Aurelia Butler

That means GDP per capita in Europe’s largest economy will be 2,000 euros lower it would otherwise have been, DIHK chief Peter Adrian told the “Rheinische Post”. Industry makes up a higher share of the economy in Germany than in many other countries, and the sector is for the most part energy-intensive, meaning German companies have been especially hard hit by a surge in energy prices, which last year hit record highs in Europe.German industry is set to pay about 40% more for energy in 2023 than in 2021, before the crisis triggered by Russia’s invasion of Ukraine on Feb. 24 last year, a study by Allianz (ETR:ALVG) Trade said last month.”The growth outlook for 2023 and 2024 is therefore also lower than in many other countries,” Adrian said, adding that was also the case last year.Germany, which for decades relied on relatively cheap Russian pipeline gas, now has especially high energy prices compared with the United States that has its own natural gas reserves, while France has abundant nuclear power.”The gas price is around three-five times higher than in the United States,” he said, adding electricity was four times as expensive as in France.($1 = 0.9351 euros) More

The author is a policy analyst affiliated with Imani, a think-tank based in AccraTwo decades ago, the world was in the grip of a great debate over debt and debt cancellation in Africa. Total public debt stock had climbed to nearly $300bn by 2002 from $40bn in the two decades prior. Jubilee Debt Campaigners insisted on immediate cancellation. The Pope concurred.Today, Africa’s external debt alone exceeds $700bn. Campaigners are back asking for cancellation. And the Pope again concurs. It would seem as if nothing at all happened in the intervening 20 years. Yet quite a bit did. After intense criticism of earlier designs and subsequent brainstorming, additional resources were injected into the Highly Indebted Poor Countries (HIPC) and Multilateral Debt Relief Initiative (MDRI) set up by the Bretton Woods institutions and their rich country partners in 2005. Nearly $125bn, to be precise. Between 2000 and 2015, 31 African countries (out of 36 beneficiary countries) had substantial portions of their total debt wiped out. For example, both Malawi and Liberia saw 90 per cent of their external debt cancelled. Sierra Leone received about 95 per cent relief. Bigger economies like Ghana experienced a lower, but still impressive, decline in debt stock of about 70 per cent.It is surprising, in view of these facts, to see a brand new debt cancellation campaign ignore lessons learnt from previous rounds of debt relief and their impact on economic growth and transformation.Some African countries — including Kenya, Angola and Nigeria — were considered ineligible for HIPC for various reasons. None of them are among the countries, all big HIPC beneficiaries, that have been compelled to seek debt restructuring recently. Unmissable in this fuzzy picture, however, are the major shifts that have occurred in global development financing. Three decades ago, sub-Saharan African countries owed roughly 80 per cent of their debt to the so called official creditors — rich countries and multilateral finance institutions. Today, I estimate the countries with the biggest debt burdens tend to owe more than 70 per cent of their obligations to domestic private investors, international bondholders and not-so-rich countries such as China, India and Turkey.Consequently, whatever the merits of the debt cancellation campaigns, yesterday’s arguments seem ill-fitting today. Ghana’s dramatic debt restructuring effort of recent weeks began on the domestic front last December. It has involved pensioners and trade unions adamant that not a penny from their bond holdings will go to support the government’s debt relief efforts. Seventy-five per cent of Ghana’s debt servicing expenses cater for domestic creditors. What would be the point of debt cancellation that failed to address this reality?Now that Paris Club and Bretton Woods creditors are responsible for a significantly lower proportion of the debt, some campaigners are focusing more on commercial creditors in the west. While it is true that rich banks do hold some African sovereign bonds, quite a lot are also held by institutional funds whose money comes from ordinary pensioners and workers. It is safe to say that a cancellation campaign in the current circumstances will have to do more than suggest that the creditors won’t miss the money. The humanitarian argument about how high debt servicing takes away money from social services remains compelling, especially in countries such as Ghana and Nigeria where debt service costs are approaching 70 per cent of domestic tax revenues. But questions do arise about where the returns on the borrowed billions have gone.Ghana’s leaders, for instance, have faced widespread criticism for prioritising a “national cathedral”, complete with a “Bible museum” and “biblical gardens”, that could cost upwards of $1bn, in the middle of a struggling debt restructuring exercise. Despite repeated assurances to the IMF, which has provided a bailout to the country roughly every four years since independence, to pass all public spending through a national accounting platform, nearly 90 per cent of Covid-19 expenditures bypassed it. In 2003, Ghanaian-born economist Elizabeth Asiedu published a paper in which she predicted that debt relief would have minimal impact on the HIPCs due to weak institutions. That prediction now looks prophetic.However emotionally appealing it may sound, debt cancellation alone will not encourage or enhance efforts, already under way in many African countries despite everything, to demand stronger accountability and force much-needed institutional reform. More

