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Finance ministers from the Group of 20 economies Wednesday pledged to keep economic stimulus policies in place to ensure a recovery from the COVID-19 pandemic.

Amid ongoing risks, “We will continue to sustain the recovery, avoiding any premature withdrawal of support measures,” according to the official communique released after the G-20 meeting.

While the global recovery has been solid, the statement notes that it has been “highly divergent” among countries.

“We reaffirm our resolve to use all available tools for as long as required to address the adverse consequences of COVID-19, in particular on those most impacted,” the statement continued.

At the same time, officials are closely watching rising prices, the statement said.

The meeting of finance ministers and central bank governors is being held at a time when suppliers are struggling to meet renewed demand and bottlenecks are causing shortages of key materials and pushing prices higher.

Oil prices, notably, have spiked above $80 a barrel for the first time in years.

The World Bank estimates 8.5% of global container shipping is stalled in or around ports, twice as much as in January.

Italy’s central bank chief Ignazio Visco agreed with the International Monetary Fund and others who have said the inflation pressures are mostly the result of transitory factors like the surge in demand.

But he acknowledged that “these may take months before fading away.”

G-20 central bankers are studying the issue to see if there are “more structural factors at work” in the bigger-than-expected inflation spike, and “whether there is some component which starts being transitory but that could become permanent,” Visco told reporters.

Central bankers are walking a fine line between supporting the recovery with easy financial conditions while warding off a permanent increase in inflation.

“Supply chain issues are being felt globally — and finance leaders from around the globe must collaborate to address our shared challenges,” said U.K. Chancellor of the Exchequer Rishi Sunak, who chaired the meeting of the world’s richest nations.

The G-20 communique said central banks “will act as needed” to address price stability “while looking through inflation pressures where they are transitory.”

But World Bank President David Malpass warned that some of the price spikes “will not be transitory.”

“It will take time and cooperation of policymakers across the world to sort them out.”

IMF chief Kristalina Georgieva said the lag in vaccination rates to contain the pandemic in developing nations is contributing to the supply constraints, and “as long as it widens, this risk of interruptions in global supply chains is going to be higher.” 

 
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A report marking the International Day for Disaster Risk Reduction finds many deaths and economic losses from natural disasters could be averted by investing in preventive risk reduction measures. 

Climate-related disasters have nearly doubled over the past 20 years, with developing countries bearing the brunt of the damage. Though extreme weather events and other emergencies are growing, the U.N. Office for Disaster Risk Reduction says little money is being allocated to help countries prevent or reduce risks. 

The report finds $133 billion of official development assistance was allocated for disaster-related aid between 2010 and 2019, but only $5.5 billion was invested in measures to reduce the risks and lessen the impact of disasters. 

For every $100 spent on disaster-related development aid, only 50 cents goes toward protecting development from the impact of disasters, according to the report. 

Ricardo Mena, director of the Office for Disaster Risk Reduction, said even that low-level funding should be better targeted to address the needs of poorer, more vulnerable countries. 

“One would think that countries that are more prone to disasters and that experience higher mortality rates would be the ones where DRR, disaster risk reduction, financing would be allocated the most. But that is unfortunately not the case,” he said. “Insufficient investment is being provided to prevent future disasters in areas where high mortality is likely.” 

Mena said failure to invest in DRR is like buying a nice car that has no brakes.

“Investing in DRR, we know it makes sense and, in terms of cost-benefit, it is tremendously positive,” he said. “So, yes, we are saying it is better to attack the underlying factors of risk, then having to spend more money at a time when disasters actually happen.” 

Academic studies find every dollar invested in disaster risk reduction prevention can result in savings of $3 to $15 in disaster losses. 

Mena is calling for an increase in funding to help poor countries adapt to climate change and implement national strategies for disaster risk reduction. 

 
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From the United States to Germany, developed countries are scrambling to source energy supplies and satisfy a booming consumer demand for goods. 

Supply chains disrupted by the COVID-19 pandemic are straining to cope and factories are unable to meet the surge in demand from consumers, who are spending far more than normal, a consequence of governments pumping $10 trillion collectively into their economies, say business analysts.

Shortages in Britain have made headlines with shoppers facing empty food shelves, with fruits and vegetables especially in short supply. Supermarket bosses warned Wednesday they might have to ration meat to prevent panic buying, particularly in the run-up to Christmas. 

Britain’s supply challenges have been intensified by its departure from the European Union, its main trading partner. But European neighbors, as well as the United States, are also reporting shortages of clothing and electronic goods. Manufacturers say they are finding it hard to source microchips due to factory shutdowns in Asia. 

Politicians have sought to reassure voters that things will return to normal soon and that shortages are transitory.

But are they? 

Some economists and trade analysts fear the developed world may be entering a new era of scarcity partly because of climate action, which will be costly and slow economic growth, and because of a growing trend toward economic protectionism. 

While few doubt that carbon reduction in economies is essential, if an existential climate disaster is to be averted, a rise in the imposition of tariffs and quotas and government regulations, aimed at restricting imports, has free market advocates and economists worried. 

Shortage economy 

They say turning away from globalization and free trade will slow economic growth, lead to scarcity, reduce productivity, and make the world poorer. Britain’s influential Economist magazine this week warned, “Around the world, economic nationalism is contributing to the shortage economy.” 

The magazine’s editors say, “Trade policy is no longer being written with economic efficiency in mind.” They pointed to the recent decision by U.S. President Joe Biden to keep in place tariffs from the prior administration of President Donald Trump, which average around 19%, on Chinese goods. 

Free trade opponents welcome the trend, arguing globalization results in job losses in developing countries, leads to increasing and unfair economic disparities and income inequalities, results in the exploitation and underpayment of workers and roils local communities. 

Debate aside on the benefits or drawbacks of globalization, economic protectionism has been increasing in recent years. Data compiled by the London-based Center for Economic Policy Research suggests that more than 50% of exports from G-20 countries are subject to trade measures, up from 20% in 2009. 

Global cross-border investment has declined dramatically during the past two pandemic years, but even before the emergence of the coronavirus, it was falling according to figures published by the Organization for Economic Cooperation and Development, a Paris-based intergovernmental body with 38 member states. 

Since 2015 foreign direct investment by companies has fallen by half relative to world GDP, according to the OECD. 

Governments are increasingly showing a reluctance to sign new free trade deals and instead have been talking up the need to boost manufacturing capacity and the economic security of their countries. 

Analysts and business leaders also say geopolitical rivalry, where nations see trade as a zero-sum game, meaning there have to be winners and losers, is also playing an increasing role in the policy-making and economic thinking of governments. 

