Aurelia Butler

SYDNEY (Reuters) – New Zealand’s economy rebounded sharply last quarter as a lifting of coronavirus restrictions and the return of tourists helped it dodge recession, though it may be a last hurrah for strong growth as surging interest rates steamroll demand.Official data out on Thursday showed gross domestic product (GDP) rose 1.7% in the June quarter, beating forecasts of a 1.0% gain and a timely recovery from the first quarter’s 0.2% drop.Annual growth slowed to just 0.4%, but that was biased down by the timing of various lockdowns and the main message was one of an economy running with scant spare capacity and soaring cost pressures.The Reserve Bank of New Zealand (RBNZ) has already lifted interest rates by an eye-watering 275 basis points to 3.0% and believes it will have to get to at least 4.0% to slow demand enough to contain inflation.Markets have almost fully priced in further hikes to 4.25% given consumer price inflation hit a three-decade peak of 7.3% in the June quarter and the labour market remains drum-tight.The opening of the country’s borders only added to demand as tourist spending jumped 157% from the first quarter.”Households and international visitors spent more on transport, accommodation, eating out, and sports and recreational activities,” said Stats NZ’s industry and production senior manager Ruvani Ratnayake.All the growth was concentrated in the services sector with household spending on goods actually falling in the June quarter. That helped lift the expenditure measure of GDP by a brisk 2.1% for the quarter.Price measures in the GDP report were also hot with inflation for business investment, house construction and the like running at 6.4% in the year to June.While petrol prices have pulled back in the last couple of months, food prices have shot higher amid poor growing conditions and rising production costs.The government’s measure of food prices climbed 8.3% in the year to August, the biggest increase in 13 years.One price that is falling is for houses, as higher borrowing costs burst the huge bubble that grew during the pandemic, sending values down 6% in August from a year earlier.”Importantly, the downturn in the housing market signals a period of broader softness in household demand,” said Michael Gordon, acting chief economist for NZ at Westpac.”As signs of softening in demand become increasingly evident, we expect that the RBNZ will become increasingly comfortable that the tightening in monetary policy is having the desired dampening impact.” More

WASHINGTON (Reuters) -Central bankers must be persistent in fighting broad-based inflation, International Monetary Fund chief Kristalina Georgieva said on Wednesday, conceding that many economists were wrong when they predicted last year that inflation would ease.”Inflation is stubborn, it is more broad-based than we thought it would be,” she said. “And what it means is … we need central bankers to be as stubborn in fighting it as inflation has demonstrably been.”If fiscal policy and monetary policy worked well, next year might prove less painful, she said at an event with French European Central Bank policymaker Francois Villeroy de Galhau. But if fiscal policy was not targeted sufficiently, it could become the “enemy of monetary policy, fueling inflation,” she said.Georgieva’s comments came a day after the U.S. reported an unexpected rise in August consumer prices, with rent and food costs continuing to climb.U.S. Treasury Secretary Janet Yellen, in an interview with CBS News, said she believed inflation “will come down over time” due to the actions of the Federal Reserve. Yellen said the Biden administration is trying to complement the Fed’s moves. Georgieva said the surprising rise in inflation was “just one snippet of the uncertainty and difficulties” the global economy faced. Both the COVID-19 pandemic and Russia’s invasion of Ukraine contributed to surging prices and a cost-of-living crisis.In a blog, the IMF warned that higher oil prices were driving up all consumer prices, which could result in a wage-price spiral if these second-order effects were sustained. Central bankers should respond “firmly,” it said.When overall inflation is already high, as it is now, wages tend to increase by more in response to an oil-price shock, the IMF said, citing a study of 39 European countries. That showed people were more likely to react to price increases when high inflation was visibly eroding living standards, it said, noting that the larger the second-round effects, the greater the risk of a sustained wage-price spiral.”If large and sustained, oil price shocks could fuel persistent rises in inflation and inflation expectations, which should be countered by a monetary policy response,” the IMF said, noting that people tended to seek higher compensation for oil price rises.However, even in a high-inflation environment, wages stabilized after a year rather than continuing to rise at a steady clip, it said.”To the extent that central banks remain adequately vigilant, current high inflation could still cause higher compensation for the cost of living than usual but need not morph into a sustained increase in inflation,” the IMF said. More