The UK invests too little. This is now widely agreed. Naturally, this has led to a discussion of how to induce more investment. Yet how would the extra investment be funded by a country that is even more strikingly short of savings than it is of investment?According to IMF data, gross investment averaged a mere 17.1 per cent of UK gross domestic product from 2010 to 2022. This was lower than Italy’s 18.6 per cent, and the US’s 20.6 per cent. It was even further behind Germany’s 21.1 per cent and France’s 23.3 per cent. Korea’s 31.4 per cent seems from a different planet. The UK unquestionably lags behind on investment.Jonathan Haskel, a member of the Bank of England’s Monetary Policy Committee, also noted in a recent interview that the growth in real investment has lagged well behind that in France, Germany and the US since the Brexit referendum. Haskel estimates the productivity penalty from this post-Brexit investment slump at about 1.3 per cent of GDP, some £1,000 per household. Yet the UK’s share of investment in GDP was consistently lower than in peer countries well before the referendum. This is a chronic weakness. The fake pre-2008 productivity boom in financial services masked this longstanding problem.

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It is essential, then, to raise public and private investment if the country is to attain faster growth. This will require a higher share of investment in GDP than its historically low levels. But investment is financed by savings. The striking fact about UK investment is that it is also heavily dependent on foreign savings. That is because its savings are even weaker than investment. This, too, is a chronic condition, not a recent one.Between 2010 and 2022, UK gross national savings averaged a mere 13.3 per cent of GDP. The US average was 19.0 per cent and Italy’s was 19.8 per cent. Still further ahead were France, with 22.6 per cent and Germany, with 28.2 per cent. Korea’s averaged 35.7 per cent.The UK’s low rate of national savings makes it significantly dependent on foreign savings to finance its investment. This is revealed in the current account deficit. On average, that deficit was 3.8 per cent of GDP from 2010 to 2022. That financed roughly a fifth of UK gross investment over that period. If investment rose without an equivalent rise in domestic saving, the external deficit would become still bigger.

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This makes sustaining foreign confidence in the UK vital, something Liz Truss failed to understand. It means that a big part of the returns on investment go to foreigners. It means, too, that the investment rate is a worse indicator of the future standards of living of British people than their even lower savings rate. Some of the benefits of investment do indeed accrue to the British even if it is owned by foreigners. But not all do. Otherwise there would not be the inward investment. If the country saved more it could not only afford a higher rate of investment, but its people could accumulate a nest egg of foreign assets as well. In brief, savings matter.We heard a ridiculous discussion of “Singapore on Thames” during the referendum campaign. As a low-tax base for multinationals inside the EU, Ireland seems a better analogy: “Singapore on the Liffey.” Yet the UK can learn things from Singapore. Even if one removes the huge profits of foreign multinationals from savings, one is left with a savings rate of 30 per cent of GDP there. This is the result of forced savings through the “central provident fund”, which compels workers and employers to contribute 37 per cent of their wages and salaries up to the age of 55. As a result, Singapore finances a huge domestic investment rate as well as accumulations of foreign assets: between 2010 and 2022, the current account surplus averaged an astounding 17.5 per cent of GDP.

