The Economics Hub Newsletter: Week 12
Nuclear revival in Asia, Eurozone's record inflation, Deconstructing Adani's business empire, Dollar at a 20-year high, Privacy news and Charts of the week
Happy Sunday!
Welcome to another issue of The Economics Hub Newsletter! I hope you are well.
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Here’s what we cover this week. As per your interest and convenience, please click on the specific topic to jump directly to that section!
Ready? Let’s dive in!
Global Energy Crisis Spurs a Revival of Nuclear Power in Asia
Ports & airports, power, media: Adani’s $137.4-billion footprint across businesses, explained
Dollar jumps to a 20-year high as data supports aggressive Fed
1. Eurozone inflation surpasses 9% as cost of living crisis deepens
Inflation in the eurozone rose to a fresh record of 9.1% in August, underscoring the economic shock dealt by Russia’s war in Ukraine and increasing the pressure on the European Central Bank to respond by raising interest rates aggressively next week.
The increase was mainly seen in processed food and goods prices, but services also ticked up slightly. Energy inflation fell for the second month in a row on base effects and lower petrol prices, despite soaring gas and electricity prices.
Inflation in the 19-nation eurozone has surpassed U.S. levels in recent weeks as Russia’s actions curtailed Europe’s energy supplies and drove up prices. The U.S. recorded an inflation rate of 8.5% in July, down from 9.1% in June.
This is a good breakdown of inflation-contributing factors in the United States and the Eurozone. The following chart also implies that the effects of aggressive monetary policies by central banks might be minimal in taming inflation as the demand and supply side factors are major contributing forces to the current high inflationary environment.
Global supply-side pressures have been easing in recent months. Commodity prices have fallen, including food and oil, which has resulted in lower prices at the pump. Transportation costs have also been moderated, and inputs are more widely available again. Still, specific European problems continue to push inflation higher. The gas supply crisis and droughts are adding to persisting supply-side pressures on inflation at the moment.
Worryingly for the ECB, the core rate of inflation—which excludes volatile items such as energy and food—increased to 4.3% in August from 4% in July. That suggests high inflation rates could linger even if energy and food prices stabilize. The ECB aims to keep inflation at 2% over the medium term.
Demand-side inflation remains weak in the eurozone. The output gap is still negative, household consumption is well below pre-pandemic levels and retail sales have in fact been on a declining trend since November. The latest negotiated wage growth data for 2Q came in at 2.1%, which means there is no evidence of a wage-price spiral at this point, but that the eurozone is mainly facing an unprecedented squeeze in real incomes.
Eurozone inflation is likely to rise toward 10% over the coming months, analysts say, as some government energy and public-transport subsidies expire, especially in Germany, and companies pass on higher costs to customers.
There is little the ECB can do to address supply bottlenecks for energy and other commodities. Still, officials at the bank have signalled in recent days that they are willing to act forcefully to prevent high inflation rates from becoming entrenched, including by considering a 0.75-percentage-point interest-rate increase at their policy meeting on Sept. 8. That could help to shore up the value of the euro, which has slid below parity with the U.S. dollar in recent weeks, driving up the cost of Europe’s imports and in turn fanning inflation further.
Several ECB officials have signalled recently that concerns about high inflation currently trump concerns about growth. “We should not delay further rate hikes for fear of a possible recession,” Joachim Nagel, president of Germany’s Bundesbank, said in a speech in Berlin on Tuesday.
2. Global Energy Crisis Spurs a Revival of Nuclear Power in Asia
Governments in Japan and South Korea are removing anti-nuclear policies, while China and India are looking to build more reactors to avoid future supply shortages and curb emissions. Even developing nations across Southeast Asia are exploring atomic technology.
The embracing of nuclear energy comes after the prices of natural gas and coal, the two fossil fuels used to generate most of Asia’s power, shot to record levels this year. As the world shifts away from Russia, a major fuel exporter, supply will remain tight and prices high well into the future.
That’s making clean and reliable nuclear power very attractive for policymakers and utilities eager to rein in inflation, achieve green goals and curb dependence on overseas energy suppliers. It’s a dramatic turnaround for the nuclear industry, which spent the last few decades beset by cost overruns, competition from cheaper fossil fuels and stricter regulations.
If you are interested in understanding the economics behind nuclear energy, then I highly recommend watching this video by Real Engineering. It really summarizes the topic well, while also presenting the challenges this industry faces on economic, social, political and technical front.
While the nuclear power comeback is global, gaining proponents from the UK to Egypt, the shift is perhaps most surprising in Asia, considering it had the closest view of the catastrophe that struck Japan in 2011 during the Fukushima nuclear disaster.
