Goodbye to 2021’s loose money and hello to 2022’s inflation fighting: Year in Review

Special Goodbye to 2021’s loose money and hello to 2022’s inflation fighting: Year in Review
Short Url
Updated 01 January 2022

Goodbye to 2021’s loose money and hello to 2022’s inflation fighting: Year in Review

Goodbye to 2021’s loose money and hello to 2022’s inflation fighting: Year in Review

LONDON: From the great lockdown, to the great rebound? At the start of this year the world was optimistic that the development of pioneering vaccines would restrict the global spread of COVID-19. December 2020 marked the date when vaccinations for the virus first began to be administered around the world. Since then, the death toll has tripled according to the World Health Organization.
While the vaccine was never going to end the pandemic, the hope was that it would contain its spread, and that global trade and finance could resume unhindered.

Vaccine inspires confidence
However, as vaccine inspired confidence returned during 2021, a surge in demand exacerbated pre-pandemic supply chain disruption. Inflationary pressures in the logistics chain were led by global energy prices. The price of a barrel of Brent crude oil started 2021 at $50 and hit $85 by October.

Energy crisis

More significant was the sharp spike in natural gas prices that month. Europe’s TTF, the benchmark for wholesale gas, hit a record €137 per megawatt hour in October, an increase of more than 75 percent. In Asia, LNG prices soared above the equivalent of more than $320 a barrel of oil.

The gas price rise, particularly in terms of Europe, was exacerbated by a drop in exports from Russia’s Gazprom, partially caused by regulatory problems with its Nord Stream 2 gas pipeline, which is set to double gas supplies to Germany but circumvents Ukraine. Against the backdrop of current geopolitical events between Russian President Vladimir Putin and the West, another gas price spike looks likely to occur in the first quarter of the new year.

Supply chain crunch
Meanwhile, the supply chain crunch brought the system of outsourcing production across the globe and just in time delivery into sharp focus. In March the container vessel Ever Given became the most famous ship since the Titanic when it got stuck in the Suez Canal for six days.
Lloyd’s List estimated the Ever Given held up an estimated $9.6 billion of trade for each day it was stuck. Estimates suggest the stricken vessel knocked up to 0.4 percentage points off global trade growth.

Global inflation
While the sharp rise in global inflation was initially dismissed as transitory and attributed to a temporary mismatch in demand and supply as economies opened up again, price pressures now appear to be more entrenched and will be the unwanted gift from 2021 to 2022.
The other big issue for the world’s economies, particularly gulf oil producers, during 2021 was climate change.

COP26
In August, a UN report warned in stark terms that the world’s governments needed to do more to combat climate change and reduce greenhouse emissions.
Even the International Energy Agency warned investors to stop funding new oil and gas projects to ensure the world reaches net-zero emissions by 2050.
The US and China top the global emissions charts.
However, while US President Joe Biden brought America back into the Paris Climate Agreement, and China agreed to stop financing coal-fired power plants overseas, carbon emissions increased in 2021 as economies bounced back from the first phase of the pandemic.
At November’s critical COP26 UN Climate Conference in Glasgow countries pledged to take steps to address climate change, but intentions fell way short of implementation.
While President Biden warned COP26 of the need to end fossil fuels he also asked OPEC to pump more oil as American gasoline prices jumped to record levels, pushing US wider inflation to 40-year highs. Meanwhile, China ratcheted up its domestic coal production.
COP26 ended with a rather weak pledge to “phase down” coal power and end “inefficient” fossil fuel subsidies.

The SPR effect

Just a few days later, Biden authorized the release of 50 million barrels of oil from the US strategic reserve to his domestic market and vowed to release more to curb energy prices.
Instead of bringing prices down, the release pushed crude higher in the short term.
In short, while support for the 1.5C limit received fresh political backing in 2021, it looks like it will remain out of reach in 2022.
However, climate change continued to impact oil and gas, as environmental, social, and governance issues and other pressures came to bear on the industry, sending investment down by more than a third globally. A report released this week by Rystad Energy also revealed global oil and gas discoveries are on track to hit their lowest full-year level in 75 years if the final weeks of 2021 fail to yield any significant finds.

