LONDON, Dec 5 (Reuters) – Britain’s economy is on course to shrink 0.4% next year as inflation remains high and companies put investment on hold, with gloomy implications for longer-term growth, the Confederation of Business Industry forecast on Monday.
“Britain is in stagflation – with rocketing inflation, negative growth, falling productivity and business investment. Firms see potential growth opportunities but … headwinds are causing them to pause investing in 2023,” CBI Director-General Tony Danker said.
The CBI’s forecast marks a sharp downgrade from its last forecast in June, when it predicted growth of 1.0% for 2023, and it does not expect gross domestic product (GDP) to return to its pre-COVID level until mid-2024.
Britain has been hit hard by a surge in natural gas prices following Russia’s invasion of Ukraine, as well as an incomplete labour market recovery after the COVID-19 pandemic and persistently weak investment and productivity.
Unemployment would rise to peak at 5.0% in late 2023 and early 2024, up from 3.6% currently, the CBI said.
British inflation hit a 41-year high of 11.1% in October, sharply squeezing consumer demand, and the CBI predicts it will be slow to fall, averaging 6.7% next year and 2.9% in 2024.
The CBI’s GDP forecast is less gloomy than that of the British government’s Office for Budget Responsibility – which last month forecast a 1.4% decline for 2023.
But the CBI forecast is in line with the Organisation for Economic Co-operation and Development (OECD), which expects Britain to be Europe’s weakest performing economy bar Russia next year.
The CBI forecast business investment at the end of 2024 will be 9% below its pre-pandemic level, and output per worker 2% lower.
To avoid this, the CBI called on the government to make Britain’s post-Brexit work visa system more flexible, end what it sees as an effective ban on constructing onshore wind turbines, and give greater tax incentives for investment.
“We will see a lost decade of growth if action isn’t taken. GDP is a simple multiplier of two factors: people and their productivity. But we don’t have people we need, nor the productivity,” Danker said.
What would happen to militaries, global economy if China invaded Taiwan – Business Insider
- It could be only a matter of time before China invades Taiwan.
- Experts say the military and economic impacts for could be catastrophic, and not just for China and Taiwan.
- The conflict could bring about a global recession and significant military losses.
Separated from mainland China by a narrow strait, Taiwan faces a constant threat from a powerful neighbor that claims the island as an inseparable part of its territory. Taiwan is armed to the teeth and has powerful friends, but with China growing stronger and more aggressive, the risk of armed conflict is climbing higher.
Beijing continues to view the island’s democratic government as a challenge to its authoritarian rule, and has never taken the use of force off the table to get what it wants. In October, US Secretary of State Anthony Blinken said China might take steps to annex Taiwan on a “much faster timeline” than previously thought.
The US, which has armed Taiwan with everything from air defense systems to anti-ship missiles to fighter jets, is not required to intervene if China invades Taiwan. But President Joe Biden has broken away from strategic ambiguity and said that the US would come to the island’s defense if China invaded, meaning that if a fight breaks out over Taiwan, it could get messy in a hurry.
War games say China likely loses, but nobody wins
Beijing has noticeably “intensified” its military, diplomatic, and political pressure against Taiwan and increased its “provocative and destabilizing actions,” the US Department of Defense wrote in a 2022 report on China’s military.
The Chinese People’s Liberation Army is spending more time carrying out drills focused on seizing islands by force and flying more bombers, fighters, and other aircraft near Taiwan, the Pentagon reported.
Though China’s actions have stirred fears of a possible Chinese attack, the US military assesses that an invasion of Taiwan would prove extremely difficult for the Chinese military. It would likely invite intervention from other militaries, strain the Chinese People’s Liberation Army, and create political and military risks for Chinese leader Xi Jinping and the ruling Chinese Communist Party.
The Center for Strategic and International Studies recently ran war games looking at how a large-scale Chinese invasion of Taiwan might play out, and the outcomes were bleak for China, but also for everyone else involved.
China would start by bombing Taiwan’s air force and navy before using its own naval forces to surround and lay siege to the island. Meanwhile, Chinese air assault and airborne troops would land on Taiwan’s shores as tens of thousands of soldiers head to the island on civilian cargo ships and military amphibious vessels.
But Beijing’s efforts would likely not be enough, CSIS found. Chinese troops would struggle to strengthen their supplies and move inland from the beaches, where they would be met by stiff resistance from defending Taiwanese forces.
US and Japanese forces, assuming they came to the island’s aid, would likely be able to take out China’s amphibious fleet, but at tremendous cost.
Taiwan would probably remain unconquered but heavily damaged, CSIS concluded. For example, the island would struggle to maintain basic services and electricity, and its military would be significantly depleted. China, on the other hand, would be left with tens of thousands of soldiers killed, wounded, or captured, a navy in total ruins, and a shattered amphibious force.
One important condition for Taiwan’s survival, the Washington-based think tank noted, is that the island must be able to withstand the initial Chinese assault and avoid surrendering before US and partner forces can get involved.
