Fed Seen Boosting Rates Even as Economic Risks Build - Yahoo Finance

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Federal Reserve policymakers are about to extend their year-long campaign of raising interest rates to beat back still-stubborn inflation, even as risks to the US economy build.

The Federal Open Market Committee is expected to boost the benchmark lending rate target by another quarter percentage point on Wednesday, marking the 10th consecutive increase going back to March of last year. While officials’ efforts have helped to reduce price pressures in the US economy, inflation remains well above their goal.

At the same time, first-quarter growth figures this past week pointed to an economy that’s downshifting. The monthly jobs report on Friday will give a sense of how labor demand — a key support for the economy — is holding up.

The projected 180,000 increase in April payrolls is seen as healthy, although it would mark the third straight month of decelerating employment growth. The still-firm labor market has been instrumental in extending an economic expansion that’s increasingly feeling the pinch from tighter Fed policy.

Other data on the schedule include March job openings and April surveys of purchasing managers in manufacturing and services.

What Bloomberg Economics Says:

“Signs point to the FOMC raising rates by 25 basis points to 5.25% in the May 3 decision — despite ongoing turmoil in the banking system — and signaling that this will be the last hike for a while. The next phase of the tightening cycle will be to hold rates at that elevated level, while watching to see if inflation trends down.”

—Anna Wong, Stuart Paul, Eliza Winger and Jonathan Church, economists. For full analysis, click here

Elsewhere, rate increases in the euro zone and Norway and a pause in Brazil will be among other key monetary decisions due around the world.

Click here for what happened last week and below is our wrap of what’s coming up in the global economy.

Europe, Middle East, Africa

The region faces an eventful week, albeit a shorter one in many countries following a long holiday weekend.

The ECB takes center stage on Thursday with a rate decision in the wake of the Fed the previous evening. Investors and economists anticipate a quarter-point hike, dialing down the pace of tightening as the central bank’s earlier moves impact the economy with a lag and lingering financial-stability worries dictate caution.

Critical to the decision will be the ECB’s latest bank-lending survey, due on Tuesday, and inflation data published the same day.

The consumer-price figures are anticipated by economists to show conflicting signals: the headline measure could accelerate for the first time in half a year, while an underlying index stripping out volatile items such as energy may show slowing.

It’s that latter gauge that ECB officials are watching — and if the report were to show so-called core inflation unexpectedly quickening, a bigger rate move could yet transpire.

Other monetary policy decisions are also due from across the region:

• Danish policy makers normally follow any ECB rate move with a similar one of their own. Any hike is likely to transpire in the hours after the outcome in Frankfurt on Thursday.

• Earlier that day, Norway’s central bank may raise borrowing costs by a quarter point, keeping up pressure on inflation just as the economy proves more resilient than expected.

• The Czech central bank on Wednesday is expected to leave rates unchanged despite increasingly hawkish rhetoric from its board members.

It’s a quieter week in the UK, where officials will enter a blackout period before their decision on May 11. Among data due there are shop prices from the British Retail Consortium, Nationwide house prices, and the Bank of England’s mortgage approval and consumer-credit data.

Figures on Wednesday will probably show that fourth-quarter economic growth in Kenya slowed to 4% from 4.7% in the prior three months. That’s as unfavorable weather conditions, higher input costs, foreign-currency shortages, rising interest rates and government spending cuts curtailed output growth.

Turkish inflation is expected to remain high in data due Wednesday but price gains are anticipated to cool, with the Treasury Minister saying they’ll dip below 50%.

On Friday, Turkey’s trade balance may take another hit from a surge in energy and gold imports. Data for the country are being closely watched ahead of close-run elections on May 14.

Asia

China’s latest PMI figures on Sunday showed an unexpected contraction in manufacturing activity in April, a sign the economic recovery remains patchy and may be struggling to sustain momentum.

That discouraging sign for the global economy from China is likely to be reinforced by South Korean trade figures out Monday that are forecast to show a gloomy outlook.

Inflation figures Tuesday should hint at whether the Bank of Korea’s decision to keep rates on hold is supported by cooling price growth. Regional PMIs the same day will fill out the picture for Asia’s current economic momentum.

Finance ministers and central bank governors are set to gather for the annual Asian Development Bank meeting in South Korea, with climate financing measures among the matters under discussion. Senior officials from both Japan and South Korea are expected to attend.

The Reserve Bank of Australia is expected to keep rates unchanged again as inflationary pressure Down Under continues to edge down from elevated levels.

Malaysia’s central bank is also seen standing pat on Wednesday. Indonesia, Thailand and Taiwan are all due to release price data during the week.

Latin America

The week kicks off with the April consumer price report for Peru’s capital, Lima, which likely slowed for a third month from 8.4% in March. Central bank chief Julio Velarde sees inflation hitting 3% by year-end.

The bottom line of this week’s Brazilian central bank rate decision is a given — the key rate will be kept unchanged at 13.75% for a sixth straight meeting.

Any drama will come from the post-decision communique: Brazil watchers will be on the lookout for shifts to a standing warning that the bank won’t hesitate to lift rates to counter resurgent inflation.

In Colombia, publication of the central bank’s monetary policy report and minutes of its recent meeting may take a back seat to the April 26 ouster of finance chief Jose Antonio Ocampo by President Gustavo Petro, and subsequent tumble by the nation’s assets.

The week may, however, end on a propitious note. Data out of Colombia on Friday may show inflation slowed for the first time in 11 months from March’s 13.34%, perhaps even below 13%. With that, inflation in all five of Latin America’s big targeting economies would be falling simultaneously once again for the first time since April 2020.

--With assistance from Andrea Dudik, Robert Jameson, Malcolm Scott and Sylvia Westall.