Capital markets
Another highlight of the global economy this year has been the overall strength of the capital markets despite the pandemic.
In November, in the US, both the Standard and Poor’s 500 and Dow Jones Industrial Average hit all-time highs, as did the tech-heavy NASDAQ. Rising oil prices and mining stocks have also pushed the blue chip FSTE 100 higher this year. The sharp rise in oil prices also boosted Saudi Arabia’s Tadawul All Share Index, which rose more than a third this year. The Kingdom’s strong showing also boosted the wider MSCI GCC Countries Index. The index, which includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates, increased by a similar amount over the year.
Strong equity markets were key to global mergers and acquisitions, which hit a record high in 2021, topping $5 trillion for the first time ever. M&A volumes soared 63 percent to $5.6 trillion by 16 December, according to a report by Dealogic, way above the pre-credit crunch crisis record of $4.4 trillion in 2007.
The increase was driven partly by pent-up demand from last year when the pace of M&A activity fell to a three-year low.

Crypto market
And 2021 was also the year the crypto market came of age. After a roller-coaster year, the total value of cryptocurrencies rose to $3 trillion last month, led by Bitcoin.
Looking forward to 2022, pandemic fueled easy money policy, the salient feature of the global economic support in 2021, is finally set to end in 2022.
The economic outlook is now dominated by the impact of inflationary pressures and increasingly tighter monetary policy as well as uncertainty around omicron, all of which could set back economic recoveries worldwide.
Central banks, most notably the Federal Reserve and the Bank of England have signalled persistent elevated inflationary pressures will lead to higher interest rates in the coming year. The Bank of England recently hiked its benchmark interest rate from 0.1 percent to 0.25 percent. The US Fed has indicated it is aiming for three rate hikes next year. The European Central Bank is also shifting to a tighter policy, albeit more gradually.

Inflation
US inflation is currently running at 6.8 percent, across the eurozone it is almost 5 percent. In Germany, Europe’s largest economy, it is 6 percent, and in the UK 5 percent.
Central banks are set to slash debt purchases next year by an estimated $2 trillion across the four big advanced economies. JPMorgan estimates central bank bond demand across the US, the UK, Japan, and the eurozone will fall by $2 trillion in 2022, following a $1.7 trillion reduction during 2020.
That retrenchment is necessary after an International Monetary Fund report released this month noted that 2020 saw the largest one-year debt surge since the Second World War, with the total rising to $226 trillion. Borrowing by governments accounted for more than half of that figure. 

The IMF report reveals global debt increased 28 percent to 256 percent of world output.
The starker figure though, against the backdrop of tighter monetary policy, is the increase in private debt, which accounts for 178 percent of global gross domestic product. As interest rates climb, global debt defaults could increase next year, particularly as both the rise of the omicron COVID-19 variant, as well as the Delta variant identified last summer, have already seen governments across the world impose fresh restrictions on economic activity.
Against that backdrop, the odds on another lockdown and delayed rebound are getting shorter by the day.
Berenberg chief economist Holger Schmieding now expects a 1 percent quarterly drop in eurozone and UK GDP in the first quarter of 2022, downwardly revising earlier growth predictions.
Suddenly, this year’s bullish growth projections of a global recovery made by the IMF of 5.9 percent this year, and 4.9 percent in 2022, are starting to look very optimistic.


Saudi-Uzbek trade exceeds $95m in the first half of 2022

Saudi-Uzbek trade exceeds $95m in the first half of 2022
Updated 17 August 2022

Saudi-Uzbek trade exceeds $95m in the first half of 2022

Saudi-Uzbek trade exceeds $95m in the first half of 2022
  • The two countries will bolster ties further with the signing of 12 new deals this week

RIYADH: The mutual trade between Saudi Arabia and the Republic of Uzbekistan reached $95 million in the first half of 2022, a substantial increase considering that bilateral trade barely exceeded $17 million last year.

According to a joint news statement, the value is expected to grow rapidly by the end of 2022. The numbers assume significance in the aftermath of the pandemic.

In fact, the number of Uzbek companies running on Saudi funds increased from about nine to 38 in the last five years. Of the 38, 19 are sole proprietors, and the rest are joint ventures.

The two nations will bolster the ties further by signing 12 new agreements on Wednesday and Thursday when Uzbekistan President Shavkat Mirziyoyev visits the Kingdom.

According to an Uzbek state agency, high-level talks will take place in Jeddah, where the two nations will discuss opportunities to enhance multilateral cooperation further.

