Aurelia Butler

Today’s top storiesChina’s leaders vowed to spur consumer spending, tackle unemployment and give more support to the ailing property sector as the world’s second-largest economy makes a “tortuous” recovery from the pandemic. However, promises of more stimulus in the second half of the year were light on details.Spain was plunged into political uncertainty as the right and left failed to get enough votes to form a government after Sunday’s general election. Conservative mistakes helped incumbent prime minister Pedro Sánchez, who had warned that conservatives and rightwing nationalists would drag the country backwards. The FT editorial board said the poor result for hard-right Vox was positive for the country’s democracy.Twitter boss Elon Musk rebranded the social media platform as X and dispensed with its famous bird logo. The FT Lex column said rebranding generally annoyed and confused customers but as new names go, X was better than most.For up-to-the-minute news updates, visit our live blogGood evening.New data today highlighted the growing strains on the global economy as central banks contemplate their next move on interest rates to contain inflation.The flash estimate for the eurozone indicated that the economic downturn deepened at the start of the third quarter, fuelling calls for the European Central Bank to halt its programme of interest rate rises after this week. The purchasing managers’ index score of 48.9, where 50 marks the divide between business activity expanding and shrinking, was an eight-month low, driven by worse than forecast declines in both manufacturing and services, which recorded its first fall in new orders for seven months. Business confidence also dropped but inflationary pressures eased. The euro fell following release of the data.Country-level information showed the German economy shrinking as the manufacturing outlook darkened, coinciding with a slowdown in services activity. France experienced its sharpest contraction in business activity since November 2020. In the UK, the PMI data showed a determined slowdown in business growth as rising interest rates hit consumer spending and manufacturing problems deepened. The headline PMI score fell from 52.8 in June to 50.7 in July, while services output hit a six-month low of 51.3 and manufacturing fell into contraction with a reading of 46.5. The data drove the pound to a two-week low against the dollar.Chris Williamson, chief business economist at S&P Global Market Intelligence, which publishes the index with the Chartered Institute of Procurement and Supply, said the data showed the UK economy had “come close to stalling”. Rising interest rates and the higher cost of living “appear to be taking an increased toll on households” as manufacturers cut production in response to a “worryingly severe downturn in orders” in both domestic and export markets, Williamson said.The PMI reading complicates the task for Bank of England officials contemplating their next move on interest rates next week after recent official data had suggested stronger than expected economic resilience.In the US, the headline PMI score of 52.0 showed business activity still rising but down on last month’s reading of 53.2. The services sector continued to drive growth but at a slower rate. Business optimism about the year ahead also fell.Williamson said: “The darkening picture adds downside risks to output growth in the coming months, which, alongside the slowing in the pace of expansion in July, will keep alive fear that the US economy may yet succumb to another downturn before the year is out.”The Federal Reserve is widely expected to raise interest rates by another quarter of a percentage point on Wednesday but investors will be watching for clues from chair Jay Powell as to whether the rise would be the last in its 16-month monetary policy tightening campaign. Need to know: UK and Europe economyUK prime minister Rishi Sunak indicated he was ready to soften his Tory party’s green policies to create a dividing line with the opposition Labour party. An FT Big Read examines how warming temperatures are reshaping global economies.Airlines and travel operators put on special flights for tourists stranded by wildfires on the Greek island of Rhodes, while blazes also spread on Corfu. Travel industry executives, however, played down the long-term impact of the fires and extreme weather in Europe this summer. Workers at London Gatwick airport have called off some of their strikes.Germany has become Europe’s ground zero for gangs blowing up cash machines. The Dutch-dominated groups have exploited a fragmented banking system and decentralised police force — and Germans’ preference for cash over cards or digital payments.UK care home operators are under severe pressure from rising mortgage rates on top of rising food and fuel prices and funding shortfalls.Need to know: global economyChina is stepping up efforts to soothe foreign investors’ concerns over slowing growth and business uncertainty. Its finance regulator has been trying to entice some of the world’s biggest private equity groups while its commerce ministry has pledged to cut business disruption. Work is drying up for US consultancies in the country after recent national security raids.The lack of detailed explanations of revisions to Chinese economic data is also frustrating global investors at a time when the country’s revival is seen as vital to global economic growth. Israel’s benchmark stock index sold off and the shekel fell against the US dollar after the country’s parliament passed into law a measure limiting the power of the Supreme Court. Some of Israel’s biggest businesses said they would begin strike action in protest.Argentina is set to introduce tax and currency measures to weaken the peso as part of a deal with the IMF to release delayed tranches of a $44bn loan programme. The government hopes the opening of a long-awaited gas pipeline from Patagonia to Buenos Aires will herald a lucrative future for international energy sales. Rich Americans have been driving a rebound in consumer spending, in particular on hotels and airfares, but inflation is beginning to take its toll on a previously resilient group.Need to know: businessBarbie and Oppenheimer delivered the strongest opening weekend at US cinema box offices this year as fans rushed to experience the “Barbenheimer” phenomenon. Columnist Rana Foroohar says the Barbie brand is a rare winner in the country’s corporate culture wars.Ryanair’s profits almost quadrupled to €663mn in the second quarter, lifted by higher ticket prices and booming demand. The low-cost airline was forced, however, to trim passenger forecasts because of Boeing delivery delays and warned of an uncertain winter ahead.Group 14, a US battery start-up, aims to start producing silicon in Germany as motor industry demand grows for technologies less reliant on China. British berry growers accused supermarkets of pocketing the profits of higher soft fruit prices and failing to properly compensate producers suffering from increased business costs.UK banks are beating global rivals when it comes to passing on interest rate benefits to savers. Ministers are set to introduce new rules to stop institutions “de-banking” after a dispute about free speech.