Now, as power bills surge and nations deal with fossil fuel-induced inflation, governments are again looking to nuclear. It requires little uranium to operate, which is currently abundant, and it produces power around the clock, unlike intermittent renewable energy projects such as wind and solar.
Let’s summarize the latest development in the nuclear sector in Asia.
🌎 Japan
The country is considering building next-generation nuclear reactors, prime minister Fumio Kishida said last week. The government will also discuss bringing more nuclear plants online and extending the service life of reactors if safety can be guaranteed, Kishida said at an energy policy meeting.
‘As for nuclear power plants, in addition to securing the operations of the 10 reactors that are already back online, the government will spearhead an effort to do all it takes to realise the restart’ of others whose safety has been approved by the country’s nuclear watchdog, he said.
Kishida urged policymakers to consider “constructing next-generation nuclear reactors equipped with new safety mechanisms as well as ‘making maximum use of existing nuclear plants”.
🌎 South Korea
South Korea’s previous government was planning to close six of the country's 24 reactors. Now, this year the country elected a pro-nuclear president who wants atomic energy to account for 30% of total energy generation and wants to build four more nuclear reactors. He also vowed to make the nation a major exporter of nuclear equipment and technology, and integrate atomic power and renewable energy to push for carbon neutrality.
South Korea is already described by the World Nuclear Association as being one of the “world’s most prominent nuclear energy countries.”
🌎 China
The nation is amid the largest build-out of reactors in the nuclear industry’s history to meet its insatiable energy demand, while also curbing dependence on dirty coal-fired power plants.
Last year, CGTN reported that China has the most number of nuclear power plants in the world under construction, citing an industry report by China Nuclear Energy Association.
China currently has nearly 24 gigawatts worth of nuclear power capacity under construction, and another 34 gigawatts planned, according to WNA data. If all of that comes to fruition, China will become the world’s top nuclear power producer.
🌎 India
India plans to put 21 new nuclear power reactors - including ten indigenously designed PHWRs - with a combined generating capacity of 15,700 MWe into operation by 2031, the Department of Atomic Energy announced. The Indian government is committed to growing its nuclear power capacity as part of its massive infrastructure development programme.
The country currently generates about 70% of its electricity using coal and around 3% from nuclear, but Prime Minister Modi is aiming to more than triple its nuclear fleet over the next decade.
🌎 Singapore
Although, the country is deemed as advanced and a global front-runner in sustainable urban development, it has yet to find a solution to decrease its dependence on fossil fuels, which is currently higher than any other country. Indeed, about 95% of the electricity generated in Singapore comes from natural gas. The surge in natural gas prices has impacted the nation due to its dependence on natural gas.
A report commissioned by the country’s Energy Market Authority (EMA) to draw a pathway to decarbonisation highlighted that while scaling up renewables might be tough given the geographical and geological restrictions, nuclear power could represent Singapore’s net-zero game-changer.
The report predicts that including this energy source in the energy mix could allow the country to cover almost 10% of its power needs by 2050. Indeed, once deemed unsuitable for Singapore, nuclear technologies have undergone incredible advancement in recent years, making it a viable option (and one that can’t be ignored) to drive the country’s decarbonisation goal.
🌎 Taiwan
Having discussed these developments, it should be noted that not all governments in Asia are convinced. Taiwan hasn’t changed its position to phase out nuclear power. It plans to shut its reactors at the end of their 40-year lifetimes through 2025, the Ministry of Economic Affairs said earlier last week, according to the Taipei Times.
3. Ports & airports, power, media: Adani’s $137.4-billion footprint across businesses, explained
In the last week’s issue, we discussed why Gautam Adani, India’s richest and world’s fourth richest person wants to acquire New Delhi Television (NDTV) network. We also covered the economic, financial, legal, social and political causes behind his acquisition move, you can read that newsletter for detailed analysis.
This week, Gautam Adani surpassed France’s Bernard Arnault to become the world’s third-richest person in the world. This is the first time an Asian person has broken into the top three of the Bloomberg Billionaires Index.
Let’s understand the rise and breakdown of Adani’s massive business empire.
Gautam Adani’s flagship Adani Enterprises, which started with the commodity trading business in 1988, is today one of the largest conglomerates in India with a significant presence in:
Ports
Airports
Power
Roads
Financial Services
Fast Moving Consumer Goods
Renewable Energy
Real Estate
Transmission Gas Distribution
Media
⌚ Timeline of Adani’s rise as a businessman:
1988: Adani Exports Limited commenced as a commodity trading firm and diversified into the import and export of multi-basket commodities.
