Aurelia Butler

The Chinese government has vowed to make consumption the “main driving force” of the economy as hopes grow that Beijing’s abandonment of zero Covid policies will unleash a flood of spending by Chinese consumers, fuelling a global rebound. “The greatest potential of the Chinese economy lies in the consumption by the 1.4 billion people,” Li Keqiang, China’s premier said during a meeting of China’s cabinet, the state council, according to a statement released late on Saturday. “Boosting consumption is a key step to expand domestic demand. We need to restore the structural role of consumption in the economy.”While China has long sought to boost consumer spending, the comments from its outgoing premier come at a crucial moment as Beijing seeks to rebuild the economy after years of punishing lockdowns.The Chinese economy grew by just 3 per cent in 2022, underscoring the impact of the government’s zero-Covid strategy before it was abandoned last month. Last year’s collapse of the property market, which has contributed around one quarter of GDP over the past decade, has also added to economic stress. Economists hope that China’s pent-up consumer activity will buoy global demand. Multinationals including Unilever have said in recent weeks they were expecting a rebound in demand in the country and banks including Morgan Stanley have increased their Chinese growth forecasts. “We believe the market is underappreciating the far-reaching ramifications of reopening, and the possibility that a robust cyclical recovery can occur despite lingering structural headwinds,” the bank said in a January note. Still doubts remain over the willingness of Chinese consumers to start spending again. Experts have long warned that China’s desire to move away from property-driven growth towards greater consumer spending will be challenging. Household spending accounted for 38 per cent of Chinese gross domestic product in 2021. By comparison, it accounted for nearly 70 per cent of US GDP in 2022. The last few years of Covid has also bred economic caution as incomes and house prices came under pressure in the real estate crash. The country’s already high gross national savings rate swelled during the pandemic. Renminbi deposits held by households nationwide grew in 2022 by a record Rmb17.8tn ($2.6tn), compared with growth of Rmb9.9tn in 2021, according to data from the People’s Bank of China.Chinese citizens celebrated lunar new year last week for the first time since pandemic controls were lifted. While state media say 226m domestic trips were made, 74 per cent more than last year at the height of Covid restrictions, that is still just half the 420m trips made in 2019. More

The government collects a 12% VAT on goods consumed within the Southeast Asian country. The plan is to allow foreigners to get a VAT refund on items they are taking out of the Philippines, similar to what many other countries offer.The measure is among the proposals a private sector advisory council presented to Marcos recently to boost the tourism industry, including improving airport infrastructure and operations and promoting tourism investment, the PCO said in a statement.Marcos has also approved the launch of an online visa this year for Chinese, Indian, South Korean and Japanese tourists, it said.The Philippines recorded 2.65 million international visitors last year, who brought in an estimated $3.68 billion in revenue, exceeding its 2022 target of 1.7 million tourists, according to the Department of Tourism.Last year’s total comprised of 2.02 million foreign nationals and 628,445 Filipinos based abroad, which compared with only 163,879 tourists recorded in 2021 and was still significantly lower than the pre-pandemic annual level of 8.26 million.The government aims to boost visitor arrivals this year to 4.8 million tourists. More

