Brother, Can You Spare A Dime? 29 July 2022
The 2,285 real estate and properties transactions totalled US$ 1.85 billion during the week ending 29 July 2022. The sum of transactions was 254 plots, sold for US$ 368 million, and 1,516 apartments and villas selling for US$ 913 million. The top two transactions were both for land in Hadaeq Sheikh Bin Rashid, one sold for US$ 27 million, and the other for US$ 25 million. Al Hebiah Fifth recorded the most transactions, with 134 sales transactions worth US$ 84 million, followed by Jabal Ali First, with 28 sales transactions worth US$ 27 million, and Al Yufrah 2, with 21 sales transactions worth US$ 8 million. The top three transfers for apartments and villas were all apartments – one sold for US$ 137 million in Marsa Dubai, another for US$ 94 million in Burj Khalifa, and a third for US$ 62 million in Business Bay. The sum of the amount of mortgaged properties for the week was US$ 411 million, with the highest being a building in Business Bay, mortgaged for US$ 84 million. 79 properties were granted between first-degree relatives worth US$ 139 million.
Mo’asher reported that June sales transactions had risen 34.0%, month on month, to 8.9k, valued at US$ 6.20 billion, 24.8% higher on the month. Of that total 60.05% of all sales transactions recorded were for secondary properties, (3.6k units valued at US$ 1.92 billion) and the balance for off-plan properties, (5.3k at US$ 4.28 billion). Q2 volume sales transactions were the highest quarterly returns in a decade, at 22.5k, valued at US$ 16.12 billion. Compared to Q2 2021, transactions and value were 45.9% and 61.6% higher. Of that total 59.68% of all sales transactions recorded were for secondary properties, (6.0k units valued at US$ 5.06 billion) and the balance for off-plan properties, (13.4k at US$ 11.06 billion).
Property Monitor reports that Dubai June property prices declined, month on month, by 0.45, to 142.25, for the first time this year but were more than 10% higher on an annual basis. Average property prices stood at US$ 278 per sq ft and these prices were at their highest level since August 2013. The report noted that this dip should “not be an immediate cause for concern at this stage, rather a welcome sign of a healthy market that can move forward at a sustainable pace whilst continuing to grow.” There was massive growth seen in transaction volumes in the month – the second strongest June on record – at 8.9k, up 34.2% and 38.8% on a monthly and an annual basis; the value of sales was 55% higher at US$ 6.19 billion, with the total, at 01 July, equating to 70.8% of all 2021 sales. Property Monitor said it expects prices to be stable in H2. However, it must be remembered that Dubai is facing many of the same economic problems, as the rest of the world, including rising mortgage rates, the strength of the greenback and soaring inflation, and there may be some sort of minor correction by the end of the year. Property consultancy CBRE reported month-on-month apartment prices nudging up 0.1%, while villa prices gained more than 1.0%.
According to Betterhomes’ H1 2022 Dubai Real Estate Market Report, all segments of Dubai’s real estate market recorded growth “despite headwinds in the form of rising interest rates and a strengthening dollar”. The top five leading property buyers emanated from India, UK, Italy, Russia and France. During H1, 37.8k unts were sold, 60% higher on the year, whilst there was an 85% increase in the total value of sold properties on the year. The report noted that the Dubai market “is uniquely placed to weather any short-term storm and, as we have shown throughout the pandemic, could well be a net beneficiary of global uncertainty”, driven by the likes of surging inflation, rising mortgage rates and political unpredictability. Furthermore, high energy prices may act as an economic benefit, improving the country’s fiscal position. The report estimated that investors accounted for 68% of all transactions, with the balance from end users, and some 31% of transactions involved mortgages. Over the period, average rental prices for apartments, townhouses and villas climbed by 29%, 33% and 64%, while occupancy rates in freehold and leasehold areas increased to 90% and 86%.
