Aurelia Butler

SEOUL (Reuters) -South Koreans’ consumer inflation expectations hit their highest in at least 20 years while their confidence in economic prospects hit a near two-year low, a monthly central bank survey showed on Wednesday.In the Bank of Korea’s (BOK) July survey, South Koreans expected inflation to average a median 4.7% in the next 12 months, up fast from 3.9% in the previous survey and hitting the highest since data releases began in February 2002.The same survey showed an index measuring how South Koreans assess future economic conditions and living standards fell to 86.0 in July from 96.4 in June, hitting its lowest since September 2020 and scoring the largest fall since March 2020.Economists said the survey underscored a deepening dilemma for policymakers in fighting still high inflation while taking care of the cooling economy.”These findings show economic growth would begin losing momentum from later this year and that the focus of policymakers could gradually move toward supporting the economy from next year, if not immediately,” said Park Yoon-min, a fixed-income analyst at Kyobo Securities.The BOK raised the policy rate by an unprecedented 50 basis points this month. Governor Rhee Chang-yong said after the hike while fighting inflation remained the bank’s top priority, it would try to avoid further big raises going forward.The survey results come a day after central bank estimates showed pent-up consumer spending and a massive supplementary budget helped South Korean economic growth unexpectedly pick up in the second quarter.Strong private spending, up a sharp 3.0% in the April-June period from a 0.5% loss in the prior quarter, followed the removal of almost all COVID-19 restrictions in April, which suggests that pace of growth is unlikely to continue.More than 2,400 households participated in the survey from July 11 to 18. More

BEIJING (Reuters) -Chinese beef hotpot restaurant chain Baheli, which makes only a third of the revenue it earned before the COVID-19 pandemic, has no intention to resume its expansion, even if authorities bring new infections to zero.The problem, founder Lin Haiping says, is that consumers would not regain their confidence in a hurry, as China’s stubborn pursuit of its “zero-COVID” strategy, against a global trend of living with the virus, has upended their lives.”All business plans are postponed,” said Lin, who opened his first restaurant in 2008 in the southern city of Shantou and quickly expanded to almost 200 outlets across China before closing down a quarter of them due to COVID.”People feel it’s difficult to make money, they are more inclined to save. They will need time to forget the pain.”His comments reflect broader concerns about a slump in consumer and business confidence in China as strict curbs aimed at stamping out COVID undercut a recovery in the world’s second-largest economy and dent global growth.Analysts expect China to grow 4% this year, according to a Reuters poll, a level most countries would envy but sluggish by its own standards. It would also miss Beijing’s official growth target – set this year at around 5.5% – for the first time since 2015, when China was hammered by a stock market crash and capital flight.The private sector is bearing the brunt of this economic slowdown.Consumer confidence is hovering near record lows, private investment slowed in the first half, and youth unemployment is at a record 19.3%, prompting calls for more urgent government stimulus.But already high economic imbalances are causing headaches for the ruling Communist Party as it readies for a once-in-five-years congress this autumn, where President Xi Jinping is expected to secure a precedent-breaking third leadership term.Hundreds of millions of Chinese in dozens of cities faced various COVID restrictions this year, culminating with the full April-May lockdown of Shanghai. A wide range of businesses shut their doors as well, sometimes right after being allowed to reopen, as authorities play COVID whack-a-mole.Shanghai-based Martin Wawra, CEO of the Mobility division of Voith Turbo, a German commercial vehicle parts maker, said he needs to lay off workers to break even as the trucking industry “is suffering a lot” from COVID-induced logistical bottlenecks.Private firms also worry about an evolving property crisis, rising borrowing costs in key export markets, heightened geopolitical tensions, and a sweeping crackdown on the technology and private education sectors.China’s real estate sector, which makes up roughly a quarter of its economy, has suffered a string of defaults by developers while a growing number of homebuyers are refusing to pay mortgages on stalled projects.”China is facing a crisis of confidence,” said Rob Subbaraman, Nomura’s head of global macro research.”Households are reluctant to spend over fears of renewed lockdowns, potential homebuyers have lost confidence in participating in presales from financially-strapped developers, and private business are holding back on new investments given the darkening consumption and export outlook.”FLIPPING PANCAKESMany economists and investors link the economic malaise to signature Xi policies, from zero-COVID to the regulatory crackdown against “barbaric” growth in