US economy posts paltry growth in first quarter

US economic growth slowed dramatically in the first three months of 2023, according to data released Thursday by the Bureau of Economic Analysis (BEA). 

Gross domestic product (GDP), the measure of all goods and services produced, rose at an annualized rate of 1.1% in the first quarter; it is down from 2.6% in the fourth quarter of 2022. 

Economists had forecasted country’s GDP to grow at an annualized rate of 2% in the first quarter. Analysts cautioned that much of the growth took place in January thanks in part to usually warm weather, but economic activity began to fall off fast in March. 

While retail sales fell in March as inflation and higher borrowing costs hit consumers, household spending still rose 3.7% during the first quarter from the last three months of 2022.

“The US economy eked out modest growth in the first quarter on the back of strong consumer spending. But the consumer ended the quarter on a sour note, calling into question the sustainability of economic growth moving forward,” said Morning Consult chief economist John Leer in an analysis.

“Without a robust consumer, we’re likely to see more volatility and uncertainty in economic activity through the end of the year.”

The unexpectedly steep slowdown in economic growth is the latest sign of the US economy feeling the brunt of stubborn inflation and steep Federal Reserve rate hikes intended to bring prices down.

The aftermath of the March 2023 banking crisis and fears of another financial crunch are also slowing the economy through steeper borrowing costs and lower consumer confidence.

Business investment plunged 12.5% between the end of last year and the beginning of 2023, sapping strength from the economy.

“We think the first quarter will be followed by a modest outright decline in the second quarter, marking the start of a recession which we expect to last until the fall,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a research note ahead of the report.

“We’ll have a much better idea once the extent of the credit tightening, triggered by the banking crisis, becomes clear.”

From here, economists largely expect economic growth to deteriorate rapidly. The Conference Board forecasts US GDP to contract 1.8 percent in the second quarter amid fears of a looming recession. 

Consumer demand is finally cooling after years of elevated inflation and a flurry of Fed interest rate hikes. Banks are pulling back on commercial lending following the failure of Silicon Valley Bank, slowing the growth of businesses that rely on financing.

“The job market and consumer spending have held up remarkably well despite the Fed raising interest rates as high and as fast as they have and so far that doesn’t seem to be falling apart, but the economy is slowing and inflation is not anywhere near the Fed’s target of 2%,” said Chris Zaccarelli, chief investment officer for the Independent Advisor Alliance, in a Thursday statement.

Prices for consumer goods rose 4.2% during the first quarter, up from a 3.7% quarterly inflation rate during the fourth quarter of 2022. The Fed aims for annual inflation of 2% and may be compelled to keep raising rates if inflation remains high even as the economy slows.

The Fed’s rate-setting committee will meet May 1-2 and decide whether to issue another 0.25-percentage point rate hike or step back as the economy shows clear signs of slowing down.

Fed officials expect to raise rates at least one more time in 2023, according to projections from their March meeting, but did not commit to a course of action for May.

The slowdown in economic growth also poses a serious political challenge for President Biden, whose recently launched reelection campaign may depend largely on the strength of the economy.

Under Biden, the US regained millions of jobs lost to the COVID-19 recession and saw the unemployment rate drop back down to 3.5% — its level in February 2020, which was the lowest jobless rate in 50 years.

The rapid rebound also helped millions of Americans find new jobs with better compensation or working conditions as employers battled to fill record numbers of open positions.

Even so, American households are still struggling amid high inflation, rising borrowing costs, and now a pullback in business investment that could leave the US closer to recession.

 

Iran: Copper can earn US$10 billion

The development of the copper industry and the support of the development plans for the sector can lead to earning US$10 billion of income for the country, the chairman of Iran Copper Association stated.

Regarding the amount of copper reserves and mining capacity of Iran, Bahram Shakouri said the reserves discovered in the country are 54 million tons, of which usually 50% can be extracted, underlining, “With this amount of reserve, we have a good position in the world.”

“Now, with the new discoveries, our position in terms of copper reserves in the world has improved, in a way that today we have reached 6% of the world's reserves from 4% in the past, and our position in the world has increased from the 8th to the 5th place”, he continued.

The chairman of the Iran Copper Association further said, “There is no balance between our reserves and production”, and continued, “We must go in the direction of extracting 3% to 5% of the reserves in accordance with our position. If we propose today that the industry can earn US$10 billion, it should be able to produce one million tons of copper cathodes, which is based on global norms.”

“Considering 54 million tons of reserves in the country, of which at least 27 million tons can be extracted, and we have 3% to 5% of the world's copper reserves, it is reasonable and logical to reach one million tons of copper cathode production, and if this does not happen, we have failed”, Shakouri reiterated.

“The world's movement towards the use of clean technologies and innovations will increase the consumption of non-ferrous metals such as copper, and in the coming years, there will be a need to supply copper up to four times today,” Shakouri had said last November.

The increase in demand will increase the price of copper, and accordingly, we must move towards completing the copper chain in Iran, he added.

“Today, the copper chain is complete with cathode production in the country, while more than 50% of the copper cathode is being exported, and if we can create more added value in this sector, we will have more exports and gain more revenue,” Shakouri concluded.

