Aurelia Butler

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.If Europe wants to see how Chinese manufacturers could affect its all-important car industry, it could do worse than look to Norway. Fully 94 per cent of cars sold in the Nordic country in October were electric, putting it on course to hit a target of no new fossil-fuel passenger vehicles next year.Chinese carmakers sold no cars in Norway in 2019; this year so far, they have managed to take 11 per cent market share. Brands such as MG, BYD and Xpeng are common sights on Norwegian streets. Perhaps most telling is that Oslo’s main shopping strip Karl Johans Gate has only one car dealership on it: Nio, a relatively new Chinese brand. Just around the corner, under the Financial Times’ Nordic bureau, an upmarket estate agent has been replaced by a flashy showroom for Voyah, replete with modern art.It is hard to exaggerate the importance of Europe’s car industry either in economic terms or in symbolic value. It employs more than 13mn on the continent directly or indirectly, and accounts for one in 10 manufacturing jobs. It is equally hard to underplay the gloom in the sector right now. Amid the profit warnings being handed out by European carmakers, taboos are being threatened everywhere from Volkswagen planning its first closure of a factory in its homeland of Germany in 87 years to Europe’s oldest car plant in Turin being shut for large parts of the year.But just as European manufacturers are being laid low by the move to electric vehicles, Chinese carmakers (and Tesla) are prospering. “I looked at VW, Toyota, Volvo, but I just think the Chinese have better technology, look cooler,” said Ivar, standing outside Nio’s dealership in Oslo. He added that the touchscreens so crucial to electric cars were far slicker in Chinese models than, say, VW’s.Nio’s main storefront looks like a coffee shop, perhaps because it is one, selling everything from a matcha latte to pistachio cookies. “I had no idea it was a Chinese car store,” said one American tourist last month. Further on in the Nio store, it looks more like a lifestyle brand with jackets, suitcases and other bags for sale. It is only around the corner that cars such as ET5 saloon — with a starting price of NKr426,000 ($39,000) — make an appearance.Manufacturers such as VW, Audi and Mercedes had become heavily dependent for their global sales on China, where they had to strike collaborations with local carmakers. Many Chinese companies are now beating the European marques where it hurts: by making arguably better cars in some cases. The German carmakers’ sales in China are falling hard as local manufacturers increasingly dominate. “Look at how the Chinese are now building better cars than the Europeans after starting cooperations with the Europeans decades ago. It’s amazing,” said one Nordic automotive executive.The picture is less dramatic in Norway, even though the direction of travel is still clear and challenging for the Europeans. Tesla, the US industry upstart, is the biggest-selling brand in Norway this year, and is not far off selling as many as the next two — VW and Japan’s Toyota — combined, according to statistics from the Norwegian Road Association. Volvo, based in Sweden but owned by China’s Geely, is not far behind that duo in fourth place. The pace of the Chinese advance in Norway has been uneven. It has been led by MG, the former UK brand that is now owned by SAIC Motor, one of VW’s partners in China. Chinese makers had reached 5 per cent market share already in their first year of sales in 2020, and 10 per cent by 2022. In 2023, their share declined before rebounding to a fresh record level this year.Established brands are far from finished: both Toyota and Volvo have increased their market share in the past five years, but VW and BMW have seen their share drop by more than a fifth. As to where it could lead, a simulation published this year by the European Central Bank provides for alarming reading. If China’s car industry receives subsidies similar to those applied to its solar panel sector, an ECB simulation forecast Chinese carmakers’ global market share would increase by 60 percentage points and the Europeans’ would decrease by 30 percentage points. EU domestic production would fall 70 per cent.The US and EU have sought to stem the rise of Chinese electric cars with tariffs, but Norway has pointedly refused to follow suit. How much tariffs will check the rise of Chinese manufacturers remains to be seen. For now, Norway serves as a local warning for European carmakers of what could happen if they do not move quicker.richard.milne@ft.com More

