A new cloud forms over global economy as Middle East conflict threatens recovery, warns IMF chief.

Welcome to Talking Business, a podcast produced in Melbourne Australia. The podcast is available on the Acast    site, my own website, the Apple Podcast store or wherever you go to get your podcasts. Or you can get it at the Business Acumen website at   www.businessacumen.biz or at Banking Day.

For the most exclusive access to leading economists and business leaders from around the world, subscribe      to Talking Business from my website leongettler.com.

I am Leon Gettler. My job is to review and monitor the week’s news in business, finance and economics. I bring it all to you, every week.

This is episode number 38 in our series for 2023 and today’s date is Friday October 20.     

First, I’ll be talking to LiveScore Group’s General Counsel Member Rani Wynn. We’ll talk about the increasing opportunity for women in the Sport and Gaming Rani Wynn industry.

And I’ll be talking to economist Saul Eslake about lifting Australia’s productivity.

But first, let’s talk to Rani Wynn

So what’s happening in the news?

An Australian regulator has fined Elon Musk’s social media platform X $610,500  for failing to cooperate with a probe into anti-child abuse practices, a blow to a company that has struggled to keep advertisers amid complaints it is going soft on moderating content. The e-Safety Commission fined X, the platform Musk rebranded from Twitter, saying it failed to respond to questions including how long it took to respond to reports of child abuse material on the platform and the methods it used to detect it. Though small compared to the US$44 billion Musk paid for the website in October 2022, the fine is a reputational hit for a company that has seen a continuous revenue decline as advertisers cut spending on a platform that has stopped most content moderation and reinstated thousands of banned accounts. Most recently the EU said it was investigating X for potential violation of its new tech rules after the platform was accused of failing to rein in disinformation in relation to Hamas’s attack on Israel.

 The spectre of a wider conflict in the Middle East poses a fresh threat to the global economy just as the world emerges from shocks triggered by COVID-19 and the Ukraine war, finance ministers and officials have warned. Broader regional tensions would have significant economic ramifications, they said, as they rounded off meetings of the IMF and World Bank in Morocco last week. The biannual events took place as Israel declared war on Hamas and launched a major bombardment of the Gaza strip. “If we are facing any escalation or extension of the conflict to the whole region we will face big consequences,” Bruno Le Maire, France’s finance minister, told the Financial Times, adding that risks ranged from higher energy prices stirring inflation, to a decline in confidence. Kristalina Georgieva, the head of the IMF, warned of a “new cloud on not the sunniest horizon for the global economy”, encapsulating fears among the delegates in Marrakech that the medium-term prospects for the global economy are lukewarm. But as delegates convened, the mood darkened as the wider implications of the Israel-Hamas war mixed with underlying anxiety about persistent vulnerabilities in the global economy. The IMF’s analysis pointed to worsening longer-term growth trends as economies struggle to lift productivity, barriers to free trade mount amid worsening political tensions, and public debt rises around the world. Notable in the IMF’s short-term forecasts – prepared before the violence in the Middle East broke out – was a lack of obvious bright spots beyond a handful of countries such as the US or India. The key economic danger following the events of October 7, officials argued, was an escalation of fighting in Israel and Gaza into a wider regional conflict. This could not only hit confidence, but add a fresh inflationary outburst to economies that are only beginning to recover from a series of price shocks. The IMF believes a 10% rise in oil prices would raise global inflation by about 0.4 percentage points. Gita Gopinath, deputy head of the IMF, said the world was facing “a large number of shocks” including the Middle East conflict and its potential implications for energy prices.

Michele Bullock’s first Reserve Bank board meeting as governor warned that world oil prices now being pushed higher by deepening conflict in the Middle East could prompt it to lift interest rates again to tame inflation. “The board has a low tolerance for a slower return of inflation to target than currently expected,” revealed the minutes of the October 3 board meeting released on Tuesday. The minutes add extra weight to the release of the September quarter consumer price index (CPI) on October 25. Many economists expect the figures will provide the trigger for the RBA board to raise the cash rate to 4.35% from 4.1% at its next meeting on November. The RBA minutes called out both persistent services price inflation and the sharp rise in oil prices since June as a “significant concern given how long inflation is likely to be above target”. “It was noted that the rise in retail petrol prices would continue to underpin inflation over coming months and could influence households’ inflation expectations,” the minutes said. The RBA does not expect inflation to return to its 2% to 3% target band until December 2025.