(Updates with Read More section after second paragraph)

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Fed Seen Boosting Rates Even as Economic Risks Build - Yahoo Finance
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French Food Inflation Should Ease After Summer, Minister Says - Bloomberg

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French Food Inflation Should Ease After Summer, Minister Says  Bloomberg
French Food Inflation Should Ease After Summer, Minister Says - Bloomberg
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Mexico's economy grew 1.1% in 1st quarter, 3.8% year on year - Welland Tribune

MEXICO CITY (AP) — Mexico’s economy grew by 1.1% in the first quarter of 2023, bringing growth to an annualized rate of 3.8% compared to the same period of 2022, Mexico’s National Statistics Institute said Friday.

The institute said growth was spurred by an expansion in industry and services, which offset a 3.2% drop in agriculture and mining.

It marked the sixth consecutive quarter of growth since the coronavirus pandemic, during which Mexico suffered a severe drop in output.

Mexico’s economy has recovered from the pandemic, but the effects of high domestic interest rates and stubborn inflation have acted as a drag on growth. Mexico’s central bank has raised interest rates to 11.25% and inflation remains high, at 6.85%.

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Mexico's economy grew 1.1% in 1st quarter, 3.8% year on year - Welland Tribune
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Persistently high inflation still top concern for global economy, economists say - The Globe and Mail

A woman walks past a store in Berlin, on April 1, 2022.Pavel Golovkin/The Associated Press

Persistently high inflation remains the biggest economic concern this year even as most central banks are at or near the endgame for rate rises, according to Reuters polls of economists who also upgraded their 2023 growth forecasts from three months ago.

With the global economy performing better than expected so far this year, most major economies were forecast to escape an outright recession or get away with a shallow one, suggesting that policy-makers have their work cut out in taming inflation.

Median forecasts for a majority of the 45 economies covered were upgraded from the January poll. The survey pegged global growth at 2.5 per cent for the year, up from 2.1 per cent expected three months ago but below the International Monetary Fund’s 2.8 per cent view.

Economists have also upgraded their inflation outlook. Median forecasts were raised for over two-thirds of 45 economies polled and economists said they were bracing for inflation to top their predictions, not undershoot them.

More than a three-quarters majority of economists, 207 of 268, who answered an additional question said the bigger risk to their 2023 inflation view was for it to be higher than they expected. Just 61 said it could be lower than forecast.

“The big macro question of the day is how much economic weakness will be needed to bring inflation under control. Our point is that there has been only limited progress in bringing global inflation down with almost no real pain,” said Ethan Harris, head of global economics research at Bank of America Securities.

“While investors are trying to look towards a more normal period ahead, first the rebalancing needs to actually happen,” he added.

The poll findings, which do not suggest imminent easing by the Federal Reserve, were at odds with market expectations for U.S. policy easing to start by end-year.

The Fed was forecast to deliver a final 25-basis-point rate increase in May and then hold steady for the rest of 2023, the latest Reuters poll showed.

The European Central Bank was expected to hike its deposit rate by a similar amount next week and then again in June, and the Bank of England is also forecast to deliver a rate rise in May.

When asked what was the biggest risk to the global economy in the near-term, a slim majority of economists, 94 of 176, picked persistently high inflation. The remaining 82 chose financial turmoil.

Financial markets spent much of March in the grips of worry about the health of regional banks in the U.S. and Europe, concerns which have since subsided.

“As crisis fears ebb, inflation worries are again returning. Inflation risks tilt to the upside as the long-expected slowdown in core inflation has largely failed to materialize,” said James Rossiter, head of global macro strategy at TD Securities.

Tight labour markets in the developed world, where unemployment rates are near their lowest in decades, was also likely to keep growth and inflation elevated.

The U.S. unemployment rate was expected to rise from 3.5 per cent currently to 4.3 per cent by the end of 2023 and average 4.5 per cent in 2024, still historically low compared to previous recessions.

Growth was expected to average 1.1 per cent and 0.8 per cent this year and in 2024, respectively. Economic growth in No. 2 economy China was expected to pick up to 5.4 per cent this year from 3.0 per cent last year.

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Persistently high inflation still top concern for global economy, economists say - The Globe and Mail
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Opinion: A letter from South Africa: What the world can learn from its economic decline - The Globe and Mail

A shopper looks for goods during an electricity load-shedding blackout in Johannesburg, South Africa, on Feb. 12, 2019.MIKE HUTCHINGS/Reuters

John Rapley is a political economist at the University of Cambridge and managing director of Seaford Macro.

When I recently returned to Johannesburg after three pandemic-induced years away, I was shocked by what I found. I drove past the city’s main railway station and saw the trains all immobilized, the overhead power lines having been cannibalized by thieves and sold as scrap.

The city had decayed into a broken replica of what had been, a century ago, the world’s fourth-richest metropolis. Sadly, as I soon discovered, that scene would serve as a good metaphor for the country.

South Africa seems to have been born with a curse, one that dates back to the nation’s rebirth as a free country in 1994. Although that year’s election buried apartheid, it did so with a catch, one best summed up in the phrase of the economist Sampie Terreblanche: “You get Pretoria but we keep Johannesburg.” (For Pretoria, read Ottawa, and for Johannesburg, read Toronto.)

Everyone would get the vote, but the fundamental structure of the economy – one dominated by a tiny elite – would be left essentially untouched.

Today, the beggars on the streets might be both white and Black, but those streets, along with most of the country’s infrastructure, are crumbling. Economic growth for 2023 is forecasted at a pitiful 0.1 per cent. And the neglect of investment behind that has been practically coded into the new nation’s genes.

It’s tragic, because this country deserves so much better. An extraordinarily beautiful land with a climate as close to perfection as there is, endowed with abundant natural resources and such a rich and varied ecology that local peaches, grapes and bananas compete alongside one another in the supermarket, South Africa seems to be sharing its neighbour Zimbabwe’s fate – to have been blessed by nature but cursed by those who govern it.

South Africa could be any of us, for it offers a cautionary tale to all countries of the downward spiral that can happen when a government fails to strike a balance between growth and development, between saving and spending.

The first time I came here it was 1993 and while apartheid was in its death throes, you couldn’t escape that its legacy would endure. Jan Smuts Airport was then a small, provincial place staffed by white immigration officers. Many whites clung to a regime that reserved such privileges and power to them, and some were even prepared to fight for it.