The discussion will focus on the green economy, technology and digitalization, innovations, small business and entrepreneurship. 

Following the meeting, new agreements are expected to be signed in the energy, telecommunications, agriculture, chemical and petrochemical industries, besides encouraging ties in culture, sports and education.

The Kingdom has become one of the largest foreign investors in energy infrastructure and one of Uzbekistan’s most significant developers of green energy projects.

ACWA Power’s Uzbek interests

Recently, the Ministry of Energy of Uzbekistan and Saudi energy company ACWA Power signed several investment agreements for about $3 billion.

ACWA Power will develop and operate a wind energy project with a production capacity of 1,500 MW in the Karakalpakstan region of Uzbekistan.

When commissioned, the plant will become the largest of its kind in Central Asia and one of the largest wind power plants in the world. 

FASTFACTS

• The number of Uzbek companies running on Saudi funds increased from about nine to 38 in the last five years.

• Recently, the Ministry of Energy of Uzbekistan and Saudi energy company ACWA Power signed several investment agreements for about $3 billion.

• The Saudi Fund for Development has contributed to the implementation of many projects in Uzbekistan, including funding the Samarkand-Gozar Road project, with a total value of $30 million.

ACWA Power also signed an agreement to establish the 100MW Nokus wind farm project, the first renewable energy project to be implemented in partnership with Uzbekistan’s public and private sectors.

The power generating company also won a $108 million wind contract after proposing a tariff of 2.56 cents per kilowatt-hour, the lowest in Uzbekistan.

Additionally, the Ministry of Energy of Uzbekistan signed a 25-year power purchase agreement with ACWA Power to establish a combined-cycle gas turbine power plant in Shirin, located in Syrdarya, Uzbekistan. The deal amounts to $1.2 billion.

According to the statement, these projects will contribute to achieving Uzbekistan’s national goal of raising the total renewable energy generation capacity to 30 percent by 2030.

Saudi Fund for Development

Moreover, the Saudi Fund for Development has contributed to the implementation of many projects in Uzbekistan, including funding the Samarkand-Gozar Road project, with a total value of $30 million.

The fund also contributed to 20 projects in the republic, including building pumping stations and other projects involving sewage, chemicals, mining, building materials, water and agriculture.

According to the Ministry of Agriculture of Uzbekistan, the Saudi and Uzbek delegations have discussed issues of cooperation in agriculture, including the prospects for enhancing mutual trade in agricultural products.

Both parties will likely sign memorandums of cooperation in agriculture, veterinary medicine and livestock development at the meeting.

They also agreed to deepen cooperation in the agricultural sector to enhance trade in farming, livestock and other products between the countries.

After signing the memoranda, action plans will be prepared, including specific measures and areas for developing cooperation and joint projects.

The Saudi side invited the Uzbekistan delegation to attend its most prominent exhibition of the agro-industrial complex, which will be held at the end of October in Riyadh.


American Airlines bets on supersonic travel with Boom jet deal

American Airlines bets on supersonic travel with Boom jet deal
Updated 16 August 2022

American Airlines bets on supersonic travel with Boom jet deal

American Airlines bets on supersonic travel with Boom jet deal

CHICAGO: American Airlines Group Inc. on Tuesday agreed to buy up to 20 jets from aircraft maker Boom Supersonic, becoming the second major US airline to bet on ultra-fast passenger travel in the last two years.

The deal brings Boom’s order book to 130 airplanes, including options, valued at about $26 billion, Boom Chief Executive Blake Scholl said in an interview.

The return of interest in supersonic jets comes nearly two decades after Concorde, flown by Air France and British Airways, was retired following a deadly crash and high costs of fuel and maintenance.

Last year, United Airlines Holdings Inc agreed to buy 15 Boom Overture aircraft provided they meet certain safety, operating and sustainability requirements. A similar condition was part of the American Airlines agreement as well.

American also has an option to purchase 40 more of the jets, each of which can carry 65 to 80 passengers, the companies said.

The four-engine Overture jet can fly from Miami to London in just under five hours, cutting the nearly nine-hour flight time between the cities by about half.

American Airlines spokesperson Matt Miller said it was too early to discuss ticket prices, given the aircraft isn't expected to carry its first passengers until 2029.

Supersonic jets have come under criticism from environmentalists for burning more fuel per passenger than comparable subsonic planes.