The federal government will require crypto exchanges to hold a financial services licence, issued by the corporate regulator, under a new regime bolstered with specific obligations to reduce risks for investors while also supporting the growth of the digital asset sector. Assistant Treasurer Stephen Jones announced the government’s long-anticipated regulatory regime at The Australian Financial Review Crypto Summit on Monday morning, where he said that regulation will protect users by reducing the risk of scams and of exchanges collapsing. The government has decided to regulate at the level of the crypto exchanges, rather than specific “tokens”, and will do so under existing financial services laws rather that creating a bespoke regime. Exchanges holding more than $5 million in aggregate, or more than $1500 for any individual, will have to obtain an Australian Financial Services Licence (AFSL), which are granted by the Australian Securities and Investments Commission. This will require the exchanges to provide services honestly and fairly, manage conflicts of interest, make disclosures, submit financial accounts and meet solvency and cash reserve requirements. Rules around asset custody will also be included. The guidelines for exchanges – which hold billions of dollars in crypto, held by one in four Australians, according to Treasury – will lift consumer protections in a sector that has internationally been plagued by hacks and poor risk management. This was exemplified by the collapse of US crypto exchange FTX, which triggered losses for around 30,000 Australians.

Cryptocurrency advocates are tipping the price of bitcoin to reach $US100,000 within the next five years if approval of the first exchange-traded funds for digital assets opens the floodgates to institutional investors. Lisa Wade, the chief executive of DigitalX, which runs two digital asset funds for wholesale investors, said “really grounded” analysis by her team suggested that bitcoin would easily reach the equivalent of six figures in US dollars in the near future. “I think a lot of people in the industry have PTSD after last year, but it’s undeniable over the long-term horizon that [bitcoin] will be a really great investment class,” she said. “If just 1% of all global wealth was put into bitcoin, that gets us to $US100,000 within five years,” she said. Not to be outdone, Richard Galvin, chief executive and co-founder of Digital Asset Capital Management, said he could see bitcoin reaching $US101,000 in the same time period. Mr Galvin added that DACM had been fielding interest from institutional and sophisticated investors, including family offices, looking for exposure to alternative assets.

By the time the Yes campaign kicked off its final, multimillion-dollar advertising blitz, it was too late – opponents of a Voice to parliament had been running consistent, targeted messages in key states for more than eight months. Political strategy and advertising experts say that although it appeared Yes groups far outspent the No camp, the No side’s clear message and repetition was key to its resounding win in Saturday’s referendum. The Yes campaign had the backing of corporate Australia: the likes of BHP, Rio Tinto, Wesfarmers, ANZ, Qantas and Visy Industries executive chairman Anthony Pratt publicly disclosed more than $26 billion in combined donations.  On the other side, billionaire Clive Palmer said he would spend $2 million promoting the No vote, and ran a series of large newspaper ads in the final weeks. Adam Giles, the boss of Gina Rinehart’s Hancock Agriculture, made it clear he felt companies should stay out of the debate (Ms Rinehart did, however, attend the No campaign event on Saturday night.)  Conservative lobby group Advance created Fair Australia in February, and immediately started spending thousands of dollars for the No vote on social media. Its ads, which mostly showed Jacinta Nampijinpa Price, Warren Mundine and Tony Abbott, said a Voice would cause division. Over the months since, its message did not change. “The No strategy was doubt, divide and conquer. It’s proven. It works,” Howard Parry-Husbands, chief executive of strategic insights firm Pollinate, said. “When you create uncertainty and fear, you’re creating loss aversion. Almost every Australian is struggling to pay the bills. It’s uncertain. These two things conflate.” Support for the Voice fell as interest rates rose and voters stuck with the status quo, Mr Parry-Husbands said. But he added that the Yes campaign, which made powerful and emotive ads, appeared to lack a clear strategy.