Copper cathode is the primary raw material input for the production of copper rods for the wire and cable industry.

Being located on the Alpine-Himalayan orogenic belt, of which about 12.5% is located in Iran, the country should contribute greatly to the fourfold increase in the world’s copper production by 2050, Shakouri has stated.

Stressing the need for planning to increase Iran's share in the world’s copper production, he added: "To increase our share in the global copper production in the 2050 horizon, we must develop both exploration and extraction and discover new world-class reserves.”

Also in mid-March, the head of the National Iranian Copper Industries Company (NICIC) said the country’s copper production is going to reach one million tons in the next six years.

Ali Rostami noted that in the case of reaching the above-mentioned output, the country’s copper export is also going to hit US$10 billion.

 

Pakistan: Will general elections be held in October 2023?

Besides facing dire economic challenges, Pakistan has been passing through a political crisis as well. The political quagmire has exacerbated. Investors’ confidence already shattered amid fears of default on foreign loans, has been battered further by uncertainties hovering over the elections schedule. This raises the million dollar question will the Elections be held in 2023.

The Elections for the National Assembly have become due by October 2023 as per the constitution. The dissolution of two Provincial Assemblies ahead of the October schedule and the judicial orders to hold early elections makes the situation untenable.

According to Polls conducted by Pakistan’s leading brokerage house, Topline Securities, 60-70% respondents feel elections will be held before October or in October 2023, while 20-30% think it will be delayed.

If National Elections are held around October 2023, there is high probability that Khan led PTI may get highest seats in National Assembly, surveys and polls forecast, unless Khan meets with disqualification, party breakup, etc. due to under trial cases against him.

With risk that present prime minister, Shehbaz Sharif may be disqualified by Supreme Court on contempt, another much talked about scenario has been that the present coalition government (PDM) might get its office term extended beyond October 2023. The government might invoke the Article 232 of the constitution under the garb of ‘emergency’ in the country on the pretext of security concerns or/and financial crisis.

Hypothetically, if the government undertakes such measures, matter might be challenged by the opposition in the court of law and the court may give its ruling over the government decision. It could linger the matter further and crisis may persist persist.

Another option could be the military rule. The country has witnessed direct military rule for 33 out of 75 years in Pakistan. Chances of direct military rule are slim, 10% as per our Poll.

To cool down the situation efforts of dialogue between political parties to sort out this elections related matter has started. This out of the court settlement, through dialogues can be a catalyst to cooling political heat and lead to any decision regarding the Elections for the national and provincial assemblies.

The brokerage house believes, this uncertain political theatre would keep on reflecting on the stock market, economy and currency. However, once the truce is carved the current political battles, the focus will be imminently back on economy.

The brokerage house in one of its earlier reports “Pakistan’s Debt Restructuring” dated December 03, 2022 and report “Pakistan Debt Restructuring – Part 2” dated January 24, 2023 the crucial factor or the Achilles heel of the current debt is the short term rollovers that have increased by 9 times to over US$12 billion since 2015.

The brokerage house is of the view that external debt restructuring is the litmus test, the mode of restructuring, and how orderly or disorderly are done, will determine Pakistan’s economic vulnerabilities.

Pakistan new government should ideally try to convert its short-term external loans with long term with the help of friendly countries like China, Saudi Arabia and UAE etc. If that is not doable, then Pakistan should try G-20 common framework of debt restructuring. These are less painful and will help in economic recovery.

 

 

China to send special envoy to Ukraine

Chinese President Xi Jinping spoke to Ukrainian counterpart Volodymyr Zelensky over the phone on Wednesday. The call was the first time the two leaders had talked since the Russian invasion of Ukraine in February 2022.

China has faced mounting criticism over its stance on the war, with Beijing’s assertion of neutrality failing to convince Western governments because of its disproportionate interaction with Moscow.

During the call, Xi pledged long-term cooperation with Ukraine, and said China will send its special envoy on Eurasian affairs to Ukraine and other countries.

The envoy, former vice-minister of foreign affairs Li Hui, would be the most senior Chinese official to set foot on Ukrainian soil since the war began. He was China’s ambassador to Russia for 10 years, from 2009 to 2019.

Xi also said mutual respect for sovereignty and territorial integrity was the political foundation of bilateral relations.

He did not mention Russia by name at all, according to the CCTV report, though he reiterated China’s stance on the war and called for more dialogue.

Xi had held multiple calls with Russian President Vladimir Putin since the invasion, and even led a delegation to Moscow in March – his first overseas trip since beginning a historic third term.

The call also came just two weeks after French President Emmanuel Macron and European Commission President Ursula von der Leyen visited China and said they had urged Xi to call Zelensky.

Xi had replied that the conversation could happen when the conditions and time are right, according to von der Leyen.

 

United States allows J P Morgan payment route for Russian grain export

The United States gave J P Morgan permission to process payments for agricultural exports via the Russian Agricultural Bank, but the arrangement was no substitute for reconnecting the bank to the SWIFT system, two Russian sources told Reuters.

Access to the SWIFT payment system is one of Russia's main demands in negotiations over the future of the Black Sea grain export deal, which the United Nations says helps to tackle a global food crisis that has been aggravated by the Ukraine war.

