Aurelia Butler

Sales of Turkish exports hit a record high last year as the slump in the value of the lira made businesses’ products more competitive overseas, with the country also benefiting from closer economic ties to Russia. Turkey recorded a 13 per cent rise in exports by value, with sales hitting $254bn in 2022, said Recep Tayyip Erdoğan, the country’s president, in a televised speech on Monday.“At a time when the world is struggling with serious political and economic problems, it hasn’t been easy to continue uninterrupted investments, increase employment and increase exports,” he said. “This shows that Turkey is no longer a country that is crushed by crises, but a country that manages crises.”Turkey stepped into a void created by western sanctions and traded more with Russia over the past year. In December alone, exports to Russia more than doubled to $1.31bn, the trade ministry said. Turkey has refused to join sanctions against Russia, arguing a balanced approach can help it mediate between Kyiv and Moscow. Erdoğan helped broker a deal in July to allow Ukraine to export its grain despite a Russian blockade of its ports. The surge in exports is good economic news for the president, who faces re-election in June. A cost of living crisis has eaten into his party’s popularity. Inflation has been above 80 per cent for months, in large part because of his unorthodox monetary policies. Under orders from Erdoğan, the central bank has reduced the benchmark interest rate to 9 per cent, shaving off almost 30 per cent of the value of the lira against the dollar over the past year.The weak lira has swelled Turkey’s trade deficit to $110.2bn in 2022, as the cost of imports jumped 34 per cent to $364.4bn, according to trade ministry figures. Turkey is a major importer of crude oil and other energy products. Brent, the main international oil benchmark, rose more than 10 per cent in dollar terms in 2022 to end the year around $85 a barrel.Erdoğan’s growth-at-all-costs policies centre on the devalued lira boosting manufacturing and on cheap loans encouraging spending. In recent days, Erdoğan has unveiled more popular stimulus measures, including early retirement for millions of workers and doubling the minimum wage to TL8,500, or $455 a month.The minimum wage increase will provide a big boost to wages for workers across Turkey’s economy, not just those on the lowest rung of the salary ladder. JPMorgan said pay rises would ignite a burst of economic activity in the first quarter, with output now expected to increase at a 7.8 per cent annualised rate, from its previous forecast of 5.3 per cent.Longer term, JPMorgan said the government’s unconventional economic measures were “unsustainable” and would worsen inflation. The bank is expecting Turkey to fall into a recession in the third quarter, following the elections.  More

The number of German jobs reached a post-reunification high in 2022, with the strength of the labour market in the eurozone’s largest economy expected to increase the likelihood of interest rate rises despite the risk of recession. About 45.6mn people were employed in Germany in 2022, up 589,000 from the previous year and more than at any time since German reunification in 1990, according to Destatis, the country’s official statistics agency.The jobs market across the eurozone has remained tight despite weaker growth during the autumn and the prospect of a winter recession, with unemployment hitting a fresh low of 6.5 per cent in October — the most recent month for which data is available. Separate data from the S&P Global index of German purchasing managers — or PMI — also published on Monday, showed that German manufacturers continued to hire workers at a steady pace in December despite the majority reporting contracting output. Hiring was also up in December across eurozone businesses. The strength of the labour market has heightened fears of high wage growth among the region’s rate-setters, tasked with keeping inflation under control. Bert Colijn, senior economist at ING, expected the eurozone labour market to “remain tight despite recession”, adding that businesses were likely to keep people on the payroll to make sure that they have good workers available when the downturn ends. “Modest upward pressure on wages is set to stay,” said Colijn. Markets are pricing in a 50 basis points increase in interest rates when the European Central Bank meets on February 2. That would be on top of the 2.5 percentage points’-worth of rises since June last year, as rate-setters battle with inflation that hit 10.6 per cent in October — an all-time high. The benchmark deposit rate reached 2 per cent in December. The increase of both foreign and domestic workers contributed to the German record high, which was 292,000 above the previous peak in 2019. The unemployment rate dropped to 2.8 per cent — another post-reunification low. A European Commission poll published in December showed that during the final quarter of 2022, more than two in five