Why Japan is Seeking Military Ties Beyond its U.S. Ally

Summary:

Before meeting President Joe Biden in Washington D.C., Japanese Prime Minister Fumio Kishida visited Italy, France, Britain and Canada, in part to forge security ties that could help it fend off China, North Korea and Russia.

Rough Neighbourhood

In June, Japan's defence minister at the time, Nobuo Kishi, said his country was surrounded by nuclear-armed nations that refused to adhere to international norms of behaviour.

In the wake of Moscow's attack on Ukraine, Kishida has described security in East Asia as "fragile."

At the top of Japan's threat list is China, which it worries could attack Taiwan or nearby Japanese islands. Chinese military activity is intensifying around the East China Sea, including joint air and sea drills with Russia.

At the same time, North Korea has fired missiles into the Sea of Japan, and in October lobbed an intermediate-range missile over Japan for the first time since 2017.

Lone Ally

For the past seven decades, Japan, which gave up the right to wage war after its defeat in World War Two, has relied on the United States for protection.

In return for its promise to defend the country, the U.S. gets bases that allow it to maintain a major military presence in East Asia.

Japan hosts 54,000 American troops, hundreds of military aircraft, and dozens of warships led by Washington's only forward-deployed aircraft carrier.

Defence Build up

As China's military power grows alongside its economy, the regional power balance has shifted in Beijing's favour.

China's defence spending overtook Tokyo's two decades ago and is now more than four times larger.

Encouraged by the United States, Japan in December unveiled its biggest military buildup since World War Two, with a commitment to double defence spending to 2% of GDP within five years.

That will include money for missiles with ranges of more than 1,000 kilometres (621 miles) that could strike targets in China.

Beijing, however, is expected to continue expanding its military capabilities, and is likely to field ever more sophisticated weapons.

New Allies

For that reason, and again with Washington's support, Japan is seeking new security partners to back it up both militarily and diplomatically.

That effort, for now, has focused on countries that are also strong U.S. allies, including Australia, Britain and France. Tokyo is also looking for closer security ties with India, which since 2004 has met regularly with Japan, the United States and Australia to discuss regional diplomacy as a member of the Quad group.

In London on Jan. 11, during his tour of fellow G7 countries, Kishida signed a reciprocal access defence agreement with British Prime Minister Rishi Sunak that will make it easier for the two countries to conduct military drills in each other's territory.

Japan is chair of the G7 this year and will be host to its leaders in Hiroshima in May.

As Britain tilts more towards Asia, it has sought closer defence ties. In 2021, it sent the new HMS Queen Elizabeth aircraft carrier on a visit to Japan, and announced that it would permanently deploy two warships in Asian waters.

In December, Japan announced it would build a new jet fighter with Britain and Italy, its first major international defence project with a country other than the United States since the end of World War Two.

Since the start of the Ukraine war, Japan's sometimes-troubled relationship with neighbouring South Korea has also improved, opening up the possibility of closer military cooperation between the two U.S. allies.

Source: Today

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Owen Li

Malaysia, the world's second-largest palm oil producer, on Thursday said it might stop palm exports to the European Union after the bloc imposed additional import restrictions on the edible oil due to concerns over deforestation.

What is the disagreement about?

Malaysia and Indonesia have for years been at loggerheads with the European Union over curbs on imports of palm oil, which the two countries say are trade barriers and protectionist measures for the bloc's domestic oilseed industries.

The EU deforestation regulation is in addition to an EU renewable-energy directive, announced in 2018, that requires the phasing out of palm-based transportation fuels by 2030.

The bloc has also set a separate safety limit on food contaminant 3-MCPD esters for palm oil compared to soft oils derived from crops such as soybean, canola and sunflower.

What has Malaysia done about EU restrictions?

Indonesia and Malaysia, which account for 85% of the world's palm oil exports, have filed separate World Trade Organisation suits against the EU over the renewable-energy directive.

The palm oil producers say they have taken steps to meet EU requirements, including stepping up their national sustainable palm oil certification standards and improving environmental protection and food safety standards, but that the bloc keeps imposing new restrictions.

EU officials say their regulations do not target any one country and are aimed at ensuring that commodity production does not further drive deforestation and forest degradation.

How is the market reacting?

Bursa Malaysia's benchmark crude palm oil futures have yet to react to Malaysia's proposal, although some traders said they see it as a bearish signal.