The Bank of England is set to keep its options open on whether UK interest rates will peak at 4.25 per cent or 4.5 per cent, after it raises rates for the tenth consecutive time later this week. The BoE is also expected to signal that once interest rates peak, it will need to keep them high for some time before it can be sure to have defeated high inflation. The bank’s Monetary Policy Committee is expected to raise rates by 0.5 percentage points to 4 per cent at noon on Thursday, according to a large majority of economists polled by Reuters. While a rate rise is almost universally expected, there is less consensus on how much more work the BoE will need to do thereafter in order to cool the economy sufficiently to bring inflation under control. Andrew Bailey, BoE governor, last week said that the path towards lower inflation would be “easier” than previously thought with lower wholesale gas prices limiting the depth of the downturn needed to quell price rises.But he pointedly refused to say that financial market expectations that UK interest rates will peak at 4.5 per cent were wrong. He noted that the MPC in December had not suggested markets were “out of line” with the BoE’s thinking as it had in November, when markets expected a considerably higher peak interest rate of 5.25 per cent. Inflation stood at 10.5 per cent in December after falling back from 41-year peak in October.Economists are divided on how high UK interest rates ultimately need to go with that division likely to be replicated on the MPC itself. Karen Ward, chief European market strategist at JPMorgan Asset Management, said she expected interest rates to rise to 4.5 per cent. “Although activity is clearly slowing in the UK, I’m not yet convinced that it will be sufficient to reduce underlying inflationary pressure,” Ward said. Recent wage and employment intention data “suggest that if anything the momentum in the labour market is improving, not deteriorating”, she added.In contrast, Jagjit Chadha, director of the National Institute of Economic and Social Research, said that neither the MPC nor the economics profession properly understood the effect of raising interest rates from almost zero to the current rate of 3.5 per cent so quickly.“The danger is that we go too far too quickly,” he said, adding that, “with inflation set to fall mechanically this year, rates ought to climb only a little in small steps and rest at around 4 per cent”. The BoE started raising interest rates in December 2021, followed by subsequent increases of at least 0.5 percentage points in every meeting since August last year.Financial markets and most economists think a majority on the MPC will opt for another “forceful” 0.5 percentage point increase, which would match the rate rise in December and bring rates to 4 per cent. The vote is likely to be split because two members of the MPC, Swati Dhingra and Silvana Tenreyro, voted not to increase rates from 3.5 per cent at the December meeting. Philip Rush, founder of the consultancy Heteronomics, said that private sector regular wage inflation of 7.2 per cent in the three months to November would worry the BoE and was not compatible with bringing inflation down to its target of 2 per cent in the medium term.To address these worries, he said he expected the MPC “to reinforce its credibility with another 0.5 percentage point hike in February ahead of April’s critical wage round”.Pay is one leg of a feared wage-price spiral that could keep inflation too high for too long. The other is the ability and willingness of companies to raise prices and these also look concerning for the BoE. Core inflation — excluding food and energy — has been stuck around 6 per cent for the past nine months even as headline inflation peaked in October and has since been falling. The committee is unlikely to feel reassured that lower energy prices later this year will bring underlying inflation down sufficiently rapidly. The BoE’s own survey of companies in its Decision Maker Panel, for example, showed companies are still expecting to raise their prices by 5.7 per cent in the year ahead. Alongside the decision on interest rates, BoE watchers will also be interested in the economic projections produced by the central bank and commentary by officials [as guidance] on how much more action the bank will take.The bank’s forecasts are likely to show headline inflation falling fast later this year, and in 2024, reaching the 2 per cent target in roughly two years before dropping below the target for a period. James Smith, research director at the Resolution Foundation think-tank, said the key signal was the inflation forecast at the “policy-relevant horizon” of around two years, and whether the BoE believes “underlying inflation might prove more persistent” than previously thought. He also noted that the February meeting allows the BoE to rip up its previous forecasts and come to a fresh view, as it coincides with the MPC’s annual stock take of the economy’s ability to grow without inflation.

The BoE could modify its view on how many people it thinks are looking for work and the productivity performance of the economy, both of which would influence its view of inflationary pressure.“The MPC became much more pessimistic about supply potential last year without saying a lot about what was driving that view,” Smith said. Focus on the BoE’s signals after its decision will be intense. Bailey’s recent suggestion of an “easier path” ahead suggest it now sees a way to return to price stability with less pain from higher unemployment and the longest recession since the second world war.The governor is expected to reiterate a tough message on prices, however, because any failure to bring inflation down would destroy his reputation and that of the bank’s independence to set monetary policy. More