The mood in the country was thus tense and febrile, and it was a testament to good leadership – that of President F.W. de Klerk and African National Congress Party Leader Nelson Mandela – that the regime came to an end peacefully.

When it became clear that the economic legacy of apartheid would be left untouched, and millions were left wondering what was in it for them, their leaders insisted they had a plan. First, they’d use a strategy of Black Economic Empowerment (BEE) to encourage white-owned companies to transfer shares and board positions to Black people. Second, they’d spread the fruits of economic growth widely in the form of housing, public services and welfare support. In place of revolution, a kind of evolution.

So as the new country went to the polls to elect its first fully democratic government, the war planning by both white extremists and their most radical enemies, which had reached fever pitch, fizzled out. The sense of attendant relief then gave way to outright euphoria when, on the day Mr. Mandela took the salute from the same air force that had once hunted him down, the new president swore his oath of office.

It carried over into the following year’s Rugby World Cup when, after decades as a pariah state, South Africa welcomed the world to a tournament that showcased the sport that had long been a pillar of apartheid. As president Mandela strolled onto the field at Ellis Park wearing a Springboks jersey, long a hated symbol of the old racist regime, the stadium burst into a rapturous chant of “Nelson! Nelson!” The nation had its hero, and its promise seemed endless.

If the transformation was admittedly slow to come – the Mandela presidency was consumed largely with just creating a viable regime – the beginning was nonetheless full of hope. And when Thabo Mbeki succeeded Mr. Mandela in 1999, things took off.

China’s ravenous appetite for raw materials was then fuelling a commodity supercycle, and South Africa’s economy began exporting its way to steady growth. With its tax coffers full, the government was able to now deliver on its promises of better lives, building more than two million new homes for poor people and connecting yet more to the electrical grid and water systems.

Life in the townships remained anything but easy. But when you walked their streets and observed the houses and transmission poles sprouting up, when you saw police officers on the beat and felt safe going out at night, you could feel change coming.

And by the time South Africa hosted soccer’s World Cup in 2010, Jan Smuts Airport – now renamed O.R. Tambo International – had grown into a huge gleaming pair of terminals befitting a country that had gone from global isolation to a major world centre. South Africa was now shiny and new. It was cool.

Nevertheless, you didn’t have to scratch this surface deeply before a grit below revealed itself. BEE was altering the complexion of the business elite and making a handful of Black people fabulously wealthy. Yet the fundamental structure of an economy built to exclude poor people remained largely intact. Unemployment worsened, inflation eroded earnings, and the gap between rich and poor, already among the widest in the world under apartheid, grew even worse.

Meanwhile the cost of distributing so much largesse – the welfare rolls expanded eightfold until more people got social assistance than had jobs – left little for investment. So while the distribution of electricity widened enormously, very little new capacity was added. As potholes pocked the streets, they went unfilled. By the time the World Cup kicked off, South Africa’s rolling blackouts, now infamous across the globe, had begun.

Amid deepening discontent, a new strain then arose in the ruling party. Led by Jacob Zuma, the man who’d been in charge of the ANC’s spies back in its exile days, the so-called Radical Economic Transformation (RET) faction aimed to accelerate the dismantling of apartheid’s economic legacy by intensifying BEE and steering ever more government contracts to Black entrepreneurs. Orchestrating an intra-party coup, Mr. Zuma managed to push Mr. Mbeki aside, and took the presidency in 2009.

That’s when the wheels fully came off the South African bus. Whatever ideals lay behind RET, it attracted an unsavoury mix of opportunists, not least a family named the Guptas who grew enormously wealthy off state contracts. BEE became a byword for corruption as Gupta allies got contracts in return for kickbacks to the Zuma family, then funnelled the money into offshore accounts or luxury cars, not bothering to actually deliver the contracts.

After eight years of plunder, during which the economy ground to a halt, the ANC’s men in grey suits decided enough was enough and pushed Mr. Zuma aside, replacing him with Cyril Ramaphosa.

A man who’d had a storied career – rising as a union organizer in the late apartheid era before leading the ANC negotiating team, during which time he’d acquired a reputation as a brilliant operator able to constantly outmanoeuvre his foes – Mr. Ramaphosa had also made a fortune in business, leading many to conclude he would not need to engage in corruption himself.

But that didn’t necessarily mean he’d do anything to reverse the country’s decline. Today, it’s hard to find evidence he has. Whether because of fatigue or a personality that prefers consensus to confrontation, Mr. Ramaphosa has disappointed the nation that looked to him to chase the money lenders from the temple. Corruption remains rife, incompetent ministers keep their jobs and the Guptas have escaped justice and are now living – we are told – in Vanuatu.

Thirty years ago, when I first came here, South Africa was a strange land – a place where First World islands swam in a Third World sea, the prosperity and advanced services of the white suburbs sealed in by apartheid’s walls.

The ANC tore down those walls and allowed the wealth to flow outward. But its laser-like focus on redistribution led it to neglect growth, and it invested little in expanding capacity. Everyone got electricity, water and policing. But today the electricity runs only half the day, the water often fails, the trains don’t run at all, and the police are overwhelmed by criminals.

It appears the nation has now had enough. Barring a dramatic turnaround in the country’s fortunes, the ANC will probably lose its parliamentary majority in next year’s elections, for the first time since independence. Forced into coalition, the ANC may then find itself turning to the more growth-oriented elements of the conservative opposition. That new balance could herald an economic revival. On the other hand, to judge by the record of those South African cities that are currently governed by coalitions, it could just as well herald deeper chaos.

South Africa’s error was to assume its wealth was endless. But then, that’s a mistake any country can make. And so we’ll all do well to watch if next year’s story restores the promise of 1994.