For the rest of 2022, the report’s bullish outlook records “rising taxes, inflation and geopolitical instability in the West, and continuing Covid restrictions in the East, are likely to continue to push more expats to relocate to the UAE. Dubai will continue to reform employment and visa regulations to attract talent”. There has been an easing in earlier supply constraints, as some sellers have decided to “take the money”, thus releasing more stock in the market whilst developers have started to increase launches to enhance the off-plan market sector. With rates moving slowly northwards, it sees both rents and sales prices edging higher in H2 but noted that “historically, rates and prices still remain low, while yields and capital growth are strong, so for those taking a long-term view, Dubai real estate remains one of the best investment opportunities available.”
HH Sheikh Mohammed bin Rashid has made 2k plots of land available in the Umm Nahad Fourth district, located between Al Qudra and Al Ain roads. Emirati families will be able to receive US$ 272k, (AED 1 million), in interest-free loans to construct their residences. The plots were made available last Wednesday 27 July, when Emiratis, who had got approvals from the Mohammed bin Rashid Housing Establishment, through the Maskani app, can apply for a plot. The Executive Office noted that “it is part of His Highness’s keenness to enhance family stability and provide the highest standards of living for citizens.” Other benefits include exemption from mortgage fees and exempting citizens building homes for the first time from electricity connection fees. The project is part of the broader Dubai 2040 Urban Plan, which seeks to significantly expand the city and “make Dubai the best city for living in the world”.
The Dubai Ruler has made several amendments to rules governing the granting of titles to allotted industrial and commercial land in Dubai, aimed at promoting Dubai’s status as a preferred global real estate investment destination. The new decree defines “allotted land” as land plots allocated for industrial or commercial use whose “usufruct right is awarded to UAE nationals, (beneficiaries), including land subject to an order of disposition and allotted land transferred to third parties by way of succession, assignment, donation or in return for consideration”. The amended decree permits granting the allotted land to the beneficiary at their request on a freehold basis and without any restriction on its “use, exploitation or disposition, provided the allotted land includes the real estate project – either completed or under construction – in accordance with the rules and regulations of the Dubai Land Department”.
Boston Consulting Group has estimated that the country’s wealth will grow at 6.7% CAGR for the next five years to top US$ 1 trillion by 2026, from its current balance of US$ 700 billion, of which 41% was derived from UHNWIs, with this share expected to grow to 43% in 2026. Last year, global financial wealth rose by 10.6% to US$ 530 trillion, recording the fastest growth in more than a decade, whilst the UAE recorded growth in the region of 20%, driven by the influx of 2k millionaires in the year; it now accounts for 30% of the total financial wealth in the GCC, which totalled US$ 7 trillion after a 9% growth in 2021. The report noted that, “the growth in UAE and GCC wealth was equally distributed between financial wealth, such as equities, bonds, cash and deposits, and real assets.”
Premier Inn’s new listing places Dubai as the most popular global city break destination, as it won over travellers from twenty-one countries, claiming the “top searched-for city break destination” tag. Trailing behind Dubai were Paris (16), Boston (12), Madrid (8), Singapore (7) and London (6). The list was based on Google’s search data for city breaks from over 130 countries.
Dubai has formed a higher committee for future technology and digital economy, to be chaired by Sheikh Hamdan bin Mohammed, with the main aims of shaping the future of artificial intelligence and establishing Dubai as a global hub for the digital economy. The Crown Prince noted that this will require investing in the metaverse and establishing partnerships to boost the digital sector, in line with the Dubai Metaverse Strategy. The committee will design policies and analyse trends for the digital economy and future technologies, including the metaverse, and will work to identify the future skills needed for the digital sectors and will also plan to attract international companies and conferences.
Huobi Group has received a minimum viable product provisional approval from the Dubai Virtual Assets Regulatory Group. This will give the international crypto exchange time to undertake the process of applying for a licence and allow it to offer services within the parameters set by the regulatory authority’s specialised “test-adapt-scale” model. It plans to set up a regional headquarters in the emirate, noting that it was “optimistic about the city’s potential and the future opportunities it offers”.
