Aurelia Butler

TOKYO (Reuters) -Japan raised its estimates for long-term interest rates over the coming few years in government’s twice-yearly fiscal projections issued on Tuesday, following the central bank’s decision last month to allow 10-year bond yields to move more widely.Higher rates will test the government’s ability to service the industrial world’s heaviest debt burden at more than double the size of Japan’s annual economic output.While a decade of aggressive monetary stimulus under Bank of Japan Governor Haruhiko Kuroda did little to economic growth, which averaged around 1% over that time, it has kept the government’s borrowing costs at rock-bottom.Now the government sees Japan’s primary budget surplus in fiscal 2026, although that surplus would “come into sight” in the next fiscal year if it strives to streamline government budget spending.”It’s not easy to realise it at a time when uncertainty heightens,” Prime Minister Fumio Kishida told a meeting of his 11-member top economic advisory panel – Council on Economic and Fiscal Policy – which includes Kuroda.”We will strive to achieve both economic revival and fiscal reform so as not to lose markets’ and global community’s confidence in our medium- to long-term fiscal sustainability.”ECONOMIC GROWTH, FISCAL REFORMUnder its latest projections, Kishida’s government looks to achieve a primary budget surplus – excluding new bond sales and debt-servicing costs – in the fiscal year to March 2026.The government, which has missed budget-balancing targets for a decade, would miss it again due to increased defence budget, leaving a shortfall of 1.5 trillion yen ($11.56 billion) in fiscal 2025, up from 500 billion yen seen previously.The debt-to-GDP ratio will peak at 217% in fiscal 2022, before steadily declining over the forecast period through fiscal 2032, based on rosy assumptions that the economy will grow by 2% per year.Assuming the baseline scenario of zero growth, the debt-to-GDP ratio is expected to turn upward in the latter half of the forecast period.Long-term rates are expected to rise from 0.3% seen this fiscal year to 0.4% in 2023-2025 before climbing eventually to 3.1% in fiscal 2032, the projections showed. The projections show that a 0.5 percentage-point rise in long-term rates would add 3.3 percentage points to the debt-to-GDP ratio.In comparison, the previous estimates issued in July showed long-term rates steady at 0.1% in fiscal 2022-2025.”We see underlying interest rates to be somewhat higher, which will cause outstanding government debt to deviate upward due to the BOJ’s move last month,” a Cabinet Office official said. ($1 = 129.8000 yen) More

British business confidence was worse than expected in January, hitting a two-year low and amplifying fears that the UK economy is sliding into recession, according to a closely watched survey.The S&P/Cips global flash UK composite purchasing managers’ index, a measure of private sector activity, fell to 47.8, down from 49 in December — the fastest rate of decline since January 2021 when the country was in national lockdown.The reading remained below the 50 mark, which indicates the majority of businesses reported a contraction, for the sixth consecutive month and was lower than the 49.1 forecast by a Reuters poll of economists. “Weaker than expected PMI numbers in January underscore the risk of the UK slipping into recession,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.“The rising cost of living and higher interest rates all meant the rate of economic decline gathered pace again at the start of the year,” he added.The services sector drove the downturn, with business activity falling to 48 in January from 49.9 in the previous month.Survey respondents cited higher interest rates and low consumer confidence as the main factors that impeded business activity. Factories, which account for less than 10 per cent of Britain’s economic output, fared better, as the manufacturing PMI rose to a four-month high of 46.7 in January, up from 45.3 in December.Jobs were lost as some companies tightened their belts in the face of economic headwinds, while others were constrained by a lack of available labour. Staffing cutbacks were most prevalent in the manufacturing sector, whereas service providers reported a slight rise in employment at the start of 2023. Meanwhile, the PMI data showed that business expectations for the year ahead improved considerably in January. Hopes of a better global economic backdrop and lower domestic inflation continued to boost business optimism after its October low-point.“Optimism among private sector firms was the best for eight months signalling the downturn may not be as long and protracted as feared,” said John Glen, Cips chief economist.Britain’s economy fared better than expected in November, according to official data this month, suggesting that the UK might have avoided recession at the end of 2022.But “despite some bright spots in the latest release, a shallow recession in 2023 remains a strong probability in light of January’s poor PMI”, said Daniel Mahoney UK economist at Handelsbanken. The PMI survey feeds into other indicators that suggest the British economy has been contracting despite price pressures easing back from historic highs.Separate data last Friday showed that retail sales dropped in December, while consumer confidence remained near an all-time low for the ninth month in a row in January, marking the longest period of pessimism in nearly 50 years.

