Aurelia Butler

Andrea Enria, head of the ECB’s Supervisory Board, has long worried about the economic fallout of rising borrowing costs and recently said the bank was seeing “some early signs” of loans being paid with a delay. In its quarterly newsletter, the ECB said it had found deficiencies in how banks grant forbearance to borrowers, which mostly involves changing the terms and conditions of their loan or giving them a new one.”In the current economic environment, characterised by inflationary pressures, rising interest rates and an uncertain outlook, it is essential that banks prepare their processes for a potential increase in distressed debt and refinancing risk,” the ECB said.It now expected banks to improve how they identify clients in financial difficulties, how they ensure these clients are granted the appropriate kind of help and how they monitor the situation. In a separate newsletter article, the ECB set good practices that banks should follow when trading foreign currencies.Among them, banks should set binding limits on foreign exchange exposure until the payment arrives and consider clawing back bankers’ pay as a penalty for failed trades. “Banks could also adjust the remuneration of front office staff to take failed trades into consideration,” the ECB said. More

BUDAPEST (Reuters) – Poland’s government must ensure its fiscal policies support the fight to bring inflation down, the International Monetary Fund’s regional head told Reuters, days after fresh pre-election pledges of welfare hikes by Poland’s ruling nationalists. Law and Justice (PiS) party leader Jaroslaw Kaczynski announced on Sunday that an existing so-called ‘500+’ child benefit would be increased from January if PiS wins elections due in either October or November.Geoff Gottlieb, the IMF’s Senior Regional Representative for Central, Eastern and South-Eastern Europe, warned of the potential for fiscal policy to fuel inflation and so force monetary policy to remain tighter for longer.”We think Polish fiscal policy can do more to help reduce inflation,” he said in an interview. “A new fiscal impetus would likely add to inflationary pressures and could also necessitate additional monetary policy tightening.”Referring specifically to the proposed 500+ welfare hikes, he said they were not the most efficient way of helping poorer households because eligibility was universal, reducing the amount available to those most in need.”To help the most vulnerable offset their loss of purchasing power, our recommendation to governments is to prioritize temporary support, targeted at the most vulnerable, ideally in the form of cash transfers,” he said.The 500+ programme helped PiS to election victory in 2015. With price growth in emerging Europe’s largest economy in double-digit territory, private sector economists have warned of the proposed measure’s inflationary risks.After leaving the benchmark rate on hold at 6.75% last week, central bank governor Adam Glapinski said he hoped there would be a chance to start discussing rate cuts late this year, though the bank had not formally slammed the door on rate hikes.Gottlieb said Polish inflation, running at about 6 times the target level, would slow “very gradually,” returning to target only by end-2025, raising the risk that inflation expectations become de-anchored, and high inflation becomes entrenched.”Our recommendation is for the (Monetary Policy Council) to resume monetary policy tightening if key indicators – core inflation momentum, wage growth, and the economy – fail to slow as projected,” he said, urging the MPC to make clear that talk of cuts was premature.The European Commission projects Poland’s average inflation rate at 6% next year, the highest in the European Union, retreating from nearly twice that level expected this year. More

Data on Tuesday showed China’s April factory output and retail sales growth undershot forecasts, adding pressure on policymakers to shore up wobbly activity.Nomura lowered its forecast for second-quarter GDP growth to 7.8% year-on-year from 8.4%, analysts at the bank said in a note.The economy grew 4.5% in the first quarter from a year earlier. The government aims for 2023 growth of around 5%.Nomura expects China’s central bank to cut its benchmark lending rate – loan prime rate (LPR) – by 10 basis points in mid-June.”As China’s economy moves out of the post-COVID sweet spot, Beijing may have to introduce other supportive measures, including adding transfers to local governments and SOEs (state-owned enterprises) via its policy banks,” analysts at the investment bank said in a research note.”However, unlike previous cycles, we see no easy fix this time around as, in our view, the real barrier to sustaining the growth recovery is a lack of confidence.” Barclays (LON:BARC) cut its forecast on 2023 GDP growth forecast to 5.3% from 5.6%, analysts at the bank said in a note.Barclays lowered its forecast for second-quarter GDP growth to 7.8% year-on-year from 8.4% due to weakening housing demand and consumption, analysts at the bank said in a note. More

