territory for a third straight month in December, according to Standard Chartered Plc. Although there was a small improvement from November, the main indexes still showed smaller firms weren’t optimistic about the current situation or the future.The manufacturing sector saw some improvement, with a rise in new orders, sales and production from November “likely reflecting the positive impact of the relaxation of Covid control,” the firm’s economists Hunter Chan and Ding Shuang wrote in the report.However, “services SMEs continued to face headwinds from weak consumer sentiment amid rising Covid cases,” they wrote in a report last week.

JPMorgan Chase & Co’s loss-making bets on European bonds and credit-default swaps have sparked queries from market participants disgruntled by what they saw as out-of-step prices and aggressive tactics and saw the bank scrutinise how its positions were valued.The bank has reviewed the valuations of some positions overseen by Gianfranco Canepa, former co-head of high-yield trading for Europe, the Middle East and Africa, according to people familiar with the matter. Marking the value of those trades using prices closer to other banks’ bids helped to push that book into a loss of $70mn for the year from a profit. Some market participants have discussed with JPMorgan contacts what they viewed as aggressive trading tactics, some of the people said, who asked not to be identified as the talks were private. No individual has been accused of wrongdoing.A spokesperson for JPMorgan declined to comment. Canepa didn’t respond to multiple attempts to contact him.The losses came as one of the market’s biggest banks looked to seize on what has been a turbulent year for European high-yield debt. At the heart of the issue were two trades, a short position on the debt of French grocer Casino Guichard-Perrachon SA and a long position issued by Metalcorp, a subsidiary of commodities firm Monaco Resources Group SAM, the people said.Canepa’s trading desk was a large buyer of credit default swaps that insure Casino’s debt as part of a wager that amounted to €500mn ($530mn), Bloomberg has reported. It then offered clients higher-than-average prices on such swaps, indicating a greater chance of default, according to pricing information seen by Bloomberg News. It was also the only bank to market so-called recovery swaps on Casino, a niche form of credit derivatives that lets traders speculate on where the price of bonds will recover to if the firm goes into bankruptcy, some of the people said. In the over-the-counter world of high-yield credit trading, a desk’s view will often influence the prices and products it offers. But some traders and investors saw the moves as JPMorgan using its heft to push the market, the people said.The unit also bought Metalcorp bonds in recent months and valued them in the range of 70 cents on the euro in early October, well above the range of 40-50 cents offered by rivals including Goldman Sachs Group Inc for debt of the troubled commodities firm, Bloomberg reported at the time. That may have limited the markdown that JPMorgan would have had to take on its bet at that time. In a note to clients late last year, the lender said it had a long position in those bonds.A spokeswoman for Casino declined to comment. Metalcorp didn’t respond to an email seeking comment. The US bank’s European high-yield trading desk has since written down the value of trades, the people said. Market moves were more consequential in the swing to a loss than any changes in the way the positions were marked, the people said.The team also used thinly traded derivatives to make a broader wager that the continent’s credit markets would decline, one of the people said. Such a trade would have been lucrative when the cost to insure against high-yield bonds defaulting — a measure of investor confidence in the sector — peaked in late September, but it has fallen in the last few months.Many of Canepa’s trades slumped in the weeks around his departure for a role at GoldenTree Asset Management, Bloomberg reported on December 7. His bosses were aware of the positions before they led to losses, the people said.The continent’s high-yield debts lost value for most of 2022 as companies were slammed by everything from rampant inflation, war in Ukraine, government turmoil in the UK and climbing interest rates. The industry has recovered since October, however, tripping up investors who had predicted further declines.The losses are unlikely to represent a major dent in Wall Street’s biggest trading operation. But it could be the difference in the unit breaking the annual revenue record of $29.5bn it set two years ago. Analysts currently project the trading division to fall just short.