“In most scenarios, the United States/Taiwan/Japan defeated a conventional amphibious invasion by China and maintained an autonomous Taiwan,” CSIS summarized in its report on the simulations. “However, this defense came at high cost. The United States and its allies lost dozens of ships, hundreds of aircraft, and tens of thousands of service members. Taiwan saw its economy devastated.”
The CSIS report added that “the high losses damaged the US global position for many years” while noting that “China also lost heavily” and that the failure to occupy Taiwan led to instability within the Chinese Communist Party.
Threats to one company could spell catastrophe
Looking at this situation from an economic perspective, a Chinese invasion of Taiwan could mean trillions of dollars in losses and a serious global recession. Taiwan is home to TSMC, the world’s biggest chipmaker. Given that no other company makes such advanced chips at such a high volume, a conflict could mean the production of everything from cars to iPhones grinds to a halt.
“If China would invade Taiwan, that would be the biggest impact we’ve seen to the global economy — possibly ever,” Glenn O’Donnell, the vice president and research director at Forrester, previously told Insider. “This could be bigger than 1929.”
While US businesses can take some steps to reduce their reliance on Taiwan chipmaking, including bolstering their chip inventories and diversifying their supply chains, this is unlikely to mitigate the full risk of a Taiwan crisis.
“Given how predominant Taiwan is in the global semiconductor value chain, even with adjustments, any type of disruption to access to Taiwan semiconductor output is going to have tremendous consequences for the global economy,” Martijn Rasser, a former senior intelligence officer at the CIA, who is now a security and technology expert at the Center for a New American Security, told Insider.
If the US and its allies, for instance, imposed significant sanctions on Chinese imports following an invasion, there could be a “huge impact on American consumers and the US economy generally,” William Alan Reinsch, a senior advisor at the Center for Strategic and International Studies, a national security think tank, told Insider.
While the US and its allies have imposed strong sanctions against Russia following its invasion of Ukraine, “It would be much more challenging in the China context,” Rasser said, “just because of the economic interdependencies that are there” between the countries.
In the event of an invasion, there’s been speculation the US would consider evacuating TSMC’s engineers — or even destroy the company’s facilities — to prevent China from having sole access to TSMC’s chip production.
But Chen Ming-tong, director-general of Taiwan’s National Security Bureau, said in October these steps would not be necessary. The US and other countries could simply cut off TSMC’s access to supply chains it needs to keep production running, he said, resulting in a situation in which there is “no way TSMC can continue its production.”
“Even if China got a hold of the golden hen, it won’t be able to lay golden eggs,” he added.
The potential economic consequences of an invasion for both China and the rest of the world, as well as the possibility that China lose access to TSMC’s semiconductors, could serve to deter an invasion in the short-term.
A crisis in 2023 is probably unlikely
While the risk of a conflict in the medium term appears to have increased, there’s a good chance the countries avoid a conflict in 2023.
“We’ve seen increased surface vessel activity around Taiwan,” US Secretary of Defense Lloyd Austin said during a press conference Wednesday. “But whether or not that means that an invasion is imminent, you know, I seriously doubt that.”
“I don’t think Xi will make a move until and unless he is absolutely sure that an invasion will be successful,” Gen. James Clapper, who led the intelligence community under President Obama, previously told Insider. “And right now, I don’t think he has the degree of certitude.”
“China will defer moves that could possibly provoke military conflict until the balance of power is decisively in its favor,” the political research and consulting firm Eurasia Group said in its 2023 top risks report, “or until the US is ruled by a president who is clearly unwilling to defend Taiwan. None of this is remotely possible in 2023.”
Expectations are largely that China would not take such a risk until later this decade at the earliest.
Others have argued it’s in the self interest of both China and the United State to overplay the likelihood of a Taiwan invasion. The threat gives China negotiating power, they say, and justifies additional military spending in the US.
China Economy Shows Muted Improvement After Covid Zero Over Chinese New Year – Bloomberg
Ukraine’s Economy Likely To Shrink Further In 2023
Russia’s re-invasion of Ukraine in February 2022 took a heavy toll on the Ukrainian economy. Moscow focused on destroying the Russian-speaking industrial heartland in the southeast, displacing millions of workers, damaging crops, smashing the power grid and blocking exports from Ukraine’s seaports. As a result, Ukraine’s gross domestic product (GDP) plunged 30 percent in 2022 (Me.gov.ua, January 5). Worse had been expected, yet the economy was able to weather the storm largely thanks to Western assistance. In 2023, everything will depend on the course of the war. If it drags on, or if Ukraine loses, the economy will continue to shrink. In any case, Ukraine will heavily rely on Western financial assistance throughout the year.
Apart from the defense industry, which Russian missiles targeted first, metallurgy, Ukraine’s main export industry before the war, took the hardest hit. The nation’s second- and third-largest steel mills, Illich and Azovstal, both located in the occupied southeastern city of Mariupol, were destroyed. The other large steel mills, all located in the front-line areas, have had to reduce production due to missile strikes and blockaded seaports. As a result, metal exports plunged 60 percent from January to November 2022 (Ukrstat.gov.ua, accessed on January 20).