Some in the palm industry view the proposed ban as a knee-jerk reaction that will hurt the sector, and others laud Malaysia for putting its foot down.

Malaysia said it will discuss with Indonesia the possible ban and other strategies to tackle the EU measures, as both have agreed to increase cooperation to fight “discrimination” against the commodity.

How will Malaysia halt exports to EU?

It is not clear whether Malaysia is considering a direct ban on exports to the European Union or enacting tariffs.

What about Malaysian palm oil exports to Europe?

The EU accounts for 9.4% of Malaysia's export volume in 2022. Malaysian Palm Oil Board data indicates that exports to the 27-member bloc have been declining since 2015.

In 2022, Malaysia’s exports to the EU fell 10% from the previous year to 1.47 million tonnes. That is a 40% plunge from 2.43 million tonnes in 2015.

The Malaysian Biodiesel Association last year urged industry officials to come to terms with a steady decline in shipments of palm-based biofuels to the EU.

Where else can Malaysia palm oil exports go?

The palm oil industry makes up about 5% of Malaysia's economy. Malaysia has in recent years actively explored new markets to offset losses from Europe, including food-importing countries in the Middle East, Central Asia and North Africa.

Several publicly-listed Malaysian palm oil companies, however, have established refineries in Europe and an export ban would disrupt their operations.

Source: The ASEAN Post

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Thomas

Economic

Heavyweights of global finance, economy, and trade gathered at the Asian Financial Forum in Hong Kong on Thursday sounded overly upbeat as they pondered how the reopening of China after nearly three years of Covid lockdown would stimulate world economic growth.

As one third of the world economy braces for recession in 2023, as per the International Monetary Fund, the reopening of the world's biggest growth engine is the best thing to happen at the most critical time, they said.

"China will continue to be a locomotive of global economic growth, and stand as a contributing and stabilising force for regional and global political and economic development," Hong Kong's Financial Secretary Paul Chan said. "Particularly so as the centre of global economic gravity is gradually shifting eastwards, with Asia playing a much more important role now and in the years to come," Chan said in his address at the AFF 2023. He stressed China's fundamental policy of opening to the outside world, as well as fostering positive interplay between domestic and international economic flows.

As the world's second largest consumer market, second largest source of foreign investment and a major trading partner of over 130 countries and regions, accounting for 30 per cent of the global growth, China's rebound, given the resilience and potential of its economy, is a silver lining in the gathering economic gloom when advanced economies are slowing as a result of rising interest rates and high energy costs, economists and analysts believe.

The immediate fallout of China's reopening will be felt on global supply chain and travel and tourism sectors. Participants at AFF believe that lifting of restrictions would help resolve blockages in supply chains that have caused long delays for a wide range of products, and help ease inflation.

China's reopening raises hopes of a rebound for the global tourism sector, which accounts for over 10 per cent of global GDP. Before the pandemic, some 155 million Chinese tourists accounted for almost 20 per cent of international tourism spending, or $255 billion in 2019. While international travel may not return immediately to pre-pandemic levels, companies, industries and countries that rely on Chinese tourists will get a boost in 2023, according to analysts.

China averaged about 12 million outbound air passengers per month in 2019, but those numbers fell 95 per cent during the Covid years, according to Steve Saxon, a partner in McKinsey's Shenzhen office. He predicts that figure will recover to about six million per month by the summer. Eased cross-border travel is a boon for the operations and investment of multinationals.

"We estimate that Hong Kong, Thailand, Vietnam, and Singapore would benefit the most if China's travel service imports were to return to 2019 levels," said Goldman Sachs analysts.

However, the most immediate impact of reopening will be the revival of the Chinese consumer. Consumer confidence hit record lows in 2022, but it has already picked up significantly since reopening began, making Chinese consumers the most confident in the world, according to the latest survey by Ipsos.

Financial and business leaders explored prospects for the global economy at various sessions of the AFF. "Speaking about 2023, I think there will be three factors, which will determine the global outlook. The first one is the Central Bank's policy with inflation, which starts to decrease. The second one, the energy crisis and the way the European governments will go on managing them, and the third one is of course the Chinese reopening, which will be very important for global growth," Valerie Baudson, CEO of Amundi, said.

Gu Shu, chairman of Agricultural Bank China, said the world economy is facing multiple challenges, but it is in better shape compared to that of the last few years. "We have experienced sluggish trade and investment, high inflation, and disrupted global supply chains. This year downward pressure remains, but we believe inflation in major economies will start to come down. Growth rate may not be fast, but still in positive territory. We see opportunities coming from green transition and digitization. We call for countries to make concerted efforts to normalise the global economy."

