Aurelia Butler

COLOMBO (Reuters) -The China-backed Asian Infrastructure Investment Bank is considering granting $100 million in emergency support to Sri Lanka, the country’s finance ministry said on Sunday.Sri Lanka has requested foreign-exchange liquidity support for state banks from the lender, it said in a statement.Hit hard by the pandemic, rising oil prices and populist tax cuts by the government of President Gotabaya Rajapaksa, the South Asian island’s economy is in crisis, with usable foreign reserves down to $50 million, Finance Minister Ali Sabry said last week.Shortages of imported food, fuel and medicines have brought thousands onto the streets in over a month of mostly peaceful protests. Rajapaksa declared a second state emergency in five weeks on Friday. The multilateral AIIB, founded in 2014 to promote infrastructure investing throughout Asia, draws most of its funding from China.China is Sri Lanka’s largest bilateral lender, with an outstanding balance of $6.5 billion mostly lent over the past decade for large infrastructure projects, including highways, a port, an airport and a coal power plant. Beijing has extended Sri Lanka a $1.3 billion syndicated loan and a $1.5 billion yuan-denominated swap to boost its reserves. The two countries are in talks for a $1.5 billion credit line and a fresh syndicated loan of up to $1 billion.Colombo said this month that talks had started on refinancing Chinese debt after Sri Lanka suspended some of external debt repayments in April. More

Has US consumer price growth finally started to moderate? The upcoming US consumer price index report is expected to show that inflation continued to grow in April, albeit at a slightly slower pace than in previous months. Economists polled by Bloomberg forecast that US consumer prices rose at a pace of 8.1 per cent year on year compared with 8.5 per cent in March. Inflation at that level would remain close to four-decade highs but would represent the first slowdown in pace since August 2021. So-called “core” CPI, which strips out the effects of the volatile food and energy sectors, is also expected to have slowed compared with April last year. But the data, due out on Wednesday, may still show that core inflation accelerated from the previous month. The category to watch will be shelter costs, according to Greg McBride, chief financial analyst at Bankrate. “Shelter accounts for 40 per cent of the CPI — as it does for many household budgets — and with double-digit increases in rents kicking in, this puts the household budget in a vice even if food and energy costs level out,” he said.This is one of two consumer price reports that will be considered by the Federal Reserve at its June meeting, during which it is widely expected to raise interest rates again by 0.5 percentage points. A big deviation from the CPI forecast, in either direction, could change the Fed’s calculus. Kate DuguidHow much did UK GDP grow in the first quarter?The Bank of England expects the UK economy to have grown by 0.9 per cent in the first quarter, boosted by the easing of all Covid-19 restrictions early in the year.Economists polled by Reuters forecast gross domestic product to have expanded by 1 per cent in the quarter when data is released on Thursday, but they also project output to have grown by 0.1 per cent between February and March. The reading would confirm the slowdown seen in February when growth dropped to just 0.1 per cent from 0.8 per cent in January.“We expect the economy to have eked out some growth again,” said Ellie Henderson, an economist at Investec. She expects a 0.1 per cent expansion in March, driven by services, with manufacturing and construction poised to contract as they did in February. She said a slowdown in Covid vaccinations would be less of a drag, but the rebounds in the recreation and hospitality sector would also have waned.After the first quarter, the BoE expects economic growth to slow “sharply . . . reflecting the significant adverse impact of higher global commodity and goods prices on most UK households’ real incomes and many UK companies’ profit margins”, according to its latest outlook published last week.The BoE forecasts were “distinctly bleak,” said Ross Walker, an economist at NatWest Markets, with quarterly growth expected to alternate from near stagnation to an outright contraction this year and the next. The prospect of UK inflation rising to a 40-year high at the end of this year, largely reflecting surging energy costs after Russia’s invasion of Ukraine, is expected to lead to a drop of almost 1 per cent in economic output in the fourth quarter. And by the second quarter of 2025, the UK economy is expected to be less than 1 per cent larger than it is today. Valentina RomeiWho will fill the gap in the wheat market left by Ukraine?Agricultural commodity markets have been roiled by the war in Ukraine, as buyers of grains and vegetable oils from the country as well as Russia try to find alternative sellers.The jump in food import bills for poorer countries has led to worsening hunger, as well as worries about political instability. Russia is the world’s largest wheat exporter, while Ukraine is the fifth largest. Together they account for 30 per cent of global exports, according to the UN Food and Agricultural Organization. The two countries also account for more than 60 per cent of the world’s sunflower oil trade.“My biggest concern right now for the ag markets is wheat,” said Craig Turner, senior commodities broker at StoneX. India, which had a bumper crop in 2021, has been cashing in on the surge in the wheat price. This year’s harvest was initially forecast to be a record, but the extreme heatwave hitting India could lead to crop damage and trigger export restrictions. “The world needs exportable supplies of wheat, and things could get very tight this summer,” added Turner.The US Department of Agriculture publishes its crop production report on Thursday along with its monthly World Agricultural Supply and Demand Estimates report covering grains, oilseeds and other agricultural commodities. The production report will include estimates of this year’s US winter wheat harvest, while the WASDE will offer some insights into which producing countries can fill the gap in the export markets. Emiko Terazono More