1994: Adani Enterprises became the first listed entity for the Group and today it has seven listed entities that together have a market cap of Rs 19.29 lakh crore.
1995: The Group’s Mundra Port commenced operations, and since then the Group has consolidated its position in the ports business. With a presence across 13 domestic ports in seven states, Adani Ports accounts for nearly a fourth of the cargo movement in the country.
1998: Adani Group became the top net foreign exchange earner for India.
1999: Adani Group entered into the integrated resource management business and ventured into coal management. Adani Enterprises is currently the largest coal supplier in India and the largest importer of coal from Indonesia.
2000: The company commenced trading in Edible Oil business, with the formation of Adani Wilmar. Today, Adani Wilmar has the market capitalisation of almost 90000 crores.
2001: The Group entered the gas distribution business.
2006: The company became the largest coal importer in India with 11 Mt of coal handling.
2008: The Group acquired Bunyu Mine in Indonesia, and in 2010 it acquired the Carmichael mine in Australia.
2011: Adani group bought Abbot Point port in Australia with 50 Mt of handling capacity. It commissioned India's largest solar power plant with a capacity of 40 MW. As the firm achieved 3,960 MW capacity, it became the largest private sector thermal power producer in India.
2014: Adani Power emerged as India's largest private power producer.
2017: Adani Group acquired the power arm of Reliance Infrastructure for ₹18,800 crores (US$2.89 billion) and entered solar photovoltaic (PV) panel manufacturing business.
2019: The Group entered the airports business, as it won the mandate to modernize and operate six airports in India.
2020: Adani Group announced that it will acquire 74 per cent stake in Mumbai International Airport Limited, and completed the acquisition by August 2021. Currently, Adani Airports operates seven airports across the country.
2021: They set up a data centre joint venture, “Adani Connex”, with EdgeConnex to develop and operate data centres across India. The Group plans to build data centres in the NCR, Mumbai, Chennai, and Hyderabad to begin with.
2022: The Group acquired Ambuja Cements and ACC for US$10.5 billion. The deal will make the Adani Group the second largest cement maker in India.
As usual with most billionaires, Adani is a crony capitalist who can rapidly expand his business empire with the help of political favours and malpractices. It is disappointing to see mainstream financial news outlets in the West presenting him as a “first-gen, extremely shy, skilled, and talented” businessman without providing detailed context and political factors that led to his immense wealth in recent years, especially after Modi came to power in 2014.
I mean, let’s not forget Adani’s wealth has risen from an estimated $8bn at the time of Modi's election in 2014 to $141bn today, a rise of more than 1,600%.
I will do a detailed examination of the political reasons behind Adani’s rapid rise in wealth in the future for sure.
4. Dollar hits 20-year high as data support aggressive Fed
The dollar index hit a 20-year high on Thursday, and notched a 24-year peak against the rate-sensitive Japanese yen, after U.S. data showed a resiliently strong economy, giving the Federal Reserve more room to aggressively raise interest rates to curb inflation.
The U.S. currency strengthened after a government report showed that the number of Americans filing new claims for unemployment benefits declined further last week, consistent with strong demand for workers and tight labour market conditions.
The Dollar Index—which measures the U.S. currency against a basket of six other major currencies—rose more than 0.6% early on Monday to a high of 109.44 points before settling at 109.22. The index briefly hit 109 in July this year but Monday’s peak is the highest level it has been since 2002.
The report also showed that layoffs dropped in August, despite hefty interest rate increases from the Fed to quell inflation, which have raised the risk of a recession.
Data from the Institute for Supply Management (ISM) showed U.S. manufacturing grew steadily in August as employment and new orders rebounded, while a further easing in price pressures strengthened expectations that inflation has likely peaked.
All these statistics from the labour and manufacturing sectors indicate that the Federal Reserve might adopt a more hawkish stance toward taming inflation.
Instagram Posts of the Week
I had some free time this week, so curated some content for my Instagram page. Please follow if you haven’t yet!
1.
The new DuckDuckGo email privacy forwarding feature is pretty cool and now open to all, for free. It enables the users to remove invasive email trackers and lets you create unlimited unique private email addresses. Check this post (click on it) for more details!
2.
A short thread on zombie companies, their growth in recent years, how the Federal Reserve can create an environment for nurturing zombie companies and the lack of incentives for busting/restructuring the zombie companies in a low-interest booming era.
Source: Federal Reserve, Investopedia, Bank for International Settlements and Financial Times.
3. Europe's Energy Inflation - Visualised.
Privacy News of the Week
Facebook parent Meta Platforms Inc. agreed to settle a notable lawsuit that accused the social-media platform of allowing third parties, including Cambridge Analytica, to access private user data.