Argentina’s long-simmering legal fights with many of its former investors are coming to a head, and the billions of dollars in damages at stake could complicate President Javier Milei’s attempts to fix the country’s struggling economy. Lawsuits over decisions taken by previous governments, from expropriations to changes to bond payments, are winding their way through courts in the US and Europe, and plaintiffs are piling pressure on the government to negotiate. While Milei says he will pay his country’s obligations, behind closed doors officials warn the government will fight to the bitter end to reduce them and protect Argentina’s scarce resources.“Unfortunately for Milei, a tsunami of judgments that has been building for two decades is now breaking, with final rulings in all the [major] cases due in his four-year term,” said Sebastián Maril, a director at consultancy Latam Advisors.Maril estimates that awards in ongoing cases against Argentina could total up to $31bn without interest, although government sources argued the figure was “highly speculative” as it includes more than $12bn in estimated awards for claims on which judges have not yet ruled. By far the largest judgment is the $16bn that a New York court awarded last year to former minority shareholders of state-controlled energy firm YPF, which Argentina expropriated in 2012. Argentina is appealing, arguing that the New York court’s decision was flawed and the award “grossly inflated”.The court is weighing up whether to compel Argentina to hand over the 26 per cent of YPF shares owned by Milei’s government as payment, while it awaits a ruling from the higher courts. The plaintiffs are largely financed by litigation funder Burford Capital. Other claims are also quietly adding up. Last month the UK supreme court declined to hear Argentina’s appeal of a $1.5bn judgment over changes to the way the country calculates GDP, which reduced payouts on its growth-linked bonds. The government has until November 28 to pay bondholders or face enforcement action.In August, a US court refused to throw out a $340mn arbitration award over the Argentine government’s 2008 expropriation of airline Aerolíneas Argentinas. Another US court ruled that a group of holdouts from Argentina’s 2001 sovereign default may recoup three-quarters of an earlier $417mn award by seizing some Argentine funds held in the US.Milei’s administration has been deeply critical of the leftwing Peronist governments that made the disputed policy decisions and has pledged to shed Argentina’s reputation as a serial defaulter.“Populist [governments’] ‘creative’ solutions have brought tragic economic consequences and discredited our country,” said Milei’s cabinet chief Guillermo Francos on X following the UK Supreme Court decision. “Our greatest commitment is to work each day to become a serious country in the eyes of the world again.”But Argentina has no money to pay. The country’s central bank has negligible hard currency reserves, and it already faces questions about how it will make more than $14bn in sovereign debt repayments due to bondholders and multilateral lenders next year.Jaime Reusche, vice-president and senior credit officer at Moody’s Investors Services, said the judgments were increasing pressure on Argentina’s limited capacity to make external payments — the main reason Moody’s has yet to upgrade the country’s bottom-of-the-barrel credit rating, despite macroeconomic improvements under Milei.“There is a 50-50 chance that Argentina’s government can meet its commitments in the next two or three years,” he said. “The outlook is so sensitive that if a couple of variables change, they may need to [renegotiate] debt repayments, and these judgments are a very real contingent liability.”Argentine officials say they will exhaust legal possibilities to protect the public purse. That goes both for cases without a final ruling and the nearly $2.4bn worth of judgments where the decision may no longer be appealed but enforcement can still be challenged.“We will exercise our right to protect our assets like any sovereign would,” said one government official. “Nobody relishes keeping litigation open, but we have many demands on our resources, especially given the constraints on the fiscal sector, which the judgment creditors are well aware of.”Critics of the government argued that statements by Milei, such as a recent post on X that referred to “the illegal expropriation of YPF”, were muddying the waters on that case and may hurt Argentina’s chances of prevailing on appeal.Plaintiffs in the YPF case have attempted to get Argentina to negotiate a settlement, but the government has not engaged with those efforts.Those who advocate for Argentina coming to the table say that a drawn-out battle would increase interest bills, while attempted asset seizures would embarrass Argentina, undermining Milei’s effort to attract badly needed foreign investment. “Kicking the can down the road has never gone well for us, because we almost always lose in these cases,” said Maril, noting that Argentina had already paid out $17bn since 2000 to defaulted bondholders, expropriated shareholders and others.Marcelo García, Americas director at intelligence firm Horizon Engage, said the litigation had weighed down on investors’ decisions by highlighting Argentina’s severe cash flow problem. But he added that it would be harder than in the past for plaintiffs “to turn Argentina into an international pariah” when Milei is making many reforms demanded by investors.Claimants who were pushing to be paid quickly should expect a wait, the Argentina government official said.  “It is not always obvious for the private sector how a government deals with these claims. We can’t sacrifice equity in the short term like a corporation might, because a state can’t go into liquidation. We don’t have the same timelines,” they said. “But we do want problems solved, as expeditiously and efficiently as possible.” Plaintiffs in many of the cases are searching for Argentine assets to seize in lieu of payment. Experts say that will be difficult, as the few assets held abroad, such as diplomatic properties or central bank holdings, are protected from seizure in most jurisdictions.There are exceptions. During US hedge fund Elliott Management’s 15-year battle to collect on defaulted Argentine bonds, Dennis Hranitzky, currently head of sovereign litigation and global asset recovery practices at law firm Quinn Emanuel, successfully seized $70mn from Argentina. His team also briefly seized an Argentine naval vessel in port in Ghana in 2012, which embarrassed Buenos Aires — but it was soon released. Hranitzky’s team also identified the $312mn of Argentine state funds held in New York that a US appeals court ruled in August must be turned over to the holdout bondholders.“I’ve been doing this continuously for the last 22 years and can say from experience that while collecting from Argentina isn’t easy, it can be done,” said Hranitzky.Additional reporting by Alistair Gray in London and Joe Miller in New York More

In a 30-plus-year career in corporate restructuring, consultant Andreas Rüter has seen it all: the dotcom bust, September 11, the global financial meltdown, the euro crisis, Covid-19. But what’s happening right now in corporate Germany is “unprecedented” and “of a completely different order of magnitude”, says Rüter, the country head of AlixPartners. The federal republic’s all-important automotive sector, chemical industry and engineering sector are all in a slump at the same time. Rüter’s firm is so overwhelmed by demand for restructuring that it’s turning potential clients away.Over the past three years, Europe’s largest economy has slowly but steadily sunk into crisis. The country has seen no meaningful quarterly real GDP growth since late 2021, and annual GDP is poised to shrink for the second year in a row. Industrial production, excluding construction, peaked in 2017 and is down 16 per cent since then. According to the latest available data, corporate investment declined in 12 of the past 20 quarters and is now at a level last seen during the early shock of the pandemic. Foreign direct investment is also down sharply. Light on the horizon is hard to detect. In its latest forecast, the IMF says that German GDP will expand by just 0.8 per cent next year. Of the world’s largest and richest economies, only Italy is expected to grow as slowly.In manufacturing, where Germany is Europe’s traditional powerhouse, things look especially bleak. Volkswagen has warned of plant closures on home turf for the first time in its history. The 212-year-old Thyssenkrupp, once a symbol of German industrial might, is bogged down in a boardroom battle over the future of its steel unit, with thousands of jobs at risk. The tyremaker Continental is seeking to spin off its struggling €20bn automotive business. In September, the 225-year-old family-owned shipyard Meyer Werft narrowly avoided bankruptcy with a €400mn government bailout. Robin Winkler, Deutsche Bank’s Germany chief economist, labels the fall in industrial production “the most pronounced downturn” in Germany’s postwar history. He is far from alone. “Germany’s business model is in grave danger — not some time in the future, but here and now,” Siegfried Russwurm, the president of the Federation of German Industries (BDI), warned in September. A fifth of Germany’s remaining industrial production could disappear by 2030, he said. “Deindustrialisation is a real risk.” Some content could not load. Check your internet connection or browser settings.These dire predictions come at a time of rising political instability. Relations between the parties in Chancellor Olaf Scholz’s fragile coalition — social democrats, greens and liberals — are at rock bottom, with their policy differences now so deep that many expect that the alliance could collapse in a matter of weeks, ushering in snap elections.As the political centre has weakened, populist parties such as the far-right Alternative for Germany and the hard-left Sahra Wagenknecht Alliance (BSW) have surged, their fiery rhetoric raising fears for the future of a finely balanced political system based on consensus and compromise. Economists and business leaders blame Germany’s economic woes on high energy costs, high corporate taxes and high labour costs, as well as what they describe as excessive bureaucracy. These issues have been compounded by a shortage of skilled workers and the dire state of the country’s infrastructure after decades of under-investment. Meanwhile, according to the country’s statistical agency, nervous German consumers are now saving 11.1 per cent of their income, twice as much as their US peers — thus slowing down the economy even further. Technicians at the Venator chemical plant in Krefeld, north-western Germany . . .  