Another company, which is based in Singapore, has also obtained a provisional licence from Dubai’s VARA which will allow it to participate in Dubai’s “fast-growing digital assets ecosystem by operating crypto native services under full regulatory supervision.” Financial services firm, Fintonia, commented that “Dubai is making significant strides towards establishing itself as a virtual assets hub and creating a conducive environment for the industry’s growth,” and that “the virtual asset licence marks an important milestone in our aspiration to have a presence in every region where there are innovative Web3 and crypto companies”. It will serve as the single custodial entity mandated to licence and govern the cryptocurrency sector in Dubai, including all mainland and free zones but excluding the DIFC.
The UAE is ranked 19th globally in Global Food Security Q2 2022, part of a report compiled by Deep Knowledge Analytics – and the first in the Arab World – in a list of the most food-secure nations in the world. The only other Arab countries in the top quartile were Saudi Arabia, and Qatar. The US topped the list with a score of 7.9 out of ten, while Sub-Saharan and MENA region countries dominated the bottom quartile of the Food Security Index, with Somalia scoring the lowest at 2.97 points out of ten. It noted that certain countries had not demonstrated the capacity to build food security through national policies and had been affected either by conflicts (northern Nigeria, Yemen, Burkina Faso and Niger), or by weather conditions such as consecutive seasons of drought (Kenya, South Sudan and Somalia) and by economic shocks. There is no doubt that the Russian invasion of Ukraine has destabilised the global food system and added to food insecurity this year.
This week DP World signed US$ 55 million agreements with agricultural commodity processors Adroit Canada and Al Amir Foods to develop two new agri-storage and processing units at Jebel Ali agri-terminal to boost the country’s food security; these units will have a “singular ecosystem” for bulk silo storage and agri-processing. Built over a quayside plot, it will cover an area of 100k sq mt and contribute to Dubai’s strategic plan of boosting foreign trade in the coming years. The Dubai-based port operator will also invest in the technologically advanced grain and pulses automated material-handling and ferrying systems as part of the project. A spokesman confirmed that “we look forward to amplifying trade for the UAE and the Middle East by enabling agri-trade and through our new developments in the Jebel Ali Port,” and that “our vision is always set on achieving the country’s national goals by supporting initiatives such as the National Food Security Strategy 2051,” Initially it will account for an estimated annual trade of US$ 245 million.
With global trade slowly improving, DP World, posted an almost 3% annual rise in gross container shipping volumes in Q2, handling 20.2 million twenty-foot equivalent units (TEU) driven by its terminals in Asia Pacific, the Americas and Australia. Group chairman, Sultan bin Sulayem noted that the results are “another solid set of throughput figures”, which are “once again ahead of industry growth”. In H1, the Dubai-based port operator recorded a 2.0% hike in TEUs transported, at 39.5 million, with strong growth of 4.5% to 5.7 million TEUs noted in the Americas and Australia. The Asia Pacific and Indian subcontinent regions saw a 3.0% growth to 17.6 million TEUs, whilst EMEA nudged 1.0% higher to 16.1 million TEUs. In H1, its flagship base Jebel Ali port handled almost 7 million TEUs including more than 3.5 million TEUs in Q2, an increase of 1.2% and 3.5% on a yearly basis, respectively. Research and Markets estimate that the global shipping container market is projected to grow by more than 6% this year to more than US$ 10 billion and is expecting a 7.5% CAGR over the next four years to top US$ 13.5 billion by 2026.
