Aurelia Butler

German retail sales fell at the largest annual rate since records began in 1994, highlighting the scale of the economic challenges facing the eurozone’s largest economy. Retail sales volumes dropped 8.8 per cent in June compared with the same month last year, data from Destatis, the German office for national statistics, showed on Monday. Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said the figures were “miserable” and mainly due to the impact of soaring prices on consumer spending. Inflation in Germany is at a multi-decade high of 8.5 per cent. The plunge in retail sales follows news on Friday that German economic growth stagnated between the first and second quarters, and figures showing that business and consumer confidence is now at its lowest level since the early months of the pandemic. While the eurozone economy as a whole grew 0.7 per cent between the first and second quarters, analysts increasingly expect the region to enter a downturn in the coming months as the impact of Russia’s invasion of Ukraine on energy markets and confidence bites. Chris Williamson, chief business economist at S&P Global Market Intelligence, said manufacturing activity in Germany and elsewhere was “sinking into an increasingly steep downturn, adding to the region’s recession risks”.The closely watched purchasing managers’ indices for eurozone manufacturing, also out on Monday, showed factory activity was now slipping across the eurozone. The S&P Global PMI for German manufacturing dropped below the crucial 50 level, which separates an expansion in activity from a contraction, for the first time in two years. Across the region, new orders fell — a sign that conditions are likely to remain tough in the coming months. The biggest risk facing the region is that tensions with Moscow worsen, triggering Russia to reduce — or halt — gas flows to the EU. Economists believe this would trigger a major recession across the bloc. While German retail sales volumes fell dramatically, consumers reduced their overall spending by a much smaller amount, an annual drop of only 0.8 per cent, due to inflation’s impact on purchasing power. Monday’s figures disappointed investors, with the 1.6 per cent fall in sales volumes between May and June much worse than the 0.2 per cent expansion forecast by economists polled by Reuters.The fall in retail spending also reflects a shift in spending back to services — not included in retail sales — after the boom in demand for goods that occurred during the early quarters of the coronavirus pandemic, when restaurants, bars and entertainment venues were often closed. Vistesen noted that the retail sales decline could lead to a downward revision of last week’s figure for German gross domestic product, which was a flash estimate and is often subject to change.Data from Eurostat, the European Commission’s statistics bureau, also out on Monday, showed that in June the number of unemployed people rose in the eurozone for the first time in 14 months. While the region’s labour market remains one relatively bright spot and the joblessness rate remained unchanged at a record low of 6.6 per cent, the absolute figure of those looking for work was up by 25,000 to almost 11mn.   More

LONDON (Reuters) – The Bank of England is now expected to lift borrowing costs by a bigger 50 basis points to 1.75% on Thursday as it battles soaring inflation, according to a Reuters poll taken over the past week after several economists changed their minds.Over 70% of the 65 respondents to the July 27-August 1 poll expected the half-point increase from the Monetary Policy Committee compared to a poll published just last week in which 54% surveyed predicted a more modest rise of 25 basis points.The BoE has never raised Bank Rate by a half point since it was made independent in 1997.Amongst the gilt-edged market makers – primary dealers in UK government bonds – 11 expected the larger increase while five said 25 basis points. Of the 27 common contributors from last week’s poll who had predicted 25 basis points, 11 changed to 50.Britain’s central bank was the first amongst its major peers to raise interest rates back in December, but its peers have been playing catch-up. The U.S. Federal Reserve raised rates by 75 basis points for a second consecutive meeting last week and the Bank of Canada last hiked by 100 basis points.BoE Governor Andrew Bailey has recently said a 50 basis point increase is on the table for this meeting and markets are pricing in a near 90% chance of such a move.”We expect the MPC to quicken the pace of tightening to 50 basis points. We think the Bank needs to demonstrate resolution in the face of ever-increasing inflationary risks or it could lose control of the narrative,” said Fabrice Montagne at Barclays (LON:BARC). GRAPHIC: Reuters Poll -BoE Bank Rate Aug 4 forecast change over the past week (https://fingfx.thomsonreuters.com/gfx/polling/byvrjwzmbve/Reuters%20Poll%20BoE%20Bank%20Rate%20Aug%204%20forecast%20change%20over%20the%20past%20week.PNG) Inflation is running at a four-decade high of 9.4%, largely due to spiralling energy costs and global supply chain disruptions. The cost of living crisis is pushing up the chance of a recession.Last week’s poll gave a median 55% chance of a recession in the coming year, up sharply from 35% in a June poll. But that was based on a small sample, with several declining to answer as they thought the recession was already here.Earlier on Monday, a private business survey showed British manufacturing output and new orders declined in July at the fastest rate since May 2020, as factories across Europe struggled with rising costs and slowing demand. More