Last week, a group of CEOs from some of the world’s biggest companies, brought together by the World Economic Forum, WEF, an independent international organization, called for greater global trade cooperation. In a joint statement, the business leaders drawn from 17 countries highlighted the potential of trade and investment to speed the global economic recovery from the pandemic. 

“We believe trade and investment support human development and that global recovery can be built upon a trade recovery. Governments must creatively re-engage on trade reform and refrain from protectionism,” they said. 

And the CEOs added, “Through jointly upholding environmental and social standards, trade cooperation should prevent a race to the bottom and avoid harmful distortions to markets for goods and services. Trade cooperation can improve outcomes for underrepresented members of society, including women and minorities.” 

Last month, Biden played down the prospects of a post-Brexit free trade deal between the United States and Britain during bilateral talks with British Prime Minister Boris Johnson at the White House.

Biden said he would discuss the issue “a little bit” with Johnson, who has been eager to strike an agreement with the U.S. in the wake of Britain’s exit from the EU. 

Later, Johnson told British reporters that a U.S.-UK trade deal was “just not a priority” for the Biden administration. 

The U.S. is not alone in running shy of new free trade deals and focusing on national self-reliance and boosting manufacturing capacity. When first elected in 2014, India’s prime minister, Narendra Modi, raised the prospect of implementing wide-ranging economic reforms and opening his country much more to free trade. 

Some incremental reforms were introduced, but soon after entering office Modi put a pause on trade deals and adopted policies focused on India supplying the goods and services it needs from within the country, rather than getting them from abroad. 

There has been some tempering of Modi’s self-reliance policy since, but his government has been highly cautious in discussing regional trade deals, say analysts.
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Sparked by an inflationary surge in the cost of food and gas, the U.S. Labor Department announced Wednesday that starting in January, it will increase the cost-of-living adjustment (COLA) of Social Security payments by 5.9%, the largest in decades.

The Labor Department also announced Wednesday that inflation jumped 5.4% in September compared to last year.

In the recent past, the COLA has been around 2%. In 2021, it was 1.3%.

“For almost everybody who is retired and still alive today and receiving Social Security, this will probably be the highest COLA they have ever received,” Mary Johnson, a Social Security policy analyst at the Senior Citizens League, said in an interview with MarketWatch.

“We are talking about an inflation rate that almost all Social Security recipients have never experienced,” she said.   

She said there are signs inflation will continue to rise at least into next year, and added that she has heard from hundreds of seniors having trouble affording food.

Some 64 million Americans, mostly retired seniors, receive Social Security payments.

″Today’s announcement of a 5.9% COLA increase, the largest increase in four decades, is crucial for Social Security beneficiaries and their families as they try to keep up with rising costs,” Jo Ann Jenkins, CEO of AARP, an interest group focused on those over 50, said in a statement.

Social Security benefit amounts are calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers.
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A global deal to ensure large multinational companies pay a minimum tax rate of 15% and make it harder for them to avoid taxation has been recently agreed upon by 136 countries. But as White House bureau chief Patsy Widakuswara reports, the world has a long way to go before the deal is implemented.

Produced by: Mary Cieslak           
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At a time when the Chinese economy is facing multiple challenges, including an energy shortage and supply chain problems that have disrupted multiple industries, an expanding crisis in the real estate sector threatens even further damage. 

For months, the slow-moving default crisis at China Evergrande Group, one of the country’s largest property developers, has put a spotlight on the real estate sector, which makes up a much larger share of gross domestic product in China – nearly 30% – than it does in most developed countries. 

The crisis has accelerated in recent days, with more real estate companies defaulting on their bond payments, or asking for forbearance from creditors in order to avoid default.

Experts warn that the deterioration of the Chinese real estate sector could lead to reluctance of foreign investors to place bets on Chinese companies in general – bad news at a time when the government in Beijing is struggling to manage multiple problems. 

Energy shortage 

The crisis in the property sector comes at a particularly bad time for China, which is currently facing widespread shortages of coal, which it uses to generate around 70% of its electricity. 

The coal shortage is driven by a number of factors, including a boycott by China of Australian coal put in place last year after officials in Canberra demanded an investigation into the origins of the COVID-19 pandemic, which first appeared in China.

But China has also placed a series of new regulations on coal mines while simultaneously requiring that energy prices be kept artificially low. This led to disinvestment in the coal sector, and lower production. 

This week, Beijing announced that it will allow energy firms to set prices on the open market without a ceiling, which will make electricity significantly more expensive, but will also incentivize more production.

The moves to improve the supply of energy are not expected to achieve real results until sometime next year. Meanwhile, the energy shortage has cascaded through the Chinese economy. The country has faced intermittent blackouts that have impacted everything from heavy industries like steel, aluminum and cement, to the manufacture of electronics and other consumer goods. 

Broader problems in real estate 

At a time when foreign investment could help drive improvement in the country’s energy sector, the struggles of the property development market are making those investments look more and more risky. 

Evergrande’s failure to make payments on a pair of dollar-denominated bonds last month – and the Chinese government’s apparent lack of interest in bailing out the company – has raised questions about the future of the conglomerate, which has more than $300 billion in debt still outstanding.

On Tuesday, investors in Evergrande bonds reported that the company had missed another payment of $148 million. 

Now, the crisis at Evergrande seems to be infecting other firms in the property sector. Last week, Fantasia Holdings Group, a Shenzhen-based property developer, shocked the markets by defaulting on a $206 million payment. Days before, the bonds had been trading at 99 cents on the dollar, suggesting that investors thought it highly likely that the company could service its debt. 

On Tuesday, another firm, Sinic Holdings, announced that it does not expect to be able to make a payment on a $250 million bond coming due next week, and that the failure will cause it to “cross-default” on two other outstanding bonds.

Funding crisis 

Still more firms are showing signs of imminent distress. Modern Land Co., based in Beijing, has asked creditors for a three-month extension on a pending payment, and Xinyuan Real Estate has asked its creditors to trade bonds coming due on Friday for new bonds that won’t mature until 2023, a move rating agencies see as tantamount to default. 

The series of defaults in the property sector has given international investors reason to be extremely leery of the Chinese property market. Moody’s Investors Service, Fitch Ratings and S&P Global Ratings have all slashed credit ratings on a host of Chinese developers.

Bondholders who were willing to accept a 10% interest rate on Chinese junk bonds – securities considered to be below “investment grade” by ratings firms – are now demanding rates above 20%, in some cases. Holders of existing bonds are expecting to take significant “haircuts” on their holdings, meaning that they will be forced to accept less than they are owed. 

A drag on economic growth 

High borrowing costs are likely to be a persistent problem for Chinese companies, Doug Barry, a spokesman for the U.S.-China Business Council, told VOA. 

