Aurelia Butler

Higher interest rates and lower official bond purchases will only start to make significant progress in reducing eurozone inflation from this year, the European Central Bank has said, underlining why it slowed the pace of rate rises this month.The ECB has raised interest rates by an unprecedented 3.75 percentage points since July 2022, but there is still a debate about how quickly its monetary policy tightening will bring down eurozone inflation.In a paper published on Monday, the ECB said its efforts to push up borrowing costs, which started in December 2021 when it announced plans to stop bond purchases, had cut price growth by half a percentage point last year and predicted this would rise to about 2 percentage points over the next three years. “This assessment suggests that policy normalisation has exerted significant downward pressure on inflation and real GDP growth across the whole of the projection horizon,” researchers at the bank said in the paper.“Most of the impact on inflation is expected to be seen in the period from 2023 onward, with that impact peaking in 2024,” they said, adding that economic growth would also be reduced by an average of 2 percentage points over the next three years.The ECB researchers said there was “significant uncertainty” about the results of their model-based simulations, particularly given the recent economic shocks from the Covid-19 pandemic, Russia’s full-scale invasion of Ukraine and the record pace of its rate rises.Eurozone inflation has fallen from a peak of 10.6 per cent in October to 7 per cent in April, but that remains in excess of the ECB’s 2 per cent target. The central bank slowed the pace of its rate increases this month, lifting its deposit rate by a quarter-percentage point to 3.25 per cent and saying it had more ground to cover.Some of the ECB’s more dovish rate-setters have warned it should be cautious about further rate rises as the full results of these will only show up in 18 to 24 months. But others worry the power to bring down inflation by raising rates could be diluted by several factors. ECB president Christine Lagarde said recently that these included banks’ reluctance to pass on higher rates to savers, the build-up of excess savings during the pandemic, more government support and lower levels of variable-rate mortgages. The ECB analysis came as Brussels lifted its inflation predictions for this year and next, amid expectations that a robust jobs market and slightly stronger-than-expected output growth will underpin pricing pressures. The European Commission raised its forecast for eurozone inflation to 5.8 per cent this year and 2.8 per cent next year. That is higher than the 5.6 per cent and 2.5 per cent it previously forecast in February.The commission lifted its growth outlook for the bloc’s economy to 1.1 per cent in 2023, marginally higher than the previous 0.9 per cent prediction, accelerating to 1.6 per cent in 2024. It said falling energy costs were likely to help the economy, pulling down companies’ production costs and household energy bills.Nevertheless, core inflation, which excludes food and energy costs, remains “persistently high”, said Valdis Dombrovskis, executive vice-president at the commission. “To keep inflation in check, it is vital to make sure fiscal policy remains prudent, and to maintain the momentum of reforms and investments,” he added. More

“The appropriate policy is really just to wait and see how much the economy slows from the policy actions that we’ve had,” Bostic told CNBC, noting that for months he has believed the Fed would need to get short-term interest rates to the 5%-5.25% range where they are currently.There has been “definitely been” progress on inflation, he said, calling the most recent reading of the consumer price index, up 4.9% from year earlier versus 5% a month before, “encouraging.””I think in the next several months the math is going to work in our favor, and the economy is going to work in our favor,” Bostic told CNBC. Still, he said, “if there is going to be a bias to action, for me there would be a bias to increase a little further, as opposed to cut,” Bostic said. After the Fed’s most recent interest-rate hike in early May, Fed Chair Jerome Powell signaled the central bank may pause to assess how its rapid rate hikes so far are affecting the economy. The unemployment rate, at 3.4%, is the lowest it has been in more than 50 years. Even with some increase to that as inflation comes down, Bostic said, the economy would still be very strong.Recession is not in his baseline forecast, but if one occurs, he said: “I think it’s not going to be very long, I think it’s not going to be very deep.” More

HARARE (Reuters) – The African Development Bank (AFDB) has developed financial instruments to “fast track and front load” $3.5 billion in compensation to white farmers whose land was taken from them by Zimbabwe’s government, the bank’s president said on Monday.Akinwumi Adesina’s announcement, which did not include details of the proposed instruments, comes after former farmers turned down an initial deal to receive payment within 10 years via treasury bills, according to an email seen by Reuters that the Commercial Farmers Union director sent to members last week.Zimbabwe agreed in 2020 to compensate local white farmers whose land was taken by the government from 2000 onwards to resettle Black families, in one of the most divisive policies of the Robert Mugabe era, while foreign white farmers were allowed to apply to get seized land back.”It is important to try and fast track and front load these payments. Further delay will cause lack of trust,” Adesina said at a presentation to creditors and the press in Harare.The AfDB president is co-chairing a process that aims to clear $6 billion of external debt arrears and also includes reforms to the exchange rate and central bank, which Adesina previously said has a quasi-fiscal role that fuels inflation.Adesina said the new proposal to former white farmers would “help leverage the capital markets to fund the compensation without adding debt to Zimbabwe,” without providing further details.Zimbabwe, which had more than $14 billion in external debt as of September 2022, has not been able to secure financing from the likes of the International Monetary Fund in more than two decades due to its arrears.Adesina said that 91% of Zimbabwe’s multilateral debt and 61% of its bilateral debt is in arrears.”The government takes full ownership of the debt process and the implementation of reforms,” Finance Minister Mthuli Ncube told the press conference. (This story has been corrected to say ‘from 2000 onwards,’ not ‘from 2000 to 2001,’ in paragraph 3 and ‘presentation to creditors and the press,’ not ‘press conference,’ in paragraph 4) More