Source: Khaleej Times

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Justin

Economic

International carbon markets are at a critical juncture. Negotiations at COP27 on mechanisms for carbon trading under Article 6 of the Paris agreement took some steps forwards and the first intergovernmental trades have been announced, but many rules remain undecided.

Meanwhile, major initiatives were launched seeking to leverage voluntary private demand for carbon credits. The US-led Energy Transition Accelerator aims at stimulating demand for carbon credits in developing economies at national or subnational levels, while the Africa Carbon Markets Initiative seeks to scale up carbon credit revenues for African countries.

In this context, governments in developing economies must consider how best to use carbon markets to achieve their climate and development goals. Some, such as Jordan and Ghana, have developed frameworks to facilitate capital inflows for climate mitigation in exchange for carbon credits.

India’s emissions are the third-largest globally (although much lower in per capita terms), and its government is taking comprehensive action to reach its goal of net zero by 2070. However, rather than defining plans to harness international carbon finance, India’s Energy Conservation (Amendment) Bill focuses on developing a domestic carbon market. There is a logic to this approach, but certain design features pose risks to effective decarbonisation in India.

The central government’s Bureau of Energy Efficiency released a draft blueprint on its national carbon markets, primarily targeting high-emitting sectors: energy, steel and cement. State authorities will issue certificates for emissions performance of various regulated entities. The new scheme will first look to tackle an oversupply of certificates (reflecting insufficiently stringent targets) by expanding the pool of actors who are eligible to register and buy them. Next, voluntary projects will be allowed to supply credits to raise investment more widely in low-carbon solutions.

However, India is not the only country to display caution towards carbon credit exports: Honduras and Indonesia are other prominent examples. A guarded approach reflects two factors.

First, countries selling credits for use as offsets via Article 6 must adjust their emissions inventory accordingly. Mixed views on whether independent standards should follow the same rules creates enough ambiguity to make policy-makers nervous about the impact of credit exports on their climate commitments.

Second, host governments and local communities are likely to receive less value from credits issued by international actors. States can define rights to generate, own and use carbon credits and their legal and tax status, but assertive treatment by host governments may lead to reduced inflows in competitive markets. Yet although greater investment flows seem welcome, some observers are sceptical whether donor countries might use credit purchases to mitigate shortfalls in their climate finance contributions.

The Indian government is rightfully considering how carbon markets can support its goals across multiple time horizons. However, policy-makers must prioritise improving markets’ design before advancing to trading – by fixing integrity issues in existing schemes, clarifying governance responsibilities and building infrastructure for transparency. They should seek synergy, not complete integration or overlap, between voluntary and compliance markets. India should clarify the conditions, if any, under which it encourages international investment, in the context of Paris rules and the wider climate finance architecture.

Source:OMFIF

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Devin

Economic

Even by economist standards, this year's annual FT survey of forecasters made for gloomy reading. A recession in Britain is almost universally expected, although economists disagree on the scale of the downturn and, interestingly, on whether the UK will continue to lag behind its peers. Britain is the only G7 economy not to have returned to pre-Covid activity levels by the third quarter of last year.

The UK outlook undoubtedly looks bad, but we'd caution against overdoing the pessimism. Growth of 0.1% in November means that overall fourth-quarter GDP will most likely come in flat, though this says more about distortions and extra Bank Holidays than economic outperformance. First-quarter data is likely to show a more meaningful decline in output.

Predicting the depth of any recession is difficult – not least because so-called 'non-linearities' tend to kick in when past excesses are exposed or job cuts begin to spread across industries. But for now, we agree with those looking for a mild recession by historical standards.

We're looking for a peak-to-trough fall in GDP of a little more than 1.5%, which would match closest with the early 1990s recession in terms of scale, if not the surrounding circumstances. And despite the UK's many woes, particularly in the jobs market, we aren't convinced Britain will be a serious outlier from the rest of Europe on the hit to GDP this year, even if it probably does sit in the bottom half of the pack.

Here we look at four commonly-cited arguments for UK underperformance in 2023, and how they stack up.

The UK's lack of workers

The jobs market was a commonly cited reason in the FT survey for potential UK underperformance this year, and there's no doubt that Britain's situation looks somewhat unique.