The Kremlin has repeatedly warned the deal will not be renewed beyond May 18 unless the West removes obstacles to Russian grain and fertilizer exports, including the financing and insurance of exports.

A Russian source, who spoke on condition of anonymity, said the US Office of Foreign Assets Control (OFAC) had allowed JPMorgan to process the transaction.

"JPMorgan received permission from OFAC to carry out payment for agricultural procure - but the process is difficult," said the first Russian source.

A second Russian source said that JPMorgan and Russian Agricultural Bank, which is under US and European Union sanctions, were both specifically given exemptions to execute a single transaction.

It involved grain and was denominated in US dollars, according to the second Russian source. A third source also said the transaction was for grain.

Reuters could not ascertain who the exporter was or the destination of the supply.

The JPMorgan route was proposed as an alternative to reconnecting Russian Agricultural Bank (known as Rosselkhozbank) to SWIFT, but could be terminated at any time, the first Russian source said. "This cannot replace SWIFT," the source said.

Another source familiar with the transaction said the US State Department and US Treasury had asked JPMorgan to carry out the very limited and highly monitored transaction in relation to the export of agricultural materials, which occurred this month.

Russian Foreign Minister Sergei Lavrov on Tuesday told a briefing at the United Nations that one bank kindly consented to finance one operation, but that was not an acceptable long-term solution, Lavrov did not name the bank.

 

Putin signs decree to take over Russian assets of two foreign firms

President Vladimir Putin on Tuesday signed a decree establishing temporary control of the Russian assets of two foreign energy firms, signaling Moscow could take similar action against other companies, if need be.

The decree - outlining possible retaliation if Russian assets abroad are seized - showed Moscow had already taken action against Uniper Russian division and the assets of Finland's Fortum Oyj.

The decree said Russia needed to take urgent measures to respond to unspecified actions from the United States and others it said were unfriendly and contrary to international law.

The shares in the two entities have been placed in the temporary control of Rosimushchestvo, the federal government property agency, the decree said.

In February, US Treasury Secretary Janet Yellen said Russia should bear the costs of damage caused by its war on Ukraine, adding though there were significant legal obstacles to confiscating major frozen Russian assets.

The CEO of state-owned bank Bank VTB PAO had on Monday said Russia should consider taking over and managing the assets of foreign companies such as Fortum, only returning them when sanctions are lifted.

Rosimushchestvo said more foreign firms could find their assets under temporary Russian control, TASS reported. The agency would ensure the assets were run in accordance with their importance for the economy.

"The decree does not concern ownership issues and does not deprive owners of their assets. External management is temporary in nature and means the original owner no longer has the right to make management decisions," TASS cited the agency as saying.

Last October European Council President Charles Michel said the EU was looking at using Russian assets frozen nunder sanctions against Moscow towards rebuilding Ukraine.

Asset sales by investors from unfriendly countries - as Moscow terms those that imposed sanctions against Russia following its invasion of Ukraine - require approval from a government commission and, in some cases, the president.

In February, Uniper valued its majority stake in Russian division Unipro at a symbolic one euro to reflect the likely chance a planned sale to a Russian buyer would fall through. Fortum had already warned shareholders there was a risk its Russian assets could be expropriated.

 

Over 1500 companies participating in Iran Oil Show 2023

More than 1,500 Iranian and foreign companies are participating in the 27th Iran International Oil, Gas, Refining and Petrochemical Exhibition (Iran Oil Show 2023), being held at the Tehran Permanent International Fairgrounds during May 17-20.

The event is being participated by the companies active in various sectors including upstream oil and gas sectors, exploration and production, as well as domestic manufacturers, knowledge-based companies, startups and other companies related to the oil industry, in addition to technology parks and universities.

“Oil Industry, Technological Production, Optimal Consumption” is the motto of this year’s event.

Iranian President Ebrahim Raisi has said that the oil and gas sector experienced a growth of 9% in the past Iranian calendar year 1401.

Oil Minister Javad Oji has recently said that a new record high will be reached in the country’s oil export in the current Iranian calendar year.

The country’s oil export in 1401 was 83 million barrels more than that of 1400, and 190 million barrels more than the export in 1399, the minister announced.

Underlining that now oil export has reached the highest figure in the last two years, the official said, “Considering that the Oil Ministry is one of the main providers of the country's foreign currency; in the 13th government, despite the tightening of cruel sanctions, fortunately, thanks to the grace of God and the efforts of our colleagues in the country's oil and gas industries, there are good records in the field of exporting crude oil, gas condensate, and petroleum and petrochemical products.”

Despite the negative impacts of the US sanctions, Iran has been ramping up its oil production and exports over the past few months.

In his remarks in November 2022, President Raisi highlighted the failure of the enemy’s policy of maximum pressure, saying the country’s oil export has reached the pre-sanction levels.

Back in January, the US Energy Information Administration (EIA) in a report put Iran’s average oil production in 2022 at 2.54 million bpd, 140,000 bpd more than the previous year.

Iran's oil production in 2021 was about 2.4 million bpd.