European Central Bank (ECB) Executive Board member Isabel Schnabel says interest rates will have to move into “restrictive territory” to bring inflation back to target. The danger of a policy overreaction by the ECB “continues to be limited, as real interest rates are still very low,” Schnabel said in an interview with Frankfurter Allgemeine Zeitung conducted on December 16, a day after the central bank’s most recent policy meeting, and posted on Saturday.Reflecting on the ECB’s string of four interest rate hikes, Schnabel said the central bank is doing “whatever is necessary” to bring inflation back to 2%. She echoed the position of ECB President Christine Lagarde, who has said rate increases will continue “for a period of time.” “According to our assessment, this interest rate lies in restrictive territory – that is, above the neutral interest rate – even if the exact level is yet unknown,” Schabel said. With the central bank now pointing to a terminal rate higher than many market participants had expected, “achieving consensus” on the next steps “will certainly not get any easier,” Schabel said. The Germany policy-maker said the ECB underestimated the persistence of inflation earlier, “and initially did not take the signs of higher inflation seriously enough” as it pivoted from a phase where too-low inflation had been the main risk and pandemic-related uncertainty shadowed policy decisions. “There was a concern that premature action by monetary policy might unnecessarily push the economy into another recession,” she said. “Many people” underestimated the surge in prices as Covid-19 measures faded, Schnabel said. “They thought that the supply chain disruptions would be resolved more quickly. But that took much longer than expected.”ECB projections anticipate inflation “notably” above 2% over an extended period likely to run into 2025. “A long phase of very high inflation – as we are currently seeing – is therefore problematic. It makes it all the more important for us to react decisively,” said Schabel. “With inflation at times exceeding 10%, we can hardly speak of price stability.” Also on Saturday, ECB Governing Council member Pierre Wunsch told the Belgian newspaper L’Echo that “the consensus is very clear” within the central bank: “We have a long way to go before we have a monetary policy that is tight enough to ensure that we get back to our 2% inflation target fairly quickly.”“I’m very comfortable with the message that Christine Lagarde gave, which reflects very well the thinking of the vast majority of the Board, that we should expect several more rate hikes,” he added. Schnabel told FAZ that said she expects “increasing pushback” to rate increases of the kind recently seen from Italy. “Governments generally don’t like interest rate hikes very much,” Schabel said. “They weigh on the fiscal position as it becomes more expensive for states to issue new debt.” The ECB “can expect increasing pushback and we need to withstand it. That’s exactly why central banks are independent,” she said.Meanwhile traders are paying heed to a growing chorus of European Central Bank policy makers calling for interest rates to rise faster to get a grip on double-digit inflation. Money markets are wagering the deposit rate will increase to 3.5% by July, according to swaps tied to policy meeting dates. That implied peak has moved 60 basis points higher since the ECB’s last decision on December 15, when it increased rates to 2%, and would leave official borrowing costs at the highest since 2001. ECB President Christine Lagarde followed up on the fourth successive rate increase last week with a warning to investors to prepare for a long-running campaign of similar moves. Fellow policy maker Yannis Stournaras was the latest to voice his view that the rate could rise a further one percentage point to 3% by March, which compares to 94 basis points currently priced.