More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is leading a review of international development for the UK government and is a member of the House of LordsTrade policy is probably the area in which the views of the public and those of economists diverge most substantially. Polls in the US regularly show that the majority of people think that protectionism is a good thing, whereas only a minority of professional economists would agree. But when asked if they would be willing to pay more for goods and services in order to have more domestic production, people tend to change their minds.Public opinion is one reason why politicians sometimes reach so quickly and easily for tariffs and other trade restrictions as a solution to many problems. But so is the fact that even though there are many better alternatives to tariffs for achieving growth in jobs, industrial development, fairer outcomes and national security goals, these are often harder to sell to voters. So it is easy to opt for the politically expedient but often ultimately ineffective imposition of tariffs, provision of subsidies and state aid, and localisation of public procurement.Some current supporters of trade restrictions have a zero-sum view of the world and reject the classical arguments for the gains from trade that originate in the work of David Ricardo and Adam Smith. They ignore the fact that a rules-based trading system has contributed hugely to prosperity and poverty reduction, especially for developing countries. Since 1990, global trade has contributed to a 24 per cent increase in global incomes, including a massive 50 per cent gain for the poorest 40 per cent of the world’s population. Supporters of trade restrictions often also fetishise trade deficits and manufacturing exports. But trade deficits are not a problem if they can be financed sustainably and are often a consequence of other macroeconomic imbalances. And there is nothing better about dollars earned from manufacturing exports than dollars earned from services exports.More interesting are those who believe in economic openness but want to use trade policy to achieve other objectives such as competitiveness, redistribution of incomes, climate change mitigation or national security. In most cases, however, there are better ways to achieve those worthy goals than through trade policy.Consider the case of industrial policy, where a variety of trade restrictions have been imposed in the US and elsewhere in the hope of achieving competitive advantage in industries such as electric vehicles or chips and artificial intelligence. The history of such industrial policies is long and the successes have arguably been fewer than the failures. But the main point is that there are much better and more successful policies to build competitiveness, such as financing research and development, building a skilled labour force and providing incentives for investment. Using trade policy as the answer to regional inequality and income inequality is far less effective than building a proper social safety net and investing in declining regions and in people. Countries that have adequate safety nets and policies that help workers reskill and adjust to economic change experience far less protectionism than those that allow global shocks to be felt across the population. It is possible to build safety nets that act like trampolines — enabling workers to bounce back with support that kicks in early and comprehensively to support incomes and also gets people into new jobs.As for accelerating progress to address climate change, it bears repeating that the most efficient way to do this is through a carbon tax with a rebate to protect the poor. Trade restrictions, such as local content requirements or tariffs, make it more expensive to transition to a green economy. Some argue that new green technologies will emerge behind protectionist barriers. But targeted subsidies to research and development would do a better job of making that happen. If we want to address the urgent challenge of climate change, we should focus on policies that make it cheaper and faster to deliver emissions reductions. Similarly, national security is better served by diversifying supply chains. In other words, we need more trade not less. Trade policy is first and foremost about fostering competition to create growth and jobs and to serve consumers efficiently. In most cases, there are better alternatives for achieving competitive industries, fairer income distribution, mitigation of global warming and national security objectives. As the old saying goes, “use the right tool for the job”. Not every nail needs to be hammered with trade policy. A bigger and more varied toolkit would get the job done better and preserve the global trading system that has done so much to improve lives in recent decades.  More