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The world of workAre tattoos now so thoroughly mainstream that even the most buttoned-up employers no longer police them? Columnist Pilita Clark says it’s clear there has been a tats turning point at work. Some good newsSydney, once at the centre of the Australian Aids epidemic, has almost eliminated HIV transmission, raising hopes of beating a disease that has killed more than 40mn people worldwide. The fall in diagnoses is on a scale never seen before in a former hotspot and adds to evidence that prevention strategies are working. More

The BoC’s second-quarter survey, conducted from June 8 to 19, showed a median of the participants expect the bank to hold interest rates at a 22-year high of 5.00% until the end of 2023, before starting to cut rates in March.In the previous survey released in April, when the BoC’s key policy rate was at 4.50%, median expectation was for a rate cut in January. Money markets still see a chance for another rate hike this year.A median of 25 participants now also predict a 0.7% gross domestic product growth at the end of 2023, instead of a 0.1% contraction forecast in the last survey.Earlier this month, the BOC said there was excess demand in the economy as it raised its GDP forecast and extended the timeline for inflation to return to the bank’s 2% target.The bank has hiked rates 10 times since March 2022 and said it could raise rates further because of the risk of inflation stalling above its 2% target. In the survey release on Monday, the median forecast for annual inflation is for 3.0% at the end of this year, compared with 2.7% previously. Expectations for the inflation rate to drop to 2.2% by end-2024 were unchanged. The central bank expects inflation to remain around 3% over the next year before dropping to its target by mid-2025, six months later than it previously anticipated. More