As Germany’s biggest union, IG Metall, begins discussions on demands for a wage increase of up to 8.2 per cent for the country’s 85,000 steelworkers in the coming weeks, Birgit Dietze expects reverberations for workers across Europe.“When companies are making high profits, as they are at the moment, there can and must be compensation for the sharp rise in prices for employees,” Dietze, IG Metall’s chief negotiator in the east German steel industry, told the Financial Times ahead of a vote by the union’s board later on Sunday, when members are expected to back the proposed rise.The IG Metall discussions, which are set to conclude by the summer, are expected to provide a benchmark for negotiation rounds in other industries tabled for later in 2022. “Everybody who bargains on wages looks very closely at what these negotiations in German industry are doing,” said Esther Lynch, deputy general secretary of the European Trade Union Confederation. A bumper pay deal for Germany’s steelworkers would also raise eyebrows among policymakers at the European Central Bank who are increasingly keen on raising interest rates in July to try to tackle record eurozone inflation of 7.5 per cent in April. Officials fear spiralling pay growth will mean price pressures becoming entrenched, risking a 1970s-style “wage-price spiral”.Yet, with a cost of living crisis looming and unemployment in the 19-country bloc falling to a record low of 6.8 per cent in March, demand for better wages is strong. “I’m now hearing from almost every delegate examples of how low-paid workers can’t even meet the basics of paying for food and electricity, and they want action now,” said Lynch. Unions across the eurozone have called for rises for the region’s worst off. FNV, the biggest Dutch union, which has almost 1mn members, wants the government to increase the minimum wage from €10 to €14 per hour and is pushing all companies to increase pay by €100 per month for all workers to offset the rising cost of living.The German government has already committed to raise the country’s minimum wage from just below €10 an hour to €12 an hour in October. The country’s statistical office said this would affect 7mn workers, mostly women, equal to about one-sixth of the workforce. France’s minimum wage has risen three times in the past year for a total increase of 5.9 per cent, but unions including the leftwing CGT, which represents over 700,000 workers, want it to go up by another 20 per cent to €2,000 per month. In other countries — such as Belgium, Cyprus and Luxembourg — workers receive automatic pay increases when inflation rises.

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The Bank for International Settlements, the central bank for central banks, said last week that, while indexation and minimum wage increases raised the likelihood of a wage-price spiral, the share of workers covered by these contracts was lower than in the past. Coverage had fallen from 24 per cent in 2008 to 16 per cent last year, it said. Union membership in Germany, meanwhile, has dropped from 36 per cent after the country’s reunification in 1990 to 16 per cent in 2019, according to the OECD.Still, a win for IG Metall’s steelworkers could help bring to an end more than a decade of sluggish eurozone wage growth. Until now, pay rises in the region have been meagre, at just under 2 per cent in the fourth quarter from a year earlier. This is a big contrast with the US, where growth in average hourly earnings accelerated to an annual rate of 5.6 per cent in March. But the ECB’s chief economist Philip Lane said on Thursday that the central bank’s new wage tracker, covering the region’s largest economies, showed pay deals agreed since January signalled wages were set to rise this year by around 3 per cent — a level not seen for a decade. Wage growth is already accelerating in the Netherlands, which has one of the lowest rates of unemployment at 3.3 per cent and one of the highest rates of inflation at 11.2 per cent. In April, Dutch companies and unions agreed deals to increase pay by 3.3 per cent on average, the biggest rise since the 2008 financial crisis, according to the employers organisation AWVN. “Wages are indeed increasing and what is being agreed seems to be higher than normal,” said Annika Heerekop of FNV. “It is not inconceivable that inflation will exceed 10 per cent this year. This still means a loss of purchasing power for many people, so as far as we’re concerned, wages need to go up a lot further.”The worsening economic outlook could contain pay, however. Russia’s invasion of Ukraine has already had an impact on some sectors. Unions representing workers in the German chemicals industry — a sector acutely exposed to the conflict due to its reliance on natural gas — postponed talks in return for a one-off payment of €1,400 per worker.Dietze said IG Metall was “monitoring the economic situation very closely and taking it into account when making collective bargaining demands”. However, she noted that while steelmakers are grappling with high energy costs, they were also benefiting from rising commodity prices. “The steel industry is running at full speed,” she said. “The employees quite rightly insist on being included.” More