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Opinion: A letter from South Africa: What the world can learn from its economic decline - The Globe and Mail
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Mercedes Sees Order Book Supporting Sales in Slowing Economy - BNN Bloomberg

(Bloomberg) -- Mercedes-Benz AG said its order backlog will support sales in the coming months in a subdued global economy where demand in Europe is falling behind strong US and Chinese markets. 

The luxury-car maker, which has been focusing on selling more of its higher-end cars, expects automaking margins at the upper end of its forecast range, it said Friday. Mercedes has forecast a return between 12% and 14% this year, down from 14.6% in 2022. 

“Our focus on top-end cars and premium vans has made Mercedes-Benz more weatherproof, allowing us to accelerate our digital and electric transformation — even in a period of economic uncertainty,” Chief Financial Officer Harald Wilhelm said in a statement on the company’s full first-quarter earnings release. 

Carmakers are holding up well in a slowing environment so far, feeding off full order books after lengthy supply-chain problems choked production. Mercedes is moving its model lineup further upmarket to better weather downturns with high-end consumers less affected by factors like high interest rates and record inflation. 

Demand in Europe has remained sluggish during the first quarter with strong orders in China and the US on “a good level,” Mercedes said Friday. 

Adding to the mix, Tesla Inc. this year intensified vehicle price cuts across its model range, fueling concerns for slimmer returns particularly in the mid-range EV vehicle market. 

Mercedes last week released preliminary earnings showing a 14.8% return on automaking sales in the first quarter, topping analyst estimates.

(Updates with CFO comment in third paragraph)

©2023 Bloomberg L.P.

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Mercedes Sees Order Book Supporting Sales in Slowing Economy - BNN Bloomberg
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Mercedes Sees Order Book Supporting Sales in Slowing Economy - Bloomberg

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Mercedes Sees Order Book Supporting Sales in Slowing Economy  Bloomberg
Mercedes Sees Order Book Supporting Sales in Slowing Economy - Bloomberg
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Sri Lanka crisis: Central bank lays out extent of economic problems - BBC

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By Mariko Oi

Business reporter

Sri Lanka's central bank has laid out the extent of the country's worst economic crisis in more than 70 years.

In its annual report, the bank outlined how last year wages failed to keep up with the soaring cost of everything from food to fuel.

"Several inherent weaknesses" and "policy lapses" helped to trigger the severe problems that engulfed the economy, the bank says.

The bank now expects the economy to return to growth next year.

The Central Bank of Sri Lanka forecast the economy will shrink by 2% this year, but expand by 3.3% in 2024.

The prediction is more optimistic than the International Monetary Fund (IMF), which predicted a contraction in 2023 of around 3% and growth of 1.5% next year.

The central bank's report also outlined how headline inflation reached almost 70% in September as prices of fresh fruit, wheat and eggs more than doubled.

At the same time the cost of transportation and essential utilities such as electricity and water rose even faster.

• Why is Sri Lanka in crisis?
• Sri Lanka in first debt default in its history

Last year, the economy shrank by 7.8% and the country defaulted on its foreign debt for the first time since independence from the UK in 1948.

Defaults happen when governments are unable to meet some or all of their debt payments to creditors.

This damaged its reputation with lenders, making it even harder to borrow money on the international markets.

"The Sri Lankan economy faced its most onerous year in its post-independence history," the report said.

An "unsustainable" economic model "steered the country towards a multifaceted disaster," it added.

Sri Lanka owes about $7bn (£5.7bn) to China and around $1bn to India. In February, both countries agreed to restructure their loans, giving Sri Lanka more time to repay them.

Last month, the IMF agreed to lend Sri Lanka $3bn. That was on top of a $600m loan from the World Bank last year.

Sri Lanka's government is currently negotiating its debt repayments with bondholders and creditors before the IMF reviews the situation in September.

Related Topics

• Asia Business
• Sri Lanka

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Sri Lanka crisis: Central bank lays out extent of economic problems - BBC
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The next two days will reveal the latest data on inflation and the economy - Kitco NEWS

Over the next two days market participants, analysts, and members of the Federal Reserve will get the latest information on the state of our economy and the current level of inflation. At 8:30 AM EST, the BEA (U.S. Bureau of Economic Analysis) will release the advanced estimate for the 1st Quarter Gross Domestic Product (GDP). The second estimate which will include preliminary data on corporate profits will not be released until May 25.

The Federal Reserve Bank of Philadelphia released the “First Quarter 2023 Survey of Professional Forecasters” on February 10. The forecasters anticipate higher growth and a stronger labor market in 2023 concluding that, “On an annual-average over annual-average basis, the forecasters expect real GDP to increase 1.3 percent in 2023, up from the projection of 0.7 percent in the survey of three months ago.”

Predictions for tomorrow’s GDP report vary but the latest model provided by the Federal Reserve Bank of Atlanta says that “The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2023 is 1.1 percent on April 26, down from 2.5 percent on April 18.” This forecast clearly shows a contraction in the estimates from approximately one week ago.

On Friday the BEA will release the latest data on inflation vis-à-vis the PCE price index. Early forecasts expect to see the core PCE increase by 0.3% month over month and An increase of 4.5% year-over-year.

These two reports will be the last components of economic data that the Federal Reserve will use to make their final decision at next week’s FOMC meeting. The meeting will begin on Tuesday, May 2, and conclude the following day. A statement from the Federal Reserve will be released immediately after the conclusion of the meeting followed by a press conference by Jerome Powell ½ hour later.

The dollar is trading lower today by 0.40% and the index is fixed at 101.19.

The combination of elevated inflation, a contracting economy, and elevated interest rates continue to be highly supportive of gold futures. Also, as of this writing, the Congress is expected to vote on a bill to raise the debt ceiling. As of 5:37 PM gold futures basis, the most active June 2023 contract is trading down $5.70 and fixed at $1998.80. Gold traded to an intraday high of $2020.20 but broke back below $2000 during trading in New York as yields firmed and traders switch their focus to the reports which will be released on Thursday and Friday.

