Aurelia Butler

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IMF Deputy Managing Director Gita Gopinath in December said that if the world economy and trade fragmented into two blocs – implying predominantly the U.S. and Europe in the West and China and Russia in the East – global gross domestic product could be cut by 2.5% to 7%.”A trade war, a science and technology war, exercises in decoupling or de-risking are, in essence, the politicisation of economic and trade issues,” said Wang Wenbin, a Chinese foreign ministry spokesperson.”This is immoral and unsustainable and ultimately affects the overall interests of the international community.”The world’s two biggest economies used to be each other’s largest trading partners. While both governments publicly oppose decoupling, China is now trading more with Southeast Asia, and the U.S. with neighbouring Canada and Mexico.China has imposed exports curbs on a number of critical minerals, such as graphite – of which it provides 67% of global supply – citing national security concerns. The United States opposes export controls announced by China on gallium and germanium, metals used to produce semiconductors and other electronics. Meanwhile, the U.S. has placed restrictions on the export of semiconductors and the equipment to make them to China, also citing security concerns.”China is willing to work with all parties to advocate inclusive economic globalisation, resolutely oppose anti-globalisation and oppose all forms of unilateralism and protectionism,” Wang said. More

Two of China’s biggest state-owned banks and a leading joint-stock bank have stepped up reviews of smaller lenders over the past couple of months to identify those with poor asset quality and have a high risk of default, the sources said.The two state-owned banks have decided to reduce interbank lending limits and set shorter maturity periods for smaller peers deemed high risk, said two of the sources.All the sources, who spoke on condition of anonymity due to the sensitivity of the issue, have direct knowledge of the matter.The move comes amid growing worries about the health of the smaller banks in the world’s second-largest economy, as a deepening property sector crisis and ballooning local government debt make them the weak link in the financial system.The cautious approach taken by some big banks in dealing with smaller peers could exacerbate capital woes for the latter as they have fewer other fundraising options, which could force Beijing to step in with more supportive measures.While the larger Chinese banks mainly use customer deposits – a stable and long-term funding source – to make loans, in recent years smaller lenders have been aggressively borrowing from local rivals to raise funds.China’s mid-sized and smaller banks account for roughly half of the trading volume in the interbank lending market, data from the China Foreign Exchange Trade System (CFETS), which is overseen by the central bank, showed.One of the sources, a senior official at the leading joint-stock bank which is among those to review credit exposure to smaller peers, said the bank had tightened its criteria for lending to smaller banks.As part of that, it has stopped purchasing bonds issued by smaller banks that have total assets below $40 billion, said the source.The People’s Bank of China (PBOC) and the National Financial Regulatory Administration, the watchdog overseeing all aspects of China’s $63 trillion financial sector, did not respond to Reuters request for comment.LIQUIDITY GAPAs China grappled with the impact of the slowing economy on the financial system, the local authorities have been taking measures to support the banking system, especially the smaller ones to maintain financial stability.As part of those measures to prevent financial risks, some of China’s local governments sold record amounts of so-called special bonds last year to inject capital into troubled small regional lenders.The state media reported last month, citing the Central Economic Work Conference held on Dec. 11-12, during which top leaders set economic targets for 2024, that it was necessary to effectively resolve risks in small and medium-sized banks.Although roughly 4,000 small banks are not by themselves seen as a systemic risk, the concern is that enough of them have largely funded themselves via short-term money market borrowing, posing a collective danger in the event a few of them fail.Greater use of interbank lending for funding purposes makes banks more sensitive to counterparty risk.While the country’s Big Five banks, including the likes of Industrial and Commercial Bank of China and Bank of China, dominate the sector, smaller banks still account for a quarter of assets, according to regulatory data.The second source at one of the big state-owned banks said some of the small lenders his firm had reviewed and deemed risky were in highly indebted areas such as parts of Northeast China, the Inner Mongolia region, and Henan province.Rates for negotiable certificates of deposit (NCDs), usually a routine fundraising tool for small lenders, have risen steadily since August, partly due to a liquidity gap in recent months amid a heavy debt supply.The interest rate on one-year NCDs sold by small and medium-sized rural commercial banks reached 2.84% in mid-December, the highest level since August, according to a research note by Chinese brokerage TF Securities.In a sign of growing stress, 10 small and medium-sized banks have defaulted on commercial paper at least three times over six months last year, according to a statement released on Nov. 30 on the Shanghai Commercial Paper Exchange website.The banks include regional lender Ningxia Helan Rural Commercial Bank Co. Ltd., based in northwest China’s Ningxia region, and Shaanxi Baoji Weibin Rural Commercial Bank Co. Ltd., located in northern Shanxi province, the statement said. More