Unlike virtually everywhere else, economic inactivity rates (the proportion of workers neither employed nor actively seeking a job have continued to trend higher since Covid. Ill health certainly hasn't helped, and there are roughly 400,000 extra people classed as inactive due to long-term illness than pre-pandemic.

Warnings Over Britain's 'Long' and 'Deep' Recession are Exaggerated_1

ONS data suggests that's partly down to already-inactive or unemployed people being reclassified, but there's still been an impact on employment, particularly in lower-paid, consumer-facing industries. A fall in inward migration of EU workers through the pandemic has also likely contributed to worker shortages.

The good news is that the proportion of firms reporting that it's "much harder" to recruit has tumbled over recent months, from roughly 60% last summer to 38% now, according to the latest Bank of England survey data. Nevertheless, the root causes of the challenge look increasingly structural and long-lasting. Healthcare waiting lists are projected to rise further, while urgent care is crumbling too. The average ambulance response time to 'category II' 999 calls (strokes/severe chest pain) doubled through the autumn and now stands at 92 minutes.

But concerning as this story increasingly looks, does the UK's jobs market situation point to economic underperformance this year?

Conceptually that might make sense, for two reasons. First, on a basic level, if the UK can't as easily source workers as its competitors, then its productive capacity is inherently lower. The jury's out on whether that by itself will make the UK stand out this year, but it points to lower medium-term growth if the UK remains an outlier.

Warnings Over Britain's 'Long' and 'Deep' Recession are Exaggerated_2

Second, it could prompt a more aggressive response from the Bank of England. More persistent labour shortages risk keeping core inflation higher for longer, and BoE hawks may see that as a reason to hit economic demand more aggressively. This was roughly the argument being put forward by BoE Chief Economist Huw Pill in a recent speech.

In reality, we think the Bank is only one or two rate hikes away from the end of its tightening cycle now, and that was evident from the noticeably dovish shift among voters at the December meeting. The question we need to ask ourselves is what happens if core inflation falls back, but settles a little way above target – will policymakers feel the need to keep acting forcefully to keep a firm lid on demand?

In practice, we think they will become more relaxed about inflation as the year wears on, partly because, as the BoE has itself emphasised, much of the impact of past rate hikes are still largely to come. That said, we do think the UK could be less quick to cut rates than the US, for example.

The flip side of a persistently tight jobs market is that it incentivises firms to avoid layoffs, amid concern about rehiring when conditions improve. For now, redundancies are low by historical standards. That will undoubtedly change, but assuming firms first look to reduce hours as opposed to workforce numbers, we think there's only so far consumer spending can fall over the coming months. That, in a nutshell, is why we think this recession will prove mild by historical standards.

The UK's vulnerability to the housing market correction

UK house prices are already down by 3.4% from the peak last August, and the sharp rise in mortgage rates through the autumn suggests steeper falls are likely. For now, surveys suggest the ratio of sales to unsold properties isn't adversely low (albeit falling), and the jury's out on how much selling pressure will emerge as a result of higher interest rates.

On a comparative basis at least, the UK doesn't look unduly exposed. Ninety percent of mortgages are on fixed rates, among the highest proportion in Europe and compares to roughly 50% in 2007. Admittedly, fixing terms are often shorter than in other parts of Europe and certainly the US, and the result is 25% of loans will be refinanced by the end of this year according to the Bank of England. That's still a decent proportion, but on a comparative basis, it's a slower pass-through than in many other countries.

Warnings Over Britain's 'Long' and 'Deep' Recession are Exaggerated_3

A little more than a quarter of UK households have a mortgage, which puts the UK in the middle of the pack among OECD countries, and there are now more UK dwellings owned outright than mortgaged. Similarly, the UK doesn't stand out when looking at changes in price-to-income ratios since 2015.

That's not to say lower house prices won't weigh on the UK economy, and we also need to consider the recent acceleration in rent growth. Both factors will add to the consumer spending squeeze, and the combination of that and higher interest rates for real estate developers point to a poor year for construction, a sector that outperformed the overall economy in 2022.

Britain's exposure to Europe's energy crisis

Tentative optimism has crept back into the European outlook over recent weeks as energy prices have continued to tumble and gas storage levels appear unseasonally healthy. That's also good news for the UK, which is one of Europe's heaviest gas users as a proportion of total energy consumption. In the short-term, Britain arguably remains more exposed during cold snaps, owing to a level of gas storage that is several orders of magnitude lower than its larger (and in some cases, much smaller) European neighbours. The counterpoint is that the UK scores well on liquefied natural gas (LNG) regasification capacity.