CHICAGO (Reuters) – The U.S. supply chain is healing from early pandemic shocks that sent shipping costs sky rocketing and squeezed supplies of everything from toilet paper to pasta, but more than three years later, material shortages and hiring woes linger.Rates for trucking, ocean shipping and other transportation tumbled after U.S. consumers shifted spending from big-ticket items like furniture, BBQ grills and big-screen TVs to travel and other entertainment, offering a reprieve to beleaguered shippers. However, “there’s still a pretty big mess out there,” said Ryan Patel, senior fellow at Claremont Graduate University’s Drucker School of Management. The labor market remains tight, fueling costs. Elsewhere, machine parts shortages persist and cement has become difficult to find as automakers and other manufacturers catch up with demand and the U.S. ramps up infrastructure projects. U.S. supply chains are suffering from a “long-term hangover,” said Dean Croke, principal analyst at DAT Freight & Analytics, a transportation data provider.Speakers from Walmart (NYSE:WMT), Colgate-Palmolive (NYSE:CL), Toyota and other companies will discuss their supply-chain strategies at the Reuters Events supply chain conference in Chicago on Wednesday and Thursday, as inflation and interest rate hikes threaten to tip the economy into recession.”We’ve still got certain sectors that are up and some that are down, which was a feature of the pandemic,” Croke said. That’s even true within sectors, Croke added, pointing to recent manufacturing data, which remained depressed even as segments like motor vehicles reported gains. Manufacturing accounts for the majority of U.S. truckload ton miles, he said. After spending whatever it took to keep store shelves stocked during the early days of the pandemic, supply chain executives now are wringing out costs to shelter profits from eroding demand, said Alan Amling, distinguished fellow at the University of Tennessee’s Global Supply Chain Institute.For example, Target (NYSE:TGT) aims to cut ship-from-store costs by setting up local consolidation centers that pull inventory from local stores and pack them on-site, reducing fulfillment costs and the number of orders that ship in separate boxes. It also groups deliveries by area to reduce delivery miles. “We’re moving into a new stage, from just trying to keep our head above water to going back to an efficiency mindset,” Amling said. “That’s a really good thing for the supply chain.” More

Japan has emerged from a technical recession on the back of a post-Covid recovery in household spending and tourism, sending stocks to a new 33-year high in Asia’s most advanced economy.Economists warned, however, that the strength of Japan’s recovery was modest with exports and manufacturing weak, underscoring the risks ahead if the global economy slows further.Gross domestic product grew at an annualised rate of 1.6 per cent in the January to March quarter, compared with economists’ expectations of a 0.7 per cent gain. Japan had been in a technical recession following a 1 per cent drop and 0.1 per cent fall in the third and fourth quarters of 2022, respectively.The latest data translated into a quarterly growth rate of 0.4 per cent, according to preliminary figures released by the cabinet office on Wednesday.“While we need to pay attention to downside risks to the global economy, we expect a modest recovery in the economy to continue,” economy minister Shigeyuki Goto said, citing an improvement in consumer confidence, robust business spending and a rise in wages among big companies.Following the GDP release, the broad Topix stock index rose as much as 0.4 per cent, while the Nikkei index gained 0.8 per cent, both edging closer to their highest level since Japan’s market bubble burst in the final days of 1989.The market gains on Wednesday continued a rally in Tokyo stocks that has propelled the Topix index more than 14 per cent higher since the start of the year. The rise has been driven by foreign investors’ interest in the prospects of improvement in corporate governance and managements feeling obliged to work harder to raise their share prices.The rally has also been sustained by optimism that Japan may have passed a critical inflection point that locks in the expectation of rising wages and higher consumer spending.

Household spending, which accounts for more than half of Japan’s GDP, rose 0.6 per cent from the previous quarter while business investment also rose a bigger than expected 0.9 per cent.The recovery in consumption was driven by the lifting of pandemic-related restrictions and the return of overseas tourists as the Japanese government recently downgraded Covid-19 to the same status as the seasonal flu.But exports of goods and services fell 4.2 per cent, marking the first fall in six quarters due to a slump in the global semiconductor market.“Due to the decline in exports, these figures aren’t enough to say economic conditions are vibrant,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute. He said the figures were likely to lend some support to the Bank of Japan as its new governor Kazuo Ueda faces the challenge of unwinding massive easing measures if consumer prices continue to rise at their fastest pace in four decades. More