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The Institute of Directors’ (IoD) confidence index – which maps the gap between business leaders who are optimistic about the economy and those who are pessimistic – fell to -28 in December from -21 in November, having gradually risen since June.Expectations for business investment, costs and wages, and headcount were all little changed.Despite the caution, company leaders were more upbeat about prospects for their own businesses with hopes for revenue and export growth rising.Roger Barker, policy director at the IoD, said sentiment among directors had been largely stuck in the doldrums over the second half of 2023 as the impact of higher interest rates took its toll on the economy.”Although aspects of the business environment have improved in the last couple of months, particularly with regard to inflation, this is not yet exerting a meaningful impact on business decision-making,” Barker said.The IoD called on the Bank of England to start cutting interest rates in early 2024. “With inflationary pressures abating, business is in dire need of a boost if it is to help drive meaningful economic growth in 2024,” Barker said.The BoE raised Bank Rate 14 times in a row between December 2021 and August last year, since when it has held its benchmark rate at a 15-year high of 5.25%. Governor Andrew Bailey and other top officials have signalled they want to keep borrowing costs high to ensure inflation pressures are snuffed out.The IoD survey was based on 703 responses from companies polled between Dec. 14 and Dec. 29. More

LONDON (Reuters) -Argentina and the International Monetary Fund are close to an agreement on a review of its $44 billion loan programme, three sources told Reuters, a key step that would put the country on track to unlock the next tranche of funding.Government officials and IMF staff representatives are in talks over the seventh review of the 2022 loan, the sources familiar with the matter said. The review was originally scheduled to be completed in November but was delayed amid a change of government, as President Javier Milei took office on Dec. 10.”An agreement is close, the country is working to get an approval this month,” said one of the sources, who asked not to be named because the talks are private.A spokesperson for Milei declined to comment. An IMF spokesperson said that staff of the agency will travel to Buenos Aires on Thursday to continue negotiations on the seventh review, and added that Argentina will bundle capital payments due in January into one at the end of the month.Argentina is due to pay some $2 billion to the IMF this month.The seventh review, which revises the programme’s performance criteria until September, is key to putting the deal back on course, as it had gone off track shortly after its latest formal assessment in August due to missed targets. If approved by both the IMF staff and the Fund’s executive board, the review will also unlock disbursements for around $3.3 billion.FROM PRIOR ACTIONS TO WAIVERArgentina’s Milei administration has already initiated a formal request for a waiver for the programme after the previous administration failed to meet the goals agreed in August.”The key is that the country’s recent prior actions could allow a waiver on the programme,” one of the three sources said. The IMF usually approves waivers to missed quantitative performance criteria if it believes that a programme “will still succeed,” according to the Fund’s guidelines. The IMF recently hardened its view on Argentina after the country missed fiscal and reserves accumulation targets.The prior actions are steps that a country takes before completing a review. Milei’s administration has laid out a package of economic measures to tackle a deep fiscal deficit, triple-digit inflation and a dearth of foreign reserves. Argentina devalued its peso by 54%, weakening the official exchange rate from 366 to 800 pesos per dollar in December, narrowing the gap with the black-market peso to a level last seen in 2019, when capital controls were imposed. Milei’s government also said it is working on reducing energy and social subsidies to restore fiscal balance in 2024. The IMF called the economic measures “bold,” adding, “their decisive implementation will help stabilize the economy.” Milei has also sent a reform bill to Congress proposing far-reaching changes to the country’s tax system, electoral law and public debt management.Argentina has to pay $2.8 billion on IMF maturities in January and February. The latest loan payment to the IMF was secured via a $960 million short-term financing bridge from the Development Bank of Latin America and the Caribbean (CAF), as the country’s net reserves are in the red.Wall Street bank Morgan Stanley said it expects a fully revamped IMF programme for the country for the second half of the year, according to a note to clients published on Tuesday. More