The Overture jet, being designed to run fully on sustainable aviation fuel or a blend, will be rolled out of Boom’s Greensboro, North Carolina factory in 2025, followed by test flights in 2026.

Third Bridge senior analyst Christopher Raite sounded a word of caution on Boom’s delivery target, saying the delay in conducting test flights for Boom’s other jet, the XB-1, signaled that delivery of the Overture will be delayed.


87,467 families benefit from Saudi housing program in 2022

87,467 families benefit from Saudi housing program in 2022
Updated 16 August 2022

87,467 families benefit from Saudi housing program in 2022

87,467 families benefit from Saudi housing program in 2022

RIYADH: The number of families benefiting from Saudi Arabia’s Sakani housing options and financing solutions has reached 87,467 since the beginning of the year until the end of July. 

Some 104,492 families also received possession of their first homes during that period, the Saudi Press Agency reported. 

The program seeks to raise the proportion of housing ownership for Saudi families to 70 percent by 2030.

The Ministry of Housing and the Real Estate Development Fund formed Sakani in 2017 to facilitate homeownership in the Kingdom through the creation of new housing stock, allocating plots and homes to nationals, and financing their purchase.

Earlier this year, Sakani program announced that it aims to enable 180,000 new families to benefit from the program’s housing options and solutions during 2022. 


Oil prices drop over 1% on potential global recession concerns

Oil prices drop over 1% on potential global recession concerns
Updated 16 August 2022

Oil prices drop over 1% on potential global recession concerns

Oil prices drop over 1% on potential global recession concerns

NEW YORK: Oil prices fell over 1 percent on Tuesday in volatile trading as economic data spurred concerns about a potential global recession, while the market awaited clarity on talks to revive a deal that could allow more Iranian oil exports.

Brent crude futures fell $1.41, or 1.5 percent, to $93.69 a barrel, after hitting a session high of $95.95. West Texas Intermediate crude decreased $1.33, or 1.5 percent, to $88.08 a barrel, after rising to $90.65.

The contracts fell about 3 percent in their previous sessions.

The EU is assessing Iran’s response to what the bloc has called its “final” proposal to save a 2015 nuclear deal, and consulting with the US, an EU spokesperson said on Tuesday.

Iran responded to the proposal late on Monday but neither Tehran nor the EU provided any details on the content of the reply.

“It is still unclear what Iran has told the EU last night, so some tricky items might impact the outcome of the nuclear deal,” UBS analyst Giovanni Staunovo said.

Weak economic indicators weighed on prices.

US homebuilding fell to the lowest level in nearly 1-1/2 years in July, weighed down by higher mortgage rates and prices for construction materials, suggesting the housing market could contract further in the third quarter.

“Oil traders reacted because of concerns about an economic slowdown and housing uses energy,” said Phil Flynn, an analyst at Price Futures group. “That caught us by surprise.”

China’s central bank cut lending rates to try to revive demand as the nation’s economy slowed unexpectedly in July after Beijing’s zero-COVID policy and a property crisis slowed factory and retail activity.

State media quoted Premier Li Keqiang as saying that China will reasonably step up macro policy support for the economy.

Barclays lowered its Brent price forecasts by $8 per barrel for this year and next, as it expects a large surplus of crude oil over the near-term due to “resilient” Russian supplies.


Saudi Cabinet authorizes transport minister to discuss MoUs with Bahrain

Saudi Cabinet authorizes transport minister to discuss MoUs with Bahrain
Updated 51 min 18 sec ago

Saudi Cabinet authorizes transport minister to discuss MoUs with Bahrain

Saudi Cabinet authorizes transport minister to discuss MoUs with Bahrain

RIYADH: Saudi Arabia’s Cabinet on Tuesday authorized the minister of transport and logistic services to discuss with Bahrain two draft agreements to boost cooperation in the fields of road safety and maintenance. 

During the meeting, the council of ministers also authorized the chairman of Education and Training Evaluation Commission to discuss with the UAE a draft initial agreement to cooperate in the development of assessment, measurement and accreditation tools.

The ministers also approved two agreements in the fields of employment and domestic workers with Burundi, the Saudi Press Agency reported. 

The Cabinet has also authorized the health minister to discuss a draft memorandum of understanding with the Uzbek side for cooperation in the field. 

It also approved the rules governing the competency and contractor program.