The Bank of Japan (BoJ)’s policy move has roiled global markets, but a gaggle of funds stand to benefit — including UBS Asset Management, Schroders Plc and BlueBay Asset Management.The money managers are among those that correctly bet Japan’s central bank would relax its long-held cap on bond yields. The BoJ widened the trading band to 0.5% from 0.25% last week.“We had kept faith in the widowmaker, so we’re short 10-year Japanese government bonds going into today,” Tom Nash, portfolio manager at UBS in Sydney, said of the trade that involved betting against the BoJ’s policy stance. The central bank’s decision to allow benchmark yields to rise was “a nice Christmas present for us.”Global funds had long expected the BoJ to eventually cave to pressure to alter its policy stance, but few investors had predicted the timing of the adjustment. As traders ponder the long-term consequences of the shift, some are already lining up wagers for a potential further move by Japan’s central bank. Mark Dowding, BlueBay Asset Management’s chief investment officer, expects the BoJ to push its upper window for yields to 75 basis points by the end of March as yields continue to rise.“There will be more to come,” he said, doubling down on the firm’s short rates position on Tuesday on Bloomberg Television. “The risk-reward is still very much skewed toward higher yields — rather than lower yields — in Japan.”The trade was echoed by BlackRock Inc, which is keeping an underweight on duration in Japan within its flagship global unconstrained bond fund. Neuberger Berman is also keeping its short stance on Japanese government bonds in anticipation of further policy adjustments, according to portfolio manager Fredrik Repton.Speculation has been growing that BoJ would have to let yields rise in tandem with developed-market peers to prop up the yen, which fell to a three-decade low in October. The move by the world’s last major uber-dovish central bank may also mark the end of the global era of rock-bottom interest rates. “BoJ has to catch up with the rest of the major central banks as inflationary pressures will be high relative to history,” said Repton.Shorting JGBs — a trade that’s saddled investors from London to New York with staggering losses over the past two decades — has also proved profitable for Kellie Wood.“I had to stay patient, but I knew it would come,” Wood, a money manager at Schroders which oversees about $940bn, said of the policy tweak. “The market will now pressure the BoJ. We are adding to our short position and building our position in yen — this has more legs and we are on it.”Equity investors such as Vikas Pershad from M&G Investments are also benefiting from the shift.In anticipation of the BoJ’s revision, Pershad had sold off Japanese exporters in favour of banks and insurers this month. The move proved prescient, with companies like Mitsubishi UFJ Financial Group Inc and Sumitomo Mitsui Financial Group Inc surging past four-year highs in Asia on Tuesday.“This is something we have had on our list of potential surprises for 2023 when we were speaking to clients, and it was a high probability one but this timing is surprising — which it was meant to be,” said Pershad, who helps oversee $14bn. Orbis Investment Management’s Japan President Tsukasa Tokikuni said the firm has been “aggressively investing” in financials such as Sumitomo Mitsui Trust Holdings Inc. “We’ve been waiting for this moment.”Among the losers, yen bears stand to face steep losses, especially if billions of dollars in capital comes flooding back to Japan.“Shorting the yen is like eating fugu at the finest sushi restaurant,” said Calvin Yeoh, portfolio manager at hedge fund Blue Edge Advisors Pte, whose systematic macro funds covered some short yen positions days before the BoJ announcement.At a briefing on Tuesday, Governor Haruhiko Kuroda stressed the adjustment was not a rate hike and did not signal an exit from the BoJ’s yield curve control policy.But some — such as UBS’s Nash — say the central bank may be laying the groundwork for a further move.“It feels more like an interim move than the end of the story,” said Nash. “We will end the year with inflation near 4% and the mood music on this being temporary has clearly changed in Japan.”

The yen looks to be losing its appeal as the currency of choice to fund so-called carry trades, with speculators cutting bearish bets on it to the lowest level in nearly four months in the wake of this week’s shock move by the Bank of Japan (BoJ).Leveraged funds cut their net-short position on the yen by 8,274 contracts to 13,207, the lowest level since the end of August, according to data from the Commodity Futures Trading Commission for the week through Tuesday. That was the day that the BoJ rocked markets with its decision to loosen the parameters of its yield-control policy, sending the currency soaring by close to 5% on the day at one stage.The yen has lost some ground since then, but late on Friday was still 2.8% stronger than it was a week earlier. And some analysts predict it may strengthen further as the central bank eventually edges away from its policy of near-zero borrowing costs.While most major central banks have moved to lift borrowing costs aggressively this year to tame inflation, the BoJ has been a laggard, keeping its key benchmark below zero.On Tuesday, policy makers announced they were doubling to 0.5% the level to which it will allow 10-year bond yields to go as it seeks to keep that rate in a band around zero. That’s not, of course, an abandonment of its ultralow interest-rate policy, but many see it as a sign that it will need to shift in that direction.The dovishness that the BoJ exhibited up until this week has fuelled weakness in the currency — with carry trades being a key mechanism for that — and so signs of a hawkish turn have the potential to reverse that, at least to some extent.