By 30 June, DP World, had a global network of 295 business units in 78 countries, and over the previous six months had seen an expansion in its portfolio, including in the past month:
- its South African unit, Imperial Logistics, increasing its stake in Botswana firm PST Sales & Distribution, receiving approval to buy a 100% stake in Mozambique-based logistics company J&J Group and acquiring a controlling stake in Nigeria’s Africa FMCG Distribution
- signing an agreement with the Saudi Ports Authority to build a “port-centric” logistics park at the Jeddah Islamic Port with a total investment of more than US$ 133 million
- signing an agreement, (including Dubai’s Ports, Customs and Free Zone Corporation), with Romania to develop infrastructure in the port city of Constanta and help it become one of the Black Sea’s “most important” cargo and vehicle ports
- Canadian fund Caisse de Depot et Placement du Quebec announcing that it will invest US$ 5 billion in three of DP World’s UAE assets — Jebel Ali Port, Jebel Ali Free Zone and National Industries Park
In H1, the Federal Tax Authority more than doubled their inspections to almost 10k, compared to a year earlier, in a bid to combat tax evasion and protect consumers from non-compliant products. During the period, 5.5 million pieces of tobacco products, not bearing digital tax stamps, as well as other goods that failed to meet tax specifications were seized; the total value came to US$ 36 million and over 1.2k fines were also issued and 404 notices of non-registration were handed to violating entities.
For the first four months of the year, the gross value of interbank fund transfers through UAE Fund Transfer System (UAEFTS) topped US$ 1.08 trillion – a 26.2% increase over the same period last year. March was its busiest month with dirham-denominated transfers standing at US$ 297.8 billion. Over the same four months, cheques worth US$ 106.1 billion were handled by the Image based Cheque Clearing System – a year on year growth of 12%. The number of cheques processed by the ICCS rose 2.7% to 7.24 million.
Deyaar Development posted a 24.2% increase in unaudited H1 revenue at US$ 101 million and a 196% hike in profit to US$ 18 million. The property developer reported that revenues from development activities had increased, as it started recognising revenues from the sales of its Regalia project, (with it progressing according to schedule), and its hospitality portfolio performance continued to grow in line with the strong recovery of the tourism sector in the emirate. This is an indicator on how resilient the Dubai market is and how the market is expanding, despite adverse global economic conditions. The company also noted that “last month, the company successfully executed its capital reduction to write off the accumulated losses, which will increase the company’s attractiveness to investors and will reflect positively on Deyaar’s share price in the Dubai Financial Market.”
Dubai’s largest bank, Emirates NBD, reported its highest H1 profit in three years by recording an 11% increase in net profit to US$ 1.44 billion, with total operating income 45.1% higher at US$ 2.12 billion. Total H1 income came in 23% higher at US$ 3.87 billion attributable to record half-year retail lending, allied with improving margins. Net interest income jumped more than 24% year on the year to US$ 1.20 billion, whilst provisions for loan losses fell 28%, year on year, to US$ 518 million. Q2 figures saw earnings 42% higher at US$ 954 million, as provisions for bad loans dropped and revenue increased on a rise in net interest income. In H1, all three indicators grew – customer loans by 1%, to US$ 115.8 billion, deposits 2%, to US$ 127.5 billion, and total assets 3% to US$ 193.7 billion.
The Dubai-based Shariah-compliant lender Emirates Islamic saw H1 net profit climb 23% to US$ 191 million, driven by higher funded and non-funded income, as well as a marked reduction in the cost of risk; its impairment allowances declined 12%, year on year, reflecting improved business sentiment. The bank’s total assets grew strongly by 14% to US$ 20.2 billion in H1, with customer financing up 11% to US$ 12.8 billion and customer deposits 15% higher at US$ 14.7 billion, with CASA balances at 76% of deposits.
Commercial Bank of Dubai posted a 28.1% surge in H1 net profit to US$ 236 million, compared to a year earlier, driven by rising market interest rates and solid loan growth. It commented that “while the global macro-economic environment is challenging, on balance, the outlook for the UAE economy remains positive.” The bank’s operating income increased 10.3%, to US$ 472 million, driven by net interest income, fees and commissions, with operating profit to US$ 343 million, up by 8.3% comparable to H1 2021. Net impairment allowances were US$ 107 million, down 19.3%. Capital ratios remained strong with the capital adequacy ratio at 15.43%, Tier 1 ratio at 14.28% and Common Equity Tier 1 ratio at 11.88%.