“A problem for the Chinese economy is that it will cost higher rates of return to sell Chinese debt in world equity markets,” he said.

Barry said that the likely result is that China will receive less investment capital from overseas in the future, which will hamper economic growth.

“The immediate effects could be lower levels of investment and lower levels of growth,” he said. “This, paired with energy shortages, represents a one-two punch. Foreign companies with substantial investments in China are watching closely with an eye toward keeping supply chains intact and costs stable.” 

“The world economy is intertwined with China’s, ‘like lips and teeth,’ to use a Chinese expression,” he added. The hope is that officials will get a grip on the immediate problems and do the work necessary to stabilize for the longer term financial, property and energy markets.” 

Public concern limited 

Tianlei Huang, a research fellow at the Peterson Institute for International Economics, said in an email exchange with VOA that inside China, there doesn’t appear to be broad public concern about the crisis in the real estate sector seeping into other parts of the economy. 

However, he added, “There is no denying that Evergrande’s debt is worrying. Though the overall debt held by financial institutions is limited, certain banks with high exposure to Evergrande and other weak property developers could suffer a heavy blow and see a sharp deterioration in asset quality should there be a cross default.” 

The lack of widespread public concern may be due, in part, to how difficult it is to get a full picture of the indebtedness of large Chinese companies. 

Hidden debt 

“What is equally worrying is that Evergrande also has lots of off-balance-sheet debt and it is unclear how much,” Huang said.

Many Chinese firms supplement bank loans and bond issuances with other sources of funding, including investment capital routed through wealth management firms seeking high returns for their clients. 

“You may have seen videos of gatherings of investors in front of Evergrande’s office buildings asking for repayments,” he said. “Local governments are now on high alert for any large-scale gatherings related to Evergrande.” 

 
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The U.S. House of Representatives voted Tuesday to extend the government’s borrowing authority into early December, averting a first-ever default next week, when the United States said it would run out of money to pay its bills. 

The House vote increased the existing $28.4 trillion debt total by $480 billion through December 3, following approval last week by the Senate. The legislation now goes to President Joe Biden for his signature. 

While the congressional votes and Biden’s approval resolve the immediate financial crisis for the government, the Democratic-controlled Congress and the White House have yet to agree on how to approve a long-term expansion of the borrowing authority, perhaps through almost all of 2022. 

Senate Minority Leader Mitch McConnell secured enough of his fellow Republican senators’ votes last week to help Democrats pass the expanded borrowing authority in the short term but said he would not do so again as the December deadline approaches. 

McConnell has called on Democrats to approve the debt ceiling on their own through a legislative process known as reconciliation, for which they would not need any Republican support. But Democrats say the process is cumbersome and time-consuming, leaving uncertain how they will try to increase the borrowing authority come December. 

The U.S., almost alone among world governments, has a debt ceiling, one it has adjusted about 70 times since 1965, either by increasing it to a specific figure or by suspending it for a year or two. The U.S. needs to borrow money, much as individual consumers might, because it chronically spends more than it collects in corporate and individual taxes. 

U.S. Treasury chief Janet Yellen warned Sunday that it was “absolutely imperative” that Congress increase the country’s borrowing authority, even as the threat of an immediate default receded.

“It would be a catastrophe” if the United States did not increase the debt ceiling, Yellen told ABC’s This Week.

Yellen had said the U.S. would run out of money to pay its bills next Monday. McConnell and 10 other Republicans voted to clear the path for Democratic senators to increase the government’s borrowing authority on a 50-48 party-line vote.

Senate Majority Leader Chuck Schumer said Republicans should join Democrats in raising the debt ceiling because the country’s long-term debt had increased under both Republican and Democratic control of the White House and Congress.

The borrowing authority provides money to pay bills for debt already incurred, not future spending. But Republicans have balked at helping Democrats raise the debt ceiling this time, in protest of Biden’s proposal to spend $2 trillion or more on the biggest expansion of the country’s social safety net programs in five decades.

Yellen has called for doing away with the debt ceiling, but that is unlikely since both Republican and Democratic lawmakers, thinking it is a winning political tactic, repeatedly blame each other for what they contend is wasteful and unneeded spending by their opponents.

“It should be a shared responsibility (to increase the debt ceiling), not any one party,” Yellen said. “It is Congress’ responsibility.”

“We have to reassure the world that the United States is fiscally responsible,” she said, adding that if the borrowing authority is not increased before December 3, it would amount to “a self-inflicted crisis.”

Yellen said if the debt ceiling is not increased, 50 million older Americans may not receive government pension benefits and “our troops won’t know when or if they would be paid. The 30 million families that receive a child tax credit, those payments would be in jeopardy,” she said. 

 
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One reason America’s employers are having trouble filling jobs was starkly illustrated in a report Tuesday: Americans are quitting in droves.

The Labor Department said that quits jumped to 4.3 million in August, the highest on records dating back to December 2000, and up from 4 million in July. That’s equivalent to nearly 3% of the workforce. Hiring also slowed in August, the report showed, and the number of jobs available fell to 10.4 million, from a record high of 11.1 million the previous month.

The data helps fill in a puzzle that is looming over the job market: Hiring slowed sharply in August and September, even as the number of posted jobs was near record levels. In the past year, open jobs have increased 62%. Yet overall hiring, as measured by Tuesday’s report, has actually declined slightly during that time.

The jump in quits strongly suggests that fear of the delta variant is partly responsible for the shortfall in workers. In addition to driving quits, fear of the disease probably caused plenty of those out of work to not look for, or take, jobs.

As COVID-19 cases surged in August, quits soared in restaurants and hotels from the previous month and rose in other public-facing jobs, such as retail and education. Nearly 900,000 people left jobs at restaurants, bars, and hotels in August, up 21% from July. Quits by retail workers rose 6%.

Yet in industries such as manufacturing, construction, and transportation and warehousing, quits barely increased. In professional and business services, which includes fields such as law, engineering, and architecture, where most employees can work from home, quitting was largely flat. 

Other factors also likely contributed to the jump in quits. With many employers desperate for workers and wages rising at a healthy pace, workers have a much greater ability to demand higher pay or go elsewhere to find it. 

The data from August is probably too early to reflect the impact of vaccine mandates. President Joe Biden’s mandate was not announced until Sept. 9. United Airlines announced its mandate in early August, but it was one of the first companies to do so. And layoffs were unchanged in August, the report found.

The government said Friday that job gains were weak for a second straight month in September, with only 194,000 jobs added, though the unemployment rate fell to 4.8% from 5.2%. Friday’s hiring figure is a net total, after quits, retirements, and layoffs are taken into account. Tuesday’s report, known as the Job Openings and Labor Turnover Survey, or JOLTS, includes raw figures, and showed that total hiring in August fell sharply, to 6.3 million from 6.8 million in July.