With long queues at petrol pumps, teachers blocking Budapest streets in a strike over pay and small-business owners demonstrating against tax rises, Hungary’s economic woes and the resulting public anger have wrongfooted rightwing prime minister Viktor Orbán and threaten to escalate his dispute with Brussels over frozen funding.“I take second jobs and give private classes,” said Budapest teacher Bence Tóth, who joined his profession’s year-long rolling strikes after struggling amid soaring inflation. “I work or commute or sleep. It’s unsustainable.”Despite measures such as retail price caps introduced even before the war in Ukraine sparked an energy crisis, food and power prices in Hungary rose about 50 per cent in December compared with the previous year, according to government data. Overall inflation rose 24.5 per cent year on year on December, the highest in the EU. The bloc’s average is 10.4 per cent.Economists pin the blame partly on a weak forint, the phaseout of price caps and a retail tax. The price caps themselves had a distorting effect, they say, causing shortages of fuel and staples such as sugar as importers and retailers declined to sell below cost, as well as leading to price rises for non-capped products as they sought to compensate for the cap on other goods. The government was last month forced to remove the fuel cap after supplies collapsed, sparking panic buying.Lajos Török, chief analyst at Budapest brokerage Equilor, warned the picture would worsen. “Household expenses rise so domestic consumption will fall, higher financing costs will delay corporate investments, state investments will be cut back” all but erasing growth, he said.The economic troubles will limit Orbán’s scope to pacify the public with costly populist measures, a tool he has deployed in the past, just as his Fidesz party prepares for municipal and European elections in 2024.“Hungary’s inflation is bad news all around,” said Dániel Hegedűs of the German Marshall Fund, a US-based think-tank. The prime minister would be forced to abolish the price caps, he said, which would itself add to cost pressures for his electoral base. “This will massively impact a much wider and lower social class, which can hurt Orbán,” he added.Public discontent is mounting. Teachers, who are seeking a wage rise of around 45 per cent and are also protesting over high workloads and central control of the education system, began another week-long strike on Monday. Wider demonstrations erupted last year over a sudden rise in small-business taxes and reduction in energy subsidies.Although recent polls suggest Orbán, who won a fourth consecutive term last year, and Fidesz have no strong political challengers, local elections in central Hungary earlier this month hinted at potential trouble for the government.In the town of Jászberény, opposition candidates for mayor and the city council swept the board with large majorities, beating their Fidesz rivals less than a year after the ruling party won the district easily in parliamentary elections.Analysts said Orbán was likely to try to deflect blame for the economic squeeze, hardening his political stance ahead of next year’s elections and making him an even more difficult partner in the EU than previously. Hungary’s prime minister Viktor Orbán blames his country’s high inflation on the EU’s sanctions against Russia © Attila Kisbenedek/AFP/Getty ImagesIn recent months, the Hungarian prime minister has delayed EU sanctions against Russia imposed over the war in Ukraine and held up the bloc’s financial aid for Kyiv as he sought to unlock about €30bn in EU pandemic recovery and structural funds.Brussels has blocked the money on the grounds of a perceived risk of fraud and democratic backsliding by Budapest as Orbán extends the government’s control over the judiciary, media, arts and education.The government this month launched an advertising campaign claiming a majority of Hungarians opposed the EU’s Russia sanctions, which Orbán has blamed for the country’s economic ills.“This bloody sanctions regime drives inflation skyward,” Orbán told state broadcaster MR1 earlier this month. “If sanctions were to end, energy prices would drop immediately, along with general prices, meaning inflation would halve.”He has also linked the teachers’ plight with EU intransigence, saying the government would offer a 10 per cent pay rise but could lift this to 20.8 per cent if Brussels released the Covid funds.Orbán’s lack of economic tools “leaves him with dangerous choices”, said Hegedűs. “Cheating or repression [at next year’s elections] to retain unquestioned authority; a return to a world with a genuine opposition; or protests [that weaken the government significantly].”Since taking power in 2010, Orbán has weathered several crises. His handling of some, such as his hardline approach during the 2015 refugee emergency, even boosted his popularity. But critics say he may have misjudged his strategy this time.“The government has not found the keys,” Hungary’s central bank governor György Matolcsy told a parliamentary committee in December. “We cannot overcome this energy price explosion and inflation crisis in old ways.”“Communism already showed price caps don’t work,” said Matolcsy, who Orbán once described as his “right hand” on economic planning. “That system collapsed. Let’s not return to [it] with such techniques.”Orbán remains defiant, telling MR1 earlier this month that Hungary’s foreign exchange reserves were near a high after recent borrowing, meaning the country was solvent. Hungary’s debt fell from 78.6 per cent of gross domestic product at the end of 2021 to 75.3 per cent at the close of last year, below the EU average of 85.1 per cent, according to EU data. In 2022, its budget deficit reached 5.3 per cent of GDP, roughly double the EU’s 2.7 per cent average.

