Optimism grows on world economy but business remains wary

Today’s top stories

• Microsoft announced 10,000 job cuts, highlighting the difficulties felt by US companies even as economic data turn promising.

• The Bank of Japan defied market pressure and stuck with a core pillar of its ultra-loose monetary policy — yield curve control measures — sending the yen diving and stocks higher.

• Fourteen people, including Ukraine’s interior minister and one child, were killed when a helicopter crashed near a nursery school in Kyiv.

For up-to-the-minute news updates, visit our live blog

---

Good evening.

Disrupted Times may have brought you plenty of downbeat prognostications about the economic outlook recently but a flurry of positive data have boosted hopes that a global recession can be avoided.

The jet-setters of Davos seem to think so. Our team in the Swiss Alps has picked up signs of optimism as China drops its Covid controls, the US lays the way for a green investment boom and Europe adjusts to the impact of war in Ukraine. IMF deputy chief Gita Gopinath signalled to the assembled bigwigs yesterday that the fund would upgrade its economic forecasts — just weeks after predicting a “tougher” year.

The International Energy Agency added today that global oil demand could hit an all-time high in 2023 as China reopens. And although the country’s GDP figures yesterday were disappointing, showing growth of 3 per cent in 2022, far below its 5.5 per cent target, analysts are betting the ending of pandemic restrictions can help the economy bounce back. Vice-premier Liu He has said that the country is returning to normal faster than expected.

What is not in dispute is the damage caused by Beijing’s now ditched zero-Covid policy, particularly in sectors such as luxury goods — China is the world’s second biggest market — highlighted again today in results from Richemont and Burberry.

Investors meanwhile seem to be warming to the idea that inflation has peaked. Even the UK, which has been lagging behind the rest of the world in positive economic indicators, reported a second consecutive fall today, bringing the December rate to 10.5 per cent, helped by easing fuel prices.

However, an important caveat came last week from Bank of England chief economist Huw Pill, who warned that the UK could face persistently high inflation for longer than other advanced countries, meaning interest rates might have to stay higher for longer. The scale of the challenge was underlined yesterday by new data showing corporate insolvencies surging as business costs rise.

There was also some positive news from the US today, with data showing producer price inflation cooling. Both the headline annual figure of 6.2 per cent and the reading excluding volatile food and energy costs of 4.6 per cent were lower than expected.

Wall Street economists, however, are a little more pessimistic than the Federal Reserve about the prospect of recession, a point also highlighted by our interview with the head of Norway’s sovereign wealth fund — one of the biggest in the world — who warned of “very, very low” returns for stocks and a potential new cycle of rate rises from the Fed.

In Europe, investors in Germany have turned positive while in Brussels, plans for “unprecedented” investments in clean technologies hope to offer similar help for EU industry to the generous subsidies on offer from the US government.

Need to know: UK and Europe economy

Despite today’s positive news on inflation, labour market data yesterday showed UK wages still failing to keep pace. The gap between public and private pay is still growing, adding fuel to the current wave of strike action: today’s walkout by nurses comes as new data show industrial disruption is now at a 30-year high. Think-tanks say Brexit’s ending of free movement has led to a worker shortfall of 330,000.

Billions of pounds in UK tax are being left uncollected because almost 2,300 compliance staff have been diverted to Brexit and Covid-19 related work. Authorities expect to recover just £1.1bn of an estimated £4.5bn lost through Covid fraud.

European Central Bank chief economist Philip Lane discusses the ECB’s response to global shocks in our latest Economists Exchange feature. Looking ahead, Lane says: “Our current assessment is that if there is a recession, it’s going to be mild and short lived.”

Need to know: Global economy

Chief economics commentator Martin Wolf sounds the alarm (again) on the looming global debt crisis, branding the current system, as well as mechanisms for helping poor countries through adverse shocks and towards sustainable development, as unfit for purpose.

Hopes for Chinese recovery are being pinned on the country’s small and medium-sized businesses, which account for 80 per cent of the country’s employment and 70 per cent of corporate revenue.

The FT editorial board says Egyptian president Abdel Fattah al-Sisi needs to shrink the role of the state and military-owned companies to address the country’s deepening economic crisis.

Need to know: business

Profits at Goldman Sachs fell by a more than expected two-thirds in the fourth quarter, led by a slowdown in investment banking. Net income was $1.3bn, down from $3.9bn last year. Morgan Stanley also suffered falls at its investment bank but these were partly offset by record wealth management revenues. Overall it recorded a 40 per cent year-on-year drop in net income to $2.2bn, but earnings of $1.26 a share beat analysts’ estimates.

Our Big Read series examines how Apple spent two decades building sophisticated supply chains through China and asks the question: can it now disentangle itself?

The UK government confirmed it would included the prosecution of tech bosses in its new online safety bill. Columnist Helen Thomas says the “world-leading” proposals seem to have lost their way.

LockBit, the recent hacker of Royal Mail’s system, has become the world’s most prolific ransomware group, claiming to have hit 40 organisations in different countries in the past month.

Britishvolt, a start-up that had hoped to turn the UK into a battery manufacturing powerhouse as part of former PM Boris Johnson’s drive for a “green industrial revolution”, collapsed into administration after talks failed to secure emergency funding.

US business editor Andrew Edgecliffe-Johnson discusses potential obstacles to world trade in 2023, from an energy crisis hitting industrial exporters, to deteriorations in relations with China that could affect trade in rare earths, to tensions over Taiwan that could further damage semiconductor supply.

The World of Work

Why is there still a sense of stigma around taking time off to have a baby? Maternity leave and returning to work is the subject of the new Working It podcast.

Fancy helping us find Britain’s healthiest workplace? The FT/Vitality annual survey aims to identify best practises that improve wellbeing and boost staff retention. Last year’s survey identified growing mental health concerns, the importance of quality as well as quantity of sleep, and the value of hybrid working.

Some good news

With so many people suffering serious hardship this winter, it’s good to occasionally highlight some of the contributions from Britain’s community groups and businesses. Here’s one example of a Leicestershire building society helping local food banks.