The data is “highlighting the immense problems businesses are dealing with,” said Jennifer Lee, an economist at BMO Capital Markets, in an email. “Not enough people. Not enough equipment and/or parts. Meantime, customers are waiting for their orders, or waiting to place their orders. What a strange world this is.”

Quits also rose the most in the South and Midwest, the government said, the two regions with the worst COVID outbreaks in August.

When workers quit, it is typically seen as a good sign for the job market, because people usually leave jobs when they already have other positions or are confident they can find one. The large increase in August probably does reflect some of that confidence among workers.

But the fact that the increase in quits was heavily concentrated in sectors that involve close contact with the public is a sign that fear of COVID also played a large role. Many people may have quit even without other jobs to take.

The sharp increase in job openings also has an international dimension: Job vacancies have reached a record level in the United Kingdom, though that is partly because many European workers left the U.K. after Brexit.
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It was late last Christmas Eve when the European Union and Britain finally clinched a Brexit trade deal after years of wrangling, threats and missed deadlines to seal their divorce.

There was hope that now-separated Britain and the 27-nation bloc would sail their relationship toward calmer waters.

With Christmas closing in again one thing is clear — it wasn’t to be.

Britain’s Brexit minister on Tuesday accused the EU of wishing failure on its former member and of badmouthing the U.K. as a country that can’t be trusted. David Frost said during a speech in Lisbon that the EU “doesn’t always look like it wants us to succeed” or “get back to constructive working together.”

He said a fundamental rewrite of the mutually agreed divorce deal was the only way to fix the exes’ “fractious relationship.” And he warned that Britain could push an emergency override button on the deal if it didn’t get its way.

“We constantly face generalized accusations that we can’t be trusted and that we aren’t a reasonable international actor,” Frost added — a response to EU claims that the U.K. is seeking to renege on the legally binding treaty that it negotiated and signed.

Post-Brexit tensions have crystalized into a worsening fight over Northern Ireland, the only part of the U.K. to share a land border with an EU country, which is Ireland. Under the most delicate and contentious part of the Brexit deal, Northern Ireland remains inside the EU’s single market for trade in goods, in order to avoid a hard border with EU member Ireland.

That means customs and border checks must be conducted on some goods going to Northern Ireland from the rest of the U.K., despite the fact they are part of the same country. The regulations are intended to prevent goods from Britain entering the EU’s tariff-free single market while keeping an open border on the island of Ireland — a key pillar of Northern Ireland’s peace process.

The U.K. government soon complained the arrangements weren’t working, saying the rules impose burdensome red tape on businesses. Never short of a belligerent metaphor, 2021 has already brought a “sausage war,” with Britain asking the EU to drop a ban on processed British meat products such as sausages entering Northern Ireland.

Northern Ireland’s British Unionist community, meanwhile, says the Brexit deal undermines the 1998 Good Friday peace accord — which sought to protect the rights of both Unionist and Irish Nationalist communities — by weakening Northern Ireland’s ties with the rest of the U.K.

The bloc has agreed to look at changes to the Protocol, and is due to present proposals on Wednesday. Before that move, Britain raised the stakes again, with Frost demanding sweeping changes to the way the agreement is governed.

In his speech in the Portuguese capital, Frost said the Protocol “is not working.”

“It has completely lost consent in one community in Northern Ireland,” he said. “It is not doing the thing it was set up to do – protect the Belfast (Good Friday) Agreement. In fact it is doing the opposite. It has to change.”

Most contentiously, he said the EU must also remove the European Court of Justice as the ultimate arbiter of disputes concerning trade in Northern Ireland and instead agree to international arbitration. He said the role of the EU court “means the EU can make laws which apply in Northern Ireland without any kind of democratic scrutiny or discussion.”

The EU is highly unlikely to agree to the change. The bloc’s highest court is seen as the pinnacle of the free trade single market, and Brussels has vowed not to undermine its own order.

Ireland’s Deputy Prime Minister, Leo Varadkar, said Britain’s demand was “very hard to accept.”

“I don’t think we could ever have a situation where we had another court deciding what the rules of the single market are,” he said.

Some EU observers say Britain’s demand to remove the court’s oversight shows it isn’t serious about making the Brexit deal work.

Frost repeated the U.K.’s threat to invoke Article 16, a clause allowing either side to suspend the agreement in exceptional circumstances. That would send already testy relations into a deep chill and could lead to a trade war between Britain and the bloc — one that would hurt the U.K. economy more than its much larger neighbor.

The economically tiny but symbolically charged subject of fish, which held up a trade deal to the final minute last year, is also stoking divisions now.

France wants its EU partners to act as one if London wouldn’t grant more licenses for small French fishing boats to roam close to the U.K. crown dependencies of Jersey and Guernsey, just off France’s Normandy coast.

In France’s parliament last week, Prime Minister Jean Castex accused Britain of reneging on its promise over fishing.

“We see in the clearest way possible that Great Britain does not respect its own signature,” he said.

In a relationship where both sides often fall back on cliches about the other, Castex was harking back to the centuries-old French insult of “Perfidious Albion,” a nation that can never be trusted.

Across the English Channel, U.K. Brexit supporters often depict a conniving EU, hurt by Britain’s departure, doing its utmost to make Brexit less than a success by throwing up bureaucratic impediments.

“The EU and we have got into a low equilibrium, (a) somewhat fractious relationship,” Frost conceded. “(It) need not always be like that, but … it takes two to fix it.”
…

The International Monetary Fund is slightly downgrading its outlook for the global recovery from the pandemic recession, reflecting the persistence of supply chain disruptions in industrialized countries and deadly disparities in vaccination rates between rich and poor nations. 

In its latest World Economic Outlook being released Tuesday, the IMF foresees global growth this year of 5.9%, compared with its projection in July of 6%. 

For the United States, the world’s largest economy, the IMF predicts growth of 6% for 2021, below its July forecast of 7%. The downward revision reflects a slowdown in economic activity resulting from a rise in COVID-19 cases and delayed production caused by supply shortages and a resulting acceleration of inflation. 

The IMF predicts that for the world’s advanced economies as a whole, growth will amount to 5.2% this year, compared with a meager predicted gain of 3% for low-income developing countries. 

“The dangerous divergence in economic prospects across countries,” the IMF said, “remains a major concern.” 

The monetary fund expects the total output from advanced economies to recoup the losses they suffered during the pandemic by 2022 and to exceed their pre-pandemic growth path by 2024. 

But in emerging and developing countries outside of China, the IMF warns, output will remain an estimated 5.5% below the output growth path that the IMF had been forecasting before the pandemic struck in March of last year. That downgrade poses a serious threat to living standards in those countries, the monetary fund said. 