The suit followed revelations that Cambridge Analytica, a now-defunct British consulting firm that worked on former President Donald Trump’s 2016 campaign, had improperly obtained and exploited Facebook user data.
China-Taiwan Threat Intelligence Landscape. (CyberInt)
A court in Russia on Tuesday fined streaming company Twitch 3 million roubles ($50,209) for refusing to remove a two-hour interview with an adviser to Ukrainian President Volodymyr Zelenskiy, Russian news agencies reported. (Reuters)
Trudeau’s government to try and rush through the online censorship bill. (Reclaim the Net).
Don’t Let Fraud Cost Your Business. (Hackernoon).
The Low Threshold for Face Recognition in New Delhi. (Wired)
Chile now becomes the latest government across the world to deal with a ransomware attack against one of its official agencies, after similar attacks have recently hit Montenegro, the Dominican Republic, Costa Rica, Peru, Argentina, Brazil, and many others. (Security Week)
Digital identity verification spending to pass $20B by 2027, but security challenges remain. (Biometrics Update)
Biometric payments win for convenience and security, privacy concerns remain: Mastercard. (Biometrics Update)
Apps used as alternatives to prison in the US were found to have privacy flaws. (New Scientist)
Nothing Is Protecting Child Influencers From Exploitation. (Wired)
Charts of the Week
👉 1. How Rising Food and Energy Prices Impact the Economy
👉 2. Investments in sustainable fuels are gaining momentum.
Investments in sustainable fuels—which include biofuels such as hydrotreated vegetable oil and synthetic fuels such as ammonia or methanol—are gaining momentum. A pipeline of $40 billion to $50 billion of total investment in sustainable fuels is planned, with 46 million metric tons of capacity projected by 2025.
This is primarily because the demand for sustainable fuels is expected to triple over the next 20 years.
Across scenarios, sustainable fuels are expected to play an increasingly important role in the transportation sectors, including hard-to-abate sectors such as aviation and heavy-duty road transport. By 2050, the share of sustainable fuels in transportation’s energy demand could land between 7 per cent and 37 per cent, depending on net-zero ambition levels across countries.
👉 3. Cross Asset Holders had their Worst Month Since 1981.
Last month was the broadest cross-assets (stocks, treasuries, investment grade, high yield, commodities) drop since ‘81. This essentially means the investors have no place to hide from the continued market capitulation across financial asset classes led by multiple factors in recent months. Having a diversified portfolio with a long-term objective should only be the way forward.
👉 4. The Japanese Yen is experiencing its worst drawdown ever
The yen’s slump is now its worst on record, at least going by peak to trough declines since Japan introduced the floating-rate system in 1973. The embattled currency has lost over 46% of its value against the dollar from its 2011 peak, a steeper drawdown than the 45% slump it experienced during the time of the late 1990s Asian financial crisis.
The yen’s cratering to ¥140 per dollar breaks new ground in testing Bank of Japan Gov. Haruhiko Kuroda’s defiance of a global wave of interest rate hikes and the strength of Prime Minister Fumio Kishida’s support for his stance.
The move of Japan’s currency into the ¥140 range takes it closer to the ¥146 mark that prompted joint action with the United States in 1998 to prop it up. It also sharply increases the likelihood that inflation will top 3% in Japan, way above the BOJ’s 2% target, casting further doubt on why the central bank is so insistent on sticking with rock-bottom interest rates.
As angst among households and businesses continues to rise over soaring energy and import costs, cracks may begin to emerge in the united front the government and BOJ have so far shown.
👉 5. Asian Currencies are now at Covid low and GFC low
J P Morgan’s Asia Currency Index or Asia Dollar Index which tracks Asia's most actively traded currency pairs valued against the U.S. dollar is at a record low since Covid-19 and Global Financial Crisis levels.
👉 6. World’s Least Affordable Housing Markets
According to Demographia’s 2022 Housing Affordability Report, the number of housing markets around the world deemed “severely unaffordable” increased by 60% compared to 2019 (prior to the pandemic).
This graphic looks at some of the least affordable housing markets across the globe, relative to median household income. The report covers 92 different cities in eight nations: Australia, Canada, China, Ireland, New Zealand, Singapore, the United Kingdom, and the United States.
.👉 7. Global Inflation Update
👉 8. 89% of countries experiencing more than 6% inflation.
That’s all for this week folks, and thank you so much for making it this far! I hope you had lots of takeaways. Please subscribe if you haven’t yet and yes, subscriptions won't cost you a penny. It’s free!
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Have a great week ahead,
Shreyas