For those who would like more information simply use this link.
Wishing you as always good trading,

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The next two days will reveal the latest data on inflation and the economy - Kitco NEWS
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How do retirees in France really fare? - Al Jazeera English

After months of protests, violent clashes with police and a government accused of betraying the constitution, France’s President Emmanuel Macron has made the most dramatic changes to the nation’s pension system in a generation.

Until the recent reforms, French workers were legally allowed to retire at 62, and while that does not guarantee a full pension unless they have worked and contributed for enough time, Macron has managed to increase that age to 64.

Historically, pensions have been a major political flashpoint in France, and this current showdown between the government and workers is as volatile as ever.

“Every country has its sacred cows”, Nicholas Barr, professor at the London School of Economics European Institute, told Al Jazeera. “In France, altering the pension age is very much a sacred cow.

“To give you other examples of sacred cows, in the US it’s the mere mention of any public involvement in healthcare, when you get instant shouts of ‘communism’ and ‘socialism’; in Britain you bring in the slightest hint of private delivery in the National Health Service and you promptly get cries of betraying all the principles of the NHS.

“And in France the equivalent, the third rail, is pension age. And while you can recognise that the issue is a third rail, the idea that the pension age can be kept at 62 is, in my view, simply unsustainable.”

France has one of the lowest qualifying ages for a state pension among European countries and spends a significant amount supporting the system.

It is based on a “pay it forward” premise where younger workers, especially in the public sector such as education, transport or energy, pay higher than average taxes and earn lower wages but know they will be recompensed by leaving work while still relatively young and healthy, and live in comparable comfort, as a new generation will provide the public purse for them to do so.

There are exceptions in this system, such as farmers and agricultural workers who are classed as self-employed and generally in the private sector on private-owned farms. This means they may only qualify for a portion of any state pension, despite their importance to French society.

The pension programme is now facing financial challenges due to demographic changes — an ageing population and a significant fall in the birth rate — that burden the system’s finances.

France vs its neighbours

So, do French pensioners fare better than those in other developed economies? It depends on who you ask and what measure you use.

While the relatively early age of retirement can be envied, in terms of gross monthly payments the average monthly state pension in France at about 1,200 euros ($1,327) is significantly lower than many of its neighbours like Spain’s 2,500 euros ($2,764), Belgium’s 3,000 euros ($3,317) and Luxembourg’s 3,300 euros ($3,649). Two of them are also comparatively cheaper to live in, so against its literal neighbours, France’s retirement system does not seem so rosy.

However, with lower living costs than Nordic nations like Denmark, Norway and Iceland, and higher pension payouts than most of Eastern Europe, Ireland and the United Kingdom, France fares better than other parts of Europe. It is actually ranked seventh in the Breakeven Pension Index, a weighted table compiled by Almond Financial, a financial planning firm. In effect, French pensioners get a fairly healthy monthly sum and can live more cheaply than most other Europeans.

There is also a cultural dimension. Workers in France often see retirement as a genuine ‘third chapter’ in their lives rather than an afterthought, so they feel that leaving the workforce at a relatively young age is merited.

The system in numbers

French public sector employees typically receive higher pension benefits than those in the private sector and retire on average at 62.9 years of age, according to data from the European Commission, up to 2021.

The legal retirement age differs across Europe. In Germany, Italy and Denmark, it is 67, versus 66 in Spain (rising to 67 in 2027). In the UK, the current retirement age for a state pension is also 66, with Prime Minister Rishi Sunak hinting that he may push for raising it to 68.

On average, European Union inhabitants retire at 63.8 years, with Luxembourg having the lowest average retirement age, at 60.2 years.

Then there is the amount that governments set aside for pensions.

According to the OECD, as a percentage of gross domestic product (GDP), France commits on average 14.8 percent to pensions. In the EU, only Greece (15.7 percent) and Italy (15.4 percent) shell out more. The European average is 11.6 percent with Poland devoting 10.6 percent of GDP to pensions, ahead of Germany at 10.3 percent and Romania at 8.1 percent, with Ireland coming last with 4.6 percent. The figure for the UK is 5.5 percent, according to London’s Office of Budget Responsibility.

“There is a strong cultural attachment to state provision of pensions and also to quality of life which the French rate highly in terms of years worked but also working hours per week, days of holiday per year, and so on,” Rainbow Murray, professor at Queen Mary University London’s School of International Relations, told Al Jazeera. “Retirement, at an age and level of finance where it can be enjoyed, is seen as a right.”

Liberté, Egalité … Réalité

However, perceptions of the French pension system come with caveats, says Paul Smith, associate professor in French History and Politics at Nottingham University.

“The generosity of the French system is something of a myth. Try being a farmer or in a profession that comes under the regime for farmers, for example,” he said, adding it is true that someone who qualifies for a full pension in France would receive about twice the level of support of, say, a UK pensioner receiving the full pension.

“But that’s because the French state takes a greater burden in terms of contributions and payout.”

However, the number of people who qualify for the full pension is far lower than you might think. A basic pension at 1,200 euros ($1,327) a month is something of a chimera.

“The problem is that many French people in fact live on a wage not very much higher than the minimum wage — teachers for example earn something like 1.5 times the minimum wage, so paying into a supplementary pension scheme is out of the question.”

Why such a violent response?

Despite Macron and his ministers claiming that they will give themselves “100 days of appeasement, unity, ambition and action” to heal the country, observers cannot help but feel a red line has been crossed.

“Macron has ripped up the relationship with trade unions and they do not seem likely to be willing to come to the table any time soon,” said Smith.

Added Barr: “Pensions are a device that allow younger people to plan over their life course and should be formed gradually with a long-term view. So sudden, sharp changes, especially for people close to retirement, is crazy design.”

But was this set of reforms a fundamental and necessary step to prevent a collapse of the system?

“Very much so”, said Barr. “Italy is a very sad illustration of ignoring the problem. Various governments kicked the can down the road for more than 30 years until the nasty stuff hit the fan, and then the Mario Monti administration in 2011 had to reform very radically and very quickly,” to avoid the country going bankrupt, he said.