The IMF attributed that economic divergence to the sizable disparities in vaccine access between wealthy and low income countries. It said the outlook for poorer countries had “darkened considerably,” reflecting the surge in cases of the delta variant that has elevated the COVID death toll worldwide to nearly 5 million. 

While nearly 60 percent of the population in advanced economies are fully vaccinated, only about 4% of the population in the poorer countries are. 

Along with lagging vaccination levels, poorer nations face headwinds from a spike in inflation, with food prices rising the most in low-income countries, the IMF said. 

The 5.9% rise in global output being forecast in the IMF outlook would represent a sizable gain after a 3.1% decline in output because of the pandemic last year. For 2022, the IMF foresees an expansion of 4.9%, unchanged from its July forecast. 

The 6% gain in U.S. growth this year follows a deep 3.4% contraction in 2020. The IMF expects solid U.S. growth of 5.2% in 2022. For the 19 nations that use the euro currency, the IMF predicts a 5% expansion this year and 4.3% in 2022. 

China, the world’s second-largest economy, is expected to register growth of 8% this year, down slightly from the IMF’s forecast of 8.1% in July, with growth of 5.6% in 2022. 

The new World Economic Outlook was prepared for this week’s fall meetings of the 190-nation IMF and its sister lending organization, the World Bank, as well as of finance ministers and central bank presidents of the Group of 20 major industrial countries. It was released hours after the IMF expressed confidence in its managing director, Kristalina Georgieva, in response to allegations that while serving as a senior World Bank official, she and others pressured staffers to change business rankings in an effort to placate China. 

The IMF’s 24-member executive board said in a statement that a review it conducted “did not conclusively demonstrate” that Georgieva played an improper role in the situation. 

“Having looked at all the evidence presented, the executive board reaffirms its full confidence in the managing director’s leadership and ability to continue to effectively carry out her duties,” it said. 

Among the agenda items for the meetings this week will be efforts to persuade rich nations to fulfill their pledges to boost the level of vaccines going to poor countries as well as a discussion among the G-20 countries over a just-announced global agreement for a 15% minimum tax on corporate profits. Once the agreement is reviewed by G-20 finance officials, it is expected to be endorsed at a leaders’ summit of G-20 countries in Rome. 

 
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Hunger and food insecurity across the United States have dropped measurably over the past six months, but the need remains far above pre-pandemic levels. And specialists in hunger issues warn that the situation for millions of families remains extremely fragile. 

An Associated Press review of bulk distribution numbers from hundreds of food banks across the country revealed a clear downward trend in the amount of food handed out across the country, starting in the spring as the COVID-19 vaccine rollout took hold and closed sectors of the economy began to reopen. 

“It’s come down, but it’s still elevated,” said Katie Fitzgerald, CEO of Feeding America, a nonprofit organization that coordinates the efforts of more than 200 food banks across the country and that provided the AP with the national distribution numbers. She warned that despite the recent decreases, the amount of food being distributed by Feeding America’s partner food banks remained more than 55% above pre-pandemic levels. “We’re worried (food insecurity) could increase all over again if too many shoes drop,” she said. 

Those potential setbacks include the advance of the delta variant of the coronavirus, which has already delayed planned returns to the office for millions of employees and which could threaten school closures and other shutdowns as the nation enters the winter flu season. Other obstacles include the gradual expiration of several COVID-19-specific protections such as the eviction moratorium and expanded unemployment benefits. 

All told, families facing food insecurity find themselves still dependent on outside assistance and extremely vulnerable to unforeseen difficulties. 

“There are people going back to work, but it’s slow going and God forbid you should need a car repair or something,” said Carmen Cumberland, president of Community Harvest Food Bank in Fort Wayne, Indiana. 

Nationally, the food banks that work with Feeding America saw a 31% increase in the amount of food distributed in the first quarter of 2021 compared with the first quarter of 2020, just before the global pandemic reached America. 

When the nationwide closures of offices and schools began in March 2020, the impact was immediate. Feeding America-affiliated food banks distributed 1.1 billion pounds of food in the first quarter on 2020; in the second quarter, the number jumped 42% to more than 1.6 billion pounds. The third quarter saw a smaller 5% increase up to nearly 1.7 billion pounds of food. While distributions declined from the end of 2020 to the first quarter of 2021, recent data suggests that the decline has leveled off. 

The national data is mirrored in the experiences of individual food banks across the country. At the Alameda County Community Food Bank in Oakland, California, the level of community need spiked in winter and early spring of this year. In February 2021, the organization set a record with 5 million pounds of food distributed. That record stood for one month as March 2021 saw 6 million pounds distributed. 

After the March peak, the numbers started dropping steadily — down to 4.6 million pounds in August 2021. But that’s still compared with 2.7 million pounds in June 2019. 

“The recovery is going to be very, very long and steep for families who are typically reliant on food banks,” said Michael Altfest, the food bank’s director of community engagement. Altfest said the coronavirus pandemic was an additional trauma for families already suffering from food insecurity, and it introduced a whole new category of client who had never used food banks before but had been pushed over the financial edge by the pandemic. Both categories are projected to remain in need of assistance well into next year. 

“Things are not getting any easier here for low- and moderate-income households, and we don’t expect it to for a while,” Altfest said. 

Just how long the elevated level of need will last is a matter of debate, with the most conservative estimates projecting it will last well into next summer. Some are predicting that the country’s food banks may never return to normal. 

Parallel government food assistance programs like Supplemental Nutrition Assistance Program (SNAP) benefits, commonly known as food stamps, also saw a pandemic-fueled spike in usage. The Department of Agriculture, which administers SNAP, reports that the number of SNAP users increased by 7 million between 2019 and 2021. In August, President Joe Biden instituted a permanent 25% boost in SNAP benefits, starting this month. 

But the SNAP program doesn’t come close to covering every family in need. Many of the clients who depend on food banks for their nutrition are either ineligible for SNAP benefits, intimidated by the bureaucratic paperwork or fearful of applying due to their immigration status. That leaves food banks as the primary source of aid for millions of hungry people. 

Secretary of Agriculture Tom Vilsack told the AP that at the peak of the pandemic, 14% of American adults were receiving SNAP benefits. That number is now down around 8%, but the need remains highly elevated, and nonprofit charitable options like food banks serve a vital role in papering over the remaining holes in millions of family budgets, he said. 

“We just need to understand what this pandemic has done in terms of significant disruption of what was probably a pretty fragile system to begin with,” said Vilsack, who also filled the same Cabinet post under former President Barack Obama. “It has exposed the fragility of the system, which makes programs like SNAP, programs like summer feeding programs, school feeding programs, food bank assistance ever more important.” 