(Reuters) -Air Transat flight attendants rejected a tentative agreement with the Canadian leisure carrier, their union said on Tuesday, raising fresh demands for higher pay and the threat of a strike at the end of the bustling holiday travel season.The union representing 18,500 flight attendants in Canada said one of the main reasons for the deal’s failure was that the raises failed to keep up with higher living costs.Unions in aerospace and other sectors are making gains on wages amid a tight labor market and rising inflation that has eaten into pocketbooks. Flight attendants in Canada and the U.S. are particularly trying to end the practice of not compensating them for time spent during boarding and waiting at the airport before and between flights.Transat and the union representing its 2,100 cabin crew return to bargaining this week after 98% of voting members rejected the deal reached in December, said a news release from the Canadian Union of Public Employees (CUPE).”Given members’ particularly high dissatisfaction it is still possible that the union gives strike notice,” the CUPE release said, confirming an earlier Reuters report which cited an internal notice to cabin crew.Transat flight attendants in late November voted to authorize a mandate allowing them to strike with 72 hours’ notice. The earliest possible strike could only take place on Friday, although notice has not yet been given. “We are disappointed by this outcome, as we were confident that the tentative agreement would be accepted by the majority of our flight attendants,” said Julie Lamontagne, a spokesperson for Transat in a release. “We are returning to the bargaining table, and our objective remains to find common ground as soon as possible.”Last month, flight attendants at Southwest Airlines (NYSE:LUV) voted against a five-year contract that would have made them the highest-paid cabin crew in the industry, but did not include compensation for boarding time.The Transat agreement offered pay increases of about 18% over five years, three sources familiar with the matter said.And according to cabin crew briefing material seen by Reuters, the now-rejected contract would have paid the flight attendants Canada’s hourly minimum federal wage of C$16.65 for an hour of what is currently unpaid time, ahead of continental flights.At present, most flight attendants receive payment solely for the duration when the aircraft is in motion. Delta Air Lines (NYSE:DAL) is the only U.S. carrier that pays its flight attendants during boarding time. More

WASHINGTON (Reuters) -The U.S. federal government’s total public debt has reached $34 trillion for the first time, the U.S. Treasury Department reported on Tuesday as members of Congress gear up for another series of federal funding battles in coming weeks.The Daily Treasury Statement for Friday showed that the total public debt outstanding rose to $34.001 trillion from $33.911 on Thursday.The debt that counts toward the federal debt ceiling rose to $33.89 trillion on Friday from $33.794 trillion on Thursday. This “debt subject to limit” category excludes the unamortized discount on Treasury bills and zero coupon bonds, debt issued by the Federal Financing Bank and guaranteed debt of certain other agencies.The milestone comes shortly after the federal debt topped $33 trillion in September amid rising federal deficits fueled by falling tax revenues and rising federal expenditures.Congress returns to Washington next week to tackle Jan. 19 and Feb. 2 deadlines for settling government spending through September, amid Republican demands to reduce fiscal 2024 discretionary spending below caps agreed in June. Lawmakers also hope to pass emergency aid for Ukraine and Israel, possibly with unrelated U.S. border security provisions attached.Failure to approve the one-dozen fiscal 2024 spending bills would plunge Washington agencies into shutdown mode. But reaching compromise could become more difficult with November presidential and congressional elections coming quickly into focus.Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a fiscal watchdog group, called the $34 trillion federal debt figure “a truly depressing achievement,” attributing it to political leaders’ unwillingness to make difficult fiscal choices.”We remain hopeful that policymakers will take further measures to reduce our borrowing either by raising taxes, reducing spending, or creating a fiscal commission – or ideally by doing all of the above,” MacGuineas said in a statement. More