Dubai Islamic Bank posted a Q2 33% hike in net income, to US$ 365 million, as revenue rose 8.0% to US$ 886 million and impairment charges for loan losses declined 29.0% to US$ 144 million. H1 profit rose 44.0% to US$ 725 million, as revenue rose 9.0% to US$ 1.36 billion and impairment charges were 37% lower, with a notable 6.0% jump in financing and Sukuk investments to US$ 66 million. The bank’s total assets rose 1.0% higher to US$ 76.9 billion. The bank’s capitalisation ratios remained strong, with capital adequacy at 17.9% and equity tier 1 ratio at 13.2%. The country’s biggest Sharia-compliant lender’s chairman, Mohammed Al Shaibani, noted that despite only moderate global growth “the GCC region and the UAE remain strong, building on the economic foundations and reforms.”
The Dubai Financial Market posted a 63.4% hike in H1 profit to US$ 17 million, with Q2 profit 134.6% higher at US$ 10 million, as H1 revenue rose by 19.9% to US$ 45 million; revenue was split into operating income of US$ 33 million and US$ 12 million of investment income & others. Q2 revenue came in at US$ 23 million, up 34.8% on the year. There were marginal increases in operating expenses in both H1 and Q2 to US$ 27 million and US$ 13 million. Total H1 trading volume on the bourse rose by 75.2% to US$ 13.46 billion, whilst the total market cap of listed securities was 28.2% higher at US$ 143.6 billion.
The DFM opened on Monday, 25 July, 199 points (6.5%) higher on the previous fortnight and closed up 81 points (2.5%) on Friday 29 July, on 3,338. Emaar Properties, up US$ 0.06 the previous fortnight, was US$ 0.04 higher to close on US$ 1.50. Dewa, Emirates NBD, DIB and DFM started the previous week on US$ 0.69, US$ 3.49, US$ 1.58 and US$ 0.47 and closed on US$ 0.69, US$ 3.76, US$ 1.60 and US$ 0.47. On 29 July, trading was at 87 million shares, with a value of US$ 73 million, compared to 62 million shares, with a value of US$ 55 million, on 22 July 2022.
For the month of July, the bourse had opened on 3,223 and, having closed the month on 3,338 was 115 points (3.6%) higher. Emaar traded US$ 0.08 higher from its 01 July 2022 opening figure of US$ 1.42, to close the month at US$ 1.50. Four other bellwether stocks, Dewa, Emirates NBD, DIB and DFM started the month on US$ 0.69, US$ 3.60 US$ 1.57 and US$ 0.45 and closed on 29 July on US$ 0.69, US$ 3.76, US$ 1.60 and US$ 0.47 respectively. The bourse had opened the year on 3,196 and, having closed July on 3,338, was 142 points (4.4%) higher, YTD. Emaar traded US$ 0.17 higher from its 01 January 2022 opening figure of US$ 1.33, to close July at US$ 1.50. Four other bellwether stocks, Dewa, Emirates NBD, DIB and DFM started the year on US$ 0.00, US$ 3.69, US$ 1.47 and US$ 0.72 and closed on 29 July on US$ 0.69, US$ 3.76, US$ 1.60 and US$ 0.47 respectively.
By Friday 29 July 2022, Brent, US$ 2.69 (2.7%) higher the previous week, gained US$ 6.38 (6.2%) to close on US$ 110.01. Gold, US$ 18 (1.1%) higher the previous week, gained US$ 48 (2.8%), to close Friday 29 July, on US$ 1,773.
Brent started the year on US$ 77.68 and gained US$ 32.33 (41.6%), to close 29 July on US$ 110.01. Meanwhile, the yellow metal opened January trading at US$ 1,831 and has shed US$ 58 (3.2%) during 2022, to close on US$ 1,773. For the month, Brent opened at US$ 107.59 and closed on 29 July, US$ 110.01 (2.2%) higher. Meanwhile, gold opened July on US$ 1,793 and shed US$ 20 (1.1%) to close at US$ 1,773 on 29 July.