NEW YORK (Reuters) – As high inflation forces Americans to spend more on gas and bills, young and low-income consumers are starting to feel financial pressure.Generation Z consumers and those with low credit scores are falling behind on credit card and auto loan bills and accumulating credit card debt at a pace not seen since before the pandemic.For instance, credit card balances for people ages 25 and younger rose by 30% in the second quarter from a year earlier, compared with an increase of just 11% among the broader population, according to a random sampling of 12.5 million U.S. credit files compiled by credit score company VantageScore. Balances for non-prime borrowers, or people with credit scores below 660, rose by nearly 25% over the same period. For months, things have been looking good for U.S. consumers, their bank accounts padded by government stimulus, student loan forbearance and pandemic-era savings. Bank executives have consistently said consumers have healthy financial cushions and are spending money despite high inflation and the slowing economy.Now there are signs that some Americans have overextended their finances from traveling and dining out while paying down less debt on their credit cards, said Silvio Tavares, head of VantageScore. That contrasts with consumers’ tendencies to pay off loans and be more frugal during the first year of the pandemic, according to Fed data. “The consumer is strong, their balance sheets are strong, and their repayment history on debt is strong relative to historical averages,” Tavares said. “However, there are areas of concern. Number one among them is consumers are adding leverage.”Federal Reserve Chairman Jerome Powell has said the clock is running out to bring down inflation, which is hovering at levels not seen since the 1980s.Data out on Thursday showed U.S. consumer spending grew at its slowest pace in two years, as the economy unexpectedly contracted in the second quarter.Those surging prices are causing consumers to cut back on discretionary spending, according to retail and consumer companies like Walmart (NYSE:WMT) Inc and Tide-maker Procter & Gamble (NYSE:PG) Co, which lowered sales growth forecasts over the past week.Rapidly accelerating prices could exacerbate financial strains among young people and borrowers with low credit scores, Tavares said.Among non-prime borrowers, the percentage of credit card and auto loans that were more than 30 days past due also rose, VantageScore found. Credit card delinquency rates are now back to their pre-pandemic levels for young people and non-prime borrowers, the data showed.While the delinquency rates are not yet a cause for concern, “it’s definitely something to watch,” Tavares said.”You can get a bit of a canary in a coal mine effect. If it happens with one group, sometimes it can spread to another group.” TransUnion (NYSE:TRU), one of the big three consumer credit ratings agencies, estimates credit card delinquency rates could rise to 8.4% in the first quarter of 2023, up from 8% in the first quarter this year, if inflation remains high.The average debt held by a non-prime customer was $22,988 in the first quarter of 2022, excluding mortgages, according to TransUnion. That is up from $22,461 a year earlier, and $22,970 in the first quarter of 2020, before the pandemic began in the United States.Auto loans make up a significant chunk of that debt, as demand for vehicles soared in 2021 in the United States, pushing up the price and duration of loans for cars.An executive at one large U.S.-based auto lender that works with many non-prime consumers said that demand has upended the maxim that a car loses value as soon as it leaves the dealer.Customers who become 90-days delinquent are more frequently paying off their loan in full, said the executive, who asked not to be named discussing non-public information. That indicates borrowers are taking advantage of high car values to sell their car, rather than see it get repossessed.For now, delinquencies on auto loans are still lower than before the pandemic, the executive said.”We think things are going to get back to normal–we all expected that–but will they get worse than normal? That’s the question.” CREDIT QUALITYAnother idiosyncrasy of the current U.S. economy is that the average credit score has risen over the pandemic, a result of consumers spending less and paying down debt.VantageScore’s average score was 697 at the end of June, 13 points higher than in January 2020. GRAPHIC-U.S. credit scores remain strong: https://graphics.reuters.com/USA-BANKS/CONSUMER/movanaeewpa/chart.png Bank of America (NYSE:BAC), the second-largest U.S. bank by assets, recently said the average credit score of its customers was 771. For the youngest and lowest-income consumers who more quickly feel the impacts of price shocks from inflation, those credit gains may be tenuous if they continue accumulating credit card debt, experts said. “Any new customers–or customers new to credit–are riskier,” said Moshe Orenbuch, an analyst at Credit Suisse who studies banks’ loan portfolios. “A lot of that growth (in debt) is replacing balances people paid down in the early part of COVID.” More