Vilsack said the Biden administration has moved to strengthen the national food bank infrastructure by devoting $1 billion in June to help fund refrigerated trucks and warehouses that will allow food banks to store and provide more fresh fruits, vegetables and dairy products. 

Now the country’s food bank network is busy trying to project the level of need going forward, factoring in multiple influences — positive and negative. Theoretically, the boosted Child Tax Credit payments, which started in July, are meant to alleviate the monthly burden for lower-income and middle-class families by providing money to use as the families see fit. But food bank executives and researchers estimate that it could take six to 12 months to see a real impact on food security as families initially devote those funds to issues like rent or car repairs. 

And the end of the nationwide eviction moratorium looms as a major pressure point that could push vulnerable families back into crisis. 

The Biden administration allowed the federal moratorium to expire in late August, and Congress did not extend it. While the federal government now focuses on pumping money into rental assistance programs, the national moratorium has devolved into a patchwork of localized moratoriums, in places like Washington, D.C., Boston and New York state — all expiring on different schedules. 

At the southeast Washington drive-through food pantry, volunteers there have developed friendships with some of the regulars, including Rob and Devereaux Simms. A retired bus driver and a school aide, both in their 70s, they consider themselves solidly middle class and had never used food stamps. But when the pandemic hit and two of their children were laid off, “things started running short,” Devereaux Simms said. 

Now, with three grandchildren living at home, they’re fixtures at the Wednesday drive-through. They even make a point of taking home extra supply boxes to distribute to needy neighbors and recently took small gifts for the volunteers. 

“God’s been good to us,” Devereaux Simms said, “and you should never be too proud to accept help.” 

 
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The World Bank on Monday warned of a significant 12% rise in the debt burden of the world’s low-income countries to a record $860 billion in 2020 as a result of the COVID-19 pandemic and called for urgent efforts to reduce debt levels. 

World Bank President David Malpass told reporters the bank’s International Debt Statistics 2022 report showed a dramatic increase in the debt vulnerabilities facing low- and middle-income countries; he also urged for comprehensive efforts to help countries reach more sustainable debt levels. 

“We need a comprehensive approach to the debt problem, including debt reduction, swifter restructuring and improved transparency,” Malpass said in a statement accompanying the new report. 

He said half of the world’s poorest countries were in external debt distress or at high risk of it. 

Malpass said sustainable debt levels were needed to help countries achieve economic recovery and reduce poverty. 

The report said the external debt stocks of low- and middle-income countries combined rose 5.3% in 2020 to $8.7 trillion, affecting countries in all regions. 

It said the rise in external debt outpaced gross national income (GNI) and export growth, with the external debt-to-GNI ratio, excluding China, rising five percentage points to 42% in 2020, while their debt-to-export ratio surged to 154% in 2020 from 126% in 2019. 

Malpass said debt restructuring efforts were urgently needed given the expiration at the end of this year of the Group of 20 major economies’ Debt Service Suspension Initiative (DSSI), which has offered temporary deferral of debt payments. 

The G20 and Paris Club of official creditors launched a Common Framework for Debt Treatments last year to restructure unsustainable debt situations and protracted financing gaps in DSSI-eligible countries, but only three countries — Ethiopia, Chad and Zambia — have applied thus far. 

Malpass said further debt payment freezes could be included as part of Common Framework debt restructurings, but more work was also needed to increase the participation of private sector creditors, who have thus far been reluctant to get involved. 

The report showed that net inflows from multilateral creditors to low- and middle-income countries rose to $117 billion in 2020, the highest level in a decade. 

Net lending to low-income countries rose 25% to $71 billion, also the highest level in a decade, with the International Monetary Fund, or the IMF, and other multilateral creditors providing $42 billion and bilateral creditors $10 billion, it said. 

Carmen Reinhart, the World Bank’s chief economist, said the challenges facing highly indebted countries could get worse as interest rates rose. 

The World Bank said it expanded the 2022 report to boost transparency about global debt levels by providing more detailed and disaggregated data on external debt. 

The data now include a breakdown of a borrowing country’s external debt stock to show the amount owed to each official and private creditor, the currency composition of this debt, and the terms on which loans were extended. 

For DSSI-eligible countries the data also show the debt service deferred in 2020 by each bilateral creditor and the projected month-by-month debt-service payments owed to them through 2021.  
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More than 130 countries have agreed on sweeping changes to how big global companies are taxed, including a 15% minimum corporate rate designed to deter multinationals from stashing profits in low-tax countries. 

The deal announced Friday is an attempt to address the ways globalization and digitalization have changed the world economy. It would allow countries to tax some of the earnings of companies located elsewhere that make money through online retailing, web advertising and other activities. 

U.S. President Joe Biden has been one of the driving forces behind the agreement as governments around the world seek to boost revenue following the COVID-19 pandemic. 

The agreement among 136 countries representing 90% of the global economy was announced by the Paris-based Organisation for Economic Co-operation and Development, which hosted the talks that led to it. The OECD said that the minimum tax would reap some $150 billion for governments.

“Today’s agreement represents a once-in-a-generation accomplishment for economic diplomacy,” U.S. Treasury Secretary Janet Yellen said in a statement. She said it would end a “race to the bottom” in which countries outbid each other with lower tax rates. 

“Rather than competing on our ability to offer low corporate rates,” she said, “America will now compete on the skills of our workers and our capacity to innovate, which is a race we can win.” 

The deal faces several hurdles before it can take effect. U.S. approval of related tax legislation proposed by Biden will be key, especially since the U.S. is home to many of the biggest multinational companies. A rejection by Congress would cast uncertainty over the entire project. 

Big U.S. tech companies such as Google and Amazon have supported the OECD negotiations. One reason is that countries would agree to withdraw individual digital services taxes they have imposed on the companies in return for the right to tax part of their earnings under the global scheme.

That means the companies would deal with just the one international tax regime, not a multitude of different ones depending on the country.

“This accord opens the way to a true tax revolution for the 21st century,” said French Finance Minister Bruno Le Maire. “Finally, the digital giants will pay their just share in taxes in the countries — including France — where they produce.” 

On Thursday, Ireland announced that it would join the agreement, ditching a low-tax policy that has led companies such as Google and Facebook to base their European operations there. 

Although the Irish agreement was a step forward for the deal, developing countries have raised objections, and Nigeria, Kenya, Pakistan and Sri Lanka have indicated they will not sign up.

Anti-poverty and tax fairness advocates have said the bulk of new revenue would go to wealthier countries and offer less to developing countries that are more dependent on corporate taxes. The Group of 24 developing countries said that without a bigger share of revenue from reallocated profits, the deal would be “suboptimal” and “not sustainable even in the short run.” 