Russian state-owned energy company indicated that it was concerned about the potential impact of western sanctions “due to expiration of time before prescribed time for overhaul, Gazprom is shutting down one more gas turbine produced by Siemens at the Portovaya CS”. Last week, Vladimir Putin had warned that flows could drop to 20% if the turbine issues were not resolved. It has been estimated that if Nord Stream 1 flows remain at a minimum of 40% of capacity and imports through other routes remain at the levels reported since 17 June, before the maintenance began, Europe will be able to refill storage to more than 80% by November. If Putin decided to cut supplies to zero next month, Europe will be able to refill its storage to only 70% and this would see countries most dependent on Russian gas – the likes of Germany, Austria and Central and Eastern Europe – struggling.
Samsung Electronics posted a Q2 12.1% hike in profits to US$ 10.84 billion, with record revenue figures of US$ 59.24 billion, 21.5% higher on the year, driven by record high semiconductor sales as they jumped 25% to US$ 2.19 billion, and profit by 44% to US$ 7.67 billion. Samsung said that the important drivers behind the impressive figures “were disciplined sales strategy, to meet market demand, and the benefits of a strong dollar”. Q2 profit at Samsung’s mobile division – which includes its flagship Galaxy smartphones – slid 19%, year-on-year, to US$ 2.01 billion, attributable to overall market demand amid geopolitical issues and inflationary worries; the tech giant expects demand in the smartphone sector to “stay similar year-on-year or show single-digit growth” with prolonged geopolitical issues and economic uncertainties.
Amazon posted a Q2 net loss of US$ 2 billion because of forex losses and a pre-tax valuation loss of US$ 3.9 billion, included in non-operating expense from the company’s common stock investment in Rivian Automotives; this was their second consecutive quarterly loss in seven years after making a US$ 7.8 billion net profit a year earlier. Revenue was 7.0% higher at US$ 121.2 billion, beating market expectations. Its share value rose 12.2% to US$ 137.20 in after-hours trading on Thursday.
Although revenue was 14.7% lower, quarter on quarter, Apple posted an 1.8% rise in fiscal Q3 revenue to US$ 83.0 billion but net profit declined 10.6% to US$ 19.4 billion – 22.4% lower than the previous quarter’s profit of US$ 25 billion. In April, the tech company warned the market that parts shortages would hit its sales by between US$ 4 billion and US$ 8 billion in the quarter.
There are always two sides to an argument and in the case of LHR it is the owner blaming the operators, (and everybody else but themselves), and the airlines accusing the airport’s management. Its embattled CEO, John Holland-Kaye, confirming that its deep-seated problems could take another eighteen months to solve, and “this is not going to be a quick fix.” The man, who is at the helm in making Heathrow a national embarrassment, blamed passenger habits, operators’ failures. the government, inter alia, in a wide-ranging attack on deflecting responsibility away from the source. LHR noted that “all parts of the airport are now fully operational. We have hired 1.3k people in the past six months and will have a similar level of security resource by the end of July as pre-pandemic”. It confirmed that there was no prospect of lifting a cap on flights until airlines boost the number of ground personnel, saying carriers were too slow to combat staffing shortages that contributed to the travel chaos engulfing Europe this summer. The airport operator confirmed that the 100k cap on departing passengers, due to end on 12 September, “will remain in place until airlines increase their ground handler resource”. (In July 2019, Unite threatened strike action when the CEO was awarded a 103% pay rise to US$ 5.06 million, with staff being denied a 4.5% increase at the time). In line with his CEO, the chairman of LHR, Paul Deighton, continues to blame the travel chaos, including delays and caps on passenger numbers, squarely on the shoulders of the airlines for failing to recruit enough baggage handlers; he could be deluded.