“The trade was definitely a carry trade,” said Brent Donnelly of Spectra FX Solutions. “It’s shocking to me that the market is still short yen.” The basic mechanics of a carry trade involve borrowing funds in a currency where interest rates are lower, for example Japan’s, and then lending those same funds in a currency with higher rates, oftentimes in emerging markets. That can be profitable so long as a rate differential persists and there isn’t a significant shift in the underlying value of the currencies, which if big enough can wipe out the gains made from the lending-cost differential. Volatile markets are the enemy of successful carry trades. The yen has been, until recently, one of the currencies favoured by investors to fund these sorts of trades, and that’s helped to weigh on it. Earlier this year the yen weakened past the key psychological level of 150 per dollar for the first time since 1990 and the Japanese government became concerned enough about it to intervene directly in the market by selling dollars. The currency is now a far cry from that level. On Tuesday it strengthened to 130.58 per greenback, a level last seen in August, and ended the week around 132.91. The data from the CFTC, which are used by many observers to help assess how currency traders are positioned, point to a marked scaling back of bets against the yen by speculative funds. Yet the position does still remain short on a net basis. At the same time, positioning on the euro, which also offers relatively low yields compared to the dollar, has seen an increase in bets against it.“People are now using the euro and British pound to fund stuff, moving away from the yen,” said Spectra’s Donnelly. “It’s getting harder to find good funders though, as everyone is hiking pretty quick.”

A turbulent year for the pound is coming to an end with little evidence that 2023 will be much different. Signs of a painful UK economic downturn keep piling up, making analysts doubtful that the currency can extend — or even sustain — a recent rebound against the dollar. The options market also shows scepticism, with traders still gloomy over the long run. The pound has surged from an all-time low reached in September boosted by a change of government following Liz Truss’ ill-fated tenure as leader and a weakening dollar. But it’s still down 11% in 2022, headed for its worst year since the Brexit vote in 2016.Going into next year, room for gains may be limited by divergence in central bank policy, with the Bank of England (BoE) looking increasingly dovish compared with peers. Also the UK economy is reeling, the budget deficit has rocketed and double-digit inflation has led to the sharpest drop in living standards on record, curbing spending and giving rise to the worst industrial unrest in decades. The housing market also looks vulnerable to a sharp correction. “The UK is in the vanguard for economies lurching into recession,” said John Hardy, head of FX strategy at Saxo Bank. “The combination of a heel-dragging BoE on further tightening and austere fiscal picture could set up further declines” on the pound. The pound erased losses triggered by Truss’ efforts for vast funded tax cuts within two weeks, but it took more than two months for one-year risk reversals to return to pre-budget levels. The slow recovery of this widely followed barometer of market sentiment suggests traders remain strongly downbeat the pound over the long run and that the rebound in the spot market was more based on positioning rather than an outright bullish expression. Leveraged funds switched to be net short on the pound in the week to December 13, after previously being long, while asset managers retained a short position, according to the latest data from the Commodity Futures Trading Commission. From a technical standpoint, there are mixed signals for the pound. What stands out is a so-called bearish moving averages crossover that unfolds on the monthly chart, at a time when Bloomberg’s fear-greed indicator shows bears are still in control of price action despite the rebound seen in the fourth quarter. This suggests that downside risks prevail for the pound over the medium-term.JPMorgan Chase & Co analysts see sterling heading back to $1.14 by the end of the first quarter, from around $1.21 now, citing their “particularly-negative view” of the UK’s growth outlook. Also local elections looming in May could spell further political uncertainty.Strategists surveyed by Bloomberg see the pair dropping to $1.17 in the first quarter before staging a mild recovery to $1.21 by end-2023.Yield spreads between two- and 10-year swaps tied to the overnight rate — a gauge of recession risks — also point to a longer economic downturn in the UK than in its main peers. The difference between one-year forward and current spreads suggest yield curves in Europe and the US will steepen more than in the UK.