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Needless to say, Singapore’s forced savings have not been discussed as a model by Brexiters. Yet it would greatly help the prosperity of the UK if savings were raised, alongside policies to promote higher investment. Greater public savings would help. But household savings could also be raised by increasing the minimum rate of contribution to defined contribution pension schemes under the “auto-enrolment, with an opt out” now in place. The current rate of 8 per cent is far too low to achieve an adequate pension in retirement. This could be steadily raised in the years ahead, perhaps to 20 per cent. That would also surely increase the country’s ultra-low savings rate.If the aim of policy is to raise the incomes of British people in the decades ahead, the focus cannot only be on investment. The British need to accumulate more real wealth. That depends on productive investment of higher savings. The debate on improving the economic prospects has to focus on [email protected] Follow Martin Wolf with myFT and on Twitter More

What is the level of dissent within the Federal Reserve?Investors will watch the release on Wednesday of the Federal Reserve’s minutes from its February meeting for insight into how much dissent there was over the latest decision to slow the pace of interest rate increases. At its meeting ending February 1, the US central bank chose to slow the pace of its interest rate increases again, lifting its key policy rate by 0.25 percentage points after a series of 0.75 and 0.5 percentage points rises last year. At the time, the decisions made sense because inflation, and the US economy more broadly, had been cooling. But since the February meeting, the US has reported that employers hired 500,000 people in January, nearly three times the forecast; that consumer prices slowed less than expected; and that retails sales showed the US consumer remained resilient. All that suggests the Fed’s rate-rising job is not yet done and might even require more aggressive action than its members had forecast.Dissent within the Fed should therefore indicate members’ willingness to once again take up the mantle of aggressive policymaking. Two Fed officials — Cleveland Fed president Loretta Mester and St Louis Fed president James Bullard — last week said they would have supported a larger 0.5 percentage point increase at the February meeting. Evidence of more widespread dissent could persuade the market that the Fed might be open to raising rates higher and for longer than was indicated in the central bank’s last survey of officials — the so-called “dot plot” from December. Kate DuguidWill China cut rates?China’s government has made a point of prioritising growth this year, and on Monday markets will be focused on the next potential flashpoint: the so-called loan prime rates, which serve as the country’s benchmark interest rates.Economists are expecting the People’s Bank of China to keep the one-year LPR, the main short-term lending rate, and the five-year LPR, which underpins mortgage lending, unchanged at 3.65 per cent and 4.3 per cent respectively.That is mainly because the PBoC this month did not tweak the medium-term lending facility rates, which serve as floors for the two benchmarks.The banks can, and have, changed these rates before without any earlier action by the PBoC. But economists think that is unlikely this time around, since local governments are already rolling out measures to support the country’s beleaguered property sector. In January, banks across almost 20 major cities cut their minimum mortgage rates for first-time buyers on government orders, easing pressure on the central bank to cut rates.Iris Pang, chief China economist at ING, said such government directives “would result in banks not having enough room to squeeze net interest margins”, making any surprise moves on the LPRs even less likely. Hudson LockettWill European business sentiment improve?The fall in wholesale gas prices and the easing of inflation are expected to result in improving business sentiment across Europe this month.The flash S&P purchasing managers’ index, a measure of activity compared with the previous month, is expected to show that business growth accelerated in the eurozone in February after registering expansion for the first time in seven months in January.Economists polled by Reuters forecast that the eurozone composite PMI, released on Tuesday, will rise to 50.5 in February from 50.3 the previous month, boosted by stronger activity in the services sector.Ellie Henderson, economist at Investec, said that “the optimism seen at the start of this year extended through into this month”.In contrast with expectations of a deep downturn forecast only a few months ago, many economists now think that the eurozone economy will dodge a recession this winter, helped by lower gas prices and cooling inflation. Preliminary data calculated without figures for Germany showed that eurozone inflation fell more than expected to 8.5 per cent in January from 9.2 per cent in December. Analysts calculated that final figures, to be released on Thursday, would be revised up to 8.7 per cent, but that would still be the lowest in seven months.The PMI figures for the UK are also expected to show an improvement, with the Composite index forecast to rise to 49 this month from 48.5 in the previous month. This would still be below the 50 mark which indicates a majority of businesses reporting a contraction in activity, driven by continued weakness in manufacturing.“Although the operating environment will no doubt be challenging over the course of 2023, continued faith in an economic recovery in 2024 should continue to support UK business sentiment,” said Henderson. Valentina Romei More