 Stockland said it expected to sell homes for up to 10% more this year than in the year to June with growth strongest in the land lease communities business targeting downsizers. Even as it warned that market conditions remained “uncertain”, the ASX-listed developer, landlord and investor said housing prices in its core master-planned communities business would average 5-10% more this financial year than in the previous. Prices of homes in its smaller – but fast-growing – land lease communities business were rising faster, with the 420 contracts on hand at end-September up 9% on average from the average 2023 settlement price, the company said. The update by the country’s largest diversified residential developer gives a good insight into the unfolding market as consumers grapple with higher borrowing costs and an increasingly uncertain economic outlook. Stockland’s net 991 residential sales in the September quarter were up from the June quarter’s 917, the latest in a housing ebb-and-flow that would change little until the outlook for interest rates changed, it said. The company kept its settlement target of 5200-5600 homes for the year, but said the skew in settlement volumes and funds from operations towards the second half would be greater than it anticipated in August. A near-doubling of sales of land lease communities  homes to 111 from 63 in the same quarter a year earlier showed the strength of demand for the homes that downsizers buy and own on land for which they pay rent and justified the company’s continued expansion into the growing sector. Stockland said it would triple its number of land lease, or manufactured housing estates, this year from the five operational facilities it had as at end-June. It opened two more in the September quarter and would open a further 10 over the current year, it said.

US chemicals giant Albemarle has abandoned its proposed takeover of Liontown Resources in the face of a series of raids on the miner’s share register by Australia’s richest person, Gina Rinehart. The mining magnate has spent nearly $1 billion building a blocking stake in the lithium miner over the past month, with her company Hancock Prospecting picking up a strategic 19.9% holding in Liontown. Rinehart’s raids came even as Albemarle was sifting through Liontown’s books ahead of its $6.6 billion takeover. Albemarle had asked last Thursday for a week-long extension to its four-week due diligence period, but on Monday it notified Liontown that the deal was off. “Albemarle has now advised that it has withdrawn its indicative proposal, and that it will not be proceeding with its proposed acquisition of Liontown,” the fledgling miner said in a statement on Monday. “Its decision to withdraw its proposal was due to the growing complexities associated with executing the transaction,” it added. Hancock’s rapidly expanding presence on the company’s register put a significant obstacle in the path of North Carolina-based Albemarle, which had sweetened its $3-a-share proposal for Liontown in September after two previous non-binding proposals – one in March this year at $2.35 a share and the other in October last year at $2.20 a share – didn’t gain traction. Albemarle holds a 4.3% stake in the WA miner through its subsidiary, RT Lithium. Before Hancock’s raids, Liontown’s register was dominated by its chairman, Tim Goyder, who owns a 15% stake in the miner. Another 20% was reportedly in the hands of investors closely aligned to Goyder. Lithium has shot to prominence over the past decade as a key component in modern home and grid batteries used to store the renewable energy generated from wind and solar or to power electric cars. Its critical status has resulted in vehicle manufacturers and lithium producers scrambling to secure supply chains amid the growing competition for raw materials from the booming EV sector.

And that’s it for this week. And next week, I’ll be talking to Sonia Shwabsky, the CEO of KwikKopy focusing on the franchise company’s growth strategy. And I’ll be talking to RMIT economist Sinclair Davidson about the impact of technology, big data and blockchain on the economy.    

For the most exclusive access to leading economists and business leaders from around the world, subscribe      to Talking Business from my website leongettler.com.

If you like Talking Business, please leave us a review with Apple podcasts. Thank you in advance.

In the meantime you can catch me on Facebook, Twitter, Instagram, LinkedIn and YouTube. And if you want leave a comment. For the most exclusive access to leading economists and business leaders from around the world, subscribe to Talking Business on the Apple podcast store or on my website leongettler.com.

If you want to contact me, email me at leon@leongettler.com. I answer all emails.

 Wishing you all a safe and healthy week. And looking forward to bringing you Talking Business next week