Amazon.com Inc is trying to sell excess space on its cargo planes, according to people familiar with the matter, its latest effort to adjust from a rapid pandemic-era expansion to a slowdown in online growth.The e-commerce retailer, which has a fleet of about 100 planes in the US and Europe, in recent months has hired executives with experience marketing cargo space for airlines. Possibilities include filling empty jets returning from Hawaii and Alaska with pineapples and salmon, according to two of the people. An Amazon spokesperson declined to comment on the plans.The long-term plan for Amazon Air hasn’t changed despite the current turmoil, said one of the people, who asked not to be identified as the discussions are confidential. The pressure to make money from unused space aboard its jets is increasing as the company looks to boost profits in a period of slower revenue growth, another person said.Amazon unveiled the air cargo service in 2016, prompting speculation that it would ultimately create an overnight delivery network to rival United Parcel Service Inc and FedEx Corp. Amazon Air operates out of smaller regional airports close to its warehouses around the country, helping the Seattle-based company quickly move inventory to accommodate one- and two-day delivery.The company’s ultimate goal has befuddled industry experts, who have written conflicting reports about Amazon’s ambitions.Fast growth in its earlier years and a $1.5bn investment in a hub at Cincinnati/Northern Kentucky International Airport fuelled speculation that the company was ramping up to be an overnight parcel service. Other investors said Amazon remains far shy of larger carriers like FedEx and UPS, which have more planes and more flight connections that don’t overlap with Amazon’s core online retail business.Demand for air cargo has cooled this year, and is expected to tail off again in 2023.IATA, an airline trade group, projects the sector will generate sales of $149.4bn, about $52bn less than 2022 but still $48.6bn more than in 2019.Amazon’s flights in September grew at their slowest pace since the start of the pandemic, according to researchers with DePaul University’s Chaddick Institute for Metropolitan Development, who have been monitoring Amazon Air flights since 2020.Despite slowing demand, Amazon in October announced it would add 10 Airbus A330-300 freighters starting next year through a partnership with Hawaiian Airlines. Amazon plans to also trim its fleet by not renewing some leases for aircraft with Air Transport Services Group, two of the people said.Even the largest package carriers are tightening belts as consumers resume pre-pandemic spending habits, which takes pressure off the shipping industry.FedEx on December 20 unveiled plans to cut $3.7bn in expenses next year, with the cost cuts including using digital tools to rebalance flights between company-owned jets and lifts from third-party operators.Amazon is offering space on its planes, and charter flights, said one of the people.The effort is the latest manoeuvre to address slowing online sales and a fragile economy that could be on the brink of recession, including subletting excess warehouse space and eliminating an estimated 10,000 jobs.

Elon Musk said again that he’ll stop selling Tesla Inc shares, after disposing almost $40bn of his holdings contributed to the stock plummeting to a two-year low.“I won’t sell stock until — I don’t know — probably two years from now, definitely not next year under any circumstances, and probably not the year thereafter,” Musk said during a live-audio Twitter Spaces conversation late Thursday. Tesla shares fell as much as 3.5% shortly after the start of regular trading on Friday.Musk made similar proclamations in April and August, only to then keep selling more shares to help fund his purchase of Twitter Inc. While his response to a question from long-time investor Ross Gerber may have reassured investors about one element of what’s been hurting Tesla’s stock, he offered a downbeat outlook for the economy next year.“I think we are in a recession, and I think 2023 is going to be quite a serious recession,” Tesla’s chief executive officer said. “It’s going to be, in my opinion, comparable to 2009. I don’t know if it’s going to be a little worse or a little better, but I think it’s, in my view, likely to be comparable. That means demand for any kind of optional, discretionary item, especially if it’s a big-ticket item, will be lower.”Tesla has had a difficult end to the year, as opposed to the “epic” one Musk had predicted. The electric-vehicle maker has cut prices and slashed production in China, and Musk has repeatedly criticised the Federal Reserve for raising interest rates. His sometimes conspiratorial and often politically charged tweeting also has turned off some consumers. To boost year-end sales in the US, the carmaker has turned to generous incentives. After a five-day losing streak and declines in 12 of the last 14 sessions, Tesla’s market value has fallen below the $400bn mark for the first time since November 2020. Musk said on Thursday he raised cash from stock sales to prepare for a “worst-case scenario,” and that the moves reflect his fear after living through two big recessions.In a wide-ranging conversation that lasted more than an hour, the billionaire said he favours a buyback of Tesla shares once the company is more confident in the direction of the economy. Musk also pushed back against criticism that he’s spending too much time on Twitter and not enough on Tesla.“There’s not a single important Tesla meeting that I’ve missed this entire time, so it’s not like I’m totally missing in action,” he said, adding that Tesla is many times more complex than the social media company.Musk also said he aims to start production of a “meaningful volume” of lithium within two years at a refinery being built in Texas for use in Tesla’s EV batteries.“My final words is that there’s stormy weather ahead,” Musk said as he signed off from the Twitter Spaces session. “But then it’s going to be sunshine thereafter.”