German businesses reported shortages of workers, just shy of the highest-ever share, a figure that was registered in the third quarter of last year. Labour shortages are widespread across the eurozone. About 30 per cent of eurozone businesses experienced them during the final quarter of 2022, another near-record high. The labour market is closely monitored by the ECB, with wage growth seen as likely to prolong the region’s bout of high inflation. Price growth fell slightly in the year to November, but remains about five times the ECB’s 2 per cent goal. At December’s ECB meeting, Christine Lagarde, its president, noted that wage growth across the eurozone was “strengthening,” supported by robust labour markets and some catch-up in wages to compensate workers for high inflation. She added that the central bank’s staff projected wages growing at rates well above historical averages and pushing inflation above target from now until at least 2025. Economists polled by Reuters expect eurozone inflation to have declined to single digits when December data are published on Friday. However, core inflation — which strips out changes in energy and food prices, and more closely reflects underlying price pressures — is forecast to remain at a record high of 5 per cent. More

(Reuters) -World stocks inched higher, European bond yields dropped and the dollar held firm in light trading on Monday following warnings from the International Monetary Fund’s managing director that a third of the world will fall into recession in 2023. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.04%, just short of an index of global shares, which climbed 0.21%. The pan-European STOXX 600 index climbed 0.9%, retracing some of the nearly 12% it lost in 2022, bludgeoned by central banks’ aggressive monetary policy tightening.Traders were reluctant to trust early-year starts in stock and bond moves with many markets closed for a holiday and ahead of a host of economic numbers due this week.Inflation data from Europe, minutes from the December U.S. Federal Reserve meeting and U.S. labour market numbers were some of the highlights that Danske Bank chief analyst Piet Haines Christiansen said would be worth watching. “I would be cautious over interpreting any moves this morning,” said Christiansen.Markets in Australia, Britain, Hong Kong, Ireland, Japan, Singapore and the United States, were shut. Christiansen expected the new year to kick off with a renewed focus on central banks and inflation. Traders would be vigilant for any signs of an approaching recession, he said. Buoyant stock prices in Europe might be due, he said, to survey results published on Monday, which pointed towards a rebound in optimism among euro zone factory managers.S&P Global’s final manufacturing Purchasing Managers’ Index (PMI) bounced to 47.8 in December from November’s 47.1, matching a preliminary reading but below the 50 mark separating growth from contraction.”Europe is taking the latest round of PMIs well enough, as the final readings help to confirm the view (hope?) that the worst may be over for the EU bloc’s manufacturers, especially as energy prices recede to the levels of last February,” Russ Mould, investment director at AJ Bell, wrote in emailed comments.DOLLAR STRUGGLING TO MAINTAIN STRENGTH Elsewhere, the dollar edged almost 0.1% higher against a basket of major currencies, while the pound and euro fell 0.4% and 0.3% respectively. “There is an attempt by the dollar index to pull higher today but we do see that it is losing a good part of the strength it gained last year,” said Ulrich Leuchtmann, head of forex research at Commerzbank (ETR:CBKG).”After the last Fed meeting, the market was not convinced that the Fed won’t cut rates later in 2023. It’s going to be an interesting year.”U.S. Treasuries will resume trading on Tuesday after a public holiday on Monday. German government bond yields on Monday tumbled from their highest levels in more than a decade amid more hawkish signals from the European Central Bank (ECB).ECB President Christine Lagarde said euro zone wages were growing quicker than earlier thought, and the central bank must prevent this from adding to already-high inflation.Germany’s 10-year bond yield fell 13 bps to 2.43%, after hitting its highest since 2011 at 2.57% on Friday.Oil markets were closed but prices in 2023 are set for small gains, as a darkening economic backdrop and COVID-19 flare-ups in China threaten demand growth and offset the impact of supply shortfalls caused by sanctions on Russia, a Reuters poll showed on Friday. The new year is going to be “tougher than the year we leave behind,” IMF Managing Director Kristalina Georgieva said on Sunday on the CBS Sunday morning news program “Face the Nation.””Why? Because the three big economies – the U.S., EU and China – are all slowing down simultaneously,” she said. More