A grain shipment has left the port of Odesa for the first time in months, in a crucial test of a deal between Russia and Ukraine intended to alleviate soaring global food prices.The Sierra Leone-flagged Razoni, carrying 26,000 tonnes of Ukrainian corn, left the Black Sea Port at 9:48am local time, the ministry of infrastructure said, after weeks of negotiations brokered by Turkey and the UN. It is the first such vessel to depart from Odesa since late February, when Russia invaded Ukraine, sparking off a conflict that has left as many as 47mn people globally at risk of acute hunger, according to the World Food Programme. The Ukrainian government said another 16 ships were awaiting departure.“This is a welcome first step towards mitigating the global food crisis which was enhanced by Russia’s illegitimate aggression and blockage of Ukrainian ports, in addition to mining and destroying the fields in Ukraine,” said an EU official. “We look forward to the implementation of the whole deal . . . The negative consequences of Russia’s aggression against Ukraine and blocking the Ukraine ports are affecting the most vulnerable people in Africa, in Asia and in the Middle East.” The Razoni was due to arrive in Istanbul on Tuesday, according to a statement by the Joint Co-ordination Centre, established in line with the UN-led grain agreement.After reaching the city, it was expected to undergo checks at the centre, which is staffed by Russian, Ukrainian, Turkish and UN officials as part of the so-called Black Sea Grain Initiative. Turkey’s defence ministry said the Razoni would then take its cargo to the port of Tripoli in Lebanon.Ukraine’s foreign minister Dmytro Kuleba hailed it as a “day of relief” for large importers of Ukrainian grain, especially in the Middle East and Asia, while the US embassy in Kyiv said it was watching for “continued implementation” of the agreement. The Kremlin described the ship’s departure as “extremely positive” news. Dmitry Peskov, president Vladimir Putin’s spokesman, said the resumption of commercial maritime traffic in the Black Sea was “a good chance to test the effectiveness of how the mechanisms work” under an agreement struck in Istanbul to allow Ukraine to export grain.“We will hope that all the agreements will be fulfilled from all sides and the mechanism will work effectively,” Peskov said, according to Russian news agency Interfax.The other 16 ships trapped in Odesa and nearby ports after the invasion are carrying a tiny fraction of the more than 22mn tonnes of wheat, corn and other grains that remain in the country.Ukraine said it was starting to accept applications from new vessels to pick up grain, and hoped to reach full capacity within weeks. But owners of vessels entering Odesa are still working out the logistics of insuring their ships, cargo and personnel, which was complicated by Russian missile strikes on the port late last month, which wounded several people. Private international operators are in a “wait and watch” mode, said a person familiar with the issue, with many vessels having long ago been reassigned to different routes. Russia claimed to have hit military infrastructure and sunk a Ukrainian navy vessel, while Ukraine said the attack, a day after the agreement was signed, would imperil or delay the implementation of the exports accord. Long known as the breadbasket of Europe, Ukraine is the world’s fifth-largest exporter of the cereal. It accounts for 80 per cent of Lebanon’s wheat imports and is a big supplier for countries including Somalia, Syria and Libya.Additional reporting by Alice Hancock in Brussels More

KATHMANDU (Reuters) – Nepal sees no need to approach the International Monetary Fund (IMF) for a fresh loan as pressure on foreign exchange reserves is easing after a pick up in tourism, its central bank governor said on Monday.”At present, our focus is on managing demand to reduce pressure on foreign (exchange) reserves,” Maha Prasad Adhikari, governor of the Nepal Rastra Bank (NRB) told Reuters in an interview, noting that rising workers’ remittances and tourist arrivals offered a “silver lining” for the economy.Tourism earnings increased more than three times to 25.52 billion Nepali rupees ($201.8 million) in the 11 months to end mid-June, compared with the same period a year earlier, though they are still well below pre-pandemic levels.Remittances from overseas workers, meanwhile, rose 1.5% to $7.5 billion during the same period, government data showed.”It is expected that these developments will help ease external sector pressure in a few months,” Adhikari said, when asked about the possibility of seeking an additional loan from the Fund.His comments came after Finance Minister Janardan Sharma was reinstated on Sunday, after a parliamentary probe found no evidence to prove that he was involved in making illegal changes to the budget.Many economies in South Asia including Sri Lanka, Pakistan and Bangladesh have sought IMF assistance to reduce risks of defaults on external payments following a jump in the prices of imported fuel and grain, while export earnings have been much more muted.Earlier this year, the IMF approved $396 million of assistance to Nepal, a 38-month financial assistance arrangement under its Extended Credit Facility, to mitigate the pandemic’s impact on its economy.Before that, IMF approved financial assistance of $212 million for Nepal in 2020 after a sharp drop in foreign exchange earnings from tourism and remittances.Nepal’s external debt has more than doubled to $7.77 billion in 2022 from $3.8 billion in 2012, according to government estimates.Its forex reserves have declined to near $9 billion, barely sufficient to cover imports for about 6 months, from near $12 billion a year earlier – leading to worries among some international experts that Kathmandu may need foreign assistance.Adhikari expressed confidence that recent tightening of monetary policy would prevent imports from increasing further.Nepal’s imports grew more than 24% percent to $15 billion in a year ending mid-July, from $12 billion in the previous year, while exports surged 41% to $1.56 billion from $1.1 billion, latest data from the Department of Custom showed.Adhikari said there was no plan to place more restrictions on imports, referring to a recent extension of curbs on luxury goods and non-essential items till the end of August.”Rather than putting direct curbs on imports, our focus will be on stabilizing the external sector by managing demand through tightening measures.”He expressed the hope that inflation would soon ease.”If the petroleum prices normalize and the global supply chains affected by the Russia-Ukraine war resume fully, we are hopeful to achieve the inflation goal of 7%.”Nepal’s retail inflation accelerated to 8.56% for the month ending mid-June, the highest in nearly six years, prompting the central bank to raise policy rates last month.($1 = 126.4900 Nepali rupees) More