Hailed as the top international organization for the oil industry, the Organization of the Petroleum Exporting Countries (OPEC) and its allies have announced to increase the oil production and supply gradually. The decision was taken during a meeting of OPEC+ on Tuesday and took the overall domain by a storm of surprise. The news can be seen as a significant development in the testing times of the prevailing COVID-19 crisis across the world.

As per the report, the reviewer of the oil market space, the Joint Ministerial Monitoring Committee (JMMC), shifted the important meeting to Tuesday from the earlier Tuesday schedule. Talking about the highlights of the meeting, OPEC+ revealed that the team has decided to continue enforcing the production adjustment policy considered during the April 1 gathering. During the earlier meet, OPEC+ indicated that they would increase the daily production capacity by 350,000 barrels in May, 350,000 barrels in June, and 441,000 in July.

The decision taken by OPEC and its allies has changed the dynamics of the oil industry and has paved the way for a fluctuating state of gains and losses. With nations like India getting devastated in the second wave of the coronavirus pandemic, the significant step can be considered a bold move of the international entity. The oil futures in New York traded at $63 per barrel to witness their biggest surge on Tuesday after the continuing downfall. The time spread for Brent crude oil reached 57 cents from 69 cents by the end of last week.

The main reasons for the increase in the price of oil and its demand are:

• The fast-accelerating vaccine program across the major countries will increase the mobility of people and trade.
• Improved vaccination pace in Europe will eventually accelerate the travel demands.
• Enhanced conditions of global transportation and manufacturing capacity will boost the business dramatically. The industries are likely to work full swing in June.

Talking about the present conditions, Howie Lee, an economist at Oversea-Chinese Banking Corp., stated that the worsened COVID situation in India has given a major jolt to the industry. The demand levels are yet struggling to reach the pre-virus mark. This is likely to strengthen the control on the supply of oil in the second half of 2021, added the spearhead.

The estimates released by Goldman Sachs, the global investment firm, showed that the price of oil would trade around $80 per barrel, with demand surging by 5.2 Million barrels per day in the coming six months span. The rise will be one of the biggest surges since 2000. The growth in the oil industry can be attributed to the improving business modules in China and the United States. The American Petroleum Institute affirmed that the U.S crude stock increased by 4.32 million barrels the previous week. This was the second weekly gain for the American oil industry.

A Fintech Summit is to be hosted by Baku for two days, i.e., on 14th May 2020 and 15th May 2020. As per the reports referring to Azerbaijan Banks Association (ABA), the summit is dedicated to the technologies of Azerbaijan.

The concept behind this exhibition is to portray new trends in the sectors of security, banking, payment ecosystem, innovative solutions, monetary technology.

The event is organized in partnership with VISA and supported by the ABA, the Central Bank of Azerbaijan (CBA), Transport Ministry, and also by the Center of Economic Reforms and Communication.

The main purpose of organizing this summit is to conduct a platform to exchange ideas over financial technology, digitization, payment ecosystems. The summit provides opportunities to explore and discuss new products related to finance and banking, new payment systems, digital currencies, banks co-operating with fintech, and raising security issues with the rise of such technologies.

The summit is considered one of the most known finance and banking event where CEOs and management of government bodies, top management commercial banks gather to share the ideas on the development of the monetary sector and banking technology. It also holds other officials such as commercial managers, public organizations, financial institution representatives, well-known firms who provide finance and banking products and solution systems, and stakeholders.

Cost cutting has often been regarded as a tried and tested method by large corporations, which want to generate bigger profits. Sometimes, those measures work, but sometimes they don’t, and in the case of American food and beverage, it hasn’t. The plunge in revenues and billions in write-offs for two of its biggest brands has cratered the stock since Thursday. Following the debacle, experts are now questioning whether the firm’s aggressive cost-cutting techniques are to blame for their declining fortunes.