tech, education, and other sectors.Thirty-year-old Liu, who works for an internet company, saw her salary triple since she joined in 2018 and until recently had planned to buy a two-bedroom flat. “I was very confident about my income,” Liu said, giving only her surname to speak freely about her employer.But last year, her company reacted to the tech clampdown by laying off workers and cutting pay, she said.Though not among those affected, Liu thought it would be prudent to pay off the mortgage on her current, smaller home.The self-feeding private sector pessimism is fuelling calls from some prominent Chinese economists for the state to back off.”I don’t know if regulators and policymakers hear the voices of our companies,” Yao Yang, dean of the National School of Development at Peking University, told a mid-July online forum.”They keep messing with the economy, like flipping a pancake. How can entrepreneurs have confidence?”KEY MEETINGSThe government has rolled out a raft of tax cuts and subsidies in recent weeks and investors are looking to a meeting this week of the Politburo, a top Communist Party decision-making body, for more support.More debt is expected to be issued to fund infrastructure spending, on top of the trillions of yuan channelled already this year into such projects – China’s go-to, but increasingly risky, economic lubricant.China’s macro leverage ratio, measuring total debt to gross domestic product, rose to 277.1% in the first quarter, 4.6 percentage points above end-2021 levels.”Apart from stepping up policy support, the most important task is to guide expectations and restore confidence,” a government adviser said on condition of anonymity due to the sensitivity of the matter.Policy insiders say Beijing may quietly accept lower growth without revising the target.Derek Scissors, a fellow with Washington-based think-tank American Enterprise Institute, says policymakers could engineer a brief “burst of borrowing,” but that the sluggish economy was not an immediate risk to the government.”There is a longer-term threat to Xi’s legitimacy: what has he accomplished as Party Secretary? These questions will sharpen in the next five years, but I doubt they will make any difference at this year’s Party Congress,” he said. More

WASHINGTON (Reuters) – Global central banks may get “antsy” about the swiftness of economic pain brought on by monetary tightening to fight inflation and be tempted to cut interest rates before the job is done, the International Monetary Fund’s chief economist said on Tuesday.That would be a huge mistake, prolonging the agony of inflation, IMF research director Pierre-Olivier Gourinchas told Reuters in an interview.Gourinchas said rate hikes like the one expected from the U.S. Federal Reserve on Wednesday are already raising borrowing costs and softening demand. That process needs to continue until inflation rates are back “within sight” of central bank targets of around 2% a year, he added. The IMF cut its global economic growth outlook on Tuesday, as it warned that monetary tightening, along with spillover from the war in Ukraine and COVID-19 lockdowns in China, could push the global economy to the brink of recession in the coming months.”And so central banks might be a little bit antsy about this. And this is why when we look at the next year or so this is really going to be an environment that will test the mettle for central banks around the world,” Gourinchas said. “Will they be really ready to stay the course and keep their eyes on inflation and bringing it down?”’80s THROWBACK?If central banks do start easing policy before inflation is tamed, Gourinchas said there could be a repeat of the early 1980s, when the Fed, then led by Paul Volcker, backed off of monetary tightening as unemployment mounted in 1980, only to be forced into an even more punishing run of rate hikes later that year to finally crush inflation. That precipitated a long and painful recession https://www.federalreservehistory.org/essays/recession-of-1981-82 in 1981 and 1982, then the deepest since World War Two, with an unemployment rate that eventually hit 10.8% – 3 points higher than when the Fed had taken its hiatus.But unlike the Volcker Fed era, today’s central banks do not need to apply “shock therapy” to quell inflation, but need to navigate a path to return to a neutral policy stance, he said. “This is not about inflicting unnecessary pain on the U.S. economy or other economies,” Gourinchas said.Neutral policy means one that is neither stimulating nor restricting the economy.But if inflation persists and doesn’t respond to withdrawal of support in a reasonable time, central banks “may have to push beyond neutral in a number of cases,” which may cause recessions. The Fed, for one, does anticipate its policy becoming restrictive by year end.Gourinchas, a French-born University of California, Berkeley, economist who joined the IMF in January, said the path to bring down inflation without a recession is much narrower now, especially in the United States. Asked whether the United States may be in a recession already, he said the “broader discussion is that the U.S. economy is cooling off.””It’s cooling off significantly. It’s getting to the point where in 2023, fourth