The deal will be taken up by the Group of 20 finance ministers next week and then by G-20 leaders for final approval at a summit in Rome at the end of October.

Countries would sign on to a diplomatic agreement to implement the tax on companies that have no physical presence in a country but earn profits there, such as through digital services. That provision would affect around 100 global firms.

The second part of the deal, the global minimum of at least 15%, would apply to companies with more than 750 million euros ($864 million) in revenue and be passed into domestic law by countries according to model rules developed at the OECD. A top-up provision would mean tax avoided overseas would have to be paid at home. So long as at least the major headquarters countries implement the minimum tax, the deal would have most of its desired effect. 

 
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Southwest Airlines canceled hundreds more flights Monday following thousands of flight cancellations over the weekend but said it expects to resume normal service this week.

For the third straight day, passengers were left stranded amid confusion about what caused the cancellations.

Southwest blamed the weekend cancellations on bad weather and air traffic control issues in Florida. The Federal Aviation Administration acknowledged some control issues on Friday; however, it noted that no other airlines suffered large-scale cancellations throughout the weekend. 

The union for Southwest’s pilots has denied holding a sickout in response to the airline’s decision to mandate vaccinations. 

The union asked a federal court on Friday to block the airline’s requirement that all employees get vaccinated against COVID-19. It says it does not oppose vaccinations but has argued that Southwest must negotiate with the union over any vaccine mandates before implementing them. 

Southwest said that the initial wave of flight cancellations left aircraft and crew out of place, which in turn made it difficult for the airline to recover its normal schedules and led to more canceled flights. 

In a video message to employees seen by CNBC, Southwest Chief Operating Officer Mike Van de Ven said that staffing shortages have also played a role in the service disruption.

The airline “is still not where we need to be on staffing and, in particular, with flight crews,” he said. 

Southwest is one of several airlines that have been struggling with staffing issues for months, leading to flight cancellations and delays throughout the summer.

Southwest said in a tweet Monday, “While we work to stabilize our operations, we anticipate to resume normal service this week.” 

Some information for this report came from The Associated Press, Reuters and Agence France-Presse. 

 
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Three U.S-based economists won the 2021 Nobel prize for economics on Monday for pioneering research on the labor market impacts of minimum wage, immigration and education, and for creating the scientific framework to allow conclusions to be drawn from such studies that can’t use traditional methodology.

Canadian-born David Card of the University of California at Berkeley was awarded one half of the prize, while the other half was shared by Joshua Angrist from the Massachusetts Institute of Technology and Dutch-born Guido Imbens, 58, from Stanford University.

The Royal Swedish Academy of Sciences said the three have “completely reshaped empirical work in the economic sciences.”

“Card’s studies of core questions for society and Angrist and Imbens’ methodological contributions have shown that natural experiments are a rich source of knowledge,” said Peter Fredriksson, chair of the Economic Sciences Committee. “Their research has substantially improved our ability to answer key causal questions, which has been of great benefit for society.” 

Card worked on research that used restaurants in New Jersey and in eastern Pennsylvania to measure the effects of increasing the minimum wage. He and his late research partner Alan Krueger found that an increase in the hourly minimum wage did not affect employment, challenging conventional wisdom which held that an increase in minimum wage will lead to less hiring.

Card’s work also challenged another commonly held idea, that immigrants depress wages for native-born workers. He found that incomes of the native-born can benefit from new immigration, while it is earlier immigrants who are at risk of being negatively affected.

Angrist and Imbens won their half of the award for working out the methodological issues that enable economists to draw solid conclusions about cause and effect even where they cannot carry out studies according to strict scientific methods.

Speaking by phone from his home in Massachusetts, Imbens told reporters gathered for the announcement that he had been asleep when the call came.

“The whole house was asleep, we had a busy weekend.” said Imbens. “I was absolutely thrilled to hear the news.”

He said he was especially thrilled for Angrist, who was best man at his wedding. 

Unlike the other Nobel prizes, the economics award wasn’t established in the will of Alfred Nobel but by the Swedish central bank in his memory in 1968, with the first winner selected a year later. It is the last prize announced each year. 

Last week, the 2021 Nobel Peace Prize was awarded to journalists Maria Ressa of the Philippines and Dmitry Muratov of Russia for their fight for freedom of expression in countries where reporters have faced persistent attacks, harassment and even murder. 

Ressa was the only woman honored this year in any category. 

The Nobel Prize for literature was awarded to U.K.-based Tanzanian writer Abdulrazak Gurnah, who was recognized for his “uncompromising and compassionate penetration of the effects of colonialism and the fate of the refugee.”

 The prize for physiology or medicine went to Americans David Julius and Ardem Patapoutian for their discoveries into how the human body perceives temperature and touch. 

Three scientists won the physics prize for work that found order in seeming disorder, helping to explain and predict complex forces of nature, including expanding our understanding of climate change. 

Benjamin List and David W.C. MacMillan won the chemistry prize for finding an easier and environmentally cleaner way to build molecules that can be used to make compounds, including medicines and pesticides. 
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A thaw in the Sino-U.S. trade dispute, as hinted in Washington this past week, would help restore global supply chains but thin the outflow of investment capital from China to Southeast Asian countries that are eager to receive it, experts say. 

Reductions in punitive import tariffs between the two powers, which have been locked in a trade dispute since early 2018, should revitalize the business of global parts providers, assemblers and sellers of high-value items such as consumer electronics, the analysts say. 

However, they say that Indonesia, the Philippines, Thailand and Vietnam, along with smaller Southeast Asian countries, should expect less investment by multinationals trying to sustain U.S.-bound exports without shipping from China. Southeast Asian countries look to that investment to build economies and lift people out of poverty. 

In addition, Taiwan gained from the trade dispute as investors moved production and capital back home from China.

“I think the nature of value chains and supply chains is interdependent, so you might get a bit more in your country as a result of people moving out of another, but at the end of the day you want a system that supports the whole chain and supports it well,” said Jayant Menon, a visiting senior fellow with the ISEAS Yusof Ishak Institute’s Regional Economic Studies Program in Singapore. “You don’t want this trade war interfering with it.” 

US to consider tariff exclusions 

U.S. Trade Representative Katherine Tai said October 5 that the United States would start a “targeted tariff exclusion process” for China.

Her announcement doesn’t end the trade dispute that flared under former President Donald Trump, who said China had committed years of “unfair trade practices,” but it may signal an eventual change under President Joe Biden. 

“The exclusions process is a key part of the Biden-Harris Administration’s deliberative, long-term vision for realigning the U.S.-China trade relationship around our priorities and making trade work for American workers and businesses,” the U.S. Trade Representative’s office said in the October 5 statement. 