The Federal Reserve’s preferred inflation measures eased in November while consumer spending stagnated, suggesting the central bank’s interest-rate hikes are helping to cool both price pressures and broader demand — with more tightening on the way.The personal consumption expenditures price index excluding food and energy, which Fed Chair Jerome Powell has stressed is a more accurate measure of where inflation is heading, rose 0.2% in November from a month earlier, Commerce Department data showed yesterday. That matched estimates, but data for the prior month were revised higher.From a year earlier, the gauge was up 4.7%, a step down from a 5% gain in October. The overall PCE price index increased 0.1% and was up 5.5% from a year ago, the lowest since October 2021 but still well above the central bank’s 2% goal.Personal spending, adjusted for changes in prices, stalled in November, the weakest since July and below forecast. An increase in services spending, led by restaurants and accommodation, offset a decline in outlays on merchandise. New vehicles were the leading contributor of that decrease.Like the consumer price index figures released earlier this month, the figures point to a welcome retreat in price pressures and suggest the US has passed peak inflation. While many expect to see a rapid pullback in inflation over the next year, the Fed is ultimately aiming for a 2% goal.Powell emphasised that last week when he said the central bank needs “substantially more evidence” to have confidence that inflation is on a sustained downward path. Looking ahead, the central bank is expected to continue raising interest rates into next year — to a higher level than many investors had expected — and remain restrictive for some time. As for the size of any February rate hike, Powell said the decision will be based on incoming data, like Friday’s figures and others for December to be released throughout next month.“It seems reasonable to expect people to become more cautious, now that they have run down about half of their accumulated pandemic savings, and labour market conditions are softening,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a note.While he sees consumption expanding at a robust pace in the current quarter, “we would be amazed if that pace is repeated in the first quarter of next year,” Shepherdson said.The median estimates in a Bloomberg survey of economists were for a 0.2% advance in the core PCE price index and a 0.1% gain in inflation-adjusted spending. US stock futures fluctuated in early trading while Treasury yields bounced higher.The report indicates that consumers lost momentum last month amid higher interest rates and elevated inflation. While the strength of the jobs market and rising wages have bolstered household spending, Americans are tapping into savings and leaning more on credit cards, raising the question of whether consumers will be able to continue to drive economic growth through 2023.The saving rate ticked up to 2.4% in November, the first increase since July but among the lowest readings on record, the Commerce Department report showed. Inflation-adjusted outlays for merchandise dropped 0.6%, the worst since February, while spending on services rose 0.3%.Many economists expect the US to fall into recession within the next year, but the outlook remains highly uncertain. That said, economic activity has generally accelerated in the second half of the year. Data out Thursday showed gross domestic product rose an annualised 3.2% in the third quarter, higher than previously estimated.