On Friday, the Kraft Heinz’s stock plunged by as much as 27% amid widespread panic sell off and the announcement from the company that they were writing down $15.4 billion from the brand value of two key brands- Oscar Mayer and Kraft. Additionally, dividends had also been slashed from 63 cents to 40 cents and needless to say, investors are far from thrilled.

Kraft Heinz’s troubles regarding cost-cutting can be traced to the company’s decision to resort to zero-based budgeting, and many believe that this particular approach is at the basis of the company’s troubles. As per the zero-based budgeting approach, executives sit down and start budgeting with a clean slate, rather than using the budget from the previous year and while that has been successful for many companies, it has not been so for Kraft Heinz. The perils of zero-based budgeting were pointed out consultancy firm BCG back in 2017. According to the report, “The cuts can be impressive, and that’s a big win. When it’s applied clumsily, ZBB can have a demoralizing impact that distracts the organization from growth and value creation.” It seems the executives at Kraft Heinz have not been able to apply it well and according to many experts, cost cutting is something that is tough in the food industry. Any change in an ingredient can often lead to an alteration in the product, and it can be rejected by consumers.

That being said, it is important to point out that many other consumer giants like Mondelez International and Unilever have used this strategy. None of them have had such poor results thus far. According to many analysts, the executives at Kraft Heinz could be the fault here, and an analyst at Investec said as much. He said, “I think it’s a black eye for Kraft Heinz management for not implementing it in as a sophisticated way as might be necessary, or maybe they just implemented it too hard, too fast. I don’t think ZBB per se is the problem.”

International Monetary Fund (IMF) economists have come up with the idea of separating electronic money and cash as a way of securing future stability of the world economy. Doing so will give the central banks a way to enable the negative interest rates needed to combat future recessions of the world economy? Base interest rates have been at an all-time low around the world since the last financial crash in 2008. Historically every major financial crash has resulted in a 3-6% cut from interest base rates. If a future financial recession was to happen now, there isn’t much room left for economies to introduce interest base rate cuts. Cash the current base currency is designed to have a lower bound interest rate of zero. In such a situation, the negative base rate will force central banks around the world to either compress their margins or introduce interest rates on bank deposits.

Charging negative interest rates on deposits will invariably result in a worldwide mass withdrawal of cash. The IMF notes that instead of paying negative interest, one can simply hold cash at zero interest. Acting as a free option on zero interest, cash will be the interest rate floor around the world. A predominantly e-money economy will not be limited by a lower bound on an interest rate of zero percent. The central banks would reduce the rate to a negative figure forcing consumers to invest in the economy or simply spend money as a preferable option, boosting the economy and acting as a normalizing agent.

Many countries such as Sweden have driven the e-money economy and pushed rates slightly below zero. The negative interest rate has made it difficult to hold cash and deterred most depositors from doing so. But cash still plays a major role in world economies like Japan, Switzerland, and Hungary where people prefer the person to person nature of cash transactions.

According to an IMF excerpt, “While a dual currency system challenges our preconceptions about money, countries could implement the idea with relatively small changes to a central bank operating frameworks. In comparison to alternative proposals, it would have the advantage of completely freeing monetary policy from the zero lower bound. Its introduction would reconfirm the central bank’s commitment to the inflation target, rather than raise doubts about it.” Such as dual currency system will allow the central banks to introduce an exchange rate for cash to e-money. Countering a recession of the future would require central banks to introduce a negative interest rate on cash as a measure to ensure that cash is being spent and the economy is well fed.

As per the recent Chinese credit data, the Chinese Government is relying on the tax cut as the first line of defense against the slowing down of the economy. The data imply that the Chinese Government has accepted the fact and started taking measures for the same.

Senior Chinese policy officials confirmed that more large scale tax reductions are in the pipeline. As the country is facing multiple issues with the economy like worsening of trade and total output, it has finally depended on the fiscal measures. As per JPMorgan Chase & Co., the total impact would be around 2 trillion yuan ($300 billion), or 1.2 percent of the gross domestic product of China.