China welcomed the move, the official Xinhua news agency said the same day. Xinhua quoted Ministry of Foreign Affairs spokesperson Hua Chunying as saying, “We hope the United States will … work with China to strive for healthy and steady development of China-U.S. trade and economic relations.” 

The dispute has hit $550 billion worth of goods, including $350 billion originating in China. 

Tai said the United States had yet to review its January 2020 “phase one agreement” with China over the trade dispute. The United States had agreed to reduce tariffs, while China said it would buy more U.S. agricultural products. 

‘A rising tide raises all boats’

A reduction in Sino-U.S. tariffs would jumpstart the manufacturing of electronics, machinery and transportation equipment, Menon said. 

China’s factories generated $3.7 trillion in “real manufacturing value added” in 2017, before the trade dispute, the Boston Consulting Group reported.  Goods such as machinery and electronics – compared to lower-value items including garments and shoes – represent “most of the action” in global trade, Menon said.  

China does a bit of everything, and the consultancy says its value-added factory output had surpassed every other country in 2017.

Specific value-added imports from China include televisions, smart speakers and consumer drones. Apple, to name just one known brand, has grappled with rising costs during the trade dispute as it contracts final assembly to two Taiwanese firms with factories in China. Apple sources parts to a list of companies in Taiwan, Japan and South Korea. 

“Of course, it would be better if things were better between these two countries,” said Jonathan Ravelas, chief market strategist with Banco de Oro UniBank in the Philippines. “A rising tide raises all boats, so if the U.S. and China are doing well, everybody benefits.”  

Limited impact on Southeast Asia, Taiwan 

Manufacturers that have steered investment out of China into Southeast Asia since 2018 are concentrated in footwear, garments and ordinary consumer goods, experts say. Those exporters have “fixed costs” and “divisible technology,” Menon said. Southeast Asian factory-heavy countries offer supportive government policies and infrastructure, as well. 

“If there’s going to be some difficulty in (Sino-U.S.) trade, then definitely peripheral countries like the Philippines would benefit,” Ravelas said. 

American companies favor Vietnam for its cheap labor especially if they lack automation, said Frederick Burke, Ho Chi Minh City-based partner with the law firm Baker McKenzie.

“We still have clients looking at Vietnam, they’re saying this is a long-term plan, the COVID-19 pandemic is going to be over before too long and they want to get in while they can,” Burke said. “Vietnam probably is still going to have some sort of a positive growth rate this year.” 

The country’s top retail, property and manufacturing conglomerate, Vingroup, declined to comment on shifts in Sino-U.S. trade, with a spokesperson saying it would “decide target markets later.”  

Manufacturers were exploring outside of China before the trade dispute as Chinese wages rose and environmental laws tightened, Menon noted. The offshoring trend will probably hold after the trade dispute, though with some tapering, he said. 

Taiwan would feel little pinch as a glut in demand for its most prized export, semiconductors, keeps growing, said Liang Kuo-yuan, president of the Taipei-based Yuanta-Polaris Research Institute.

“The demand for chips is still there and moreover there’s a natural growth following changes in the industry,” Liang said. “Perhaps in the end competitiveness will be impacted, but the issue is, it’s still early, so if you ask about next year, I’d say pretty sure Taiwan will still be very strong in semiconductors.”
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After water levels at a California dam fell to historic lows this summer, the main hydropower plant it feeds was shut down. At the Hoover Dam in Nevada — one of the country’s biggest hydropower generators — production is down by 25%. If extreme drought persists, federal officials say a dam in Arizona could stop producing electricity in coming years. 

Severe drought across the West drained reservoirs this year, slashing hydropower production and further stressing the region’s power grids. And as extreme weather becomes more common with climate change, grid operators are adapting to swings in hydropower generation.

“The challenge is finding the right resource, or mix of resources, that can provide the same energy and power outputs as hydro,” said Lindsay Buckley, a spokesperson for the California Energy Commission. 

U.S. hydropower generation is expected to decline 14% this year compared with 2020, according to a recent federal forecast. The projected drops are concentrated in western states that rely more heavily on hydropower, with California’s production expected to fall by nearly half.

The reductions complicate grid operations since hydropower is a relatively flexible renewable energy source that can be easily turned up or down, experts say, such as in the evenings when the sun goes down and solar energy generation drops.

“Hydro is a big part of the plan for making the whole system work together,” said Severin Borenstein, a renewable energy expert at the University of California, Berkeley and board member of the California Independent System Operator, which manages the state’s electric grid. 

Borenstein noted that hydropower is important as the state works to build out its electricity storage options, including by installing batteries that can dispatch energy when it is needed.

Ben Kujala of the Northwest Power and Conservation Council, which handles power planning for the Columbia River Basin, also noted that grid operators have adapted how they deploy hydropower in recent years to ensure that it complements solar and wind energy. 

Power grids linking western regions also offer some relief. While California can face multi-year stretches of dry weather, the Pacific Northwest usually gets enough precipitation in the winter to recover and produce hydropower to export.

But this year, the Northwest was also hit by extreme heat and less precipitation, according to Crystal Raymond, a climate change researcher at the University of Washington. While energy planners account for drought years, Raymond said climate change over the long term may further reduce the amounts of melting snow in mountains that fill reservoirs in the spring.

In August, California officials shut down the Edward Hyatt hydropower plant for the first time in its 60-year history after water levels at Lake Oroville sank to historic lows. The plant can produce enough power for up to 750,000 homes, but typically operates at lower levels. 

At Lake Powell on the Arizona-Utah border, federal officials recently said there is a 34% chance that the Glen Canyon Dam won’t be able to produce power at some point in 2023, up from a 3% chance for next year, if extreme drought persists.  

Declines in hydropower production in California this summer coincided with heat waves, forcing the state to buy extra power. To prevent outages in late September, state officials said they were deploying temporary emergency generators.

“The drought did compound the difficulty of meeting demand,” said Jordan Kern, an energy and water systems expert at North Carolina State University.

In some northwestern states, hydropower production has reverted closer to normal levels after dipping just below their 10-year ranges earlier this year. California’s hydropower levels remained at the bottom of the state’s 10-year range through June. Federal forecasts say much of the West is likely to continue to see drought conditions through the end of the year.

Declines in hydropower production mean production bumps for other energy sources. Natural gas power is expected to rise 7% in California and 6% in the Northwest this year over last, according to federal forecasts. Coal generation is forecast to rise 12% in the Northwest.

The California Air Resources Board says the state has been able to continue reducing the electricity sector’s greenhouse gas emissions despite swings in hydropower generation in recent years.
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