At last, some good news for the UK travel sector, as hundreds of BA staff at LHR voted to call off strike action after the airline made a new improved pay offer which was accepted by members. This comes days after fuel workers also called off a three-day strike at the airport.
In yet another dispute over pay, the union Unite said 92% of its members at the Port of Felixstowe voted in favour of strike action and there was an 81% turnout; Unite had about 1.9k members at the port. Although the employer had made a pay offer of 5% increase, the union has retorted that “this is an effective pay cut with the real rate of inflation currently standing at 11.9%.” Felixstowe is the UK’s biggest container port, handling 48% of the country’s container trade, and any strike action will have a damaging knock-on effect on the already troubled UK supply chain.
Following ground staff strike action on Wednesday, Deutsche Lufthansa had to cancel over 1k flights, further disrupting the peak summer travel season, when they went on strike early Wednesday, prompting the cancellation of more than 1k flight. The union is asking for a 9.5% pay hike (US$ 355 a month) for its 20k members. The airline had offered a US$ 152 monthly pay rise for the rest of 2022, followed by an additional US$ 101 next year and a 2% increase from mid-2023 dependent on the company’s financial results.
With no new government formed, even after two months of parliamentary elections, and the resulting delay in the introduction of reforms, the IMF has delayed its expected US$ 3 billion rescue package to boost the country’s reserves. Securing IMF backing will also help in a further US$ 11 billion of assistance that was pledged at a Paris donor conference in 2018. Lebanon continues to be an economic basket-case, as June inflation topped 210% on the year – and its 24th consecutive triple-digit monthly increase – and 9.2% higher on the month. Water, electricity, gas and other fuels soared 594% in June, compared with the same month last year, followed by the health segment, which surged 492%, transport costs at 462% and food and non-alcoholic beverages rising 332%. Last year, Lebanon’s public debt ballooned to more than US$ 100 billion, equating to 212% of its GDP and it has the fourth-highest debt-to-GDP ratio in the world, surpassed only by Japan, Sudan and Greece. In the period, 2019 – 2021, the country’s economy contracted about 58%, with GDP falling from US$ 52.0 billion to US$ 21.8 billion in 2021 – the largest contraction on a list of 193 countries. Continuing failure by politicians to agree on the formation of a new government, and agreement on a new president by 31 October, when Michel Aoun’s six-year term expires, will further exacerbate the country’s economic crisis and delay the implementation of the IMF bailout programme.
According to NonFungible.com, the global NFT sector posted a Q2 25.2% drop in terms of buyers, volume of sales and volume of US dollars traded to US$ 8.0 billion. The report noted that “the market is experiencing a historical bearish period”, in line to what is occurring in the wider share and cryptocurrency markets and that for the first time ever, in the history of NFTs, trading-related activities are no longer profitable.” The average Q2 price of NFTs dropped 6.0%, quarter on quarter.
Surging costs, across the board, have seen McDonald’s push the UK price of a cheeseburger by 20.2% to US$ 1.45 (GBP 1.19) its first price increase since 2008. It will also increase prices for other items by between US$ 0.12 and US$ 0.24 (GBP 0.10 and GBP 0.20). A study by Meal Deal Experts has expensed all the ingredients required for a cheeseburger at a cost of US$ 0.83 (GBP 0.68). The chain’s UK & Ireland chief executive Alistair Macrow said the increases are needed to help the business cope “through incredibly challenging times”, as UK inflation continues to rise to over 9%. Reckitt and Unilever have seen their prices rise by 9.7% and 11.2% in Q2. Having raised prices by an average 3.1% late in Q4, Nestle has increased them again by 6.5% during H1, due to “unprecedented” increases in costs.
One of the by-products of inflation is that June interest payments on UK government debt hit a record high amount of US$ 23.4 billion, which pushed up government borrowing for the month to the second-highest June level since records began in 1993. The actual interest payment hike was down to the fact that interest paid on government bonds rises in line with the Retail Prices Index measure of inflation, which has soared to 11.8%. The month’s borrowing – the difference between spending and tax income – was US$ 27.7billion, up by almost US$ 5.0 billion from June 2021. The upcoming Truss government will have to choose between slashing inflation/cost of living or focus on cutting the rising budget deficit.