This time China is following a different path to tackle the situation than the path taken after the global financial crisis. Its focus on the previous attempt was on infrastructure investment and monetary policy changes. This time China wants to tackle the slower economic growth without a debt blowout. It has managed to expand the credit growth for December, and the Central bank has been very successful in curbing the shadow banking which possesses a huge risk to the economy.

As per data, aggregate Financing in November was 1524 billion yuan, and in December it rose to 1590 billion yuan, with a median estimate of 1300 billion yuan. Out of the total financing, new yuan loans for November was 1250 billion yuan, and in December it contracted to 1080 billion yuan, with a median estimate of 825 billion yuan. And M2 money supply year-on-year basis for November was 8.0 percent, and in December it rose to 8.1 percent, with a median estimate of 8.1 percent.

Cui Li, the head of macro research at CCB International Holdings Ltd. in Hong Kong said at this moment the scope for monetary policy is very less, and fiscal policies such as tax cuts will be effective. She also added that the high leverage and property prices had limited the chances of massive monetary stimulus. But comparing with the infrastructure binges, as a growth measure, tax cut’s effects will be realized gradually.

Last year May saw a deduction of value added tax by the Government in manufacturing, transportation, construction, telecommunications, and farm produce industries, followed by a lowered personal income taxes and the introduction of more such deductions. And earlier this month, the State Council announced a $29 billion annual tax cut meant for small businesses.

Though it is still unclear whether the new approach of a tax cut will be effective or not owing to global tensions and trade war with the United States, but the approach has been adopted due to China’s debt load. By spending money on infrastructure like bridges, road, railways, etc. may become counterproductive for the stability of the economy.

JP Morgan economists led by Zhu Haibin wrote in a report that the Government is facing the debt load problem due to years of over-investment and huge spending on infrastructure that led to a surging debt.

The report also states it is yet uncertain that how much tax benefits will be moved to the required class for showing the effects on the Economy.

As per economists, the reduction in the tax may boost the Gross Domestic Product growth by a minimum of 0.46 percent. But, the slowdown linked to slower growth of world economy and trade war will not leave the Chinese economy very soon. It will linger on to the few next quarters.

The new policy changes that are scheduled to happen was briefed by Zhu Hexin, deputy governor of the People’s Bank of China, Xu Hongcai, assistant minister of the Ministry of Finance, and Lian Weiliang, the vice chairman of the National Development and Reform Commission. They also pledged to support the consumption of cars as well as other household goods. It should be reported here that the sales of cars fell for the first time in 28 years.

Xu said that the government would facilitate local governments to issue more infrastructure bonds in comparison with 2018 that will ensure continuous infrastructure development, but the rise in bonds should not be taken as a measure to tackle slower growth.

A Shanghai-based economist at Shenwan Hongyuan Group Co. said that in order to increase the personal consumption and consumption by businesses, a tax cut is the only way out for the Government. Introducing big financial stimulus packages may not yield results that are expected.

However, owing to the nation’s quasi-fiscal efforts such as special bonds and land sales will lead to an inflated fiscal deficit. It is expected to have a growth in Fiscal deficit of 11.3 percent of total output this year, whereas the last year’s mark was at 10.7 percent.

Tariff Cuts-

The government also has declared rounds of import tariff deductions so that the cost pressure would be minimal on the consumers and it also had said that opening up of the economy would be again rolled out this year on a wider basis.

The Government is most likely to set a target growth for this year in the range of 6 and 6.5 percent, as per experts.

Carie Li, an economist at OCBC Wing Hang Bank Ltd in Hong Kong, said the credit data is still showing negative numbers as the Government’s prolonged campaign to wring out the shadow banking has been successful. The new stimulus measures in terms of fiscal policy changes are still unable to fill the gap created by the crackdown by the Chinese Government. And the Government, as well as the Central bank, may need to think about the funding needs of the privately-owned businesses specifically in order to achieve the credit growth they have expected.