China’s leaders have vowed to spur consumer spending, tackle unemployment and give more support to the ailing property sector as the world’s second-largest economy makes a “tortuous” recovery from the pandemic.But the promises of more stimulus in the second half of the year from the Communist party’s ruling politburo were light on details and unlikely to reassure investors worried by disappointing growth in the second quarter.A readout from a keenly awaited meeting of the 24-member politburo on Monday said it believed that the economic recovery was making “tortuous progress” and it was “necessary to actively expand domestic demand” and “expand consumption by increasing residents’ income”.“It is necessary to boost the consumption of automobiles, electronic products and home furnishing, and promote the consumption of services such as sports, leisure, and cultural tourism,” the meeting said, according to a report by state news agency Xinhua.After initially bouncing back following the easing of draconian Covid-19 restrictions in December, China’s economy grew less than 1 per cent in the second quarter compared with the previous three months as business and consumer confidence dropped.The country’s once-mighty property sector, which has suffered a collapse in demand following restrictions on leverage in recent years, slipped further in the second quarter after a stronger start to the year.Julian Evans-Pritchard, head of China economics at Capital Economics in Singapore, said the announcement’s lack of detail on the scale of the promised measures meant investors would remain in wait-and-see mode. “Given how bad things are at the moment, it’s a bit disappointing that they didn’t give us some figures,” Evans-Pritchard said.He said that China’s leadership was clearly concerned. The statement mentioned “risks” seven times, up from three times in the more optimistic conclusions of the previous politburo meeting dedicated to the economy in April.But “they are not so desperate that they feel the need to resort to the old-school, big-bang stimulus” of the sort used after the 2008 global financial crisis, Evans-Pritchard said.The government last month eased policy interest rates and this month extended credit support for developers, while also trying to reassure business that a regulatory crackdown on internet entrepreneurs in recent years was over.“It is necessary to . . . encourage enterprises to dare to venture, dare to invest, dare to take risks, and actively create markets,” the politburo said on Monday.Among other measures, it promised to accelerate the issuance of local government special bonds. Many heavily indebted local governments need funds to pay salaries and undertake investment activities.It also said that the government needed to “stabilise” foreign trade and foreign investment, both of which have been under pressure, and to increase international flights, which have yet to fully recover from the pandemic.The politburo also emphasised the problem of employment, saying it would be given strategic priority. Youth unemployment in China has hit record levels, although broader official unemployment rates are stable.

The statement said the external environment was “complex and severe”, but that leaders remained confident in the recovery.“Our economy has enormous development resilience and potential, and the long-term positive fundamentals have not changed,” it said.The meeting followed a number of support measures announced by Chinese regulators in recent days, including action to stimulate consumption of manufactured items such as cars and electronics after a fall in factory activity.Chinese real estate stocks fell to their lowest level in more than eight months in Hong Kong ahead of the politburo statement as concerns over a liquidity crunch at two of the biggest developers, Country Garden and Dalian Wanda, hit the sector. The Hang Seng mainland properties index closed down 6.42 per cent on Monday.Some analysts noted that the politburo statement omitted President Xi Jinping’s trademark statement that “houses are for living in, not for speculation”, saying that it could signal that the government would further ease restrictions introduced in previous years to cool the market. More

The eurozone’s downturn deepened at the start of the third quarter, according to a closely watched business survey that suggested the region’s economy is shrinking. The HCOB flash eurozone composite purchasing managers’ index, a measure of activity at companies across the 20-country bloc, fell to an eight-month low after a sharper than expected slowdown in services and a steeper decline in manufacturing in July. The result is expected to add to calls for the European Central Bank to stop raising interest rates after a quarter percentage point rate rise expected on Thursday. The euro fell 0.4 per cent against the US dollar to $1.108, while Germany’s two-year bond yield dropped 0.05 percentage points to 3.16 per cent as investors dialled back their bets on further tightening. By falling to 48.9, down from 49.9 in the previous month, the PMI index dropped further below the 50 mark that separates contraction from expansion and raised fears of a potential recession in the eurozone economy after two quarters of mild contraction.The flash eurozone reading was well below the 49.7 forecast by economists in a Reuters poll. 

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The UK economy is also slowing sharply, according to a separate PMI survey published on Monday that showed the index of British business activity fell to a seven-month low of 50.7, down from 52.8 in June.“The eurozone economy will likely move further into contraction territory in the months ahead, as the services sector keeps losing steam,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, adding that there was “an increased probability” of the German economy sliding into recession in the second half of this year.The bloc’s services sector remained in growth territory, despite a drop in its PMI reading to a six-month low of 51.1. The decline in the manufacturing sector deepened further after its reading fell to a 38-month low of 42.7.Weakening demand triggered the steepest decline in manufacturing orders since 2009, while the services sector suffered its first drop in orders for seven months. Job growth continued, albeit at the slowest pace for more than two years.

