Aurelia Butler

The Israeli economy rebounded in the first quarter after growth was hit late last year at the outset of Israel’s war against Hamas in Gaza.Gross domestic product (GDP) grew an annualised 14.1% in the first quarter from the previous quarter – which had seen a 21.7% annualised contraction.S&P did not take any rations action but it reiterated its growth estimate of 0.5% for 2024, with the pace expected to accelerate to 5.0% in 2025. It noted the recovery from current fighting would likely be slower than the country’s rebounds from COVID or past military conflicts.Israeli policymakers say that the economy is robust and will bounce back quicker, with the central bank forecasting growth of around 2% in 2024.”We expect the lingering issues in the impacted tourism, construction, and agriculture sectors, alongside elevated regional security and domestic political uncertainty, will constrain a faster recovery this year,” the ratings agency said.”More broadly, we consider that risks to Israel’s credit profile remain elevated,” it said, pointing to potential escalation of the conflict with Iran or Hezbollah in Lebanon.S&P last month cut Israel’s long-term ratings to A-plus from AA-minus, citing elevated geopolitical risks and projecting a budget deficit of 8% of GDP in 2024. That followed a ratings cut by Moody’s (NYSE:MCO) in February. More

By Anisha Sircar and Divya ChowdhuryBENGALURU (Reuters) – Thailand’s new finance minister has refrained from pressuring the central bank and has a chance to improve relations amid a longstanding disagreement on interest rates, former finance minister Thirachai Phuvanatnaranubala said on Tuesday.Speaking in the Reuters Global Markets Forum, Thirachai said Prime Minister Srettha Thavisin’s repeated public push for a rate cut had created unnecessary strain and new Finance Minister Pichai Chunhavajira was in a position to smooth things over. “The new finance minister must try to find a way to convince the Bank of Thailand there is a need for a more relaxed monetary policy,” Thirachai, who is also former central bank deputy governor, told the Reuters forum.For months, Srettha has been at odds with the central bank, which has refused to bow to his pressure to cut rates, currently at a more than decade-high of 2.50%. The next rate review is on June 12. Srettha and his ruling Pheu Thai Party maintain the current monetary policy stance is hurting an economy he says is in crisis. Srettha, a real estate mogul and political newcomer, has repeatedly said he respects the central bank’s independence. Pheu Thai and previous incarnations also founded by influential former premier Thaksin Shinawatra have dominated politics for the past two decades and have clashed previously with the BOT on rates. Billionaire Thaksin has officially retired but remains a towering figure in Thai politics, with sway over the current government. His politician daughter and Pheu Thai leader Paetongtarn Shinawatra recently caused a stir, calling the BOT’s independence an “obstacle” in resolving economic problems. STRONG POSITIONThirachai was at the BOT the last time a Thai central bank governor was sacked in 2001, by Thaksin, a move he said would be difficult to repeat now. “The position of the governor is fairly strong because Thailand has a tradition of giving weight and protection to the Bank of Thailand,” he said.”We had amended the law to make it difficult for the government, for any government, to remove the central bank governor, unless there is a real, apparent, necessary cause.”New Finance Minister Pichai Chunhavajira has recently said he is more worried about people’s access to finance than the level of interest rates. On Tuesday, he reiterated the government’s position that economic stimulus was needed. Thirachai said he believed the current interest rate of 2.50% was perhaps a little high and in his opinion, monetary policy should be more relaxed.He said there should be no concern over weakness of the baht currency if there were to be a rate cut. The BOT has said a rate cut could give the economy a short-term boost, but that benefit would be outweighed by potential long-term negative impacts it might create on the economy, which needed to be restructured. (This story is refiled to fix a spelling in the penultimate paragraph) More

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Much of the drop in headline consumer price inflation – from a peak of 11.1% a year and a half ago – is due to falling energy prices which are beyond the BoE’s control.Its policymakers are more interested in price pressures generated within Britain’s economy, especially its still tight labour market where many employers continue to push up pay at a rate that could keep inflation hot. As well as businesses and home-owners stretched by the highest borrowing costs since 2008, Prime Minister Rishi Sunak is also hoping for a drop in inflation pressures that could allow the BoE to cut rates, offering a electoral lifeline to his Conservatives before an election later this year.BoE Governor Andrew Bailey has said a first rate cut could come as soon as next month, depending on the data.IS THE INFLATION CRISIS OVER?Inflation in Britain peaked higher than in any other big rich economy. For a period it was an outlier in the Group of Seven due to a combination of the energy price surge and a shortage of workers to fill jobs, a problem seen in other countries but compounded in Britain by Brexit.Britain’s inflation of 3.2% in the 12 months to March remained higher than in Germany, France and Italy. But it was lower than 3.5% in the United States. Economists polled by Reuters say Wednesday’s data will probably show headline inflation slowed sharply to 2.1% in April although it is likely to pick up a bit later in 2024. The BoE thinks it will speed up again to around 2.6% later this year.Analysts will be just as focused on other price measures in the April data, chief among them services inflation which at 6.0% in March remains a big concern for the BoE. LABOUR MARKET PRESSURESFor services firms, wages are a bigger share of costs than for other companies. So the recent 6% pace of annual wage growth in Britain – driven by a more acute shortage of workers to fill roles than in many other economies – has pushed up prices in the sector.There have been some recent signs that the labour market heat is cooling. The imbalance between a high number of vacancies and a low number of unemployed people – a key gauge for the BoE – is its narrowest since before the COVID pandemic.COMPANIES FINDING IT HARDER TO PUSH UP PRICESSomething else the BoE is watching closely is the ability of companies to pass on higher costs to customers in the form of higher prices. The BoE’s regional agents say that will be harder this year than in 2024. Megan Greene, one of the nine Monetary Policy Committee members, last week pointed to similar signals from purchasing manager index reports which have shown stronger inflation in prices paid by firms than in the prices they charge. NEXT ROUNDS OF DATA After Wednesday’s inflation figures for April, there will be a set of official labour market data on June 11 and May’s inflation release on June 19 before the BoE’s next scheduled policy announcement on June 20.Due to the problems with the official jobs data, the BoE will watch other gauges of the market even more closely than usual, including PMI surveys due on Thursday this week.WHEN DOES THE MARKET EXPECT A RATE CUT?Rate futures on Monday were pricing a roughly 56% chance of the BoE cutting Bank Rate to 5% from 5.25% next month and an almost 100% chance of a cut by its August meeting.Economists polled by Reuters last week were also split about the timing of the BoE’s first move but with a narrow majority seeing it coming later than investors do: of 71 analysts who took part in the poll, 38 expected a first cut in August while 31 pointed to June. Two predicted it would come in September. More

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