Aurelia Butler

BRUSSELS (Reuters) – The European Commission proposed a plan on Wednesday to try to ensure Europe can compete with the United States as a manufacturing hub for electric vehicles and other green products and reduce its dependence on China.Commission President Ursula von der Leyen announced a loosening of EU state aid rules, a repurposing of existing EU funds, faster approval of green projects and drives to boost skills and to seal trade agreements to secure supplies of critical raw materials.The plan is partly a response to multi-billion-dollar support programmes of China and the United States, including the latter’s Inflation Reduction Act.”Major economies are rightly stepping up investment in net zero industries,” von der Leyen told a news conference. “What we are looking at is that we have a global playing field.”Many EU leaders are concerned that the local content requirements of the $369 billion of green subsidies in the U.S. legislation will encourage companies to relocate, making the United States a leader in green tech at Europe’s expense. The International Energy Agency estimates the global market for mass-produced clean energy will triple to around $650 billion a year by 2030, with related manufacturing jobs more than doubling. The European Union wants a part of the action.The Commission proposed loosening state aid rules for investments in renewable energy or decarbonising industry, on a temporary basis, until end 2025, while recognising that not all EU countries will be able to offer subsidies to the same extent as France or Germany.In the short term, von der Leyen said EU members could, for example, draw on about 250 billion euros ($272.3 billion), much of it remaining from the EU’s post-pandemic recovery fund.”We know that in the next years, the shape of the economy, the net-zero economy, and where it is located will be decided. And we want to be an important part of this net-zero industry that we need globally,” von der Leyen said. RESISTANCEThe European Commission is hoping member states will back its plan at a Feb.9-10 summit but it faces a hot debate.Some EU members have already expressed opposition to parts of the plan, notably the loosening of state aid rules and the prospect that bigger countries such as France and Germany would be able to outspend others.There is also clear resistance from certain EU members to previous suggestions that the plan could entail further joint borrowing. Longer term, the Commission will propose creating a European Sovereignty Fund to invest in emerging technologies.In the coming months, the Commission will propose a Net-Zero Industry Act that could streamline permitting processes and harmonise standards and a Critical Raw Materials Act to promote local extracting, processing and recycling. The bloc is heavily reliant on China for rare earths and lithium, which are vital materials for the green transition.The EU executive also wants to seal more free trade agreements and partnerships to make supply chains more resilient and to open markets for green goods.Meanwhile, German chip supplier ZF Friedrichshafen and U.S. chipmaker Wolfspeed will announce plans on Wednesday to build an electric vehicle chip plant in the Saarland region, according to three sources close to the matter.”Amid the concerns that the U.S. wants to divert investments from Europe with its Inflation Reduction Act, we’re showing that a U.S. firm wants to invest in Germany,” a German government source said.($1 = 0.9180 euros) More

WASHINGTON (Reuters) – The Federal Reserve is expected to raise its target interest rate by a quarter of a percentage point on Wednesday, setting aside the rapid hikes used last year to curb a surge in inflation in favor of a more stepwise hunt for a stopping point.The expected increase would set the U.S. central bank’s benchmark overnight interest rate in the 4.50%-4.75% range, the highest since November 2007, when the economy was on the eve of what would prove to be a long and deep recession.Policymakers hope to avoid that sort of outcome this time, and economic data since their last policy meeting in December generally has moved in the right direction: Inflation is slowing under the impact of higher interest rates and tighter financial conditions, while the economy continues to grow and create jobs.The rate-setting Federal Open Market Committee is due to release its policy statement at 2 p.m. EST (1900 GMT). Fed Chair Jerome Powell is scheduled to hold a news conference half an hour later to elaborate on the decision.”Recent events suggest that the coming year may be a notch less challenging than previously thought,” Nathan Sheets, chief global economist at Citi, wrote this week, noting that recession risks were easing on a global basis while U.S. data “pointed to continued growth, moderating inflation, and a slower pace of Fed rate hikes.”Ahead of the Fed’s two-day meeting this week, the International Monetary Fund increased its outlook for a global economy that its officials said had proved “surprisingly resilient” in the face of monetary policy tightening and the ongoing war between Russia and Ukraine.Caught flat-footed last year as inflation accelerated and threatened to prove far more persistent than anticipated, the Fed approved the fastest interest rate hikes since the 1980s. Starting with a quarter-percentage-point increase in March, the central bank by the summer was raising rates in increments of three quarters of a percentage point, and all told moved the target policy rate up by 4.25 percentage points in just 10 months. It delivered a half-percentage-point hike at its Dec. 13-14 policy meeting.The impact of the policy moves seems to be gaining steam. New data last week showed a key inflation measure slowed faster than expected in December, continuing a six-month downward trend. Growth in employment costs, closely watched as a possible indicator of future price increases, also slowed in the fourth quarter.But the Fed’s preferred measure of inflation, the personal consumption expenditures price index, still rose at a 5% annual rate in December, down from a June high of nearly 7% but still more than double the central bank’s 2% inflation target. Policymakers are adamant they will not make what they consider to be the crucial error of pausing further rate hikes until they are convinced inflation is on a durable path back to the 2% goal.’HAWKISH RESOLVE’Some analysts do expect the Fed to remove from its policy statement the current, open-ended promise of “ongoing increases” in interest rates, a phrase used since the central bank began its tightening cycle in March. Any new language, however, would still leave the door open for further increases depending on incoming economic data, particularly on inflation and jobs.The expected move to 25-basis-point rate increases will be a “hawkish downshift,” BNP Paribas (OTC:BNPQY) economists wrote ahead of this week’s policy meeting. “While we expect the Fed to downshift the pace of tightening to 25bp increments … we also anticipate a hawkish resolve … Policymakers are encouraged by recent developments, but appear to remain united in the need to ‘keep at it’ with respect to reducing inflation pressures.”The Fed’s meeting this week, its first of 2023, will not include new economic forecasts from policymakers, the most explicit way for them to signal where rates may be headed this year.As of December, policymakers’ median forecast was for the Fed’s target interest rate to peak in a range between 5.00% and 5.25%, an outlook that would imply a pause in the policy tightening after two more quarter-percentage-point increases.Traders of futures that settle to the Fed’s policy rate see the path somewhat differently, with the benchmark rate peaking in the 4.75%-5.00% range, and the central bank cutting that rate to around 4.4% by December. More

