‘Don’t get carried away’, say global policymakers

Today’s top stories

• Google became the latest Big Tech company to announce job cuts, axing 12,000 jobs or around 6 per cent of the total workforce of its owner Alphabet. Many of the recent job losses in the industry are more about trimming expansion plans rather than signs of a sector downturn, says the Lex column.

• Deutsche Bank cut bonuses for investment bankers by 40 per cent, one of the most severe cuts in the industry, while increasing the payouts for traders.

• Despite the bullishness of some of the big chains, it turns out that UK retail sales unexpectedly fell by 1 per cent over the Christmas period, official data show today. Consumer confidence meanwhile remained below minus 40 for the ninth month in a row in January — the longest period of pessimism in nearly 50 years.

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Good evening.

The World Economic Forum in Davos wrapped up today with more warnings of challenges ahead for the global economy, even as policymakers welcomed falling inflation, waning fears of recession and China’s reopening.

IMF chief Kristalina Georgieva said the economic landscape was “less bad than we feared a couple of months ago”, but that no one should get carried away, while European Central Bank president Christine Lagarde repeated her message that high interest rates were here to stay until inflation was defeated.

Lagarde will have been cheered by new data this morning showing producer price inflation in Germany, the EU’s biggest economy, had fallen to 21.6 per cent in December, its lowest since November 2021.

“Staying the course” has very much been the message of the week from central bankers, including Lael Brainard, vice-chair of the US Federal Reserve and John Williams, New York Fed president, who both echoed Lagarde’s comments. Thomas Jordan, chair of the Swiss National Bank, joined in today, warning: “Don’t underestimate the second round effects. Firms do not hesitate anymore to raise prices and that is a signal that it will not be easy to bring inflation back to 2 per cent.”

Moreover, many of the business chiefs gathered at Davos think the days of the 2 per cent target are numbered, reports US editor at large Gillian Tett, and certainly do not see a return to the pre-2019 pattern of ultra-low inflation and near-zero interest rates.

Wall Street bosses meanwhile are split on what the Fed should do next. JPMorgan chief Jamie Dimon is hawkish, arguing that it would probably need to lift its benchmark rate above 5 per cent, while Morgan Stanley’s James Gorman said inflation had peaked and that it was almost time for the Fed to pause its policy tightening.

Across the Atlantic, Bank of England chief Andrew Bailey said there was “more optimism” about an “easier path” out of the current inflation crisis thanks to falling energy prices. This week’s data showing UK inflation had fallen to 10.5 per cent, although expected, was “the beginning of a sign that a corner has been turned”, he said.

Japan remains an outlier in sticking with ultra-low interest rates, but new data today showing core inflation hitting a 41-year high of 4 per cent has added to pressure on the country’s central bank to change tack.

Need to know: UK and Europe economy

Peter Foster’s Britain after Brexit newsletter discusses what can be done about labour shortfalls. The Ikea boss told a Davos audience that the UK’s departure from the EU had caused “chaos”. Opposition leader Sir Keir Starmer said he wanted to fix the post-Brexit relationship with Brussels as part of a more optimistic vision for his country.

As in many other parts of the world, the UK is talking up nuclear power as the energy crisis bites. As ever, the financing of new plants is the problem issue, as our Big Read explains. Energy groups such as SSE meanwhile continue to report earnings bonanzas from high prices.

Russia is feeling the impact of energy sanctions such as the oil price cap. Energy editor David Sheppard says Vladimir Putin is losing the energy war.

Need to know: Global economy

Chinese leader Xi Jinping said the country was entering a “new phase” of the pandemic as fears grow that the lunar new year could become a mass spreader event. Xi’s top economic adviser had a clear message for Davos: “China is back”.

What could go wrong in the Middle East in 2023? Plenty, writes Kim Ghattas, from political disruption in Israel to deepening unrest in Iran and economic crisis in Egypt.

South Korea, the world’s 10th-largest economy, is easing regulation of its financial markets to attract more foreign investors.

Jacinda Ardern, New Zealand’s prime minister since 2017, is stepping down next month after a five-year term that brought her international acclaim and generated global interest for her socially progressive policies and hardline response to Covid-19.

Since 2008, a series of rolling shocks such as the financial crisis, rising populism, US-China tensions and the pandemic have hobbled the onward march of globalisation, free-market capitalism and democracy, or what we might call the markets era. US editor at large Gillian Tett ponders what might come next. Chief economics commentator Martin Wolf however remains optimistic: there’s life in global capitalism yet, he writes.

Need to know: business

One thing Davos has never been short of is interventions from big company bosses in polarised political debates. But as the risks from such stances grow, US business editor Andrew Edgecliffe-Johnson says CEO activism may have peaked.

The crypto crisis continues. Broker Genesis’s lending unit filed for bankruptcy, US prosecutors charged the Russian founder of the Bitzlato exchange and the FT reported that billionaire Peter Thiel’s fund wound down its eight-year bet on bitcoin just before the market crash. But despite all that, as columnist Jemima Kelly puts it, the clowns of cryptoland haven’t given up yet.

Fines for money laundering and other financial crimes rose globally by more than 50 per cent last year, casting doubt on the effectiveness of crackdowns by regulators.

Insurers are talking with the UK government about whether its terrorism reinsurance scheme should cover state-backed cyber attacks as concerns grow about online attacks on companies.

Science round up

Covid-19 infections are falling across the UK, extending the downward trend in England and Wales, according to the latest official weekly data.

Despite more researchers in more institutes publishing more papers than ever, science is losing its ability to disrupt, writes Anjana Ahuja. “‘Publish or perish’ cannot be the only research mantra,” she argues. “We need a well-supported philosophy of ‘disrupt or ossify’, too.

FT magazine columnist Tim Harford on the other hand takes a more positive view of the future. After 50 years of disappointment, tech breakthroughs might again start improving our lives, he says, as polycrisis breeds polyinnovation.

UK health security chief Jenny Harris told the FT in an interview that new variants meant Covid would “taunt us for years”.

Scientists unveiled a laser beam that could deflect lightning strikes and protect critical infrastructure in thunderstorms.

And finally, we’d all like to be a bit Doctor Dolittle, right? Innovation editor John Thornhill looks at sonic advances that might help us talk to animals.

Some good news

Scientists using satellite mapping technology have discovered a new emperor penguin colony in Antarctica. The birds, which are vulnerable to loss of sea ice, their favoured breeding habitat, are under threat of extinction if warming trends continue.