Warnings Over Britain's 'Long' and 'Deep' Recession are Exaggerated_5

Short-term disruption aside, there's no clear reason why the UK should benefit less from the recent fall in gas prices – and instead, it will come down to relative support from the government.

The UK is poised to increase unit gas and electricity prices for consumers from April, so that the average bill will hit £3,000, up from £2,500 currently (or £2,100 if subsidies are included). But if lower gas prices hold, then regulated prices should fall below that level by the third quarter. That should enable the government to either lower unit prices, or scrap April's planned increase altogether at minimal cost – although our house view is for a renewed increase in wholesale gas prices later this year.

The bigger concern surrounds businesses. Support will reportedly be cut back from April for all companies, with caps on unit prices replaced with fixed discounts on bills when wholesale costs rise above a certain threshold. Recent declines mean that wholesale gas prices are now trading below the government's existing price cap. On paper, that means the change shouldn't have a huge impact, though what's less clear is how many firms fixed their bills in the autumn when unit prices were much higher (and therefore will be left with higher costs when government support is scaled back).

How does that compare to the rest of Europe? The varying structure of government support makes direct comparisons difficult. But if wholesale gas prices do indeed rise further, then as it stands UK firms may be left with less support than elsewhere.

The UK's underperformance on investment

That neatly leads to where the UK outlook undoubtedly stands out: investment. The level of quarterly non-residential investment is below pre-Brexit levels and has lagged every other G7 economy since the EU referendum. Consistent under-investment has lowered productivity growth and points to weaker medium-term growth than other developed economies.

Warnings Over Britain's 'Long' and 'Deep' Recession are Exaggerated_6

Where 2022 had initially been shaping up as a brighter year, investment intentions have unsurprisingly turned lower. That's partly because higher interest rates are hitting businesses much more rapidly than consumers, a function of 70% of outstanding small and medium-sized enterprise lending being on a floating rate product.

While much of the focus is on the consumer spending squeeze, the combined impact of higher rates and risks from gas prices suggest that investment is likely to be a key area of weakness during the forthcoming recession. Alongside construction, manufacturing looks set to underperform against a backdrop of slowing global demand, gradually improving supply chains and rising inventory levels.

Where does that leave the UK outlook?

Our forecasts show the UK is likely to be towards the bottom of the pack this year when it comes to growth, for many of the reasons discussed here. But we'd emphasise that it doesn't look like an extreme outlier either. Our growth projections for later in 2023 – measured by 3Q23/3Q22 year-on-year growth – show Britain (-1.4%) underperforming the eurozone as a whole (-0.7%) but with a lower hit than Germany (-1.8%).

Source: ING

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Justin

Forex

The greenback extended its falls on Thursday in response to a CPI report which continued to show easing price pressures. But as the data was bang in line with expectations, we haven’t seen any significant downside follow-through, although the USD/JPY pair dipped to its lowest level since May overnight amid speculation that the BoJ might tweak its policy again next week.

As mentioned, the Dollar Index has now given back half of the entire gains made from the January 2021 low. Is this justified given that the Fed is still quite hawkish and the outlook for the rest of the world murky?

Granted, inflationary pressures have fallen sharply, while the downturn for Europe has been less severe than expected.

Still, the FX markets might have gotten ahead of itself. The market does have a tendency to overreact and overshoot, which is what might be happening here. It has priced in a perfect soft-landing for the US and assumes rate cutes will come later this year.

However, given the sharp tightening cycle we have just seen and how bad inflation has been, we could well see more ripple effects come through this year, whether that is in terms of company earnings results, wage pressures or a severe global recession. So, watch out for a possible dollar reversal.

The US dollar has rebounded a little bit and indices are coming off their best levels. So far, not much to get excited about but that dollar index chart being at or around a major support zone circa 103.00 makes me wonder whether we are going to see a recovery for USD starting very soon.

Remember that Q1 is seasonally a very strong period for the dollar. Obviously, seasonality factors don’t always come to fruition, but given how much the dollar has sold off despite the Fed being more hawkish than other CBs, I reckon we could see a recovery for the dollar very soon. But let’s wait for that reversal signal first.