“Hungary can get by without [the EU],” said Orbán. “Of course we do better with them . . . but to think in Brussels that the sun won’t rise without them . . . that’s completely misguided.”Meanwhile, the Hungarian government has responded to the teachers’ protests with a crackdown, tightening strike rules, firing some for “civil disobedience” and bringing education under the control of the interior ministry.Budapest maths teacher Tamás Palya was fired in September. He has since found work at a private school but said teachers in the state system were repressed and intimidated.“They are under constant surveillance — what they post on social media, what they like, whether they wear chequered shirts [the uniform of the protesters],” he said. “It’s absurd. But that’s the reality.” More

BUENOS AIRES (Reuters) -German Chancellor Olaf Scholz on Saturday urged a swift conclusion to talks on a free trade deal between the European Union and the Mercosur South American trade bloc, on the first stop in Buenos Aires of his inaugural tour of the region.Seeking to reduce Germany’s economic reliance on China, diversify its trade and strengthen relations with democracies worldwide, Scholz is visiting Argentina, Chile and Brazil, all led by fellow leftists who came to power in the region’s new “pink tide.”Berlin wants to lower its dependence on China for minerals key to the energy transition, making resource-rich Latin America an important partner. The region’s potential for renewable energy output is another attraction.”There is great potential to further deepen our trade relations, and the possibilities that could come from the EU-Mercosur deal are obviously particularly significant,” Scholz told a news conference alongside Argentine President Alberto Fernandez.Fernandez has blamed European protectionism for holding up the deal, agreed to in principle in 2019 but not ratified by national parliaments. EU ambassadors have said Brazil must take concrete steps to stop soaring destruction of the Amazon (NASDAQ:AMZN) rainforest.Berlin hopes that concern can be put aside with the election in Brazilian President Luiz Inacio Lula da Silva, who has promised to overhaul the country’s climate policy. Scholz is to meet him on Monday at the end of his three-day tour.Russia’s invasion of Ukraine, which sparked an energy crisis in Germany due to its heavy reliance on Russian gas, increased awareness of the need to reduce economic reliance on authoritarian states.For Germany to reduce its reliance on China for minerals it will need to embrace sectors it has shied away from, a German government official said on Friday.”For example lithium mining – that’s a challenging task, especially regarding the environment and social standards,” the official, traveling with Scholz, told reporters.Argentina and Chile sit atop South America’s “lithium triangle” which holds the world’s largest trove of the ultra-light battery metal.About a dozen business executives – including the heads of Aurubis AG (NAFG.DE), Europe’s largest copper producer, and energy company Wintershall Dea AG Dea – are accompanying the chancellor.Fernandez said he and Scholz discussed the possibility of attracting German investment to the country’s vast shale gas reserve, lithium deposits and green hydrogen production. Wintershall Dea, for example, is part of a consortium that in September announced it was investing around $700 million to develop a gas project off the coast of Argentina’s southernmost tip, Tierra del Fuego.”Argentina has the potential to supply Europe with energy in the long term,” chief executive Mario Mehren said in a statement. More