quarter to fourth quarter growth is going to be 0.6%. Unemployment might even rise during that period.” The U.S. jobless rate last month was 3.6%, near a half-century low. Gourinchas cited China’s slowdown due to COVID-19 lockdowns as a major drag on the global economy. He said the IMF’s forecasts anticipate a continuation of Beijing’s zero-COVID policies that have led to strict lockdowns.Chinese authorities have more recently found ways to adapt the economy so that lockdowns do not have as severe an impact on activity as they did in 2020.MARKETS WORKINGAmid a gloomy IMF outlook, Gourinchas said there were a couple of bright spots, including that financial markets have functioned well, allowing currencies and asset prices to adjust to a changing environment.”Markets have not seized up. And there’s a lot of differentiation in the market. And this is really a sign of the strength of many of the emerging market economies that have improved their policy frameworks, have improved their resilience, their buffers over the years,” he said.Some commodity prices also have eased in response to the tightening of monetary policies, including oil and some metals prices.”That was one of the key drivers of inflation going up,” Gourinchas said. “If these prices start coming down and they start coming down a lot that will be a key driver of inflation moderating or easing going forward. So we might be having a scenario where inflation might be coming down faster than we anticipated.” More

SINGAPORE (Reuters) – Singapore sovereign wealth fund GIC, one of the world’s biggest investors, is bracing for muted investment returns and expects little respite from runaway inflation that has forced central banks around the world to tighten policy.”Inflation itself is already a problem because we want to generate a return higher than inflation,” Lim Chow Kiat, GIC’s chief executive, told Reuters in an interview at the fund’s 37th-floor office overlooking the financial district.”Certainly we have to assume that the macro environment remains challenging for the foreseeable future,” he said, highlighting rising interest rates and its impact on economies and financial assets, and the knock-on volatility in markets.GIC is ranked as the world’s sixth-biggest sovereign investor with $799 billion in assets, according to research firm Global SWF.Bigger peers such as Norway’s sovereign wealth fund and Japan’s Government Pension Investment Fund have also flagged difficult market conditions, citing inflation and geopolitical events.GIC said it reported an annualised 20-year real rate of return of 4.2% for the year to March versus 4.3% over the same period a year ago. The United States was its biggest market, making up 37% of its portfolio, up from 34% a year ago.Lim said central banks are likely to further tighten policy, at least in the short term, to fight inflation.Concerns about runaway inflation have trumped central banks’ worries about growth. The U.S. Federal Reserve is likely to hit a key milestone on Wednesday with a rate hike that effectively ends pandemic-era support for the economy.”The challenge is that we see inflation not just as a near term phenomenon but actually something that will likely be part of the investment environment for the medium term,” said Prakash Kannan, GIC’s chief economist.CHINA TECH CRACKDOWNGIC has been expanding its portfolio with real estate assets focused on office, retail and industrial, as well as other sectors such as data centres and infrastructure.”Many of the real estate and infrastructure type investments actually have either automatic CPI (consumer price index) riders or an ability to raise rents once the lease ends,” said Jeffrey Jaensubhakij, GIC’s group chief investment officer.The fund said it has raised its headcount in its real estate and infrastructure groups by about 35% over the past three years.Last month, GIC agreed to buy a major stake in Europe-based The Student Hotel, with Dutch pension fund APG in a deal that valued the student accommodation and hotel group at $2.2 billion.GIC, which counts Alibaba (NYSE:BABA) and Meituan among its Chinese investments, said the worst was likely over on a technology regulatory crackdown in the world’s second-largest economy.”In terms of pace and intensity, it shouldn’t get any worse. Whether it’ll ease or not is a different question but the stocks have fully reflected that,” Jaensubhakij said, adding China still offered opportunities for GIC beyond the tech sector.GIC’s portfolio returned 7.7% per annum in nominal U.S. dollar terms over the five years to March 2022, versus 8.8% reported in the same period ending last year.That compared with an annualised 8.5% return over five years of GIC’s reference portfolio of 65% global equities and 35% bonds.GIC has investments in digital assets and Jaensubhakij said the recent shakeout in the crypto market showed vulnerabilities among the weaker players while the underlying technologies were still promising.GIC was primed to take advantage of any sharp correction in asset prices in key sectors, he said.”We’ve been cautious but that caution actually gives us a little bit of leeway in this kind of environment. It means that we have probably raised some dry powder to be available.” More