Prices in Japan rose at their fastest pace since 1981 in November, data showed yesterday, fuelled in part by higher energy costs.Core consumer prices, which exclude volatile fresh food costs, climbed 3.7% last month compared to a year earlier, data released by the internal affairs ministry showed.Prices jumped the most for processed food items and were also higher for electricity and durable goods like air conditioners.The November figure is well below the sky-high levels that have sparked concern in the United States, Britain and elsewhere, but far exceeds the Bank of Japan (BoJ)’s long-term goal of 2.0%.Even excluding fresh food and energy, the index was up 2.8%.“Although low by international standards, Japanese consumer price inflation at three percent to four percent is high enough to feel uncomfortable with stagnant wage growth,” wrote Sarah Tan, economist at Moody’s Analytics, in a note.The headline core consumer price index (CPI) has risen consistently since the beginning of the year, putting pressure on the Bank of Japan to tweak its longstanding monetary easing policies.The US Federal Reserve and other central banks have sharply hiked interest rates this year to tackle inflation.But Japan, which since the 1990s has swung between periods of sluggish inflation and deflation, has gone against the grain and continues to keep interest rates at ultra-low levels as it tries to kickstart its economy. The Bank of Japan says it sees the recent price increases as temporary and that there is no reason to change course yet.The starkly different approaches taken by the BoJ and the Fed have driven down the value of the yen against the dollar this year from about 115 yen per dollar in March to as low as 151 yen.The currency has recovered somewhat, helped by government interventions.This week, the Japanese central bank delivered a shock tweak to its ultra-easy monetary policy, prompting the yen to strengthen rapidly.While the adjustment falls short of a rate hike, analysts said it could help arrest the yen’s declining value.Koya Miyamae, senior economist at SMBC Nikko Securities, said prices were likely to continue rising in the short term.“The core CPI rose in November due to rises in food prices and gas. The index will likely rise further, nearing or potentially rising above four percent in December,” he told AFP.“But core CPI will remain above two percent next year, while the pace of the rise in wages is not catching up with inflation,” he added.Most analysts expect price rises in Japan to peak around the end of the year or early 2023.“Inflation will likely average four percent in December given delayed pass-through of higher producer prices,” Tan said. “It is expected to decline in 2023 as policy support kicks in,” with global inflation also moderating as commodity prices temper and supply chain disruptions are fixed.

The pound has slid against the euro this year and it risks flopping again in 2023.The UK currency is under pressure from the Bank of England (BoE) turning more cautious on further interest-rate hikes, just as the European Central Bank amps up its rhetoric on the need for more action to tame inflation. Analysts including from Royal Bank of Canada and Bank of New York Mellon see the euro rising against sterling.It’s a trade based on what’s shaping up to a key theme for the new year: the divergence of monetary policy. Traders are looking at which policy makers will blink first, following aggressive rate hikes by central banks in tandem across the world this year.“It’s a consistent theme, a mispricing of rate expectations — and the most extreme example of that would be euro-sterling,” said Adam Cole, head of currency strategy at RBC. He expects the currency pair to rise more than 3% by the end of 2023 to reach 0.90 — a level last seen during the UK’s “mini-budget” market chaos in late September.While the consensus in a Bloomberg survey is only for a rise to 0.89, from current levels around 0.87, Commerzbank AG and TD Securities see 0.90 being reached by June. Sentiment is turning against the pound after the final central bank meetings of the year last week.While both the BoE and ECB raised interest rates by 50 basis points, the former saw two voting members call for no change, while the latter’s decision was followed by a chorus of policy makers saying that rates would have to rise beyond what markets are expecting. That drove the euro up 1.4% last week to hit a one-month high against the pound.“Euro-sterling is probably the best way to play this,” said Geoff Yu, senior currency strategist at Bank of New York Mellon, adding the Bank of England won’t hike rates as much as markets are pricing.Given that the Federal Reserve is also sticking to its guns on the need for more rate rises to finish the job on driving down inflation, the euro may have limited room to gain against the dollar, where positioning is already in favour of the common currency, strategists said. Continued Fed and ECB hikes also increase the chances of a harder landing for the global economy, which would be negative for riskier assets like the pound, said Lee Hardman, currency strategist at MUFG. “I could be more that the euro outperforms more clearly against other higher-beta currencies, including sterling,” Hardman said.