Do we want China to fail? That question came up at a recent seminar I attended for western policymakers and commentators.The group was leafing through a report on the year ahead, when one of our number asked why one of the dangers listed for 2023 was a sharp slowdown in Chinese growth. “Isn’t that what we want to happen?” he asked.It is a fair question. After all, the US president has repeatedly said he is willing to go to war with China to defend Taiwan. The EU describes the country as a “systemic rival”. Britain is debating formally labelling China a “threat”. Surely, if you regard a country as a threat and a rival, you do not want to see its economy growing rapidly?Or maybe you do. Those who believe that continued Chinese economic success remains in the interests of the west have plausible arguments to make. First, China is a huge part of the world economy. If you will China to go into recession, you are quite close to wanting the world to also slide into recession. And if China were to crash — for example if its property sector melts down — the consequences would ricochet through the global financial system.Then there is the moral question. Are you comfortable with wanting more than 1.4bn Chinese — many of them still poor — to get poorer? Demand and investment from China is critical to countries in Africa and the Americas. Do you want them to get poorer as well?The fact that such a debate is taking place at all says something about the current confusion in western capitals. Broadly speaking, two models of world order are doing battle in the minds of western policymakers: an old model based around globalisation; and a new one based around great power competition.The old model stresses economics and what the Chinese call “win-win co-operation”. Its argument is that economic stability and growth is good for everyone — and that it also encourages useful habits of international co-operation on critical issues such as climate change. The new model argues that a richer China has, unfortunately, turned out to be a more threatening China. Beijing has poured money into a military build-up and has territorial ambitions that threaten Taiwan, India, Japan, the Philippines and others. This view argues that, unless China’s ambitions change or are checked, then global peace and prosperity will be threatened. Russia’s attack on Ukraine, and the close alignment between Xi Jinping’s China and Vladimir Putin’s Russia, have strengthened the view that the best lens through which to view the world is now one that focuses on great power competition.Unfortunately, this is not an argument that can be resolved because both world views contain elements of truth. A China that fails could be a threat to world stability. And so could a China that succeeds — as long as it is run by Xi, or another nationalist authoritarian. The way for western policymakers to resolve the debate is to ask a different sort of question. Not: do we want China to succeed or fail? But: how do we manage the continuing rise of China?Posing the question that way avoids basing policy on something that is beyond the control of western officials. It would not be wise for Americans or Europeans to assume that China is heading for failure, any more than it would be realistic for China to base its policies on America on the idea that the US might collapse. It is clear that both China and America do face substantial internal challenges that could — in the worst case — overwhelm them. But it would be foolish for either side to assume that outcome. Rather than trying to make China poorer or to thwart the country’s development, western policy should concentrate on the international environment, into which a richer and more powerful China is emerging. The goal should be to mould a world order that makes it less attractive for China to pursue aggressive policies.That approach has military, technological, economic and diplomatic elements. The US has been most effective in strengthening its web of security ties with countries such as Japan, India and Australia — which should help deter Chinese militarism. Washington’s efforts to prevent China becoming the world’s technological standard-setter are gaining momentum — but will be much harder to co-ordinate with allies, who fear for their own economic interests. Economics and trade are where the US is weakest. China is already the largest trading partner for most countries in the Indo-Pacific. America’s increasingly protectionist mood, and inability to sign significant new trade deals in Asia, make Washington’s counter-offer look ever less compelling.The battle of ideas is also important. As the Ukraine war has illustrated, large parts of the world remain deeply sceptical about western motives — even in opposing an obvious war of aggression waged by Russia.That is why it is crucial for the US and the EU to be clear — to themselves and others — that their goal is not to prevent China from becoming richer. It is to prevent China’s growing wealth from being used to threaten its neighbours or intimidate its trading partners. That policy has the merit of being both defensible and [email protected] More