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How do retirees in France really fare? - Al Jazeera English
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US default on debt will trigger an ‘economic catastrophe’: Yellen - Al Jazeera English

Janet Yellen warned that a default would result in job losses while driving household payments on higher interest rates.

US Treasury Secretary Janet Yellen on Tuesday warned that failure by Congress to raise the government’s debt ceiling – and the resulting default – would trigger an “economic catastrophe” that would send interest rates higher for years to come.

Yellen, in remarks prepared for a Washington event with business executives from California, said a default on United States debt would result in job losses, while driving household payments on mortgages, auto loans and credit cards higher.

She said it was a “basic responsibility” of Congress to increase or suspend the $31.4 trillion borrowing cap, warning that a default would threaten the economic progress that the United States has made since the COVID-19 pandemic.

“A default on our debt would produce an economic and financial catastrophe,” Yellen told Sacramento Metropolitan Chamber of Commerce members. “A default would raise the cost of borrowing into perpetuity. Future investments would become substantially more costly.”

If the debt ceiling is not raised, US businesses will face deteriorating credit markets, and the government will likely be unable to issue payments to military families and seniors who rely on Social Security, she said.

“Congress must vote to raise or suspend the debt limit. It should do so without conditions. And it should not wait until the last minute.”

Yellen told lawmakers in January the government could pay its bills only through early June without increasing the limit, which the government hit in January.

Unlike most other developed countries, the US puts a hard limit on how much it can borrow. Because the government spends more than it takes in, lawmakers must periodically raise the debt ceiling.

Kevin McCarthy, leader of the Republican-controlled House of Representatives, last week floated a plan that would twin $4.5 trillion in spending cuts with a $1.5 trillion increase in the debt cap, calling it the basis for negotiations in coming weeks.

The White House insists the two issues should not be linked, and the Democratic-controlled Senate is likely to reject the proposal.

Financial markets are growing increasingly concerned about the standoff, sending the cost of insuring exposure to US debt to its highest level in a decade, with financial analysts warning about the increasing risk of default.

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US default on debt will trigger an ‘economic catastrophe’: Yellen - Al Jazeera English
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Riksbank Hits Economy With Half-Point Hike to Tame Prices - Financial Post

Underlying Fundamentals of Global Economy Not Bad: Smart - Bloomberg

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Underlying Fundamentals of Global Economy Not Bad: Smart  Bloomberg
Underlying Fundamentals of Global Economy Not Bad: Smart - Bloomberg
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South Korea’s economy barely avoids recession amid rocky outlook - Al Jazeera English

Asia’s fourth-largest economy grows 0.3 percent during first quarter amid improvements in exports and consumption.

South Korea’s economy has barely avoided recession amid challenging global economic conditions for Asia’s fourth-largest economy.

South Korea’s gross domestic product (GDP) grew 0.3 percent during January-March, government figures showed on Tuesday, rebounding from a 0.4 percent contraction in the final quarter of 2022.

A recession is typically defined as two consecutive quarters of negative growth.

The rebound came as the country’s exports rose compared with the previous quarter and domestic demand improved.

Private consumption was the biggest growth driver, expanding 0.5 percent, while exports rose 3.8 percent, after falling 4.6 percent the previous quarter.

“Given consumption for leisure and tourism services was particularly strong, we think the reopening boost has continued,” Min Joo Kang, senior economist for South Korea and Japan at ING, said in a note.

“Inflation came down rapidly from last year’s peak and market interest rates also stabilised as the BoK [Bank of Korea] has paused its rate increases since January. These factors probably boosted consumption last quarter.”

Still, South Korea’s economy is widely expected to slow down this year amid a challenging outlook for the global economy.

The OECD expects South Korea’s economy to grow 1.6 percent in 2023, after last month revising down its estimate from 1.8 percent.

South Korea’s economy grew 2.6 percent in 2022, slowing from 4.1 percent in 2021.

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Coronation gives tourism boost, but UK economy still reeling - Financial Post

Malaysian energy needs clash with China claims in South China Sea - Al Jazeera English

Kuala Lumpur, Malaysia – When Malaysian Prime Minister Anwar Ibrahim made his first official visit to China earlier this month, Chinese officials questioned Malaysia’s oil and gas exploration within its exclusive economic zone (EEZ) in the South China Sea.

China was concerned that state-owned energy company Petronas “carried out a major activity at an area that is also claimed by China,” Anwar said in response to a parliamentary question on April 4.

Anwar said he told his Chinese counterparts that Malaysia considers the area Malaysian territory and “therefore Petronas will continue its exploration activities there”.

The exchange highlights Beijing’s increasing efforts to pressure Kuala Lumpur not to exploit energy resources under its control, even as Anwar looks to deepen Sino-Malaysian ties.

Beijing claims sovereignty over more than 90 percent of the South China Sea via its “nine-dash line”, which cuts into the EEZs of Vietnam, the Philippines, Malaysia, Brunei and Indonesia.

In 2016, an international arbitration panel at The Hague ruled that there was no legal basis for Beijing’s claims over the strategic waterway. Under the United Nations Convention on the Law of the Sea, countries have special rights to exploit natural resources within their EEZ, which extends 200 nautical miles (370km) from the coastline.

“Given that it’s Anwar’s first visit to Beijing in his newfound capacity as Prime Minister, I believe China would have found it opportune to try to convince Malaysia to cease energy work in those concerned areas, especially off Sarawak,” Collin Koh, a research fellow at the Singapore-based Institute of Defence and Strategic Studies, told Al Jazeera.

Koh said Beijing is aware of Malaysia’s deep economic ties with China and the economic leverage it is capable of using to prod Kuala Lumpur on the issue.

China has been Malaysia’s largest trading partner for 14 consecutive years, with bilateral trade reaching $203.6bn in 2022.

While Anwar did not name the exploration site under dispute, he was widely understood to be referring to the Kasawari gas field located about 200 km (124 miles) off the coast of Sarawak state in Malaysian Borneo.

