The Times - UK (2022-05-26)

40 Thursday May 26 2022 | the times

Business

A leading economist at the Inter-

national Monetary Fund has insisted

that wages do not have to be suppressed

to avoid a wage-price spiral.

Gita Gopinath, deputy managing di-

rector of the fund, told a panel at the

annual meeting of the World Economic

Forum here that you could have a situa-

tion in which wages rise and prices do

not. Company profits, she said, could

reduce instead.

Her remarks came after Andrew Bai-

ley, governor of the Bank of England,

told workers to “think and reflect”

before asking for pay rises because they

risk fuelling inflation. He said that while

it would be “painful” to accept that

prices would rise faster than wages,

Wage rises need not drive inflation, IMF tells Davos

moderation of wage rises was needed to

prevent inflation becoming entrenched.

Bailey, who earns £575,000 a year, said

that he had declined a pay rise.

Speaking on the same panel, Gopi-

nath also said that the global economy

“was not out of the woods” with a con-

fluence of shocks, not just the Ukraine

war, hitting the world.

“The world continues to face head-

winds because we have a cost-of-living

crisis as prices of commodities, includ-

ing fuel and food, are going up,” she

said. “China is slowing because of the

new waves of infections that are hitting

their population and the lockdowns

that go along with it and the weakness-

es in the Chinese real estate sector.”

Gopinath warned of a divergent re-

covery, based on a variety of factors.

“The advanced economies, based on

our projections, will basically get back

to where they would have been in the

absence of the pandemic in 2024,” she

said. “But we have emerging and devel-

oping economies that will be around

5 per cent below where they will have

been in the absence of the pandemic. It

is this gap that’s... really worrisome.”

Despite government debts growing

worldwide, with those in emerging

markets rising rapidly, she said the IMF

did not yet “see a systemic sovereign

debt crisis” but the risks were salient.

On Monday, Kristalina Georgieva,

the managing director of the IMF, told

a panel in Davos that a global recession

was not on the cards but said “it doesn’t

mean it’s out of the question”. The fund

forecast last month economic growth

of 3.6 per cent in 2022, which she said

was “a long way to global recession”.

Richard Fletcher

Business Editor, Davos

Gita Gopinarth said

companies could

take a hit to profits

Monetary policy needs to be tightened

further in spite of the risk that raising

rates too much could push the eco-

nomy into a recession, the Bank of En-

gland’s chief economist has warned.

Huw Pill said “more needs to be

done” to control inflation, which is at a

40-year high despite the central bank

raising interest rates in four consecu-

tive meetings. However, too much

tightening in the Bank’s policy could be

very costly, he added.

Pill, who took up the role last Sep-

tember, voted with the majority to raise

rates by 0.25 points to a 13-year high of

1 per cent at the last meeting. Three

members wanted to go further, increas-

ing the official interest rate to 1.25 per

cent in what would have been the big-

gest single rate rise since the Bank

gained independence 25 years ago.

“I personally think there is more that

needs to be done... and we need to go

Rates must go higher — but it’s

risky, admits Bank economist

not necessarily to a super restrictive

stance but to a stance that takes some of

that support away,” Pill told the Western

Mail newspaper during a visit to Wales.

“[Too] much runs the risk that you

fall into, and get stuck in, a deep reces-

sion, which is very costly, and too little

and you run the risk that inflation gets

this self-sustaining momentum and

runs away from the target,” he said.

About three-quarters of the annual

rise in inflation, which jumped by 2 per-

centage points to 9 per cent in April, is

down to soaring energy prices, the

Office for National Statistics said.

The surge in global energy prices,

which has been exacerbated by the war

in Ukraine, is the biggest factor behind

the sharply rising prices. Even before

the war, inflation was running at multi-

decade highs after the lifting of Covid-

19 lockdown measures stoked transport

and energy costs.

Sir Dave Ramsden, another member

of the Bank’s monetary policy commit-

tee who voted for a 0.25-point raise, said

in an interview this month that more

rate rises would be needed.

Andrew Bailey, the Bank’s governor,

said after the committee’s latest rate de-

cision that policymakers around the

world were trying to avoid causing eco-

nomic downturns, warning that the

Bank was walking a “very narrow path”.

Financial markets have priced in

another quarter point rate rise to

1.25 per cent at the MPC’s next meeting

on June 16.

6 Confidence fell across the services

sector this month as concerns grew

over spiralling costs and prices. Output

volumes stagnated in the three months

to May and are expected to contract in

the next quarter, according to the 174

firms who responded to the CBI’s ser-

vice sector survey at the start of the

month. The cost of raw materials and

selling prices continued to rise rapidly

and are expected to accelerate in the

next three months before slowing

down as the squeeze on household bud-

gets stifles demand.

Arthi Nachiappan

Economics Correspondent ‘Too much

[monetary

tightening]

runs the risk

that you fall

into a deep

recession’

Premier urges

China to ‘strive’

for growth

China will have to strive to achieve
reasonable economic growth in the
second quarter and stem rising unem-
ployment, said the official Xinhua news
agency, quoting Premier Li Keqiang.
The country will unveil detailed
guidelines for implementing the range
of policies by the end of this month, the
he said at a national meeting on stabi-
lising the economy attended by top
cabinet officials and provincial leaders.
“We should strive to ensure reason-
able economic growth in the second
quarter, lower unemployment rate as
soon as possible, and keep economic
operations within a reasonable range,”
he told delegates.
Private-sector economists expect the
world’s second-largest economy to
shrink in the April to June quarter from
a year earlier, compared with the first
quarter’s 4.8 per cent growth.
China’s nationwide survey-based
jobless rate climbed to 6.1 per cent in
April, the highest since February 2020
and well above the government’s 2022
target of below 5.5 per cent.

Times Business Reporter

Fair treatment Albert Bourla, right, chief executive of Pfizer, told delegates at the World Economic Forum in Davos yesterday that the company’s decision to supply

all its current and future patent-protected medicines and vaccines on a not-for-profit basis to 45 lower-income countries was the fulfilment of a “dream”.

LAURENT GILLIERON/EPA