The Bank of England raised interest rates to 3.5 per cent in December, indicating that more increases were likely despite the economy sliding into recession, as the central bank tries to tame inflation that hit a 41-year high in October.The PMI data stood in stark contrast to composite PMI readings from other European countries, also released on Tuesday, which showed that eurozone activity returned to growth in January for the first time since June 2022. The CBI, the employers’ organisation, reported that while manufacturing costs continued to rise in the three months to January, they did so at their slowest pace in nearly two years.The data, released on Tuesday, suggested that UK inflation may have peaked, according to some analysts. But Anna Leach, CBI deputy chief economist, noted a decline in new orders was also reflected in the data. “There are signs that demand is easing too,” she said. More

European stocks and US futures slipped on Tuesday as traders balanced an improving macroeconomic outlook for the global economy against lingering concerns that inflation might prove stickier than previously thought. The regional Stoxx Europe 600 and Germany’s Dax lost 0.3 per cent and 0.2 per cent, respectively. London’s FTSE 100 fell 0.2 per cent after UK public sector borrowing more than doubled year on year in December to £27.4bn. Contracts tracking Wall Street’s blue-chip S&P 500 and those tracking the tech-heavy Nasdaq 100 fell 0.3 per cent and 0.4 per cent, respectively, ahead of the New York open. “Better sentiment on [the] growth outlook” helped the S&P 500 rise to its highest level since early December on Monday, according to analysts at JPMorgan, with semiconductor and technology stocks in particular posting strong gains. The US bank does not expect January’s equity market rally to last, however. “The recent weakening of economic data and anticipated decline in earnings expectations and weak [full-year] guidance are pointing to markets that are likely to move lower,” it said.Others are more optimistic. China’s economic reopening, receding recession fears in Europe and cooling inflation in the US mean “investor concerns over a harder landing for the global economy” have eased, said Lee Hardman, currency analyst at MUFG. Traders have a “fresh confidence that central banks can pause their rate hike cycles” later this year, he added, even as officials at the US Federal Reserve and European Central Bank insist their fight against inflation is far from won.The eurozone “edged back into growth” at the start of 2023, according to a flash purchasing managers’ index released by S&P Global on Tuesday morning, with business activity in January rising after six successive months of decline. The data “adds to evidence that the region might escape recession”, said Chris Williamson, chief business economist at S&P Global Market Intelligence. Capital Economics’ chief Europe economist Andrew Kenningham said the region’s PMI was consistent with the economy “roughly stagnating”, adding that “there is nothing here” to stop the ECB raising rates by 1 percentage point over the next two months, “and perhaps further beyond that”.Manufacturing and services PMIs for the US, published later in the day, are expected to decline. Shares in pharmaceutical group Johnson & Johnson and General Electric inched higher in pre-market trading after the groups posted their fourth-quarter results. The dollar came under pressure on Tuesday, with a measure of the currency’s strength against a basket of six peers down 0.1 per cent. US government bonds rallied, with the yield on the benchmark 10-year Treasury falling 0.02 percentage points to 3.5 per cent. Bond yields move inversely to prices. In Asia, Hong Kong’s Hang Seng index gained 1.8 per cent and China’s CSI 300 rose 0.6 per cent. Japan’s Nikkei 225 added 1.5 per cent, having all but recovered from a sell-off triggered by the Bank of Japan’s surprise adjustment to its longstanding yield curve control measures in late December. More