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Economists think this week’s expected rate rise by the ECB could mark the end of its 12-month monetary tightening cycle if a downturn weakens the labour market and causes wage growth to slow.However, the central bank has said in recent weeks it is concerned high wage growth and rising services prices could keep inflation above its 2 per cent target for too long.Unemployment in the eurozone fell to a record low of 6.5 per cent in May and hourly labour costs in the eurozone rose 5 per cent in the first quarter, down from a high of 5.6 per cent in the previous quarter. The PMI survey showed wholesale prices fell sharply in the eurozone manufacturing sector, in contrast to sustained rises in prices for services, which reflected companies passing on higher labour costs to customers. However, the rate of services inflation was the lowest since October 2021.

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Claus Vistesen, an economist at research group Pantheon Macroeconomics, said the PMI survey would be “grist to the doves’ mill” in the case for the ECB to pause its rate rises after this week. But he added a “nasty” increase in second-quarter wages could still push it to raise rates again in September.Eurozone inflation slowed more than expected to 5.5 per cent in June, it’s lowest level since Russia’s full-scale invasion of Ukraine over a year ago, and it is expected to keep declining when July pricing data is published next week. But the ECB has said it wants to see convincing evidence that core inflation — a measure that excludes energy and food costs, and is seen as a better gauge of underlying price pressures — is falling towards its target before it stops raising rates.Bert Colijn, an economist at Dutch bank ING, said the PMI survey showed “rising wages continue to keep price pressures elevated for services”. That, he said, “keeps hawkish concerns about the effect of wages on inflation alive”. More

BEIJING (Reuters) -China’s top leaders pledged on Monday to step up policy support for the economy amid a tortuous post-COVID recovery, focusing on boosting domestic demand, signalling more stimulus steps.The world’s second-largest economy grew at a frail pace in the second quarter as demand weakened at home and abroad, raising pressure on policymakers to deliver more stimulus to shore up post-COVID recovery.China will step up economic policy adjustments, focusing on expanding domestic demand, boosting confidence and preventing risks, state news agency Xinhua cited the Politburo, a top decision-making body of the ruling Communist Party, as saying.”Currently, China’s economy is facing new difficulties and challenges, which mainly arise from insufficient domestic demand, difficulties in the operation of some enterprises, risks and hidden dangers in key areas, as well as a grim and complex external environment,” Xinhua quoted the Politburo as saying, after a meeting chaired by President Xi Jinping. China will implement its macro adjustments “in a precise and forceful manner” and strengthen counter-cyclical adjustments, as the government sticks with a prudent monetary policy and pro-active fiscal policy, the Politburo was quoted as saying.Xinhua quoted President Xi as saying during a separate meeting that China will strive to achieve its annual development targets.While China is seen on track to hit its modest 2023 growth target of around 5%, there are risks of the annual goal being missed for the second year in a row, analysts said.Most analysts say policymakers are unlikely to deliver any aggressive stimulus due to worries about growing debt risks.Capital Economics analysts said that the outcome of the meeting suggested that further policy support would be rolled out in coming months.”But the absence of any major announcements of policy specifics does suggest a lack of urgency or that policymakers are struggling to come up with suitable measures to shore up growth,” they said in a note.A senior central bank official said earlier this month the bank will use policy tools such as the reserve requirement ratio (RRR) to weather the challenges facing the world’s second-largest economy. Last week, the central bank kept its lending benchmarks steady, despite signs of a faltering economic recovery.DOMESTIC DEMAND China will actively expand domestic demand, boosting residents’ incomes to enable consumption to drive economic growth, while speeding up local special bond issuance to spur investment, Xinhua said.The government will boost demand for autos, electronics and household products and promote tourism, Xinhua added.China will adjust and optimise property policies in a timely manner, in response to “significant changes” in the supply and demand relationship in the property market, it said.”This is an interesting signal as the property sector downturn is arguably the key challenge the economy faces now,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management. “It seems the government has recognised the importance of policy change in this sector to stabilise the economy.” Analysts expect China to ease home purchase restrictions in some cities.Amid the mounting local debt repayment burden, China will effectively resolve local government debt risks and formulate a basket of plans to resolve local debt issues, Xinhua said. China will improve the development environment for private firms and stabilise trade and foreign investment, Xinhua said. China last week also released guidelines to improve the private sector and vowed to make it “bigger, better and stronger.” More