The energy sector has been another major target of Moscow. Ukraine’s largest oil refinery, based in the city of Kremenchuk, was destroyed by Russian missiles in March 2022, along with large fuel reservoirs across the country (Ukrainska Pravda, Vikna.tv, April 2, 2022). In November, Russia hit gas production facilities, depleting the natural gas reserves Ukraine had accumulated for winter. As a result, Kyiv turned to foreign partners for an additional 3 billion cubic meters of gas (Naftogaz.com, December 1, 2022).
From October to November 2022, Russia, in several waves of missile strikes made possible by the West’s reluctance to send sophisticated air defense systems, damaged almost half of Ukraine’s power facilities, trying to trigger a blackout (Ukrinform.ru, November 18, 2022). The strikes have caused long power outages severely affecting Ukraine’s production capacity. An attack on November 23, 2022, triggered a temporary shutdown of all three nuclear power plants controlled by Ukraine. The fourth one, Ukraine’s largest, in Zaporizhzhia region, was occupied and stopped by Russian forces (Facebook.com/minenergoUkraine, November 23, 2022; Hromadske.ua, December 13, 2022).
Ukraine’s agricultural sector has also suffered severe damage, as large swathes of arable land have become minefields, and scores of grain silos across the country have been destroyed. Farmers have lost access to credit, seeds and fertilizers, and in the occupied areas, their harvest was looted by the invaders. Agricultural exports have also been affected by the blockade of Ukraine’s seaports. Russia eventually agreed to unblock only three of Ukraine’s seaports, in line with the August 2022 grain corridor agreement mediated by Turkey and the United Nations. Yet, this was not enough. In the marketing year which began in July 2022, grain exports have thus far plummeted 29 percent, in spite of a record harvest from 2021 (Ukranews.com, January 12).
Such huge losses caused fiscal revenues in Ukraine to plunge. Meanwhile, defense spending soared by 818 percent and accounted for a whopping 42 percent of total fiscal expenditures from January to November 2022. The economy would not have survived such a blow but for unprecedented foreign assistance, mainly from the United States and the European Union. Foreign grants accounted for 23 percent of Ukraine’s fiscal revenues in 2022 (Mof.gov,ua, accessed on January 17). International financial assistance exceeded $30 billion from February 24 to December 20, a figure unthinkable before the war (Kmu.gov.ua, December 20, 2022). Total foreign assistance, including financial, humanitarian and military, amounted to 113 billion euros ($122 billion), including 48 billion euros ($52.37 billion) from the US (Kmu.gov.ua, January 17). For comparison, Ukraine’s GDP totaled $200 billion in 2021 (The World Bank, accessed on January 18).
In 2023, Ukraine is set to rely on international assistance even more, both to defend itself and to keep its crippled economy afloat. Ukraine expects international financial assistance to grow to $38 billion this year, of which 18 billion euros ($19.64 billion) is to be contributed by the EU, at least $9.9 billion by the US and the rest mainly by international financial institutions, including the International Monetary Fund (IMF) (RBC, December 28, 2022). Ukraine has already received the first 3 billion euros ($3.27 billion) from the EU (Mof.gov.ua, January 17).
Ukraine’s exact needs will depend on the course of the war. The Ukrainian authorities and international financial institutions have thus far been cautiously optimistic, hoping that the war will end in 2023. The Ukrainian National Bank forecast in October 2022 that Ukrainian GDP will grow by 4 percent if the war ends by mid-2023, and by 2 percent if the war lasts longer (Bank.gov.ua, October 27, 2022). In November, the IMF forecast 1-percent growth for 2023 (International Monetary Fund, November 23, 2022)
Among the main complications for 2023 and onward will be re-employing the several million qualified workers who fled the war abroad or became internally displaced persons, as most are expected to return home after the war, as well as restoring Ukraine’s destroyed industry and infrastructure. The UN estimates the number of Ukrainian refugees in Europe alone at over eight million, out of a pre-war population of around 40 million (Data.unhcr.org, accessed on January 18). The Ukrainian government, EU and World Bank estimated the cost of reconstruction and recovery at $349 billion in September 2022, before the massive missile strikes on Ukraine’s power infrastructure (The World Bank, September 9, 2022).
Ukraine hopes to use the Russian assets frozen by the West, estimated at several hundred billion dollars, for reconstruction needs. European Commission President Ursula von der Leyen revealed in November 2022 that the EU was looking for mechanisms to cover part of Ukraine’s reconstruction needs from the frozen 300 billion euros ($327.29 billion) of the Russian Central Bank’s reserves and 19 billion euros ($20.73 billion) of Russian oligarchs’ funds (Ec.europa.eu, November 30, 2022). Ukraine is also sure to attract both institutional and private investors if its EU entry process continues, after the country obtained official EU candidate status this past June. The EU will assess Ukraine’s progress on the accession requirements in the fall of 2023 (Hromadske.ua, January 13). Consequently, Kyiv will aim to not only defeat Russia before the end of 2023 but also carry out those domestic reforms necessary to achieve EU membership—and Western assistance will be highly consequential in both cases.
By the Jamestown Foundation
The Jamestown Foundation
Founded in 1984, The Jamestown Foundation is an independent, non-partisan research institution dedicated to providing timely information concerning critical political and strategic developments in China,…
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