TOKYO (Reuters) – The vast majority of Japanese companies expect the yen to firm against the dollar by year-end, a Reuters monthly poll showed on Thursday, suggesting further weakness in the local currency could catch businesses off guard.The yen’s downturn this year, which accelerated in recent weeks, has burdened households with higher costs of everything from food to fuel. The rapid declines have also raised alarm among big companies and policymakers, making it difficult for companies to plan for the future.The currency has lost about 20% versus the dollar since the start of this year, hitting a fresh 24-year low of just shy of 145 yen last week. The yen has been hammered against the dollar due to the growing gap between U.S. and Japanese interest rates.”The yen has weakened so rapidly that it has meant a big impact on business management,” wrote a manager at one manufacturer in the automotive industry, responding on the condition of anonymity.During the Aug. 31 – Sept. 9 survey period, the yen was trading in a range of 138-145 to the dollar.The survey was conducted before Japanese authorities this week gave strong indications that they were uncomfortable with the currency’s sharp declines and appeared to be preparing to intervene to prop it up. On Wednesday, the yen was at 143.62 to the dollar.”From the standpoint of sustaining economic growth and coping with the procurement costs of raw materials, moderate rises in the yen are desirable,” wrote a manager at a maker of industrial ceramics used in chips.Asked how they expected the yen to move against the dollar by year-end, 45% of firms – the biggest chunk – pegged it at 136-140, followed by 28% at 131-135, the survey showed.Some 11% put it at 126-130, while 3% set it at 120-125. Only 13% saw it weakening further from 141, meaning many firms could be put on the back foot if the currency were to weaken again.Separately, a slim majority of respondents want the yen to rise moderately while 28% want it to fall modestly.INBOUND TOURISMSo far, Japan has not been able to capitalise on one big potential benefit from the weak yen: inbound tourism. Thanks to strict border controls the world’s third-largest economy is still only seeing a trickle of foreign tourists.Prime Minister Fumio Kishida this month raised the daily cap for entrants into Japan to 50,000 and the government is now considering scrapping the cap altogether by October, the Nikkei business daily reported on Sunday.The government is also considering removing a requirement that only visitors on package tours are allowed in, the newspaper said.Still, the survey showed corporate Japan – which has broadly lobbied to ease restrictions on tourism – believes a recovery will be slow in coming. A slim majority said they don’t expect the government’s easing of border controls to help inbound tourism recover.Some 28% think inbound demand will return to pre-pandemic levels by end-2023 while 18% expect it to return to those levels in 2024 or later. A full 20% see it never returning to those levels.One-third said they were unaffected by inbound tourism.The Reuters Corporate Survey, conducted for Reuters by Nikkei Research, canvassed around 500 big non-financial Japanese firms on condition of anonymity, allowing them to speak more freely.Separately, the survey also found that three quarters of firms are concerned about the possibility of an incident in Taiwan, given the political sensitivies around the island claimed by China. More

MEXICO CITY (Reuters) -Mexico and the United States have resolved the latest in a series of labor complaints under a regional trade pact, saying on Wednesday that workers at auto-parts plant VU Manufacturing in northern Mexico were able to elect the union of their choice. U.S. officials in July called for a probe under the 2020 United States-Mexico-Canada Agreement (USMCA), the fifth such case aiming to improve workplace conditions in Mexico, after activists alleged the company interfered in workers’ efforts to select their union. Michigan-based VU Manufacturing, whose factory in the Mexican border city of Piedras Negras produces interior car parts including arm-rests and door upholstery, did not immediately reply to a request for comment.U.S. labor officials said the Mexican government educated workers and trained management to ensure a fair union election on Aug. 31, including asking the company to issue a statement vowing to stay neutral.The Mexican government also requested vote observers from Mexico’s electoral institute and the United Nations-backed International Labor Organization.Workers ultimately elected an independent union, La Liga Sindical Obrera Mexicana, which will negotiate the plant’s first collective contract, covering some 400 people.”Workers at Manufacturas VU Auto Components facility now have a union – chosen through a fair election – with whom they are consulting as they prepare for negotiations,” U.S. Labor Minister Marty Walsh said in a statement.Their rights to free association and collective bargaining had previously been denied, the statement added. Mexico’s economy and labor ministries said the peaceful vote ensured workers could elect the group they believed would best represent their interests, and officials would continue monitoring worker rights at the factory. Previous USMCA labor complaints led to probes at Mexican plants owned by companies including carmakers General Motors (NYSE:GM) and Stellantis. More