China will struggle to recoup its money while maintaining its image as a friend to developing nations, researchers at Chatham House said.Africa’s external debt rose fivefold to $696bn between 2000 and 2020, with Chinese lenders accounting for 12% of that, according to a new report by the London-based think tank.While Chinese lending to Africa has been criticised by the US and other Western nations as opaque and designed to seize African assets offered as collateral, the researchers said this isn’t the case.“Far from a sophisticated strategy to expropriate African assets, profligate Chinese lending in its early phases may have created a debt trap for China – deeply entangling it with obdurate and increasingly assertive African partners,” the researchers said.China is a large creditor to Zambia, for example, which has defaulted on its debt. It’s also made loans to other African nations struggling to meet their debt obligations, including Angola, Ethiopia, Kenya and the Republic of Congo.The economic fallout from the pandemic and Russia’s invasion of Ukraine have undermined the ability of many African nations to service their sovereign debts.The continent is heading toward a repayment crisis, with 22 of 54 nations at risk of so-called debt distress, according to World Bank and International Monetary Fund criteria.Biggest African debtors to China:n Angola - $42.6bnn Ethiopia - $13.7bnn Zambia - $9.8bnn Kenya - $9.2bnChina has being criticised for its perceived lack of engagement in the global effort to reduce developing nations’ debt burdens; US Treasury Secretary Janet Yellen has said multiple times that Beijing has become the biggest obstacle to progress.Jose Fernandez, under secretary for economic growth, energy, and the environment at the US State Department, said in an interview last week that China needed to be more transparent about the debt owed to it by African nations. Concerned by many nations’ inability to repay their loans, Chinese institutions have in recent years slashed the amount of credit they’ll extend to Africa, Chatham House said. New Chinese loans to African governments fell from a 2016 peak of $28.4bn to $8.2bn in 2019 and just $1.9bn in 2020, during the coronavirus pandemic, the researchers said.“China’s approach to African debt is one of dynamic change, with patterns of Chinese infrastructure-linked lending in Africa moving from resource-backed profligacy to more calculated business or geostrategic decision-making,” the Chatham House researchers said in the report entitled “The response to debt distress in Africa and the role of China.”“The image of China as a predatory lender looking to expropriate African economic assets does not stand up in most cases,” they wrote.Still, there are indications China may have lent money to the tiny Horn of Africa nation of Djibouti to secure political influence, they said. Between 2012 and 2020 China provided Djibouti, whose annual gross domestic product amounts to about two hours of Chinese economic output, with $1.4bn in investments and infrastructure loans.China has also established a military outpost just six miles from a US base in Djibouti, which sits on the Bab-el-Mandeb, a narrow strait through which about 30% of global shipping passes on its way to the Red Sea and the Suez Canal.“Djibouti offers a clear illustration of the tension between lending to certain African countries that are likely to struggle to make repayments in the future, and the geostrategic imperative of building and maintaining influence,” Chatham House said. “Djibouti is in debt distress, but the country may be too important for China to allow it to default.”China now faces the dilemma of pressing its rights to extract payments, or taking a more accommodative approach to preserve its political relations, the researchers said.While China’s initial instinct has been to try and tackle debt repayment issues at a bilateral level, it’s increasingly getting involved in multilateral talks and will need to continue to do so if it wants the best chance of getting paid back, they said.“Eventually, China may feel it needs to become more forceful in extracting payment through unilateral actions,” Chatham House said. “This would be particularly detrimental if China resorted to appropriating significant assets such as ports, railways or power networks in response to defaults – the ‘debt-trap diplomacy’ vision is not impossible, but it is hard to overstate the strategic and political costs that this would bring.”