Chinese vessels and aircraft have repeatedly entered waters and airspace near the gas field in recent years, drawing protests from Kuala Lumpur.

In 2021, then Malaysian Foreign Minister Saifuddin Abdullah said he expected more Chinese vessels to enter the area “for as long as” Petronas developed the site, which was discovered in 2011 and contains an estimated 3 trillion cubic feet of recoverable gas resources.

“Kasawari certainly gets as much pressure as any other drilling site in the South China Sea [from Chinese ships],” Greg Polling, director of the Asia Maritime Transparency Initiative based in Washington, DC, told Al Jazeera.

“We’ve historically seen the CCG [Chinese Coast Guard] focus on harassing the offshore supply vessels contracted to keep rigs and drilling ships operating,” said Polling, explaining that Chinese ships have been known to intentionally risk collision in order to pressure companies to stop taking contracts servicing the rigs.

Polling said that the Chinese Coast Guard disrupts operations at Kasawari, Vietnam’s Nam Con Son gasfield and Indonesia’s Tuna gasfield because they are the only major projects developed inside the nine-dash line.

China claims about 90 percent of the South China Sea, despite overlapping claims by Vietnam, the Philippines, Malaysia, Brunei and Indonesia [File: Jam Sta Rosa/AFP]

Despite its expansive claims in the South China Sea, Beijing has said it wishes to work with Malaysia to handle its differences through dialogue and consultation.

Koh said Beijing and Kuala Lumpur have exercised restraint over the issue despite their differences.

“There’s as yet nothing drastic undertaken beyond the posturing of their maritime forces, whereas the diplomatic communications between these two capitals have largely stayed out of public limelight — to avoid inflaming the situation — via backchannel,” Koh said.

“China is keen to cultivate a friendly Malaysian government under Anwar, and it’ll appear that both countries continue to emphasise the so-called ‘big picture’ of their comprehensive relations that encompass areas of concord more than just the South China Sea dispute.”

The richness of the Kasawari field, which Petronas CEO Tengku Muhammad Taufik Tengku Aziz has said is big enough to ensure his company remains one of the world’s top five exporters of liquefied natural gas, demonstrates how high the stakes in the South China Sea have become.

Malaysia’s oil and gas industry is a major pillar of the economy, accounting for about 20 percent of gross domestic product (GDP), according to the Malaysian Investment Development Authority.

The Kasawari gasfield’s estimated 3 trillion cubic feet of recoverable gas reserves alone constitute approximately 10 percent of Malaysia’s natural gas reserves, said Yeah Kim Leng, an economics professor at Malaysia’s Sunway University who is a member of an advisory committee to Anwar.

“Slated to begin operations this year, the oil field is therefore a key asset to sustain the country’s oil and gas export earnings and meeting its domestic energy needs both directly and indirectly through imports,” Yeah told Al Jazeera.

The gas field is expected to produce up to 900 million cubic feet of gas daily once in operation.

Petronas declined to comment on China’s activities near its operations in the South China Sea.

A spokesperson, however, said the Kasawari development, which includes the world’s largest carbon capture and storage project, will be crucial to the company’s efforts to achieve net zero carbon emissions by 2050.

“Kasawari Gas Field project, off the coast of Sarawak is the beginning of Petronas’ adoption of CCS for high carbon dioxide fields,” the spokesperson said, adding that the project is expected to capture more than 3.3 million metric tonnes of carbon dioxide (CO2) per year upon its completion in 2026.

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German Economy Probably Grew in First Quarter, Bundesbank Says - BNN Bloomberg

(Bloomberg) -- A stronger-than-expected recovery in manufacturing at the start of the year probably helped Germany dodge a recession, according to the Bundesbank.

Europe’s largest economy grew slightly in the first quarter, the central bank said in its monthly report released on Monday. While persistently high inflation weighed on spending and consumer services, industry saw demand pick up as energy prices dropped and supply snarls eased.

The assessment precedes official data that will be released at the end of the week. Economists predict output increased 0.2% following a contraction of 0.4% in the fourth quarter that had raised questions about the health of the economy. 

First estimates for the euro zone and its largest members will also be published Friday.

In Germany, construction increased strongly in the first quarter even as higher prices and interest rates damped demand, the Bundesbank said, pointing to mild weather in January and February.

Near-term prospects remain promising too. Business confidence increased slightly in April as expectations improved. Optimism surrounding the manufacturing outlook “grew noticeably,” according to the Munich-based Ifo institute.  

Inflation will likely continue to slow, reflecting a drop in energy costs compared to last year, the Bundesbank said. Extraordinarily high price increases for food and other goods as well as services should ease too, though a trend reversal has yet to start — and underlying price pressures are likely to remain elevated, officials added.

Concurrently, the Bundesbank published its latest survey on households’ finances and wealth, covering developments through 2021. The study showed broad-based gains, but also wide inequality compared to European standards.

Median net wealth per household was €106,600 ($117,110), up more than 50% since the last survey in 2017. The average was €316,500, showing a 36% increase. While the richest households benefited the most in absolute terms, the poorest recorded some of the highest relative gains, partly reflecting savings during the pandemic.

The survey is conducted every three to four years. This round was the fourth since 2010. Polling for the next one will start in May, with results due for release in early 2025.

©2023 Bloomberg L.P.

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German Economy Probably Grew in First Quarter, Bundesbank Says - BNN Bloomberg
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Ifo economist: German economy is lacking momentum - ForexLive

• Banking turmoil has had no impact on companies' sentiment
• Industry export expectations have risen
• Proportion of companies that want to raise prices has fallen again
• But German economy is still lacking momentum

It's another improvement in terms of business morale in April but overall sentiment is still not suggestive of a strong growth recovery in the German or euro area economy for that matter. The better-than-expected start to the new year is a welcome development but it will take more than that to convince that economic conditions aren't headed for a modest slowdown at least - particularly in the manufacturing sector.