(Reuters) – Americans in the waning days of the COVID pandemic are keeping their combustion-engine vehicles longer, according to a new study.The average age of U.S. cars and light trucks this year climbed to a record 12.5 years, reflecting the impact of supply constraints on dealer inventories of new vehicles in 2022, as well as reduced consumer demand from higher inflation and interest rates, according to the study by S&P Global (NYSE:SPGI) Mobility.Despite six straight years of increases, average vehicle age is expected to drop over the coming year as rising availability and renewed demand push new vehicle sales above 14.5 million in 2023, the S&P research said.Electric vehicles are bucking the aging trend, according to S&P.The average age of battery electric vehicles (BEV) in the U.S. actually fell to 3.6 years, down slightly from 3.7 years in 2022. That figure has hovered between 3 and 4 years since 2017, the group said.S&P said rapidly increasing BEV sales in the U.S. — up 58% in 2022 — are keeping the average age of that sector relatively young, despite the fact that a greater percentage of electric vehicles are leaving the vehicle population, compared with combustion vehicles.In the 10-year period from 2013-2022, 6.6% of BEVs in operation were pulled out of commission. During the same period, just 5.2% of combustion vehicles left the fleet, S&P said. More

“Hide your brightness, bide your time.” That famous piece of advice from Deng Xiaoping has served China well over the past 40 years. Deng, the leader whose economic policies transformed China, understood that if his country was to become richer and stronger, it must avoid confrontation with the west.But Xi Jinping, who has led China since 2012, has decided that the “bide your time” era is over. He talks of a China that “dares to fight”. Even if Xi does not literally mean that his country should go to war, he has signalled — by word and deed — that Beijing is ready to confront its international rivals.Xi argues that his policies are a response to American aggression. In the speech in which he called upon the Chinese people to “dare to fight”, he accused the US of following a policy of “containment and suppression” of China.But Xi’s diagnosis of China’s situation is wrong in three crucial respects. It misreads American intentions. It overstates the threat that US policies pose to China’s economy. And it underestimates the risks of confrontation with America. Chinese officials and scholars often argue in private that the US is trying to thwart their country’s rise by luring China into a war over Taiwan. But even if such a trap was being laid in Washington (it isn’t), there would be an easy way to avoid it. Xi simply has to refrain from attacking or blockading Taiwan. Like the Japanese before the second world war, the Chinese complain that the US is trying to strangle their economy. America denies any such intention, arguing that its restrictions on tech exports are narrowly aimed at China’s war-fighting capability. But even if the US had a broader plan to thwart Chinese economic growth, any such efforts would probably be unsuccessful.Like most countries, China has its share of problems. But the country’s economic rise remains impressive. This year China is projected to become the world’s largest exporter of cars, displacing Japan. China is doing particularly well with the electronic vehicles that will dominate the future. Bill Gates argues that American tech-export bans are likely to be counter-productive, encouraging China to develop its own capabilities much more rapidly. The Microsoft founder told me recently: “I don’t think the US will ever be successful at preventing China from having great chips.”The CEOs of some of the west’s most powerful companies, such as Tim Cook of Apple, have made it very clear that they have no intention of walking away from China.As a self-proclaimed Marxist, Xi should understand that global political power flows from economic power. China does not need to win a shooting war to expand its international power and influence. Trade, aid and investment will do the job without any of the attendant risk and bloodshed.There are more than 120 countries around the world whose largest trading partner is China — far more than America. That gives China considerable influence. The US is frustrated that so many nations in the “global south” have sat on the fence over the Ukraine war. But countries that look increasingly to China for trade and investment, such as Brazil or Indonesia, are going to listen at least as closely to Beijing as to Washington on big international issues. That is even more true for countries that are heavily indebted to China, such as Sri Lanka, Pakistan, Angola or Zambia. China’s prowess in building new infrastructure also builds influence. One US official sighs that America cannot compete with the kind of money that Beijing can throw about in south-east Asia. And China’s influence stretches much further afield than its near abroad. Chinese companies are currently constructing metro systems in the capitals of Egypt and Colombia. So what could possibly go wrong? The answer is obvious — a war. China is visibly preparing to invade Taiwan. Xi’s nationalistic rhetoric is creating a dangerous mixture of hubris and paranoia in Beijing. Tong Zhao, an academic, worries that China’s leader is “boxing himself in” over Taiwan.But if Xi were to pull the trigger on Taiwan — and America entered the conflict, as President Joe Biden has promised — the Chinese leader would have started a third world war, with incalculable consequences for his own country and the wider world.Even if Taiwan rapidly capitulated, or the US stood aside, China’s global image would be transformed forever. Every western company or country that is currently sitting on the fence over China would have to join in a rigorous sanctions regime. The globalised economy would split into pieces — with huge costs for all concerned. Despite the risks involved, Xi may believe that a successful conquest of Taiwan would secure his place in the history books as the leader who completed the “great rejuvenation of the Chinese people”.But leaders with an eye on the history books can often find that events spin out of their control. Vladimir Putin is the latest strongman leader to see his hopes for a short, glorious war go horribly wrong. Putin was leading a country that could no longer aspire to great power status based on economic might. Xi still has that economic path to national greatness open. He should take [email protected] More