MUMBAI (Reuters) -India could find it challenging to meet the fiscal deficit target of 4.5% of GDP in 2025-26, an analyst at Fitch Ratings said on Wednesday, adding that the country’s sovereign rating continues to remain stable.Fitch has a BBB- rating on India with a ‘Stable’ outlook.”Essentially, it (the fiscal glidepath) implies further consolidation of about 0.7% of GDP for each of the following two fiscal years,” Jeremy Zook, director for Asia Sovereign Ratings at the global rating agency, told Reuters.”If we look at the recent deficit reduction trend, it seems like it would be a bit more difficult and absurd to achieve that level of deficit reduction.”The government’s budget gap, which hit a high of 9.5% of GDP in 2020/21 as the spread of COVID-19 infections brought the economy to a halt, has narrowed since but remains well above the medium-term goal of 4.5% of GDP by 2025/26.The government is targeting a budget deficit of 5.9% of GDP for 2023/24, while the deficit was 6.4% in 2022/23, according to revised estimates.Earlier in the day, an official at Moody’s (NYSE:MCO) Investors Service had also said that the government’s fiscal deficit target for 2025/26 could see some risks.Global economic headwinds,cgeopolitical risks, and high commodity prices could potentially pose risks to the government’s fiscal math, Fitch’s Zook said.”If you were to see commodity prices rise significantly, that could lead to some renewed pressure to maintain subsidies that are at a higher level in an election year,” Zook said.”That could lead to some fiscal slippage and potentially higher and higher borrowing costs for the government.”The ruling Bhartiya Janata Party faces elections in key states this year and a national vote in 2024.India continues to have gaps in terms of its infrastructure and reducing those gaps should be positive for medium-term growth, thereby helping the country sustain higher growth rates over the medium term, Zook said, pegging India’s GDP growth at 6.2% for 2023-24. More

COLOMBO (Reuters) – The United States wants China to provide credible and specific assurances to the International Monetary Fund (IMF) along with other creditors to help Sri Lanka unlock a $2.9 billion bailout, a senior U.S. diplomat said on Wednesday.Sri Lanka entered into a staff level agreement with the global lender last September but needs financing assurances from key bilateral lenders China and Japan before disbursements can begin.India, the third significant lender, dispatched its financing assurances to the IMF last month.”What China has offered so far is not enough. We need to see credible and specific assurances that they will meet the IMF standard of debt relief,” U.S. Under Secretary of State for Political Affairs Victoria Nuland told reporters.”We, the United States, are prepared to do our part. Our Paris Club partners are prepared to do their part. India has made strong commitments that it will provide the credible assurances the IMF is looking for.”The Export-Import Bank of China has offered Sri Lanka a two-year moratorium on its debt and said it would support the country’s efforts to secure an IMF program. Sri Lanka, an island of 22 million people, is caught in its worst financial crisis since independence from Britain in 1948, with soaring inflation, a recession and currency depreciation over the last year. “We want to see an IMF program as quickly as possible. That is what Sri Lanka deserves, that is what Sri Lanka needs,” Nuland added. More