Activity in the eurozone unexpectedly returned to growth for the first time since June, according to a survey that is likely to bolster the European Central Bank’s resolve to raise rates. S&P Global’s flash eurozone composite purchasing managers’ index, a measure of activity in manufacturing and services, rose to 50.2 in January from 49.3 in the previous month, figures on Tuesday showed.The rise, the third consecutive monthly increase from the low reached in October, was higher than the 49.8 forecast by economists polled by Reuters. It was also above the 50 mark, which indicates a majority of businesses reporting an expansion compared with the previous month. “A steadying of the eurozone economy at the start of the year adds to evidence that the region might escape recession,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.Fears over energy had eased since October as prices fell, helped by generous government assistance, he added. Supply chain stress has also waned, while the reopening of the Chinese economy has helped restore confidence in the broader global economic outlook for 2023.The rise in the composite eurozone PMI index contrasts with an unexpected deterioration in the UK, where the corresponding index signalled the sharpest drop in activity in two years. The resilience of the eurozone economy, coupled with high underlying price pressures and renewed momentum in the labour market, reinforces ECB signals of further monetary tightening. Christine Lagarde, ECB president, said on Monday: “ECB interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive, and stay at those levels for as long as necessary.” Andrew Kenningham, chief Europe economist at Capital Economics, said: “With employment intentions and price pressures still high, there is nothing here to stop the ECB from raising rates by a further 100 basis points over the next two months, and perhaps further beyond that,” With the US Federal Reserve expected to slow the pace of rate increases to 25 basis points at its policy meeting next week, “the ECB went from one of the most dovish central banks last year to one of the most hawkish . . . in just a year”, said Ipek Ozkardeskaya, senior analyst at Swissquote Bank. The S&P PMI survey, based on data collected between January 12 and 20, showed employment growth picked up momentum as businesses prepared for a better than expected year.Input cost inflation cooled further thanks to reduced supply chain stress. However, average selling price inflation ticked higher, reflecting continuing growth in costs and rising wage pressures.Business expectations rose by the largest monthly increase since June 2020, pushing confidence to its highest level since last May.“Sometimes you just need a bit of luck,” said Bert Colijn, senior economist at ING. The eurozone economy had avoided “dramatic scenarios” for the winter thanks to a mild December in which the depletion of gas stores was much lower than feared, he saidThe report showed activity in the eurozone services sector expanded for the first time since last July, with consumer-facing industries such as bars and restaurants showing signs of stabilising after months of decline.Eurozone manufacturing output contracted only modestly, registering the smallest fall in factory production since last June. More

LUSAKA (Reuters) -The head of the International Monetary Fund said on Tuesday that it had reached an understanding in principle with China about plans to restructure Zambia’s debt, urging creditors to “do their part” to strike a deal.Kristalina Georgieva made the comments during a visit to Zambia, which has been implementing an IMF reform programme put in place after it defaulted on its sovereign debt in 2020, the first African country to do so during the pandemic.”Zambia has done its part under the IMF programme and the country has performed really strongly, and now it’s time for creditors to do their part,” Georgieva said during a public discussion at the University of Zambia.She added that the outline of a plan had been agreed with China, which is owed almost $6 billion by Zambia and is one of its main creditors. Zambia’s total external debt stood at $17 billion as of June last year, government data shows. “We have reached an understanding in principle that China will de facto accept NPV (net present value) reduction on the basis of significant stretching of the maturities and reduction of interest,” Georgieva said.She said that, in general, there was not a consensus in China to accept upfront haircuts on debt it owned because China thought of itself as having significant development challenges.On Monday, Georgieva met Zambian President Hakainde Hichilema and praised his government for moving away from wasteful expenditure, saying the IMF would like to work with Zambia to boost its economic growth.U.S. Treasury Secretary Janet Yellen, who was also visiting Zambia, said on Monday it was critically important to restructure Zambian debt and she believed progress could be made after her frank talks last week with China.Yellen said Zambia’s debt overhang was a drag on its whole economy and China had been a barrier to resolving the problem.In response, the Chinese embassy in Zambia said “the biggest contribution that the U.S. can make to the debt issues outside the country is to act on responsible monetary policies, cope with its own debt problem, and stop sabotaging other sovereign countries’ active efforts to solve their debt issues.” More