SAO PAULO (Reuters) -Brazil’s Itau Unibanco, Latin America’s largest private lender, on Monday bumped up its estimated portfolio growth for the year after logging an 18% increase in its third-quarter net recurring profit.Itau reported a 10.68 billion real ($1.84 billion) net recurring profit for the quarter ended in September, beating an estimate of 10.4 billion reais from analysts polled by LSEG.Itau said it now expects its total credit portfolio to grow between 9.5% and 12.5%, up from a previous estimate 6.5% to 9.5% growth.Itau management has previously said the bank was close to wrapping up an overhaul of its personal credit segment by cutting back on loans likely to go unpaid.That has raised analysts’ expectations for coming quarters, as Itau could start to deliver higher portfolio growth once the process is wrapped up. “It is important to mention the resumption of the growth of the credit card portfolio,” Itau said in the earnings report, noting it grew 1.7% sequentially as the bank cut back on risky clients. The bank’s over 90-day delinquency rate inched down to 2.6% from 2.7% the previous quarter, and was also under the 3% a year earlier. Analysts at Citi called the results “solid,” nodding toward the bumped-up loan growth guidance.The new outlook “shows the benefits of (Itau’s) ample capital position and an opportunistic approach to gain share and be selective with clients,” they wrote in a note to clients.Itau’s return on equity, a gauge of profitability, stood at 22.7%, up from 21.1% a year earlier, and 22.4% in the second quarter.The lender posted an 8.5% year-on-year increase in its net interest income, its main source of revenue, while its cost of credit fell 11% on lower provisions. Itau logged a 500 million real gain from a large client, it said, without naming them.Analysts had expected a potential gain for Itau as Brazilian retailer Americanas started to pay creditors to the bankrupt department store giant.($1 = 5.7916 reais) More

Third-quarter net earnings fell about 87% to $120 million, as its engineered materials segment was impacted by rapid slowdowns in commercial activity in both automotive and industrial segments. The company said the temporary dividend reduction, beginning in the first quarter of 2025, was a prudent and cost-effective path forward to support deleveraging, and its plans to cut additional costs would help it save more than $75 million by the end of 2025.CEO Lori Ryerkerk said the teams executed value enhancing initiatives and made improvements but “these actions have been increasingly offset in the current environment and the earnings generated fell short of our expectations.”Last month, peer Dow, which is set to be replaced by Sherwin-Williams (NYSE:SHW) in the Dow Jones Industrial Average, forecast fourth-quarter revenue below market expectations and started review of some of its European assets as the company grapples with sagging demand.Celanese also said it was “reducing manufacturing costs through the end of 2024 by temporarily idling production facilities in every region and driving cash generation through an expected $200 million inventory release in the fourth quarter.”The company forecast fourth-quarter adjusted profit of $1.25 per share, below average analysts’ expectations of $2.93 per share, according to data complied by LSEG, as the company expects demand conditions to worsen.Celanese makes chemical products that are used in coatings, paints and pharmaceutical products and polymers.The chemicals industry, which had previously been dealing with high inventory that led to destocking, is now facing weaker demand in key markets such as China and Europe.  More

Shares of the company rose about 8% in extended trading. The data analytics company has benefited from a boom in GenAI technology, as more companies turn to its AI platform, which is used to test, debug code and evaluate AI-related scenarios.The company now expects 2024 revenue in a range of $2.805 billion to $2.809 billion, up from its prior expectation of $2.742 billion to $2.750 billion.The company is among the largest beneficiaries of a rally in AI-linked stocks, with its shares up more than 140% so far this year. It was added to the S&P 500 in September and has outperformed the index’s 20% year-to-date gain.It also raised its annual forecast range for adjusted income from operations to between about $1.05 billion and $1.06 billion. It earlier forecast $966 million to $974 million. “Top line growth, which is driven by the demand for AI, (is) flowing through to the bottom line,” CFO David Glazer told Reuters. While businesses are increasingly using Palantir (NYSE:PLTR)’s services, a large chunk of its revenue comes from government spending. Palantir, whose services include providing software to governments that visualizes army positions, posted a 40% rise in U.S. government revenue in the third quarter, which made up more than 44% of total sales of $725.5 million.Analysts on average had expected revenue of $701.1 million, according to data compiled by LSEG. Palantir also recorded its largest-ever profit, with net income of $144 million in the third quarter, CEO Alex Karp said in a letter to shareholders. One of the Nordic region’s largest investors, Storebrand Asset Management, said last month it sold its Palantir holdings due to concerns that the company’s work for Israel might put it at risk of violating international humanitarian law and human rights.The company also forecast fourth-quarter revenue above estimates. More