According to Eurostat’s latest preliminary flash estimate, there was Q2 growth of 0.7% and 0.6% in the GDPs of the EU and the euro area, following expansions of 0.5% and 0.6% in Q1. Compared with the same quarter of the previous year, seasonally adjusted Q2 GDP increased by 4.0% in both areas, after posting annual gains of 5.4% in the euro area and 5.5% in the EU in Q1.
With its economy contracting 0.9% for second consecutive quarter, having declined 1.6% in Q1, the US economy has shrunk into a “technical recession”, attributable to record-high inflation and aggressive interest rate hikes from the Federal Reserve, aimed to slow business and housing demand. However, the National Bureau of Economic Research is the official arbiter of recessions in the US and will decide whether the economy is in recession or not.
Although job growth averaged 457k per month in H1, which is generating strong wage gains, the risks of a downturn have increased, as homebuilding/house sales have weakened along with business/consumer sentiment softening in recent months. It is not in the political interests of the White House to see a recession ahead of the mid-term elections in November, which could result in the ruling Democratic Party losing control of the US Congress. At the same time, the report noted that consumer and business confidence were dipping because of soaring prices due to inflation, the Federal Reserve lifted interest rates by a further 75bp to mitigate the price increases.
There was no surprise to see the IMF lowering its global growth forecast for the second time this year, to 3.2% and 2.9% (in 2023), compared to a 6.1% growth last year. The announcement came with a caveat that if further risks materialise, and inflation continues to rise, expansion could slow to 2.6% and 2.0%. The main drivers behind this latest contraction forecast are the global spill over of Russia’s military offensive in Ukraine, which has exacerbated inflationary pressures, and the halving of growth forecasts for advanced economies and China. The world body noted that “the global economy … is facing an increasingly gloomy and uncertain outlook”.
A Q2 slowdown in China’s economy, growing at its slowest pace since pre-Covid, has added to global supply chain disruptions and has reduced global growth; last year, its economy expanded 8.1% and is expected to slow to 3.3% in 2022. Furthermore, four-decade high inflation figures have led to rising interest rates in most countries of the world. Advanced economies, which grew at 5.2% in 2021, are expected to expand 2.5% this year, compared with an earlier 3.3% estimate, with the US, seeing growth at 2.3%, down from the earlier estimate of 3.7% and last year’s 5.7%. Germany, the UK and France had seen 2021 expansion rates of 2.9%, 7.4% and 6.8% and are forecast to grow over this year and 2023 by 1.2%/0.8%, 3.2%/0.5% and 2.3%/1.0%. Japan, the world’s third largest economy, is expecting annual growth of 1.7% for 2022 and next year.
Emerging market and developing economies are now projected to grow 3.6% this year, down from 6.8% in 2021, whilst the ME and Central Asia, having expanded by 5.8% last year, will see growth of 4.8% in 2022, but Saudi growth this year is forecast to reach 7.6% after expanding by only 3.2% in 2021, helped by Brent prices jumping 67% last year and 37% YTD. IMF expect oil prices this year and next to average US$ 103.88 and US$ 91.07. As borrowing costs start to head north, central banks are beginning to tighten policies by literally printing money more than two years ago.
The IMF pointed to increasing risks for some countries, as borrowing costs rise amid rising inflation after governments and central banks across the world, which provided more than US$ 16 trillion of fiscal and US$ 9 trillionn of monetary support to help economies recover, tighten policy. It estimated that about 60% of low-income countries are in or at high risk of debt distress, compared with 20% a decade ago, and noted that a quadruple whammy of reduced available credit, a stronger greenback, higher borrowing costs and weaker global growth will cause even greater problems to the low-income countries. Brother, Can You Spare A Dime?