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Chinese Leaders Highlight Economic Risks as Recovery Takes Hold - BNN Bloomberg

(Bloomberg) -- Chinese President Xi Jinping and other top leaders highlighted several risks the economy still faces as growth rebounds this year, repeating the need for more self-reliance in key areas like technology in the face of growing competition from the US. 

Xi and his No. 2, Premier Li Qiang, stressed the importance of innovation and competitiveness in separate meetings in the past few days. A vice commerce minister also said this weekend China will take steps to boost trade with major nations amid a slowdown in the global economy.

In a meeting with senior Communist Party officials on Friday, Xi pledged support for innovative companies as he urged them to break technological barriers. The president said private business growth would depend on removing institutional barriers that impede fair competition. 

“The latest meeting sent a clear signal that reform is an important aspect of the Chinese modernization path,” Tommy Xie, head of Greater China research at Oversea-Chinese Banking Corp., said in a note Monday.

Li met with the first study group for the State Council, China’s cabinet, on Sunday to reiterate the importance of reform and striking a balance between development and security. 

Chinese Vice Commerce Minister Wang Shouwen said at a separate press conference on Sunday the country would release guidelines intended to boost trade in its major overseas markets. He added that China would support the ability of firms to make better use of the Belt and Road Initiative.

The comments come against the backdrop of an economy that’s showing a rapid, although uneven, recovery. A surge in consumer activity and a rebound in the property industry propelled first-quarter growth to its fastest pace in a year. However, industrial output grew slower than expected and unemployment remains elevated.

“While headline growth looks solid, the underlying economy appears divergent,” Goldman Sachs Group Inc. economists including Hui Shan wrote in a Sunday research note. 

Several economists have recently upgraded their forecasts for the year to close to 6% or higher, well above the official government target of around 5%. 

More clues on how leaders are expected to steer the economy may come before the end of the month, when the Communist Party’s Politburo is likely to hold its next meeting.

The better-than-expected first quarter figures “took some pressure off policymakers to conduct broad-based easing, but the divergences underlying the economy call for targeted support,” the Goldman economists said.

While they expect the country’s broad monetary and fiscal stance to remain unchanged, they said some industry-level policies — such as for property and the internet — may be loosened further.

©2023 Bloomberg L.P.

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Mark Le Dain: Canadian home prices, once cheered, are now dragging on economic growth - Financial Post

High home prices result in lost innovation, consumer spending and investment

Home prices are at the point where they also constrain general economic growth, Photo by Mark Blinch/Reuters

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Canadians have long been proud of having a resilient housing market.

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After the global financial crisis, the Canadian market experienced a modest correction and then shrugged it off. This was viewed positively politically as home prices were a very public barometer of how a country was doing, and that measurement approach became cemented in the minds of a generation. As home prices climbed higher it also became a source of wealth for many. With approximately two-thirds of Canadians owning a home, according to Statistics Canada, that provides a popular majority of people that like to see homes increasing in value.

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Until recently, those struggling with a very real cost-of-living crisis in Canada were not viewed as a louder camp, with significant housing affordability policies only being added in recent years. Homeownership being unattainable for many should not make any Canadian proud. The worst part is that Canadian home prices are at the point where they also constrain general economic growth, making upwards mobility even more difficult. This makes the urgency to solve the high cost of housing more pressing. The Organization for Economic Co-operation and Development (OECD) predicts that Canada will be the worst-performing advanced economy over the next decade. Let’s look at the different ways extreme home prices are constraining growth and innovation.

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There are lots of innovators working hard in Canada, but the bottom line is that the country does not rank in the top 10 in the Global Innovation Index and the Conference Board has the country in the bottom half of its peers. High home prices make entrepreneurship, and taking risks in general, very difficult. When home prices are high, people are less likely to move to new areas for job opportunities, reducing growth. High mortgage rates also mean owners are less willing to sell and there are fewer options in the markets for people looking to move. This is currently happening in Canada, with very few homes for sale. This means that people cannot relocate to take advantage of better job opportunities, even if it would mean a higher salary. If paying your mortgage is your primary concern, you are also unlikely to take risks by joining or starting a new business.

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High home prices, and mortgage service levels, also result in reduced consumer spending and investment. High home prices lead to increased debt, as people take out larger mortgages to afford homes, making it more difficult for individuals to save money, invest in businesses, or otherwise contribute to economic growth. In the a recent Angus Reid survey, more than half of Canadians said they couldn’t keep up with the cost of living.

Canadians devote more income to servicing debt than other major peers. This should come as no surprise when factoring in Canada’s high tax rates and record debt burdens. The question is where does the government expect investment in new business to come from as dollars go to servicing the existing debt burden, which is there because Canadians need a place to live. It’s difficult to blame people for wanting a backyard for their kids.

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Over the past decade, Canadians were largely cautious about purchasing homes. The only time Canadians were given the all-clear to buy homes was just recently when Bank of Canada governor Tiff Macklem assured Canadian households and businesses that borrowing rates will remain at historic lows. The exact quote was as follows: “Our message to Canadians is that interest rates are very low and they’re going to be there for a long time.” This ironically preceded one of the fastest increases in rates on record and those that followed this advice now have much higher debt servicing costs. It’s tough to blame Macklem, as Canada must keep up with U.S. rate increases to avoid importing inflation. This was an impossible position for the Bank of Canada. But it’s hard to blame the average Canadian who thought they finally had the all-clear to purchase a home. Now they must try to manage the results of that decision.

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1. 

   Office vacancy crisis offers opportunity for affordable housing

2. 

   Housing prices rise month over month for the first time in 10 months

3. 

   Higher rates are hitting homebuilding

Those Canadians are now servicing a debt level that makes no sense and is only increasing, as the amortization terms of mortgages are being extended by many banks. This is an issue for another larger article, unfortunately, but it will compound the problems above. These individuals do not have the time, capital, or risk appetite to innovate to the extent we see in other countries. There is a very real risk that Canada continues to stagnate, with home values, previously celebrated, being a key cause.

Mark Le Dain is vice-president at Neo Financial Technologies Inc., a technology investor and adviser, and a published author.

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