Forex Friday: Dollar’s 50% Correction Justified?_1

What I am looking for is a recapture of broken support around 103.45 first, and then a clean break above 105.00 for confirmation. In other words, a short-term higher high is what is needed to break the lower lows cycle.

Source:Forex.com

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Cohen

Energy

If you're looking for economic and investment tailwinds, climate change is hardly one of them.

But the peculiar clemency of Europe's winter weather this year is proving a game changer for the region's prevailing economic and investment trends.

A halving in natural gas prices over the past month alone reflects one of the mildest winters on record in the region and takes significant sting out of the Russian gas shock that followed Moscow's invasion of Ukraine last year.

Prophecies of shortages, rationing, power outages, budget stress and a deep European recession may all now prove wide of the mark - largely the result of the balmy temperatures on top of timely pre-winter European stockpiling, energy efficiency drives and industry switching to gas alternatives.

And as the worst economic fears recede, global investors are rapidly rethinking historical underweights in euro zone assets.

On Tuesday, Goldman Sachs economists said they no longer see a technical recession in the euro zone due to both the gas relief and China's COVID-related re-opening and they now expect the bloc's economy to expand 0.6% in 2023. They also reduced the size of their expected British contraction to 0.7% from 1%.

They are unlikely to be alone.

"One of the main sources of downside risk for economic activity in the euro zone is dissipating," said UniCredit economist Edoardo Campanella.

Campenella pointed out that about 85% of European Union gas storage capacity is still untapped - levels normally seen in October before gradually being drawn down as winter needs are met. And if the experience of 2011-2019 period is extrapolated, that could mean storage levels end the winter in April well in excess of 50% - providing a hefty buffer for next winter too.

That much is clear from gas contract prices. Not only have short-term benchmark Dutch contracts dropped more than 54% over the past month - down 72% from August peaks - but contracts for the next winter are also down by equivalent amounts.

The weird weather has played a huge part. Since the end of September 2022, average temperatures in Germany - Europe's largest gas consumer - have been 25% or 1.58 degrees Celsius above normal. And new year forecasts see the mild weather lasting another month at least.

With annual year-on-year price moves in Brent crude oil also turning negative this year, the energy squeeze is loosening considerably. Europe Weathers the Storm_1

Weird Weather

That's not to suggest the problem is gone. Although back below 2021's peaks, year ahead natural gas prices in Europe are still three times the average of 15 year up to the pandemic.

And the potential catastrophe of global warming more generally - with 2022 clocking in as one of the top 6 warmest years recorded on the planet - is hardly good news for anyone, at least not beyond its spur to governments, industry and the public to reduce carbon emissions and seek alternatives.

What's more, there are other worrying short-term issues that come from the warm weather, such as drought and lack of snow and related damage to tourism or agriculture.

But the timing of this ambient season certainly undercut Russian economic leverage in the standoff over Ukraine and removed many of the "worst case" economic scenarios that emerged through 2022.

The resulting rethink of the relative value of Europe and its assets is already well underway and has become one of the dominant themes of the new year already.

Showing how much incoming economic numbers already exceed the prevailing forecaster gloom, European economic surprise indexes are more positive than at any stage since July 2021 and the gap between them and negative U.S. equivalents is at its widest since June.

The euro is up 14% against the dollar since September and already up 2% so far in 2023 to its highest since April. In dollar terms, euro stocks have outperformed the S&P 500 by more than 20% over the last 3 months.

As an indication of just how much euro zone equities had been shunned since the Ukraine invasion and related energy shock, Bank of America's monthly survey of global fund managers showed last summer a record net underweight in euro zone equities some 2 standard deviations below long-term averages.

The final BofA survey of the year last month showed a significant reduction of that underweight to its best showing since the invasion in February - but it still remained a full standard deviation below normal.

The drop in natgas prices is a significant boom to Britain too - not only for households and industry but for also for the finances of the government, forced into a direct energy price cap subsidy during the government chaos last September.

Deutsche Bank estimates that based on forward gas and electricity curves, Finance Minister Jeremy Hunt will likely end up subsidising energy bills for only one quarter in the 2023/24 fiscal year - saving about 10 billion pounds that could be used elsewhere to offset the expected recession ahead.

What the impact of the energy relief will have rising interest rates in the euro zone and Britain is more ambiguous - lower headline inflation but better overall economic demand will battle it out.

But there's little doubt Europe at large is weathering the winter storm better than most had imagined only a few months ago. Europe Weathers the Storm_4